-----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, CA2eXu/xEY3C/Q83Nj+LRlcT5zYn4t28fq9pRgmRGATPvWxqSJuUBK/kO97WeIAA XFlSqnKC4h/KjXixEfS+Qg== 0000892569-99-000735.txt : 19990326 0000892569-99-000735.hdr.sgml : 19990326 ACCESSION NUMBER: 0000892569-99-000735 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19990325 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: 99573206 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 AMENDMENT NO.6 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1999. REGISTRATION NO. 333-70621 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- AMENDMENT NO. 6 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...................... 5,137,500 Shares $22.00 $113,025,000 $31,420.95 ============================================================================================================================
(1) Includes 637,500 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) This registration fee 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 25, 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 $20.00 and $22.00 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 registered under the registration statement of which this prospectus is a part 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. No underwriting discounts will apply to the sale of these shares, however, if these shares are sold to these investors we will pay a fee of $350,000 to an affiliate of one of the underwriters.
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 637,500 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 ALEXS 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. 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 existing and potential strategic investors, including companies with international automotive operations, for the purchase of up to 250,000 shares at the initial public offering price. We have entered into agreements with e-solutions, Inc., Intec, Inc. and Trans Cosmos, Inc. to provide for the organization and establishment of a joint venture in Japan and the license for the use of our name and systems. Following this offering, our executive officers and directors will beneficially own or control approximately 5,856,614 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 19% 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 17% and 16%, respectively, of the outstanding shares of our common stock. 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 $66.8 million from our sale of common stock offered in this offering.
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 $ 94,768 Working capital........................................... 23,436 90,220 Total assets.............................................. 34,207 100,991 Accumulated deficit....................................... (43,273) (43,273) Stockholders' equity...................................... 25,868 92,652
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. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY VIABLE. 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. IF OUR DEALER TURNOVER INCREASES, OUR DEALER NETWORK AND REVENUE DERIVED FROM THIS NETWORK MAY DECREASE. Substantially all of our revenues are derived from fees paid by our network of subscribing dealerships. If dealer turnover increases and we are unable to add new dealers to mitigate any turnover, our revenues will decrease as our network of dealers decreases. If the number of dealers in our network declines our revenues may decrease and our business, results of operations and financial condition will be materially and adversely affected. A material factor affecting dealer turnover is our ability to provide dealers with high quality purchase requests. High quality purchase requests are those that result in high closing ratios. Closing ratio is the ratio of the number of vehicles purchased at a dealer generated from purchase requests to the total number of purchase requests sent to that dealer. All of our subscribing dealerships have entered into written marketing agreements with us having a stated term of one year or five years, but they 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 6 8 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. WE MAY LOSE SUBSCRIBING DEALERS IF WE RECONFIGURE DEALER TERRITORIES. IF WE LOSE DEALERS, WE WILL LOSE THE REVENUES ASSOCIATED WITH THOSE DEALERS. 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. The loss of dealers will cause a subsequent reduction in revenue unless we are able to mitigate this loss by adding new dealers or increasing the fees we receive from our other dealers. A dealer also 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 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 BY PROVIDING HIGH QUALITY SERVICES TO OUR CONSUMERS. IF DEALERS DO NOT PROVIDE OUR CONSUMERS HIGH QUALITY SERVICES, OUR BRAND VALUE WILL DIMINISH AND THE NUMBER OF CONSUMERS WHO USE OUR SERVICES MAY DECLINE CAUSING A DECREASE IN OUR REVENUES. Promotion of our brand value depends on our ability to provide consumers a high quality experience for purchasing vehicles throughout the purchasing process. If our dealers do not provide consumers with high quality service, the value of our brand could be damaged and the number of consumers using our services may decrease. 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 WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE. 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, 7 9 - 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. SEASONALITY IS LIKELY TO CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS. INVESTORS MAY NOT BE ABLE TO PREDICT OUR ANNUAL OPERATING RESULTS BASED ON A QUARTER TO QUARTER COMPARISON OF 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. If this occurs, investors may not be able to predict our annual operating results based on a quarter to quarter comparison of our operating results. 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. INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE. OUR MARKET IS COMPETITIVE NOT ONLY BECAUSE THE INTERNET HAS MINIMAL BARRIERS TO ENTRY, BUT ALSO BECAUSE WE COMPETE DIRECTLY WITH OTHER COMPANIES IN THE OFFLINE ENVIRONMENT. Our vehicle purchasing services compete against a variety of Internet and traditional vehicle purchasing services and automotive brokers. Therefore, we are affected by the competitive factors faced by both Internet commerce companies as well as traditional, offline companies within the automotive and automotive-related industries. The market for Internet-based commercial services is new, and competition among commercial Web sites is expected to increase significantly in the future. Our business is characterized by minimal barriers to entry, and new competitors can launch a competitive service at relatively low cost. To compete successfully as an Internet-based commercial entity, we must significantly increase awareness of our services and brand name. Failure to achieve these objectives will cause our revenues to decline and would have a material adverse effect on our business, results of operations and financial condition. 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 8 10 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 otherwise may materially and adversely affect our business, results of operations and financial condition. IF ANY OF OUR RELATIONSHIPS WITH INTERNET SEARCH ENGINES OR ONLINE AUTOMOTIVE INFORMATION PROVIDERS TERMINATES, OUR PURCHASE REQUEST VOLUME COULD DECLINE. IF OUR PURCHASE REQUEST VOLUME DECLINES, OUR PARTICIPATING DEALERS MAY NOT BE SATISFIED WITH OUR SERVICES AND MAY TERMINATE THEIR RELATIONSHIP WITH US OR FORCE US TO DECREASE THE FEES WE CHARGE FOR OUR SERVICE. IF THIS OCCURS, OUR REVENUES WOULD DECREASE. 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 cause our purchase request volume to decline. Since our dealers would be receiving fewer purchase requests, they may no longer be satisfied with our service and may terminate their relationships with us or force us to decrease the fees we charge for our services. If our dealers terminate their relationship with us or force us to decrease the fees we charge for our services, our revenues will decline which will 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 9 11 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. IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN ADDITIONAL HIGHLY QUALIFIED SALES AND MARKETING, MANAGERIAL AND TECHNICAL PERSONNEL, OUR BUSINESS MAY SUFFER. 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 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 ARE A NEW BUSINESS IN A NEW INDUSTRY AND NEED TO MANAGE OUR GROWTH AND OUR ENTRY INTO NEW BUSINESS AREAS IN ORDER TO AVOID INCREASED EXPENSES WITHOUT CORRESPONDING REVENUES. We are constantly expanding our operations and introducing new services to consumers and dealers in order to establish ourselves as a leader in the evolving market for Internet-based vehicle purchasing services. We also intend to enter into new foreign markets. The growth of our operations requires us to increase expenditures before we generate revenues. For example, we need to hire personnel to oversee the introduction of new services before we generate revenue from these services. Our inability to generate satisfactory revenues from such expanded services to offset costs could have a material adverse effect on our business, financial condition and results of operations. 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. 10 12 We believe establishing industry leadership also 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. We cannot assure you that we can successfully manage these tasks. IF FEDERAL OR STATE FRANCHISE LAWS APPLY TO US WE MAY BE REQUIRED TO MODIFY OR ELIMINATE OUR MARKETING PROGRAMS. IF WE ARE UNABLE TO MARKET OUR SERVICES IN THE MANNER WE CURRENTLY DO OUR REVENUES MAY DECREASE AND OUR BUSINESS MAY SUFFER. 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 revenues may decline and 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. IF FINANCIAL BROKER AND INSURANCE LICENSING REQUIREMENTS APPLY TO US IN STATES WHERE WE ARE NOT CURRENTLY LICENSED, WE WILL BE REQUIRED TO OBTAIN ADDITIONAL LICENSES AND OUR BUSINESS MAY SUFFER. 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. 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. 11 13 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. INTERNET COMMERCE HAS YET TO ATTRACT SIGNIFICANT REGULATION. GOVERNMENT REGULATIONS MAY RESULT IN ADMINISTRATIVE MONETARY FINES, PENALTIES OR TAXES THAT MAY REDUCE OUR FUTURE EARNINGS. 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. EVOLVING GOVERNMENT REGULATIONS MAY REQUIRE FUTURE LICENSING WHICH COULD INCREASE ADMINISTRATIVE COSTS OR ADVERSELY AFFECT OUR REVENUES. 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. 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 franchise laws; motor vehicle brokerage licensing laws; insurance licensing laws; and motor vehicle dealership licensing laws, which may be applicable to aspects of our business. There could be laws and regulations applicable to our business which we have not identified or which, if changed, may be costly to us. The introduction of new services and 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. 12 14 OUR SUCCESS IS DEPENDENT ON OUR KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP USING OUR SERVICES AND OUR REVENUES WILL DECREASE. 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 COMMUNICATIONS SYSTEM INTERRUPTIONS BECAUSE ALL OF OUR PRIMARY SERVERS ARE LOCATED IN A SINGLE LOCATION. IF COMMUNICATIONS TO THAT LOCATION WERE INTERRUPTED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED. 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. INTERNET COMMERCE IS NEW AND EVOLVING WITH FEW PROFITABLE BUSINESS MODELS. WE CANNOT ASSURE THAT OUR BUSINESS MODEL WILL BE PROFITABLE. 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. IF CONSUMERS DO NOT ADOPT INTERNET COMMERCE AS A MAINSTREAM MEDIUM OF COMMERCE, OUR REVENUES MAY NOT GROW AND OUR EARNINGS MAY SUFFER. 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 13 15 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, ESPECIALLY SINCE MARKET PRICES FOR INTERNET-RELATED AND TECHNOLOGY STOCKS HAVE OFTEN BEEN UNRELATED TO OPERATING PERFORMANCE. 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, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against companies with publicly 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 FACE UNCERTAINTIES WITH CHANGING LEGISLATION IN THE AUTOMOTIVE INDUSTRY WHICH COULD REQUIRE INCREASED REGULATORY AND LOBBYING COSTS AND MAY HARM OUR BUSINESS. 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 14 16 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. OUR INTERNATIONAL EXPANSION MAY REQUIRE US TO COMPLY WITH BURDENSOME REGULATORY, TARIFF AND LICENSING REQUIREMENTS. OUR NEED TO COMPLY WITH BURDENSOME GOVERNMENTAL REQUIREMENTS MAY ADVERSELY AFFECT OUR ABILITY TO GROW OUR BUSINESS. 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. 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 in these countries. WE HAVE LIMITED EXPERIENCE IN PROVIDING OUR INTERNET-BASED MARKETING SERVICE ABROAD. WE MAY NOT BE SUCCESSFUL IN ESTABLISHING OUR BUSINESS ABROAD WHICH MAY LIMIT OUR FUTURE GROWTH. 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 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. 15 17 OUR COMPUTER INFRASTRUCTURE MAY BE VULNERABLE TO SECURITY BREACHES. ANY SUCH PROBLEMS COULD JEOPARDIZE CONFIDENTIAL INFORMATION TRANSMITTED OVER THE INTERNET, CAUSE INTERRUPTIONS IN OUR OPERATIONS OR CAUSE US TO HAVE LIABILITY TO THIRD PERSONS. 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 TECHNOLOGICAL IMPROVEMENTS IN OUR SYSTEMS AND IN THE INTERNET OVERALL. IF WE ARE UNABLE TO HANDLE AN UNEXPECTEDLY LARGE INCREASE IN VOLUME OF CONSUMERS USING OUR WEB SITE, WE CANNOT ASSURE OUR CONSUMERS OR DEALERS THAT PURCHASE REQUESTS WILL BE EFFICIENTLY PROCESSED AND OUR BUSINESS MAY SUFFER. 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 AND OUR MANAGEMENT MAY ALLOCATE OUR PORTION OF THE PROCEEDS TO USES THAT COULD ADVERSELY AFFECT OUR STOCKHOLDERS. 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. 16 18 OUR BUSINESS COULD BE INTERRUPTED BY YEAR 2000 PROBLEMS IF OUR VENDORS, CONSUMERS OR DEALERS ARE UNABLE TO CONVERT THEIR SYSTEMS. THEIR FAILURE TO CONVERT THEIR SYSTEMS MAY AFFECT THE ABILITY OF OUR CONSUMERS AND DEALERS TO ACCESS OUR WEB SITE OR THE DEALER REAL TIME SYSTEM. OUR BUSINESS WOULD SUFFER IF SUCH FAILURE PREVENTED ACCESS TO OUR ONLINE SYSTEMS. 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 resolve any Year 2000 issues on a timely basis. The failure of such parties to convert their systems on a timely basis or effect a conversion that is compatible with our systems in order to avoid any Year 2000 issues 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. 17 19 OUR FOUNDERS, OFFICERS AND DIRECTORS AND THEIR AFFILIATES HAVE SUBSTANTIAL CONTROL OF OUR VOTING STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD ADVERSELY AFFECT STOCKHOLDERS. SUCH DECISIONS COULD ADVERSELY AFFECT OUR STOCK PRICE. 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 5,856,614 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 19% 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 17% and 16%, respectively, of the outstanding shares of our common stock. Our officers, directors, founders and their affiliates, assuming they vote together, 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. SUBSTANTIAL SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. SINCE THE MARKET PRICES FOR INTERNET-RELATED STOCKS ARE LIKELY TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN OTHER COMPANIES BY SUCH FUTURE SALES. Sale of substantial numbers of shares of common stock in the public market could adversely affect the market price of our 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 restricted by 180-day lock-up agreements with the underwriters, and 6,590,112 shares held by the selling stockholders are restricted by 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 in accordance with the provisions of Rules 144 and 701 under the Securities Act and any contractual restrictions on their transfer, as applicable. 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. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING WE MAY NOT BE ABLE TO CONTINUE TO OPERATE OUR BUSINESS. We currently anticipate that the net proceeds of this offering that we will receive, 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 18 20 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 FROM ACQUIRING US OR LIMIT THE PRICE THIRD PARTIES ARE WILLING TO PAY FOR OUR STOCK. 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 us, 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 requirements which could make it more difficult for stockholders to effect corporate actions such as a merger, asset sale or other change of control of us. 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. 19 21 USE OF PROCEEDS We estimate that the proceeds from the sale by us of the 3.5 million shares of common stock offered in this offering at an assumed initial public offering price of $21.00 per share, after deducting estimated underwriting discounts and estimated offering expenses, will be approximately $66.8 million. The selling stockholders will receive $19.5 million from the sale of one million shares of common stock, after deducting estimated underwriting discounts, and an additional $12.5 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 and 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. 20 22 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 $21.00 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 related notes included elsewhere in this prospectus and should be read in conjunction with such consolidated financial statements and related 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 $ 94,768 ======== ======== 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.......... 8 18 Warrants.............................................. 1,332 1,332 Additional paid-in capital............................ 67,813 134,594 Cumulative translation adjustment..................... (19) (19) Accumulated deficit................................... (43,273) (43,273) -------- -------- Total stockholders' equity............................ 25,868 92,652 ======== ======== Total capitalization.................................. $ 25,868 $ 92,652 ======== ========
21 23 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 in this offering at an assumed initial public offering price of $21.00 and the receipt by Autobytel.com of the estimated net proceeds from such sale, 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 $92.6 million, or $5.19 per share. This represents an immediate increase in pro forma net tangible book value of $3.39 per share to existing stockholders and an immediate dilution of $15.81 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $21.00 Pro forma net tangible book value per share before the offering.................................................. $ 1.80 Increase per share attributable to purchases of common stock offered in this offering.................................. 3.39 ------ Pro forma net tangible book value per share after the offering.................................................. 5.19 Dilution per share to purchasers of common stock offered in this offering............................................. $15.81 ======
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 $21.00 per share:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE -------------------- ---------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ------------ ------- --------- Existing stockholders........... 14,358,745 80.4 $ 68,033,000 48.1 $ 4.74 New investors................... 3,500,000 19.6 73,500,000 51.9 21.00 ---------- ----- ------------ ----- ------ Total......................... 17,858,745 100.0 $141,533,000 100.0 $ 7.93 ========== ===== ============ ===== ======
22 24 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The 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 our consolidated financial statements 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 April 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 $ 94,768 Working capital............................ (1,099) 5,977 10,938 23,436 90,220 Total assets............................... 285 12,298 20,513 34,207 100,991 Accumulated deficit........................ (1,030) (7,065) (23,875) (43,273) (43,273) Stockholders' equity (deficit)............. (990) 7,996 13,259 25,868 92,652
23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 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 related notes 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 dealer 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 and through fiscal 1997, an annual fee. In January 1998, Autobytel.com started to eliminate annual fees and increase monthly fees to subscribing dealers. 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 by 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. Since the end of January 1999 and on a going forward basis we are converting our dealers to new contracts with one year terms. 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. Amortized revenues from initial subscription fees were $2.4 million, $3.8 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 are growing. Monthly fees are recognized in the period the service is provided. Monthly fee revenues were $18.2 million, $8.5 million, and $2.6 million in 1998, 1997 and 1996, respectively. Annual fees are recognized ratably over twelve months. Amortized revenues from annual fees were $2.3 million, $1.1 million and $103,000 in 1998, 1997 and 1996, respectively. Annual fee revenue will decline in 1999 because we discontinued the practice of charging annual fees in late 1998. 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 24 26 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 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, or 88% pay for our service and we call them core dealers. The remaining 332 dealers, or 12% 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. These agreements also allow us to increase consumer satisfaction by offering a complete selection of vehicle dealers throughout North America. However, our costs incurred from non-core dealers are not offset by revenues. 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. These internet portals and online information providers charge a combination of set-up, initial, annual, monthly and variable fees. Set-up fees are incurred for the development of the link between Autobytel.com and the internet portal or online information provider and are expensed in the period the link is established. Initial fees are prepaid annual fees, which are amortized over the period they relate to and monthly fees which are expensed in the month they 25 27 relate to. Variable fees are fees paid for purchase requests and are expensed in the period the purchase requests are received. During 1998, total Internet marketing and advertising costs incurred were $11.1 million, including initial, annual, monthly and variable fees of $50,000, $3.0 million, $2.9 million and $5.2 million, respectively. There were no set-up fees incurred in 1998. 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. 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 $162, or a 21% increase in the average monthly program 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 $5.3 million or 91% increase in fees related to information search aggregators resulting from higher purchase requests and a $4.0 million, or 58% increase in other advertising and 26 28 marketing expenses 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. 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 April 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 $228, or 41% increase in the average monthly program 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. 27 29 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 approximately 416,000, or 121%, to approximately 761,000. 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 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. 28 30 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 related notes. 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 29 31 statements include non-recurring revenue for the Dealer Real Time system hardware sales of $147,000 in 1996, $1.5 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 April 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. STOCK OPTIONS GRANTED IN 1999 From January to March 1999, we granted stock options to purchase 388,236 shares of common stock under the 1999 Stock Option Plan. These stock options were granted to employees and directors at exercise prices of $13.20 and $16 per share which were below the fair market value at the date of grant. In relation to these grants, we will recognize estimated compensation expense of approximately $2.0 million ratably over the vesting term of one to four years. Compensation expense of approximately $826,000, $390,000, 30 32 $390,000, $390,000 and $30,000 will be classified as operating expense in the years ending 1999, 2000, 2001, 2002 and 2003, respectively. 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. 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 activities 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. 31 33 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. The information technology systems pertain to software applications and database interface programs that support the consumer website, as well as the Dealer Real Time system that manages the inventory of pre-owned vehicles and purchase requests transmitted to our participating dealers. Non-information technology systems include accounts receivable/payable, payroll, banking, 401k, postal bar code, and Federal Express software that support our daily business activities. Although we have not conducted a survey, we believe there is no material exposure to our non-information technology systems. We believe that we do not have any other non-information, embedded technology systems, with potential Year 2000 issues. 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: 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 35% of the third party vendors have responded. All of these vendors provided a statement of compliance either displayed on their website or furnished in hard copy format. These vendors who have already responded represent the most critical vendors in our business. 2. In March 1999, we implemented a test lab environment to simulate the Year 2000 rollover with hardware, software, network communications vendors and certain key data suppliers. We plan to make any modifications resulting from the test lab environment by the third quarter of 1999. 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 32 34 that the data is Year 2000 compliant. We plan to establish our front-end application screen in the third quarter of 1999. The worst-case scenario pertaining to Year 2000 issue would be an overall failure of the national Internet and telecommunications infrastructure. This may require alternative means for users to gain connection to our servers. 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 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. 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 us in the future. However, if we undergo an "ownership change" within the meaning of Section 382 of the Internal Revenue Code, an annual limitation will be imposed on our use of net operating loss carryforwards. If an "ownership change" occurs, Section 382 of the Internal Revenue Code limits the amount of net operating losses that may be utilized from pre-ownership change years to offset our taxable income in any post-ownership change year to an amount equal to: 33 35 - the value of Autobytel.com's capital stock, as adjusted, at the time of the ownership change, multiplied by - the long-term tax exempt rate for the month of the ownership change. We believe that this offering will result in an ownership change for purposes of Section 382 of the Internal Revenue Code. As a result, the use of our pre-ownership change net operating loss carryforwards will be limited annually by Section 382 of the Internal Revenue Code under the rules described above. Based on an estimated company value of $393 million, we will be permitted to offset against any taxable income $18 million of losses per year using pre-charge net operating losses based on a long-term tax exempt rate of 4.7% and a share price of $22. 34 36 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. We believe that the number of Web users will grow based on 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, the proliferation of Internet 35 37 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. 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 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 36 38 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. 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. 37 39 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 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 38 40 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 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 have also entered into agreements in Japan with e-solutions, Inc., Intec, Inc. and 39 41 Trans Cosmos, Inc. to form a joint venture. 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 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 40 42 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 an advertising fee 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 access the American International Group Web site through a link from our Web site. 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 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. 41 43 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 a 20 year agreement with Auto-by-Tel UK Limited, an affiliate of Inchcape Motors, the United Kingdom's largest independent automobile distributor, to exclusively 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 a similar arrangement with a term of up to 10 years with Auto-By-Tel AB, an affiliate of Bilia AB, to exclusively license our technology, business processes, and trade names in Sweden, Norway, Denmark and Finland for which we will receive annual licensing and maintenance fees as well as an initial license fee. Under the terms of our agreement with Auto-by-Tel UK Limited we are entitled to receive minimum annual license and maintenance and support fees of $850,000 and $250,000, respectively, 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. We intend to expand our operations to Japan and have entered into letter agreements with e-solutions, Inc., Intec, Inc. and Trans Cosmos, Inc. to form ABT Japan, a joint venture in which we will own a 33% interest. We will license our trade names, technology and business processes to ABT Japan. We expect ABT Japan to commence operations by the end of 1999. These companies have elected to invest $6 million in ABT Japan and to fund an additional $6 million to cover operating losses, if any, and we have agreed to incorporate ABT Japan with a capital contribution of $100,000. In addition, these companies have indicated an interest to purchase 200,000 shares in this offering. 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. 42 44 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. The agreement with Kelley Blue Book is for an indefinite term but can be terminated on 30 days' notice by either party. 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. Therefore, our competitors may have similar relationships with Kelley Blue Book. 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 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. We also pay AT&T a fee for each purchase request it sends us. The agreement is not exclusive and is for an indefinite term which can be terminated on 30 days' notice by either party. - 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. The agreement is for an indefinite term which can be terminated on 30 days' notice by either party. - Our agreement with Excite covering its auto channel provides that we pay Excite a set-up fee and an annual fee as well as a fee for each purchase request it sends us. The agreement provides us with exclusivity in their auto channel and is for a term of 3 years but can be terminated by us if the number of purchase requests does not meet specified threshold for each year of the term of the agreement. The agreement with Excite precludes us from providing supplementary automobile research information to other search engines. Our agreement with Netscape's NetCenter auto channel is through Excite which manages NetCenter for Netscape. The agreement provides for an annual fee as well as a fee for each purchase request it sends us. The agreement with NetCenter is exclusive and has a two year term. 43 45 - Our agreement with Lycos in its "New" automotive channel is based on an initial fee as well as a fee for each purchase request it sends us. The agreement provides us with exclusivity in their "New" automotive area. The agreement is for a term of one year. As of December 31, 1998, our Internet marketing agreements with our two largest search engines, NetCenter and Excite, required us to make aggregate minimum future payments of $9.1 million and provide up to three new vehicles to each in a 12 month period. As of December 31, 1998, our agreements with automotive information providers require aggregate minimum future commitments of $0.7 million. During 1998, total Internet marketing and advertising costs incurred were $11.1 million, including initial, annual and monthly fees of $50,000, $3.0 million and $2.9 million, respectively. No set-up fees were incurred in 1998 and variable fees were $5.2 million. 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. As of December 31, 1998, the aggregate future minimum payments we are required to make for television advertising was $1.7 million. In addition to our consumer-oriented marketing activities, we also market our programs directly to dealerships, participate in trade shows, advertise in trade publications 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. Prior to January 1998, substantially all of the dealer contracts we entered into were terminable by either party at its sole discretion with 30 days notice. Since the end of January 1999 and on a going forward basis we are converting our dealers to new contracts with one year terms that are also terminable on 30 days' notice by either party. 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, of which 2,386, or 88%, are core dealers and 332, or 12%, are non-core dealers. Core 44 46 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. These agreements also allow us to increase consumer satisfaction by offering a complete selection of vehicle dealers throughout North America. However, our costs incurred from non-core dealers are not offset by revenues. 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 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: 45 47 - 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 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 46 48 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 a way that makes federal and state franchise, motor vehicle dealer, or vehicle broker licensing laws applicable to us. 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 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 47 49 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 Brokerage Activities. If government licensing and enforcement authorities determine that state motor vehicle brokering laws apply to our business operations, we may be required to apply for and obtain a motor vehicle brokers license. As additional risk, we may be required to pay administrative fees, fines, and penalties for failure to comply with such licensing requirements. We believe that state motor vehicles dealer or broker licensing laws do not apply to us. 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 opening our program 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. Financing Related Activities. 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 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 Related Activities. 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 who 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. 48 50 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 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 in an unspecified amount. 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. 49 51 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding 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 Ariel Amir................................ 39 Vice President and General Counsel 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. 50 52 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. Ariel Amir joined Autobytel.com as Vice President and General Counsel in March 1999. Mr. Amir was Vice President of Security Capital U.S. Realty from February 1998 until March 1999, where he was responsible for mergers and acquisitions and relations with strategic investees. Mr. Amir was Vice President of Security Capital Group Incorporated, where he provided securities offering and corporate acquisitions services from June 1994 until January 1998. Prior to joining Security Capital Group, Mr. Amir was an attorney with the law firm of Weil, Gotshal & Manges in New York where he practiced securities and corporate law from September 1985 until April 1994. Mr. Amir received his law degree from Georgetown University Law Center, an M.S. in industrial administration from Carnegie-Mellon University Graduate School of Industrial Administration and an A.B. in Economics, with honors, from Washington University in St. Louis. 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 51 53 connection with Maverick Capital Equity Partners' purchase of the assets of the predecessor of The Hastings Group in a previous bankruptcy proceeding. Maverick Capital Equity Partners was not able to make the business of The Hastings Group, Inc. profitable after it purchased the business in a previous bankruptcy proceeding and accordingly, The Hastings Group, Inc. filed for bankruptcy after Maverick Capital Equity Partners determined not to continue to fund its operating losses. 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 of 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. 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. 52 54 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 closing 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 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 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." 53 55 We have entered into indemnification agreements with each member of the board of directors and our officers providing for the indemnification of such person to the fullest extent authorized, permitted or allowed by law. 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 $8,000 legal expenses. See "Certain Transactions." (2) 500,000 shares of such securities underlying options are contingent on the performance of our market trading price after the closing of the offering. (3) Relocation expense reimbursement. (4) 200,000 shares of such securities underlying options are contingent on the performance of our market trading price after the closing of the offering. 54 56 OPTION GRANTS DURING 1998 The following table sets forth the five most highly compensated officers and certain information concerning stock options granted to them during 1998. We have never issued stock appreciation rights. Options were granted at an exercise price equal to the fair market value of the common stock at the date of grant. In determining the fair market value of the common stock, the board of directors considered various factors, including recent arms' length transactions, our financial condition and business prospects, operating results, the absence of a market for the common stock and the risks normally associated with investments in companies engaged in similar businesses. The term of each option granted is generally ten years from the date of grant. Options may terminate before their expiration dates, if the optionee's status as an employee or a consultant is terminated or upon the optionee's death or disability. We have not included disclosure on Mr. Ellis as he resigned as our Chief Executive Officer in June 1998 and did not receive any option grants in 1998.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE ---------------------------------------------------------- OF ASSUMED ANNUAL RATES NUMBER OF PERCENT OF OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE TERM(3) OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------- NAME GRANTED(#)(1) 1998(2) ($/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. 55 57 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. Autobytel.com 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 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 56 58 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, director 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 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 option holder, and each option is exercisable during the lifetime of the option holder only by such option holder. Options granted under the Incentive Plan must generally be exercised within three months of the end of the option holder's status as an employee or consultant of Autobytel.com, or within twelve months after such option holder's termination by death or disability, but in no event later than the expiration of the option's ten year term. The board of directors determined the exercise price of nonstatutory stock options granted under the Incentive Plan, and in all cases, the exercise price 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 option holder 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 option holder 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. From October 1996 through January 1999, we purported to grant incentive stock options to employees, of which 689,406 shares granted exceeded the Incentive Plan limit of 833,333 shares. As of January 29, 1999, 688,921 options, and 485 shares that were acquired upon the exercise of excess options were outstanding in excess of the Incentive 57 59 Plan limit. Because these grants exceed the plan's limit, they did not qualify as incentive stock options, which have more favorable tax treatment for employees than nonqualified stock options. In connection with these matters, on January 29, 1999, we filed an application with the California Department of Corporations for approval of a rescission offer to those affected optionholders holding options covering 689,406 shares of common stock. The Department of Corporations approved the rescission offer on February 12, 1999. The rescission offer allowed each affected optionholder to choose between a cash payment or a new grant of incentive stock options under the 1999 Stock Option Plan. The offer for a cash payment was for 10% of the aggregate exercise price per share of the option plus 7% statutory interest since the date of grant of the option. The terms of the options granted under the 1999 Stock Option Plan are similar to the terms of the original stock options, with an exercise price equal to the fair market value on the date of regrant. In addition, optionholders who chose new grants under the 1999 Stock Option Plan were granted additional options based on the length of time the original options were held. The aggregate maximum number of additional shares of common stock issuable under this choice for all those optionholders were 35,000 shares. All the affected optionholders participated in the rescission offer and we paid $8,000 to four optionholders who chose the cash alternative. 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. 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 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 58 60 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. Any incentive stock option that is granted to any option holder who beneficially owns more than 10% of the total combined voting power of all classes of outstanding shares of capital stock of Autobytel.com 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 incentive stock options granted 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 granted. Under the 1998 Option Plan, nonstatutory stock options 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. In addition, an option holder 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 stated in a stock option agreement, upon any merger, consolidation, or sale or transfer of all or any part of our business or assets, any option shall vest and may be exercised immediately unless any party to these transactions specifically assumes our obligations under 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 option holder with respect to the unexercised portion of any option will terminate and all options will be canceled unless the plan under which such liquidation or dissolution is effected makes specific provisions regarding 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 a merger, consolidation or sale of all or any part of our business or assets or a liquidation or dissolution to exercise such option without regard to any time 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. 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 eligible key employee and designate such options as incentive stock options or nonstatutory stock options. The board of 59 61 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: - increase the number of shares issued under the 1998 Option Plan, - modify the requirements as to eligibility for participation in the 1998 Option Plan or - 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. Unless terminated earlier, the 1998 Option Plan terminates ten years from the date it was 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 our employees; provided that after March 31, 1999, we may not grant more than 1,000,000 options under the plan. 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, any option under the plan shall immediately vest and be exercisable unless any party to such a transaction specifically assumes the obligations of Autobytel.com under the 1999 Option Plan. 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 options for 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 related 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 option holder 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. 401(K) PLAN All employees of Autobytel.com over age 21 who have completed three months of service with Autobytel.com are eligible to participate in the Auto-By-Tel Retirement Savings Plan, a defined contribution plan effective September 1, 1997 and intended to qualify under Section 401 of the Internal Revenue Code. Eligible employees may enter the savings plan as of the first day of January or July following the date on which they have met the savings plan's eligibility requirements. Participants may make pre-tax contributions to the savings plan of up to 15 percent of their eligible earnings, but not in excess of a statutory annual limit. Autobytel.com may make discretionary matching contributions to the savings plan. For the year ended December 31, 1998, Autobytel.com made no 60 62 matching contributions to each eligible participant's contributions. Each participant in the savings plan is fully vested in his or her contributions and the investments earnings on these contributions. Participants vest in matching contributions made on their behalf, and the investment earnings on these contributions at the rate of 20 percent per year and are thus 100 percent vested in their employer matching contribution accounts after five years of service. Contributions by the participants or Autobytel.com and the income earned on such contributions are not taxable to the participants until withdrawn. Contributions by Autobytel.com, if any, are deductible by it when made. Contributions are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. 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 and a bonus as determined by the board of directors from time to time. Mr. Lorimer is also entitled to 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. In addition, Mr. Lorimer may participate in 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 highest annual base salary in effect for the term of the agreement multiplied by the greater of (1) the remaining balance of the three year term or longer if there is a change of control 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 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 time based options shall become vested and exercisable and 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 or designees, with continued payment of Mr. Lorimer's then current base salary and all 61 63 benefits for a period of two years. If Mr. Lorimer's severance benefits are parachute payments under the Internal Revenue Code, we have agreed to make additional payments to him to compensate for his additional tax obligations. 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. Ms. Delligatta is also entitled to 100,000 options which vest fully by December 17, 2000 and 200,000 performance options which vest over seven years unless accelerated upon the earlier accomplishment of stock price goals. In addition, Ms. Delligatta may participate in 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. Under a letter agreement dated December 18, 1998, Hoshi Printer, our Senior Vice President and Chief Financial Officer, is entitled to a base salary of $150,000, a $50,000 bonus payable upon closing of the offering, 150,000 options which vest fully by January 2003 and employee benefits such as health and insurance. Under a letter agreement dated March 7, 1999, Ariel Amir, our Vice President and General Counsel, is entitled to a base salary of $175,000, 125,000 options which vest fully by March 2003 and employee benefits, including health and insurance. If Mr. Amir's employment is terminated without cause during the first year of employment, Mr. Amir is entitled to one year's base salary payable monthly. If Mr. Amir's employment is terminated without cause thereafter, he is entitled to six month's base salary payable monthly. 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 arising out of such person's services as an officer or director of us. 62 64 In any event, our directors and officers shall not be entitled to indemnity under 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 not be indemnified for expenses reasonably incurred, regarding 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; - if the claims were initiated or brought voluntarily by one of our directors or officers and not by way of defense, counterclaim or cross claim; or - if a claim instituted by one of our directors or officers or by us to enforce or interpret the indemnity agreement was found to be frivolous or made in bad faith by a court having jurisdiction over such matter. 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. 63 65 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 registration rights regarding the shares of common stock issued or issuable upon conversion. See "Description of Capital Stock--Registration Rights." The holders of outstanding shares of series A preferred stock are entitled to receive, when and as declared by the board of directors, dividends in cash at an annual rate of $0.80 per share of series A preferred stock. Such dividends, if any, are payable in preference and in priority to any declaration or payment of any dividend on the series B preferred stock or common stock. We have never declared or paid dividends on the series A preferred stock. All shares of series A preferred stock will automatically convert into shares of common stock upon the closing of the offering. 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 Electric Capital 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 registration rights with respect to the shares of common stock issued or issuable upon conversion. See "Description of Capital Stock--Registration Rights." The holders of outstanding shares of series B preferred stock are entitled to receive, when and as declared by the board of directors, dividends in cash at an annual rate of $0.80 per share of series B preferred stock. Such dividends, if any, are payable in preference and in priority to any declaration or payment of any dividend on the common stock. We have never declared or paid dividends on the series B preferred stock. All shares of series B preferred stock will automatically convert into shares of common stock upon the closing of the offering. 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. 64 66 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 registration rights with respect to the shares of common stock issued or issuable upon conversion. See "Description of Capital Stock--Registration Rights". The holders of outstanding shares of series C preferred stock are entitled to receive, when and as declared by the board of directors, dividends in cash at an annual rate of $0.80 per share of series C preferred stock. Such dividends, if any, are payable in preference and in priority to any declaration or payment of any dividend on the series A preferred stock, series B preferred stock or common stock. We have never declared or paid dividends on the series C preferred stock. 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. 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 American International Group......... 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
Loans 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. We received a pledge of 100,657 of Mr. Ellis' shares of common stock to secure this loan. 65 67 Severance and General Release Agreement 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. Under the terms of the severance agreement regarding 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. Advisory Agreement 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. 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 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 the loans made to Mr. Ellis from time to time. Voting Proxy 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 by Mr. Ellis to "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 such date or until such time as Mr. Ellis sells the shares to a person not affiliated with Mr. Ellis. Mr. Ellis sold these shares at $11.88 per share. Marketing Agreement Auto-By-Tel Acceptance Corporation, member companies of the American International Group, and Autobytel.com entered into a marketing agreement dated July 22, 1996. Under 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. In return, Auto-By-Tel Acceptance Corporation is paid compensation based on a flat fee on the basis of the premiums collected from our consumers. Under a marketing and application processing agreement dated February 1, 1997, among GE Capital, Auto-By-Tel Acceptance Corporation and Autobytel.com, Auto-By-Tel 66 68 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. Issuance of Warrants 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 such date 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. These warrants are exercisable as of such date and expire 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 price of $13.20 per share. This warrant is exercisable as of such date 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. Approval Procedure for Related Party Transactions 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. 67 69 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of the common stock as of March 15, 1999, as adjusted to reflect the conversion of the preferred stock into common stock concurrently with the offering and sale of common stock offered in this offering for: - each person or entity who is known by Autobytel.com to beneficially own five percent or more of the outstanding common stock, - each of our directors, - each of the five most highly compensated officers in 1998, - each stockholder who is selling shares of common stock in this offering, and - all directors and executive officers of Autobytel.com as a group. As of March 15, 1999, there were 14,372,783 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 March 15, 1999, 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 under 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)................... 3,877,032 27.0% 500,000 3,377,032 18.9% c/o Autobytel.com 18872 MacArthur Boulevard Irvine, California 92612-1400 John C. Bedrosian(2)................ 3,569,445 24.8% 500,000 3,069,445 17.2% c/o Autobytel.com 18872 MacArthur Boulevard Irvine, California 92612-1400 General Electric Capital Corporation(3).................... 1,832,022 12.7% 1,832,022 10.2% 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(6)...... 837,157 5.8% 837,157 4.7% 200 Liberty Street New York, New York 10281
68 70
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING NUMBER OF AFTER OFFERING ------------------- SHARES BEING ------------------- NUMBER PERCENT OFFERED NUMBER PERCENT --------- ------- ------------ --------- ------- Robert S. Grimes(7)................. 809,493 5.5% 809,493 4.5% c/o R.S. Grimes & Co., Inc. 152 West 57th Street New York, NY 10019 Mark W. Lorimer(8).................. 296,412 2.0% 296,412 1.6% Michael J. Fuchs(9)................. 146,249 1.0% 146,249 * Michael J. Lowell(10)............... 110,280 * 110,280 * Ann M. Delligatta(11)............... 40,704 * 40,704 * Anne Benvenuto(12).................. 12,472 * 12,472 * Mark N. Kaplan...................... 1,000 * 1,000 * Kenneth J. Orton.................... -- * -- * Hoshi Printer....................... -- * -- * Ariel Amir.......................... -- * -- * All directors and executive officers as a group (14 persons)(13)....... 9,733,646 61.5% 9,233,646 47.7%
- --------------- * Less than 1% (1) Includes 46,110 shares held by trusts established for family members of Mr. Ellis as to which Mr. Ellis' spouse maintains sole voting power. Also includes 593,175 shares as to which Mr. Ellis granted voting power to Autobytel.com under 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 Mr. Ellis after the offering would be 2,994,532 and the percentage would be 16.8%. (2) 2,569,445 shares are held in the John C. Bedrosian and Judith D. Bedrosian Revocable Trust in which Mr. Bedrosian maintains shared voting powers. 1,000,000 shares are held by the Bedrosian Investment Group, Ltd., of which Mr. Bedrosian and his spouse are general partners. If the underwriters' over-allotment option were exercised in full, the number of shares beneficially owned by Mr. Bedrosian after the offering would be 2,814,445 and the percentage would be 15.7%. (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 6,194 shares issuable upon exercise of options exercisable within 60 days of March 15, 1999 which were granted to Mr. Coats, and subsequently assigned to GE. Mr. Coats disclaims beneficial ownership of such 6,194 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. 69 71 (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 being directly beneficially owned by MediaOne Interactive Services, Inc. MediaOne Group, Inc., disclaims such beneficial ownership. (6) Represents 444,445 shares following the conversion of the series A preferred stock, 241,197 shares following the conversion of the series B preferred stock, and 151,515 shares following the conversion of the series C preferred stock. (7) Includes an aggregate of 5,554 shares held in irrevocable trusts as to which Mr. Grimes' spouse maintains sole voting power. Includes 253,938 shares issuable upon exercise of options exercisable within 60 days of March 15 1999. (8) Represents 296,412 shares issuable upon exercise of options exercisable within 60 days of March 15, 1999. (9) Includes 6,195 shares issuable upon exercise of options exercisable within 60 days of March 15, 1999 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. (10) Represents 110,280 shares issuable upon exercise of options exercisable within 60 days of March 15, 1999. (11) Represents 40,704 shares issuable upon exercise of options exercisable within 60 days of March 15, 1999. (12) Represents 12,472 shares issuable upon exercise of options exercisable within 60 days of March 15, 1999. (13) Includes 726,195 shares issuable upon exercise of options and 739,800 shares issuable upon exercise of warrants exercisable within 60 days of March 15, 1999. Mr. 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 5,856,614 shares or 37.0% of the shares of common stock outstanding, and after the offering would be 5,856,614 shares or 30.3% 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 49 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. After 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 70 72 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, after 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. PREFERRED STOCK Under 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. The board of directors also has the power to determine the rights of the preferred stock such as dividend rights, conversion rights, voting rights, and the terms of redemption and liquidation preferences. The board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that are greater than the 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 The amended and restated investors' rights agreement, dated October 21, 1997, among Autobytel.com and the holders of 12,997,957 shares of common stock and securities convertible into common stock, provides that the holders are entitled to registration rights. If we propose to register any of our securities under the Securities Act, either for our own account or for the account of other holders exercising registration rights, the holders are entitled to notice of such registration and may include shares of registrable securities in the registration statement. Additionally, the holders are also entitled to demand registration rights and may require us to file a registration statement under the Securities Act at our expense for their shares of registrable securities. The holders have waived their registration rights in connection with this offering. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Anti-Takeover Law The provisions of Section 203 of the Delaware General Corporation Law apply to Autobytel.com. 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 designated stockholders) in the transaction in which it became an interested stockholder. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested 71 73 stockholder. Other than persons who own shares in excess of 15% of the voting stock of the corporation as a result of action taken solely by the corporation, 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 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. 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. 72 74 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 the lock-up agreements, 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. In addition, 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 in this offering will be eligible for sale. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person, or persons who has beneficially owned restricted shares for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - one percent of the number of shares of common stock then outstanding; or - 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 must be made under manner of sale provisions and notice requirements specified by Rule 144 and current public information about Autobytel.com must be available. 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, 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. 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 11,298,480 of such shares will have been held for more than one year at the end of such 180-day period). Upon completion of the offering, the holders of 12,997,957 shares of common stock, or their transferees, will be entitled to rights with respect to the registration of such shares under the Securities 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 73 75 Stock -- Registration Rights." Registration of such shares under the Securities Act would result in 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, with regards 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 5,522,948 shares have been reserved for issuance under such plans. As of March 1, 1999, 790,739 options have been granted under the 1999 Stock Option Plan, 1,278,000 options have been granted under the 1998 Stock Option Plan, 833,333 options have been granted under the 1996 Stock Incentive Plan, 889,163 options 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 under 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, governed by all provisions of Rule 144 except its minimum holding period. LOCK-UP AGREEMENTS All officers, directors, and other stockholders of Autobytel.com have entered into lock-up agreements. Under the lock-up agreements, each person agreed not to sell or otherwise dispose of any shares of common stock or any securities convertible into common stock for a period of 180 days after the date of this prospectus, without the prior written consent of BT Alex. Brown Incorporated. The selling stockholders have agreed to the same lock-up 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, 1998 Stock Option Plan, the 1996 Stock Option Plan and the 1996 Stock Incentive Plan, holders of options to purchase common stock are obligated not to sell or transfer any shares of Autobytel.com acquired through exercise of options during such 180-day period if requested by us or the underwriters. 74 76 MATERIAL UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. HOLDERS GENERAL The following is a general discussion of the material United States federal income and estate tax consequences of the ownership and disposition of common stock by a Non-U.S. Holder, as defined below. As used in this prospectus, 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 our 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. 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. This discussion 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. Moreover this discussion does not address United States state or local or foreign tax consequences. This discussion is based on provisions of the Internal Revenue Code of 1986, as amended, existing and proposed regulations under, and administrative and judicial interpretations of, the Internal Revenue Code, in effect on the date of this prospectus. All of these authorities may change, possibly with retroactive effect or different interpretations. The following summary is included in this prospectus 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 our common stock. DIVIDENDS We do not anticipate paying cash dividends on our 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, unless an applicable income tax treaty provides for a lower withholding rate. 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, a Non-U.S. Holder who wishes to claim the benefits of an applicable treaty rate and avoid backup withholding tax at a 31% rate as discussed below 75 77 will be required to satisfy certification and other tax law requirements, which will include filing an Internal Revenue Service Form W-8 containing the Non-U.S. Holder's name, address and a certification that the holder is eligible for the benefits of the treaty under the treaty's Limitations in Benefits Article. In addition, certification and disclosure requirements must be met to be exempt from withholding under the effectively connected income exemption discussed below. The regulations under the Internal Revenue Code 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 tax 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. The recipient of dividends that are effectively connected with either a Non-U.S. Holder's: - conduct of a trade or business in the United States, - permanent establishment in the United States if a tax treaty applies, or - fixed base in the United States are taxed generally on a net income basis at regular graduated rates. The 30% withholding tax is not applicable to the payment of dividends if the Non-U.S. Holder files Form 4224 or any successor form with the payor or, after December 31, 1999, such holder provides its United States taxpayer identification number to the payor. 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 have to pay United States federal income or withholding tax on gain recognized on a disposition of common stock unless: (1) the gain is effectively connected with the conduct of a trade or business 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) if a treaty applies, the gain is effectively connected to a permanent establishment of the Non-U.S. Holders within the United States, (3) 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 Internal Revenue Code, is 76 78 present in the United States for 183 or more days in the taxable year of the disposition and meets other tax law requirements, (4) the Non-U.S. Holder is a United States expatriate is required to pay tax pursuant to the provisions of the United States tax law, or (5) 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 required to pay United States federal income tax if the shares of Autobytel.com are regularly traded on an established securities 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 meets the requirements of clause (1), (2) or (4) above that individual generally will be required to pay tax 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 meets the requirements of clause (3) above, such individual generally will be subject to a flat 30% tax on the gain derived from a sale. Thus, individual Non-United States Holders who have spent or expect to spend a short period of time in the United States should consult their tax advisers prior to the sale of common stock to determine the United States federal income tax consequences of the sale. If a Non-U.S. Holder is a foreign corporation that is engaged in a United States trade or business or has a United States permanent establishment, the corporation generally will be required to pay tax on its net gain under regular graduated United States federal income tax rates. Such a Non-U.S. Holder may also have to pay branch profit tax. FEDERAL ESTATE TAX For United States federal estate tax purposes, an individual's gross estate will include the common stock owned, or treated as owned, by an individual. Generally, this will be the case regardless of whether such individual was a United States citizen or a United States resident. This general rule of inclusion may be limited by an applicable estate tax or other treaty. 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 77 79 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, the 31% United States backup withholding tax rate generally will not apply: - to dividends which are paid to Non-U.S. Holders and are taxed at the regular withholding tax rate as discussed above, or - 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. On October 6, 1997, the United States Treasury Department issued new regulations regarding the withholding and information reporting rules discussed above. These regulations apply to payments made after December 31, 1999. The regulations under the Internal Revenue Code do not significantly alter the foregoing substantive withholding and information reporting requirements but do alter the procedures for: - claiming the benefits of an income tax treaty for, and - the certification procedures relating to the receipt by intermediaries of, dividends paid after December 31, 1999. These regulations generally presume that backup withholding at the rate of 31% and information reporting applies to payments made to a Non-U.S. Holder unless Autobytel.com receives certification of such holder's Non-U.S. status. Depending on the circumstances, this certification will need to be provided either: - directly by the Non-U.S. Holder, - 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 - by qualified financial institutions or other qualified entities on behalf of the Non-U.S. Holder. Information reporting and backup withholding at a rate of 31% generally will not apply to 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 unless the holder either certifies its status as a Non-U.S. 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 have to comply with backup withholding or information reporting unless the non-United States broker has a connection to the United States as specified in the tax law. 78 80 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 - 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 - the beneficial owner otherwise establishes an exemption. For this purpose, a "United States related person" is either - a "controlled foreign corporation" for United States federal income tax purposes; or - 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 is derived from activities that are effectively connected with the conduct of a United States trade or business. After December 31, 1999, the regulations under the Internal Revenue Code 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 a holder complies with the applicable IRS certification requirements. Prospective investors should consult with their own tax advisers regarding the regulations under the Internal Revenue Code 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-U.S. Holder will be either refunded or credited against the holder's United States federal income tax liability provided sufficient information is furnished to the Internal Revenue Service. 79 81 UNDERWRITING Under 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 conditions precedent as outlined in the underwriting agreement and that the underwriters will purchase all of the shares of common stock offered 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 637,500 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 of such option that the number of shares of common stock to be purchased by it in the above table bears to 4,250,000, and the selling stockholders will be obligated under 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 in this offering. If purchased, the underwriters will offer such additional shares on the same terms as those on which the 4,250,000 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 substantially all of the stockholders of Autobytel.com agreed not to sell or otherwise dispose of any common stock for a period of 180 days after the date of our public offering, without the prior written consent of 80 82 BT Alex. Brown Incorporated. These officers, directors and stockholders hold 13,293,376 shares of our common stock in the aggregate. The selling stockholders have agreed to a lock-up for a period of 270 days after the date of Autobytel.com's public offering. BT Alex. Brown Incorporated may give such consent at any time without public notice and may give consent for some stockholders and not others. Autobytel.com has also entered into a similar agreement, except that we may grant options or warrants to purchase shares of common stock or any securities convertible into shares of common stock, under the exercise of outstanding options and warrants and our issuance of options and stock granted under our existing stock option 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, thus 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 friends of our founders, our employees, family members of our employees and our vendors. 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, however, if these shares are sold to the strategic investors then Autobytel.com will be required to pay a $350,000 fee to Bankers Trust, Tokyo Branch. Bankers Trust, Tokyo Branch is an affiliate of BT Alex. Brown Incorporated, one of the underwriters in this offering. General Electric Capital Services, Inc. indirectly beneficially owns approximately 22% of the issued and outstanding common stock of Paine Webber Group, Inc., which is the parent holding company of PaineWebber Incorporated, an SEC-registered broker-dealer and one of the underwriters in this offering. The voting rights with respect to such common stock are restricted by the terms of an amended and restated shareholder's agreement. As a result, the offering of the shares of common stock offered in this offering is required to be made in accordance with the applicable provisions of Rule 2720 of the NASD. 81 83 In compliance with Rule 2720, the public offering price can be no higher than that recommended by a "qualified independent underwriter." BT Alex. Brown Incorporated is acting as qualified independent underwriter and the public offering price of the shares of common stock offered hereby will not be higher than the public offering price recommended by BT Alex. Brown Incorporated. In this offering, BT Alex. Brown Incorporated, in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus is 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 in this offering 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. Attorneys in the firm of Paul, Hastings, Janofsky & Walker LLP may participate in the directed share program in the offering in an amount of up to 15,000 shares. 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 and are included in reliance upon the authority of said firm as experts in giving said report. The discussion that appears under the headings "Risk Factors -- If financial broker and insurance licensing requirements apply to us in states where we are not currently licensed, we will be required to obtain additional licenses and our business may suffer," "Business -- Products, Programs and Services -- Ancillary Customer Services" and "Business -- Government Regulation" has been reviewed by Barger & Wolen LLP, Los Angeles, California, and has been included herein, to the extent such discussion involves regulations, laws or legal conclusions relating to issues involving insurance, in reliance upon the authority of such firm as an expert thereon. 82 84 ADDITIONAL INFORMATION A registration statement on Form S-1, including amendments, relating to the common stock offered in this offering 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. 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. This prospectus contains all material information required to be disclosed by the Securities Act. For further information regarding Autobytel.com and the common stock offered 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 including any exhibit may be obtained from the SEC upon the payment of 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. 83 85 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 86 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 March 25, 1999 F-2 87 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 88 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 89 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 90 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 91 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 92 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 93 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 1998. 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 April 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 94 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." Autobytel.com 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 95 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 96 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. The payments under the agreement consist of a set-up fee, an annual fee and a variable fee per purchase request. The set-up fee represents the cost of initiating the link between Autobytel.com and the search engine and was expensed in the period the link was established. Autobytel.com expenses the annual fee ratably over a 12-month period and the variable fee in the period purchase requests are received. The amount of variable fee per purchase request increases as the number of purchase requests received reaches agreed upon increments. Under the agreement, Autobytel.com is also to provide the search engine with up to three new vehicles in a 12-month period. The agreement grants Autobytel.com the right to terminate the agreement if the number of purchase requests does not meet the threshold specified for each year of the term of the agreement. As of December 31, 1998, the minimum future payments under the agreement amounted to $3.7 million. 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. The payments under the agreement consist of an annual fee, and a variable fee per purchase request. Autobytel.com expenses the annual fee ratably over a 12-month period and the variable fee in the period purchase requests are received. The amount of variable fee per purchase request increases as the number of purchase requests received reaches agreed upon increments. Under the agreement, Autobytel.com is also to provide the search engine with up to three new vehicles in a 12-month period, the total value of which is not to exceed $45, which has been expensed as incurred. The agreement grants Autobytel.com the right to terminate the agreement if the number of purchase requests does not meet the threshold specified for each year of the term of the agreement. As of December 31, 1998, the minimum future payments under the agreement amounted to $5.4 million. Autobytel.com has 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 four years and require that Autobytel.com pay a combination of set-up, initial, annual, monthly and variable fees based on the volume of purchase requests received by Autobytel.com. The set-up fees are expensed as incurred, the initial fees and annual fees are amortized over the period they relate to. The monthly fees are expensed in the month they relate to and variable fees are expensed in the period purchase requests are received. As of December 31, 1998, the minimum future commitments under these agreements were $0.7 million. During 1998, total Internet marketing and advertising costs incurred were $11,090, including initial, annual and monthly fees of $50, $2,965 and $2,903, respectively. No set-up fees were incurred in 1998 and variable fees were $5,172. F-12 97 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 advertisements are 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 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 F-13 98 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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. F-14 99 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 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. F-15 100 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 assist Autobytel.com with 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 1998, as the investor has fulfilled its commitment and has no further obligation to Autobytel.com. 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 commitment to assist Autobytel.com with organizational and start-up activities related to a 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 1998, as the investor has fulfilled its commitment and has no further obligation to Autobytel.com. 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. The fair value of each of these warrants was estimated using the Black-Scholes option-pricing model and the following assumptions: (1) no dividend yield, (2) volatility of 0.10%, (3) risk-free interest rate of 4.90%, and (4) expected life of three years. 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 F-16 101 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 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 F-17 102 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. The accelerated vesting schedule is conditioned on Autobytel.com consummating an initial public offering. The accelerated vesting schedule provides that the grants will vest in six installments, one installment vesting each six months over a three-year period if pre-established average trading prices of the common stock are achieved. Those installments will vest if the average trading price exceeds the exercise price by $6.60, $13.20, $19.80, $26.40, $33.00 and $39.60, respectively, in the applicable six month period after the date of grant. 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. 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 F-18 103 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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-19 104 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-20 105 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 a Share Purchase Agreement with Inchcape Automotive Limited to sell 100% 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 connection with the Share Purchase Agreement, Autobytel.com entered into a License and Service Agreement with Auto-by-Tel UK Limited under which it will grant to Auto-by-Tel UK Limited 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 and support fees over a 20-year period. The minimum annual license fee of $850 is payable in advance on a quarterly basis beginning on the launch date of the Web site. The Web site has not yet been launched. Beginning in the fourth year of this agreement, additional license fees are payable based on a formula involving a percentage of Auto-by-Tel UK Limited's gross revenue. A maintenance and support fee of $250 is payable in advance on a monthly basis beginning on the execution date of the agreement. F-21 106 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Annual license revenue will be recognized ratably over a 12-month period beginning on the Web site launch date. Maintenance and support revenue will be recognized ratably over the term of the agreement beginning on the execution date of the agreement, as the maintenance and support fee also covers efforts to develop the Web site. Autobytel.com recognized revenues of $26 under the License and Service Agreement in the year ended December 31, 1998. Under the Share Purchase Agreement, Inchcape shall not transfer 50% or more of the shares of Auto-by-tel UK Limited for a period of 365 days from the Web site launch date. Inchcape Automotive Limited, however, is entitled to transfer any shares, not to exceed 50%, at any time after the execution of the Share Purchase Agreement within the one-year period following the termination or expiration of the License and Service Agreement. If Inchcape Automotive Limited wishes to transfer any shares to a third party, Autobytel.com has the right to purchase all, but not a portion, of such shares. 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. F-22 107 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 quarterly 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. 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. F-23 108 AUTOBYTEL.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Stock Options Granted in 1999 From January to March 1999, Autobytel.com granted stock options to purchase 388,236 shares of common stock under the 1999 Stock Option Plan. These stock options were granted to employees and directors at exercise prices of $13.20 and $16.00 per share which were below the fair market value at the date of grant. In relation to these grants, Autobytel.com will recognize estimated compensation expense of approximately $2.0 million ratably over the vesting term of one to four years. Compensation expense of approximately $826, $390, $390, $390 and $30 will be classified as operating expense in the years ending 1999, 2000, 2001, 2002 and 2003, respectively. [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-24 109 - ------------------------------------------------------ - ------------------------------------------------------ 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......................... 20 Dividend Policy......................... 20 Capitalization.......................... 21 Dilution................................ 22 Selected Consolidated Financial Data.... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 24 Business................................ 35 Management.............................. 50 Financings and Related Party Transactions.......................... 64 Principal and Selling Stockholders...... 68 Description of Capital Stock............ 70 Shares Eligible for Future Sale......... 73 Material United States Tax Considerations for Non-U.S. Holders... 75 Underwriting............................ 80 Legal Matters........................... 82 Experts................................. 82 Additional Information.................. 83 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 ALEXS BROWN LEHMAN BROTHERS PAINEWEBBER INCORPORATED ------------------ , 1999 - ------------------------------------------------------ - ------------------------------------------------------ 110 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....................................... $ 32,000 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............................................ $1,571,000 ==========
- ------------------------- ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law ("Delaware Law") and Autobytel.com's amended and restated 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 amended and restated 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 amended and restated 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 Autobytel.com against certain liabilities, including those arising under the Securities Act in certain instances, of the Underwriters. II-1 111 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, PA 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 shares of series C preferred stock in exchange for prime time advertisement spots with a fair market value of not less than $499,629. II-2 112 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 million 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 Preferred 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 Preferred 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 Preferred 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 investor" under Rule 501. In addition, the recipients in such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in II-3 113 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 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. 10.11+ Amendment to Marketing Agreement of February 8, 1996, dated June 6, 1997 between Edmund Publications Corp. and the Registrant 10.12**+ Form of Dealership Agreements
II-4 114
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 autobytel.com inc. 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.
II-5 115
NUMBER DESCRIPTION ------ ----------- 10.34+ Letter Agreement dated March 12, 1999 between autobytel.com inc. and Trans Cosmos, Inc. 10.35**+ Letter Agreement dated March 12, 1999 between autobytel.com inc. and e-Solutions, Inc. 10.36+ Letter Agreement dated March 12, 1999 between autobytel.com inc. and Intec, Inc. 10.37** Letter Agreement dated March 7, 1999 between Autobytel.com and Ariel Amir 10.38** Letter Agreement dated December 18, 1998 between Autobytel.com and Hoshi Printer. 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 23.4** Consent of Barger & Wolen LLP 24.1** Power of Attorney (reference is made to the signature page) 27.1** Financial Data Schedule
- ------------------------- ** Previously filed. + Confidential treatment has been requested with regard to certain portions of this document. Such portions were filed separately with the Securities and Exchange Commission. (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. II-6 116 (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-7 117 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 6 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 25, 1999. autobytel.com inc. By: /s/ MARK W. LORIMER ----------------------------------- Name: Mark W. Lorimer Title: Chief Executive Officer, President and Director Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 6 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 25, 1999 - ------------------------------------------------ and Director Michael Fuchs * Director March 25, 1999 - ------------------------------------------------ Jeffrey H. Coats * Director March 25, 1999 - ------------------------------------------------ Mark N. Kaplan * Director March 25, 1999 - ------------------------------------------------ Kenneth J. Orton * Executive Vice President March 25, 1999 - ------------------------------------------------ and Director Robert S. Grimes /s/ MARK W. LORIMER Chief Executive Officer, March 25, 1999 - ------------------------------------------------ President and Director Mark W. Lorimer (Principal Executive Officer) /s/ HOSHI PRINTER Senior Vice President March 25, 1999 - ------------------------------------------------ and Chief Financial Hoshi Printer Officer (Principal Financial Officer and Principal Accounting Officer)
II-8 118
NAME TITLE DATE ---- ----- ---- * Executive Vice President March 25, 1999 - ------------------------------------------------ and Chief Operating Ann M. Delligatta Officer * Director March 25, 1999 - ------------------------------------------------ Peter Titz * Director March 25, 1999 - ------------------------------------------------ Richard Post *By: /s/ HOSHI PRINTER --------------------------------------- Hoshi Printer, Attorney-in-Fact
II-9 119 EXHIBIT INDEX
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ------------ 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.
120
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ------------ 10.11+ Amendment to Marketing Agreement of February 8, 1996, dated June 6, 1997 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 autobytel.com inc. 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 NUMBER DESCRIPTION PAGE ------ ----------- ------------ 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. 10.34+ Letter Agreement dated March 12, 1999 between autobytel.com inc. and Trans Cosmos, Inc. 10.35**+ Letter Agreement dated March 12, 1999 between autobytel.com inc. and e-Solutions, Inc. 10.36+ Letter Agreement dated March 12, 1999 between autobytel.com inc. and Intec, Inc. 10.37** Letter Agreement dated March 7, 1999 between Autobytel.com and Ariel Amir 10.38** Letter Agreement dated December 18, 1998 between Autobytel.com and Hoshi Printer. 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 23.4** Consent of Barger & Wolen LLP 24.1** Power of Attorney (reference is made to the signature page) 27.1** Financial Data Schedule
- ------------------------- ** Previously filed. + Confidential treatment has been requested with regard to certain portions of this document. Such portions were filed separately with the Securities and Exchange Commission. EX-10.11 2 AMENDMENT TO MARKETING AGREEMENT 1 EXHIBIT 10.11 [*] Confidential Treatment has been requested for certain portions of this exhibit. EDMUND PUBLICATIONS CORP. AUTO-BY-TEL MARKETING CORPORATION Amendment to Marketing Agreement dated February 8, 1996 1. Term of agreement to be extended 18 months, to July 31, 2000, 2. Exclusivity: a. New cars: Exclusive for entire term. b. Used cars: Exclusivity unless and until terminated at Edmund's election on not less than 90 days' notice, but no such election to be effective prior to August 1, 1998. "Exclusivity" means that other than EVRI, ABT will be the exclusive retail used vehicle purchase program. Edmund shall have the right to terminate ABT's used car program, on not less than 90 days' notice, if the number of (non-duplicate) used car request forms is less than (i) 100,000 during the twelve months commencing with the first full calendar month after Edmund begins submitting used car request forms to ABT, (ii) 200,000 during the second such twelve-month period, or (iii) 250,000 during any subsequent twelve-month period. c. No exclusivity re financing. 3. Fees: a. [*] for each new car request form for the first 16,667 per calendar month. [*] for the next 8,333 per month, [*] for the next 8,333 per month, [*] for the next 8,333 per month, and [*] for any forms in excess of 41,667 per month. A reconciliation shall be made as soon as practicable after each March 31, June 30, September 30 and December 31 based on Edmund being entitled to [*] for each new car request form for the first 200,000 per twelve months, [*] for the next 100,000 per twelve months, [*] for the next 100,000 per twelve months, [*] for the next 100,000 per twelve months, and [*] for any forms in excess of 500,000 per twelve months (prorated for the number of months that are the subject of such reconciliation). The first reconciliation shall be for the period June 1 through September 30 1997. If, as a result of any such reconciliation, ABT paid Edmund too much for the applicable period, ABT shall offset such excess against the next payment due to Edmund. b. [*] for each used car request form, plus [*] for each form in excess of 16,667 per calendar month, while exclusivity is in effect. Thereafter, [*] for each used car request form plus [*] for each form in excess of 16,667 per calendar month. Similar reconciliation as for the new car request forms. c. 25% of net origination fees paid to ABT from Chase Manhattan Automotive Finance Corporation and/or other providers of purchase and/or lease financing with respect to purchase requests received through Edmund. 4. Upon execution hereof, ABT to pay Edmund $275,000 as a deposit against future payments (to be offset by ABT in 10 installments of $27,500 beginning with the payment due by ABT in August 1997 in respect of July 1997, or to be paid in full if the agreement is terminated). Edmund agrees to waive any right of offset or any other defenses to its unconditional obligation to pay such amount back to ABT on such terms. 2 [*] Confidential treatment requested. 5. Effective date of this amendment: June 1, irrespective of when the long-form agreement is executed. All fees reflected in this amendment to be paid in respect of requests forms submitted on or after June 1, 1997. 6. All Information from consumers is jointly owned by ABT and Edmund, and both parties have unrestricted rights to use and/or sell such information. 7. "Duplicate forms" issue: Edmund will be paid based on ABT's method of acceptance/rejection of forms. 8. Location of forms: a. New cars: to remain on Edmund site and Edmund will coordinate with ABT to ensure that consumers have a seamless transfer to ABT for financing. b. Used cars: will reside on ABT server; however, there will be appropriately-placed links back to Edmund. 9. Transmissions of data: c. New cars: no changes from current arrangement. d. Used cars and financing: ABT to e-mail to Edmund all information submitted by consumers while on the ABT server (other than financial information), and the consumer's search criteria. e. At end of each month, ABT to send Edmund the aggregate number of financings consummated by Edmund's consumers. 10. ABT and Edmunds will cooperate with one another on the issuance and timing of a press release. Agreed to and accepted this 6th day of June 1997: AUTO-BY-TEL MARKETING CORPORATION EDMUND PUBLICATIONS CORP. BY: /s/ MARK LORIMER By: /s/ PETER STEINLAUF ---------------------------------- ---------------------------------- Mark Lorimer Peter Steinlauf, President Executive Vice President and Chief Operating Officer 2 EX-10.13 3 FINANCING INQUIRY REFERRAL AGREEMENT 1 EXHIBIT 10.13 EXECUTION COPY FINANCING INQUIRY REFERRAL AGREEMENT This FINANCING INQUIRY REFERRAL AGREEMENT ("Agreement"), dated as of October 25, 1996, between Chase Manhattan Automotive Finance Corporation, a Delaware corporation ("CAF"), with its principal place of business at 900 Stewart Avenue, Garden City, New York 11530, on the one hand, and Auto-By-Tel Acceptance Corporation ("ABTAC"), a Delaware corporation, with its principal place of business at 18722 MacArthur Blvd., Irvine, CA 92612 and Auto-By-Tel, Inc. ("ABT"), a Delaware corporation, located at 18722 MacArthur Blvd., Irvine, CA 92612, as guarantor of the obligations of ABTAC under this Agreement, (in such capacity, the "Guarantor"). W I T N E S S E T H WHEREAS, ABTAC is in the business of, among other things identifying persons interested in arranging financing for the purchase or lease of new and used Vehicles and trucks ("Vehicles") who visit the ABT Internet website and purchase a new Vehicle ("Customers") and CAF and Chase Manhattan Bank U.S.A., N.A. (hereinafter referred to collectively in the singular as "CAF") is in the business of extending financing to certain persons for the purchase and lease of Vehicles; and WHEREAS, ABTAC desires to refer such Customers to CAF, and CAF desires to purchase from Dealers (as defined herein) retail installment sale contracts originated by such Dealers to finance the purchase of new motor Vehicles only (excluding recreational vehicles) (such transactions, "RFTs") and to pay marketing fees in connection with RFTs purchased by CAF as a result of ABTAC's referrals; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, ABTAC and CAF agree as follows: SECTION 1. FINANCING PROGRAM (a) ABTAC shall cause to be included on the ABT Website an application for credit containing requests for the information designated by CAF as set forth on Exhibit A hereto (the "Application"). The Application shall request the information specified by CAF and shall be in a form reasonably satisfactory to CAF. CAF may request changes from time to time in the information solicited by the Application and, provided the requests are made in writing and with reasonable notice, 2 ABTAC shall use its best efforts to promptly accommodate such requests; provided, however, that CAF shall use its best efforts not to request changes to the information requested by, or form of, the Application (unless such changes are required by law) more often than once in any three-month period; provided, further, if such changes are required by law, and CAF gives ABTAC 30 days notice, ABTAC shall honor such requested change within such thirty (30) day period. (b) Unless it already has done so, CAF will enter into its standard dealer agreement ("Closing Agreement") with each seller of Vehicles in the United States and the District of Columbia (the "Territory") who has executed an on-line purchase referral agreement with ABT (each, a "Dealer," and together the "Dealers"). The Closing Agreement shall contain customary terms no less favorable to the Dealers than CAF's customary agreements in use with its other financing programs and shall govern the terms upon which the Dealer and CAF will close vehicle financing transactions referred through this Agreement. Upon execution of a Closing Agreement, CAF shall assign such Dealer an identifying number (the "Dealer ID") and inform ABTAC of such number. CAF may terminate its relationship with any Dealer at any time for any reason, subject to the terms and conditions of its Closing Agreement with such Dealer. CAF shall notify ABT if it terminates any such Dealer under the provisions of its Closing Agreement with such Dealer. Notwithstanding the foregoing, CAF shall not be obligated to enter into a Closing Agreement or otherwise do business with any Dealer which CAF has determined it will not do any business. (c) Except as specified to the contrary in this Agreement, ABTAC (i) shall not be a party to, (ii) shall not have any obligations with respect to, and (iii) shall be held harmless by each Dealer and CAF with respect to any losses or liabilities arising from or in connection with, the Closing Agreements. If for any reason the Closing Agreement between a Dealer and CAF is terminated, then CAF shall be under no obligation to approve any Application received from Customers of such Dealer. (d) CAF agrees to offer a buy-rate for each approved Customer credit application at terms no less favorable than those offered to the applicable Dealer by CAF. For each Customer credit application approved, CAF agrees to inform ABTAC of the buy-rate offered to the applicable Dealer for RFTs. On a monthly basis, the buy rate for RFTs purchased from Dealers by CAF that month shall average no higher than 210 basis points over the 18-month treasury (the "Base Range"). CAF may, upon 90 days written notice (a "Base Range Notice") to ABTAC, raise the Base Range. Subject to the ability of CAF to handle the systems issues involved, as reasonably determined by CAF, and pursuant to a methodology to be agreed upon by CAF and ABTAC, from time to time, upon ten (10) business days written request from ABTAC, CAF shall raise the buy rate offered on RFTs, up to a limit 50bps over the life of the term of this Agreement, which raise shall be paid to ABTAC in the form of an increase in the fees paid to ABTAC by CAF pursuant to Section 6. Such increase in fees shall be determined by reference to the present value 2 3 of such rate raise determined in accordance with the assumptions employed by CAF for its valuation of excess spread on the portion of the excess spread CAF retains on such loan. (e) For so long as the "Exclusivity Conditions" (as defined below) are met, CAF shall not enter into any agreement or arrangement similar to this Agreement with any other Internet automobile buying, purchase assistance, or automotive pricing information program or service, whereby the Internet program or service provider receives or solicits credit information from its customers to finance the purchase of new motor vehicles only (excluding recreational vehicles), forwards that information for credit review to CAF and CAF purchases that customer's retail installment sales contract originated by an automobile dealer that has executed an on-line purchase or financing referral agreement or similar agreement with the Internet program or service provider; provided, however, that (i) CAF's rights to and/or use of IBM's Auto Loan Exchange System for indirect dealer financing shall not violate the provisions of this Section 1(e); and (ii) CAF, any affiliate of CAF or any person controlled by or under common control with CAF may, after the date hereof, acquire control (through merger, acquisition, consolidation or purchase of all or substantially all of the assets) of any corporation or other entity (other than a corporation or entity which has as its primary line of business services substantially similar to ABT and ABTAC) which at the time of such acquisition is engaged in a business or service substantially similar to that contemplated by this Agreement, so that such corporation or entity (including the surviving or continuing entity in any acquisition effective on a merger, consolidation or purchase of assets) shall not violate the provisions of this Section 1(e). CAF shall not use or participate in the use of the ABTAC Marks (as defined in Schedule 2) in conjunction with the offering or making of any automobile finance product or product related thereto on the Internet. For purposes of this Agreement, the term "Exclusivity Conditions" shall mean the occurrence of the following two conditions: (i) ABTAC forwards to CAF not less than 51% of the Applications for RFTs ABTAC receives from Customers who qualify for financing from or through ABTAC within the Base Range; and (ii) Of the Applications received by CAF from ABTAC, not less than 30% result in an RFT purchased from a Dealer. (f) From time to time, ABTAC shall forward to CAF Applications received from Customers. CAF shall review each forwarded Application and, if such Application does not represent a credit which CAF will approve within the Base Range, CAF shall so inform ABTAC and ABTAC may forward such Application to another financing source. 3 4 (g) ABTAC will be responsible for informing Dealers of the nature of CAF's financing program. ABTAC will provide CAF with a list of the Dealers with addresses so that CAF may forward Closing Agreements to them for signature. CAF shall provide ABTAC with a copy of the form of Closing Agreement. (h) ABTAC shall comply at all times with the provisions of the federal Fair Credit Reporting Act and the Equal Credit Opportunity Act as well as the so-called "fair lending" laws, in each case pertaining to the performance of its obligations under this Agreement: including but not limited to the following: (A) ABTAC will not submit any Application or credit information to CAF with respect to applicants if ABTAC has any knowledge that such Application, credit information or applicant is fraudulent, or that the Application or credit information contains information which ABTAC knows is untrue; and (B) ABTAC will, on its Website, advise each applicant that his/her Application may be submitted to Chase Manhattan Bank USA, N.A., 802 Delaware Avenue, Wilmington DE 19801, or such other address as CAF may specify from time to time. SECTION 2. RECEIPT AND TRANSMISSION OF APPLICANT INFORMATION (a) Subject to the provisions of Section 1 (f), ABTAC will transmit each completed Application to CAF by telephone, telefax, e-mail, or other electronic or agreed upon means. When transmitting an Application to CAF, ABTAC will also designate the Dealer that is to be notified of the credit decision. (b) ABTAC will not use any such information in any manner which violates applicable law in effect from time to time. SECTION 3. UNDERWRITING (a) Upon receipt, CAF will review each Application in accordance with its underwriting criteria in effect from time to time. ABTAC acknowledges that CAF has sole discretion in determining whether or not to approve an Application, which discretion CAF agrees to exercise in a manner consistent with its company-wide or market-wide underwriting procedures, as the case may be. CAF shall inform ABTAC whether an Applicant has been approved, conditionally approved or denied, but shall not reveal the reasons it has denied any Application. (b) CAF will complete its review of no less than 50% of the Applications within the two (2) business hours after electronic receipt of the Application and a further 80% of the Applications within four (4) business hours of 4 5 such time. Compliance with these performance standards shall be measured on a monthly basis. If CAF fails to comply with these performance standards, ABTAC's sole remedy shall be to terminate this Agreement pursuant to Section 9(b). CAF's business hours will be 8:00 a.m. to 9:00 p.m. Eastern Time, each day of the year, except for those days banks located in New York are required to close. Subject to the mutual agreement of the parties, the parties shall review the foregoing business hours and expand same if justified economically by business volume. (c) CAF reserves the sole right and power to change the Underwriting Criteria in accordance with sound lending practices consistent with CAF's normal business practices and subject to applicable law, and further to suspend, restrict or modify the purchase of RFTs from Dealers in any portion of the Territory for any reason. CAF shall provide ABTAC with advance written notice, given as early as practicable, of any actions under this clause (c) it plans to implement. Any such actions shall be taken in good faith and only if consistent with actions taken by CAF on a company-wide basis. SECTION 4. COMMUNICATION OF CREDIT DECISIONS At the completion of underwriting, subject to the time-frames set forth in Paragraph 3(b) of this Agreement, CAF will notify ABTAC, [via E-MAIL] or such other method as agreed upon by the parties from time to time, of CAF's credit decision, and ABTAC shall use its best efforts to promptly notify the Dealer and the Applicant on behalf of the Dealer and CAF of CAF's credit decision, and in any event shall notify no less than 80% of such Dealers and Applicants within two business hours. If CAF declines a request for credit, CAF will send to the Applicant any and all notices required pursuant to federal or applicable state law or regulation including, but not limited to, those required under the federal Equal Credit Opportunity Act and Federal Reserve Regulation B. CAF shall not provide Applications received from ABTAC which do not result in an RFT purchase from a Dealer to any other financing source, including without limitation, ProCredit Corp. SECTION 5. CLOSING AND FUNDING CAF and the Dealer shall use its best efforts to close approved financing within 24 business hours after receipt from the Dealer of all properly completed and required documentation pursuant to the terms of the Closing Agreements. CAF will remit the proceeds of each purchased RFT to the related Dealer in a timely manner. 5 6 [*] Confidential Treatment Requested SECTION 6. COMPENSATION (a) During the term of this Agreement, CAF shall pay ABTAC a service fee, in the amounts determined by reference to Exhibit A, and during the term of this Agreement, CAF shall pay to each Dealer a service fee, in the amounts determined by reference to Exhibit A and further subject to the terms of the Closing Agreement for each RFT purchased under the terms of this Agreement. The payment to ABTAC shall be made on the business day following any funding and the payment to Dealer shall be made in accordance with the terms of the applicable Closing Agreement. Dealer may markup CAF's buy rate, up to a maximum of 100 bps, subject to the terms of the Closing Agreement and any applicable agreement between the Dealer and ABTAC, which shall be provided to CAF. Dealers will earn reserves in accordance with CAF's standard practices in connection with any such mark up, subject to the terms of the Closing Agreement. (b) ABTAC may appoint public accountants of its choice no more than once during any 12 month period, and at its sole expense, for the purpose of auditing CAF's compliance with the compensation provisions specified in Section 6 of this Agreement and CAF agrees to grant such accountants access, during normal business hours and upon reasonable notice, to all records necessary to determine the compliance of CAF with the compensation provisions of Section 6 of this Agreement. If the results of such audit reveal a discrepancy between the amounts paid by CAF hereunder and the amounts which should have been paid hereunder, then the appropriate payments shall be made (i) if to ABTAC, immediately, and (ii) if to CAF, by the withholding of 1/6th of such amount from the payments to be made to ABTAC over the succeeding six months with any balance due hereunder payable on the 180th day notwithstanding any termination of this Agreement. If the discrepancy is in ABTAC's favor and exceeds $250,000, then CAF shall reimburse ABTAC for the full cost of the audit. SECTION 7. REPORTS (a) Each business day, via facsimile or such other method as agreed upon by the parties from time to time, CAF will send to ABTAC a report identifying each RFT to an Applicant, sorted by Dealer ID, that was purchased from a Dealer on the preceding day (or, in the case of a report submitted on a Monday, each RFT purchased from a Dealer on each of the three preceding days). (b) On or before the 10th day of each month, via facsimile or such other method as agreed upon by the parties from time to time, CAF will send to ABTAC a report, sorted by Dealer ID, outlining for the preceding month (i) the number of Applications received from ABTAC, (ii) the number of Applications that were approved, (iii) the number of Applications that were denied, (iv) the number of Applications pending at month-end, and (v) the average processing time for 6 7 Applications, and the amount financed under each RFT. In the case of the information set forth in clauses (i), (ii) and (iii) of the preceding sentence, the report shall identify each Application by name of applicant. CAT shall include with such report, a report indicating any Dealers which executed a Closing Agreement and any Closing Agreements which terminated. (c) On or before the 10th day of each month, via facsimile or such other method as agreed upon by the parties from time to time, CAF will send to ABTAC a report on the performance of RFTs purchased from Dealer detailing, for each month this Agreement shall have been in effect, the number and aggregate outstanding balance of (i) RFTs purchased during the month, (ii) RFTs in a current status, (iii) RFTs more than 30 but less than 60 days delinquent, (iv) RFTs more than 60 but less than 90 days delinquent, and (v) RFTs more than 90 days delinquent, (vi) repossessions and repossession ratio, (vii) gross and net charge-offs and loss ratios. This monthly report will be provided on an overall portfolio basis with respect to RFTs purchased from Dealers. (d) ABTAC agrees to maintain complete and accurate books and records and procedures concerning the taking and referral of Applications and credit information and compliance with all applicable law. Throughout the term of this Agreement, and for a period of twenty five (25) months after the termination of this Agreement, CAF, its duly authorized agents, representatives or employees or federal or state agencies having jurisdiction over CAF, may from time to time, upon reasonable notice and during normal business hours, inspect such books, records and procedures to ensure compliance with ABTAC's obligations concerning the taking and referral of Applications and credit information under this Agreement and compliance with all applicable law. (e) On or before the 10th day of each month, via facsimile or such other method as agreed upon by the partners from time to time, ABTAC will send to CAF a report specifying for the preceding month, the number of Applications for RFTs ABTAC receives from customers who qualified that month for financing from or through ABTAC within the Base Range. SECTION 8. INDEMNIFICATION (a) ABTAC shall defend, indemnify and hold harmless CAF and its affiliates and all of its and their officers, directors, owners, agents, attorneys, and employees, from and against any and all loss, liability, claims, counterclaims, damage, cost or expense (including reasonable attorney's fees and costs), whether asserted in a judicial or administrative proceeding, arising out of either (i) a breach of the representations and warranties of ABTAC designated on Schedule 2 as items A(l), A(2), A(3), A(4), A(6) or A(7); (ii) a breach of the provisions of Section 1(h); (iii) the receipt of a Customer's Application information by any person or entity other than CAF or 7 8 another entity that has a business relationship with ABTAC and a permissible purpose to receive such information, by hacking or by any other authorized or unauthorized method, unless such person or entity obtained or received such information directly or indirectly from CAF; or (iv) any gross negligence or intentional misconduct of ABTAC in connection with ABTAC's performance of its obligations under this Agreement. (b) CAF shall defend, indemnify and hold harmless ABTAC and its affiliates and all of its and their officers, directors, owners, agents, attorneys, and employees, from and against any and all loss, liability, claims, counterclaims, damage, cost or expense including reasonable attorney's fees and costs), whether asserted in a judicial or administrative proceeding, arising out of either (i) a breach of the representations and warranties of CAF designated on Schedule 2 as items B(1), B(2), B(3), B(4), B(6) or B(7); or (ii) any gross negligence or intentional misconduct of CAF in connection with CAF's performance of its obligations under this Agreement. (c) Promptly after the receipt by either party hereto of notice of any claim, action, suit or proceeding of any third party which is subject to indemnification hereunder, such party (the "Indemnified Party") shall give written notice of such claim to the party obligated to provide indemnification hereunder (the "Indemnifying Party"), stating the nature and basis of such claim and the amount thereof, to the extent known. Failure of the Indemnified Party to give such notice shall not relieve the Indemnifying Party from any liability which it may have on account of this indemnification or otherwise, except to the extent that the Indemnifying Party is materially and adversely prejudiced thereby. The Indemnifying Party shall be entitled to participate in the defense of and, if it so chooses, to assume the defense of, or otherwise contest, such claim, action, suit or proceeding with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party. Upon the election by the Indemnifying Party to assume the defense of, or otherwise contest, such claim, action, suit or proceeding, the Indemnifying Party shall not be liable for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof. Although the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnified Party, if, and only to the extent that (i) the Indemnifying Party has not employed counsel or counsel reasonably acceptable to the Indemnified Party to assume the defense of action within a reasonable time after receiving notice of the commencement of the action, (ii) the employment of counsel and the amount reimbursable therefor by the Indemnified Party has been authorized in writing by the Indemnifying Party or (iii) representation of the Indemnifying Party and the Indemnified Party by the same counsel would, in the opinion of such counsel, constitute a conflict of interest (in which case the Indemnifying Party will not have the right to direct the defense of such action on behalf of the Indemnified Party). The parties shall use commercially reasonable efforts to minimize Losses from claims by third parties and shall act in good faith in responding to, defending against, settling or 8 9 otherwise dealing with such claims, notwithstanding any dispute as to liability as between the parties under this Article 9. The parties shall also cooperate in any such defense, give each other full access to all information relevant thereto and make employees and other representatives available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Whether or not the Indemnifying Party shall have assumed the defense, the Indemnifying Party shall not be obligated to indemnify the other party hereunder for any settlement entered into without the Indemnifying Party's prior written consent, which consent shall not be unreasonably withheld. The Indemnifying Party shall not compromise or settle any claim, action, suit or proceeding, without the consent of the Indemnified Party (which consent shall not be unreasonably withheld) unless the terms of such settlement or compromise release the Indemnified Party from any and all liability with respect to such claim, action, suit or proceeding. SECTION 9. TERM AND TERMINATION (a) This Agreement shall remain in effect for a period of three (3) years from the date hereof unless terminated by either party upon one hundred eighty (180) days prior written notice. This Agreement shall also terminate if required by governmental authority or court of law, but only insofar as this Agreement applies to such jurisdiction affected. (b) If any party shall be in breach of any material obligation under this Agreement and such breach shall remain uncured for a period of thirty (30) days after written notice thereof from the other party (or, if such breach is curable and requires more than thirty (30) days to cure, if such cure is not commenced within thirty (30) days and thereafter diligently prosecuted), then the other party may, by written notice sent, terminate this Agreement upon 30 days after delivery of such notice. Non-payment of amounts due under this Agreement shall be deemed to be a breach of a material obligation hereunder, but institution of suit for payment of amounts due under this Agreement shall not be deemed to be an automatic termination hereunder. Notwithstanding anything in this Agreement to the contrary, either party has the right to terminate this Agreement immediately, upon written notice to the other party, if the other party's breach of any material obligation of this Agreement causes the non-breaching party to be in violation of any applicable law, rule, regulation or order. (c) ABTAC may terminate this Agreement on thirty (30) business days notice at any time between the receipt of a Base Range Notice and the date specified in such notice for the increase in the Base Range. (d) Notwithstanding paragraph 9(a) above, CAF may terminate this Agreement on thirty (30) days written notice if, on the first business day of any calendar month, the Exclusivity Conditions have not been met during the most 9 10 recently completed six (6) month period, measured on a weighted average basis. For any six month period, CAF's right under this Section 9(d) shall expire on the fifteenth day of the month following the end of such period, but shall have no effect on any right CAF may have to terminate under any other provision of this Agreement. (e) At any party's option, and upon written notice of exercise of the option, this Agreement shall terminate upon the voluntary or involuntary bankruptcy or insolvency of a party, the voluntary or involuntary dissolution or liquidation of a party, the admission in writing by a party of its inability to pay its debts as they mature, or the assignment by a party for the benefit of creditors. SECTION 10. NOTICES All notices or transmissions pursuant to this Agreement, unless otherwise specified, shall be by facsimile transmission, by personal delivery, or by registered or certified mail, return receipt requested, to the addresses of the parties listed on Schedule 1 hereto, or such other address as any party listed below shall specify in writing to the others in a notice conforming to this Section. SECTION 11. GUARANTEE The Guarantor hereby unconditionally and irrevocably guarantees to CAF, its successors, endorsees and assigns, the performance when due of all present and future obligations and liabilities of all kinds of ABTAC arising out of or in connection with the Agreement, whether due or to become due, secured or unsecured, absolute or contingent, joint or several ("Obligations"). The Guarantor agrees that CAF and ABTAC may mutually agree to modify the Obligations or any agreement between CAF and ABTAC without in any way impairing or affecting this Guarantee. The Guarantor agrees that the liability hereunder will not be affected by any settlement, extension, renewal, or modification of this Agreement or by the discharge or release of the Obligations of ABTAC, whether by operation of law or otherwise. The Guarantor agrees to also be liable for all fees and costs, including reasonable attorney's fees, incurred by CAF in enforcing the terms of this guarantee. SECTION 12. REPRESENTATIONS, GENERAL The representations and warranties set forth on Schedule 2 to this Agreement and the provisions of general application set forth on Schedule 3 to this Agreement are incorporated herein by reference and shall have the same force and effect as if set forth herein in their entirety. 10 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officer on the date first above written. CHASE MANHATTAN AUTOMOTIVE FINANCE CORPORATION By: /s/ [SIG] ------------------------------------------- Title: President ---------------------------------------- AUTO-BY-TEL ACCEPTANCE CORPORATION By: ------------------------------------------- Title: ---------------------------------------- AUTO BY-TEL, INC., as Guarantor By: ------------------------------------------- Title: ---------------------------------------- 11 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officer on the date first above written. CHASE MANHATTAN AUTOMOTIVE FINANCE CORPORATION By: ------------------------------------------- Title: ---------------------------------------- AUTO-BY-TEL ACCEPTANCE CORPORATION By: /s/ [SIG] ------------------------------------------- Title: Chief Operating Officer ---------------------------------------- AUTO BY-TEL, INC., as Guarantor By: /s/ [SIG] ------------------------------------------- Title: President ---------------------------------------- 12 13 EXHIBIT A to Financing Inquiry Referral Agreement, dated as of October 25, 1996, between Chase Manhattan Automotive Finance Corporation, and Auto-By-Tel Acceptance Corporation and Auto-By-Tel, Inc., as guarantor (the "Agreement") COMPENSATION SCHEDULE Capitalized terms used in this Exhibit and not defined herein shall have the meanings ascribed thereto in the Agreement. The following compensation shall be paid for each financing contract (RFT or lease) funded pursuant to the Agreement: Fee to ABTAC ------------ Amount Financed Flat Fee --------------- -------- $25,000 + $125 15,001 - 25,000 100 10,000 - 15,000 50 < $10,000 0 Fee to Dealer ------------- Amount Financed Flat Fee --------------- -------- $25,000 + $75 15,001 - 25,000 50 10,000 - 15,000 25 < $10,000 25 Contracts or title documents which have to be returned to the Dealer for the correction of errors and omissions will not require payment, and will not be funded, until corrected documents are received and accepted by CAF. All amounts paid to Dealer shall be subject to the terms of the Closing Agreements. Exhibit A - Page 1 of 1 14 SCHEDULE 1 to Financing Inquiry Referral Agreement, dated as of October 25, 1996, between Chase Manhattan Automotive Finance Corporation, and Auto-By-Tel Acceptance Corporation and Auto-By-Tel, Inc., as guarantor (the "Agreement") NOTICES Capitalized terms used in this Schedule and not defined herein shall have the meanings ascribed thereto in the Agreement. If to CAF: Chase Manhattan Automotive Finance Corporation 900 Stewart Avenue Garden City, New York 11530 Attention: Anthony Langan, Marketing Executive, or his successor If to ABTAC: AUTO-BY-TEL ACCEPTANCE CORPORATION 18722 MacArthur Blvd. Irvine, CA 92612 Attention: Peter Ellis, President, or his successor If to ABT: AUTO-BY-TEL, INC. 18722 MacArthur Blvd. Irvine, CA 92612 Attention: Peter Ellis, President, or his successor Schedule 1 - Page 1 of 1 15 SCHEDULE 2 to Financing Inquiry Referral Agreement, dated as of October 25, 1996, between Chase Manhattan Automotive Finance Corporation, and Auto-By-Tel Acceptance Corporation and Auto-By-Tel, Inc., as guarantor (the "Agreement") REPRESENTATIONS AND WARRANTIES Capitalized terms used in this Schedule and not defined herein shall have the meanings ascribed thereto in the Agreement. (A) Representations and Warranties of ABTAC. ABTAC hereby makes the following representations and warranties to CAF: (1) ABTAC has been duly organized and is validly existing as a corporation under the laws of the state of Delaware and is duly licensed where required as a "Licensee" or is otherwise qualified in each state in which it transacts business and is not in default of such state's applicable laws, rules and regulations, except where the failure to so qualify or such default would not have a material adverse effect on its ability to conduct its business or to perform its obligations under the Agreement. (2) ABTAC has the requisite power and authority and legal right to execute and deliver the Agreement, engage in the transactions contemplated by the Agreement, and perform and observe those terms and conditions of the Agreement to be performed or observed by it hereunder. The person signing the Agreement, and any document executed pursuant to it, on behalf of ABTAC has full power and authority to bind ABTAC. The execution, delivery and performance of the Agreement, and the performance by ABTAC of all transactions contemplated therein, have been duly authorized by all necessary and appropriate corporate action on the part of ABTAC. (3) The Agreement has been duly authorized and executed by ABTAC and is valid, binding and enforceable against ABTAC in accordance with its terms, except that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally, and the execution, delivery and Schedule 2 - Page 1 of 3 16 performance by ABTAC of the Agreement do not conflict with any term or provision of (i) its certificate of incorporation or bylaws, (ii) any law, rule, regulation, order, judgment, writ, injunction or decree applicable to ABTAC of any court, regulatory body, administrative agency or governmental body having jurisdiction over ABTAC or (iii) any agreement to which ABTAC is a party or by which its property is bound. (4) No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required under applicable law in connection with the execution, delivery and performance by ABTAC of the Agreement. (5) There is no action, proceeding or investigation pending or, to the best knowledge of ABTAC, threatened against it before any court, administrative agency or other tribunal (i) asserting the invalidity of the Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Agreement, or (iii) which could reasonably be expected to materially and adversely affect its performance of its respective obligations under, or the validity or enforceability of, the Agreement. (6) ABTAC has all regulatory approvals, authorizations, licenses, permits and other permissions, consents and authorities whatsoever, needed to operate the ABT Website and perform ABTAC's obligations under the Agreement. (7) ABTAC warrants that it has the legal and valid right to use any registered or unregistered trademark, tradename, service mark, logo, emblem or other proprietary designation, or any variations, derivatives and modifications thereof, used by it in the materials provided to CAF or used by ABTAC in connection with the Agreement (the "ABTAC Marks"). (B) Representations and Warranties of CAF. CAF hereby makes the following representations and warranties to ABTAC: (1) CAF is duly licensed where and as required in each state in which it transacts business and is not in default of such state's applicable laws, rules and regulations, except where such default would not have a material adverse effect on the ability of CAF to conduct its business or to perform its obligations under the Agreement. (2) CAF has the requisite power and authority and legal right to execute and deliver, engage in the transactions contemplated by, and perform and observe the terms and conditions of, the Agreement. The person or persons signatory to the Agreement and any document executed pursuant to it on behalf of CAF have full power and authority to bind CAF. The execution, delivery and performance of the Agreement, and the performance by CAF of all transactions contemplated therein, have Schedule 2 - Page 2 of 3 17 been duly authorized by all necessary and appropriate and corporate action on the part of CAF. (3) The Agreement has been duly authorized and executed by CAF and is valid, binding and enforceable against CAF in accordance with its terms, except that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally, and the execution, delivery and performance by CAF of the Agreement do not conflict with any term or provision of the certificate of incorporation or bylaws of CAF, or any law, rule, regulation, order, judgment, writ, injunction or decree applicable to CAF of any court, regulatory body, administrative agency or governmental body having jurisdiction over CAF. (4) No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required under applicable law in connection with the execution, delivery and performance by CAF of the Agreement. (5) There is no action, proceeding or investigation pending or, to the best knowledge of CAF, threatened against it before any court, administrative agency or other tribunal (i) asserting the invalidity of the Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Agreement, or (iii) which could reasonably be expected to materially and adversely affect the performance by CAF of its obligations under, or the validity or enforceability of, the Agreement. (6) CAF warrants that it has all regulatory approvals, authorizations, licenses, permits and other permissions, consents and authorities whatsoever, as needed (i) to offer and enter into the financing arrangements with Customers contemplated by the Agreement in each jurisdiction in the Territory and to otherwise perform its obligations under the Agreement, and (ii) to use any materials developed, provided or used by CAF in connection with the Agreement. (7) CAF warrants that it has the legal and valid right to use any registered or unregistered trademark, tradename, service mark, logo, emblem or other proprietary designation, or any variations, derivatives and modifications thereof, used by it in any materials provided to ABTAC or used by CAF in connection with the Agreement. Schedule 2 - Page 3 of 3 18 SCHEDULE 3 to Financing Inquiry Referral Agreement, dated as of October 25, 1996, between Chase Manhattan Automotive Finance Corporation, and Auto-By-Tel Acceptance Corporation and Auto-By-Tel, Inc., as guarantor (the "Agreement") PROVISIONS OF GENERAL APPLICABILITY Capitalized terms used in this Schedule and not defined herein shall have the meanings ascribed thereto in the Agreement. (a) Entire Agreement. Except as specified in paragraph (b) of this Schedule 3, the Agreement and the exhibits and schedules thereto constitute the entire agreement of the parties, and may be amended from time to time only upon the execution of a written amendment by the parties. The indemnities of Section 8 of the Agreement shall survive the termination thereof. (b) Confidentiality. Both ABTAC and CAF have made and will continue throughout the term of the Agreement to make available to the other party confidential and proprietary materials and information ("Proprietary Information"). Prospectively, each party shall advise the other of material and information that is confidential and/or proprietary. Proprietary Information does not include materials or information that: (a) are already, or otherwise become, generally known by third parties as a result of no act or omission of the receiving party; (b) subsequent to disclosure hereunder are lawfully received from a third party having the right to disseminate the information and without restriction on disclosure; (c) are generally furnished to others by the disclosing party without restriction on disclosure; (d) were already known by the receiving party prior to receiving them from the disclosing party and were not received from a third party in breach of that third party's obligations or confidentiality; or (e) are independently developed by the receiving party without use of confidential information of the disclosing party. (i) Each party shall maintain the confidentiality of the other's Proprietary Information and will not disclose such Proprietary Information without the written consent of the other party unless required to by law, rule, regulation or court Schedule 3 - Page 1 of 3 19 order of any applicable jurisdiction. Each party shall also keep confidential the terms of the Agreement and/or schedule hereto. The confidentiality provisions of the Agreement shall survive the termination of the Agreement. Notwithstanding any contrary provision of the Agreement, the confidentiality provisions of the two confidentiality agreements executed by the parties hereto prior to the date of the Agreement shall remain in full force and effect. (ii) Notwithstanding any contrary provision of the Agreement, as long as each party protects Proprietary Information of the other, neither the exposure to the other party's confidential information nor its ownership of work products shall prevent either party from using ideas, concepts, expressions, know-how, skills and experience possessed by either party prior to its association with the other party or developed by either party during its association with the other party. (c) Limitation of Liability. In no event shall either party be liable to the other party for any incidental, special, exemplary or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if advised of the possibility of such losses or damages and regardless of the form of action. (d) Assignment. Either party shall have the right to transfer or assign the Agreement to any direct or indirect wholly-owned subsidiary at no charge or penalty; provided, however, that such assignee assumes assignors obligations, and assignee remains liable hereunder. (e) Waiver. Neither party shall be deemed to be in default of any provision of the Agreement or be liable to the other party or to any third party for any delay, error, failure in performance or interruption of performance resulting directly or indirectly from causes beyond that party's reasonable control. The period of performance shall be extended to such extent as may be appropriate after the cause of the delay has been removed. If any excusable delay or failure to perform by a party exceeds thirty (30) days, the other party shall have the right to terminate the Agreement without liability. (f) Severability. If any provision of the Agreement is declared or found to be illegal, unenforceable or void, then both parties shall be relieved of all obligations arising under such provision, but only to the extent that such provision is illegal, unenforceable or void, it being the intent and agreement of the parties that the Agreement shall be deemed amended by modifying such provision to the extent necessary to make it legal and enforceable while preserving its intent or, if that is not possible, by substituting therefore another provision that is legal and enforceable and achieves the same objective. Each party agrees that it will perform its obligations hereunder in accordance with all applicable laws, rules and regulations now or hereafter in effect. Schedule 3 - Page 2 of 3 20 (g) Arbitration. The parties acknowledge that the Agreement evidences a transaction involving interstate commerce. Any controversy or claim arising out of or relating to the Agreement, or the breach of the same, shall be settled through consultation and negotiation in good faith and a spirit of mutual cooperation. However, if those attempts fail, the parties agree that any misunderstandings or disputes arising from the Agreement shall be decided by arbitration which shall be conducted, upon request by either party, in Orange County, California, before three (3) arbitrators (unless both parties agree on one (1) arbitrator) designated by the American Arbitration Association (the "AAA"), in accordance with the terms of the Commercial Arbitration Rule of the AAA, and, to the maximum extent applicable, the United States Arbitration Act (Title 9 of the United States Code), or if such Act is not applicable, any substantially equivalent state law. The parties further agree that the arbitrator(s) (i) will decide which party must bear the expense, of the arbitration proceedings; (ii) shall not have the authority to award punitive damages; and (iii) shall apply the internal laws of the State of California. Notwithstanding anything herein to the contrary, either party may proceed to a court of competent jurisdiction to obtain injunctive relief at any time. (h) Force Majeure. Neither party shall be deemed to be in default of any provision of the Agreement or be liable to the other party or to any third party for any delay, error, failure in performance or interruption of performance resulting directly or indirectly from causes beyond that party's reasonable control. The period of performance shall be extended to such extent as may be appropriate after the cause of the delay has been removed. (i) Media Releases. ABTAC and CAF may utilize media releases to publicize their business relationship with the prior approval of the other party which shall not be unreasonably withheld. ABTAC and CAF shall not use any trade name, service mark or any other information which identifies the other in sales, marketing, advertising and publicity materials placed in any medium without obtaining the prior written approval of the other. (j) Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. (k) No Agency: No Joint Venture. Neither of ABTAC nor CAF is the agent or representative of the other. Nothing contained herein nor the acts of the parties hereto shall be construed to create a partnership, agency or joint venture between ABTAC and CAF. (l) Counterparts. The Agreement may be signed in two or more counterparts, each of which shall be deemed an original, and taken together they shall be considered one agreement. Schedule 3 - Page 3 of 3 EX-10.18 4 LISTINGS DISTROBUTION 1 Exhibit 10.18 [*] Confidential Treatment has been requested for certain portions of this exhibit. CLASSIFIEDS2000 LISTINGS DISTRIBUTION, SPONSORSHIP, DISPLAY ADVERTISING AND NETWORK AFFILIATION AGREEMENT This LISTINGS DISTRIBUTION, SPONSORSHIP, DISPLAY ADVERTISING AND NETWORK AFFILIATION AGREEMENT (the "Agreement") is between CLASSIFIEDS2000, INC., a California corporation having its place of business at 617 Palomar Avenue, Sunnyvale, CA 94086 ("Classifieds2000"), and AUTO-BY-TEL, CORPORATION, a Delaware Corporation, having its place of business at 18872 MacArthur Blvd., 2nd Floor, Irvine, CA 92612 ("Customer"). This Agreement is effective as of May 29, 1998 (the "Effective Date"). WHEREAS, Classifieds2000 is the creator and administrator of an Internet classifieds service (the "Classifieds2000 Service"); WHEREAS, Customer is in the business of distributing Vehicle Listings ("Classified Advertisements" or "Listings") and offering other services on its own Web site and elsewhere on the Internet on behalf of its clients; WHEREAS, Customer desires to: (a) license Classifieds2000 to distribute Classified Advertisements through the Classifieds2000 Service; (b) be one of four (4) sponsors of the Classifieds2000 Vehicles Channel; (c) display banner and in-line text advertorials through the Classifieds2000 Vehicles category; and (d) be a Network Affiliate of the Classifieds2000 Network, as the Classifieds2000 Network presently exists or is augmented or supplemented from time to time during the term of this Agreement. WHEREAS, Customer and Classifieds2000 desire that this new Agreement replace any and all oral or written agreements or understandings between the parties as to the subject matter of this Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. SERVICES. Classifieds2000 will provide to Customer the services described in this section. For the purposes of this section, a Listing means a single used vehicle listing that is delivered to Classifieds2000 according to the Classifieds2000 Standard Vehicle Upload Specification. A summary of such services is shown in Attachment A. 1.1. DISTRIBUTION OF LISTINGS. Classifieds2000 will distribute all Listings provided by Customer within the Vehicles section of the Classifieds2000 Service. Customer may include listings from DealerSites.com in the Listings feed that it sends to Classifieds2000. Classifieds2000 will provide Customer with the ability to remotely and automatically upload and update the Listings it distributes in the Classifieds2000 Service on a regular basis. The upload and update capability currently allows changes on a twenty four-hour basis. 1.1.1. DETAIL PAGE LAYOUT AND BRANDING. For each Listing distributed by Customer, Classifieds2000 will display a detail page in a layout exactly as Customer's Listings are displayed in the current Classifieds2000 Service. Each Listing will display the Customer logo and will contain links to additional pages describing Customer's services. An example of this layout is shown in Attachment B. 1.1.2. CONTACT REQUEST LEADS. Classifieds2000 will provide Customer with contact request leads via a specialized Customer enhanced email form that captures specific information and directly processes such information into Customer's contact request service. 1.2. NETWORK-WIDE EXPOSURE. Classifieds2000 will integrate and display Customer's branding throughout the Classifieds2000 Service in the manner described below in order to provide users with easy access from various points within the Vehicles Channel of Classifieds2000's premier classifieds to the Customer Site. 1.2.1. CATEGORY-ENTRY SPONSOR BUTTON. Customer will be the exclusive Auto Buying Service Sponsor. As such, Customer shall receive a fixed presence logo link and FasTrak box on the Entry Page of the Vehicles Channel. The logo shall link to a page of Customer's choice. Minimum impressions from this box shall be one million (1,000,000) per month. 1.2.2. PRODUCTS AND SERVICES PAGE. Customer will receive a fixed presence logo, text link and two lines of text in the New Car Price Quotes Section of the Products and Services Page. The text link shall link to Customer's FasTrak new car buying form. Minimum impressions from this page shall be fourteen thousand (14,000) per month. Logo specifications shall be: 88x31 pixels. 1. 2 1.2.3. INLINE TEXT ADVERTORIALS. Customer will receive four (4) separate Text Advertorial links that will rotate randomly throughout the Search Results Grid of the Vehicles Channel of the Classifieds2000 Service. Minimum impressions from the Inline Text Advertorials shall be two million (2,000,000) per month. Inline text specifications shall be no greater than sixty (60) characters long; no mention of any company names or brands. 1.2.4. PAGE BOTTOM TEXT ADVERTISEMENTS. Customer will receive a Page Bottom Text Advertisement that will rotate on the Vehicle Search Results Pages and the Vehicle Details Pages of the Private Party Listings. These advertisements shall link to Customer's FasTrak new car buying form. Minimum impressions from the Page Bottom Text Advertisements shall be one million per month. 1.2.5. BANNER ADVERTISEMENTS. Customer will receive a minimum of five hundred thousand (500,000) banner impressions per month. Banner Specifications shall be 468 x 60 pixels; 10K maximum file size. 1.2.6. SEASONAL PROMOTIONS. Customer will be included in all relevant Classifieds2000 Service seasonal promotions for advertisers/sponsors that occur during the term of this Agreement. The impressions for this type of advertisement will vary. 1.3. CLASSIFIEDS2000 NETWORK AFFILIATION. Classifieds2000 will develop and offer the following network affiliation service to Member: 1.3.1. CONTENT AND TECHNOLOGY. Classifieds2000 will provide Customer with a private label classified advertising service including the Search Ad, Place Ad, Change Ad, Cool Notify and Hot List features ("Customer Classifieds"). The Customer Classifieds shall include the Vehicles category and any other classified categories selected by Member. The look and feel of the Customer Classifieds Service shall be as shown on: http://classifieds2000.com/cgi-cls/Display.exe?Customer-demo+class. 1.3.2. LISTINGS RESTRICTIONS. In the Vehicles category, the Customer Classifieds shall contain only private party listings provided by Classifieds2000. 1.3.3. ALL SERVICE UPGRADES AND NEW CATEGORIES. All new standard feature enhancements and categories will be added to the Customer Classifieds as they are released. 1.3.4. PROMOTION OF CUSTOMER CLASSIFIEDS ON WWW.AUTOBYTEL.COM/ ("CUSTOMER SITE"). Customer will provide a prominent home page link and tool/menu bar link to the Customer Classifieds from the Customer Site. 1.3.5. ADVERTISING SALES. No third party advertising or banners shall be displayed in the Customer Classifieds. 1.3.6. FREE SERVICE. Private parties will be able to list and view merchandise and services for free on Customer Classifieds. 1.3.7. EXCLUSIVITY. For the Term of this Agreement, Customer shall not enter into any on line co-branding or private label arrangements wherein any party (other than Classifieds2000) provides a private party classifieds service ("For Sale by Owner") to Customer. 1.3.8. CLASSIFIEDS2000 MARKS. A credit for the Classifieds2000 Service and a "Powered By Classifieds2000 - The Internet Classifieds" logo will be displayed on each page within the Customer Classifieds. 1.3.9. OPTION TO REMOVE OF CUSTOMER CLASSIFIEDS. Customer shall have the option of removing Customer Classifieds if it determines that it has a negative impact on Customer's Cyberstore service. 1.4. REPORTING. Classifieds2000 shall provide periodic reports by email to Customer outlining the number of banner impressions and total click-throughs delivered, number of Customer listings in the Classifieds2000 database, and detail pages viewed. Classifieds2000 shall commit to quarterly performance reviews to assess the quality of purchase requests being sent to Customer. Classifieds2000 shall commit to working closely with Customer to improve the quality of purchase requests throughout the term of this Agreement. 1.5. ADDITIONAL PER LISTING SERVICES. The fee for additional per listing services such as secondary detail pages will be on a per listing or setup fee basis 2. 3 [*] Confidential Treatment Requested 2. FEES. The fees for the services contemplated in this Agreement shall be as follows: 2.1 A flat fee of [*] per month for the Listings Distribution Services described in Section 1.1 together with the Network Affiliation Services described in Section 1.3 herein; plus 2.2 A flat fee of [*] per month for the Network Wide Exposure Services described in Section 1.2 herein; plus 2.3 A variable "Bounty" as follows: i. [*] per Unique New Car Purchase Request forwarded to Customer for the first seventy five thousand (75,000) Unique New Car Purchase Requests; ii. [*] per Unique New Car Purchase Request beginning with seventy five thousand and one (75,001) up to and including one hundred and fifty thousand (150,000) Unique New Car Purchase Requests; and iii. [*] per Unique New Car Purchase Requests after the first 150,000 new car purchase requests. 2.4 Classifieds2000 will guarantee a minimum of one hundred thousand (100,000) Unique New Car Purchase Requests over the term of this Agreement. 2.5 The total number of Unique New Car Purchase Request shall be calculated in accordance with Customer's standard de-duplication formula as set forth in item (i) on the attached Schedule C, incorporated herein by this reference. 2.6 All fees payable to Classifieds2000 shall be invoiced monthly at the beginning of the month. Fees due under this Agreement shall be paid within thirty (30) days of receipt of a statement of such payment obligations. In the event there is an unpaid thirty (30) days after payment is due, Customer shall also pay interest at the rate of the lesser of one and one-half (1.5%) per month or the then-highest interest rate allowed to be imposed by applicable law, plus Classifieds2000's reasonable costs of collection. 3. TERM. The term of this Agreement shall be as follows: 3.1 This Agreement shall have a stipulated start date of June 1, 1998, and shall remain in effect for one contract year ("Contract Year"). 3.2 A Contract Year shall be the longer of (a) twelve (1) consecutive months following the stipulated start date; or (b) that period of time following the stipulated start date deemed necessary for Classifieds2000 to deliver the guaranteed number of Unique New Car Purchase Requests as set forth in Section 2.3 above. Classifieds2000 agrees that in the event a Contract Year extends beyond twelve (12) months following the stipulated start date, then Classifieds2000 shall waive the fixed monthly cost associated with Section 2.2 of this Agreement until such time as the guaranteed number of Unique New Car Purchase Requests are delivered to Customer, and Customer shall only pay the variable fee per Unique New Car Purchase Request as identified in Section 2.2 above. 3.3 Upon the expiration of this Agreement, which shall be either the lapse of (12) months following the stipulated start date or upon the lapse of the Contract Year, whichever term is in effect, this Agreement will automatically renew on a monthly basis, unless either party provides thirty (30) days written notice of its election to not have this Agreement automatically renew. 3.4 After this Agreement has been in effect for twelve (12) consecutive months, either party may terminate or renegotiate the terms upon thirty (30) days written notice. 4. ADDITIONAL TERMS AND CONDITIONS. 4.1. CLASSIFIED ADVERTISEMENTS. Customer hereby authorizes Classifieds2000 to use, reproduce, publicly distribute and publicly display Classified Advertisements on the Classifieds2000 Service. Customer will be solely responsible for creating, managing, editing, reviewing, deleting and otherwise controlling the Listings. Customer will deliver to Classifieds2000 Customers' Classifieds Advertisements in the format specified by the document "Classifieds2000 Vehicle Listing Import Specification." Classifieds2000 and its affiliates may decline to include any Classified Advertisements in the Classifieds2000 Service for any reason or at any time. 3. 4 4.2. DISPLAY ADVERTISING. Electronic images and URLs must be submitted at least 3 days before the desired start date. GIFs and go-to URLs should be e-mailed to ron@classifieds2000.com. Classifieds2000 and its related parties reserve the right, at any time, and for any reason in its sole discretion to decline any advertising and to cease further publication of any advertising, and shall not be liable in any way, provided that any amounts received for advertising that is not published will be refunded. 4.3. TERMINATION. This Agreement may be terminated by the parties as follows: 4.3.1 This Agreement will terminate automatically in the event that Classifieds2000 decides, in its sole discretion, to stop operating its Web-accessible service. 4.3.2 Either party may terminate this Agreement after eight (8) months provided that sixty (60) days prior written notice is delivered. 4.3.3 Either party may terminate this agreement upon the material breach of the other party, if such breach remains uncured for thirty (30) days following written notice to the breaching party; except that Classifieds2000 may, by providing written notice, terminate this Agreement immediately if the monthly fees are not paid when due, as set forth herein. 4.3.4 Either Party may terminate this Agreement upon thirty (30) days written notice to Classifieds2000 upon the determination that the Unique New Car Purchase Requests forwarded to Customer fall below Customer's acceptable quality standard should such unacceptable quality standard remains uncured for sixty (60) days following written notice to the other party. For the purposes of this Agreement, Customer's quality standard shall be determined in accordance with the formula set forth in item (ii) on the attached Schedule C, incorporated herein by this reference. 4.3.5 Except for Classified Advertisements that Classifieds2000 requires for maintenance of its systems, upon the expiration or termination of this Agreement, Classifieds2000 will promptly remove the Classified Advertisements from its systems. Sections 2, 4.3, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11 and 4.12 shall survive any termination or expiration of this Agreement. 4.4. DISCLAIMER OF WARRANTIES. Classifieds2000 provides all Services performed hereunder "AS IS" and without any warranty of any kind. Classifieds2000 does not guarantee continuous or uninterrupted service to and use of the Services. In the event of interruption of Services, Classifieds2000's sole obligation shall be to restore service as soon as practicably and reasonably possible. 4.5. TRADEMARKS. Neither party may use the other party's trademarks, service marks, trade names, logos, or other commercial or product designations (collectively, "Marks") for any purpose whatsoever without the prior written consent of the other party. Notwithstanding the foregoing, each party grants to the other a revocable, non-exclusive, nontransferable, royalty-free, worldwide license to use each other's respective Marks (a) in conjunction with the Services for the purposes of marketing, promotion, and Classified Advertisements directories or indexes, and (b) in electronic or printed advertising, publicity, press releases, newsletters and mailings about the Services or Classifieds2000. 4.6. CLASSIFIEDS2000 SERVICE PROMOTION. Customer may not use the names of specific Classifieds2000 affiliates to promote, advertise, or publicly state, either verbally or in written form, that Customer's listings are being distributed on such affiliates' Web sites without explicitly stating that this distribution is enabled via an arrangement with Classifieds2000. 4.7. INDEMNITY. Customer agrees to defend, indemnify and hold harmless Classifieds2000 and its directors, officers, agents and employees for any and all losses, costs, liabilities or expenses (including without limitation reasonable attorneys' and expert witnesses' fees) incurred or arising from any Classified Advertisements. 4.8. LIMITATIONS ON LIABILITY. IN NO EVENT SHALL CLASSIFIEDS2000 BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING FROM BREACH OF CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY), OR FOR INTERRUPTED COMMUNICATIONS, LOST DATA OR LOST PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF CLASSIFIEDS2000 HAS BEEN ADVISED OF (OR KNOWS OR SHOULD KNOW OF) THE POSSIBILITY OF SUCH DAMAGES. UNDER NO CIRCUMSTANCES SHALL CLASSIFIEDS2000 BE LIABLE TO CUSTOMER OR ANY THIRD PARTIES FOR AN AMOUNT GREATER THAN THE AMOUNTS RECEIVED FROM CUSTOMER HEREUNDER. 4.9. GOVERNING LAW. This Agreement will be governed and construed in accordance with the laws of the State of California without giving effect to principles of conflict of laws. Customer agrees to submit to jurisdiction in California and further agrees that any cause of action arising under this Agreement may be brought in a court in Santa Clara County, California. 4. 5 4.10. SUCCESSORS AND ASSIGNS. Neither party may assign this Agreement without prior written consent of the other, except that no such consent shall be required for assignments in connection with the sale of all or substantially all of the assets or securities of a party or by merger (whether by operation of law or otherwise). The parties' rights and obligations will bind and inure to the benefit of their respective successors, heirs, executors and administrators and permitted assigns. 4.11. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding and agreement of the parties and supersedes any and all oral or written agreements or understandings between the parties as to the subject matter of this Agreement. This Agreement may be changed only by a written agreement signed by both parties. 4.12. CONFIDENTIALITY. This Agreement and its terms and conditions are confidential information of both parties. Neither party may disclose the terms and conditions hereof without the advance written consent of the other party. Signed: AUTO-BY-TEL, CORPORATION CLASSIFIEDS2000, INC. /s/ Mark S. Lockareff - ---------------------------- -------------------------------------- Customer Signature Signature /s/ Mark Lockareff - ------------------------------- -------------------------------------- Anne M. Benvenuto Mark Lockareff Senior Vice President, Marketing Vice President, Classified Advertising 6/4/98 - ------------------------------- -------------------------------------- Date Date 5. 6 4.10. SUCCESSORS AND ASSIGNS. Neither party may assign this Agreement without prior written consent of the other, except that no such consent shall be required for assignment in connection with the sale of all or substantially all of the assets or securities of a party or by merger (whether by operation of law or otherwise). The parties' rights and obligations will bind and inure to the benefit of their respective successors, heirs, executors and administrators and permitted assigns. 4.11 ENTIRE AGREEMENT. This Agreement set forth the entire understanding and agreement of the parties and supersedes any and all oral or written agreements or understandings between the parties as to the subject matter of this Agreement. This Agreement may be changed only by a written agreement signed by both parties. 4.12. CONFIDENTIALITY. This Agreement and its terms and conditions are confidential information of both parties. Neither party may disclose the terms and conditions hereof without the advance written consent of the other party. Signed: AUTO-BY-TEL, CORPORATION CLASSIFIEDS2000, INC. - ------------------------------- ------------------------------- Customer Signature Signature /s/ ANNE M. BENVENUTO - ------------------------------- ------------------------------- Anne M. Benvenuto Mark Lockareff Vice President, Classified Advertising - ------------------------------- ------------------------------- Date Date 5. 7 [*] Confidential Treatment Requested ATTACHMENT A
USED CAR PROGRAM FLAT FEE INCLUDES: Fixed Monthly [*] [*] ----------- ---------- - - Listings Distribution on Network - - Per Listing Branding & Links - - Unlimited Dealer Participation - - Unlimited Contact Request Leads - - FSBO Listings on ABT Site NEW CAR PROGRAM FLAT FEE INCLUDES: Fixed Monthly [*] [*] - - Exclusive Buying Service Sponsor - - Real Estate Slotting Fee - - Minimum guarantee of 4,514,000 imps per month PER NEW PURCHASE REQUEST Variable Monthly [*] - - 0 - 75,000 - [*] - - 75,001 - 150,000 - [*] - - 150,001 + - [*] - - Minimum guarantee of 100,000 new "PR's" during terms TOTAL MONTHLY FIXED [*] TOTAL ANNUAL FIXED [*] TOTAL VARIABLE (ESTIMATED*) PER MONTH MONTH # PRs S/PR TOTAL Jun-98 3,000 [*] [*] * BASED ON A MINIMUM GUARANTEE OF 100,000 PER MONTH Jul-98 5,000 [*] [*] Aug-98 6,000 [*] [*] Sep-98 7,000 [*] [*] Oct-98 7,000 [*] [*] Nov-98 8,000 [*] [*] Dec-98 9,000 [*] [*] Jan-99 9,000 [*] [*] Feb-99 10,000 [*] [*] Mar-99 11,000 [*] [*] Apr-99 12,000 [*] [*] May-99 13,000 [*] [*] ESTIMATED TOTAL ANNUAL VARIABLE 100,000 [*] TOTAL ESTIMATED MONTHLY COST Jun-98 [*] Jul-98 [*] Aug-98 [*] Sep-98 [*] Oct-98 [*] Nov-98 [*] Dec-98 [*] Jan-99 [*] Feb-99 [*] Mar-99 [*] Apr-99 [*] May-99 [*] ---------- TOTAL ESTIMATED ANNUAL COST [*] ----------
8 SCHEDULE C TO THAT CERTAIN CLASSIFIED2000 LISTING DISTRIBUTION, SPONSORSHIP, DISPLAY ADVERTISING AND NETWORK AFFILIATION AGREEMENT ("AGREEMENT") BETWEEN CLASSIFIEDS2000, INC AND AUTO-BY-TEL CORPORATION THE FOLLOWING LANGUAGE SHALL BE INCORPORATED INTO SECTION 2.4 OF THE AGREEMENT AS THOUGH FULLY SET FORTH THEREIN: i. Unique Purchase Request. 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 Customer completed by the user, which has been received by Customer from Classifieds2000, and for which Customer has not, within the previous ninety (90) day period, received a duplicate new car purchase request from Classifieds2000, or any other source from which Customer regularly receives purchase requests, 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. THE FOLLOWING LANGUAGE SHALL BE INCORPORATED INTO SECTION 4.3.4 OF THE AGREEMENT AS THOUGH FULLY SET FORTH THEREIN: ii. Customer may terminate this Agreement at any time during the term of hereof, if, based upon a random sampling over a thirty (30) day period of not less than one hundred (100) purchase requests referred by Classifieds2000 for either new or used vehicles, it is determined that the number of Classifieds2000 referred purchase requests which are converted to actual sales of vehicles is less than fifteen percent (15%) of the total number of conversion experienced by Customer with non-Classifieds2000 purchase requests during the same time frame. 9 ATTACHMENT B [CLASSIFIEDS2000 LETTERHEAD] "The most visited classifieds on the web!" FEATURES 7.25% OR 7.75% HOME CLICK HERE! SEARCH ADS CLICK HERE FOR MORE INFORMATION PLACE ADS DELETE ADS SEARCH ADS CHANGE ADS CATEGORIES / VEHICLES / CARS COOL NOTIFY HOT LIST Back to List Next Cool Notify Add to Hot List HELP AUTO-BY-TEL - RISK FREE VEHICLE! 72 hour money back refund! [PHOTOGRAPH] AUTO-BY-TEL MAKES YOUR USED CAR PURCHASE RISK-FREE - - Full refund within 72-hours - - National 3Mo./3K Mi. Limited Warranty - - Travel Repair Program - - Certified 135 Point Inspection CAR 1996, Pontiac Grand Am SE, 31K miles, $11,300 OPTIONS 31227 exterior Air Conditioning Cruise Control Two Door Automatic Transmission DESCRIPTION bucket seats, am/fm radio, tilt steering wheel, power door locks, stock number 67801 VEHICLE ID 1G2NE12M7TM565098 SELLER INFO More about Auto-By-Tel Purchase Guidelines Birmingham, Alabama 35209 Back to List Next Cool Notify Add to Hot List EX-10.21 5 LETTER AGREEMENT 4/1/97 - NBC MULTIMEDIA INC. 1 EXHIBIT 10.21 [*] Confidential Treatment has been requested for certain portions of this exhibit. April 1, 1997 [NBC LETTERHEAD] Federal Express Mr. Peter Ellis President/CEO Auto-By-Tel 11872 MacArthur Blvd., Second Floor Irvine, CA 92612 Re: Auto-By-Tel Participation in NBC Syndication Platform Dear Mr. Ellis: This Letter sets forth the initial agreement between NBC Multimedia, Inc. ("NBC"), and Auto-By-Tel Marketing Corporation ("Company") with respect to the Company's agreement to provide content as part of NBC's Syndication Platform. The terms and conditions shall be as follows: 1. Description of NBC Syndication Platform: NBC intends to create a menu of localized world wide web services (the "NBC Syndication Platform") which it will offer to the NBC Television Network's ("NBC TV") owned and operated stations and interested affiliates (the "Stations"). NBC agrees that if it does actually offer the NBC Syndication Platform, localized versions of the Auto-By-Tel online automotive information, purchasing financing and related services created and operated by the Company ("Auto-By-Tel") shall be among the list of primary services offered as part of such platform subject to the terms and conditions hereof. Company acknowledges (i) that each Station will have the sole right to determine which individual services it will accept as part of the NBC Syndication Platform, (ii) that Auto-By-Tel may or may not be included in any individual Station's list of such services, and (iii) that NBC and declining Stations shall have no liability or obligations to Company due to any Stations' decision not to so include Auto-By-Tel. 2. Creation of Auto-By-Tel Local Sites: Company agrees that it shall create customized local versions of Auto-By-Tel (each a "Auto-By-Tel Local Site") for use by Stations participating in the NBC Syndication Platform. Such Auto-By-Tel Local Sites will be designed to provide online viewers of the Stations' world wide web sites (the "Station Sites") with automotive information and purchasing financing and related services. Each such Auto-By-Tel Local Site shall be a mirror Auto-By-Tel site which shall be framed within a sub-page of the Station Site but which will contain material to be provided by Company and located at a to be established URL on a server of the Company. As a result, all online viewers will be accessing and bookmarking the Auto-By-Tel Local Site content through the NBC Syndication Platform's portion of the Station's URL, and any user searches will continue to take place within the portion of the Station Site framing the Auto-By-Tel Local Site. 3. Links: As a condition of utilizing the NBC Syndication Platform, each participating Station will be required to devote a portion of the front page of the Station Site to the NBC Syndication Platform, subject to Station's right to have overall design control of the Station Site. Each Station shall be encouraged to devote enough space on its front page to permit the placement of hotlinks to the individual services which make up the NBC Syndication Platform within space on such front page allocated and dedicated to the NBC Syndication Platform, but at a minimum, each participating Station Site's front page shall contain a prominent hotlink to a special sub-page devoted to hotlinks for all of the services making up the NBC Syndication Platform, the size and placement 2 of which shall be comparable to that of any other link to a service offered by the Station. NBC agrees that when the individual services which make up the NBC Syndication Platform are displayed and a hotlink to the Auto-By-Tel Local Site is provided, whether on a front page or on a separate page, the link to the Auto-By-Tel Local Site which may be either a generic category description or a Auto-By-Tel logo or text (the "Auto-By-Tel Link") shall be comparable and consistent with the links devoted to any of the other individual services which are part of the NBC Syndication Platform. 4. Management of Auto-By-Tel Local Sites: The day-to-day management of the Auto-By-Tel Local Sites, and all costs associated therewith, shall be the responsibility of the Company subject to the following: (a) Content - Company will provide all of the content for each of the Auto-By-Tel Local Sites, provided that as part of the localization and customizing process required herein, NBC and the Stations may provide relevant local material (but not advertising) in their own discretion from time to time with reasonable notice for use on the relevant Auto-By-Tel Local Sites and Company will make good faith efforts to include such material in its reasonable discretion. Company will acquire all necessary rights and licenses required for the operation of each Auto-By-Tel Local Site as contemplated herein and for the acquisition and use of any content (e.g., automobile purchase analyses, appreciation costs, financing incentives, etc.) not provided by NBC and the Stations. Each of the Company, NBC and the Stations will retain and own all copyrights and other intellectual property rights in, and to, the material which that entity contributes for use hereunder. (b) Editorial - Editorial standards and direction regarding the inclusion and presentation of content will come from Company. In addition, Company agrees to allow NBC to review the Auto-By-Tel Local Sites for compliance with any NBC Broadcast Standards and Practices which may apply to the Auto-By-Tel Local Sites and make all changes requested by NBC in connection therewith. Finally, Company agrees to comply with any Rules and Regulations of the Federal Communications Commission which may be applicable to the Auto-By-Tel Local Sites and/or the rules and regulations of any other governmental body having jurisdiction. (c) Technology - Auto-By-Tel shall be responsible for all maintenance of the Auto-By-Tel Local Sites (including customer service, technical upkeep, etc.) including the costs associated therewith. Auto-By-Tel agrees to use its best efforts to work with NBC's technology partners to coordinate the interface between the Auto-By-Tel Local Sites and the Station Sites and provide the required services contemplated herein. (d) Branding - NBC shall create the Auto-By-Tel Link and may request that Company provide appropriate proprietary material for use thereon. The Auto-By-Tel Local Sites will be co-branded with trademarks and other material to be provided by NBC, the Stations and Company subject to the approval of each party and provided that the size of such brands shall be left to the reasonable discretion of NBC. The parties agree that the Company's brands on the Auto-By-Tel Local Sites shall be not more than fifty percent (50%) smaller than, but as visible as, the brands of NBC and the relevant Stations. Company agrees to abide by all requirements and guidelines which NBC and the Stations may have regarding the use of their trademarks, service marks and other brands and agrees that it shall make no use of such marks and brands which is not approved in advance by NBC and the relevant Stations. Branding for all other areas of the NBC Syndication Platform and the Station Sites shall be at the sole discretion of NBC and the Stations. 5. Promotion: As a condition of utilizing the NBC Syndication Platform, each Station will be required of offer a minimum of 10 on-air promos concerning, or mentions of, 2 3 the URL address of the Station Site per week. NBC shall encourage Stations to include information regarding the NBC Syndication Platform as part of such promos or mentions. 6. Exclusivity: NBC agrees that Auto-By-Tel will be the exclusive service provider for the online automotive purchasing and information category of the NBC Syndication Platform offered by NBC, provided that Company acknowledges that nothing in this Section 6 or elsewhere in the Letter Agreement shall restrict NBC rights in any way in connection with NBC's world wide web site ("NBC.com"), MSNBC.com, Intellicast.com or any other future NBC related interactive (or other) services other than the NBC Syndication Platform. Notwithstanding the foregoing, Company acknowledges that (i) other services provided by third parties may be offered to the Stations by NBC as part of the NBC Syndication Platform which happen to provide online automotive information in addition to their primary services as long as NBC does not offer such third party services in place of Company's services on the NBC Syndication Platform or materially promote such competing aspects of such third party services to the Stations or the public (other than through general advertising) in connection with the NBC Syndication Platform and (ii) NBC will have no ability to prevent the Stations from placing competing services elsewhere on their own Station Sites. Company agrees that NBC will be the exclusive United States television distribution partner for Auto-By-Tel's content and service, and Company agrees not to provide the Auto-By-Tel service, or any portion thereof, to national or regional television networks, syndicated programming services or syndicated or like content platforms distributed by or through the foregoing; provided, however, that NBC recognizes that such exclusivity shall not prevent Company from providing the Auto-By-Tel service to any internet service provider which uses televisions as a delivery device (i.e., Web TV). The exclusivity terms of this Paragraph 6 will be contingent upon NBC's reaching and then maintaining over each following year on average the following critical mass of Station support for the NBC Syndication Platform: (x) participating Stations providing 50% of the total Stations' television household market reach in the United States as of the later of December 31, 1998 or 18 months after launch of the platform and (y) participating Stations providing 75% of the total Stations' television household market reach in the United States three years after launch of the platform, provided that for purposes of this calculation, no Station Site including online automotive purchasing or information content or service shall be included when calculating the participating Stations. If such contingencies are not met, the exclusivity terms of this Section 6 shall no longer apply, but all other terms of this Letter Agreement shall remain in effect until the termination hereof. In addition, if Company is not able to provide competitive, localized coverage and service for any of the NBC TV markets, NBC will be free to contract with Company's competitors in order to obtain online automotive information in such markets. 7. Advertising Sales: Company shall be responsible for the sale of advertising inventory to be placed on each Auto-By-Tel Local Site, if any. Company shall have the responsibility of administering the contract for such advertising, paying all necessary expenses and collecting all fees related thereto in return for a seller's commission of [*] of the gross advertising revenues related to such sale (the "Sales Commission"). Unless the parties mutually agree to the contrary, if Company decides in its sole discretion to sell advertising inventory for the Auto-By-Tel Local Sites at less than the rates normally charged by Company for advertising appearing elsewhere on Auto-By-Tel (the "Normal Rates") or barters such inventory in any way, such advertising inventory shall be deemed to have been sold at such Normal Rates for purposes of calculating revenues for purposes of Section 8(b) below. Company acknowledges that NBC and the Stations will be solely responsible for the sale of advertising which appears within the area of the Station Sites which frames Auto-By-Tel Local Sites and that Company will have no right to advertising revenues received by NBC and Stations in connection with such frames or any other portions of the 3 4 [*] Confidential Treatment Requested Station Sites other than the Auto-By-Tel Local Sites. NBC acknowledges that manufacturers' financing and insurance products or services offered through the Auto-By-Tel Local Site shall not be deemed advertising for the purposes hereof. 8. Financial Terms: Company agrees that it will be responsible for all costs and expenses associated with the creation and operation of the Auto-By-Tel Local Sites. Auto-By-Tel shall make the following monthly payments to NBC. (a) Annual License Fee - Company will pay NBC a license fee of [*] upon execution hereof and upon each anniversary date of the launch of the NBC Syndication Platform occurring during the term hereof. This fee shall also be considered a non-refundable advance on any revenues payable to NBC in connection with the terms of sub-section (c) of this Section 8. (b) Advertising Revenues - NBC and Company will equally share (i.e., 50/50) all gross revenues received by Company in connection with the sale of advertising for display anywhere within the Auto-By-Tel Local Sites after deduction of the Sales Commission is made but prior to the deduction of any expenses of any kind. (c) Lead Generation Revenues - Company will pay NBC [*] for each online or physical (e.g., mail, fax, etc.) submission of any "unique purchase request" to Auto-By-Tel by any individual or corporate user which is received by Company and attributable to usage on an Auto-By-Tel Local Site. "Unique purchase request" shall mean a purchase request from a user with a different name and e-mail address from any name or address received by Company in the past. In addition, once the Auto-By-Tel Local Sites generate one hundred and fifty thousand (150,000) such submissions in any calendar year during the term hereof, then Company will pay NBC [*] for each such submission received thereafter until the end of that calendar year. The parties agree that the Annual License Fee described above shall be an advance against payments for the first 8,333 submissions otherwise owed hereunder. (d) Future Revenue - The parties agree that if any future revenue generating opportunities not engaged in by Company through its Auto-By-Tel service as of the date hereof or described above are created in connection with the Auto-By-Tel Local Sites, the parties will negotiate in good faith regarding what revenue sharing arrangements between the parties would be appropriate, provided that, unless such opportunities involve characteristics which would make them materially different from the opportunities described above, it is the intent of the parties to share such revenues equally. 9. Payment and Audit Conditions. At the end of each month in which Company receives any revenue of the type described in Section 8 (b) and (c), Company shall prepare a monthly statement providing sufficient detail regarding the source of such revenue and will deliver such statement along with the required payment described therein to NBC no less than thirty (30) days following such date. Company agrees that NBC shall have the right to conduct a reasonable audit of the relevant books and records of such party in order to determine compliance with the terms of this Letter Agreement. The parties agree that all amounts due under this Agreement from the Company to NBC shall be paid directly to NBC and not to any of the individual Stations. 10. Representations and Warranties: (a) Company represents and warrants to NBC and the Stations that it has the right and power to perform its obligations and to grant the rights granted herein, that Company's creation and operation of the Auto-By-Tel Local Sites pursuant to this Letter Agreement will not violate any agreement or obligation between Company and a third party or any laws or regulations and that, except for material provided by NBC and the Stations, the material included on the Auto-By-Tel Local Sites and the Auto-By-Tel Link as well as the operation of the Auto-By-Tel 4 5 Local Sites as contemplated herein will, to the best of its knowledge, be accurate and correct and will not violate or infringe any third party rights, including intellectual property rights. Company also agrees that standard software industry representation and warranties will apply to all software and technology used by Company in order to carry out its obligations described herein. Company acknowledges that the Final Agreement (as defined below) will contain additional and more detailed versions of the representations and warranties described above. (b) NBC represents and warrants to Company that it has the right and power to perform its obligations and to grant the rights granted herein and that the material provided by NBC to Company for inclusion on the Auto-By-Tel Local Sites will, to the best of its knowledge, be accurate and correct and will not violate or infringe any third party rights, including intellectual property rights. 11. Indemnity. (a) Company agrees to indemnify, defend, and hold NBC, the Stations, their affiliates and their successors, officers, directors and employees harmless from any and all actions, causes of action, claims, demands, costs, liabilities, expenses (including reasonable attorneys' fees) and damages arising out of or in connection with any third party claims (i) relating to Company's operation and management of the Auto-By-Tel Local Sites, or (ii) relating to a breach of any of Company's representations and/or warranties set forth in Section 10 of this Letter Agreement. (b) NBC agrees to indemnify, defend, and hold Company, its affiliates and its successors, officers, directors and employees harmless from any and all actions, causes of action, claims, demands, costs, liabilities, expenses (including reasonable attorneys' fees) and damages arising out of or in connection with any third party claims relating to a breach of any of NBC's representations and/or warranties set forth in Section 10 of this Letter Agreement. (c) The indemnified party agrees to notify the other party promptly of any written claims or demands against the indemnified party for which the other party is responsible, and the Indemnified Party for which the other party will be entitled, at its option, to assume the defense or settlement of any such claim, provided that no settlement shall be reached without the consent of the indemnifying party. The indemnified party will promptly be reimbursed by the other party for Indemnified Amounts as they are incurred. (d) IN NO EVENT UNDER ANY CIRCUMSTANCES SHALL EITHER PARTY (OR ITS AFFILIATES) BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR IN CONNECTION WITH ITS OBLIGATION UNDER THIS LETTER AGREEMENT; PROVIDED HOWEVER, THAT THE FORGOING LIMITATION SHALL NOT APPLY TO DIRECT DAMAGES RESULTING FROM THE INTENTIONAL OR WILLFUL BREACH OF THIS LETTER AGREEMENT. 12. Term. The initial term of this Letter Agreement shall be four (4) years, and ninety (90) days prior to the end of the initial term, the parties agree to negotiate in good faith regarding a possible extension of the term hereof for an additional two (2) years. Either party may terminate this Letter Agreement upon a material default by the other party of the terms hereof which default is not cured within thirty (30) days following such party's receipt of a written notice regarding the default. In addition, if Company materially alters the nature or quality of its service (e.g., changes Auto-By-Tel from a free to subscription service), NBC may terminate this Letter Agreement, at its option, by providing Company with ten (10) days prior notice thereof in writing. Finally, if NBC determines in its sole discretion at any time, not to offer the NBC Syndication Platform as such term is described in Paragraph 1, it will inform the Company of such 5 6 decision in writing and this Letter Agreement shall be deemed terminated as of the date of such notice. 13. Formal Agreement. Recognizing that time is of the essence, this Letter Agreement shall serve as the intent of both parties to enter into a more formal agreement for the creation and operation of Auto-By-Tel Local Sites (the "Final Agreement"). Both parties shall use reasonable efforts to complete the Final Agreement within a reasonable time period following the date of execution of this Letter Agreement, provided, however, that notwithstanding the foregoing, if no Final Agreement is reached, the terms contained herein shall govern the relationship between the parties for the Term. 14. NBC Local Link. The parties agree that each Auto-By-Tel Local Site shall include a link (which may include an appropriate NBC logo) to the NBC Local section of NBC.com in its first page. 15. Confidentiality. Neither party shall issue a press release or make any statement to the general public concerning this Letter Agreement, the NBC Syndication Platform or the Auto-By-Tel Local Sites, or the existence thereof, without the express prior written consent of the other; provided, however, that NBC agrees that Company may file this Letter Agreement with the Securities and Exchange Commission (the "SEC") if so required by the Securities Act of 1933 and Securities Exchange Act of 1934, in each case, as amended, the rules and regulations related thereto or any applicable state laws (the "Securities Laws") as long as Company agrees to use its best efforts to obtain confidential treatment of the economic and other material terms hereof under the Securities Laws and consult with NBC during the process. 16. Miscellaneous. This Letter Agreement constitutes the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations, and understandings between the parties, both oral and written, provided that the Non-Disclosure and Confidentiality Agreement between the parties shall remain in full force and effect. No waiver or modification of any provision of this Letter Agreement shall be effective unless in writing and signed by both parties. Any waiver by either party of any provision of this Letter Agreement shall not be construed as a waiver of any other provision of this Letter Agreement, nor shall such waiver operate as or be construed as a waiver of such provision respecting any future event or circumstance. This Letter Agreement shall be governed by and construed under the laws of the State of New York applicable to contracts fully executed in New York, without regard to New York conflicts law. The parties hereby consent to and submit to the jurisdiction of the federal and state courts located in the State of New York. 6 7 If you are in agreement with the above terms and conditions, please indicate your acceptance by signing in the space provided below, and return one original to me. This Letter Agreement shall be null and void if not signed within 7 days of the date set forth above. Very truly yours, NBC MULTIMEDIA, INC. By: /s/ KEN KRUSHEL ------------------------------------- Name: Ken Krushel Title: Vice President ACCEPTED AND AGREED; AUTO-BY-TEL MARKETING CORPORATION By: /s/ MARK W. LORIMER ----------------------------------- Name: Mark W. Lorimer Title: Vice President, General Counsel and Secretary 7 8 Exclusivity "Critical Mass" Formula: NBC must reach and maintain over each following year, on average, the following critical mass: X= Participating stations providing 50% of the total station's television household market reach in the U.S. as of the later of 12/31/98 or 18 months after launch of the platform. Y= Participating stations providing 75% of the total station's television household market reach in the U.S. 3 years after launch of the platform. "Provided that no Station Site including online automotive purchasing or information content or service shall be included when calculating the participating stations." EX-10.22 6 SPONSORSHIP AGREEMENT 6/24/98 - EXCITE, INC. 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 twelve (12) months, Client, at its sole expense, will supply Excite with up to three (3) 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 forty-five thousand dollars ($45,000) 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 ------------ 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 twenty-eight million seven hundred fifty thousand (28,750,000) 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 two million four hundred eighty-seven thousand dollars ($2,487,000) in the first year of the term of the Agreement. These fees will be paid in equal monthly installments of two hundred seven thousand two hundred fifty dollars ($207,250). 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 four million one hundred fifty thousand dollars ($4,150,000) in the second year of the term of the Agreement. These fees will be paid in equal monthly installments of three hundred forty-five thousand eight hundred thirty three dollars and thirty-three cents ($345,833.33). 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 ninety (90) day 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 one hundred fifty thousand (150,000) Unique Purchase Requests; (ii) [*] per Unique Purchase Request for between one hundred fifty thousand one (150,001) and two hundred thirty thousand (230,000) 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 forty-five (45) 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 forty-five (45) 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 two or more Late Payment Months in any twelve (12) month period during the term of the Agreement, Client will increase by ten percent (10%) the monthly payment otherwise due for the second and any other Late Payment Month that occurs in the twelve (12) 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 ------------ 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 two or more Late Reporting Months in any twelve (12) month period during the term of the Agreement, Client will increase by ten percent (10%) the monthly payment otherwise due for the second and any other Late Reporting Month that occurs in the twelve (12) 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 ninety-five percent (95%) 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 June 30, 2000 or the expiration or termination of the Netcenter Agreement. In the event that the Netcenter Agreement expires or is terminated prior to June 30, 8 9 CONFIDENTIAL ------------ 2000, 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 ------------ during any ninety (90) day period during the second year of the term 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 one hundred fifty thousand (150,000) 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) three million two hundred twenty-five thousand dollars ($3,225,000) 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 150,000 minimum. (vi) As soon as it becomes reasonably apparent that Client is likely to pay Excite ten million two hundred thousand dollars ($10,200,000) 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 ten million two hundred thousand dollars ($10,200,000) 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-10.24 7 LICENSE AND SERVICE AGREEMENT 1 EXHIBIT 10.24 [*] Confidential Treatment has been requested for certain portions of this exhibit. AUTOBYTEL.COM LICENSE AND SERVICES AGREEMENT This LICENSE AND SERVICES AGREEMENT (this "Agreement") is entered into as of November 23, 1998, (the "Effective Date") by and between autobytel.com inc., a Delaware corporation with offices at 18872 MacArthur Boulevard, Irvine, California, 92612 ("APT"), and Auto by Tel UK Limited, a corporation organized under the laws of the United Kingdom with offices at _______________ ("ABT/UK"), and describes the terms and conditions pursuant to which ABT will grant to ABT/UK a license to use and modify the Software and Business Procedures (as defined below) and to use certain related technology, to deploy, develop and support a localized version of such Software and Business Procedures. BACKGROUND WHEREAS, ABT is engaged in an Internet-based marketing business for new and used vehicles in North America that provides Internet users with fast, haggle-free, and courteous purchasing and related services designed to improve consumers' overall vehicle buying experience: WHEREAS, ABT/UK desires to market new and used vehicles, in the United Kingdom using the ABT proprietary Software, technology, and ABT Business Procedures; WHEREAS, ABT/UK desires to develop a localized version of ABT's proprietary Software and Business Procedures applicable to the United Kingdom; WHEREAS, ABT/UK is a wholly-owned subsidiary of Inchcape Automotive Limited, registered number 3580629 whose registered office is 33 Cavendish Square, London W1M 9HF, a corporation organized under the laws of the United Kingdom; and WHEREAS, ABT and Inchcape have entered into a Share Purchase Agreement of even date herewith memorializing certain arrangements between ABT and Inchcape plc regarding the ownership of ABT/UK. NOW, THEREFORE, in consideration of the mutual promises and upon the terms and conditions set forth below, the parties agree as follows: 1 Definitions 1.1 "ABT Brand" means the "Auto-By-Tel" trademark, service mark and logo, and the ABT/UK Domain, and does not include the mark DealerSites.com. 1 2 1.2 "ABT/UK Domain" means the Uniform Resource Locator "autobytel.uk.co" 1.3 "Affiliate" of a party means (i) any entity controlled by, controlling, or under common control with such party, where "control" means ownership, either direct or indirect, of more than 50% of the equity interest entitled to vote for the election of directors or equivalent governing body and/or (ii) any entity of which such party has possession, either direct or indirect, of the power to direct or cause the direction of management and policies of the entity through ownership of voting securities, by contract or otherwise. 1.4 "Business Procedures" means the general proprietary business procedures for operating the Local Business described on Attachment B, and any updates or new revisions thereof provided by ABT in accordance with this Agreement from time to time upon ninety (90) days prior notice, which, may be supplemented by ABT with more specific procedures as described in Section 2.9. 1.5 "Confidential Information" means this Agreement and all its Attachments, any addenda hereto signed by both parties, all Software listings, Documentation, information, data, drawings, benchmark tests, specifications, trade secrets, object code and machine-readable copies of the Software, Business Procedures, and any other proprietary information disclosed by one party to the other. 1.6 "Consumer Price Index" means the Consumer Price Index, for All Urban Consumers, Subgroup AA11 Items=, for the Los Angeles-Riverside-Orange County Area (Base Year 1982-84=100), which is currently being published by the United States Department of Labor, Bureau of Labor Statistics. If, however, this Consumer Price Index is changed so that the base year is altered from that used as of the Commencement Date, then the Consumer Price Index will be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics, to obtain the same results that would have been obtained had the base year not been changed. If no conversion factor is available or if the Consumer Price Index is otherwise changed, revised or discontinued for any reason, the term "Consumer Price Index" will thereafter refer to the most nearly comparable official price index of the United States Government to obtain substantially the same result as would have been obtained had the original Consumer Price Index not been changed, revised or discontinued. 1.7 "Derivative Work" means a derivative work within the meaning of 17 U.S.C. Section 101 of the U.S. copyright law (even if the term is not capitalized when used herein). 1.8 "Documentation" means any electronic instructions, manuals or other materials, including without limitation on-line help files, regarding the development or use of the Software provided by ABT under this Agreement. 1.9 "DRT" means the Dealer Communication System portion of the Software. 2 3 1.10 "Error" means a material, reproducible failure of the Software to perform in substantial conformity with the functional specifications in the Documentation. 1.11 "Error Correction" means a release or version of the Software containing corrections or fixes of Errors which may be indicated by a change in the numeric identifier to the Software in the digit to the right of the decimal. 1.12 "Fees" mean all minimum and monthly license, maintenance and other fees payable to ABT hereunder. 1.13 "Global Brand Protocols" means the procedures for use of the ABT Brand set forth on Attachment C along with any revisions thereof, which ABT may, subject to Section 2.9, provide from time to time in its sole discretion upon ninety (90) days prior notice. 1.14 "Gross Revenues" means all payments actually received by ABT/UK with regard to the Local Business, including without limitation fees received from dealers for participating in the Internet referral system, payments received from dealers as a result of Internet inquiries referred to them, sums received as payments for advertising on internet sites which are part of the Local Business, gross revenues from providing maintenance of, and training regarding, the DRT, and all other revenues arising directly out of the Local Business. Gross revenues will not include revenues from sales of cars, from servicing of cars or from other activities by ABT/UK or any of its affiliates other than the operation of the Local Business. 1.15 "Launch Date" means the earlier of (a) the first date ABT/UK makes the World Wide Web site for the Local Business generally available on the World Wide Web; (b) thirty (30) days after completion of Initial Localization Services under Section 3.1(c); and (c) June 1, 1999. 1.16 "Local Business" means a business providing Internet-based automotive and automotive related products and services relating to vehicle dealers located in the Territory. 1.17 "Localized Version" means a Derivative Work of the Software and Business Procedures that implements the core functionality of the Software and Business Procedures, but incorporates the language, currency and functional variations for the Territory, which Derivative Works are in each case created by or for use by ABT/UK 1.18 "Localize, or Localization" means any modifications to the Software or Business Procedures necessary to facilitate the operation and functionality of the Software on the operating systems or platforms within the Territory, or the modification of the Business Procedures to meet local custom or technological or regulatory requirements. 3 4 1.19 "Fiscal Quarter" means a period of three (3) consecutive calendar months which period commences upon the Launch Date, or three (3), six (6), or nine (9) months thereafter; or the anniversary of any of the foregoing. 1.20 "Fiscal Year" means a period of four (4) consecutive Fiscal Quarters commencing on the Launch Date or the anniversary thereof. 1.21 "Software" means ABT's existing proprietary Software products specified on Attachment A hereto, in source code form, and object code form (where applicable), together with any Error Corrections, Updates or Upgrades thereof provided to ABT/UK pursuant to this Agreement. 1.22 "Territory" means the United Kingdom as constituted on the Effective Date. 1.23 "Update" means a release or version of the Software, in source code form, and object code form (where applicable), containing minor functional enhancements, extensions, error corrections or fixes, which may be indicated by a change in the numeric identifier to the Software in the digit to the right of the decimal. 1.24 "Upgrade" means any version of the Software, in source code form, and object code form (where applicable), designated as such by ABT, which contains new functionality or significantly enhanced operation and may be indicated by a change in the numeric identifier to the Software in the digit to the left of the decimal. 1.25 "Use" means utilization of the Software by ABT/UK solely in accordance with this Agreement. 2. Grant of License 2.1 License. Subject to the terms and conditions of this Agreement, ABT hereby grants to ABT/UK: (a) an exclusive, non-transferable license in the Territory to copy and create Derivative Works of the Software, Business Procedures and Derivative Works thereof, in each case solely for the development of a Localized Version. In this Section 2.1 (a), "exclusive" means that ABT shall not for its own account, nor grant to any third party in the Territory a license to create derivative works of the Software or the Business Procedures in order to create a Localized Version in connection with the operation of a Local Business. (b) an exclusive, non-transferable license to Use the Software and Business Procedures in connection with the operation of the Local Business in the Territory; provided, however, that ABT/UK will not have the right to use the Software with respect to vehicle dealers outside the Territory. In this Section 2.1(b), "exclusive" means that ABT shall not for its own account, nor grant to 4 5 any third party a license to use the Software or the Business Procedures in connection with the operation of a Local Business. (c) an exclusive, non-transferable license in the Territory to Use the Business Procedures and the Documentation solely for the operation of the Local Business, provided that ABT/UK operates the Local Business solely in the accordance with the Business Procedures; and provided that ABT/UK does not use the Business Procedures and Documentation with respect to vehicle dealers outside the Territory. 2.2 Sublicenses. ABT/UK may grant non-exclusive sublicenses to vehicle dealers in the Territory to use copies of the DRT in object code format, solely for use in connection with the Local Business, and solely in connection with an end user license in a form as protective of ABT's rights as the form set forth in Attachment H. ABT/UK may grant sublicenses of the rights granted in Section 2.1 only upon the prior written approval of ABT. 2.3 Copies. ABT shall deliver to ABT/UK, as soon as practicable, one (1) copy of the Software, one (1) copy of the related Documentation and one (1) copy of the Business Procedures. ABT/UK will be entitled: (a) to make two (2) copies of the Software solely for backup or archival purposes, (b) to retain one (1) copy of the Software for production purposes, and (c) to make and retain such copies of the Software as reasonably necessary for ABT/UK to Use the Software in connection with the Local Business; provided, however, that ABT/UK shall immediately advise ABT of any such copies made and their location. Except as otherwise set forth herein, ABT/UK may not copy, distribute, reproduce, use or allow access to the Software and Business Procedures. All copies of the Software will be subject to the terms and conditions of this Agreement. Whenever ABT/UK is permitted to copy or reproduce all or any part of the Software and Business Procedures, all titles, trademark symbols, copyright symbols and legends, and other proprietary markings must be reproduced. ABT/UK shall not alter or remove any of ABT's trademarks, copyright notices or other proprietary notices affixed to the Software by ABT. 2.4 Ownership. ABT owns all right, title and interest in and to the Software and Business Procedures, together with any Localized Version or other modifications to the Software and Business Procedures made by either ABT or ABT/UK in connection with Localization of the Software or Business Procedures. The licenses granted herein transfers to ABT/UK neither title, nor any proprietary or intellectual property rights to the Software, Business Procedures, or Documentation, or any copyrights, patents, or trademarks, embodied or Used in connection therewith, except for the rights expressly granted herein. Upon development of any Localized Version by ABT/UK, ABT/UK hereby assigns all right, title and interest to such Localized Version to ABT. Such Localized Version will be included as, and incorporated in, the Software for the purposes of the license grant in this Section 2. For any Localizations or Extensions incorporated into ABT's generally available version of the Software, ABT shall promptly incorporate related Documentation. Except as otherwise set forth in the applicable Work Order for the Localization services (as such term is defined in the "Services Agreement" in 5 6 Attachment D, any modifications that are not Derivative Works of the Software or Business Procedures and that contain no part of the Software or Business Procedures (such modifications to be referred to as "Extensions"), ABT hereby grants ABT/UK an irrevocable, non-exclusive, fully paid-up, nontransferable license to reproduce, distribute, publicly perform and display, transmit, and prepare derivative works of the Extensions in connection with the Local Business. This license to use Extensions will survive the termination of this Agreement. All rights not expressly granted hereunder are reserved to ABT. To the extent that a Localized Version, or any Extension prepared by ABT/UK's employees or Contractors (as defined in Section 10.4) and provided to ABT hereunder, embody patentable methods of doing business, inventions, or algorithms ("ABT/UK Inventions"), then ABT/UK retains all right, title and interest in and to such ABT/UK Inventions, and ABT/UK hereby grants ABT an irrevocable, non-exclusive, fully paid-up, royalty-free, non-transferable license to make, have made, use, sell, import, and otherwise exploit products embodying such ABT/UK Inventions. ABT may sublicense such rights in connection with licenses of the Software and ABT's trademarks. This license to ABT/UK Inventions will survive the termination of this Agreement. 2.5 Software and Business Procedure Localizations and Extensions. Except as otherwise set forth in this Agreement or as otherwise agreed by the parties, as between the parties, ABT/UK is responsible for any changes to the Software, Documentation, or Business Procedures necessary to Localize them in accordance with the operation of the Local Business. All such Localization changes, and the development of any Extensions, must be approved by ABT prior to development and implementation, as set forth in this Section. All such Localization changes and the development of any Extensions must be either: (i) performed by ABT in accordance with Section 3.1 below; or (ii) performed by ABT/UK, or by its independent contractor approved by ABT, under the technical oversight and subject to the approval of ABT, subject to Section 3.1 below. ABT's approval of such Localizations or Extensions shall not be unreasonably withheld, and without limiting the above, will not be withheld where the requested Localization or Extension: (x) is required to comply with the laws and regulations of the Territory, or (y) is in current use in ABT's United States version of the Software. Further, subject to the above provisions of this Section 2.5, ABT may withhold approval for any implementation of a Localization or Enhancement which would materially impair the value of the ABT Brand, cause the Local Business not to be in accordance with the Business Procedures, or require a change in the technical architecture of the Software. Any modifications made to the Software, Documentation, or Business Procedures without the approval of ABT as set forth herein will be a material breach of this Agreement. Upon completion of any Localized Version or Extension (other than by ABT), ABT/UK must disclose to ABT a copy of such Localized Version or Extension. Any such disclosure of Localized Software or Extension must be in source code format. 2.6 Updates and Upgrades. During the Term, and (except as required in Section 11.2(d)) subject to ABT/UK's payment to ABT of the Minimum Maintenance Fees and Maintenance and Support Fees set forth in Sections 5.3 and 6.2 below, ABT will deliver to ABT/UK any Error Corrections, Updates or Upgrades to the Software or Business Procedures that it releases to any of ABT's other local country affiliates or United States licensees within a reasonable time after such Error 6 7 Correction, Update, or Upgrade is released in the United States. ABT/UK shall implement all Error Corrections, Updates, or Upgrades provided by ABT under this Agreement, no later than one (1) year after delivery thereof to ABT/UK. Notwithstanding the above, ABT will not be obligated to provide such Error Corrections, Updates or Upgrades during the period during which, in the reasonable discretion of ABT's project manager, they are in release for testing purposes or otherwise not suitable for release outside the United States. 2.7 License Restrictions. ABT/UK shall not: (a) sell, lease, license, sublicense or distribute the Software, Documentation, or Business Procedures except in accordance with this Agreement; (b) provide, disclose, divulge or make available to, or permit use of the Software, Documentation, Business Procedures, or Localized Version by any third party without ABT's prior written consent, except as specifically authorized by this Agreement; or (c) use the Software for any purpose except as expressly provided for in this Agreement. 2.8 Third Party Technology. The parties acknowledge that certain software, equipment, or technology of third parties, including without limitation server equipment, server software, and database software, may be required to operate the Software. ABT shall cooperate reasonably with ABT/UK to identify any such third-party technology, but ABT will not be obligated to provide any such third party technology to ABT/UK. 2.9 Changes to Business Procedures and Global Branding Protocols. ABT may only make those changes to the Business Procedures and Global Branding Protocols that ABT makes generally for ABT's and ABT's licensees using the Software and Business Procedures. Where feasible, ABT shall seek comments and suggestions of ABT/UK regarding such changes. ABT shall discuss in good faith any concerns ABT/UK may have with respect to such changes. 3. Obligations. 3.1 Services. Upon mutual agreement, ABT may, from time to time, perform services and provide support to ABT/UK that will be subject to the Services Agreement included on Attachment D hereto (the "Services" as further defined below). (a) In addition to the compensation set forth in the definitive Services Agreement, ABT/UK shall reimburse ABT for the reasonable actual travel and living expenses of ABT's personnel engaged in performing the Services at locations other than ABT's facilities, together with other reasonable out-of-pocket expenses incurred in connection with the performance of such Services, subject to ABT's adherence to any travel policy reasonably promulgated by ABT/UK in connection therewith. 7 8 (b) ABT/UK shall pay ABT for any Services provided under this Section 3.1 in accordance with the payment terms set forth in Section 5 below. (c) ABT shall provide initial Services to Localize the Software (the "Initial Localization Services") in accordance with the initial Work Order (as such term is defined in the Services Agreement) set forth in Attachment E. ABT shall provide further Services to Localize the Software in accordance with such subsequent Work Orders agreed to by the parties in writing according to the software development procedures described in Attachment G. (d) Notwithstanding the above, ABT shall provide ABT/UK with a one-time, three (3) day "train the trainer" session at ABT's office in Irvine, California, at no charge to ABT/UK. ABT/UK will be responsible for any travel, living, and related expenses of any persons it sends to such training session. 3.2 Scope of Services. The parties currently anticipate that the Services that may be performed in accordance with Section 3.1 above may include the following. However, nothing in this Section 3.2 will be deemed to create any binding obligation on either party. (a) Hardware selection and configuration consulting services; (b) Business model conversion support for software systems and operating procedures; (c) Marketing, sales and information technology training; (d) Support for training of vehicle dealers in the use of the DRT portions of the Software; and (e) Business Procedures marketing support, including support regarding know-how, cooperative advertising or other co-marketing activities. 3.3 ABT/UK Obligations. ABT/UK shall operate the Local Business solely in accordance with the Business Procedures, which the parties acknowledge set forth general principles for operation of the Local Business. The parties shall agree in good faith upon more detailed business procedures, and ABT/UK shall use reasonable efforts to abide by the business procedures generally provided by ABT to its licensees. ABT/UK shall operate the Local Business solely in accordance with the laws, regulations, and other requirements of the Territory and of the European Union. During the Term, ABT/UK will devote sufficient resources and personnel to the Local Business to market, promote and operate the Local Business. ABT/UK will be responsible for training vehicle dealers in the use of the DRT portions of the Software and will be solely responsible for all costs and expenses related to the marketing, promotion and operation of the Local Business and for performing its obligations hereunder. ABT/UK 8 9 will ensure that only properly trained and qualified persons perform ABT/UK's technical obligations under this Agreement. 3.4 Hyperlinks. ABT shall, on and after the first date ABT/UK makes the World Wide Web site for the Local Business generally available on the World Wide Web, display a hypertext link on its Web page at the location where ABT provides links to its local country affiliates, pointing toward ABT/UK's home Web page for the Local Business, and ABT/UK shall, on and after the first date ABT/UK makes the World Wide Web site for the Local Business generally available on the World Wide Web, display a hypertext link on the home Web page for the Local Business pointing to such location. 3.5 Territory and Sales. The parties acknowledge that ABT/UK may receive inquiries or orders for sales of products or services from persons outside the Territory. In such case, ABT/UK shall respond to such inquiries only in accordance with the laws of the Territory and the European Union. In addition, ABT/UK acknowledges that ABT may enter into agreements with other parties who will operate a Local Business outside the Territory. ABT/UK shall use its best efforts to resolve any channel conflicts with such third parties relating to such inquiries. 3.6 Reports. No less frequently than each month, as reasonably requested by ABT, ABT Entity (as defined in Attachment B) will provide to ABT, in a format reasonably acceptable to ABT, a summary report of business data regarding the operation of the business of the ABT Entity, including without limitation the number of purchase requests and finance requests, Web statistics, and revenue data, as required for the ABT global data warehouse and reporting system. 4. Warranty and Disclaimer 4.1 ABT Warranty. (a) ABT represents and warrants to ABT/UK that during the Term, the Software in the form delivered to ABT/UK will perform in substantial accordance with the Documentation. (b) Without limitation to any other warranty, ABT represents and warrants to ABT/UK that the Software in the form delivered to ABT/UK is Year 2000 Compliant. "Year 2000 Compliant" means that the Software, when used in accordance with the Documentation and with the hardware and operating systems approved by ABT, will: (a) initiate and operate; (b) correctly store, represent and process dates; and (c) not cause or result in an abnormal termination or ending or degradation of performance; when processing data containing dates in the Year 2000 and in any preceding and following years, including leap years, provided that all third party products that exchange date data with the Software do so in a form and format compatible with the Software. (c) ABT warrants and represents to ABT/UK that the Software, in the form delivered to ABT/UK and on the media delivered to ABT/UK does not contain any virus, codes, commands or 9 10 instructions that alter, delete, erase, damage, disable, disrupt, or otherwise interfere with A.BT/UK's use of, the Software. (d) If the Software does not perform as warranted under Sections 4.1(a), 4.1(b), or 4.1(c), ABT shall, at no charge to ABT/UK, use reasonably diligent efforts to correct the Software in accordance with the escalation procedures in Attachment F, and include the correction thereof in the next Error Correction released by ABT and provided to ABT/UK under Section 6.2 below. The foregoing are ABT/UK's sole and exclusive remedies for breach of warranties. The warranty will apply only if the then-current version of the Software has been properly installed and Used at all times and in accordance with the instructions for Use. (e) ABT represents and warrants to ABT/UK that ABT has full power, right and authority to enter into this Agreement, to carry out its obligations under this Agreement and to grant the rights granted to ABT/UK herein. (f) ABT represents and warrants to ABT/UK that all Services performed by ABT under this Agreement shall be performed in a professional manner consistent with industry standards by personnel with the required training, background and experience to perform such services. In the event of a breach of such warranty, ABT shall re-perform the non-conforming services at no charge. The foregoing is ABT/UK's sole and exclusive remedy for breach of such warranty. 4.2 ABT/UK Warranty. ABT/UK represents and warrants to ABT that ABT/UK has MI power, right and authority to enter into this Agreement, to carry out its obligations under this Agreement and to grant the rights granted to ABT herein. ABT/UK represents and warrants to ABT that ABT/UK is sufficiently capitalized to undertake the business transaction contemplated hereunder. 4.3 Disclaimer. EXCEPT FOR THE EXPRESS LIMITED WARRANTY SET FORTH IN SECTION 4.1 ABOVE, THE SOFTWARE, DOCUMENTATION AND BUSINESS PROCEDURES ARE PROVIDED "AS-IS" AND WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. ABT HEREBY DISCLAIMS ANY WARRANTY THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE. ABT SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF NONINFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE SOFTWARE, DOCUMENTATION, BUSINESS PROCEDURES AND ANY SERVICES PROVIDED BY ABT HEREUNDER. 4.4 Additional Disclaimer. The success of the business venture contemplated to be undertaken by ABT/UK by virtue of this Agreement is speculative and depends, to a large extent, upon the ability of ABT/UK as an independent business operator and the active participation of ABT/UK in the daily affairs of the Local Business, as well as other factors. ABT does not make any representation or warranty, express, or implied, as to the potential success of the business venture contemplated by this Agreement. 10 11 [*] Confidential Treatment Requested 5. Compensation. 5.1 Minimum License Fee. In consideration of the licenses granted herein, ABT/UK shall pay to ABT the minimum license fee specified on Attachment A ("Minimum Annual License Fee"). The Minimum Annual License Fee will be payable in four (4) equal installments, in advance of each Fiscal Quarter. 5.2 Additional License Fees. In consideration of the licenses granted herein, ABT/UK shall pay to ABT the following fees ("Additional License Fees"): (a) For the [*]. (b) For the sixth (6th) Fiscal Year and each Fiscal Year thereafter, ABT/UK shall, no later than fifteen (15) days after the end of each month pay to ABT an amount equal to [*] of Gross Revenues received by ABT/UK during such month in connection with the operation of the Local Business. Such fees will be in addition to any fees due under Section 5.1. For purposes of this Section 5.2, the "Credit Amount" means one million one hundred thousand dollars ($1,100,000); however, if ABT/UK terminates the maintenance portion of this Agreement under Section 11.2(d), the Credit Amount for each Fiscal Year ending after such termination will be eight hundred fifty thousand dollars ($850,000). ABT/UK may credit up to the Credit Amount each Fiscal Year against Additional License Fees payable under this Section 5.2(b). Such credits may only be applied against ABT/UK's payment of Additional License Fees under this Section 5.2(b) and in no event will be refundable to ABT/UK or reduce the amount of fees payable under Section 5.1. (c) For the fourth (4th) and fifth (5th) Fiscal Years, ABT/UK shall pay ABT the fees set forth in Section 5.2(b). Notwithstanding the monthly payment and calculation of such fees under Section 5.2(b), in the fourth (4th) or fifth (5th) Fiscal Years, such fees will be calculated and paid on a Fiscal Quarterly basis. However, ABT/UK will not be required under this Section 5.2(c) to pay more than one-half (1/2) of its cumulative Gross Profit to date during such Fiscal Year. For purposes of this section, "Gross Profits" for a Fiscal Quarter means Gross Revenues for such Fiscal Quarter, less trading expenses (i.e., all expenses of ABT/UK during the Fiscal Quarter, but not including interest expenses or taxes), less 1/4 of the Credit Amount for the Fiscal Year. For example:
All figures in US $1,000 QUARTER FISCAL 1 2 3 4 YEAR - ------------------------------------------------------------------------------------------------------- A Gross Revenues [*] [*] [*] [*] [*] B Fees due to ABT [*] of Gross [*] [*] [*] [*] [*] Revenue
11 12 [*] Confidential Treatment Requested C Trading Expenses [*] [*] [*] [*] [*] D 1/4 of Credit Amount [*] [*] [*] [*] [*] E Gross Profit (=A-C-D) [*] [*] [*] [*] [*] F Cumulative Gross Profit for Fiscal [*] [*] [*] [*] Year to date G 1/2 Cumulative Gross Profit (=FX.5) [*] [*] [*] [*] [*] H Credit Amount [*] [*] [*] I Additional License Fees, Less Credit [*] [*] [*] [*] [*] [*] J Additional License Fee Payable (at [*] [*] [*] [*] [*] the end of the Fiscal Quarter) K Cumulative License Fee Payable to [*] [*] [*] [*] [*] date for Fiscal Year (which cannot be more than G)
If, in the last Fiscal Quarter of the fourth (4th) Fiscal Year, ABT/UK has a negative Gross Profit for such Fiscal Quarter which will result in a negative cumulative Gross Profit for the fourth (4th) Fiscal Year, then ABT/UK may credit up to one-half (1/2) of the amount of such negative Gross Profit for such Fiscal Year against payments of the Additional License Fee (after deduction of the Credit Amount), if any, due under this Section 5.2 for the fifth (5th) Fiscal Year. Such credits may only be applied against ABT/UK's payment of Additional License Fees under this Section 5.2(c) and in no event will be refundable to ABT/UK or reduce the amount of fees payable under Section 5.1. If, in the last Fiscal Quarter of the fifth (5th) Fiscal Year, ABT/UK has a negative Gross Profit for such Fiscal Quarter which will result in a negative cumulative Gross Profit for the fifth (5) Fiscal Year, then there will be no credit to the Additional License Fee due by ABT/UK in the sixth (6th) Fiscal Year. (d) No later than ninety (90) days after the end of each ABT/UK Fiscal Period during the Term, ABT/UK shall pay to ABT (by way of a fee payable, as set forth in this Section 5.2(d), in the ABT/UK Fiscal Period after that which has expired) [*] of any Aggregate Profits, where "Aggregate Profits" means aggregate profits of ABT/UK and its subsidiaries shown by the audited accounts of ABT/UK (and any subsidiary thereof, as applicable), that are available for distribution as defined in section 263(3) of the UK Companies Act 1985, (i) after adding thereto any amounts distributed or repaid as premium in respect of share capital to the shareholders of ABT/UK on or prior to the end of such ABT/UK Fiscal Period and (ii) after deducting any amounts owed by ABT/UK to its shareholders and the amount paid up in respect of the share capital of ABT/UK at the end of such ABT/UK Fiscal Period, less any amounts previously paid under this Section 5.2(d). No amount payable under this Section will be repayable to ABT/UK regardless of whether the calculation of Aggregate Profits for any later 12 13 [*] Confidential Treatment Requested ABT/UK Fiscal Period would result in an a fee under this Section 5.2(d) of zero or less. If this Agreement is terminated other than at the end of a Fiscal Period, then no later than ninety (90) days after the termination of this Agreement, ABT/UK shall pay [*] of Aggregate Profits as defined above, as calculated as of the date of termination. For purposes of this Section 5.2(d), "ABT Fiscal Period" means a regular fiscal reporting period, no less frequent that an annual period, for which ABT/UK chooses to conduct its financial accounting. ABT/UK shall select the frequency and ending date of the ABT Fiscal Period, and notify ABT thereof in writing no later than one (1) year after the Effective Date. (e) Minimum Fee. Notwithstanding anything else in this Agreement, if ABT/UK pays to ABT less than one million one hundred thousand dollars $1,100,000) in Total Fees for any Fiscal Year, where "Total Fees" for a Fiscal Year means Minimum License Fees, Additional License Fees, and Minimum Maintenance Fees for such Fiscal Year, ABT/UK shall, within ninety (90) days after the end of such Fiscal Year, pay to ABT the difference between one million one hundred thousand dollars ($1,100,000) and such Total Fees. 5.3 Maintenance Fee. In consideration of the services to be provided by ABT under Section 6, ABT/UK shall pay to ABT the maintenance fee specified on Attachment A (the "Minimum Maintenance Fee"). The Minimum Maintenance Fee will be payable in equal monthly installments in advance. ABT may increase the Minimum Maintenance Fee after the first year of the Term, in proportion to any increase in the Consumer Price Index over the previous year. 5.4 Taxes. All charges and Fees provided for in this Agreement are exclusive of, and do not include, any taxes, duties, or similar charges imposed by any government. ABT/UK shall pay or reimburse ABT for all federal, state, dominion, provincial, or local sales, use, personal property, excise or other taxes, fees, or duties arising out of this Agreement or the transactions contemplated by this Agreement (other than taxes on the net income of ABT). 5.5 Payment. ABT/UK shall calculate, denominate, and make all payments in U.S. Dollars by wire transfer to an account designated by ABT. Any payments due under this Agreement which are not paid when due will bear interest, to the extent permitted by applicable law, at the prime rate as reported by the Chase Manhattan Bank, New York, New York, beginning on the date such payment is due, plus an additional three percent (3%), calculated on the number of days such payment is delinquent. This Section 5.5 will not limit any other remedies available to any party. 5.6 Records. ABT/UK shall make and maintain, and shall cause its subsidiaries to make and maintain, an accounting and record keeping system, including the basic accounting information necessary to prepare sufficient financial statements and a general ledger in accordance with the United Kingdom's Generally Accepted Accounting Principles (UKGAAP) with adequate and verifiable records and supporting documentation, including, without limitation, invoices, payroll records, check registers, sales tax records, cash receipts and disbursements journals, and general ledgers in order to calculate and confirm ABT/UK's payment obligations hereunder. At a minimum, ABT/UK will maintain such 13 14 [*] Confidential Treatment Requested records until the expiration of three (3) years after the year to which such records pertain. ABT will have the right, at its own expense, to inspect, through either its employees or agents, and upon reasonable notice in writing, and during regular business hours, such records to verify the accuracy of fees paid by ABT/UK under the terms of this Agreement; provided, however, that any third party auditors must sign a non-disclosure agreement reasonably acceptable to ABT/UK. If any such examination discloses a shortfall in the fees due to ABT hereunder, ABT/UK shall reimburse ABT for the full amount of such shortfall plus interest and if the amount of the underpayment for any period is more than five percent (5%) ABT/UK shall pay ABT's costs of performing that audit with respect to such period. 6. Maintenance and Support. 6.1 Support. For so long as ABT/UK is current in payment of all fees, ABT shall provide Maintenance and Support as described in Section 6.2 below. ABT's provision of Maintenance and Support to ABT/UK will commence upon payment of the Maintenance Fee and will continue for as long as ABT/UK continues to pay the annual Maintenance Fee. 6.2 Maintenance and Support Services. For purposes of this Agreement, "Maintenance and Support" means that ABT will: (a) use reasonably diligent efforts to correct and resolve Errors that ABT/UK reports to ABT in accordance with the escalation procedures set forth in Attachment F and (b) provide Error Corrections, Updates and Upgrades, if any, to the Software, Business Procedures and Documentation that ABT releases during the current period covered by the Minimum Maintenance Fee, in accordance with Section 2.6; and (c) up to twenty-five hundred (2,500) hours of technical support per year, in English, pursuant to the escalation procedures in Attachment F, and the software development resource commitment guidelines in Attachment G. The parties acknowledge that such technical support services may be applied to any Services performed by ABT pursuant to the Services Agreement in Attachment D and will not include any time spent by ABT to create or provide Error Corrections, Updates, or Upgrades, or to provide telephone support related thereto, except as mutually agreed in a Work Order as specified in Attachment D. ABT shall provide ABT/UK with a monthly report of the hours of technical support provided by ABT under this Section 6.2. Each month, ABT shall invoice ABT/UK in arrears for Fees for any Maintenance and Support services in excess of one-twelfth of the allotted twenty-five hundred (2,500) hours for the year, in reasonable detail showing such additional hours to the nearest quarter hour, and Customer shall pay such Fees no later than fifteen (15) days after the invoice date. Any such additional Maintenance and Support services will be billed at a rate equal to [*] per hour. ABT may increase such rate after the first year of the Term, in proportion to any increase in the Consumer Price Index over the previous year. 6.3 Project Managers and Staff. Each party shall designate a project manager to administer Maintenance and Support under this Agreement. The parties shall coordinate all Maintenance and Support work under this Agreement through such project managers. Each party may change its project manager upon written notice. ABT will ensure that only properly trained and qualified persons perform its technical obligations under this Agreement. 14 15 7. Trademarks and Domain Names. 7.1 Trademarks. ABT hereby grants to ABT/UK the exclusive right to use the ABT Brand in connection with a Local Business in the Territory. The above license will include, without limitation, the right to indicate to the public that ABT/UK is an authorized licensee of ABT and to advertise ABT/UK's products and services in connection with the Local Business under the ABT Brand. ABT/UK shall fully comply with the Global Brand Protocols in relation to ABT/UK's use of the ABT Brand. All representations of the ABT Brand that ABT/UK intends to use must first be submitted to ABT for approval of design, color and other details, subject to the following limitations: (a) ABT's approval will not be unreasonably withheld or delayed; (b) such approval, once given, will not be unreasonably withdrawn; and (c) once ABT has approved a particular use, ABT/UK need not re-submit for approval any substantially similar use. 7.2 Restrictions. Except as set forth in this Section 7, nothing contained in this Agreement will grant or will be deemed to grant to ABT/UK any right, title or interest in or to the ABT Brand. ABT/UK shall not challenge or assist others to challenge the ABT Brand (except to the extent such restriction is expressly prohibited by applicable law) or the registration thereof or attempt to register any trademarks, marks trade names, Uniform Resource Locators, or other designations confusingly similar to those of ABT. If ABT/UK, in the course of exercising its rights hereunder, acquires any goodwill or reputation in the ABT Brand, all such goodwill or reputation will automatically vest in ABT when and as, on an on-going basis, such acquisition of goodwill or reputation occurs, as well as at the expiration or termination of this Agreement, without any separate payment or other consideration of any kind to A.BT/UK, and ABT/UK agrees to take all such actions necessary to effect such vesting, including without limitation the transfer to ABT of rights in any filings or registrations made under Section 7.3 below, and including without limitation the transfer from ABT/UK to ABT the ABT Domain upon termination of this Agreement. Upon termination of this Agreement, ABT/UK shall immediately cease to use the ABT Brand. 7.3 Trademark Registrations in the Territory. ABT/UK shall advise ABT regarding the appropriate registrations or filings appropriate to protect the use of the ABT Brand in the Territory. ABT shall make, and ABT/UK shall cooperate with ABT to make such registrations or filings with the appropriate authorities. ABT shall pay all costs or fees associated with such filing. 7.4 Registered User Agreements. ABT/UK shall cooperate with ABT to make any registrations or filings with the appropriate authorities referenced in Section 7.3, including without limitation entering into registered user agreements with respect to the ABT Brand pursuant to applicable trademark law requirements in the Territory. ABT will be responsible for proper filing of registered user agreements with appropriate government authorities and shall pay all costs or fees associated with such filing. 15 16 7.5 Name Branding; Product Protection. On any promotional materials used or disseminated by ABT/UK relating to the Local Business, ABT/UK shall display the ABT Brand. Where both ABT/UK's marks and the ABT Brand are displayed, the marks will be presented equally legibly, and in a size and style in accordance with ABT's then-current Global Brand Protocols. 7.6 Domain Names. ABT hereby grants to ABT/UK the right to use the ABT/UK Domain, solely for the operation of a Local Business. ABT shall, prior to the first date ABT/UK makes the World Wide Web site for the Local Business generally available on the World Wide Web, register the ABT/UK Domain name with InterNIC or its successor Internet name assignment authority, and shall pay the registration fees for one year. Thereafter, ABT/UK shall in a timely fashion renew such registration with such authority at its own expense each time such registration becomes due during the Term. 8. Limitation of Liability EXCEPT FOR LIABILITY FOR THIRD PARTY CLAIMS ARISING OUT OF SECTIONS 9 OR 10, (A) IN NO EVENT WILL EITHER PARTY'S TOTAL LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED THE TOTAL AMOUNTS PAID OR PAYABLE BY ABT/UK TO ABT UNDER THIS AGREEMENT, AND (B) IN NO EVENT WILL EITHER PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER FOR BREACH OF CONTRACT, TORT OR OTHERWISE, ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, LOSS OF. ANTICIPATED PROFITS, LOSS OF DATA, OR LOSS OF USE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9. Indemnification for Infringement 9.1 ABT Indemnity for Infringement. ABT shall, at its expense, defend or settle any claim, action or allegation brought against ABT/UK that the Software, or any Localization or Extension developed by ABT, or the use of the ABT Brand in the Territory, infringes any copyright, patent, trademark or trade secret right of any third party, or that any Localization or Extension not developed by ABT/UK infringes such rights as a necessary result of specifications required by ABT, and shall pay any final judgments awarded or settlements entered into; provided that ABT/UK gives prompt written notice to ABT of any such claim, action or allegation of infringement and gives ABT the authority to proceed as contemplated herein. ABT will have the exclusive right to defend any such claim, action or allegation and make settlements thereof in its own discretion, and ABT/UK may not settle or compromise such claim, action or allegation, except with the prior written consent of ABT. ABT/UK shall give such assistance and information as ABT may reasonably require to settle, or oppose such claims. In the event any such infringement, claim, action or allegation is brought or threatened, ABT shall, at its sole option and expense: 16 17 (a) procure for ABT/UK the right to continue use of the Software or Business Procedures or infringing part thereof, (b) modify or amend the Software or Business Procedures or infringing part thereof, or replace the Software or Business Procedures or infringing part thereof with other Software or Business Procedures having substantially the same or better capabilities; or if neither (a) nor (b) is reasonably possible, (c) terminate this Agreement and repay to ABT/UK a portion of the Minimum Annual License Fee equal to the amount paid by ABT/UK less an amount equal to one twelfth (1/12) of the total Minimum Annual License Fee for each month or portion thereof of the current one (1) year term to account for use by ABT/UK. The foregoing obligations will not apply to the extent the infringement arises as a result of modifications to the Software not made by or for ABT. The foregoing states the entire liability of ABT with respect to infringement of any patent, copyright, trademark, trade secret or other proprietary right. 9.2 ABT/UK Indemnity. ABT/UK shall, at its expense, defend or settle any claim, action or allegation brought against ABT (to the extent not covered by Section 9.1) arising from the act or omission of ABT/UK, where a third party alleges fraud, misrepresentation, or unfair business practices arising from the operation of the Local Business, or those that arise from a third party allegation that a Localized Version or Extension, infringes any copyright, patent, trademark, or trade secret or other intellectual property right of any third party, or that any Localization or Extension developed by ABT/UK infringes such rights as a necessary result of specifications required by ABT/UK, and shall pay any final judgments awarded or settlements entered into; provided that ABT gives prompt written notice to ABT/UK of any such claim, action or allegation of infringement and gives ABT/UK the authority to proceed as contemplated herein. ABT/UK will have the exclusive right to defend any such claim, action or allegation and make settlements thereof in its own discretion, and ABT may not settle or compromise such claim, action or allegation, except with the prior written consent of ABT/UK. ABT shall give such assistance and information as ABT/UK may reasonably require to settle or oppose such claims. In the event any such infringement, claim, action or allegation is brought or threatened, ABT/UK may, at its sole option and expense: (a) procure for ABT the right to continue use of the Localized Version or Extension or infringing part thereof; or (b) modify or amend the Localized Version or Extension or infringing part thereof, or replace the Localized Version or Extension or infringing part thereof with other materials having substantially the same or better capabilities. 9.3 Prosecution of Infringers. ABT and ABT/UK shall give each other written notice of any acts of infringement by third parties involving intellectual property rights relating to the Localized 17 18 Version, Extensions, Software, Business Procedures, or ABT Brand anywhere in the Territory of which ABT or ABT/UK has knowledge, and the parties shall consult together with a view to determine the course of action, if any, to be taken in such circumstances. ABT will have the right to take action to enforce such rights. If the parties are unable to agree on any such course of action to be taken, then ABT shall authorize ABT/UK to take such actions as ABT/UK considers necessary or appropriate and ABT/UK will be entitled to take such actions at ABT/UK's expense. Each party shall render to the other any assistance requested by the other in proceedings against an infringer within the Territory, at the other party's expense. Any damage that might be awarded will, after deduction of actual costs, be awarded to the party that undertakes legal action. 10. Confidential Information 10.1 Obligations. The parties acknowledge and agree that the Confidential Information disclosed by one party (the "Disclosing Party") to the other party (the "Receiving Party") directly or indirectly (which information is marked as "proprietary" or "confidential" or, if disclosed orally, is designated as confidential or proprietary at the time of disclosure) hereunder constitutes the confidential and proprietary information of the Disclosing Party. The Receiving Party shall retain in strict confidence and not disclose to any third party any Confidential Information without the Disclosing Party's express written consent, and the Receiving Party shall not use such Confidential Information except to exercise the rights and perform its obligations under this Agreement. Without limiting the foregoing, each party shall use at least the same procedures and degree of care which it uses to protect its own Confidential Information of like importance, and in no event less than reasonable care. 10.2 Exceptions. The Receiving Party shall be relieved of this obligation of confidentiality to the extent it can demonstrate that any such information is: publicly available, already in the Receiving Party's possession at the time of disclosure and not subject to a confidentiality obligation, obtained by the Receiving Party from third parties without restrictions on disclosure, independently developed by the Receiving Party without reference to Confidential Information, or required to be disclosed by order of a court or other governmental entity or stock exchange, or disclosed to business or legal advisors acting under a duty of confidentiality. 10.3 Source Code Protections. ABT/UK shall not under any circumstances distribute the source code for the Software in any manner. ABT/UK shall reproduce and shall not obscure or remove any marking on any copy or Derivative Work of the source code for the Software. In addition, each copy or Derivative Work of the source code for the Software must be marked as the confidential and proprietary property of ABT to which access is restricted, and ABT/UK shall keep and use the source code for the Software solely at ABT/UK's secure development facilities under password protection. ABT/UK agrees to limit access to the source code for the Software twenty-four (24) hours a day, and strictly to those employees or Contractors to whom access is reasonably necessary in order to carry out the permitted uses of the source code for the Software hereunder. ABT/UK shall keep records of all 18 19 persons who have access to the source code for the Software. At ABT's request, ABT/UK agrees to provide such records to ABT for review. 10.4 Contractors. ABT/UK may appoint a third party contractor ("Contractor") to assist ABT/UK in ABT/UK's modification or implementation of the Localized Version as authorized hereunder; provided, however, that any such Contractor's access to and use of the Software (including the Localized Version): (a) will only be permitted pursuant to a signed written agreement between ABT/UK and such Contractor that contains terms at least as restrictive as those set forth in this Section 10, (b) protects ABT's proprietary rights in the Software to the degree set forth in this Agreement, and (c) grants the Contractor no rights in the Localized Version beyond those expressly granted hereunder ("Contractor Agreement"). Such agreement must be approved in writing by ABT prior to its execution. ABT may perform technical oversight of all work performed by a Contractor in accordance with this Section 10.4. 10.5 Notification of Security Breach. ABT/UK shall notify ABT promptly in the event of any breach of its security of which ABT/UK becomes aware, under conditions in which it would appear that the trade secrets contained in the source code for the Software or the Localized Version were prejudiced or exposed to loss. ABT/UK shall, upon request of ABT, take all other reasonable steps necessary to recover any compromised trade secrets disclosed to or placed in the possession of ABT/UK by virtue of this Agreement. The cost of taking such steps will be borne solely by ABT/UK, unless ABT willfully caused the breach. 10.6 Injunctive Relief In the event of breach of the provisions of Section 10.1 or 10.3, the non-breaching party will have no adequate remedy at law and will be entitled to seek immediate injunctive and other equitable relief, without the necessity of showing actual money damages. 11. Term and Termination 11.1 Term. This Agreement and the licenses granted hereunder will be effective as of the Effective Date and will continue in full force and effect for a term of twenty (20) years (the "Term") after the Launch Date, unless terminated as set forth in this Section 11. 11.2 Termination. This Agreement may be terminated only as follows, if any of the following events ("Termination Events") occur: (a) Termination at Will. ABT/UK may terminate this Agreement, for any reason or no reason, upon no less than one hundred eighty (180) days prior written notice to ABT; however, such notice may not be given before the date one (1) year after the Launch Date. (b) Nonpayment of Fees. In the event that: (i) ABT/UK fails to pay the Fees as they become due, in accordance with Section 5 above, and (ii) fails to do so after sixty (60) days written 19 20 notice thereof, ABT may terminate this Agreement upon written notice to ABT/UK; provided, however, that: (i) ABT may terminate this Agreement based on non-payment of Fees only if. (A) the cumulative amount of unpaid Fees is more than sixty-two thousand five hundred dollars ($62,500); or (B) any Fees in excess of ten thousand dollars ($10,000) are unpaid for more than ninety (90) days. Notwithstanding the above, ABT shall continue to have the right to seek damages from ABT/UK, and seek attorneys' fees under Section 15.14. (ii) In all events, if ABT attempts to terminate this Agreement under this Section 11.2(b), and the Fees due to ABT are subject to a good faith dispute, then either party may initiate an arbitration proceeding in accordance with Section 15.13(c), and the Agreement shall remain in force during such arbitration provided that ABT/UK continues to pay ongoing Fees into an escrow account to be distributed based on the findings of the arbitrator. (c) Default. In the event that either party defaults in the performance of a material non-monetary obligation under this Agreement (other than nonpayment of Fees as set forth in Section 11.2(b)(i) above, then the non-defaulting party may provide written notice to the defaulting party indicating: (i) the nature and basis of such default with reference to the applicable provisions of this Agreement; and (ii) the non-defaulting party's intention to terminate this Agreement. If such default is amenable to cure within thirty (30) days, the non-defaulting party may seek to terminate this Agreement under this Section 11.2(c) in the event that such material default is not cured within such thirty (30) day period. If such default is not amenable to cure within thirty (30) days, then the non-defaulting party may seek to terminate this Agreement if the defaulting party has not made significant and ongoing attempts to cure such default within thirty (30) days, or if the defaulting party has not cured such default as soon as possible thereafter. In either case, upon the expiration of such cure periods the non-defaulting party may initiate an arbitration proceeding to terminate this Agreement in accordance with Section 15.13(c). The parties shall instruct the arbitrators to make a determination as to whether a material default has occurred within thirty (30) days after the arbitration proceeding is initiated. If the arbitrators deter-mine that a material default has occurred, the non-defaulting party may terminate this Agreement immediately upon written notice. (d) Severable Termination for ABT/UK. In the event that ABT breaches and fails to cure its obligations under this Agreement and ABT/UK obtains the right to terminate this Agreement as contemplated in Section 11.2(c) above, ABT/UK shall have the right, after the date three (3) years after the Effective Date, to terminate this Agreement as to its obligation to pay Minimum Services Fees under Sections 3, 5.3, and the Services Agreement, and as to ABT's obligation to provide Services thereunder, but that all other provisions of this Agreement shall remain in force, however, each party will continue to be obligated to perform its duties under Section 2.6; or 20 21 (e) ABT may terminate this Agreement immediately upon written notice if ABT/UK: (i) terminates or suspends its business; (ii) admits in writing its inability to pay its debts as they Mature, makes an assignment for the benefit of creditors, or becomes subject to direct control of a trustee, receiver or similar authority; or (iii) becomes subject to any bankruptcy or insolvency proceeding under federal, foreign, or state statutes; or (f) ABT/UK may terminate this Agreement immediately upon written notice to ABT in the event that the final Deliverable (as defined in the initial Work Order referenced in Section 3.1(c)) is not accepted by March 31, 1999. Such termination will be deemed a termination at will, and will be ABT/UK's sole remedy and ABT's sole liability for ABT's failure to deliver conforming Initial Localization Services under Section 3.1(c). ABT/UK's ability to terminate under this Section 11.2(f) will cease upon the Launch Date. If ABT/UK terminates this Agreement under this Section 11.2(f), ABT/UK will not be obligated to pay any amounts not already due as of the date of termination under the Services agreement or under this Agreement; however, ABT/UK will not be entitled to any refund of any amount payable under this Agreement or the Services agreement. 11.3 Effect of Termination. (a) Unwind Services. Upon any expiration or termination of this Agreement in accordance with Sections 11.2(a), (b), or (c) that takes place after the first date ABT/UK makes the World Wide Web site for the Local Business generally available on the World Wide Web, each party shall continue to perform its obligations under this Agreement, for a period of up to one hundred eighty (180) days following the effective date of termination ("Unwind Services"). In consideration of the performance by ABT of such services and ABT/UK's continued use of the Localized Version, Business Procedures and ABT Brand during such period, ABT/UK shall continue to pay ABT the amounts set forth in Section 5, and the Agreement shall be deemed to continue in force until the termination of the Unwind Services. (b) Survival. Upon termination of this Agreement in accordance with the above provisions, the rights and licenses granted under this Agreement will immediately terminate except as otherwise stated herein. The terms and conditions of the following Sections will survive termination or expiration of this Agreement: 1, 2.3, 2.7, 4.3, 4.4, 5.6, 7.2, 8, 9, 10, 11.2, 11.3, 11.4, 13 and 15, as well as any payment obligations in accordance with Section 5 which accrued prior to expiration or termination hereof. (c) Return of Materials. Within thirty (30) days after the date of termination or discontinuance of this Agreement for any reason whatsoever, ABT/UK shall, at ABT's option, return or destroy any copies of the Software, Documentation, Business Procedures and any other Confidential Information in its possession that is in tangible form. ABT/UK shall furnish ABT with a certificate signed by an executive officer of ABT/UK verifying that the same has been done. 21 22 (d) Non-Competition. If this Agreement is terminated by ABT/UK under Section 11.2(a), or if this Agreement is terminated by ABT under Section 11.2(b), (c) or (e) before the end of the Term, then during the period between termination of this Agreement and two (2) years after termination of the Agreement, ABT/UK shall not operate a Local Business. If ABT/UK assigns this Agreement to another party in accordance with the terms of Section 12, this obligation will ran to ABT/UK, and to such assignee. Nothing in this Section 11.3(d) will be construed to limit the ability of ABT/UK or its affiliates to operate Web sites that primarily promote the automobiles and related products of a particular manufacturer, for instance, an Internet site promoting automobiles featuring the brand of Chrysler Corporation. 11.4 License if ABT Enters Bankruptcy. If, at any time during the Term, ABT: (a) files a voluntary petition in bankruptcy under Chapter 7 of 11 United States Code (the "Bankruptcy Code"); or (b) has an involuntary petition in bankruptcy filed against it under Chapter 7 of the Bankruptcy Code, which petition is not dismissed within ninety (90) days, ABT/UK may elect to retain its right in the licenses granted in this Agreement, subject to the terms of this Agreement, in accordance with Chapter 3, Section 365(n) of the Bankruptcy Code. The licenses granted in this Agreement will be deemed licenses of "intellectual property" under Section 365(n) of the Bankruptcy Code. 12. Nonassignment/Binding Agreement. Neither this Agreement, nor any rights under this Agreement, may be assigned or otherwise transferred by ABT/UK, in whole or in part, whether voluntary, or by operation of law, including by way of sale of assets, merger or consolidation, without the prior written consent of ABT. ABT may assign all its rights and obligations under this Agreement to an Affiliate of ABT. Any permitted assignee must agree in writing to be bound by all the terms and conditions of this Agreement. Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their respective successors and assigns. 13. Non-Solicitation. Each party acknowledges and agrees that the technical and development employees and consultants of the other party are a valuable asset of such party and are difficult to replace. Accordingly, each party agrees that, for the Term and for a period of two (2) years thereafter, it will not offer employment as an employee, independent contractor, or consultant to any such employee or consultant of the other party. In the event of a breach of the provisions of this Section 13, the parties agree that it would be difficult to determine the amount of actual damages that would result from such breach. The parties further agree that in the event of a breach of the provisions of this Section 13, the breaching party shall pay the non-breaching party liquidated damages of $25,000 for each such breach, which is the parties' good faith estimate of the amount of damages to the non-breaching party from such breach. 14. Notices. Any notice, submission, or communication required or permitted under the terms of this Agreement, or required by law, whether or not so required elsewhere in this Agreement, must be in writing and must be: (a) delivered in person, (b) sent by first class registered mail, return receipt requested, or air mail, as appropriate, or (c) sent by overnight air courier; in each case properly posted and fully 22 23 prepaid to the appropriate address set forth below. Either party may change its address for notice by notice to the other party given in accordance with this Section 14. Notices will be considered to have been given at the time of the earlier of: (p) actual delivery in person, (q) the date of a receipt of such notice signed by an authorized representative of the party being notified, (r) the date of a written confirmation of receipt by the party being notified, or (s) thirty (30) days after deposit in the mail as set forth above. 15. Miscellaneous 15.1 Force Majeure. Neither party will incur any liability to the other party on account of any loss or damage resulting from any delay or failure to perform all or any part of this Agreement if such delay or failure is caused, in whole or in part, by embargoes, floods, acts of civil or military authority, fuel crisis, acts of God, strikes, lockouts, riots, acts of war, fires and explosions, but the inability to meet financial obligations is expressly excluded ("Force Majeure"). The time for performance will be extended for a period equal to the duration of the delay, but in no event longer than one hundred eighty (180) days. If, as a result of a Force Majeure, a party is unable to resume performance within such one hundred eighty (ISO) day period, the other party will have the right to terminate this Agreement. 15.2 No Waiver; Amendment. Any waiver of the provisions of this Agreement or of a party's rights or remedies under this Agreement must be in writing to be effective. Failure, neglect, or delay by a party to enforce the provisions of this Agreement or its rights or remedies at any time will not be construed and will not be deemed to be a waiver of such party's rights under this Agreement and will not in any way affect the validity of the whole or any part of this Agreement or prejudice such party's right to take subsequent action. This Agreement may not be amended, except by a writing signed by both parties. 15.3 Severability. If any term, condition, or provision of this Agreement is found to be invalid, unlawful or unenforceable to any extent, the parties shall endeavor in good faith to agree to such amendments that will preserve, as far as possible, the intentions expressed in this Agreement. If the parties fail to agree on such an amendment, such invalid term, condition or provision will be severed from the remaining terms, conditions and provisions, which will continue to be valid and enforceable to the fullest extent permitted by law. 15.4 Entire Agreement. This Agreement (including the Attachments and any addenda hereto signed by both parties) contains the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes all previous communications, representations, understandings and agreements, either oral or written, between the parties with respect to said subject matter. 15.5 No Conflicting Provisions. No terms, provisions or conditions of any purchase order, acknowledgment or other business form that either party may use in connection with this Agreement have any effect on the rights, duties or obligations of the parties under, or otherwise modify, this Agreement, regardless of any failure of the other party to object to such terms, provisions or conditions. 23 24 15.6 Consent. Unless expressly provided otherwise in this Agreement, any prior consent of ABT that is required before ABT/UK may take an action may be granted or withheld in ABT's sole and absolute discretion. 15.7 Export Restrictions. ABT/UK understands that ABT is subject to regulation by agencies of the U.S. government, including, but not limited to, the U.S. Department of Commerce, which prohibit export or diversion of certain technical products to certain countries. ABT/UK warrants that it will comply in all respects with the Export Administration Regulations and all other export or re-export restrictions applicable to the technology and Documentation licensed hereunder. Further, ABT/UK shall cooperate as requested by ABT to ensure compliance with any export restrictions or licenses relating to the Software. 15.8 Press Releases. Neither party shall disclose to any third party the terms and conditions of this Agreement, except as required by the law, of any relevant jurisdiction, or to any securities exchange or regulatory authority or governmental body or quasi-governmental department or agency to which either party is subject, wherever situated (including without limitation the London Stock Exchange Limited, the Panel on Takeovers and Mergers, the Securities and Exchange Commission, and the U.S. Department of Justice) whether or not the requirement has force of law, in which case the party making such disclosure shall take all such steps as are reasonable and practicable in the circumstances to agree upon the contents of such disclosure with the other party before marking such disclosure. Either party may disclose the terms and conditions of this Agreement to their respective legal or business advisors with a need to know acting under a duty of confidentiality. Notwithstanding the above, at a mutually agreed time, as soon as possible but no later than sixty (60) days after the Effective Date, ABT and ABT/UK shall issue a mutually acceptable joint press release announcing the relationship contemplated by this Agreement. 15.9 Rights and Remedies. No exercise or enforcement by either party of any right or remedy under this Agreement will preclude the enforcement by such party of any other right or remedy under this Agreement or that such party is entitled by law to enforce. 15.10 Counterparts. This Agreement may be executed in counterparts, each of which so executed will be deemed to be an original and such counterparts together will constitute one and the same agreement. 15.11 Governing Law. This Agreement will be interpreted and construed in accordance with the laws of the State of California and the United States of America, without regard to conflict of law principles and excluding the 1980 United Nations Convention on Contracts for the International Sale of Goods. 15.12 Language. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall not be binding on the 24 25 parties hereto. All communications and notices to be made or given pursuant to this Agreement shall be in the English language. 15.13 Dispute Resolution. (a) Escalation. If a dispute otherwise arises under this Agreement, it should be referred to the President of each of the parties for resolution, and such persons shall use their best efforts to resolve the matter for no less than thirty (30) days. Any matter such persons are unable to resolve within such period may be submitted to the dispute resolution procedure set forth in Section 15.13 (b) or (c), as applicable. (b) Fast Track Resolution for Technical Disputes. For all disputes between the parties that relate to technical issues under this Agreement, which disputes cannot be resolved under Section 15.13(a), the parties shall refer the dispute to a single third party individual mutually agreed to by the parties, who possesses such technical expertise and impartiality to resolve the dispute, such approval of such individual not to be unreasonably withheld (the "Expert"). The parties shall each bear fifty percent (50%) of the Expert's expenses, and shall direct the Expert to issue a decision on the matter within fifteen (15) days, which decision shall be final and binding on both parties. If the parties are unable to agree upon an Expert, or upon whether a dispute is a technical dispute, notwithstanding the good faith efforts to do so, then the dispute shall be submitted to arbitration as set forth in Section 15.13(c). Except as expressly set forth to the contrary in this Section 15.13(b), any such fast track resolution will take place according to the procedures set forth in Section 15.13(c). (c) Arbitration. Any dispute or claim arising out of or in relation to this Agreement not resolved by Sections 15.13(a) or 15.13(b) above must be settled by binding arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce as presently in force ("Rules") and by one (1) arbitrator appointed in accordance with said Rules. Judgment on the award rendered may be entered in any court having jurisdiction thereof. The place of arbitration will be Orange County, California, U.S.A. Any monetary award must be calculated and denominated in U.S. dollars and the arbitration must be conducted in the English language. Notwithstanding the other provisions of this Section 15.13, either party may apply to any court of competent jurisdiction for injunctive or equitable relief 15.14 Legal Expenses. If there is a successful action by one party against the other party to enforce this Agreement or obtain damages as a result of any breach of this Agreement, then the prevailing party shall be entitled to recover from the other party, in addition to any damages, all costs and expenses incurred by the prevailing party in connection with the action, including reasonable attorneys' fees and court costs. 25 26 IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by duly authorized representatives on the dates set forth below. autobytel.com inc. ABT/UK By: By: -------------------------------- --------------------------------- Name: Name: ------------------------------ -------------------------------- Title: Title: ----------------------------- ------------------------------- Date: Date: ------------------------------ -------------------------------- Address: Address: --------------------------- ----------------------------- - ----------------------------------- ------------------------------------- 26 27 CONFIDENTIAL - WSGR DRAFT 11/20/98 ATTACHMENT A SOFTWARE: The Software will include all core business applications, including:
- --------------------------------------------------------------------------------------------------------------------------------- CATEGORY APPLICATION NAME DESCRIPTION - --------------------------------------------------------------------------------------------------------------------------------- Consumer Product Affinity Programs Restricted view of Consumer Web Interface customized for Affinity Partners. Users are limited to the web pages (functionality) specified by Affinity Partner. - --------------------------------------------------------------------------------------------------------------------------------- Finance Used by End-User Customers to apply for credit to buy/lease an automobile. - --------------------------------------------------------------------------------------------------------------------------------- Information Provider Used to provide New/Used Car Information to customers via links to various information Links providers. - --------------------------------------------------------------------------------------------------------------------------------- Insurance Hyperlink to Insurance Site(s). - --------------------------------------------------------------------------------------------------------------------------------- Mobalist Used by End-User Customers to sign-up for and monitor Mobalist Rewards account. - --------------------------------------------------------------------------------------------------------------------------------- New Car Request Used by End-User Customers to gather new car information and request a price quote. Process (FasTrak) - --------------------------------------------------------------------------------------------------------------------------------- Online Customer Used by End-Users to check on status of Purchase and Finance Requests. Service Center - --------------------------------------------------------------------------------------------------------------------------------- Quality Assurance Allow End-Users to answer QA survey questions. Survey (QA) - --------------------------------------------------------------------------------------------------------------------------------- Used Car Request Used by End-User Customers to gather used car information, review dealer used car Process (FasTrak) inventories, and make a used car purchase request. - --------------------------------------------------------------------------------------------------------------------------------- Dealer Interface Dealer Communication Used by ABT Contracted Dealers to manage purchase requests and customer contact System (DRT) information; Maintain Used Car Inventory information for Dealership(s). - --------------------------------------------------------------------------------------------------------------------------------- Dealer Management Contract Management Used by ABT Contract Administration department to manage contracts with subscribers (CM) including New Car (Postal), Used Car, Finance and DRT. - --------------------------------------------------------------------------------------------------------------------------------- Distribution [Dealer] Used by ABT Dealer Support Services (DSS) to set-up and maintain relationship with Management (RD) dealers. - --------------------------------------------------------------------------------------------------------------------------------- QA Survey (QA) Used by ABT DSS/Training to monitor customer satisfaction and closure rates; Dealer Performance. - --------------------------------------------------------------------------------------------------------------------------------- Financial Car matching Match vehicle make, model, series in ABT_PROD database to vehicles in GE Capital Processing database in order to determine residual values. - ---------------------------------------------------------------------------------------------------------------------------------
28 CONFIDENTIAL-WSGR DRAFT 11/20/98 Credit Union Faxing Faxes consumer purchase requests to Credit Unions for processing. (CU FX) Customer Financial Fax Faxes credit decisions to dealers for finance requests submitted by consumers. to Dealer (FinFaxDealer) Financial Status Provides system operations with access to processing statistics, error logging Monitor and recovery procedures for financial request processing system. (Financial Status) Finance/Customer E-mails credit decisions/information from financial institutions to consumers. Email (FML2) Bank Matcher, Bank Sends financial requests to and receives credit decision from financial institutions. Transfer, Bank Watcher (FSMFrame) Information Postal Code Updates Imports Postal Code related data from Postal Service, GDT. Import Postal Code Provider Centroids (Longitude, Latitude of center of zip codes). Interface Used Car Import/Export Import/Export Used Car data to/from information providers. VIN Decoding Import Import Vintek data. Vintek provides the information required to Decode VIN's. New/Used Car Import Intellichoice data including make, model, series, options and pricing Information Import information. MIS Financial Reports Reporting on Financial Requests. Reports are summarized by various (Financial) dimensions including: Time - day, week, month, quarter, year Type - Lease, Retail Intranet Basic management reporting, system operation monitoring, data maintenance and company/employee information. MIS/Billing Interface Used by ABT internal staff to pass billing data from ABT Core system to Dynamics (ABT's Internal Financial Accounting Application). QA Reports (QA) Reporting on Customer Satisfaction, Closure rates Time - day, week, month, quarter, year Geography - region, state, dealer Vehicle - make, model, series PR Type - New car or Used Car Contract - Paying, Non-Paying Dealers
29 CONFIDENTIAL-WSGR DRAFT 11/20/98
Standard Reports Reporting on Purchase Requests. Reports are summarized by various (Standard) dimensions including: Time - day, week, month, quarter, year Geography - region, state, dealer Vehicle - make, model, series PR Type - New Car or Used Car Contract - Paying, Non-Paying Dealers Various Base Network Much of the core functionality of the systems described above is Architecture & encapsulated in stored procedures/data tables in the following SQL Supporting Systems databases: ABT_PROD, ABT_FINANCE, ABT_INTERFACE.
MINIMUM ANNUAL LICENSE FEE: The annual Minimum Annual License Fee will be Eight Hundred Fifty Thousand Dollars ($850,000) payable in four (4) Fiscal Quarterly installments of Two Hundred Twelve Thousand Five Hundred Dollars ($212,500). ANNUAL MAINTENANCE FEE: The annual Minimum Maintenance Fee will be Two Hundred Fifty Thousand dollars ($250,000) payable in advance. 30 CONFIDENTIAL-WSGR DRAFT 11/20/98 ATTACHMENT B ABT BUSINESS PROCEDURES The following general principles will apply, in ABT/UK is described as the "ABT Entity." The parties will agree in good faith upon more detailed business procedures, and ABT/UK will use reasonable efforts to abide by the business procedures generally provided by ABT to its licensees. GENERAL ABT Entity will have a consumer focus and will supply consumer products and services at competitive prices, in a hassle free, haggle free environment. ("Universal Autobytel.com Philosophy") ABT Entity will strive to offer all automotive related products and services, including the purchase or lease of new and used vehicles from dealers, financing, insurance and the sale of warranty services, and after market products, if applicable. Additional products and services may be added to the basic model, but only in accordance with universal ABT philosophy (for example, consumer to consumer used car sales, dealer to dealer auctions and the Mobalist). CONSUMER ABT Entity will supply consumer with access to information on automotive products and services, including pricing information, specifications and other useful information to educate the consumer on automotive related matters. ABT Entity is to use a purchase request concept under which a consumer provides pertinent information and specifications on the vehicle the consumer wishes to purchase or lease. In addition, the ABT Entity will notify the consumer of purchase request's receipt, the dealer to whom the request was forwarded and provide a toll free number to call if purchase request is not responded to within a defined period of hours. Consumer personal information will be considered confidential and treated as such. It should not be sold or supplied to external sources without the permission of the consumer. Any such distribution of data should be made to reputable external partners only. DEALER The goal of the Universal Autobytel.com Philosophy is that dealers and manufacturer will benefit from supplying consumer products and services at competitive prices, in a hassle free, haggle free environment. 31 CONFIDENTIAL-WSGR DRAFT 11/20/98 ABT Entity must require each dealer to appoint at least one dedicated ABT Manager who is a salaried employee (not a commission salesman) whose function is to interact with the consumer from receipt of purchase request to delivery of the vehicle. The ABT Manager must respond to purchase requests within a defined period of hours. For new car transactions, there will be exclusive geographic (e.g. postal code based) territories for each auto manufacturer franchise; one dealer per territory for each auto manufacturer franchise. The size of each territory will be based on criteria such as population, average driving distance, auto manufacturer franchise popularity (based on new vehicle registrations), Internet penetration and household income levels. Dealers will be selected based on criteria such as reputation in community, consumer satisfaction, inventory, financial strength and ability to handle large volume of business. Each dealer will sign a contract (with rights of ABT Entity to cancel if the dealer does not meet certain minimum performance requirements) paying ABT Entity monthly marketing and software fees (the determination of the fees being made on a country by country basis). The ABT Entity may also receive additional fees from the offering of various complementary products and services to the consumer. ABT Entity will require the dealer to use the DRT system to process requests, manage customer contacts and record status of purchase requests through completion. The ABT Entity will train the ABT Manager, educate the owner of the dealership, the manager and other relevant personnel on all ABT procedures. Such training sessions will include periodic visits to dealerships, classes, updates and reviews of ABT systems and software. For used car transactions, the ABT Entity may include both dealers and independent dealers meeting ABT Entity standards (in accordance with the Universal Autobytel Philosophy). Used cars sold under ABT brand will be sold under a customer assurance program, which may include a money-back return or vehicle exchange policy and limited warranty policy. However, such a requirement will not apply to any "back lot" or exotic used car sales programs. ABT Entity will require dealers to maintain used car data in a timely manner. Dealers will be responsible for ensuring used car information is updated to reflect sales and/or availability. ABT ENTITY OPERATIONS ABT Entity will maintain a dealer relations organization to communicate with dealers and their ABT Managers. ABT Entity will maintain a consumer communication organization to answer consumer questions and complaints. 32 CONFIDENTIAL-WSGR DRAFT 11/20/98 ABT Entity will survey each consumer within a defined time after a purchase request is received. Surveys will be reviewed and the conclusions sent to the participating dealers on a monthly basis. ABT Entity will remove ABT dealers who do not comply with ABT standards set by ABT in each country (but adhering to universal ABT philosophy). ABT Entity will review all technical modifications/extensions with Autobytel.com CTO prior to the design, coding and implementation phases of each project. ABT Entity will abide to technology standards and direction provided by Autobytel.com. Any deviations from standards must be approved by the Autobytel.com CTO in advance of development and implementation. ABT Entity will ensure all Autobytel.com confidential proprietary and copyrighted materials are secured and used with at least the same care and procedures that the ABT Entity would use to protect its own confidential proprietary and copyrighted materials. ABT Entity will provide for 24x7 system availability to the consumer (Web Site) and dealers (DRT), with only short, off-peak downtime for planned or unscheduled maintenance. Additionally, ABT Entity will implement a disaster recovery/business continuity plan to handle potential system/facility outages. ABT Entity will, as soon as reasonably possible, implement a defined technical quality assurance process that provides for at least unit and system level testing of each significant system change. Autobytel.com will reserve the right to oversee QA procedures as necessary to ensure quality of customer/dealer experience with ABT systems. 33 CONFIDENTIAL-WSGR DRAFT 11/20/98 ATTACHMENT C ABT'S GLOBAL BRAND PROTOCOLS GLOBAL BRANDING PROTOCOL: INTRODUCTION TO GUIDELINES, PRACTICES AND PROCEDURES Introduction The Auto-By-Tel Corporation has recently changed its name to autobytel.com inc. and is currently in the process of conducting brand positioning research, which will be complete in September of 1995. Upon completion of this research, autobytel.com inc. will issue an update to its global brand standards protocol (and look book), containing all of the new brand identity materials. In the interim the old book is attached as an example of its contents as well as this introductory document which is designed to address some of the more immediate needs. New Logo Our new logo embodies some of our initial learning. We have chosen a mark symbolizing a road, which signifies a destination that leads to Autobytel.com as opposed to an automobile icon, which is more predictable. This mark is highly differentiated from other companies in the category and positions autobytel.com inc. as the leader. The new logo is reliable, innovative, trustworthy, contemporary yet timeless. The idea of a road leading to a destination is empowering for the consumer, reminding them that they are in the driver's seat when buying through autobytel.com inc. The conveying of the concept of a destination will create an association with the brand over time. The logo will be adapted to each country by replacing the domain type that is relevant to that country; for example, autobytel.se, autobytel.ca, autobytel.uk, etc. Also the selling line can be inserted immediately in the lower left. Full treatments of the logo will be reviewed when the new look book is issued. Purpose and Function of Global Standards The purpose of the global brand standards is to clearly define and articulate the brand's core values and ensure that the brand's positioning remains consistent and properly communicated throughout all forms of marketing communication across the globe. Since a brand is a promise of an experience, it is important that it be comprised of the intangible as well as the tangible values in order to best create an enduring relationship 34 CONFIDENTIAL-WSGR DRAFT 11/20/98 between Autobytel.com and its stakeholder target constituencies - shareholders, consumers and dealers alike. What Does the Standard Address The image below graphically illustrates the intangible components (on the right), which the global brand protocol is designed to address. Purpose and Intent of autobytel.com inc.'s "Global Brand Protocol and Look Book" The purpose of the global brand protocol and "Look Book" when complete, will be to aid Autobytel.com, all its companies, subsidiaries, partners, and licensees to properly administer and steward autobytel.com inc.'s intangible assets - the brand. It is not designed to police licensees: but rather to ensure that the tenets of strong branding be observed for Autobytel.com so that all collateral, business, advertising, and web site creative and content guarantee quality and consistency of message. This will ensure that the net impression left in the mind of target audience is relevant, differentiated, and enduring. Differentiating Autobytel.com by experience (emotional bond) with the customer, versus just the key rational benefits (e.g. low-cost, haggle-hassle-free, etc.) will ensure the success of Autobytel.com. Role of Autobytel.com Brand Management It is the role of Autobytel.com Corporate Marketing to clearly articulate and communicate the brand's core value, identity, positioning, and Global Brand Protocol to all autobytel.com inc. companies, subsidiaries, divisions, partners and licensees. Role of the Autobytel.com Global Brand Agency It is the role of the global brand agency to develop, create, recommend and steward autobytel.com inc.'s brand positioning so that it conforms to autobytel.com inc.'s brand values. They have the responsibility of managing the Autobytel.com brand communications on a global scale while recognizing local needs. In this role the agency will steward the brand with regards to the quality and consistency of the brand's global advertising. Role of the Local Agency It is the role of the local country agency to create successful advertising that conforms to autobytel.com inc.'s brand positioning. 35 CONFIDENTIAL-WSGR DRAFT 11/20/98 A LOOK AT THE REQUIREMENTS, PROCESS AND INTERACTION BETWEEN autobytel.com inc.'s GLOBAL BRAND AGENCY AND THE LOCAL COUNTRY'S AGENCY AS IT RELATES TO ADVERTISING Generally speaking, autobytel.com inc.'s advertising (visual and copy content) must be in synergy with the brand's core values and comply with the brand's positioning strategy as will be stated in the "Global Brand Protocol & Look Book" (after the brand positioning project is completed in September). While this book is dynamic and periodic updates should be expected, it is our intent to develop an enduring brand positioning, which should remain in effect over a number of years. All decisions regarding the appropriateness of Autobytel.com advertising will be measured against this benchmark. Some general requirements and procedures which you should expect to see outlined in the Global Brand Protocol about Autobytel.com advertising follows: Creative All creative formats and units must: Feature the appropriate upper and lower case treatment of the company name (e.g. autobytel.com inc., and Autobytel.com, etc.) Feature the autobytel.com inc. logo Feature the Autobytel.com tag-line (which will be translated by the global brand agency into the appropriate language for each county in a way that is mutually agreeable so that it mutually satisfies the requirements of both the brand and country's cultural environment.) Feature the appropriate Autobytel.com URL (Uniform Resource Locator) for the country involved (e.g. autobytel.com, autobytel.ca, autobytel.uk, etc.) reflect the highest level of moral and ethical standards within the community to which the commercial's message is to be conveyed reflect the brand's recommended look and feel (e.g. color palettes, typefaces, imagery, etc.) of which examples will be provided in the look book. Autobytel.com strongly urges all licensees to use the network affiliate of the global brand agency. If for any reason, the licensee utilizes an agency that is not part of the global brand agency's network, the following will apply. 36 CONFIDENTIAL-WSGR DRAFT 11/20/98 Creative Procedure Each licensee does not need to submit creative concepts and executions to Autobytel.com for prior approval. But it is required that each country submit copies of all creative materials to autobytel.com inc.'s global brand agency at least quarterly. While it is not autobytel.com inc.'s intention to police creative, should the marketing materials not conform to the brand's positioning, Autobytel.com reserves the right to advise the country to discontinue the use of any creative that does not properly comply. In the unlikely event that this should occur, the country will be required to discontinue use of the materials within 45 days. Autobytel.com strongly encourages the country's local agency to implement an on-going dialogue with the global brand agency (a contact name will be issued). The frequency and format for this communication can be mutually agreeable to suit the needs and requirements of both parties, and may expand and contract based upon the need of each party. Media Procedure Each country can determine the specific marketing communications mix (e.g. PR, Advertising, Promotion, etc.) selection of media (e.g. Internet, TV, Radio, etc), and selection of specific media vehicles (e.g. stations, publications, etc), that is most appropriate for its culture and environment. autobytel.com inc. may volunteer from time to time, the sharing of information about media that has been particularly successful in other countries across the globe. We will encourage that all partners and licensees share information about what is/isn't working for the benefit of aggregated learning. However, it will be required that information about marketing communication mix and media plans be shared and submitted to Autobytel.com Corporation on at least a bi-annual basis. This may be submitted either in a written or digital format. Fees for Global Brand Management (For countries not using the local affiliate of autobytel.com inc.'s global agency) autobytel.com inc.'s global brand agency will be appropriately organized to steward the brand, bring strategic value to autobytel.com inc. and its licensees, and to facilitate communication among the parties. If the licensee does not use a local agency that is an affiliate of the global agency, autobytel.com inc. will charge the licensee for any expenses associated with stewarding the brand. ADVERTISING OPPORTUNITY ON autobytel.com inc.'s WEBSITE autobytel.com inc. will offer its licensees an opportunity to participate in its global web site advertising initiative. autobytel.com inc. plans to offer advertising on its U.S. site, and on each 37 CONFIDENTIAL-WSGR DRAFT 11/20/98 country's local site if the country chooses to participate. If the licensee participates, autobytel.com inc. will require to country's site to allocate 50% of the total pages served and inventory. In return, autobytel.com inc. will offer licensees the opportunity to share in 50% of the revenues generated after expenses through this sale. If the licensee is interested, additional details will be provided after this program is finalized. In the interim, here are some examples of the guidelines: Site must be constructed to accommodate advertising Screen real estate positioning must conform to autobytel.com inc.'s global advertising standards (currently this is a top right position and 3 IAB unit sizes will be utilized 50% of ad inventory (equal to approximately 50% of total pages served) will be allocated to this effort. Licensee has 6 months after launch of site to have prepared for advertising In Closing, please refer to the attached Global Brand Protocol and Look Book, which is currently in development. A number of sections have been added since the last submission. 38 CONFIDENTIAL-WSGR DRAFT 11/20/98 autobytel.com inc.'s new U.S. Web site, launched 07/31/98 [GRAPHIC] Note: Upon completion of the brand positioning, the new selling line will appear below in the top ledge frame of the site. 39 ATTACHMENT D SERVICES AGREEMENT AGREEMENT FOR CONSULTING BY AUTO-BY-TEL This Agreement for Consulting ("Agreement") is made and entered into as of the ___ day of ___________, 199_ by and between autobytel.com inc., a Delaware corporation with offices at 18872 MacArthur Boulevard, Irvine, California, 92612 ("APT"), and Auto by Tel UK Limited, a ___________ corporation with offices at _____________ ("ABT/UK"). The ABT/UK desires to retain ABT as an independent contractor to perform certain development and consulting services for the ABT/UK as described in the License and Services Agreement between the parties dated _______________ ("License and Services Agreement"), and ABT is willing to perform such services on terms set forth more fully below. In consideration of the mutual promises contained herein, the parties agree as follows: 1. SERVICES. (a) Work Orders. The parties may from time to time agree upon certain software development and related services to be provided by ABT under this Agreement ("Services"). The parties shall develop a description of such Services in reasonable detail ("Work Order") in a form substantially as set forth in the Work Order. ABT agrees to perform for the ABT/UK the services described in each Work Order on the terms and conditions set forth therein. The parties acknowledge that ABT/UK may have certain obligations under each Work Order, and all of ABT's obligations will be subject to the prompt performance of ABT/UK's obligations thereunder. In addition, any delays in ABT's performance of the Services due to allocation of ABT's development resources in accordance with requests of ABT/UK for additional Services will not be deemed a breach of this Agreement. The parties expressly agree that ATTACHMENT E to the License and Services Agreement will be the initial Work Order for this Agreement. (b) Change Orders. Any changes to Specifications ("Change Orders") are subject to mutual agreement. All Change Orders must be coordinated through a single point of contact for each party, and approved in advance in writing by CEO of ABT/UK and the CTO of ABT. The parties will discuss any proposed Change Order, and ABT will use reasonable efforts to estimate any additional fees that would result from changed or additional Services to be performed under the Work Order. If the parties cannot agree on whether a Change Order should be implemented, or upon the related fees, ABT/UK may, at its sole option and discretion, continue with the Work Order as specified before the Change Order, or terminate the Work Order and pay ABT for all services performed up to the effective date of termination. In such a case, ABT shall deliver to ABT/UK all work in process not yet delivered to ABT/UK under the Work Order; provided, however, that such work in process will be provided "as is," not subject to the warranty in Section 10(a). (c) Change Orders due to Technical Infeasibility. If ABT decides, in its reasonable discretion, during performance of a Work Order, that the Work Order is technically infeasible or that ABT, despite using its best efforts, will not be able to complete the Work Order, ABT shall notify ABT/UK that a Change Order is required to complete the development, and shall propose a Change Order to ABT/UK. ABT/UK may, at its sole option and discretion, agree to the Change Order, or terminate the Work Order, 40 in which case, (a) ABT shall deliver to ABT/UK all work in process not yet delivered to ABT/UK under the Work Order; provided, however, that such work in process will be provided "as is," not subject to the warranty in Section 10(a); (b) ABT/UK will not be obligated to pay for the work performed on that Work Order after the last-completed Milestone; and (c) ABT shall provide a reasonable number of hours of free technical support to assist ABT/UK to perform the remainder of the Work Order by itself or through a third party, up to 10% of the total hours for which ABT/UK has paid in connection with the Work Order. 2. COMPENSATION (a) Services. ABT/UK shall pay ABT for performing the Services as shown in the Work Order. (b) Expenses. The ABT/UK shall also reimburse ABT for the reasonable actual travel and living expenses of its personnel engaged in the performance of Services at locations other than ABT facilities, together with other reasonable out-of-pocket expenses incurred in connection with performance of the Services. ABT shall adhere to any travel policy reasonably promulgated by ABT/UK, provided that ABT may incur expenses up to a total of ________ dollars without ABT/UK's prior approval. (c) Payments. ABT shall invoice ABT/UK for all amounts on or after the due date. Payment terms shall be net ____ days. Any amounts due ABT under this Agreement not received by the date due shall be subject to a service charge of one and one-half percent (1.5%) per month, or the maximum charge permitted by law, whichever is less. Any payment terms set forth in the applicable Work Order will take precedence over this Section 2(c). 3. CONFIDENTIALITY. All information disclosed under this Agreement will be subject to Section 10 of the License and Services Agreement. 4. OWNERSHIP. The work product resulting from the Services shall consist of, and shall operate in conjunction with, multiple elements of intellectual property, as set forth in the Work Order, approximately in the form set forth in Exhibit B. The parties' respective rights with respect to such intellectual property shall be as set forth below. For purposes of this Agreement, the term "ownership" shall refer to ownership of all intellectual property rights including, but not limited to, all patent, copyright, trade secret and trademark rights, as applicable, with respect to the subject intellectual property: (a) ABT/UK Materials and Pre-Existing ABT/UK Materials. For all materials designated as "ABT/UK Materials" in the Work Order, ABT agrees that such materials are the sole property of the ABT/UK, and shall be considered "works made for hire" as that term is defined in the United States Copyright Act. ABT further agrees to assign (or cause to be assigned) and does hereby assign fully to the ABT/UK all such works and the intellectual property rights relating thereto. For all materials designated as "Pre-Existing ABT/UK Materials" in the Work Order, ABT agrees that such materials are the sole property of the ABT/UK, and ABT/UK hereby grants to ABT a non-exclusive, non-transferable, royalty-free, fully paid up license to use, reproduce, and prepare derivative works of such materials solely for the purpose of performing ABT's obligations under this Agreement. (b) Third Party Materials. For all materials designated as "Third Party Materials" on the Work Order, the parties hereby agree that such materials shall be necessary for ABT/UK to use the ABT/UK 41 Materials or ABT Materials, and ABT/UK shall be solely responsible for obtaining necessary licenses to the Third Party Materials. (c) Pre-existing Materials and ABT Materials. For all materials designated as "Pre-existing Materials" or "ABT Materials" in the Work Order, ABT/UK agrees that such materials are the sole property of the ABT. All work product resulting from the Services will be deemed "ABT Materials" unless otherwise designated in the Work Order. ABT hereby grants to ABT/UK a license to use the ABT Materials as part of the Software, set forth in the License and Services Agreement. No other grants of licenses or rights to ABT/UK shall be implied from the provisions stated in this Agreement. ABT/UK shall not obliterate or remove and will reproduce ABT's intellectual property notices contained in the ABT Materials or Pre-existing Materials. (d) Further Assurances. Each party agrees to execute any additional documents deemed reasonably necessary to effect and evidence the other party's rights with respect to the intellectual property elements set forth above. 5. REPORTS. Except as otherwise set forth in the applicable Work Order, ABT agrees that it will, approximately once per month during the term of this Agreement or any extension thereof, keep the ABT/UK advised as to ABT's progress in performing the Services hereunder and that ABT will, as requested by the ABT/UK, prepare written reports with respect thereto. It is understood that the time required in the preparation of such written reports shall be considered time devoted to the performance of ABT's Services. 6. TERM AND TERMINATION (a) Term. This Agreement will commence on the date first written above and will continue until final completion of the Services or termination as provided below. (b) Termination. The ABT/UK may terminate this Agreement or any Work Order at any time upon giving ten (10) days' prior written notice thereof to ABT, provided, however, that ABT/UK shall pay ABT for any Services performed up to the effective date of termination, and, promptly upon ABT's request, pay all of ABT's sunk costs related to any terminated Work Order, including without limitation any cancellation payments to third parties to terminate contracts entered into by ABT in reliance upon the Work Order. ABT shall deliver any work in process promptly after such payments. Such work in process will be provided "as is," and will not be subject to the warranty in Section 10(a). Either party may terminate this Agreement upon thirty (30) days' notice of any uncured material breach of this Agreement by the other party. (c) Survival. Upon such termination all rights and duties of the parties toward each other shall cease except Sections 3, 4, 8, 9, 10, 11, 12, and 13 shall survive termination of this Agreement. 7. ASSIGNMENT. Neither this Agreement nor any right hereunder or interest herein may be assigned or transferred by either party without the express written consent of the other. 8. INDEPENDENT CONTRACTOR. Nothing in this Agreement shall in any way be construed to constitute ABT as an agent, employee or representative of the ABT/UK, but ABT shall perform the Services hereunder as an independent contractor. 42 9. ARBITRATION. The parties agree that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement will be resolved as set forth in the License and Services Agreement. 1O. WARRANTY AND DISCLAIMER. (c) ABT represents and warrants to ABT/UK that all software deliverables specified in any Work Order ("Software"), in the form delivered to ABT/UK, will perform in substantial accordance with the specifications therefor in the Work Order, and any other specifications developed in writing pursuant to the Work Order. If the Software does not perform as warranted, ABT shall use reasonably diligent efforts to correct the Software in accordance with the escalation procedures in Attachment F to the License and Services Agreement. The foregoing are ABT/UK's sole and exclusive remedies for breach of such warranty. The warranty will apply only if the then-current version of the Software has been properly installed and used in accordance with the instructions for use. (b) OTHER THAN AS EXPLICITLY SET FORTH IN THIS SECTION 12, ABT DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING ANY AND ALL IMPLIED WARRANTIES OF TITLE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT. 11. LIMITATION OF REMEDIES AND DAMAGES EXCEPT FOR CLAIMS ARISING FROM SERVICES PROVIDED HEREUNDER THAT ARE COVERED BY SECTION 9 OF THE LICENSES AND SERVICES AGREEMENT (A) EACH PARTY'S LIABILITY ARISING HEREUNDER SHALL BE LIMITED TO FEES PAID BY ABT/UK HEREUNDER, AND (B) NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS AND/OR BUSINESS INTERRUPTION, WHETHER FORESEEABLE OR NOT, AND WHETHER ARISING IN CONTRACT, TORT, OR NEGLIGENCE, EVEN IF A REPRESENTATIVE OF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 12. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto form the entire agreement of the parties and supersede any prior agreements between them with respect to the subject matter hereof. 13. WAIVER. Waiver of any term or provision of this Agreement or forbearance to enforce any term or provision by either party shall not constitute a waiver as to any subsequent breach or failure of the same term or provision or a waiver of any other term or provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ABT/UK: ABT: By: By: ------------------------------- ---------------------------- 43 Print Name: Print Name: ----------------------- --------------------- Title: Title: ----------------------- ------------------------- 44 EXHIBIT A WORK ORDER FORMAT Services to be performed by ABT: Compensation of ABT: (a) Rate of pay: per --------- ---------- (b) Total payment limitation: -------------------------------- (c) Advance payment: ----------------------------------------- (d) Expenses authorized for reimbursement by the ABT/UK: (e) Other: --------------------------------------------------- (f) Expected duration of project: ---------------------------- ABT/UK: ABT: By: By: -------------------------------- --------------------------- Print Name: Print Name: ----------------------- ------------------- Title: Title: ---------------------------- ------------------------ 45 EXHIBIT B ABT/UK MATERIALS ABT MATERIALS THIRD PARTY MATERIALS PRE-EXISTING MATERIALS PRE-EXISTING ABT/UK MATERIALS 46 [*] Confidential Treatment Requested ATTACHMENT E WORK ORDER FOR INITIAL LOCALIZATION SOFTWARE DEVELOPMENTS DEVELOPMENT OF SPECIFICATIONS AND ACCEPTANCE TEST PLAN. The parties intend that the performance of the Services will result in the production of one or more specifications describing the requirements to modify the Software (the "Specifications"), which will include a delivery schedule, estimated fees and expenses relating thereto, and associated deliverables ("Deliverables") and milestones ("Milestones"), and a plan for acceptance testing of the Software modifications to be performed ("Acceptance Test Plan"). ABT/UK will provide a written request for the Services to ABT in a mutually acceptable format. ABT will prepare detailed Specifications for such Services in a mutually acceptable format. Each Specification must be agreed upon in writing by the CEO of ABT/UK and the CTO of ABT. If the parties cannot agree on the Specifications or Acceptance Test Plan, either party may terminate this Work Order upon written notice, and neither party will have any further obligations under this Work Order. Once the Specification is complete, the Specification will be added to this Agreement, and ABT shall perform the Services described therein. Any changes to a Specification after the Specification has been agreed to by the parties must be affected in accordance with the "Change Orders" section set forth below. The parties intend that there will be at least one Deliverable or Milestone for each month during which Services will be performed. ACCEPTANCE TESTING. Upon delivery by ABT of any Deliverable consisting of software or modifications thereto, ABT/UK shall review such Deliverable according to the Acceptance Test Plan to determine whether it conforms in all material respects to the applicable Specifications. ABT/UK shall, no later than ten (10) working days after receiving such Deliverable, review and accept such Deliverable that meets the Specifications. Deliverables submitted for acceptance that ABT/UK does not reject in writing within such period will be deemed accepted. If ABT/UK rejects such a Deliverable, ABT/UK shall provide ABT with written notice setting forth in reasonable detail why the Deliverable fails to meet the Specifications. ABT will have thirty (30) days from notice of rejection to resubmit such Deliverable to ABT/UK for acceptance. This procedure will be repeated until the Deliverable is accepted. If any Deliverable is rejected more than twice ABT/UK may terminate this Agreement in accordance with the provisions of this Work Order below entitled "Termination." The Acceptance Test Plan must include, at a minimum, for ABT to test the Deliverables according to the then-current quality assurance procedures of ABT. Such testing must be approved in writing by the CTO of ABT. Acceptance testing must be approved in writing by the CEO of ABT/UK. FEES. The fee for the Services (the "Fees") will be [*]. The development of the Specifications and Acceptance Test Plan will be on a time and materials basis. All work thereafter will be payable on a time and materials basis upon completion of Milestones, as set forth in the paragraph below entitled "Fees." As part of the Specifications, the parties will agree on a budget for each Milestone. ABT will inform ABT/UK as soon as reasonably possible, but in no event later than the next weekly status report, if it appears to ABT that the Services required to complete a Milestone will exceed the amount budgeted by more than 10%. In such event, if the parties cannot agree on a revised budget for such Milestone, either party may terminate this Work Order immediately upon written notice, and if this Work Order is terminated, neither party will have any further obligations under this Work Order. ABT/UK's payment of Fees is subject to the provisions of Attachment G entitled "Penalties for Large Developments." 47 PAYMENT. ABT shall invoice ABT/UK each month for Fees and expenses due for Services performed during the previous month. ABT/UK shall pay ABT any expenses set forth on each invoice, within (10) days after receipt of the invoice. ABT/UK shall pay ABT any Fees for a particular Milestone upon acceptance of such Milestone in accordance with the Acceptance Test Plan. ABT may credit against any such Fees any Minimum Maintenance Fees paid under the License and Services Agreement. TERMINATION. If a Deliverable is rejected more than twice, as described above in the Section entitled "Acceptance Testing," or if the final Deliverable is not accepted by ________ , ABT/UK may provide written notice of its intent to terminate (a) this Agreement; or (b) both, this Agreement and the License and Services Agreement in accordance with Section 11.2(c). If ABT/UK terminates this Agreement under this paragraph, notwithstanding Section 6(b) of this Agreement, ABT/UK may withhold any amount associated with the current Milestone that it has not yet paid. For avoidance of doubt, any Minimum Maintenance Fees paid under the License and Services Agreement will not be refunded. ABT/UK: ABT: By: By: -------------------------------- --------------------------- Print Name: Print Name: ----------------------- ------------------- Title: Title: ---------------------------- ------------------------ 48 ATTACHMENT F ABT ESCALATION PROCEDURES ABT - International Technical Support Escalation Procedure There will be one named primary technical support contact and one named backup support contact. All requests for technical support must come from the primary support contact. In the event the primary contact is not available, the backup contact may submit the technical support request. The primary support contact will be ____________ and the back-up support contract will be ______________. Changes to the primary and/or backup support contacts must be received by ABT in writing 1 business day prior to them being effective. All local Technical Support escalation will occur prior to any escalation to Auto-By-Tel International Technical Support team by either the primary or backup support contact. All infrastructure (Hardware/Network/Operating System/SQL Server/IIS Server) errors must be corrected prior to escalation. All Technical Support calls related to remaining APPLICATION ERRORS or SYSTEM ERRORS with severity level of ERROR OR HIGHER should be routed through the ABT - Corporate NTS Support person at 1-949-xxx-xxxx. Response time will be as specified in table below. All Technical Support calls that related to errors with severity level of WARNING or APPLICATION PROBLEMS (as defined below) should be referred to the ABT - - International Technology Support Coordinator at 1-949-xxx-xxxx. The quoted response times relate to the time required to have a qualified technical support person contact the person who made the technical support request. Depending on the severity of the problem, reasonably diligent efforts will be made to resolve the problem as soon as possible within the guidelines under RESPONSE LEVEL.
CATEGORY DESCRIPTION - -------------------------------------------------------------------------------- Application Problem Problem related to the use of a specific application program or module. The program does not appear to be functioning correctly, however, no error messages have been received. Application Error An application program or module has issued an error message. The error was not issued by the underlying technology, (i.e. the network, operating system, database management system server or internet server. System Error An error message has been received when executing an application or web page. The error message originated from the underlying technology, not the application itself.
SEVERITY DESCRIPTION RESPONSE TIME RESPONSE LEVEL WARNING Provides information or warning message only. 72 hours Effort during Does not impact the overall operation of Normal Bus. the system. Hours ERROR Error interrupts processing of a single 12 hours (Next Effort during 7 application or module. System operation Business Day) days/week 8am- continues to support primary business functions. 5pm, until resolved.
49 SEVERE ERROR Error interrupts processing of multiple and/or 4 hours Effort 7 primary business applications. Primary business days/week 5am operations are impacted. - 9 pm, until resolved FATAL ERROR Error causes system to become unavailable. All 1 hour Effort 7 x 24, business processing is aborted. until resolved
ABT will provide help desk support (i.e. other than reporting of Errors) by telephone from the hours of 2:30 p.m. to 5:30 p.m. Pacific Time on U.S. business days. ABT will handle all help desk inquiries during other hours by U.S. next business day fax/email back. THE FOLLOWING CHART EXPLAINS THE RESPONSIBILITIES OF ABT AND ABT/UK REGARDING MAINTENANCE AND SUPPORT. TECHNICAL SUPPORT/MAINTENANCE EXAMPLES
SITUATION ABT ABT/UK COMMENTS - --------- --- ------ -------- ABT/UK SQL Server configuration parameter Assisted if Requested Responsible for Fix Any Hardware, Operating (e.g. number of locks) is changed by (Maintenance Hours) System, or Third-party ABT/UK Staff for tuning purposes. SQL product configuration Queries begin failing because there are issues/changes/problems not enough locks available. should not be the responsibility of ABT. ABT/UK Servers are running the UK-English Assisted if Requested Responsible for Fix Same as above. ABT/UK should (rather than US English) versions of (Maintenance Hours) work with Microsoft (or the Microsoft software (NT, SQL Server, IIS). other vendor) technical An error occurs in one of those support to resolve problem. third-party programs that causes the system to fail. The error is related to the fact that the UK-English version of the software is at a slightly different revision level than the US version. ABT software uses a complicated algorithm Responsible for Fix. Since this is a "bug" that to calculate distance between two (Not counted against is part of the core system, (longitude, latitude) points. The ABT/UK Maint Hours) then it should be fixed as team notices that the distance calculation part of the ABT ongoing algorithm is not implemented correctly, maintenance efforts. which causes distances to be noticeably incorrect. The "bug" is present in the ABT system as well. It had not been detected.
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SITUATION ABT ABT/UK COMMENTS - --------- --- ------ -------- ABT (on behalf of ABT/UK) changes Will perform Responsible for Fix Since the ABT development team the distance calculations throughout modifications simply made changes specified by the system to multiply the US Miles (Maintenance Hours) ABT/UK staff, AFT/UK staff is distance by a conversion factor to responsible for the correction. (Had arrive at an appropriate distance in the error occurred because the ABT UK Miles. ABT/UK analyst provided ABT Development team had not implemented with specification for the conversion the specification correctly, the fix calculation and factor. As it turns would be preformed by ABT at no cost out, the specification provided by the to the UK) UK analyst is incorrect. ABT/UK data provider changes format Assist if Requested Responsible for Fix ABT/UK is responsible for day-to-day of data extracts that feed ABT system. (Maintenance Hours) monitoring of systems and for all data ABT/UK staff attempt to import data inputs/outputs. Many system problems into ABT System. Importing this data can be traced back to problems with corrupts data in ABT System. Corrupted improper data in the system. It is not data causes ABT system to not operate always possible to differentiate a correctly. Depending on the extent of programming issue from a data issue the data corruption, this problem might up front. Sometimes, it takes several be detected immediately or it may be hours/days to determine the root cause so subtle that it is not detected for of a problem. ABT hours spent in this days or weeks. Problem Identification process will be charged as Maintenance Hours if the root cause of the problem is found to be ABT/UK responsibility.
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SITUATION ABT ABT/UK COMMENTS - --------- --- ------ -------- ABT/UK IT staff develop several Assist if Requested Responsible for Fix Again, the relationship between the management reports that run against (Maintenance Hours) system performance problem and the production data. System performance execution of the management reports is significantly impacted by execution may not be clearly understood. For of the management reports. example, in the first month or two of operation, ABT/UK staff may develop these reports and the reports may run quickly because there is a relatively small amount of data in the database. Twelve (12) months into the operation of the system, the performance seems to be very poor compared to user expectations. Since those reports were written 9-12 months ago, the ABT/UK staff don't relate the performance problems to those reports. They complain to ABT (Technical Support) about the performance issues. ABT spends two weeks trying to analyze the problem. Eventually, the source of the problem is identified. ABT/UK should be responsible for the ABT efforts. ABT staff train ABT/UK IT staff on Assist if Requested Responsible for Re- ABT/UK is responsible for paying for operating procedures for software. (Maintenance Hours) Training re-training. ABT/UK IT turnover occurs, requiring additional training. Suppose ABT has a report that shows Assist if Requested Responsible for ABT/UK management notice a summary level purchase request (Maintenance Hours) Development of discrepancy between the overall counts sorted by dealer within sales new report without purchase request report and the region. Further, suppose the report exclusion summary report that excludes green excludes requests that are for green cars. They report it as a bug. cars because the ABT sales However, ABT technical support organization requested that exclusion doesn't consider this a bug because it when the report was originally meets the original specification. So it defined. (For whatever reason). is not changed. IF ABT/UK management required a new report that did not exclude green cars, that would constitute development work and be paid for with development hours. ABT/UK does not have access to Provide development License new Where a UK specific piece of third Infopower Delphi libraries. ABT/UK support per services product, pay for party software requires enhancements finds another product that provides agreement. development per to ABT/UK code ABT could do this similar functionality. ABT asks ABT services agreement. work under the Services Agreement, to incorporate this new product in but this would be chargeable to ABT/UK. place of the Infopower library. Microsoft introduces a new version of Upgrade to core Responsible for Where an upgrade to third party SQL Server. ABT incorporates new system provided to obtaining license for software demands adjustment to the version of SQL Server into ABT core UK for free under upgraded version of standard ABT system in order for it to
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SITUATION ABT ABT/UK COMMENTS - --------- --- ------ -------- system. ABT Releases new version of Maintenance and SQL Server from operate effectively, this should be core system. Support Services. Microsoft. treated as an upgrade to the ABT Re-localization is ABT/UK would also system and therefore passed on to performed at pay for any ABT/UK free of charge under ABT/UK's cost per localization related Maintenance and Support Services. services agreement. to the new upgrade of the ABT system per services agreement.
53 ATTACHMENT G SOFTWARE DEVELOPMENT RESOURCE COMMITMENT PROCEDURES 1. PURPOSE. This document is designed to govern the processes for planning software Localization for ABT/UK, and to describe when ABT will be obligated to assign software engineers and other technical and management personnel to perform such Localization. In this document, assigning software engineers and other technical and management personnel to a project, and providing the services of those personnel, will be described as "committing resources." For avoidance of doubt, ABT has already agreed to its commitment of resources for the Work Order for the Initial Localization Services. 2. MAINTENANCE AND SUPPORT. This document describes the obligations of ABT to commit resources covered by the 2,500 annual pre-paid hours of Maintenance and Support services ABT is required to commit under the License and Services Agreement, as well as other resources that may be committed by ABT as described in this Attachment G. ABT will commit resources up to 1/12 of such 2500 hours (i.e. 208 hours) (the "Minimum Monthly Commitment") each month upon ABT/UK's request in its sole discretion. If ABT/UK does not request a resource commitment in a given month, or requests less than the Minimum Monthly Commitment in a given month, ABT/UK may carry forward each month's Minimum Monthly Commitment into the next 2 months. Any requests by ABT/UK for development that would require ABT to carry forward more hours, or carry forward any hours for more than one month, will be subject to the resource commitment requirements for small and large developments set forth in this Attachment G. 3. SMALL AND LARGE DEVELOPMENTS. Two processes will exist - one to manage small developments, where "small developments" means those that ABT estimates will be performed in 10 man days or less; and another to manage large developments, where "large developments" means those that ABT estimates will be performed in more than 10 man days. 4. MONTHLY MEETINGS. The parties will meet monthly to plan large and small developments. Progress on all developments will be monitored at such monthly meetings. All such meetings will take place at ABT corporate headquarters in Irvine. For large developments, ABT shall provide weekly updates by telephone or email. 5. SMALL DEVELOPMENTS. Small developments will have a lead time of 1 month; i.e. ABT may, if resources are available, but will not be obligated to, commit resources for any small development sooner than 1 month after the initial request by ABT/UK. ABT will be obligated to commit resources of a minimum of 20 man days in such month; 40 man days in the next month; and 60 man days in the next month. For example, if ABT/UK requests on January 1 for ABT to perform a small development, then ABT shall commit resources of 20 man days in February, 40 man days in March, and 60 man days in April. 6. LARGE DEVELOPMENTS. Large developments will have a lead time of 3 months; i.e. ABT may, if resources are available, but will not be obligated to, provide services for any Large Development any sooner than 3 months after the initial request by ABT/UK. ABT will be obligated to commit resources of a minimum of 60 man days in such month; 80 man days in the next month; and 100 man days in the next month. For example, if ABT/UK requests on January 1 for ABT to perform a 54 large development, ABT shall commit resources of 60 man days in April, 80 man days in May, and 100 man days in June. 7. OVERALL COMMITMENTS. For large and small developments combined, ABT will not be obligated to commit resources of more than 200 man days in any month. Of these 200 man days, ABT will not be obligated to commit resources of more than 60 man days to small developments. 8. PRIORITY OF DEVELOPMENTS. For each new development, ABT/UK must specify which ongoing developments, if any, will be prioritized above and below the new development. Any changes to priority of developments must be agreed in writing between the parties. Unless otherwise agreed, ABT may prioritize large developments over small developments, and may further prioritize resources that it is required to commit under this Attachment G using its professional judgment. For any development that takes priority over another, ABT may, in its sole discretion, use resources that would be otherwise committed to the lower priority development to finish the higher priority development in a timely fashion, if in ABT's reasonable discretion, it is necessary to do so. 9. PENALTIES FOR LARGE DEVELOPMENTS. For a large development, if ABT fails to complete the Work Order by the estimated completion date because ABT failed to commit the resources it was required to commit under this Attachment G, ABT shall, upon ABT/UK's request, complete the development, but ABT/UK will not be obligated to pay ABT for the price of the "undelivered hours," which means resources required to be committed under Attachment G, less the resources actually provided at the estimated project completion date. 10. TECHNICAL FEASIBILITY. If ABT, in its reasonable discretion, determines that a requested Localization is not technically feasible, ABT will not be obligated to commit resources to perform such Localization. 55 ATTACHMENT H DRT END USER LICENSE DRT DEALER REAL TIME ACCESS AGREEMENT THIS AGREEMENT IS ENTERED INTO THIS _____, DAY OF _____ BETWEEN AUTO-BY-TEL MARKETING CORPORATION, A DELAWARE CORPORATION WITH ITS PRINCIPAL PLACE OF BUSINESS LOCATED AT 18872 MACARTHUR BOULEVARD, IRVINE, CALIFORNIA 92612-1400 ("LICENSOR"), AND __________ A(N) ____________ LIMITED LIABILITY CORPORATION, WITH ITS PRINCIPAL PLACE OF BUSINESS LOCATED AT ___________________ ("LICENSEE"). WHEREAS, LICENSEE HAS EXECUTED AN AUTO-BY-TEL MARKETING CORPORATION NEW CAR SUBSCRIPTION AGREEMENT AND/OR "USED CAR CYBERSTORE(TM)" SUBSCRIPTION AGREEMENT; AND WHEREAS, LICENSOR HAS DEVELOPED AND OWNS THE RIGHT TO LICENSE CERTAIN PROPRIETARY SOFTWARE PROGRAMS COMMONLY REFERRED TO AS THE AUTO-BY-TEL DEALER REAL TIME (DRT) PROGRAM AS WELL AS RELATED INFORMATION AND DOCUMENTATION CURRENTLY RESIDING EXCLUSIVELY WITH LICENSOR; AND WHEREAS, LICENSEE HAS REPRESENTED TO LICENSOR THAT THEY WILL PROVIDE FOR THEMSELVES A PERSONAL COMPUTER, AND CERTAIN ANCILLARY EQUIPMENT RELATED THERETO WHICH MEETS THE MINIMUM SPECIFICATIONS SET FORTH HEREIN (TOGETHER, THE "EQUIPMENT") FOR USE IN CONNECTION WITH DRT AND WHEREAS, LICENSOR WILL PROVIDE DATA ACCESS, PROGRAM MAINTENANCE, UPDATING AND HELP-LINE TECHNICAL SERVICES TO LICENSEE TO ASSIST LICENSEE IN THE USE OF THE PROGRAMS; NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND PREMISES HEREIN RECITED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES, INTENDING TO BE LEGALLY BOUND HEREBY, WARRANT, COVENANT AND AGREE AS FOLLOWS: GRANT OF LICENSE. LICENSOR HEREBY GRANTS TO LICENSEE A NON-EXCLUSIVE, NON-TRANSFERABLE LICENSE TO ACCESS AND USE THE DRT PROPRIETARY PROGRAM AND ANY RELATED INFORMATION AND DOCUMENTATION SUPPLIED BY LICENSOR SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THIS AGREEMENT. TERM OF THIS AGREEMENT: EXCEPT AS PROVIDED HEREIN, THE RIGHTS AND OBLIGATIONS CONFERRED BY THIS AGREEMENT SHALL RUN CONCURRENTLY WITH THE TERM OF THE ABT MASTER SUBSCRIPTION AGREEMENT EXECUTED BETWEEN THE PARTIES. LICENSOR MAY IMMEDIATELY TERMINATE THIS AGREEMENT IN THE EVENT OF A MATERIAL BREACH BY LICENSEE OF ANY PROVISION OF THIS AGREEMENT, OR ANY OTHER AGREEMENT BETWEEN LICENSEE AND LICENSOR OR ANY OF THEIR RESPECTIVE AFFILIATES, INCLUDING WITHOUT LIMITATION THE ABT MASTER SUBSCRIPTION AGREEMENT. EITHER PARTY MAY VOLUNTARILY TERMINATE THIS AGREEMENT UPON 30 DAYS' WRITTEN NOTICE TO THE OTHER PARTY. UPON TERMINATION OF THIS AGREEMENT FOR ANY REASON, LICENSEE SHALL PROMPTLY DISCONTINUE USE OF THE PROGRAMS, DELETE ALL COPIES OF THE DRT PROGRAM, IF ANY, IN WHATEVER FORM, RESIDING ON ITS COMPUTERS, STORAGE MEDIA AND/OR ON HARD COPY. RIGHT OF USE. DURING THE TERM OF THIS AGREEMENT, LICENSEE SHALL HAVE THE RIGHT TO ACCESS THE DRT PROGRAM IN CONNECTION WITH THE INTERNAL OPERATION AND MANAGEMENT OF LICENSEE'S OWN BUSINESS. LICENSEE IS PROHIBITED FROM RESELLING OR OTHERWISE ALLOWING ACCESS BY THIRD PARTIES NOT AFFILIATED WITH LICENSEE'S AUTO DEALERSHIP BUSINESS. LICENSE FEE. LICENSEE SHALL PAY LICENSOR THE INITIAL SUM OF ____________ DOLLAR ($_________ AS CONSIDERATION FOR THE LICENSE GRANTED HEREUNDER. 56 MONTHLY ACCESS FEE. LICENSEE SHALL PAY LICENSOR A MONTHLY ACCESS FEE OF ONE HUNDRED AND FIFTY DOLLARS ($150.00) AND BE ENTITLED TO AN ACCESS VIA UNIQUE PASSWORD(S) ALLOWING SIMULTANEOUS LOGON FOR A MAXIMUM OF TWO USERS PER SESSION. SYSTEM REQUIREMENTS. DEALER SHALL PROVIDE AT THEIR OWN EXPENSE A PERSONAL COMPUTER AND RELATED EQUIPMENT THAT MEETS OR EXCEEDS THE FOLLOWING MINIMUM SPECIFICATIONS: 133 Pentium Processor; 32MB RAM; 33.6 Modem (The faster the better!); 2GB Hard Drive; Windows '95; ISP (Internet Service Provider - ie: AT & T, Netcom, MCI .... ); Netscape Navigator Web Browser Software (version 3.0 or later). TECHNICAL SUPPORT. LICENSOR SHALL MAINTAIN FOR THE BENEFIT OF THE LICENSEE A TECHNICAL SUPPORT HELP-LINE. LICENSOR SHALL ESTABLISH AND STAFF SUCH HELP-LINE WITH PERSONS KNOWLEDGEABLE ABOUT THE DRT PROGRAM. THE HOURS OF AVAILABILITY SHALL BE BETWEEN 6:00 A.M. AND 5:00 P.M. PST, EXCLUDING SATURDAYS AND SUNDAYS. TECHNICIANS WILL PROVIDE ASSISTANCE TO LICENSEE WITH RESPECT TO ACCESSING AND USING THE DRT PROGRAM ONLY. TECHNICAL ASSISTANCE AND SUPPORT REGARDING COMPUTER OR RELATED HARDWARE ARE BEYOND THE SCOPE OF THIS AGREEMENT AND WILL NOT BE PROVIDED BY LICENSOR. THE HOURS OF THE AVAILABILITY OF THE HELP-LINE ARE SUBJECT TO CHANGE AT THE SOLE DISCRETION OF THE LICENSOR. COVENANTS OF LICENSEE. DURING THE TERM OF THIS AGREEMENT: LICENSEE SHALL ADOPT AND ENFORCE SUCH INTERNAL POLICIES, PROCEDURES AND MONITORING MECHANISMS AS ARE NECESSARY TO ENSURE THAT THE DRT PROGRAM IS USED ONLY IN ACCORDANCE WITH THIS AGREEMENT AND THAT ALL STEPS NECESSARY TO ENSURE THAT NO PERSON OR ENTITY WILL HAVE UNAUTHORIZED ACCESS TO THE PROGRAMS ARE TAKEN. LICENSEE SHALL NOT: ASSIGN, SUBLICENSE, LEASE, ENCUMBER OR OTHERWISE TRANSFER OR ATTEMPT TO TRANSFER THE DRT PROGRAM OR ANY PORTION THEREOF; PERMIT ANY THIRD PARTY OTHER THAN THE LICENSEE OR ITS AUTHORIZED AGENT ACTING IN BEHALF OF LICENSEE, TO HAVE ACCESS TO THE DRT PASSWORDS OR TO USE PROGRAMS, WHETHER BY TIMESHARING, NETWORKING, OR ANY OTHER MEANS; DUPLICATE, MODIFY, TRANSLATE, REVERSE, ENGINEER, DECOMPILE OR DISASSEMBLE THE DRT PROGRAM; POSSESS OR USE THE PROGRAMS OR ANY PORTION THEREOF, OTHER THAN IN MACHINE READABLE OBJECT CODE; REMOVE ANY COPYRIGHT, TRADEMARK, PATENT OR OTHER PROPRIETARY NOTICES FROM THE DRT PROGRAM(S), OR ANY PORTION THEREOF WITHOUT THE EXPRESS WRITTEN CONSENT OF LICENSOR. PROGRAM MODIFICATIONS: ONLY THE LICENSOR SHALL MAKE PROGRAM MODIFICATIONS. LICENSOR SHALL FROM TIME TO TIME PROVIDE UPGRADES AND/OR MODIFICATIONS TO THE DRT PROGRAM TO LICENSEE. LICENSEE SHALL ACCEPT ANY UPGRADES OR OTHER MODIFICATION MADE BY LICENSOR TO THE PROGRAMS. NO WARRANTY. THE PROGRAMS ARE PROVIDED ON AN "AS-IS" BASIS. LICENSOR MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. LIMITATION OF REMEDIES. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT WILL THE LICENSOR BE LIABLE THE DAMAGES TO THE LICENSEE FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR SIMILAR DAMAGES, INCLUDING ANY LOST PROFITS OR LOST DATA BEYOND THE ACCESS FEE PAID FOR THE MONTH IN WHICH THEY OCCURRED, ARISING OUT OF THE USE OR INABILITY TO USE THE DRT PROGRAM OR ANY DATA SUPPLIED THEREWITH. PROPRIETARY DATA. LICENSEE ACKNOWLEDGES THAT THE PROGRAMS ARE PROPRIETARY TO LICENSOR AND THAT IT HAS (AND WILL HAVE) NO INTEREST THEREIN OR IN ANY MODIFICATIONS OR IMPROVEMENTS THERETO, AND HEREBY ASSIGNS TO LICENSOR ALL RIGHTS IN ANY SUCH MODIFICATIONS OR IMPROVEMENTS MADE BY OR ON BEHALF OF LICENSEE. CONFIDENTIALITY. FOR THE PURPOSE OF THIS AGREEMENT, CONFIDENTIAL INFORMATION INCLUDES THE DRT PROGRAMS AND ALL OTHER INFORMATION PROVIDED BY LICENSOR MARKED "CONFIDENTIAL." INFORMATION SHALL NOT BE DEEMED CONFIDENTIAL INFORMATION AND LICENSEE AND LICENSEE'S EMPLOYEES SHALL HAVE NO OBLIGATION WITH RESPECT TO ANY SUCH INFORMATION IF SUCH INFORMATION: (A) IS OR FALLS INTO THE PUBLIC DOMAIN THROUGH NO WRONGFUL ACT OF LICENSEE OR THE LICENSEE'S EMPLOYEES; (B) IS RIGHTFULLY RECEIVED FROM A THIRD PARTY WHO IS WITHOUT RESTRICTION AND WITHOUT BREACH OF THIS AGREEMENT; (C) 57 IS APPROVED FOR RELEASE BY WRITTEN AUTHORIZATION OF AN OFFICER OF LICENSOR; OR (D) IS DISCLOSED PURSUANT TO THE REQUIREMENTS OF A GOVERNMENTAL AGENCY OR OPERATION OF LAW. Should the licensee or licensee's employees learn of confidential information from licensor or any other source, neither licensee nor licensee's employees shall, at any time during the term, or for one year thereafter, disclose such information to any individual, agency, company or other entity. Licensee shall not use such confidential information for licensee's own advantage other than as permitted by this agreement. BOTH PARTIES RECOGNIZE AND ACKNOWLEDGE THAT BREACH OF THIS SECTION 13 WOULD CAUSE IRREPARABLE INJURY INADEQUATELY COMPENSABLE IN DAMAGES. ACCORDINGLY, LICENSOR MAY SEEK AND OBTAIN INJUNCTIVE RELIEF AGAINST A BREACH OR THREATENED BREACH HEREOF, IN ADDITION TO ANY OTHER LEGAL REMEDIES THAT MAY BE AVAILABLE AT LAW OR IN EQUITY. 14. ASSIGNMENT. EXCEPT FOR ASSIGNMENTS TO AFFILIATES, PROVIDED EACH SUCH AFFILIATE AGREES TO BE BOUND BY THE TERMS HEREOF, LICENSEE MAY NOT, WITHOUT LICENSOR'S PRIOR WRITTEN CONSENT, ASSIGN ITS RIGHTS OR DELEGATE ITS OBLIGATIONS UNDER THIS AGREEMENT. SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT SHALL BE HELD TO BE INVALID, ILLEGAL OR ENFORCEABLE, SUCH DETERMINATION SHALL IN NOR WAY ALTER OR IMPAIR THE VALIDITY, LEGALITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS OF THIS AGREEMENT. GOVERNING LAW. THE FORMATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED AND INTERPRETED IN ACCORDANCE WITH THE LAWS IN EFFECT IN THE STATE OF CALIFORNIA. ENTIRE AGREEMENT. THIS AGREEMENT AND ITS PREAMBLE CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SHALL SUPERSEDE ALL PREVIOUS ORAL AND WRITTEN PROPOSALS, NEGOTIATIONS, REPRESENTATIONS, COMMITMENTS AND OTHER COMMUNICATIONS BETWEEN THE PARTIES. THIS AGREEMENT MAY NOT BE RELEASED, DISCHARGED, CHANGED OR MODIFIED EXCEPT BY A WRITTEN INSTRUMENT THAT IS SIGNED BY DULY AUTHORIZED REPRESENTATIVES OF EACH PARTY AND THAT EXPRESSLY INTENDS SUCH RELEASE, DISCHARGE, CHANGE OR MODIFICATION. INDEPENDENT CONTRACTORS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR CONSTRUED BY THE PARTIES OR ANY THIRD PERSON TO CREATE A FRANCHISE, AGENCY, PARTNERSHIP OR JOINT VENTURE BETWEEN LICENSOR AND LICENSEE. WAIVER. A FAILURE OF THIS LICENSOR TO ENFORCE AT ANY TIME ANY PROVISION OF THIS AGREEMENT SHALL IN NO WAY AFFECT THE FULL RIGHT OF THE LICENSOR TO ENFORCE SUCH PROVISION AT ANY TIME THEREAFTER. EX-10.34 8 LETTER AGREEMENT 3/12/99 - TRANS COSMOS, INC. 1 EXHIBIT 10.34 March 12, 1999 Trans Cosmos, Inc. Planning and Administration Sumitomoseimei Akasaka Bldg. 3-3-3, Akasaka Minato-ku, Tokyo 107-0052 JAPAN Attention: Mr. Koki Okuda, Chairman and CEO Ladies and Gentlemen: This letter agreement (together with all Exhibits and attachments hereto, this "Letter"), upon your execution and return, will confirm the binding agreement between autobytel.com inc., a Delaware corporation ("ABT"), and Trans Cosmos, Inc. (the "Transaction Partner") regarding the establishment in Japan of autobytel.jp ("ABT Japan") as a KABUSHIKI KAISHA in accordance with the laws of Japan by and among ABT, the Transaction Partner and certain other parties, and the operation of ABT Japan's business thereafter (collectively, the "Transaction"). 1. Purpose. ABT Japan will be responsible for (i) implementing dealer, consumer and manufacturer offerings in Japan, (ii) ABT brand protocols in Japan, (iii) establishing relationships with Japanese vehicle manufacturers, (iv) coordinating the ABT Japan Cyberstore and (v) engaging in such other businesses relating to Internet automotive distribution and automotive sales as is appropriate. The initial business model of ABT Japan, in accordance with which the Transaction Partner and ABT expect that ABT Japan's business will be carried out and which includes ABT Japan's obligations to ABT, is attached hereto as EXHIBIT A (the "Initial Business Plan") and is expressly agreed to by the parties hereto. 2. Corporate Structure. ABT will initially incorporate ABT Japan as a KABUSHIKI KAISHA in accordance with the laws of Japan. ABT Japan's initial paid-in capital amount upon incorporation will be (Y)12,400,000 with 248 issued and outstanding shares of [*] Confidential treatment has been requested 2 Trans Cosmos, Inc. March 12, 1999 Page 2 common stock bearing the par value of (Y)50,000 per share, all of which shares will be subscribed to for cash at the par value per share and owned by ABT. Immediately after the incorporation of ABT Japan, ABT will cause ABT Japan to issue up to 496 shares of common stock to the Transaction Partner and the other partners selected by either ABT or the Transaction Partner (subject to ABT approval) (such other partners, together with the Transaction Partner, being collectively referred to herein as the "Japanese Shareholders") at cash price of (Y)2,500,000 per share. Promptly after the issuance of 496 shares in total to the Transaction Partner and the other Japanese Shareholders, ABT and the Transaction Partner, together with the other Japanese Shareholders, will cause ABT Japan to split its shares of common stock at the ratio of one (1) to thirty-three (33) (the "Stock Split"). 3. Investment. (a) As described above, prior to the Stock Split, the Transaction Partner will invest in the capital stock of ABT Japan jointly with other Japanese Shareholders. The Transaction Partner will initially subscribe to [*] shares of common stock of ABT Japan for an aggregate cash contribution to ABT Japan of [*]. (b) It is contemplated that the total initial investment by all Japanese Shareholders in ABT Japan will be (Y)1,240,000,000 (the "Initial Investment"). (c) In addition, the Transaction Partner shall fund its proportionate share (computed as a ratio of the shares of common stock of ABT Japan held by the Transaction Partner to all shares of common stock of ABT Japan held by all Japanese Shareholders) of ABT Japan's operating losses for at least three years following ABT Japan's commencement of operations by subscribing in cash to additional shares of common stock of ABT Japan; provided, however, that the Transaction Partner shall not be obligated under this paragraph to purchase such additional shares of common stock in an aggregate amount exceeding [*], and all Japanese Shareholders shall not be collectively obligated to purchase such additional shares of common stock in an aggregate amount exceeding (Y)1,240,000,000 (the "Secondary Investment"). ABT will have the right to provide, or cause to be provided, any additional financing required by ABT Japan after the Initial Investment and the Secondary Investment made by the Japanese Shareholders as contemplated hereby. Without regard to ABT's determination whether or not to provide such financing, ABT will nonetheless, at all times, have preemptive rights to maintain its then current proportionate equity position in ABT Japan. 3 Trans Cosmos, Inc. March 12, 1999 Page 3 4. Other Japanese Shareholders. The parties hereto acknowledge that, at present, it is contemplated that the Japanese Shareholders will collectively subscribe, prior to the Stock Split, to 496 shares of common stock of ABT Japan for an aggregate cash investment of (Y)1,240,000,000. The Transaction Partner expressly acknowledges and agrees that, even in the event that the Japanese Shareholders (other than the Transaction Partner) shall ultimately invest an aggregate amount which is less than [*] in the capital stock of ABT Japan, the Transaction Partner shall nevertheless make the investments set forth in Paragraph 3 above, and perform all of its other obligations under this Letter. 5. License. ABT will license its name, technology, business methodologies and know how to ABT Japan, and ABT Japan will use the name "autobytel.jp" and otherwise obtain from ABT existing U.S. technology and operating support pursuant to a license agreement, the form of which is attached hereto as EXHIBIT B and hereby approved by the parties hereto (the "License Agreement"). As set forth in Exhibit B, the total and entire fee to be paid by ABT Japan to ABT under the License Agreement will be [*] of gross revenues, subject to an annual minimum fee of U.S. $1 million, which will be payable in the forms of (i) the Minimum Annual License Fee of U.S. [*] and (ii) the Minimum Annual Maintenance Fee of U.S. [*]. For the first year, U.S. [*] out of the Minimum Annual License Fee will be paid by ABT Japan on or promptly after the execution of the License Agreement as the Initial Transfer Fee to cover ABT's initial costs associated with transferring ABT's technology, business methodologies and know-how, etc. to ABT Japan. 6. Board of Directors. Following the subscription of shares by the Transaction Partner and other Japanese Shareholders pursuant to Paragraph 3, ABT shall have the right to designate such number of directors to the board of directors of ABT Japan ("Board") constituting 33-1/3% of the Board, such number being rounded upward to the nearest whole number. 7. Buy Back Option. If ABT Japan is a private company and its net loss exceeds, on a cumulative basis, the worst case earnings projections as set forth in the Initial Business Plan (or any subsequent business plan which has been approved by ABT, the Transaction Partner and the other Japanese Shareholders in writing) during the [*] period immediately following ABT Japan's incorporation, then ABT shall have the right, for a period of twelve (12) months following the lapse of such period, to buy back for cash or shares of ABT common stock, at ABT's option, the Transaction Partner's (and its transferees') investment in ABT Japan at [*]. 4 Trans Cosmos, Inc. March 12, 1999 Page 4 8. Non-Competition. The Transaction Partner represents and warrants to ABT that, as of the date hereof and except as set forth in EXHIBIT C, it has neither entered into, nor otherwise engaged in, any Restricted Business in Japan, whether as owner, manager, investor (except for less than 3% interests in publicly-held companies), partner, joint venturer, consultant, agent or supplier. From the date hereof and continuing until one year after the Transaction Partner shall no longer be a shareholder of ABT Japan, the Transaction Partner shall not enter into or otherwise engage in any Restricted Business in Japan, whether as owner, manager, investor (except for less than 3% interests in publicly-held companies), partner, joint venturer, consultant, agent or supplier, except to the extent entered into or otherwise engaged in as of the date hereof as set forth in Exhibit C. For purposes of this Letter, "Restricted Business" means any enterprise of any form whatsoever which utilizes the internet (a) to aggregate motor vehicle manufacturers, dealers and distributors, and (b) to route motor vehicle purchase or lease requests and other consumer information to such motor vehicle manufacturers, dealers or distributors. 9. Common Stock of ABT. The Transaction Partner has requested that shares of ABT common stock be sold to the Transaction Partner and to certain other Japanese Shareholders. If and only if (a) ABT shall have received, on or before the date and time set forth in the last paragraph of this Letter, letter agreements substantially in the form attached hereto as EXHIBIT D duly executed and delivered by each of the Japanese Shareholders listed in Exhibit E, and (b) the aggregate amount committed to be invested by such Japanese Shareholders in the common stock of ABT Japan as set forth in Paragraph 3(a) of such letter agreements equals or exceeds (Y)770,000,000, and (c) ABT shall have received, on or before the date and time set forth in the last paragraph of this Letter, nonbinding letter agreements substantially in the form attached hereto as EXHIBITS F-1, F-2 AND F-3, duly executed and delivered by Itochu Corporation, Orient Corporation and Recruit Co., Ltd., respectively, then ABT shall agree to use commercially reasonable efforts in consultation with the underwriters of ABT's initial public offering to respond to the request to purchase shares of ABT common stock in the initial public offering by the Transaction Partner and such other Japanese Shareholders in the amounts set forth on EXHIBIT E hereto. The Transaction Partner acknowledges that such shares of common stock may be sold to the Transaction Partner at a price per share equal to the price at which the stock is offered in the public offering and that the Transaction Partner may be subject to a lockup agreement for a term of one year from the date of the closing of the public offering. 10. Confidentiality. Each of the parties hereto will, subject to complying with applicable law or a court order, maintain the confidentiality of all information furnished to such party in connection with the Transaction, and each such party will inform any representative that may be furnished with such information of the confidential nature thereof. 5 Trans Cosmos, Inc. March 12, 1999 Page 5 11. Binding Agreement; Documentation. The parties hereto will immediately after executing this Letter work in good faith to more fully document the Transaction including, but not limited to, preparing (a) a shareholders agreement for ABT Japan which shall be executed by ABT and all Japanese Shareholders, shall incorporate the terms and conditions set forth herein and shall include such other key provisions as set forth in EXHIBIT G, and as to which provisions Transaction Partner hereby consents (the "Shareholders Agreement"), and (b) the License Agreement (all such documentation being referred to herein collectively as the "Transaction Agreements"). The Transaction Partner and ABT will use their respective reasonable best efforts to negotiate and execute, and to cause ABT Japan to negotiate and execute, as soon as reasonably practicable but in no event later than May 31, 1999, the Transaction Agreements with respect to the Transaction. Notwithstanding anything to the contrary contained herein, unless and until such Transaction Agreements are entered into, this Letter (i) shall constitute the legally binding agreement of the parties hereto, and (ii) together with such other letter agreements executed by the other Japanese Shareholders, shall constitute the legally binding agreement of the Transaction Partner, the other Japanese Shareholders and ABT, expressly in lieu of such Transaction Agreements. 12. Expenses. Each of ABT and the Transaction Partner will pay its own expenses incident to the negotiation, preparation and execution of this Letter and the Transaction Agreements, including without limitation, all fees, expenses, due diligence costs and fees of their respective counsel. 13. Choice of Law. This Letter shall be governed by and construed in accordance with the internal laws of the State of California, without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties hereto. 14. Submission to the Jurisdiction. Any legal action or proceeding with respect to this Letter may be brought in the courts of the State of California or of the United States for the Central District of California, and Transaction Partner consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. Transaction Partner irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of inconvenient forum, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Letter. Transaction Partner further consents to process being served in any such action or proceeding by mailing a copy thereof to its address set forth above, and agrees that such service shall be deemed in every respect effective service of process upon Transaction Partner in any such action or proceeding and shall be taken and held to be valid personal service upon and personal delivery to Transaction Partner to the full extent permitted by law. 6 Trans Cosmos, Inc. March 12, 1999 Page 6 15. Injunctive Relief. It is understood that any party hereto may institute appropriate proceedings against a breaching party hereunder (and others who are subject to the terms hereof) to enforce its rights hereunder. The parties hereto acknowledge and agree that money damages would not be a sufficient remedy for any violation of the terms of this Letter and, accordingly, the non-breaching party shall be entitled to specific performance and injunctive relief as remedies for any violation. These remedies shall not be deemed to be exclusive remedies for a violation of the terms of this Letter but shall be in addition to all other remedies available to the non-breaching party at law or in equity. In any proceeding or dispute under this Letter, whether brought in arbitration or a court of law, the substantially prevailing party shall be entitled to recover from the other party its legal fees and costs relating to enforcing or protecting its rights hereunder. 16. Advice of Counsel. Transaction Partner hereby represents and warrants that it has received advice of legal counsel of its own selection in negotiations for, and the preparation of, this Letter, that it has read this Letter or has had the same read to it by its counsel, that it has had this Letter, and the legal effect hereof, fully explained by such counsel, and that Transaction Partner is fully aware of this Letter's contents and legal effect. 17. Counterparts. This Letter may be signed may be executed by one or more parties hereto in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 7 Trans Cosmos, Inc. March 12, 1999 Page 7 If you are in agreement with the foregoing, please have the enclosed copy of this Letter executed in the space provided below and return a fully executed copy to the undersigned prior to 5:00 p.m. (California time) on March 18, 1999 at which time the terms of this Letter will expire if not then countersigned by you. We look forward to working with you. Very truly yours, AUTOBYTEL.COM INC. By: /s/ Mark Lorimer ------------------------------- Name: Mark Lorimer Title: President and CEO Agreed and Accepted: TRANS COSMOS, INC. By: /s/ Koki Okuda ------------------------------ Name: Koki Okuda Title: Chairman and Chief Executive Officer Date: March 12, 1999 EX-10.36 9 LETTER AGREEMENT 3/12/99 - INTEC, INC. 1 EXHIBIT 10.36 March 12, 1999 Intec, Inc. EC Business Planning Department 2-6-10 Sarugaku-cho Chiyoda-ku, Tokyo 101-8347 JAPAN Attention: Takeshi Miyashita, Manager Ladies and Gentlemen: This letter agreement (together with all Exhibits and attachments hereto, this "Letter"), upon your execution and return, will confirm the binding agreement between autobytel.com inc., a Delaware corporation ("ABT"), and Intec, Inc. (the "Transaction Partner") regarding the establishment in Japan of autobytel.jp ("ABT Japan") as a KABUSHIKI KAISHA in accordance with the laws of Japan by and among ABT, the Transaction Partner and certain other parties, and the operation of ABT Japan's business thereafter (collectively, the "Transaction"). 1. Purpose. ABT Japan will be responsible for (i) implementing dealer, consumer and manufacturer offerings in Japan, (ii) ABT brand protocols in Japan, (iii) establishing relationships with Japanese vehicle manufacturers, (iv) coordinating the ABT Japan Cyberstore and (v) engaging in such other businesses relating to Internet automotive distribution and automotive sales as is appropriate. The initial business model of ABT Japan, in accordance with which the Transaction Partner and ABT expect that ABT Japan's business will be carried out and which includes ABT Japan's obligations to ABT, is attached hereto as EXHIBIT A (the "Initial Business Plan") and is expressly agreed to by the parties hereto. 2. Corporate Structure. ABT will initially incorporate ABT Japan as a KABUSHIKI KAISHA in accordance with the laws of Japan. ABT Japan's initial paid-in capital amount upon incorporation will be (Y)12,400,000 with 248 issued and outstanding shares of common stock bearing the par value of (Y)50,000 per share, all of which shares will be subscribed to for cash at the par value per share and owned by ABT. Immediately after the incorporation of [*] Confidential treatment has been requested 2 Intec, Inc. March 12, 1999 Page 2 ABT Japan, ABT will cause ABT Japan to issue up to 496 shares of common stock to the Transaction Partner and the other partners selected by either ABT or the Transaction Partner (subject to ABT approval) (such other partners, together with the Transaction Partner, being collectively referred to herein as the "Japanese Shareholders") at cash price of (Y)2,500,000 per share. Promptly after the issuance of 496 shares in total to the Transaction Partner and the other Japanese Shareholders, ABT and the Transaction Partner, together with the other Japanese Shareholders, will cause ABT Japan to split its shares of common stock at the ratio of one (1) to thirty-three (33) (the "Stock Split"). 3. Investment. (a) As described above, prior to the Stock Split, the Transaction Partner will invest in the capital stock of ABT Japan jointly with other Japanese Shareholders. The Transaction Partner will initially subscribe to [*] shares of common stock of ABT Japan for an aggregate cash contribution to ABT Japan of [*]. (b) It is contemplated that the total initial investment by all Japanese Shareholders in ABT Japan will be (Y)1,240,000,000 (the "Initial Investment"). (c) In addition, the Transaction Partner shall fund its proportionate share (computed as a ratio of the shares of common stock of ABT Japan held by the Transaction Partner to all shares of common stock of ABT Japan held by all Japanese Shareholders) of ABT Japan's operating losses for at least three years following ABT Japan's commencement of operations by subscribing in cash to additional shares of common stock of ABT Japan; provided, however, that the Transaction Partner shall not be obligated under this paragraph to purchase such additional shares of common stock in an aggregate amount exceeding [*], and all Japanese Shareholders shall not be collectively obligated to purchase such additional shares of common stock in an aggregate amount exceeding (Y)1,240,000,000 (the "Secondary Investment"). ABT will have the right to provide, or cause to be provided, any additional financing required by ABT Japan after the Initial Investment and the Secondary Investment made by the Japanese Shareholders as contemplated hereby. Without regard to ABT's determination whether or not to provide such financing, ABT will nonetheless, at all times, have preemptive rights to maintain its then current proportionate equity position in ABT Japan. 4. Other Japanese Shareholders. The parties hereto acknowledge that, at present, it is contemplated that the Japanese Shareholders will collectively subscribe, prior to the Stock Split, to 496 shares of common stock of ABT Japan for an aggregate cash investment of (Y)1,240,000,000. The Transaction Partner expressly acknowledges and agrees that, even in the 3 Intec, Inc. March 12, 1999 Page 3 event that the Japanese Shareholders (other than the Transaction Partner) shall ultimately invest an aggregate amount which is less than [*] in the capital stock of ABT Japan, the Transaction Partner shall nevertheless make the investments set forth in Paragraph 3 above, and perform all of its other obligations under this Letter. 5. License. ABT will license its name, technology, business methodologies and know how to ABT Japan, and ABT Japan will use the name "autobytel.jp" and otherwise obtain from ABT existing U.S. technology and operating support pursuant to a license agreement, the form of which is attached hereto as EXHIBIT B and hereby approved by the parties hereto (the "License Agreement"). As set forth in Exhibit B, the total and entire fee to be paid by ABT Japan to ABT under the License Agreement will be [*] of gross revenues, subject to an annual minimum fee of U.S. $1 million, which will be payable in the forms of (i) the Minimum Annual License Fee of U.S. [*] and (ii) the Minimum Annual Maintenance Fee of U.S. [*]. For the first year, U.S. [*] out of the Minimum Annual License Fee will be paid by ABT Japan on or promptly after the execution of the License Agreement as the Initial Transfer Fee to cover ABT's initial costs associated with transferring ABT's technology, business methodologies and know-how, etc. to ABT Japan. 6. Board of Directors. Following the subscription of shares by the Transaction Partner and other Japanese Shareholders pursuant to Paragraph 3, ABT shall have the right to designate such number of directors to the board of directors of ABT Japan ("Board") constituting 33-1/3% of the Board, such number being rounded upward to the nearest whole number. 7. Buy Back Option. If ABT Japan is a private company and its net loss exceeds, on a cumulative basis, the worst case earnings projections as set forth in the Initial Business Plan (or any subsequent business plan which has been approved by ABT, the Transaction Partner and the other Japanese Shareholders in writing) during the [*] period immediately following ABT Japan's incorporation, then ABT shall have the right, for a period of twelve (12) months following the lapse of such period, to buy back for cash or shares of ABT common stock, at ABT's option, the Transaction Partner's (and its transferees') investment in ABT Japan at [*]. 8. Non-Competition. The Transaction Partner represents and warrants to ABT that, as of the date hereof and except as set forth in EXHIBIT C, it has neither entered into, nor otherwise engaged in, any Restricted Business in Japan, whether as owner, manager, investor (except for less than 3% interests in publicly-held companies), partner, joint venturer, consultant, agent or supplier. From the date hereof and continuing until one year after the Transaction 4 Intec, Inc. March 12, 1999 Page 4 Partner shall no longer be a shareholder of ABT Japan, the Transaction Partner shall not enter into or otherwise engage in any Restricted Business in Japan, whether as owner, manager, investor (except for less than 3% interests in publicly-held companies), partner, joint venturer, consultant, agent or supplier, except to the extent entered into or otherwise engaged in as of the date hereof as set forth in Exhibit C. For purposes of this Letter, "Restricted Business" means any enterprise of any form whatsoever which utilizes the internet (a) to aggregate motor vehicle manufacturers, dealers and distributors, and (b) to route motor vehicle purchase or lease requests and other consumer information to such motor vehicle manufacturers, dealers or distributors. 9. Common Stock of ABT. The Transaction Partner has requested that shares of ABT common stock be sold to the Transaction Partner and to certain other Japanese Shareholders. If and only if (a) ABT shall have received, on or before the date and time set forth in the last paragraph of this Letter, letter agreements substantially in the form attached hereto as EXHIBIT D duly executed and delivered by each of the Japanese Shareholders listed in Exhibit E, and (b) the aggregate amount committed to be invested by such Japanese Shareholders in the common stock of ABT Japan as set forth in Paragraph 3(a) of such letter agreements equals or exceeds (Y)770,000,000, and (c) ABT shall have received, on or before the date and time set forth in the last paragraph of this Letter, nonbinding letter agreements substantially in the form attached hereto as EXHIBITS F-1, F-2 AND F-3, duly executed and delivered by Itochu Corporation, Orient Corporation and Recruit Co., Ltd., respectively, then ABT shall agree to use commercially reasonable efforts in consultation with the underwriters of ABT's initial public offering to respond to the request to purchase shares of ABT common stock in the initial public offering by the Transaction Partner and such other Japanese Shareholders in the amounts set forth on EXHIBIT E hereto. The Transaction Partner acknowledges that such shares of common stock may be sold to the Transaction Partner at a price per share equal to the price at which the stock is offered in the public offering and that the Transaction Partner may be subject to a lockup agreement for a term of one year from the date of the closing of the public offering. 10. Confidentiality. Each of the parties hereto will, subject to complying with applicable law or a court order, maintain the confidentiality of all information furnished to such party in connection with the Transaction, and each such party will inform any representative that may be furnished with such information of the confidential nature thereof. 5 Intec, Inc. March 12, 1999 Page 5 11. Binding Agreement; Documentation. The parties hereto will immediately after executing this Letter work in good faith to more fully document the Transaction including, but not limited to, preparing (a) a shareholders agreement for ABT Japan which shall be executed by ABT and all Japanese Shareholders, shall incorporate the terms and conditions set forth herein and shall include such other key provisions as set forth in EXHIBIT G, and as to which provisions Transaction Partner hereby consents (the "Shareholders Agreement"), and (b) the License Agreement (all such documentation being referred to herein collectively as the "Transaction Agreements"). The Transaction Partner and ABT will use their respective reasonable best efforts to negotiate and execute, and to cause ABT Japan to negotiate and execute, as soon as reasonably practicable but in no event later than May 31, 1999, the Transaction Agreements with respect to the Transaction. Notwithstanding anything to the contrary contained herein, unless and until such Transaction Agreements are entered into, this Letter (i) shall constitute the legally binding agreement of the parties hereto, and (ii) together with such other letter agreements executed by the other Japanese Shareholders, shall constitute the legally binding agreement of the Transaction Partner, the other Japanese Shareholders and ABT, expressly in lieu of such Transaction Agreements. 12. Expenses. Each of ABT and the Transaction Partner will pay its own expenses incident to the negotiation, preparation and execution of this Letter and the Transaction Agreements, including without limitation, all fees, expenses, due diligence costs and fees of their respective counsel. 13. Choice of Law. This Letter shall be governed by and construed in accordance with the internal laws of the State of California, without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties hereto. 14. Submission to the Jurisdiction. Any legal action or proceeding with respect to this Letter may be brought in the courts of the State of California or of the United States for the Central District of California, and Transaction Partner consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. Transaction Partner irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of inconvenient forum, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Letter. Transaction Partner further consents to process being served in any such action or proceeding by mailing a copy thereof to its address set forth above, and agrees that such service shall be deemed in every respect effective service of process upon Transaction Partner in any such action or proceeding and shall be taken and held to be valid personal service upon and personal delivery to Transaction Partner to the full extent permitted by law. 6 Intec, Inc. March 12, 1999 Page 6 15. Injunctive Relief. It is understood that any party hereto may institute appropriate proceedings against a breaching party hereunder (and others who are subject to the terms hereof) to enforce its rights hereunder. The parties hereto acknowledge and agree that money damages would not be a sufficient remedy for any violation of the terms of this Letter and, accordingly, the non-breaching party shall be entitled to specific performance and injunctive relief as remedies for any violation. These remedies shall not be deemed to be exclusive remedies for a violation of the terms of this Letter but shall be in addition to all other remedies available to the non-breaching party at law or in equity. In any proceeding or dispute under this Letter, whether brought in arbitration or a court of law, the substantially prevailing party shall be entitled to recover from the other party its legal fees and costs relating to enforcing or protecting its rights hereunder. 16. Advice of Counsel. Transaction Partner hereby represents and warrants that it has received advice of legal counsel of its own selection in negotiations for, and the preparation of, this Letter, that it has read this Letter or has had the same read to it by its counsel, that it has had this Letter, and the legal effect hereof, fully explained by such counsel, and that Transaction Partner is fully aware of this Letter's contents and legal effect. 17. Counterparts. This Letter may be signed may be executed by one or more parties hereto in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 7 Intec, Inc. March 12, 1999 Page 7 If you are in agreement with the foregoing, please have the enclosed copy of this Letter executed in the space provided below and return a fully executed copy to the undersigned prior to 5:00 p.m. (California time) on March 18, 1999 at which time the terms of this Letter will expire if not then countersigned by you. We look forward to working with you. Very truly yours, AUTOBYTEL.COM INC. By: /s/ Mark Lorimer --------------------------- Name: Mark Lorimer Title: President and CEO Agreed and Accepted: INTEC, INC. By: /s/ Koju Takizawa ------------------------------ Name: Koju Takizawa Title: General Manager Date: March 17, 1999 EX-23.1 10 CONSENT OF ARTHUR ANDERSEN LLP 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. 6 to Form S-1 (Registration No. 333-70621) of our report dated March 25, 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 25, 1999 -----END PRIVACY-ENHANCED MESSAGE-----