-----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, L35uTBkP2aCFizKGB3zIAH1b0mTXsrhUG0qG4Dvegou6BuMiaOnyYprzMnsYMt5C GXZo8sbTj7L8FVr2V9DRZQ== 0000898430-97-000297.txt : 19970203 0000898430-97-000297.hdr.sgml : 19970203 ACCESSION NUMBER: 0000898430-97-000297 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19970131 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTO BY TEL CORP CENTRAL INDEX KEY: 0001023364 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-20831 FILM NUMBER: 97515459 BUSINESS ADDRESS: STREET 1: 18872 MACARTHUR BLVD 2ND FL CITY: IRVINE STATE: CA ZIP: 92612-1400 BUSINESS PHONE: 7146757171 MAIL ADDRESS: STREET 1: AUTO BY TEL CORP STREET 2: 18872 MACARTHUR BLVD 2ND FL CITY: IRVINE STATE: CA ZIP: 92612-1400 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- AUTO-BY-TEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375 33-0711569 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) -------------- AUTO-BY-TEL CORPORATION 18872 MACARTHUR BOULEVARD, SUITE 200 IRVINE, CALIFORNIA 92612-1400 (714) 225-4500 (ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- MARK W. LORIMER, ESQ. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY AUTO-BY-TEL CORPORATION 18872 MACARTHUR BOULEVARD, SUITE 200 IRVINE, CALIFORNIA 92612-1400 (714) 225-4500 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS) -------------- COPIES TO: RICHARD J. CHAR, ESQ. ROD A. GUERRA, JR., ESQ. RICHARD J. HART, ESQ. SKADDEN, ARPS, SLATE, DAVID M. CAMPBELL, ESQ. MEAGHER & FLOM LLP WILSON SONSINI GOODRICH & ROSATI 300 SOUTH GRAND AVENUE PROFESSIONAL CORPORATION LOS ANGELES, CALIFORNIA 90071 650 PAGE MILL ROAD (213) 687-5000 PALO ALTO, CALIFORNIA 94304 (415) 493-9300 -------------- APPROXIMATE DATE OF COMMENCEMENT 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 delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE - -------------------------------------------------------------------------------------------------- Common Stock, par value $0.001 per share........................... $55,200,000 $16,728 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee. The estimate is made pursuant to Rule 457 of the Securities Act of 1933, as amended. -------------- 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THE SECURITIES DESCRIBED HEREIN HAS BEEN + +FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT + +BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION + +STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO + +SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF + +THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD + +BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS + +OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JANUARY 31, 1997 SHARES (LOGO) AUTO-BY-TEL CORPORATION COMMON STOCK Of the shares of Common Stock offered hereby (the "Offering"), are being sold by Auto-By-Tel Corporation ("Auto-By-Tel" or the "Company") and are being sold by the Selling Stockholder. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholder. See "Principal and Selling Stockholders." Prior to the Offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has filed an application to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "ABTL." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED HEREBY. ----------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND + + EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE + + SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION + + PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY + + REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Price Proceeds Proceeds to to Underwriting to Selling Public Discount(1) Company(2) Stockholder - -------------------------------------------------------------------------------- Per Share............................ $ $ $ $ Total(3)............................. $ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted to the Underwriters a 30-day option to purchase up to additional shares of Common Stock solely to cover over-allotments, if any. If the Underwriters exercise this option in full, the Price to Public will total $ , the Underwriting Discount will total $ and the Proceeds to Company will total $ . See "Underwriting." The shares of Common Stock are offered by the several Underwriters named herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing such shares will be made against payment therefor at the office of Montgomery Securities on or about , 1997. ----------- MONTGOMERY SECURITIES COWEN & COMPANY ROBERTSON, STEPHENS & COMPANY , 1997 The top half of this page contains a picture showing the first page of the Company's Web site. The Company intends to distribute to its stockholders annual reports containing financial statements audited by its independent accountants and copies of quarterly earnings reports for the first three quarters of each fiscal year containing unaudited financial information. Auto-By-Tel is a registered service mark of the Company. Auto-By-Tel, ABT Mobilist and the Company's logo are trademarks of the Company. This Prospectus also includes trademarks and tradenames of companies other than the Company. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. INSIDE FRONT COVER FOLD OUT This page contains a series of six pictures depicting the steps to buying a vehicle using the Auto-By-Tel program. The page is entitled "How Auto-By-Tel Works." In the center of the six pictures is the caption: "The easiest, most hassle-free way ever invented to buy a car." Picture #1 depicts a consumer sitting at a terminal. The caption beneath picture #1 reads: "At any time of day or night, Internet users can start their vehicle purchasing process on the AUTO-BY-TEL World Wide Web site. No salespeople, no crowds, no hassles." Picture #2 depicts the Company's Web site. The caption beneath picture #2 reads: "The AUTO-BY-TEL home page is an easy interface for everyone to use." Picture #3 depicts another page from the Company's Web site featuring automobile information providers. The caption beneath picture #3 reads: "AUTO- BY-TEL has arrangements with popular automotive information providers on the World Wide Web. To date, hundreds of thousands of vehicle buyers have taken AUTO-BY-TEL for a test drive." Above picture #3 are the logos of three of the Company's automotive information providers. Picture #4 depicts the form of purchase request from the Company's Web site. The caption beneath picture #4 reads: "An AUTO-BY-TEL participating dealership calls the customer usually within 48 hours of a purchase request with a low, no haggle price. All paperwork is prepared before a customer arrives at the participating dealership to pick up the vehicle." Picture #5 depicts a map of the United States with Auto-By-Tel dealer locations represented. The caption beneath picture #5 reads: "AUTO-BY-TEL has hundreds of participating dealerships, including members of some of the largest auto dealer groups in the U.S., waiting to serve our customers." Picture #6 depicts a consumer taking delivery of a vehicle. The caption beneath picture #6 reads: "Prospective vehicle buyers indicate their desired vehicle and options by completing an online purchase request. This is delivered electronically to the AUTO-BY-TEL participating dealership closest to the buyer." PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including "Risk Factors" and the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise noted or the context otherwise requires, all information in this Prospectus (i) gives effect to a five-for-three split of the Company's Common Stock approved by the Board of Directors on November 24, 1996, (ii) gives effect to the conversion of all outstanding shares of Preferred Stock into 3,467,915 shares of Common Stock which will occur automatically immediately prior to the closing of this Offering, (iii) assumes no exercise of outstanding options to purchase 2,471,213 shares of the Company's Common Stock under the Company's 1996 Stock Option Plan and 1996 Stock Incentive Plan, and (iv) assumes no exercise of the Underwriters' over- allotment option. See "Management--Stock Plans," "Description of Capital Stock" and "Underwriting." THE COMPANY Auto-By-Tel is establishing a nationally branded Internet-based marketing service for new and used vehicle purchasing and related consumer services. The Company's Web site (www.autobytel.com) enables consumers to gather valuable information about automobiles and light duty trucks ("vehicles") and shop for vehicles and related consumer services from the convenience of their home or office. This convenience, coupled with low, haggle-free pricing and quick and courteous service, improves consumers' overall buying experiences. The Company's Internet-based alternative to traditional vehicle retailing dramatically reduces participating dealerships' selling costs per vehicle and increases sales volumes by channeling a large number of ready-to-buy, well- informed consumers to Auto-By-Tel participating dealerships. The Company's Internet-based services are free to consumers and, to date, the Company has derived substantially all of its revenues from fees paid by subscribing dealerships. Consumers wishing to purchase new vehicles through the Company's service complete a purchase request available on the Company's and its partners' Web sites which specifies the type of vehicle and accessories desired along with the consumer's phone number, e-mail address and zip code. The purchase request is then forwarded to the Auto-By-Tel participating dealership located in the consumer's geographic area. Typically, consumers are contacted by Auto-By-Tel dealers within 48 hours with a firm, competitive quote for the vehicle, eliminating the unwelcome and time consuming task of negotiating with the dealer and thus facilitating completion of the sale. As of December 31, 1996 the Company's dealership base consisted of (i) 1,206 paying franchises of dealerships, (ii) 509 non-paying franchises affiliated with paying dealerships (collectively, "subscribing dealerships") and (iii) approximately 230 "trial dealers." From the commencement of operations in March 1995 to December 31, 1996, the Company received more than 385,000 new vehicle purchase requests. The emergence of the Internet as a significant communications medium is driving the development and adoption of Web content and commerce applications that offer convenience and value to consumers, as well as unique marketing opportunities and reduced operating costs to businesses. A growing number of consumers have begun to transact business electronically, including paying bills, booking airline tickets, trading securities and purchasing consumer goods, such as personal computers, consumer electronics, compact disks, books and vehicles. Moreover, online transactions can be faster, less expensive and more convenient than transactions conducted through a human intermediary. In addition, Web commerce applications enable businesses to rapidly target and economically manage a broad customer base and establish and maintain ongoing direct customer relationships. International Data Corporation ("IDC") estimates that the dollar value of goods and services purchased over the Web will increase from approximately $318 million in 1995 to $95 billion in the year 2000. The Auto-By-Tel vehicle marketing service seeks to utilize the unique marketing capabilities of the Web to address the $660 billion annual U.S. new and used vehicle market. 3 To create higher levels of consumer satisfaction, the Company focuses on improving the manner in which dealers interact with consumers. Auto-By-Tel seeks to establish business relationships with dealerships which share the Company's commitment to improving customer service in the vehicle retailing industry. To meet this goal, the Company requests that participating dealerships have their representatives trained in the Auto-By-Tel marketing program, dedicate electronic and human resources to the Auto-By-Tel system and comply with the Auto-By-Tel guidelines of rapid consumer response, full disclosure, and competitive and up-front pricing communicated over telephone. An important aspect of the Company's strategy is to strengthen the Auto-By- Tel brand name, as a means of driving consumer traffic to the Company's Web site, and thereby increasing the volume of vehicle purchase requests. In addition to marketing its services through relationships with Internet content providers and advertising on Internet search engines and other online services, the Company is expanding its marketing efforts through traditional print media and on network television. The Company intends to capitalize on the increasing visibility of the Auto-By-Tel brand name as a nationally recognized Internet- based marketing service for new vehicles by offering additional services such as online used vehicle purchasing, financing, leasing and insurance services. Auto-By-Tel is currently developing a used vehicle purchasing program for its network of new vehicle dealerships. The Company has an agreement with American International Group ("AIG") one of the largest international insurance providers, to offer vehicle insurance through the Company's Web site. The Company also has an agreement with Chase Manhattan Automotive Finance Corporation ("Chase Manhattan") under which Chase Manhattan, together with its affiliates, will receive credit applications for new vehicle financing online via the Company's Web site from Auto-By-Tel's consumers with prime credit ratings. In addition, the Company is currently negotiating similar relationships with several leading financial institutions to offer new and used vehicle leasing services and new and used vehicle financing to sub-prime credit consumers. Auto-By-Tel LLC was formed in January 1995 and began operations in March 1995. In July 1995, it introduced its Web site. Effective as of May 31, 1996, the interests of the members of Auto-By-Tel LLC and ABT Acceptance Company LLC, an affiliate, were transferred to the Company in a tax free transaction. The address of the Company's principal executive offices is 18872 MacArthur Boulevard, Suite 200, Irvine, California 92612-1400, and the Company's telephone and fax numbers are (714) 225-4500 and (714) 225-4562, respectively. The Company's home page is located on the World Wide Web at http://www.autobytel.com. Information contained on the Company's Web site or online services does not constitute part of this Prospectus. THE OFFERING Common Stock offered by the Company.. shares Common Stock offered by the Selling Stockholder......................... shares Common Stock to be outstanding after the Offering........................ shares(1) Use of proceeds...................... For working capital and general corporate purposes Proposed Nasdaq National Market symbol.............................. ABTL
4 SUMMARY CONSOLIDATED FINANCIAL AND SUPPLEMENTAL OPERATING DATA (IN THOUSANDS, EXCEPT SHARE, PER SHARE AND SUPPLEMENTAL OPERATING DATA)
JANUARY 31, 1995 THREE MONTHS ENDED (DATE OF INCEPTION) -------------------------------------------------- YEAR ENDED TO DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1995 1996 1996 1996 1996 1996 ------------------- ---------- ---------- ------------- ------------ ------------- STATEMENT OF OPERATIONS DATA: Revenues................ $ 274 $ 436 $ 952 $ 1,434 $ 2,203 $ 5,025 ---------- ---------- ---------- ---------- ---------- ---------- Operating expenses: Marketing and advertising........... 476 475 678 1,247 2,039 4,439 Selling, training and support............... 454 362 563 851 1,417 3,193 Technology development. 99 67 78 294 954 1,393 General and administrative......... 275 134 258 740 1,027 2,159 ---------- ---------- ---------- ---------- ---------- ---------- Total operating expenses........... 1,304 1,038 1,577 3,132 5,437 11,184 ---------- ---------- ---------- ---------- ---------- ---------- Loss from operations.... (1,030) (602) (625) (1,698) (3,234) (6,159) Other income (expense), net.................... -- -- (6) 22 108 124 ---------- ---------- ---------- ---------- ---------- ---------- Net loss................ (1,030) (602) (631) (1,676) (3,126) (6,035) ========== ========== ========== ========== ========== ========== Net loss per common and common equivalent share(2)............... $ (.07) $ (.04) $ (.04) $ (.11) $ (.19) $ (.38) ========== ========== ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding(2).. 15,270,154 15,270,154 15,270,154 15,900,467 16,769,853 15,800,184 SUPPLEMENTAL OPERATING DATA: Purchase requests received............... 42,600 44,900 73,700 102,700 123,700 345,000 Paying franchises of subscribing dealerships............ 253 546 728 978 1,206 1,206
DECEMBER 31, 1996 ------------------------ PRO FORMA ACTUAL AS ADJUSTED (2) ------- --------------- BALANCE SHEET DATA: Cash and cash equivalents.............................. $ 9,062 $ Working capital........................................ 5,960 Total assets........................................... 12,298 Total liabilities...................................... 4,302 4,302 Accumulated deficit.................................... (7,065) (7,065) Stockholders' equity................................... 7,996
- -------- (1) Based on 15,895,136 shares of Common Stock outstanding on a pro forma basis as of January 31, 1997. Excludes 2,471,213 shares of Common Stock issuable upon exercise of outstanding options as of January 31, 1997, at a weighted average exercise price of $2.72 per share. Assumes no exercise of the Underwriters' over-allotment option. (2) See Note 1.o of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing net lost per share. (3) Adjusted to reflect (i) the sale of 967,915 shares of Series B Preferred on January 30, 1997 at a price of $9.35 per share and (ii) the conversion of all outstanding shares of Preferred Stock immediately prior to the closing of the Offering and (iii) the receipt by the Company of the estimated net proceeds of $ from the sale of shares of Common Stock offered hereby at an assumed initial public offering price of $ per share. See "Use of Proceeds." 5 RISK FACTORS An investment in the Common Stock offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, the following risk factors should be carefully considered in evaluating the Company and its business before purchasing the shares of Common Stock offered hereby. This Prospectus contains certain forward-looking statements based on current expectations which involve risks and uncertainties. Actual results and the timing of certain events may differ materially from those projected in such forward-looking statements due to a number of factors, including those set forth below. LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT The Company was formed in January 1995 and introduced its vehicle marketing program for new vehicle dealerships over Prodigy in March 1995 and over the Internet in July 1995. The Company first recognized revenues from operations in March 1995. Accordingly, the Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based, and this limited operating history makes the prediction of future operating results difficult or impossible. In addition, the Company believes that, in order to achieve its objectives, it will need to significantly increase revenues from existing services and generate revenues from new services, such as its used vehicle buying service and its vehicle financing and insurance policy referral services. There can be no assurance that the Company will successfully introduce or generate sufficient revenues from such services. The Company had an accumulated deficit as of December 31, 1996 of $7.1 million. In addition, the Company expects to incur operating losses in future periods. The Company's prospects 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 address these risks, the Company must, among other things, continue to send vehicle purchase requests to dealers that result in sales in sufficient numbers to support the marketing fees charged by the Company to its subscribing dealerships, respond to competitive developments, increase its brand name visibility, successfully introduce new services, continue to attract, retain and motivate qualified personnel, and continue to upgrade and enhance its technologies to accommodate expanded service offerings and increased consumer traffic. There can be no assurance that the Company will be successful in addressing such risks. In addition, although the Company has experienced revenue growth in recent periods, historical growth rates are not sustainable and are not indicative of future operating results, and there can be no assurance that the Company will achieve or maintain profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS As a result of the Company's limited operating history, the Company lacks sufficient historical financial and operating data on which to adequately base future operating results. The Company's costs are based, in part, on fees paid to companies that maintain Web sites which allow consumers to submit purchase requests. Agreements with such companies generally have fixed terms ranging from one to five years, although certain of these agreements are terminable on short notice. Under such agreements, fees may be fixed or may vary depending on the number of purchase requests submitted through other companies' Web sites, or may be a combination thereof. Accordingly, increases in the number of purchase requests received will increase the Company's operating costs, which may not result in increased revenues to the Company. In addition, the Company incurs significant expenses to market its services on other Web sites and online services. Such expenses are generally fixed and are paid pursuant to marketing agreements which have terms of up to one year. The Company's expense levels are based in part on its expectations as to future revenues, which may vary in relation to increases or decreases in the number of dealerships that subscribe to the Company's marketing programs. Currently, less than half of subscribing dealerships are subject to written marketing agreements and these subscribing dealerships may cancel their agreements with 30 days' prior notice. As a result, quarterly revenues and operating results may vary significantly in response to any significant change in the number of subscribing dealerships. The Company's inability to adjust spending in a timely manner to compensate for any unexpected revenue shortfall would have a material adverse effect on the Company's business, results of operations and 6 financial condition. In addition, the Company anticipates significant increases in expenses as a result of planned increases in its marketing and advertising programs, development of affiliate programs relating to vehicle insurance and financing, and the introduction of a used vehicle marketing service. To the extent that such expenses exceed, precede or are not subsequently followed by increased revenues, the Company's business, results of operations and financial condition will be materially adversely affected. Significant fluctuations in future quarterly operating results may also be caused by general economic conditions or traditional seasonality in the automotive and light duty truck markets, which may result in fluctuations in the level of purchase requests completed by consumers or adversely affect demand for the Company's existing and planned services. The introduction of new services by the Company's competitors, market acceptance of Internet- related services in general and the introduction by the Company of new services and market acceptance of such services may also result in significant fluctuations in quarterly operating results. In addition, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing or marketing decisions or establish strategic relationships that could have a material adverse effect on the Company's business, results of operations or financial condition. In particular, the Company may need to revise the marketing fees it charges to subscribing dealerships. There can be no assurance that subscribing dealerships will continue to participate in the Company's marketing programs or agree to future fee increases. In addition, there can be no assurance that marketing fees derived from subscribing dealerships will be sufficient to cover the Company's expenses. The foregoing factors make it likely that in some future quarters the Company's operating results will be below the expectations of the Company, securities analysts or investors. In such event, the trading price of the Common Stock would likely be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." REGULATORY UNCERTAINTIES AND GOVERNMENT REGULATION The Company believes that its dealer marketing service does not qualify as a brokerage activity and, therefore, that the Company does not need to comply with state broker licensing requirements. In Texas, however, the Company was required to modify its marketing program to include a pricing model under which subscribing dealerships are charged uniform fees based on the population density of their particular geographic area and to make its program open to all dealerships who wish to apply. In the event that individual state regulatory requirements change or additional requirements are imposed on the Company, the Company may be required to modify its marketing programs in such states in a manner which may undermine the program's attractiveness to consumers or dealers. In addition, in the event that a state deems that the Company is acting as a broker, the Company may be required to comply with burdensome licensing requirements of such state or terminate operations in such state. In each case, the Company's business, results of operations or financial condition could be materially and adversely affected. The Company's marketing service may result in changes in the way new and used vehicles are sold which may be deemed to be threatening by new and used vehicle dealers who do not subscribe to the Auto-By-Tel program. Such businesses are often represented by influential lobbying organizations, and such organizations may seek to introduce legislation which may impact the evolving marketing and distribution model which the Company's service promotes. Should legislative or legal challenges be brought successfully by such organizations, the Company's business, results of operations or financial condition could be materially and adversely affected. As the Company introduces new services, the Company may need to comply with additional licensing regulations and regulatory requirements. For example, the Company recently obtained an insurance brokerage license in California and has begun procuring insurance brokerage licenses in other states to ensure compliance with applicable insurance regulations, if any, of such states. In addition, the Company is currently in the process of applying for financial brokers' licenses in those states in which the Company believes such licenses are required. Becoming licensed may be an expensive and time-consuming process which could divert the efforts of management. In the event that the Company does not successfully become licensed under applicable state 7 insurance or lending rules or otherwise comply with regulations necessitated by changes in current regulations or the introduction of new services, the Company's business, results of operations or financial condition could be materially and adversely affected. Additionally, there are currently few laws or regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, it is likely that a number of laws and regulations may be adopted at the local, state, national or international levels with respect to commerce over the Internet, potentially covering issues such as pricing of services and products, advertising, user privacy and expression, intellectual property, information security, anti- competitive practices or the convergence of traditional distribution channels with Internet commerce. In addition, 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 the Company to additional state sales and income taxes. The adoption of any such laws or regulations may decrease the growth of Internet usage or the acceptance of Internet commerce which could, in turn, decrease the demand for the Company's services and increase the Company's costs or otherwise have a material adverse effect on the Company's business, results of operations or financial condition. See "Business--Government Regulation." STRENGTHENING THE AUTO-BY-TEL BRAND NAME; HIGH COST OF ADVERTISING AND MARKETING The Company believes that enhancing its national brand name recognition is critical to its efforts to maintain and increase the number of purchase requests and subscribing dealerships. The growing number of Web sites which offer competing services and the relatively low barriers to entry in providing Internet services increase the importance of establishing and maintaining brand name recognition. In order to achieve this objective, the Company will need to continue to maintain high quality services and incur considerable costs to enhance and expand brand name recognition and improve its competitive position. Much of the Company's advertising is placed on Web sites maintained by online service providers and online search engine companies. Advertising agreements with these online service providers and search engine companies are generally short-term contracts or are otherwise cancelable on short notice. There can be no assurance that such online advertisers will not cancel such contracts, or that competitors will not be able to displace Auto-By-Tel from its preferred advertising arrangements with such companies. In addition, the intense competition in the sale of Internet advertising, including competition from other vehicle marketing services, has resulted in a wide range of rates quoted by different vendors for a variety of advertising services. This makes it very difficult to project future levels of Internet advertising costs and availability of prime advertising space. The Company has also entered into agreements with automotive information services, such as Edmund's and Microsoft CarPoint, to display the Company's services on their Web sites. These agreements require the Company to pay such entities a fee for each user who completes a purchase request on their sites. Accordingly, any increase in the volume of purchase requests received from these sites will result in increased advertising costs with no assurance of a corresponding increase in revenues to the Company. The Company is also incurring significant expenses to increase awareness of its nationally branded Internet-based marketing services in print and television media. The Company expects these expenses to increase significantly, particularly in the first half of 1997. There can be no assurance that the Company's efforts to brand the Auto-By-Tel name will be successful or that advertising on the Internet, on television or in other media will attract consumers to the Company's Web site, or that existing marketing or advertising sources will continue to be available on commercially reasonable terms, or at all. See "Business--Strategy" and "-- Sales and Marketing." COMPETITION The Company's vehicle buying services compete against a variety of Internet and traditional vehicle buying services and automobile brokers. In the Internet-based market, the Company competes for attention with other entities which maintain similar commercial Web sites. The Company also competes indirectly against automobile brokerage firms and affinity programs offered by several companies, including Price Costco and Wal-Mart. Like 8 the Company's services, the services offered by competing Web sites, vehicle brokerage firms and affinity programs seek to increase consumer satisfaction and reduce vehicle purchasing costs. Although the Company does not currently compete directly with vehicle dealers and manufacturers, such competition would arise in the future if dealers and manufacturers introduced competing Web sites or developed cooperative relationships among themselves or with online vehicle information providers. Moreover, the Company's ability to achieve its objectives would be adversely affected if dealers and manufacturers adopted a low cost, firm price sales model similar to that facilitated by the Auto-By-Tel program. The market for Internet-based commercial services is new and competition among commercial Web sites is expected to increase significantly in the future. The Internet is characterized by minimal barriers to entry, and current and new competitors can launch new Web sites at relatively low cost. Potential competitors could include, but are not limited to, automotive information service providers, manufacturers and new and used vehicle dealers. In order to compete successfully as an Internet commercial entity, the Company must significantly increase awareness of the Company and its brand name, effectively market its services and successfully differentiate its Web site. Many of the Company's current and potential competitors have longer operating histories, greater name recognition and significantly greater financial and marketing resources than the Company. Such competitors could undertake more aggressive and costly marketing campaigns than the Company which may adversely affect the Company's marketing strategies which could have a material adverse effect on the Company's business, results of operations or financial condition. In addition, as the Company introduces new services, it will compete directly with a greater number of companies, including vehicle insurers and lenders as well as used vehicle superstores, such as CarMax and Auto Nation. Such companies may already maintain or may introduce Web sites which compete with that of the Company. There can be no assurance that the Company can continue to compete successfully against current or future competitors nor can there be any assurance that competitive pressures faced by the Company will not result in increased marketing costs, decreased Internet traffic or loss of market share or otherwise will not materially adversely affect its business, results of operations and financial condition. See "Business--Strategy" and "--Competition." DEPENDENCE ON DEALERSHIP NETWORK To date, substantially all of the Company's revenues have been derived from fees paid by subscribing dealerships. Currently, less than half of subscribing dealers have entered into written marketing agreements with the Company, and such agreements are cancelable at the option of either party with 30 days' notice. Accordingly, subscribing dealers may terminate their affiliation with the Company for any reason, including an unwillingness to accept the Company's subscription terms or to join other marketing programs. In December 1996, the Company commenced an effort to have all subscribing dealerships execute written marketing agreements with the Company which have been revised to provide, among other things, that such dealerships will not participate in any other Internet-based or online program with attributes similar to those of the Auto-By-Tel program. At the same time, the Company has begun a program to have all subscribing dealerships enter into written agreements relating to the Auto-By-Tel financing program. As of December 31, 1996, approximately 24% and 13% of all subscribing dealerships had signed the revised marketing agreement and the financing agreement, respectively. The Company believes that some of its dealers may resist signing written agreements and there can be no assurance that the Company will be able to convince subscribing dealerships to enter into written agreements with the Company or revise existing agreements or that the Company's efforts to cause subscribing dealerships to revise their agreements will not result in subscribing dealerships terminating their relationship with Auto-By-Tel. In addition, should the volume of purchase requests increase, the Company anticipates that it will need to reduce the size of the exclusive territories currently allocated to dealerships in order to serve consumers more effectively. Dealers may be unwilling to accept reductions in the size of their territories and may, therefore, terminate their Auto-By-Tel relationship, refuse to execute formal agreements with the Company or decide not to join the Company's marketing programs. A material decrease in the number of subscribing dealerships, or 9 slower than expected growth in the number of subscribing dealerships, could have a material adverse effect on the Company's business, results of operations or financial condition. The Company may also become unable to refer an adequate number of consumers to participating dealerships. There can be no assurance that the Company will be able to continue to attract additional dealerships and retain existing dealerships. Moreover, the success of the Company's business strategy depends on its participating dealerships' adherence to the Company's consumer oriented sales practices. The Company devotes significant efforts to train participating dealerships in such practices which are intended to increase consumer satisfaction. The Company's inability to train dealerships effectively, or the failure by participating dealerships to adopt such practices, respond rapidly and professionally to vehicle purchase requests, or sell vehicles in accordance with the Company's marketing strategies, could result in low consumer satisfaction, damage the Company's brand name and materially adversely affect the Company's business, results of operations or financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Business--Strategy" and "--Dealership Network and Training." RAPID TECHNOLOGICAL CHANGE; SECURITY RISKS AND SYSTEM DISRUPTIONS The Internet is characterized by rapidly changing technology. The Company believes that its future success is significantly dependent on its ability to continuously improve the speed and reliability of its Web site, enhance communications functionality with its consumers and dealers and maintain the highest-level of information privacy and ensure transactional security. The Company recently migrated its Web site platform to a more robust enterprise network, internalized all Web server hosting functions and, to accelerate connectivity, has installed two 1.54 Mbps T-1 lines for outbound traffic and a 6Mbps fractional DS/3 line for inbound traffic. The Company has also recently upgraded its routers and has installed firewall technology to protect its private network. System enhancements entail the implementation of sophisticated new technology and system processes and there can be no assurance that such continuous enhancements may not result in unanticipated system disruptions. In addition, since launching its first Web site in July 1995, the Company has experienced system downtime for limited periods of up to a few hours due to power loss and telecommunications failures, and there can be no assurance that future interruptions will not recur. Although the Company maintains redundant local offsite backup servers, all of the Company's primary servers are located at its corporate headquarters and are vulnerable to interruption by damage from fire, earthquake, power loss, telecommunications failure and other events beyond the Company's control. The Company is in the process of developing comprehensive out-of-state disaster recovery plans to safeguard dealer and consumer information. The Company's business interruption insurance may not be sufficient to compensate the Company for all losses that may occur. In the event that the Company experiences significant system disruptions, the Company's business, results of operations or financial condition could be materially and adversely affected. In addition, the Company is currently in the process of completing a conversion to a redundant client/server SQL database platform which involves the integration of several different internal databases used to handle the Company's consumer and dealer information and transmission requirements, as well as the Company's financial, accounting and record-keeping requirements. No assurance can be given that the implementation of this new platform will not result in disruptions to the Company's business, such as the loss of data, errors in purchase request transmissions, delays in the Company's ability to effect periodic closings of its accounting records and other similar problems. Any such disruptions or any failure to successfully implement this new information system in a timely manner could have a material adverse effect on the Company's business, results of operations or financial condition. The Company's services may be vulnerable to break-ins and similar disruptive problems caused by Internet users. Further, weaknesses in the Internet may compromise the security of confidential electronic information exchanged across the Internet. This includes, but is not limited to, the security of the physical network and security of the physical machines used for the information transfer. Any such flaws in the Internet, the end-user environment, or weaknesses or vulnerabilities in the Company's services or the licensed technology incorporated in such services could jeopardize the confidential nature of information transmitted over the Internet and could 10 require the Company to expend significant financial and human resources to protect against future breaches, if any, and alleviate or mitigate problems caused by such security breaches. Concerns over the security of Internet transactions and the privacy of users may also inhibit the growth of the Internet generally, particularly as a means of conducting commercial transactions. To the extent that activities of the Company, or third party contractors, involve the storage and transmission of proprietary information (such as personal financial information or credit card numbers), security breaches could expose the Company to a risk of financial loss, litigation and other liabilities. The Company does not currently maintain insurance to protect against such losses. Any such occurrence could reduce consumer satisfaction in the Company's services and could have a material adverse effect on the Company's business, results of operations or financial condition. See "Business--Operations and Technology; Facilities." NEW SERVICE OFFERINGS In order to generate additional revenues, to attract more consumers to its Web site and dealerships to its programs and remain competitive, the Company must successfully develop, market and introduce new services. The Company believes that to achieve its objectives it will need to generate a substantial portion of its future revenues from new services. The Company recently introduced an Internet-based insurance service with American International Group ("AIG"), one of the largest international insurance companies. Consumers can currently link to AIG's Web site to submit insurance applications and, when the service is fully implemented, will be able to receive real-time, online quotes. The Company also recently entered into an agreement with Chase Manhattan Automotive Finance Corporation ("Chase Manhattan") under which Chase Manhattan, together with its affiliates, will receive credit applications for new vehicle financing from prime (higher quality) credit consumers who access Auto-By-Tel's Web Site. The agreement with Chase Manhattan has a term of three years but may be terminated sooner by Chase Manhattan with six months' notice or in the event that certain ongoing conditions are not satisfied. In addition, the Company is developing client/server database applications and user interfaces which will enable the Company to provide consumers access to vehicles currently listed by dealerships who participate in the Company's used vehicle program. None of these new services has been fully developed and, in some cases, their introduction has recently been delayed due to difficulties encountered by the Company's partners in developing their software systems. There can be no assurance that the Company will successfully develop or introduce these new services, that such services will achieve market acceptance or that subscribing dealerships will not view such new services as competitive to services already offered by such dealerships. For example, consumers may be reticent to purchase vehicle insurance or procure vehicle financing online. Also, it may be more difficult to educate consumers as to the value of locating used vehicles for purchase through the Internet since used vehicle purchases are generally thought to require a greater level of hands-on involvement. The Company expects to incur additional expenses to develop and successfully market such services. To the extent that revenues generated by such additional services are insufficient to cover increased expenses, the Company's operating results would be adversely affected. Should the Company fail to develop and successfully market these services, or should competitors successfully introduce competing services, the Company's business, results of operations and financial condition may be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Business--Products and Services." DEPENDENCE ON STRATEGIC RELATIONSHIPS The Company is dependent to a large extent on a number of third party relationships to create traffic on its Web site. These relationships include positioning the Company's advertisements or services on sites maintained by (i) automotive information providers, such as AutoSite, Edmund's and Microsoft CarPoint, (ii) Internet search engine companies, such as Excite, Magellan and WebCrawler and (iii) online services, including America Online's Digital Cities, CompuServe and Prodigy. The Company receives a significant number of purchase requests from a limited number of such Web sites, including Edmund's and Microsoft CarPoint. The termination of any of these relationships, or any significant reduction in traffic to the Web sites on which the Company's services are advertised or offered, could have a material adverse effect on the Company's business, results of 11 operations or financial condition. A number of the Company's agreements with such online service providers may be cancelled on short notice and there can be no assurance that online service providers will not terminate such agreements. In addition, the Company continuously negotiates revisions to existing agreements and these revisions could increase the Company's costs in future periods. The Company believes that its comprehensive utilization of these Internet referral sources is and will remain critical in strengthening its national brand name and maintaining and increasing usage of its Internet-based services. In the event that the Company fails to maintain these strategic relationships or develop relationships with additional online services, the volume of traffic to the Company's Web site may be reduced and the Company's business, results of operations or financial condition could be materially and adversely affected. As a part of its overall strategy, the Company plans to develop new services by entering into alliances with other companies engaged in complementary businesses, such as vehicle financing and leasing, and insurance providers. For example, the Company recently entered into agreements with Chase Manhattan to provide vehicle financing and AIG to provide vehicle insurance services to its consumers. Strategic relationships involve numerous risks, including difficulties in the introduction and marketing of new services, diversion of management's attention from other business requirements, and the risks of entering markets in which the Company has no or limited direct prior experience and where competitors in such markets have stronger market positions. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such strategic alliances or that such transactions will not adversely affect the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Business--Strategy" and "--Products and Services." DEVELOPING MARKET; UNCERTAIN ACCEPTANCE OF THE INTERNET FOR ONLINE COMMERCE The market for the Company's Internet-based marketing service has only recently begun to develop and is rapidly evolving. 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 exist few proven services and products. Moreover, since the market for the Company's services is new and evolving, it is difficult to predict the future growth rate, if any, and size of this market. The success of the Company's service will depend upon the adoption of the Internet by consumers and dealers as a mainstream medium for commerce. While the Company believes that its services offer significant advantages to consumers and dealers, there can be no assurance that widespread acceptance of Internet commerce in general, or of the Company's services in particular, will occur. Consumers and dealers who have historically relied upon traditional means of commerce to purchase vehicles and vehicle insurance, or to procure vehicle financing, must accept novel ways 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 systems and technologies. Moreover, critical issues concerning the commercial use of the Internet (including ease of access, security, reliability, cost, and quality of service) remain unresolved and may impact the growth of Internet use or the attractiveness of conducting commerce online. There can be no assurance that consumers will use the Internet for commerce or that the market for the Company's services will develop successfully or achieve widespread market acceptance. If the market for Internet-based vehicle marketing services fails to develop, develops more slowly than expected or becomes saturated with competitors, or if the Company's services do not achieve market acceptance, the Company's business, results of operations and financial condition will be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Business--Strategy." MANAGEMENT OF GROWTH The rapid execution necessary for the Company to establish itself as a leader in the evolving market for Internet-based vehicle marketing services requires an effective planning and management process. The Company's rapid growth has placed, and is expected to continue to place, a significant strain on the Company's 12 managerial, technical, sales and marketing and administrative personnel and financial resources. As of December 31, 1996, the Company had 73 employees (including two employees located in Canada), compared to 17 employees as of December 31, 1995. The Company is also in the process of testing, introducing or developing new services. The Company anticipates that to effectively develop, introduce and maintain such new services, it will need to hire a significant number of qualified managerial, technical and sales and marketing personnel in the future. Competition for such qualified individuals is intense and there can be no assurance that the Company will be able to recruit and retain such employees. To manage its growth, the Company must continue to implement and improve its operational and financial systems, and expand, train and manage its employee base and subscribing dealerships. There can be no assurance that the Company will be able to successfully implement these changes on a timely basis. Further, the Company is required and will continue to be required to manage multiple relationships with consumers, dealers, strategic partners and other third parties. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's current or future operations or that Company management will be able to achieve the rapid execution necessary to establish itself as a leader in the evolving market for Internet-based vehicle marketing services. For example, to date the Company has been able to enter into written marketing agreements with less than half of its subscribing dealership base. The Company's future operating results will also depend on its ability to expand its sales and marketing organizations, implement and manage new services to penetrate broader markets and further develop and expand its organization and technology infrastructure, to support an increased number of services. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition will be materially adversely affected. See "Business-- Employees." The Company's growth strategy is predicated in part on its ability to successfully identify, acquire and integrate companies that complement or expand the Company's service offerings. While the Company is not currently negotiating any acquisitions and does not have any commitments or agreements with respect to any acquisitions, the Company anticipates that potential acquisition opportunities may arise. The Company intends to actively pursue any attractive acquisition opportunities. In the event that the Company were to issue Common Stock to consummate such potential acquisitions, such additional issuance could dilute the holdings of investors purchasing the Common Stock offered hereby. Additionally, the Company may utilize cash to consummate such acquisitions. There can be no assurance that the Company will have adequate resources to consummate any acquisition, that any acquisition will or will not occur, that any target company can be successfully integrated into the Company, and that, if any acquisition does occur, it will not be dilutive to the Company's earnings per share or otherwise have a material adverse affect on the Company's business, results of operations and financial condition. DEPENDENCE ON KEY PERSONNEL The Company's performance is substantially dependent on the performance of its executive officers and key employees, all of whom are employed on an at- will basis and many of whom have worked together for only a short period of time. Given the Company's early stage of development, the Company is dependent on its ability to retain and motivate highly qualified personnel, especially its management, technical and business development teams. The Company maintains "key person" life insurance in the amount of $7.5 million on the life of Peter R. Ellis, the Company's President and Chief Executive Officer. However, the loss of the services of Mr. Ellis, or one or more of the Company's other executive officers or key employees would likely have a material adverse effect on the business, results of operations or financial condition of the Company. Certain Company officers have been involved in legal matters prior to the formation of Auto-By-Tel. While management believes that these matters have been resolved, future proceedings, if any, could interfere to some extent with the officers' services for the Company. See "Management." The Company's future success also depends on its ability to identify, hire, train and retain other highly qualified sales and marketing, managerial and technical personnel. In addition, the Company anticipates the need to hire a significant number of personnel as it introduces new services. Competition for such personnel is intense, 13 and there can be no assurance that the Company will 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 upon the Company's business, results of operations or financial condition. See "Business--Employees." RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION The Company intends to expand its new vehicle marketing service to foreign jurisdictions by establishing relationships with vehicle dealers and strategic partners located in foreign jurisdictions in which similar challenges and inefficiencies in the market for new vehicles exist. In April 1996, the Company introduced its new vehicle marketing service in Canada and as of December 31, 1996, the Company had 72 paying franchises of subscribing dealerships located in Canada. To date, the Company has had limited experience in providing its Internet-based marketing service abroad and there can be no assurance that the Company will be successful in introducing or marketing its service abroad or will not encounter foreign regulation of its operations. In addition, there are certain risks inherent in doing business in international markets, such as changes in regulatory requirements, 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. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's current or future international operations and, consequently, on the Company's business, results of operations and financial condition. DEPENDENCE ON THE INTERNET; CAPACITY CONSTRAINTS The Company's ability to efficiently process purchase requests for vehicles received through the Company's Internet-based marketing service will depend, in large part, upon a robust communications industry and infrastructure for providing Internet access and carrying Internet traffic. The Internet may not prove to be a viable commercial marketplace because of inadequate development of the necessary infrastructure (e.g., reliable network backbone), timely development of complementary products (e.g., 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. In addition, to the extent that the Internet continues to experience significant growth in the number of users and the level of use, there can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by such potential growth. Because global commerce and exchange of information on the Internet is new and evolving, it is difficult to predict with any assurance whether the Internet will prove to be a viable commercial marketplace. If the necessary infrastructure or complementary products are not developed, or if the Internet does not become a viable commercial marketplace, the Company's business, results of operations and financial condition will be materially adversely affected. See "Business-- Operations and Technology; Facilities." DEPENDENCE ON PROPRIETARY SYSTEMS AND TECHNOLOGY The Company's success and ability to compete is dependent in part upon its proprietary systems and technology. While the Company relies on trademark, trade secret and copyright law to protect its proprietary rights, the Company believes that the technical and creative skills of its personnel, continued development of its proprietary systems and technology, brand name recognition and reliable Web site maintenance are more essential in establishing and maintaining a leadership position and strengthening its brand. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's services or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's proprietary rights is difficult. In addition, litigation may be necessary in the future to enforce or protect the Company's intellectual property rights or to defend against claims of infringement or invalidity. Misappropriation of the Company's intellectual property or potential litigation could have a material adverse effect on the Company's business, results of operations or financial condition. See "Business--Operations and Technology; Facilities." 14 SUBSTANTIAL CONTROL BY OFFICERS AND DIRECTORS AND THEIR AFFILIATES Following the Offering, the Company's officers and directors and their affiliates will beneficially own or control approximately % of the outstanding shares of Common Stock (after giving effect to the conversion of all outstanding Preferred Stock and the exercise of all outstanding options and assuming no exercise of the Underwriter's over-allotment option). The Company's officers, directors and their affiliates will have the ability to control the election of the Company's Board of Directors and the outcome of corporate actions requiring stockholder approval. See "Principal and Selling Stockholders." ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Amended and Restated Articles of Incorporation and Bylaws could make it difficult for a third party to acquire, and could discourage a third party from attempting to acquire, control of the Company. Certain of these provisions allow the Company to issue Preferred Stock with rights senior to those of the Common Stock without any further vote or action by the stockholders and impose various procedural and other requirements which could make it more difficult for stockholders to effect certain corporate actions. Such charter provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock or Preferred Stock and may have the effect of delaying or preventing a change in control of the Company. 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. See "Description of Capital Stock--Common Stock" and "--Preferred Stock." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE There has been no public market for the Company's Common Stock prior to this offering. Although application will be made to the Nasdaq National Market for listing of the Common Stock, there can be no assurance that an active trading market will develop or be sustained or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined through negotiations between the Company and the Underwriters and may not be indicative of the market price for the Common Stock following the Offering. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Even if an active trading market does develop, the market price of the Common Stock following this offering may be highly volatile. Factors such as variations in the Company's revenue, earnings and cash flow, announcements of new service offerings, technological innovations or price reductions by the Company, its competitors or providers of alternative services, changes in financial estimates by securities analysts or other events or factors could cause the market price of the Common Stock to fluctuate substantially. In addition, the stock markets recently have experienced significant price and volume fluctuations that have particularly affected companies in the technology sector and that have been unrelated to the operating performance of those companies. Such broad market fluctuations or any failure of the Company's operating results in a particular quarter to meet market expectations may adversely affect the market price of the Common Stock following this offering. DILUTION Investors participating in the Offering will incur immediate, substantial dilution. To the extent that outstanding options to purchase the Company's Common Stock are exercised, there will be further dilution. See "Dilution." ABSENCE OF DIVIDENDS The Company intends to retain all future earnings for use in the development of its business and does not currently anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy." 15 SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sale of substantial numbers of shares of Common Stock in the public market could adversely affect the market price of the Common Stock and make it more difficult for the Company to raise funds through equity offerings in the future. A substantial number of outstanding shares of Common Stock and other 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 shares to be outstanding after the Offering, the shares offered hereby will be eligible for immediate sale in the public market without restriction. All other outstanding shares of Common Stock are subject to 180-day lock-up agreements with the Underwriters. Upon the expiration of the 180-day lock-up agreements, such shares of Common Stock will become eligible for sale in the public market, subject to the provisions of Rules 144(k), 144 and 701 under the Act and any contractual restrictions on their transfer. Montgomery Securities may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock- up agreements. Upon completion of the Offering, the holders of approximately 15,322,248 shares of Common Stock will be entitled to certain registration rights with respect to such shares. In addition, the Company intends to register the shares of Common Stock reserved for issuance under the Company's 1996 Stock Option Plan, 1996 Stock Incentive Plan and 1996 Employee Stock Purchase Plan following the date of this Prospectus. See "Shares Eligible for Future Sale" and "Description of Capital Stock--Registration Rights." 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and estimated offering expenses, are estimated to be approximately $ (approximately $ if the Underwriters' over-allotment is exercised in full). The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholder. See "Principal and Selling Stockholders." The Company expects to use the net proceeds from the Offering for working capital purposes, including online and traditional advertising programs designed to strengthen the Auto-By-Tel brand name, and general corporate purposes, including the funding of information technology investments required to support the transition to a real-time online communications platform and to develop new products and services. A portion of the proceeds from the Offering also may be used for possible acquisitions of or investments in businesses, products or technologies that expand, complement or are otherwise related to the Company's current or planned services, although no specific acquisitions are currently in negotiation. Pending such uses, the proceeds will be invested in short-term, investment grade, interest-bearing securities. The Company may require additional financing in the future to finance continuing growth. No assurance can be given that such financing will be available on favorable terms or at all. DIVIDEND POLICY The Company has never declared or paid cash dividends on its capital stock. The Company currently intends to retain all of its future earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future. 17 CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company derived from its financial statements as of December 31, 1996, (ii) pro forma capitalization of the Company, giving effect to (a) the authorization of 967,915 shares of Series B Preferred Stock and the sale and issuance on January 30, 1997 of 967,915 shares of Series B Preferred Stock at a price of $9.35 per share and (b) the restatement of the Company's Amended and Restated Certificate of Incorporation to provide for authorized capital stock of 50,000,000 shares of Common Stock and 5,000,000 shares of undesignated Preferred Stock, and (c) the conversion of all outstanding shares of Preferred Stock into 3,467,915 shares of Common Stock immediately prior to the closing of the Offering, and (iii) the pro forma as adjusted capitalization of the Company to reflect the sale by the Company of shares of Common Stock pursuant to the Offering at an assumed public offering price of $ and the receipt by the Company of the estimated net proceeds therefrom, after deducting estimated underwriting discounts and estimated offering expenses. The capitalization information set forth in the table below is qualified by the more detailed Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus and should be read in conjunction with such Consolidated Financial Statements and Notes.
DECEMBER 31, 1996 ------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ------------ (IN THOUSANDS) Cash and cash equivalents...................... $ 9,062 $18,112 $ ======= ======= ======= Stockholders' equity (1): Convertible preferred stock, $0.001 par value; 1,500,000 shares authorized, 1,500,000 shares issued and outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted..................................... 2 -- -- Common stock, $0.001 par value; 16,666,666 shares authorized, 12,427,221 shares issued and outstanding, actual; 50,000,000 shares authorized, 15,895,136 shares outstanding, pro forma; 50,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted............................ 12 16 Additional paid-in capital.................... 15,073 24,121 Deferred compensation......................... (26) (26) (26) Accumulated deficit........................... (7,065) (7,068) (7,065) ------- ------- ------- Total stockholders' equity................... 7,996 17,046 ------- ------- ------- Total capitalization....................... $ 7,996 $17,046 $ ======= ======= =======
- -------- (1) Gives effect to a five-for-three stock split approved by the Board of Directors on November 24, 1996 and effected January 30, 1997. Excludes as of December 31, 1996: (i) 2,280,815 shares of Common Stock reserved for issuance pursuant to options outstanding under the Company's 1996 Stock Option Plan and 1996 Stock Incentive Plan at a weighted exercise price of $2.21 per share. On October 23, 1996, the Company terminated the 1996 Stock Option Plan and adopted the 1996 Stock Incentive Plan and, on November 24, 1996, amended the 1996 Stock Incentive Plan and adopted the 1996 Employee Stock Purchase Plan and reserved 1,250,000 and 666,666 shares of Common Stock, respectively, for issuance thereunder. Subsequent to December 31, 1996, the Board of Directors granted options to purchase an additional 190,398 shares of Common Stock with an exercise price of $18.80 per share under the Company's 1996 Stock Incentive Plan. See "Capitalization," "Management--Stock Plans" and Notes 1, 7 and 8 of Notes to Consolidated Financial Statements. 18 DILUTION The pro forma net tangible book value of the Company as of December 31, 1996 was $8.0 million or $0.50 per share of Common Stock. Pro forma net tangible book value per share is equal to the Company'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 (i) the sale and issuance on January 30, 1997 of 967,915 shares of Series B Preferred Stock at a price of $9.35 per share and (b) the conversion of all shares of Preferred Stock into 3,467,915 shares of Common Stock immediately prior to the closing of the Offering. After giving effect to the sale of shares of Common Stock offered hereby at an assumed initial public offering price of $ and the receipt by the Company of the estimated net proceeds therefrom, after deducting estimated underwriting discounts and estimated offering expenses, the pro forma net tangible book value of the Company at December 31, 1996 would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share................. $ ------- Pro forma net tangible book value per share before the Offering...................................................... $ 0.50 Increase per share attributable to new investors............... $ ------- Pro forma net tangible book value per share after the Offering.. ------- Dilution per share to new investors............................. $ =======
The following table summarizes, on a pro forma basis as of December 31, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company 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):
TOTAL AVERAGE SHARES PURCHASED CONSIDERATION PRICE ------------------ ----------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- --------- ------- -------- Existing stockholders(1).......... 15,895,136 % $ % $ New investors(1).................. % % ---------- ----- --------- ----- -------- Total........................... 100.0% 100.0% ========== ===== ========= =====
- -------- (1) The sale of shares by the Selling Stockholder in the Offering will cause the number of shares held by the existing stockholders to be reduced to 15,495,136, or approximately % of the total number of shares, and will increase the number of shares to be purchased by new stockholders to , or % of the total number of shares. Assuming full exercise of the Underwriters' over-allotment option, the number of shares held by new stockholders would be increased to shares or % of the total number of shares outstanding. The foregoing tables exclude 2,471,213 shares that are issuable upon exercise of options outstanding as of January 31, 1997 with a weighted average exercise price of $2.71 per share. See "Management--Stock Plans." To the extent that outstanding options are exercised in the future, there will be further dilution to new investors. 19 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. The statement of operations data for the period from inception (January 31, 1995) to December 31, 1995, and the year ended December 31, 1996 and the balance sheet data as of December 31, 1995 and December 31, 1996 are derived from the Consolidated Financial Statements of the Company 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."
THREE MONTHS ENDED JANUARY 31, 1995 -------------------------------------------------- YEAR ENDED (DATE OF INCEPTION) MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 1995 1996 1996 1996 1996 1996 -------------------- ---------- ---------- ------------- ------------ ------------ (IN THOUSANDS, EXCEPT SHARE, PER SHARE AND SUPPLEMENTAL OPERATING DATA) STATEMENT OF OPERATIONS DATA: Revenues................ $ 274 $ 436 $ 952 $ 1,434 $ 2,203 $ 5,025 ---------- ---------- ---------- ---------- ---------- ---------- Operating expenses: Marketing and advertising........... 476 475 678 1,247 2,039 4,439 Selling, training and support............... 454 362 563 851 1,417 3,193 Technology development. 99 67 78 294 954 1,393 General and administrative......... 275 134 258 740 1,027 2,159 ---------- ---------- ---------- ---------- ---------- ---------- Total operating expenses............. 1,304 1,038 1,577 3,132 5,437 11,184 ---------- ---------- ---------- ---------- ---------- ---------- Loss from operations.... (1,030) (602) (625) (1,698) (3,234) (6,159) Other income (expense), net.................... -- -- (6) 22 108 124 ---------- ---------- ---------- ---------- ---------- ---------- Net loss................ $ (1,030) $ (602) $ (631) $ (1,676) $ (3,126) $ (6,035) ========== ========== ========== ========== ========== ========== Net loss per common and common equivalent shares (1)............. $ (.07) $ (.04) $ (.04) $ (.11) $ (.19) $ (.38) ========== ========== ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding (1). 15,270,154 15,270,154 15,270,154 15,900,467 16,769,853 15,800,184 SUPPLEMENTAL OPERATING DATA: Purchase requests received............... 42,600 44,900 73,700 102,700 123,700 345,000 Paying franchises of subscribing dealerships............ 253 546 728 978 1,206 1,206
DECEMBER 31, ---------------- 1995 1996 ------- ------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents..................................... $ 48 $ 9,062 Working capital (deficit)..................................... (1,099) 5,960 Total assets.................................................. 285 12,298 Total liabilities............................................. 1,275 4,302 Accumulated deficit........................................... (1,030) (7,065) Stockholders' equity (deficit)................................ (990) 7,996
- ------- (1) See Note 1.o of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing net loss per share. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. This discussion contains forward-looking statements based on current expectations which 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 Auto-By-Tel is establishing a nationally branded Internet-based marketing service for new and used vehicle purchasing and related consumer services. The Company's Web site (www.autobytel.com) enables consumers to gather valuable automotive information and shop for vehicles and related consumer services from the convenience of their home or office. This convenience, coupled with low, haggle-free pricing and quick and courteous service, improves consumers' overall buying experiences. The Company's Internet-based alternative to traditional vehicle retailing dramatically reduces participating dealerships' selling costs per vehicle and increases sales volumes by channeling a large number of ready-to-buy, well-informed consumers to Auto-By-Tel participating dealerships. Monthly vehicle purchase requests increased from 10,700 in January 1996 to 40,000 in December 1996. During the same period, the number of paying franchises of subscribing dealerships increased from 253 franchises as of December 31, 1995 to 1,206 franchises as of December 31, 1996. The Company believes that the growth rates experienced by the Company since inception are not indicative of future growth rates and that growth will be slower in the future. Auto-By-Tel LLC was formed in January 1995 and began operations in March 1995. In July 1995, it introduced its Web site. Effective as of May 31, 1996, the interests of the members of Auto-By-Tel LLC and ABT Acceptance Company LLC, an affiliate, were transferred to the Company in a tax-free transaction. To date, substantially all of the Company's revenues have been derived from new vehicle marketing fees paid by franchises of subscribing new vehicle dealerships. To date, less than half of subscribing dealerships have entered into written marketing agreements with the Company, and such agreements are cancelable at the option of either party with 30 days' prior notice. Accordingly, subscribing dealerships may terminate their affiliation with the Company for any reason, including an unwillingness to accept the terms of the Company's revised marketing agreement or to join other marketing programs. New vehicle marketing revenues derived under subscription agreements are recognized as follows: initial fees are recognized ratably over the first twelve months following receipt, annual fees are recognized ratably over the twelve months commencing when due, and monthly fees are recognized when due. In certain instances, the Company will waive a newly subscribing dealership's monthly fees for several months. The Company's new vehicle dealer fees are not calculated on a per vehicle basis. See Note 1.e of Notes to Consolidated Financial Statements. As of December 31, 1996 the Company's participating dealership base consisted of (i) 1,206 paying franchises of dealerships, (ii) 509 non-paying franchises affiliated with paying dealerships (collectively, "subscribing dealerships") and (iii) approximately 230 "trial dealers." A subscribing dealership is comprised of one or more franchises with typically high volume vehicle sales (such as Ford or Toyota). A subscribing dealership may sell vehicles from multiple manufacturers and therefore have multiple subscribing dealer franchises. Dealerships pay initial, annual and monthly fees per franchise to subscribe to the Company's nationally branded Internet-based marketing program. Non-paying franchises are associated with lower volume vehicle manufacturers (such as Audi, Saab or Suzuki) and receive purchase request referrals without paying fees to Auto-By-Tel. The Company enters into informal arrangements with potential dealership participants on a trial basis in order to assist the Company and the dealership in evaluating the effectiveness of the Auto-By-Tel program at such dealerships. The Company refers consumers to trial dealerships but does not collect fees. 21 In order to generate additional revenues, attract more consumers to its Web site and dealerships to its program and remain competitive, the Company must successfully develop, market and introduce new services. The Company believes that to achieve its objectives it will need to generate a majority of its future revenues from new services. These new services will leverage the Company's existing network of dealerships. The Company's used vehicle marketing program is expected to commence in the first quarter of 1997. The Company will charge each new vehicle dealership which participates in the Company's used vehicle program separate signup and annual fees. In addition, the Company intends to charge daily listing fees for each used vehicle marketed through the used vehicle program. In October 1996, the Company entered into an agreement with Chase Manhattan pursuant to which Chase Manhattan will offer vehicle loans to consumers with prime (higher quality) credit ratings referred by the Company and pay the Company and the related subscribing dealership an origination fee on each loan. The Company's financing program with Chase Manhattan is expected to become available to purchasers of new vehicles in the first quarter of 1997. Additionally, the Company expects to begin offering financing to purchasers with sub-prime (lower quality) credit ratings in the second quarter of 1997. Finance program revenues will be recognized in the month the loan is originated. The Company also plans to offer leasing through a major financial institution in the second quarter of 1997. In August 1996, the Company began offering vehicle insurance to its consumers through AIG, a major insurance underwriter, and recently began offering a direct hyperlink to AIG's Web site. In October 1996, the Company received an insurance brokerage license from the State of California. Subsequent to receipt of this license, the Company became eligible to receive referral fees from AIG. Fees due the Company under the insurance program are calculated as a percentage of the net premiums collected by AIG and revenues are recognized by the Company as premiums on the underlying policies are earned by AIG. The Company first recognized revenues from operations in March 1995. Accordingly, the Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based, and this limited operating history makes the prediction of future operating results difficult or impossible. In addition, the Company believes that, in order to achieve its objectives, it will need to significantly increase revenues from existing services and generate revenues from new services, such as the planned used vehicle buying service and the planned vehicle financing, leasing and insurance policy referral services. There can be no assurance that the Company will successfully introduce or generate sufficient revenues from such services. The Company had an accumulated deficit as of December 31, 1996 of $7.1 million. In addition, the Company expects to incur substantial operating losses in future periods. The Company's future prospects 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 address these risks, the Company must, among other things, continue to send vehicle purchase requests to dealers that result in sales in sufficient numbers to support the marketing fees charged by the Company, respond to competitive developments, increase its brand name visibility, successfully introduce new services, continue to attract, retain and motivate qualified employees, and continue to upgrade and enhance its information systems technologies to accommodate expanded service offerings and increased consumer traffic. There can be no assurance that the Company will be successful in addressing such risks. In addition, although the Company has experienced rapid revenue growth in recent periods, historical growth rates will not be sustainable and are not indicative of future operating results, and there can be no assurance that the Company will achieve or maintain profitability. The introduction of new services by the Company's competitors, market acceptance of Internet-related services in general and, in particular, demand for the Company's services, and the introduction by the Company of new services and market acceptance of such services may also result in significant fluctuations in quarterly operating results. In addition, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing or marketing decisions or establish strategic relationships that could have a material adverse effect on the Company's business, results of operations or financial condition. In particular, the Company may need to revise the marketing fees it charges to subscribing dealers. There can be no assurance that subscribing dealerships will continue to participate in the Company's marketing program or agree to future fee increases. Currently, less than half of subscribing dealerships have entered into written marketing 22 agreements with the Company and these subscribing dealerships may cancel subscriptions on 30 days' prior notice. As a result, quarterly sales and operating results may vary significantly in response to any significant change in the number of subscribing dealerships. In December 1996, the Company commenced an effort to have all subscribing dealerships execute revised marketing agreements with the Company, which have been revised to provide, among other things, that such dealerships will not participate in any other Internet-based or online program with attributes similar to those of the Auto- By-Tel program. At the same time, the Company commenced a program to have all subscribing dealerships enter into written agreements relating to the Auto-By- Tel financing program. As of January 30, 1997, approximately 24% and 13% of all subscribing dealers had signed the revised marketing agreement and the financing agreement, respectively. The Company believes that some of its dealers may resist signing written agreements and there can be no assurance that the Company will be able to convince its subscribing dealers to enter into written agreements with the Company or revise existing agreements or that the Company's efforts to cause subscribing dealers to sign these agreements will not result in the subscribing dealers terminating their relationship with Auto-By-Tel. Much of the Company's advertising is placed on Web sites maintained by online service providers and online search engine companies. The Company's advertising agreements with online service providers and search engine companies are generally short-term contracts or are otherwise cancelable on short notice. There can be no assurance that these advertisers will not cancel such contracts, or that competitors will not be able to displace Auto-By-Tel from its preferred advertising arrangements with such companies. The intense competition in the sale of Internet advertising, including competition from other vehicle marketing services, has resulted in a wide range of rates quoted by different vendors for a variety of advertising services. This makes it very difficult to project future levels of Internet advertising costs and availability of prime advertising space. The Company has also entered into agreements with automotive information services, such as Edmunds and Microsoft CarPoint, to display the Company's services on their Web sites. These agreements require the Company to pay such entities a fee for each user who submits a vehicle purchase request to Auto-By-Tel from their sites. Accordingly, any increase in the volume of purchase requests will result in increased advertising costs, but revenue from dealers will not necessarily increase thereafter. The Company is also incurring significant expenses to increase awareness of its Internet-based marketing service in print and television media. The Company expects these expenses to increase significantly, particularly in the first half of 1997. In the fourth quarter of 1996, the Company began to advertise on cable television. In the first quarter of 1997, the Company commenced advertising on network television, including a 30 second commercial which aired during the Super Bowl. As a result of the Company's limited operating history, the Company lacks sufficient historical financial and operating data on which to base operating results. The Company's expense levels are based in part on its expectations as to future revenues, which may vary in relation to increases or decreases in the number of dealerships which subscribe to the Company's marketing program. The Company's inability to adjust spending in a timely manner to compensate for any unexpected revenue shortfall would have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company anticipates significant increases in costs and expenses as a result of planned increases in its marketing and advertising efforts, dealership training and support, development of affiliate programs relating to vehicle insurance and financing, and the introduction of a used vehicle buying program. The Company also anticipates significant additions to its managerial, technical, sales and marketing, and administrative personnel in order to support the Company's growth and business objectives. To the extent that such expenses exceed, precede or are not subsequently followed by increased revenues, the Company's business, results of operations and financial condition will be materially adversely affected. Significant fluctuations in future quarterly operating results may also be caused by general economic conditions or traditional seasonality in the automobile and light duty truck markets, which may result in fluctuations in the level of purchase requests completed by consumers or adversely affect demand for the Company's existing and planned services. The foregoing factors make it likely that, in some future quarters, the Company's operating results will be below the expectations of the Company, securities analysts or investors. In such event, the trading price of the Common Stock would likely be materially and adversely affected. 23 RESULTS OF OPERATIONS The following tables set forth certain unaudited quarterly financial information for the eight quarters ended December 31, 1996. In the opinion of management, this information has been prepared substantially on the same basis as the financial statements appearing elsewhere in this Prospectus, and all necessary adjustments (consisting only of normal recurring adjustments and certain non-recurring adjustments) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements of the Company and related notes thereto appearing elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
QUARTER ENDED ------------------------------------------------------------------------ SEPT. MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 30, DEC. 31, 1995(1) 1995 1995 1995 1996 1996 1996 1996 -------- -------- --------- -------- -------- -------- ------- -------- (IN THOUSANDS) Revenues................ $ 3 $ 18 $ 77 $ 176 $ 436 $ 952 $ 1,434 $ 2,203 ---- ----- ----- ----- ------ ------ ------- ------- Operating expenses: Marketing and advertising........... 6 38 130 302 475 678 1,247 2,039 Selling, training and support............... 13 98 136 207 362 563 851 1,417 Technology development. 6 28 44 21 67 78 294 954 General and administrative........ 14 73 83 105 134 258 740 1,027 ---- ----- ----- ----- ------ ------ ------- ------- Total operating expenses........... 39 237 393 635 1,038 1,577 3,132 5,437 ---- ----- ----- ----- ------ ------ ------- ------- Loss from operations.... (36) (219) (316) (459) (602) (625) (1,698) (3,234) Other income (expense), net.................... -- -- -- -- -- (6) 22 108 ---- ----- ----- ----- ------ ------ ------- ------- Net loss................ $(36) $(219) $(316) $(459) $ (602) $ (631) $(1,676) $(3,126) ==== ===== ===== ===== ====== ====== ======= =======
- -------- (1)Period from the Company's inception on January 31, 1995. REVENUES Revenues were $274,000 in 1995 and $5.0 million in 1996. Revenues increased each successive quarter, from $3,000 in the first quarter of 1995 to $176,000 in the fourth quarter of 1995 to $436,000 in the first quarter of 1996 to $2.2 million in the fourth quarter of 1996. The growth in revenues was primarily due to an increase in the number of paying subscribing dealerships in the Company's new vehicle marketing programs from 253 as of December 31, 1995 to 1,206 as of December 31, 1996, and, to a lesser extent, increases in average dealership fees. Since its inception in January 1995, the Company has derived substantially all of its revenues from fees paid by its paying subscribing new vehicle dealerships. Currently, these fees typically consist of (i) initial subscription fees ranging from $2,500 to $4,500, (ii) annual fees of $2,500 and (iii) monthly fees ranging from $250 to $1,500. Under the Company's marketing agreements, which less than half of subscribing dealerships have signed, the Company may typically increase or decrease dealership fees with 30 or 60 days prior notice. The Company intends to continuously review its pricing structure and adjust dealership fees in a manner commensurate with its ability to reduce a dealership's selling costs. MARKETING AND ADVERTISING Marketing and advertising expenses have historically consisted primarily of referral fees paid to online automotive information providers, online service providers and online search engine companies which recommend and refer consumers to the Auto-By-Tel Web site or allow consumers to complete Auto-By- Tel 24 vehicle purchase requests on their Web sites. Other marketing and advertising expenses include print advertising, public relations expenses, salaries and associated expenses related to the Company's marketing personnel. Marketing and advertising expenses were $476,000 in 1995 and $4.4 million in 1996. Marketing and advertising expenses increased each successive quarter, from $6,000 in the first quarter of 1995 to $302,000 in the fourth quarter of 1995 to $475,000 in the first quarter of 1996 to $2.0 million in the fourth quarter of 1996. Marketing and advertising expenses increased due to increased referral fees paid as a result of increased vehicle purchase requests, increased print advertising, and the addition of marketing and advertising employees as well as national print and television branding efforts. The marketing and advertising staff grew from two employees as of December 31, 1995 to five employees as of December 31, 1996. The Company anticipates that the overall level of marketing and advertising expenditures will increase significantly in the future, particularly in the first half of 1997 in connection with the Company's efforts to further increase awareness of the Auto-By-Tel brand name. The Company commenced cable television advertising in the fourth quarter of 1996 and launched network television advertising in the first quarter of 1997. Due to seasonal variations in the timing of marketing and advertising expenditures, the Company anticipates that marketing and advertising expenses will vary significantly from quarter to quarter. SELLING, TRAINING AND SUPPORT Selling, training and support expenses consist primarily of dealer training and support, salaries and related costs for customer service personnel and travel and entertainment. Selling, training and support expenses were $454,000 in 1995 and $3.2 million in 1996. Selling, training and support expenses increased each successive quarter, from $13,000 in the first quarter of 1995 to $207,000 in the fourth quarter of 1995 to $362,000 in the first quarter of 1996 to $1.4 million in the fourth quarter of 1996. Selling, training and support expenses increased primarily as the result of the addition of selling, training, and support staff and the associated overhead and employment costs. Selling, training and support staff grew from 12 employees as of December 31, 1995 to 39 employees (including two in Canada) as of December 31, 1996. TECHNOLOGY DEVELOPMENT Technology development expenditures are charged to expense as incurred and consist primarily of personnel and related compensation costs and contract labor to support software development and configuration and implementation of the Company's Internet, telecommunications and support system infrastructure. Technology development expenses have increased significantly since the Company's inception, from $6,000 in the first quarter of 1995 to $67,000 in the first quarter of 1996 to $954,000 in the fourth quarter of 1996. Technology development expenses increased primarily as a result of increased third party software development costs and increased costs associated with the increase in technical headcount from one employee as of March 31, 1996 to 12 employees as of December 31, 1996 and, to a lesser extent, additional indirect costs associated with the Company's expanded technology development efforts. These increased expenditures were necessary to support the Company's development of its Dealer Realtime System, the used vehicle program software and systems, and the rollout of the financing and lease programs. GENERAL AND ADMINISTRATIVE General and administrative expenses consist primarily of salaries of financial and administrative personnel, a portion of salaries of other managerial personnel and related travel expenses, as well as legal and accounting expenses. General and administrative expenses increased each successive quarter, from $14,000 in the first quarter of 1995 to $105,000 in the fourth quarter of 1995 to $134,000 in the first quarter of 1996 to $1.0 million in the fourth quarter of 1996. General and administrative expenses increased primarily as a result of increased accounting and legal expenses, and the addition of administrative and financial staff. The general and administrative staff grew from four employees as of December 31, 1995 to 17 employees as of December 31, 1996. The Company intends to increase the absolute dollar level of general and administrative expenses in future periods. The Company anticipates significant additions to its managerial, technical, sales and marketing and administrative personnel in order to support the Company's growth and business objectives. To the extent that such expenses exceed, precede or are not subsequently followed by increased revenues, the Company's business, results of operations and financial condition will be materially adversely affected. 25 OTHER INCOME (EXPENSE), NET Other expense in the second and third quarters of 1996 consisted of interest expense on amounts borrowed from the Company's Chairman, John Bedrosian, and Michael Fuchs, who subsequently became a director of the Company. These amounts were loaned to the Company to allow the Company to meet its liquidity requirements. Following the Company's $15.0 million financing in August 1996, the Company repaid the amounts borrowed from Mr. Bedrosian, together with $20,000 of accrued interest expense, and converted the amounts borrowed from Mr. Fuchs, together with accrued interest, into Series A Preferred Stock. The Company realized $40,000 and $108,000 of interest income in the third and fourth quarters, respectively, as a result of increased cash balances derived from the issuance of Series A Preferred Stock. See Notes 3 and 5.a of Notes to Consolidated Financial Statements. INCOME TAXES No provision for federal and state income taxes has been recorded as the Company incurred operating losses through December 31, 1996. As of December 31, 1996, the Company had approximately $4.7 million of net operating loss carryforwards which are available to offset future federal and state taxable income; such carryforwards expire in various years through 2011. Under the Tax Reform Act of 1986, the amounts of and the benefits from net operating loss carryforwards may be impaired in certain circumstances. Events which may cause such limitations in the amount of available net operating losses which the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three year period. As of December 31, 1996, the effect of such limitation, if imposed, has not been determined. The Company has provided a full valuation allowance on the deferred tax asset because of the uncertainty regarding its realization. See Note 4 of Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1996, the Company had approximately $9.1 million in cash and short-term investments. Since its inception, the Company has financed its operations primarily through loans from John Bedrosian, the Company's Chairman and co-founder, loans from Mr. Michael Fuchs, who subsequently became a director of the Company, and the issuance of Preferred Stock in August 1996 and January 1997. For fiscal 1995 and 1996, cash used in operating activities was primarily attributable to the net losses from operations and increases in accounts receivable, prepaid expenses and other assets, offset to some extent by increases in deferred income and other current liabilities. For the year ended December 31, 1996, cash used in investing activities was attributable to purchases of property and equipment consisting primarily of computer hardware, telecommunications equipment, furniture and leasehold improvements. The Company has no material commitments other than those under the operating lease for its principal executive offices and certain marketing and advertising agreements and arrangements. The Company anticipates a substantial increase in its capital expenditures and operating lease expenses in 1997. The Company believes that the net proceeds from this offering, along with current cash and cash equivalents, will be sufficient to fund its working capital and capital expenditure requirements for at least the next twelve months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's liquidity requirements, the Company may seek to issue additional equity or debt securities or establish a credit facility. The issuance of additional equity or convertible debt securities could result in additional dilution to the Company's shareholders. There can be no assurance that financing will be available to the Company in amounts or on terms acceptable to the Company. See "Use of Proceeds" and Notes 2, 3, 5, 6, 7 and 8 of Notes to Consolidated Financial Statements. 26 BUSINESS OVERVIEW Auto-By-Tel is establishing a nationally branded Internet-based marketing service for new and used vehicle purchasing and related consumer services. The Company's Web site (www.autobytel.com) enables consumers to gather valuable information about automobiles and light duty trucks ("vehicles") and shop for vehicles and related consumer services from the convenience of their home or office. This convenience, coupled with low, haggle-free pricing and quick and courteous service, improves consumers' overall buying experiences. The Company's Internet-based alternative to traditional vehicle retailing dramatically reduces participating dealerships' selling costs per vehicle and increases sales volumes by channeling a large number of ready-to-buy, well- informed consumers to Auto-By-Tel dealerships. The Company's Internet-based services are free to consumers and, to date, the Company has derived substantially all of its revenues from fees paid by subscribing dealerships. Consumers wishing to purchase new vehicles through the Company's services complete a request available on the Company's and its partners' Web sites which specifies the type of vehicle and accessories desired, along with the consumer's phone number, e-mail address and zip code. The purchase request is then forwarded to the Auto-By-Tel participating dealership located in the consumer's geographic area. Typically, consumers are contacted by dealers within 48 hours with a firm, competitive quote for the vehicle, eliminating the unwelcome and time-consuming task of negotiating with the dealer and thus facilitating completion of the sale. As of December 31, 1996 the Company's Internet-based dealership base consisted of (i) 1,206 paying franchises of dealerships, (ii) 509 non-paying franchises affiliated with paying dealerships (collectively, "subscribing dealerships"), and (iii) approximately 230 "trial dealers." From the commencement of operations in March 1995 to December 31, 1996, the Company received more than 385,000 new vehicle purchase requests. INDUSTRY BACKGROUND Information and Commerce on the Internet The Internet is a network of computers which enables users to access and share information and conduct business transactions. Much of the recent growth in the use of the Internet by businesses and individuals has been driven by the emergence of the World Wide Web (the "Web") which enables non-technical users to exploit the resources of the Internet. International Data Corporation ("IDC") estimates that the number of Web users increased from 16.1 million at the end of 1995 to 34.6 million at the end of 1996 and that this number will increase to 163 million by the end of the year 2000. The emergence of the Internet as a significant communications medium is driving the development and adoption of Web content and commerce applications that offer convenience and value to consumers, as well as unique marketing opportunities and reduced operating costs to businesses. By hosting information about products and services on the Web, a company can enable potential customers in any geographical area to gather relevant, in-depth information about products and services at their convenience and according to their preferences. A growing number of consumers have begun to transact business electronically, such as paying bills, booking airline tickets, trading securities and purchasing consumer goods, including personal computers, consumer electronics, compact disks, books and vehicles. Moreover, online transactions can be faster, less expensive and more convenient than transactions conducted through a human intermediary. In addition, Web commerce applications enable businesses to rapidly target and economically manage a broad customer base and establish and maintain ongoing direct customer relationships. IDC estimates that the dollar value of goods and services purchased over the Web will increase from approximately $318 million in 1995 to $95 billion in the year 2000. The increasing use of the Internet has encouraged information providers to post their automotive information on the Internet. For example, Kelley Blue Book (www.kbb.com), Edmund Publications (www.edmund.com), AutoSite (www.autosite.com), IntelliChoice (www.intellichoice.com) and Microsoft's CarPoint (carpoint.msn.com) all maintain Web sites that allow consumers to conduct comprehensive automotive 27 research online. The marketing capabilities of the Web, combined with the easy availability of automotive information, have enabled the establishment of Web- based vehicle marketing services. Many of these services may be characterized as either online services sponsored by technology providers with little understanding of the automobile and light duty truck markets, or Web sites published by traditional vehicle dealers or manufacturers which do not effectively utilize the capabilities of the Internet to provide an effective buying solution. New Vehicle Retailing Buying a new vehicle is the second largest purchase an average consumer makes. According to the National Automobile Dealers Association ("NADA"), the industry's largest dealer organization, $293 billion was spent by consumers in the United States in 1995 on new vehicles, representing 14.8 million new units. Although it attracts significant consumer dollars, the vehicle sales process has not changed significantly in the last 25 years. In the United States, new vehicles are sold almost exclusively by approximately 22,000 dealerships franchised by manufacturers. The excitement of purchasing a new vehicle is often muted by the fear of being misled, intimidated or pressured into making a purchase decision. Dealerships typically retain multiple levels of sales personnel trained in sales, deal closing, finance and insurance. As a result, a consumer is often faced with the prospect of negotiating with numerous individuals, all of whom receive compensation based on a percentage of the profits on each sale. This makes it difficult for a consumer to receive clear information or a fair price without protracted and unpleasant negotiation. These dynamics often result in low consumer satisfaction as consumers view sales tactics utilized by some dealers as self serving, unfair, intimidating or overbearing. Notwithstanding the magnitude of the new vehicle market, the automotive dealer infrastructure is under pressure and consolidating. The new vehicle retailing business is fiercely competitive due to an overabundance of dealers. A significant number of dealers not only compete against dealers franchised by other manufacturers, but against dealers located in the same geographical area who are affiliated with the same manufacturer. In addition, the typical business model of a new vehicle dealership is capital intensive, requiring significant investments in inventory, and is characterized by an expensive sales cost structure and significant pressure to increase per unit gross profit. These factors have fostered industry consolidation resulting in a 27% decrease in the number of dealerships in the last 25 years. According to J.D. Power and Associates, a recognized automobile industry market research firm, this consolidation trend is likely to continue in the future. The historic abundance of dealerships and the resulting intense competition have led to the development of high-pressure sales methods designed not only to complete the sale of new vehicles, but also to increase per unit gross profit from additional product sales to the same consumer, such as vehicle accessories, financing, insurance and extended service contracts. These high- pressure sales methods have resulted in low consumer satisfaction and low sales productivity. According to NADA, the productivity of a typical retail salesperson has essentially remained unchanged over the past 18 years. In order to overcome this low productivity, a dealership must generate more sales leads by spending significant amounts to market its franchise, maintain a large selection of vehicles and improve the physical premises to attract consumers. These efforts are often accompanied by high priced print and television advertising. These factors, combined with the high cost of attracting and retaining the numerous sales personnel required to effect vehicle sales utilizing current sales methods, have significantly increased the average cost per new vehicle sold. According to NADA, average labor and overhead costs incurred per vehicle sold in 1995 totaled approximately $1,120 and average marketing and advertising cost per vehicle sold in 1995 totaled $399. Increased costs contributed to an average loss to dealers of $22 per new vehicle sold in 1995. Low consumer satisfaction and the inefficient nature of traditional vehicle retailing have left both consumers and retailers seeking an alternative means of buying and selling automobiles and light duty trucks. THE AUTO-BY-TEL SOLUTION Auto-By-Tel is establishing a nationally branded Internet-based marketing service for new and used vehicle purchasing and related consumer services. Using the Internet, consumers in the United States and Canada submit 28 purchase requests on the Company's and its partners' Web site. Each purchase request is then forwarded to the Auto-By-Tel dealership located in the consumer's geographic area. The dealership then telephones the consumer with a firm, competitive price. By providing an Internet-based alternative to traditional vehicle retailing, Auto-By-Tel provides the following benefits: Benefits to Consumers. Using Auto-By-Tel's Internet-based marketing program, consumers benefit from the convenience and privacy of shopping from their home or office; online access to a wide range of up-to-date information about vehicle models, options and dealer costs; receipt of a competitive price without the need to haggle; and quick and courteous delivery of the vehicle. Benefits to Dealers. One of the goals of the Auto-By-Tel program is to significantly reduce dealers' labor and marketing costs attributable to a vehicle sale. The Company provides participating dealers a high-volume of quality purchase requests at a low cost. These requests are submitted by consumers who have indicated their level of purchase commitment and who, in most cases, have already conducted research on their desired vehicle. As a result, dealers can complete the sales process more quickly and efficiently under the Auto-By-Tel program than via traditional sales methods, thereby reducing a dealer's labor costs. In addition, participating dealers can reduce their average per vehicle marketing costs by gaining access to a large number of serious purchasers without incurring the expense of incremental advertising. STRATEGY The Company is committed to being the premier nationally branded, Internet- based marketing service for new and used vehicles and related consumer services. Key elements of the Company's strategy include: Enhancing the Strength of Auto-By-Tel Brand Name. The Company believes that enhancing the strength of the Auto-By-Tel brand name and positioning itself as the industry standard for Internet-based, consumer friendly, low cost vehicle purchasing and related consumer services is critical in its efforts to attract vehicle buyers and to increase the size of its subscribing dealership base. The Company further believes that the early stage of Internet commerce and the Company's leadership in the development of the Internet-based vehicle purchasing market provide it with an opportunity to establish a level of branding not typically available to newer companies. A key element of the Company's strategy is to devote significant management and financial resources to brand name-building activities, including advertising in online and traditional print and television media, public relations initiatives and participation in industry conferences and trade shows. The Company aggressively promotes awareness of its brand name primarily through (i) strategic marketing relationships with Internet-based automotive information providers including AutoSite, Edmund's and Microsoft CarPoint, (ii) Internet advertising (sometimes on an exclusive or preferred basis) on online search engines, such as Excite, Magellan, and WebCrawler, (iii) online service providers, such as America Online's Digital Cities, CompuServe and Prodigy and (iv) in popular automotive and Internet related magazines. Recently, the Company began to place advertisements in a number of additional leading magazines and on television in order to reach a wider audience, strengthen the awareness of the Auto-By-Tel brand name and drive consumer traffic to the Company's Web site. Maintaining, Strengthening and Expanding Online and Internet Relationships. Contractual agreements with online services, Internet search engine companies, and other service providers which recommend and refer consumers to the Company or allow consumers to complete purchase requests on their Web sites are critical to increasing the Company's visibility on the Internet, enhancing the strength of its brand name and generating a high volume of purchase requests. For example, the Company has exclusive or preferred position on Web sites maintained by AutoSite, Edmund's and Microsoft CarPoint. The Company intends to strengthen its relationships with existing Internet referral sources and continue to seek exclusive or preferred arrangement with such sources. In addition, the Company continues to seek opportunities to promote its services on other Web sites or to enter into strategic alliances with or acquisitions of complementary service providers. Continuing to Expand and Upgrade Technology Infrastructure. The Company believes that its future success is significantly dependent on its ability to continuously improve the speed and reliability of its Web site, accommodate increasing traffic and enhance communication functionality with its consumers and dealers. The 29 Company has recently added the capability to communicate with dealers online and upload information, including photographs on a weekly basis about their used vehicle inventory, to the Company's used vehicle database. The Company plans to continue to expand its technological infrastructure, enhance the security and reliability of the Company's Web site and develop additional sophisticated software applications and user interfaces to accommodate planned services. Expanding Dealership Base and Improving Dealer Service. The Company believes that the size and quality of its participating dealership base is critical to the success of its business. The Company intends to capitalize on its marketing and advertising programs to further the expansion of its dealership base. This expansion would provide the Company with the ability to increase its geographic penetration and improve its ability to service the purchase requests of a greater number of consumers. In addition, the Company believes that increased consumer satisfaction with the vehicle purchasing experience is essential to the success and differentiation of its services. Accordingly, the Company maintains an extensive training program for its participating dealerships which includes the initial and ongoing training of dealership representatives and emphasizes rapid response times, a firm competitive price quote and fair and honest treatment of its consumers. The Company regularly solicits consumer feedback and monitors dealership compliance with the Auto- By-Tel program. Leveraging Existing Auto-By-Tel Brand Name and Marketing Model with Additional Services. The Company continually evaluates opportunities to leverage the Auto-By-Tel brand name and its Internet-based vehicle purchasing model by introducing new and complementary services. For example, the Company has an alliance with AIG to offer the Company's consumers high-quality and price competitive vehicle insurance and an agreement with Chase Manhattan to provide competitive new and used vehicle financing to consumers with prime credit ratings. The Company is negotiating similar relationships with several leading financial institutions to provide new and used vehicle leasing services and vehicle loans to sub-prime credit consumers. The Company also plans to introduce used vehicle marketing services and an affinity program to further penetrate its potential consumer base. The Company currently expects these new service offerings to be launched in the first half of 1997. Pursuing International Growth Opportunities. The Internet and online service providers enable the Company to market its services internationally. The Company believes that its vehicle purchasing model can be adapted for use in countries in which the vehicle retailing industry faces structural inefficiencies and consumer dissatisfaction similar to that experienced in the United States. The Company recently introduced its service in Canada and as of December 31, 1996, had a subscribing dealership base of 72 Canadian franchises and, in the fourth quarter of 1996, processed over 3,000 purchase requests from Canadian consumers. Leveraging Proprietary Consumer Information. The Company's growing database may, in the future, have the potential to provide dealers and manufacturers with improved information regarding consumer preferences which they may utilize to streamline purchasing and production decisions. 30 PRODUCTS AND SERVICES The Company's existing and currently planned Internet-based services include:
EXISTING SERVICES LAUNCH DATE DESCRIPTION -------- ------------ --------------------------------------------------- New vehicle March 1995 This service offers a cost-effective new vehicle marketing purchasing method which allows consumers to submit service purchase requests to local dealers who promptly contact the consumer with a firm, competitive price over the telephone. Insurance August 1996 The Company entered into a marketing agreement with marketing AIG in August 1996, to provide a vehicle insurance service service through the Company's Web site. This service allows users to submit insurance applications online and rapidly receive automobile insurance at competitive rates. ANTICIPATED PLANNED SERVICES LAUNCH DATE DESCRIPTION ---------------- ------------ --------------------------------------------------- Used vehicle Q1-Q2 1997 This service will allow consumers to purchase high- marketing quality used vehicles available at local area service dealerships by searching an extensive database of used vehicles which have been certified to meet certain Auto-By-Tel standards. Financing and leasing services In October 1996, the Company entered into an New vehicles agreement with Chase Manhattan, pursuant to which . Prime credit Q1 1997 Chase Manhattan will receive online credit . Sub-prime credit Q2 1997 applications from consumers referred by the . Leasing Q2 1997 Company. In addition, the Company is negotiating Used vehicle with several leading financial institutions to . Prime credit Q2 1997 offer financing to new and used vehicle consumers . Sub-prime credit Q2 1997 with sub-prime credit ratings, as well as new and . Leasing Q2 1997 used vehicle leasing services. Credit union Q2 1997 The Company intends to launch a customized program marketing service to credit unions to assist their members in purchasing new and used vehicles through Auto-By-Tel participating dealerships. Affinity program Q3 1997 Consumers may join the Company's affinity program, (ABT Mobilist) which will provide discounted services, including roadside assistance programs, discounted travel products and special credit card programs.
New vehicle marketing service. Consumers who purchase new vehicles through the Company's Web site complete a purchase request over the Internet which specifies the type of vehicle and accessories the consumer desires, along with the consumer's phone number, e-mail address and zip code. The purchase request is then forwarded to the Auto-By-Tel participating dealership located in the consumer's geographic area and the Company promptly returns an e-mail message to the consumer informing the consumer of the dealership's name and phone number and the name of the Auto-By-Tel manager at the dealership. Typically, the consumer is contacted by the dealership by telephone within 48 hours with a firm, competitive quote for the vehicle, eliminating the unwelcome and time consuming task of negotiating with the dealer and thus facilitating completion of the sale. Consumers usually complete their purchase and take delivery of their vehicles at the dealership showroom. Generally, within 10 days of the submission of the consumer's purchase request, the Company contacts the consumer by e-mail requesting completion of a quality assurance survey on the Company's Web site that is used by the Company and its dealers to improve the quality of dealer service and allows the Company to evaluate the sales process at participating dealerships. 31 The Auto-By-Tel network of subscribing dealerships has grown from 367 franchises as of December 31, 1995 to 1,715 franchises as of December 31, 1996. 230 dealers were participating in the Auto-By-Tel program on a non- paying trial basis as of December 31, 1996. Insurance marketing services. According to Best Executive Data Service, the United States' market for total written personal auto insurance premiums totalled $104 billion in 1995. In August 1996, the Company began offering vehicle insurance to its consumers through an online program with AIG. The Company's Web site currently offers a direct hyperlink to the AIG Web site which enables consumers to fill out applications and, when the service is fully implemented, be approved for insurance online. The Company's agreement with AIG provides for fees to the Company to be calculated as a percentage of the net premiums earned and collected by AIG on policies issued to Auto-By-Tel consumers. Used vehicle marketing service. The market for used vehicles in the United States was estimated by NADA to be $370 billion in 1995, of which $182 billion represented sales of used vehicles by new vehicle franchised dealers. This market has been growing rapidly, due primarily to increasing prices for new vehicles and the large supply of high-quality, late model used vehicles created by the recent trend toward short-term leasing. Used vehicle departments at many dealers are more profitable than new vehicle departments. The Company intends to leverage its brand name and new vehicle dealership network by launching similar marketing services for used vehicles during the first half of 1997. Unlike existing Internet services which act as unwieldy electronic classified ads, the Auto-By-Tel used vehicle program will display to consumers a wide selection of vehicles available in the consumer's specific locale, tailored to their individualized search parameters. This display will eventually provide warranty and price information on the used vehicle, including updated retail and wholesale prices and the Auto-By-Tel dealership price, and, when available, a digital photograph of the used vehicle. Consumers could then place a purchase request for the used vehicle and would be contacted by the dealer to conclude the sale. To ensure that the used vehicles being sold through the service are of the highest quality, dealers are required to certify that their used vehicles meet Auto-By-Tel certification standards and to provide a nationwide, limited 90 day warranty. Consumers also receive a 72-hour, money-back guarantee on their purchases which any dealership in the Auto-By-Tel used vehicle program will be required to honor. Only dealers participating in the new vehicle program will be eligible to participate in the used vehicle program. The Company will charge each new vehicle subscribing dealership that wishes to participate in the Company's used vehicle program a separate and additional signup and annual fee per franchise. The Company anticipates that these fees would initially be lower than those charged in the new vehicle program. In addition, the Company intends to charge daily listing fees for each used vehicle marketed on the service which will be priced according to the number of used vehicles a dealer lists with the Auto-By-Tel program. Finance and leasing services. The Company intends to make financing available to consumers purchasing new and used vehicles through the Auto-By- Tel programs. The Auto-By-Tel financing program will be economical, convenient and private. Vehicle buyers will be able to apply for a loan online at the time they submit their purchase request for either a new or used vehicle. The Company believes that the loans and leases offered through its service will be competitive with those currently available through major financial institutions. The Auto-By-Tel financing program will benefit lenders, lessors, consumers, and dealers. Finance companies and dealers will benefit from reduced paperwork and processing costs. Consumers will be able to arrive at the dealership with their loan pre-approved, their credit verification documents in hand, and the loan paperwork waiting for them. This will enable immediate delivery and allow the dealer to be more rapidly paid by the lender, thereby accelerating the dealer's cash flow. The Company believes that the convenience of attractive financing, combined with a firm, competitive price, will increase the closing rates on sales attributable to Auto-By-Tel purchase request referrals. 32 In October 1996, the Company entered into an agreement with Chase Manhattan to receive credit application for new vehicle financing from consumers with prime credit ratings who submit purchase requests. The agreement has a term of three years but may be terminated sooner by Chase Manhattan with six months' notice or in the event that certain ongoing conditions are not satisfied. The Company anticipates that, when the service is implemented, consumers will be able to access Chase Manhattan's credit applications through the Company's Web site, submit their loan applications online and, depending on the creditworthiness of the consumer, have their loan requests approved electronically while they wait. All responses will be routed simultaneously to the subscribing dealership. The Auto-By-Tel financing program will enable consumers to receive up front, competitive loans from the privacy of their home or office, eliminating the need to negotiate a loan with the traditional car dealership's F&I (finance and insurance) department or visit their local bank or credit union. Chase Manhattan will pay the Company an origination fee for most loans and the dealership will be compensated for each loan made to an Auto-By-Tel consumer. The Company anticipates that this service will be implemented during the first half of 1997. The Company is negotiating with several financial institutions to offer new and used vehicle leasing programs and financing programs for new and used vehicle purchasers with sub-prime credit ratings. The Company believes that origination fees will vary depending on the credit qualifications of applicants. The Company currently expects to launch a financing program for consumers with sub-prime credit ratings in the second quarter of 1997. The Company expects to begin offering leasing for new and used vehicles by the end of the second quarter of 1997. Credit Union Program. Auto-By-Tel believes that credit unions, which assist their members in acquiring and financing new and used vehicles, represent an attractive market for its marketing services. There are presently about 11,800 credit unions in the U.S. with about 70 million members according to Callahan and Associates, a recognized authority on the credit union industry. Credit unions account for $80 billion in vehicle loans outstanding as of June 30, 1996. The Company intends to launch a customized program for credit unions to assist their members in purchasing new and used vehicles through Auto-By-Tel participating dealers. The Company's program is designed to ensure that credit union members receive the same competitive price and courteous service as the Company's direct Internet customers, through access to Auto-By-Tel's participating dealers, while allowing credit unions to provide for the financing needs of their members. The Company's program will offer several Internet-based solutions targeted toward credit union members. Affinity program (ABT Mobilist). In order to offer Auto-By-Tel consumers additional services and encourage them to regularly revisit the Auto-By-Tel Web site after purchasing their vehicles, the Company intends to begin offering an Internet-based affinity program during the third quarter of 1997. This program, which has been developed in conjunction with an affinity consulting organization, may include various services, including an affinity credit card, discount travel products, concierge services, discount cellular phone service, entertainment services and special promotional offerings on items such as auto parts. Members will accumulate credits to be applied towards the purchase of automobiles or trucks through an Auto-By-Tel subscribing dealer. The Company currently expects that consumers will pay an annual fee for such programs as well as a small commission each time certain services are utilized. The Company currently anticipates that the annual fee to subscribers will range from approximately $39 to $59 depending upon the level of membership. In order to generate additional revenues, attract more consumers to its Web site and dealerships to its program and remain competitive, the Company must successfully develop, market and introduce new services. The Company believes that to achieve its objectives it will need to generate a substantial portion of its future revenues from new services. None of these new services has been fully developed and, in some cases, their introduction has been delayed due to difficulties encountered in software development encountered by the Company's Internet partners. There can be no assurance that the Company will successfully develop or introduce these new services, that such services will achieve market acceptance or that subscribing dealerships will not view such new services as competitive to services already offered by such dealerships. For example, consumers may be reticent to purchase insurance or procure vehicle financing online. Also, it may be more difficult to 33 educate consumers as to the value of locating used vehicles for purchase through the Internet since used vehicle purchases are generally thought to require a greater level of hands-on involvement in the inspection and purchase of a used vehicle. The Company intends to incur additional expenses to develop and successfully market such services. To the extent that revenues generated by such additional services are insufficient to cover such expenses, the Company's operating results would be adversely affected. Should the Company fail to develop and successfully market these services, or should competitors successfully introduce competing services, the Company's business, results of operations, and financial condition may be materially and adversely affected. MARKETING AND SALES The Company believes that enhancing its national brand name recognition and position as a leading Internet-based marketing service is critical to its efforts to increase the number of purchase requests and subscribing dealerships. The growing number of Web sites which offer competing services and the relatively low barriers to entry in providing Internet services increase the importance of establishing and maintaining brand name recognition. In order to enhance brand name awareness, the Company aggressively markets its services to vehicle consumers and Internet users by advertising on the Internet, in print media and on television. The Company has established marketing programs with many of the leading automotive information providers on the Internet, including AutoSite, Edmund's and Microsoft CarPoint, and maintains marketing programs with major online services, such as America Online's Digital Cities, CompuServe and Prodigy. Auto-By-Tel continues to position itself as the leading vehicle and related consumer services marketing program with major Internet search engine companies such as Excite, Magellan, and Web Crawler. The Company believes that its comprehensive coverage of these Internet sites helps to increase purchase request volume and will remain a critical element of the Company's future business. The Company supplements its coverage of Internet referral sources with traditional print advertising. The Company has historically focused on computer user and hobbyist publications and major automotive magazines. The Company advertises in publications such as Car & Driver, Motor Trend, Road & Track, and their respective buyers guides, as well as magazines such as Internet World, OnLine Access and CompuServe to direct traffic to its Web site. The Company has begun to expand this marketing with a campaign to accelerate awareness of the Auto-By-Tel brand name and drive traffic to its Web site through television ads featured on the CNN and MSNBC networks and C/NET television programs. In the fourth quarter of 1996, the Company commenced advertising on cable television and, in the first quarter of 1997, launched national network television advertising (including a 30 second commercial during the broadcast of the Super Bowl). The revolutionary nature of the Company's program compared to traditional vehicle sales methods has also resulted in a significant amount of unpaid media coverage. To date, the Company has been the subject of over 500 newspaper, magazine, radio and television stories. Articles about the Company's new vehicle program have appeared in BusinessWeek, Fortune, Time, and the Wall Street Journal. Television stories featuring the Company have been aired on the NBC Nightly News and CNN. The Company believes that the initial media coverage has been an important element in creating consumer awareness of the Auto-By-Tel program and contributed to early dealership subscriptions to the program. In addition to its consumer-oriented marketing activities, which help to attract participating dealerships, the Company also markets its programs directly to dealerships by soliciting targeted dealerships, participating in trade shows, advertising in trade publications, and encouraging subscribing dealerships to recommend the Auto-By-Tel program to other dealerships. 34 DEALERSHIP NETWORK AND TRAINING (GRAPH) The top half of this page includes a bar graph depicting the information set forth in the table following immediately thereafter. This data is the number of paying and non-paying dealers participating in the Auto-By-Tel program from each of the eight quarters ended December 31, 1996. Paying Franchises 0 38 111 253 546 728 978 1,206 Non-Paying Franchises 0 15 43 114 308 380 474 509 --- --- --- --- --- ----- ----- ----- *Total Subscribing 0 53 154 367 854 1,108 1,452 1,715 === === === === === ===== ===== =====
- -------- * Does not include dealers who were participating on a trial basis. As of December 31, 1996, the Company had approximately 230 non-paying, trial dealers. As of December 31, 1996 the Company's participating dealership base consisted of (i) 1,206 paying franchises of subscribing dealerships, (ii) 509 non-paying franchises affiliated with paying subscribing dealerships and (iii) approximately 230 "trial dealers." A subscribing dealership is comprised of one or more franchises with typically high volume vehicle sales (such as Ford or Toyota). A subscribing dealership may sell vehicles from multiple manufacturers and therefore have multiple subscribing dealer franchises. Dealerships pay initial, annual and monthly fees per franchise to subscribe to the Company's online marketing program. Non-paying franchises are typically associated with lower-volume vehicle manufacturers (such as Audi, Saab or Suzuki) and receive purchase request referrals without paying fees to Auto-By- Tel. The Company enters into informal arrangements with potential dealership participants on a trial basis in order to assist the Company and the dealership in evaluating the effectiveness of the Auto-By-Tel program at such dealerships. The Company refers consumers to trial dealerships but does not collect fees. As of December 31, 1996, approximately 230 dealerships were participating on a trial basis. In order to better serve consumers, the Company intends to significantly increase the number of participating North American dealership franchises by the end of fiscal 1998, but there can be no assurance that it will be able to do so. 35 Although the number of the Company's subscribing dealerships has increased in every quarter since the Company's inception, the Company periodically terminates agreements or relationships with subscribing dealerships when the Company receives repeated complaints from consumers regarding dealer sales practices that conflict with the Auto-By-Tel marketing program. Currently, less than half of subscribing dealerships have entered into written agreements with the Company. Dealership marketing agreements have a five year term but are cancelable by either party with 30 days notice. In fiscal 1996, the loss of dealerships due to terminations by the Company and cancellations by dealerships totaled 104 and 90 franchises, respectively. These losses were more than offset by new subscribing dealerships during the same period. In December 1996, the Company commenced an effort to have all subscribing dealerships execute written marketing agreements with the Company which have been revised to provide, among other things, that such dealerships will not participate with any other program with attributes similar to those of the Auto-By-Tel program. At the same time, the Company has begun a program to have all subscribing dealerships enter into written marketing agreements relating to the Auto-By-Tel financing program. As of January 30, 1997, 1996, approximately 24% and 13% of all paying subscribing dealerships had signed the revised marketing agreement and the financing agreement, respectively. The Company believes that some of its dealers may resist signing written agreements and there can be no assurance that the Company will be able to convince subscribing dealerships to enter into written agreements with the Company or revise their existing agreements or that the Company's efforts to cause subscribing dealerships to revise their agreements will not result in subscribing dealerships terminating their relationship with Auto-By-Tel. In addition, should the volume of purchase requests increase, the Company anticipates that it will need to reduce the size of the exclusive territories currently allocated to dealerships in order to serve consumers more effectively. Dealers may be unwilling to accept reductions in the size of their territories and may, therefore, terminate their relationship, refuse to execute formal agreements with the Company or decide not to join the Company's marketing program. A material decrease in the number of subscribing dealerships, or slower than expected growth in the number of subscribing dealerships, could have a material adverse effect on the Company's business, results of operations or financial condition. The Company may also become unable to refer an adequate number of consumers to participating dealerships. There can be no assurance that the Company will be able to continue to attract additional dealerships and retain existing dealerships. Auto-By-Tel dealerships are located in every major metropolitan area in the United States and Canada. In December 1996, the Company's computer systems were able to match and electronically route 92% of total purchase requests to participating dealerships. The remaining 8% of purchase requests were received from consumers in unassigned territories and were manually assigned and subsequently electronically routed to dealers. Auto-By-Tel dealerships are often leaders in their respective markets. Of the ten largest dealership holding companies (according to the Automotive News 1996 Data Book), nine participate in the Company's new vehicle marketing program at some level. Size is not always a sufficient criterion, however, in the selection of Auto-By-Tel participating dealers. Auto-By-Tel is only interested in establishing relationships with dealers which share the Company's commitment to improving consumer service in the vehicle retailing industry. To meet this goal, the Company requests that participating dealerships have their representatives trained in the Auto-By-Tel marketing program, dedicate electronic and human resources to the Auto-By-Tel system and comply with the Auto-By-Tel guidelines of rapid consumer response, full disclosure, competitive and up-front pricing communicated by telephone and the selection of an employee to be the dedicated Auto-By-Tel manager. To further increase consumer satisfaction and reduce dealership costs, the Company discourages dealerships from using commissioned salespersons and the accompanying layers of personnel to interface with Auto- By-Tel consumers. The Company trains Auto-By-Tel dealers over the telephone, via satellite seminars, at the Company's headquarters in Irvine, California, at regional training centers and at dealerships' premises. The Company's staff strives to shift dealer salespersons away from traditional vehicle selling techniques and to the Auto-By-Tel approach. Special emphasis is placed upon telephone skills and addressing consumer questions and concerns. Generally, within ten days of the submission of a vehicle purchase request, the Company contacts the consumer by e-mail requesting completion of a quality assurance survey on the Company's Web site that is used by the 36 Company and dealers to improve the quality of dealer service and allows the Company to evaluate the sales process at participating dealers. Dealerships that fail to abide by the Auto-By-Tel program or who receive repeated consumer complaints are terminated from the Auto-By-Tel program. Auto-By-Tel participating dealerships are assigned exclusive territories based upon specific zip codes. Auto-By-Tel assigned regions tend to be larger than the traditional dealership region assigned by automobile manufacturers, in order to allow the Company to generate sufficiently high volume to the subscribing dealership to make participation in the Auto-By-Tel program attractive. Pursuant to an agreement with the Texas Department of Transportation, Auto-By-Tel cannot effectively guarantee exclusive territories to dealerships located in Texas, and dealership sign-up and annual fees in Texas are required to be uniform while monthly fees are based solely on population density in a given zip code. COMPETITION The Company's vehicle purchasing services compete against a variety of Internet and traditional vehicle buying services and automotive brokers. In the Internet-based market, the Company competes for attention with other entities which maintain similar commercial Web sites. The Company also competes indirectly against vehicle brokerage firms and affinity programs offered by several companies, including Price Costco and Wal-Mart. Like the Company's services, the services offered by competing Web sites, automotive brokerage firms and affinity programs seek to increase consumer satisfaction and reduce vehicle purchasing costs. Although the Company does not currently compete directly with vehicle dealers and manufacturers, such competition would arise in the future if dealers and manufacturers introduced competing Web sites or developed cooperative relationships among themselves or with online automotive information providers. Moreover, the Company's ability to achieve its objectives would be adversely affected if dealers and manufacturers adopted a low cost, firm price sales model similar to that facilitated by the Auto-By- Tel program. The market for Internet-based commercial services is new and competition among commercial Web sites is expected to increase significantly in the future. The Internet is characterized by minimal barriers to entry, and current and new competitors can launch new Web sites at relatively low cost. Potential competitors could include, but are not limited to, automotive information service providers, vehicle manufacturers and new and used vehicle dealers. In order to compete successfully as an Internet commerce entity, the Company must significantly increase awareness of the Company and its brand name, effectively market its services and successfully differentiate its Web site. Many of the Company's current and potential competitors have longer operating histories, greater name recognition and significantly greater financial and marketing resources than the Company. Such competitors could undertake more aggressive and costly marketing campaigns than the Company which may adversely affect the Company's marketing strategies which could have a material adverse effect on the Company's business, results of operations or financial condition. In addition, as the Company introduces new services, it will compete directly with a greater number of companies, including vehicle insurers, lenders and lessors as well as used vehicle superstores, such as CarMax and Auto Nation. Such companies may already maintain or may introduce Web sites which compete with that of the Company. There can be no assurance that the Company can continue to compete successfully against current or future competitors nor can there be any assurance that competitive pressures faced by the Company will not result in increased marketing costs, decreased Internet traffic or loss of market share or otherwise will not materially adversely affect its business, results of operations and financial condition. The Company believes that the principal competitive factors affecting the market for Internet-based vehicle marketing services are the speed and quality of service execution, the size and effectiveness of the participating dealership base, competitive dealer pricing, successful marketing and establishment of national brand name recognition, positioning itself as a leading Internet-based marketing service, the volume and quality of traffic to and purchase requests from a Web site and the ability to introduce new services in a timely and cost-effective manner. Although the Company believes that it currently competes favorably with respect to such factors, there can be no assurance that the Company will be able to compete successfully against current or future competitors with respect to any of these factors. 37 OPERATIONS AND TECHNOLOGY; FACILITIES The Company believes that its future success is significantly dependent on its ability to continuously improve the speed and reliability of its Web site, enhance communications functionality with its consumers and dealers and maintain the highest-level of information privacy and transactional security. The Company maintains all of its own Web server hosting functions and, to accelerate connectivity, has installed two 1.54 Mbps T-1 lines for outbound traffic and a 6 Mbps fractional DS/3 line for inbound traffic. The Company has also recently upgraded its routers and has installed firewall technology to protect its private network. Continuous system enhancements are primarily intended to accommodate increased traffic across the Company's Web site, improve the speed with which purchase requests are processed and heighten Web site security which will be increasingly important as the Company offers new services such as vehicle insurance and financing. System enhancements entail the implementation of sophisticated new technology and system processes and there can be no assurance that such continuous enhancements may not result in unanticipated system disruptions. In addition, since launching its first Web site in July 1995, the Company has experienced system downtime for limited periods of up to a few hours due to power loss and telecommunications failures, and there can be no assurance that interruptions will not recur. Although the Company maintains redundant local offsite backup servers, all of the Company's primary servers are located at its corporate headquarters and are vulnerable to interruption by damage from fire, earthquake, power loss, telecommunications failure and other events beyond the Company's control. The Company is in the process of developing comprehensive out-of-state disaster recovery plans to safeguard dealer and consumer information. The Company's business interruption insurance may not be sufficient to compensate the Company for all losses that may occur. In the event that the Company experienced significant system disruptions, the Company's business, results of operations or financial condition could be materially and adversely affected. The Company recently implemented its proprietary Dealer Realtime System, a personal computer-based network which allows participating dealers to receive consumer purchase requests online shortly after submission by consumers. Historically, all purchase requests were transmitted through the Company's fax server to dealers. By complementing the fax server process, the Dealer Realtime System, is designed to shorten dealer response time to consumers. The successful implementation of the Dealer Realtime System requires the active support of the Company's dealership base. To receive consumer purchase requests online, dealers must purchase or lease the Dealer Realtime System and train, under the Company's guidance, their personnel. There can be no assurance that all or most dealerships will acquire the Dealer Realtime System or adopt the skills necessary to effectively use this system. In addition, the Company has developed and intends to further develop its proprietary client/server database applications which allow consumers to search and display used vehicle information. Such database applications allow Auto-By-Tel dealerships to upload their inventory, including digitized photographs of vehicles, to the Company's used vehicle database. Dealerships participating in the Company's Dealer Realtime System will already have acquired the equipment necessary to participate in the used vehicle marketing program. As of January 30, 1997, 118 subscribing dealerships have acquired the Dealer Realtime System. There can be no assurance that Auto-By-Tel dealerships will agree to invest in the Dealer Realtime System, or pay the associated monthly maintenance charges on a timely basis, or at all. The Company has developed and intends to further enhance systems which allow consumers to complete and securely transmit online loan applications which will be forwarded by the Company to the appropriate lender. The Company anticipates launching these services during the first quarter of 1997. In addition, the Company is currently in the process of completing a conversion to a redundant client/server SQL database platform which involves the integration of several different internal databases used to handle the Company's consumer and dealer information and transmission requirements as well as the Company's financial, accounting and record-keeping requirements. In addition to increasing the overall efficiency of the Company's operations, the Company anticipates that these new integrated systems could enable Auto- By-Tel to develop and market new and strategically targeted database services. No assurance can be given that the implementation of this new platform will not result in disruptions to the Company's business, such as the loss of data, errors in 38 purchase request transmissions, delays in the Company's ability to effect periodic closings of its accounting records and other similar problems. Any such disruptions or any failure to successfully implement this new information system in a timely manner could have a material adverse effect on the Company's business, results of operations or financial condition. The Company's services may be vulnerable to break-ins and similar disruptive problems caused by Internet users. Further, weaknesses in the Internet may compromise the security of confidential electronic information exchanged across the Internet. This includes, but is not limited to, the security of the physical network and security of the physical machines used for the information transfer. Any such flaws in the Internet or the end-user environment, or weaknesses or vulnerabilities in the Company's services or the licensed technology incorporated in such service, would jeopardize the confidential nature of information transmitted over the Internet and could require the Company to expend significant financial and human resources to protect against future breaches, if any, in order to alleviate or mitigate problems caused by such security breaches. Concerns over the security of Internet transactions and the privacy of users may also inhibit the growth of the Internet generally, particularly as a means of conducting commercial transactions. To the extent that activities of the Company, or third party contractors, involve the storage and transmission of proprietary information (such as personal financial information or credit card numbers), security breaches could expose the Company to a risk of financial loss or litigation or other liabilities. Any such occurrence could reduce consumer satisfaction in the Company's services and could have a material adverse effect on the Company's business, results of operations or financial condition. The Company's success and ability to compete is dependent in part upon its proprietary systems and technology. While the Company relies on trademark, trade secret and copyright laws to protect its proprietary rights, the Company believes that the technical and creative skills of its personnel, continued development of its proprietary systems and technology, brand name recognition and reliable Web site maintenance are more essential in establishing and maintaining a leadership position. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's services or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's proprietary rights is difficult. In addition, litigation may be necessary in the future to enforce or protect the Company's intellectual property rights or to defend against claims of infringement or invalidity. Misappropriation of the Company's intellectual property or potential litigation could have a material adverse effect on the Company's business, results of operations or financial condition. All of the Company's operations are centrally located in approximately 13,700 square feet of office space in Irvine, California. Approximately 12,300 square feet is leased through August 1, 2001, and the Company has the option to renew this lease for an additional five-year period. Approximately 1,400 square feet is separately leased under a sublease through April 30, 1997. GOVERNMENT REGULATION The Company believes that its dealer marketing service does not qualify as a brokerage activity and, therefore, that the Company does not need to comply with state broker licensing requirements. In Texas, however, the Company was required to modify its marketing program to include a pricing model under which subscribing dealerships are charged uniform fees based on the population density of their particular geographic area and to make its program open to all dealerships who wish to apply. In the event that individual state regulatory requirements change or additional requirements are imposed on the Company, the Company may be required to modify its marketing programs in such states in a manner which may undermine the program's attractiveness to consumers or dealers. In addition, in the event that a state deems that the Company is acting as a broker, the Company may be required to comply with burdensome licensing requirements of such state or terminate operations in such state. In each case, the Company's business, results of operations or financial condition could be materially and adversely affected. The Company's marketing service may result in changes in the way new and used vehicles are sold which may be deemed to be threatening by new and used vehicle dealers who do not subscribe to the Auto-By-Tel program. Such businesses are often represented by influential lobbying organizations, and such organizations 39 may seek to introduce legislation which may impact the evolving marketing and distribution model which the Company's service promotes. Should legislative or legal challenges be brought successfully by such organizations, the Company's business, results of operations or financial condition could be materially and adversely affected. As the Company introduces new services, the Company may need to comply with additional licensing regulations and regulatory requirements. For example, the Company recently obtained an insurance brokerage license in California and has begun procuring insurance brokerage licenses in other states to ensure compliance with applicable insurance regulations, if any, of such states. In addition, the Company is currently in the process of applying for financial brokers' licenses in those states in which the Company believes such licenses are required. Becoming licensed may be an expensive and time-consuming process which could divert the efforts of management. In the event that the Company does not successfully become licensed under applicable state insurance or lending rules or otherwise comply with regulations necessitated by changes in current regulations or the introduction of new services, the Company's business, results of operations or financial condition could be materially and adversely affected. Additionally, there are currently few laws or regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, it is likely that a number of laws and regulations may be adopted at the local, state, national or international levels with respect to commerce over the Internet, potentially covering issues such as pricing of services and products, advertising, user privacy and expression, intellectual property, information security, anti- competitive practices or the convergence of traditional distribution channels with Internet commerce. In addition, 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 the Company to additional state sales and income taxes. The adoption of any such laws or regulations may decrease the growth of Internet usage or the acceptance of Internet commerce which could, in turn, decrease the demand for the Company's services and increase the Company's costs or otherwise have a material adverse effect on the Company's business, results of operations or financial condition. EMPLOYEES The Company experienced significant growth in employment during 1996, and as of December 31, 1996, the Company had a total of 73 employees (including two in Canada), compared to 17 employees as of December 31, 1995. Employees as of December 31, 1996 included nine in management, 41 in marketing, selling, training and support, 11 engaged in technical activities and 12 administrative employees. The Company also employs independent contractors for software and hardware development, which totaled 19 people as of December 31, 1996. None of the Company's employees is represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. The Company's rapid growth has placed, and is expected to continue to place, a significant strain on the Company's managerial and technical resources. The Company's future success depends in significant part upon the continued service of its key technical and senior management personnel and its continuing ability to attract and retain qualified sales, marketing, technical and managerial personnel. As the Company introduces new services, it will need to hire a significant number of additional managerial, sales, marketing and technical personnel. Competition for qualified personnel is intense and there can be no assurance that the Company will be able to retain its key employees or that it will be able to attract and retain additional highly qualified personnel in the future. The Company's performance is substantially dependent on the performance of its executive officers and key employees, all of whom are employed on an at- will basis and many of whom have worked together for only a short period of time. The Company maintains "key person" life insurance in the amount of $7.5 million on the life of Peter R. Ellis, the Company's President and Chief Executive Officer. However, the loss of the services of Mr. Ellis or one or more of the Company's other executive officers or key employees would likely have a material adverse effect on the business, results of operations and financial condition of the Company. See "Management." 40 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES The following table sets forth certain information with respect to the executive officers, directors and other key employees of the Company.
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION ---------------------- --- -------- Peter R. Ellis.......... 50 President, Chief Executive Officer and Director John C. Bedrosian....... 61 Chairman of the Board W. Randolph Ellspermann. 50 Senior Vice President of the Company and Chief Operating Officer of Auto-By-Tel Acceptance Corporation Robert S. Grimes........ 53 Executive Vice President and Director Mark W. Lorimer......... 37 Vice President, General Counsel and Secretary Michael J. Lowell....... 38 Senior Vice President of the Company and Chief Operating Officer of Auto-By-Tel Marketing Corporation Brian B. MacDonald...... 39 Vice President Finance and Treasurer John M. Markovich....... 40 Senior Vice President Finance and Chief Financial Officer Jeffrey H. Coats (1)(2). 39 Director Michael Fuchs(1)(2)..... 50 Director OTHER KEY EMPLOYEES ------------------- Thomas J. Ciresa........ 55 Director of Used Vehicle Development and Canada Operations Jacqueline A. Dufort.... 34 Chief Technology Officer John P. Honiotes........ 49 National Sales Director
- -------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. Peter R. Ellis co-founded the Company and has been President and Chief Executive Officer since its inception. Mr. Ellis has extensive experience in the automobile retailing industry. From June 1993 to December 1993, Mr. Ellis served as Chairman of PEAC Corporation, a retail used vehicle business. From August 1973 to May 1991, Mr. Ellis was a controlling stockholder and served as President of P.R. Ellis Corp. (formerly known as CAJ Corporation), a holding corporation for several companies which owned and operated automobile dealerships and related businesses in Northern and Southern California and Arizona. Mr. Ellis' corporations guaranteed in the ordinary course of business loans made to vehicle purchasers, and, in 1985, the principal amount outstanding under such guaranteed loans reached an aggregate of approximately $80 million. As a result of higher than industry standard defaults by vehicle purchasers in subsequent years, Mr. Ellis' corporations, which then owned three dealerships, were required to expend significant cash to satisfy these guarantees. In the early 1990's, vehicle sales decreased significantly as a result of the then ongoing recession in California. The effects of the recession, when combined with poor working capital, had a severe impact on Mr. Ellis' dealership operations. During this period, Mr. Ellis personally guaranteed additional capital and inventory loans with an aggregate principal amount in excess of $40 million on behalf of three dealerships. In 1991, Mr. Ellis closed the three remaining dealerships due to ongoing financial difficulties. As a result, certain company loans were defaulted. Subsequently, in response to a creditor's proceedings, Mr. Ellis declared personal bankruptcy under Chapter 7 of the United States Bankruptcy Code in January 1994. All outstanding debts were discharged in August 1994 by order of the Bankruptcy Court. John C. Bedrosian co-founded the Company and has been Chairman of the Board since its inception. Since September 1993, Mr. Bedrosian has been engaged in personal investing activities. From August 1985 to September 1993, Mr. Bedrosian was Senior Executive Vice President of National Medical Enterprises ("NME"), a hospital management company. Mr. Bedrosian holds a B.S. from the University of California, Los Angeles and an LL.B. from the University of Southern California. Mr. Bedrosian also served on the Board of 41 NME from 1976 to September 1994. In 1992, the U.S. Attorney's office commenced an investigation of a subsidiary of NME for alleged Medicare and Medicaid billing improprieties. In June 1994, NME reached an out of court settlement with the U.S. Department of Justice paying fines and penalties of $379 million. Mr. Bedrosian was not involved in these proceedings. In addition, in 1995, the Securities and Exchange Commission (the "SEC") commenced an examination into potential improper disclosures made by NME in its periodic reports filed in 1991. Mr. Bedrosian and eight former employees appeared before the SEC to give testimony relating to the exercise of employee stock options and disposition of the underlying shares during this period. To date, the SEC has taken no further action. W. Randolph Ellspermann joined the Company in July 1996 as Chief Operating Officer of Auto-By-Tel Acceptance Corporation and, in January 1997, was appointed a Senior Vice President of the Company. Mr. Ellspermann also serves as Chief Operating Officer of Auto-By-Tel Insurance Services, Inc. From November 1993 to June 1996, Mr. Ellspermann was employed by Mark III Industries, a van conversion company, where he last served as Chief Operating and Financial Officer. From June 1986 to June 1993, Mr. Ellspermann served at subsidiaries of Security Pacific Corporation, including five years as Chief Executive Officer of Security Pacific Information Services and two years as Chief Financial Officer of Security Pacific Auto Finance. Mr. Ellspermann's background also includes 13 years with Ford Motor Company and Ford Motor Credit Company in a variety of finance and management positions. Mr. Ellspermann holds a B.S. in Industrial Management from Purdue University and a Masters of Business Administration from the University of Michigan. Robert S. Grimes has been a director of the Company 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., an 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 LL.B. from the University of Pennsylvania Law School. Mark W. Lorimer joined the Company in December 1996 as Vice President, General Counsel and Secretary. 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. Mr. Lorimer holds a B.S. in Speech from Northwestern University and a J.D. from the Fordham University School of Law. Michael J. Lowell joined the Company in October 1996 as Chief Operating Officer of Auto-By-Tel Marketing Corporation and, in January 1997, was also appointed a Senior Vice President of the Company. From March 1995 to November 1996, Mr. Lowell served as Vice President and Chief Financial Officer of Alpha Microsystems, a publicly-held computer hardware and software developer. From February 1990 to March 1995, Mr. Lowell held various financial and management positions, most recently as Vice President and Chief Financial Officer, with Wahlco Environmental Systems, Inc. ("Wahlco"), a publicly-held manufacturer of environment control equipment. From February 1987 to February 1990, Mr. Lowell served in various management and financial positions, most recently as Vice President and Treasurer, with Pacific Diversified Capital Company, a diversified holding company, the investments of which included a controlling interest in Wahlco. Prior to working with Wahlco, Mr. Lowell held various positions with Ducommun, Inc., a publicly-held manufacturer and distributor of electronic components. Mr. Lowell holds a B.S. in Finance from California State University at Long Beach and a Masters of Business Administration from the University of San Diego. Brian B. MacDonald joined the Company in October 1995 as Chief Financial Officer and Manager, was appointed Vice President in May 1996 and was appointed Vice President Finance and Treasurer in January 1997. From April 1990 to October 1994, Mr. MacDonald served as Controller for all of the subsidiaries of Long Beach Bank, F.S.B. and from December 1992 to October 1994 also managed the operations of the bank's insurance subsidiary. From September 1983 to January 1990, Mr. MacDonald worked at Price Waterhouse L.L.P. in a variety of divisions, including their audit and high-technology divisions. Mr. MacDonald holds a B.S. in Business from the University of Southern California. John M. Markovich joined the Company in January 1997 as Senior Vice President Finance and Chief Financial Officer. From April 1995 to January 1997, Mr. Markovich served as Vice President Finance and Chief Financial Officer of Optical Coating Laboratory, Inc., a publicly-held manufacturer of thin film coated optical products. From May 1993 to February 1995, Mr. Markovich served as Vice President Finance and Chief 42 Financial Officer of Electrosci, Inc., an early stage environmental technology company, and from July 1992 to May 1993, he was Vice President and Chief Financial Officer of the Norden Fruit Company. From August 1987 to February 1992, Mr. Markovich served as Vice President and Treasurer of Western Digital Corporation, a publicly-held multinational electronics manufacturer. Previously, Mr. Markovich worked for Citibank, N.A. as a corporate banking officer in the bank's high technology group. Mr. Markovich holds a B.S. in General Business from Miami University and a Masters of Business Administration from Michigan State University. Jeffrey H. Coats was elected a director of the Company on August 27, 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 shareholder in the Company, since April 1996. He was also a 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 Industrial 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 is currently in the process of formulating a plan of reorganization. Mr. Coats is a member of the board of directors of Krause's Furniture, Inc., a publicly-held company. Michael Fuchs was elected as a director of the Company on September 25, 1996. Mr. Fuchs was Chairman and Chief Executive Officer of Home Box Office ("HBO"), the world's largest pay-television company, from October 1984 until November 1995, and Chairman and Chief Executive Officer of Warner Music Group 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 Marvel Entertainment Group, an entertainment and publishing company, and IMAX Corp., an entertainment film and technology company. On December 27, 1996, Marvel Entertainment Group filed a voluntary petition under Chapter 11 of the Bankruptcy Code and is currently in the process of formulating its plan of reorganization. Thomas J. Ciresa joined the Company in May 1995 as a regional director and subsequently launched the customer service and training departments. Since March 1996 Mr. Ciresa has served as Director of Used Vehicle Development and Canada Operations. From March 1993 to June 1994, Mr. Ciresa served as Western Regional Operations Manager for Kia Motors America. From November 1991 to March 1993, Mr. Ciresa worked as National Sales Manager of Agency Rent-A-Car and from September 1988 to November 1991 owned and operated a Toyota franchised vehicle dealership in Eugene, Oregon. From June 1965 to September 1988, Mr. Ciresa served in senior management positions with a variety of vehicle manufacturers, including Hyundai Auto Canada, Porsche Cars, N.A. and Toyota Motor Sales, U.S.A., Inc. Mr. Ciresa holds a B.E. from the University of Miami, Florida. Jaqueline A. Dufort joined the Company in April 1996 as Director of Information Technology. Since October 1996, Ms. Dufort has served as Chief Technology Officer of the Company. From September 1990 to April 1996, Ms. Dufort served as Director of Information Technology Strategic Planning for Long Beach Mortgage Company, formerly known as Long Beach Bank, F.S.B. From November 1986 to August 1990, Ms. Dufort served as Senior Project Manager for Salomon Brothers Inc. Ms. Dufort holds a B.S. in Computer Science from Embry- Riddle Aeronautical University and a Masters of Business Administration from New York University. John P. Honiotes joined the Company in May 1995 as National Sales Director. From October 1993 to October 1994, Mr. Honiotes served as regional director of ABAC, a sub-par lender and from October 1994 to April 1995 as an independent consultant, in each case developing sub-par programs and systems for use by automobile dealerships to determine more efficiently the eligibility of sub- prime credit consumers under the rules of a large number of financing institutions. From June 1991 to October 1993, Mr. Honiotes served as Director of Sales at Cush Automotive Group, Escondido, California, an automotive dealership group, and, from June 1990 43 to June 1991, as Chief Executive Officer and President of Presidential/AMS. From August 1988 to May 1990, Mr. Honiotes served as President of After-Market Profit Plus, Inc., prior to which he served as Senior Vice President, National Sales Director of AutoMax, an automotive affinity card program. Mr. Honiotes holds a B.S. in Marketing from Northern Illinois University. The Board of Directors has currently authorized five members. Members of the Board of Directors are elected each year at the Company's annual meeting of stockholders, and serve until the following annual meeting of stockholders or until their respective successors have been elected and qualified. In connection with the Series A Preferred Stock financing, Mr. Coats was elected to the Board of Directors pursuant to the Company's Amended and Restated Certificate of Incorporation. The provision providing for the Series A Preferred Stock nominee to the Board of Directors will terminate upon the closing of the Offering. Director Compensation The Company's non-employee directors do not currently receive any cash compensation for service on the Company's Board of Directors or any committee thereof, but directors may be reimbursed for certain expenses incurred in connection with attendance at Board and committee meetings. The Company's 1996 Stock Incentive Plan provides for automatic grants of stock options to non- employee directors commencing upon the closing of this offering. See "Stock Plans--1996 Stock Incentive Plan." Officers of the Company are appointed by the Board of Directors and serve at its discretion. The Company has entered into indemnification agreements with each member of the Board of Directors and certain of its officers providing for the indemnification of such person to the fullest extent authorized, permitted or allowed by law. EXECUTIVE COMPENSATION Summary Compensation. The following table sets forth in summary form the compensation paid by the Company during the year ended December 31, 1996 to the Company's Chief Executive Officer and the four most highly paid executive officers (the "Named Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL COMPENSATION AWARDS ------------------------ ------------ SECURITIES NAME AND PRINCIPAL UNDERLYING ALL OTHER POSITION YEAR SALARY ($) (1) BONUS ($) OPTIONS(#) COMPENSATION ($) (2) ------------------ ---- -------------- --------- ------------ -------------------- Peter R. Ellis.......... 1996 $122,502 $321,167 -- $11,301 W. Randolph Ellspermann. 1996 50,000 -- 125,000 -- Robert S. Grimes........ 1996 90,000 -- 250,000 -- Michael J. Lowell....... 1996 15,000 -- 166,666 -- Brian B. MacDonald...... 1996 85,000 50,000 125,000 1,776
- -------- (1) Salary data reflect amounts paid for the year ended December 31, 1996 for the Chief Executive Officer and the Named Officers. Mr. Grimes began receiving cash compensation on August 1, 1996. The current annualized base salaries of the Chief Executive Officer and the Named Officers are as follows: Mr. Ellis--$275,000; Mr. Ellspermann--$120,000; Mr. Grimes-- $180,000; Mr. Lowell--$120,000; and Mr. MacDonald--$120,000. (2) Includes the following amounts: Mr. Ellis--$3,150 in health benefits, $369 in life insurance payments and $7,782 in automobile expenses; and Mr. MacDonald--$1,776 in health benefits. 44 OPTION GRANTS DURING FISCAL 1996 The following table sets forth for the Chief Executive Officer and the Named Officers and certain information concerning stock options granted during fiscal 1996. The Company did not grant SARs during fiscal 1996.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(5) ---------------------------------------------------- --------------------- PERCENT OF NUMBER OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES IN PRICE EXPIRATION NAME GRANTED(1)(#) FISCAL 1996(2) ($/SHARE)(3) DATE(4) 5%($) 10%($) ---- ------------- -------------- ------------ ---------- ---------- ----------- Peter R. Ellis.......... -- -- -- -- -- -- W. Randolph Ellspermann. 125,000 5.3% $ 0.60 7/03/06 47,167 119,531 Robert S. Grimes........ 250,000 10.7 0.60 7/03/06 94,334 239,062 Michael J. Lowell....... 166,666 7.1 3.00 10/23/06 314,446 796,868 Brian B. MacDonald ..... 125,000 5.3 0.60 7/03/06 47,167 119,531
- ------- (1) Represent options granted under the Company's 1996 Stock Option Plan and the 1996 Stock Incentive Plan. On October 23, 1996, the Board of Directors terminated the 1996 Stock Option Plan, and no further options may be granted thereunder. (2) Based on an aggregate 2,352,066 shares subject to options granted to employees during fiscal 1996. (3) Options were granted at an exercise price equal to the estimated fair market value of the Company's Common Stock at the date of grant. In determining the fair market value of the Company's Common Stock, the Board of Directors considered various factors, including the Company's financial condition and business prospects, its operating results, the absence of a market for its Common Stock and the risks normally associated with investments in companies engaged in similar businesses. For accounting purposes only, the Company recorded deferred compensation expense in connection with the grant of the options to Mr. Grimes. See Note 7 of Notes to Consolidated Financial Statements. (4) The term of each option granted under the 1996 Stock Option Plan is generally ten years from the date of grant. Options may terminate before their expiration dates, however, if the optionee's status as an employee or a consultant is terminated or upon the optionee's death or disability. Options granted under the Company's 1996 Stock Option Plan and 1996 Stock Incentive Plan must generally be exercised within 30 days of the termination of the optionee's status as an employee or consultant of the Company, or within twelve months after such optionee's death or disability. (5) 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 the Company's estimate or projection of the Company's future Common Stock prices. 45 AGGREGATED OPTION/SAR EXERCISES IN 1996 AND FISCAL YEAR-END OPTION/SAR VALUES The following table sets forth for each of the Named Officers certain information concerning options exercised during fiscal 1996 and the number of shares subject to both exercisable and unexercisable stock options as of December 31, 1996. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding options and the fair market value of the Company's Common Stock as of December 31, 1996. The Company has never issued stock appreciation rights ("SARs").
NUMBER OF SECURITIES VALUE OF UNEXERCISED NUMBER OF UNDERLYING UNEXERCISED OPTIONS/ IN-THE-MONEY OPTIONS/SARS SHARES SARS AT DECEMBER 31, 1996(#) AT DECEMBER 31, 1996 ($)(2) ACQUIRED ON VALUE ------------------------------- ------------------------------ NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------------- --------------- ---------------- ------------- -------------- Peter R. Ellis.......... -- -- -- -- -- -- W. Randolph Ellspermann. 41,667 $308,328 0 83,333 $ 0 $616,656 Robert S. Grimes........ -- -- 125,000 125,000 925,000 925,000 Michael J. Lowell....... -- -- 0 166,666 0 833,330 Brian B. MacDonald ..... -- -- 41,666 83,333 308,328 616,656
- -------- (1) The amount set forth represents the difference between the fair market value of the shares at the time of exercise, as determined by the Board of Directors, and the exercise price of the option, multiplied by the applicable number of options. (2) Calculated by determining the difference between the fair market value of the securities underlying the option as of December 31, 1996 ($8.00 per share as determined by the Board of Directors) and the exercise price of the Named Officer's options. In determining the fair market value of the Company's Common Stock, the Board of Directors considered various factors, including the Company's financial condition and business prospects, its operating results, the absence of a market for its Common Stock and the risks normally associated with technology companies. STOCK PLANS 1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "Option Plan") was approved by the Board of Directors and the stockholders on May 18, 1996. The Option Plan provides for the granting to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and for the grant to employees, consultants and directors of nonstatutory stock options. Under the Option Plan, the exercise price of all incentive stock options granted under the Option Plan cannot be lower than the fair market value of the Common Stock 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 the Company, 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 1996 Option Plan may be up to 10 years. The Option Plan may be administered by the Board of Directors or a committee of the Board (the "Administrator"). Any options granted under the Option Plan are exercisable at such times as determined by the Administrator, but in no case at a rate of less than 20% per year over five years from the grant date. A majority of the outstanding options vest and become 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 Option Plan must be exercised within 30 days following termination of the optionee's status as an employee or consultant of the Company, or within 12 months following such optionee's termination by death or disability. The Board of Directors may at anytime amend, suspend or discontinue the Option Plan, but no amendment, suspension or discontinuation shall be made which would impair the rights of any optionee, without his or her consent. If so requested by the Company or any representative of the underwriters, the optionee shall not sell or transfer any shares of the Company 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 of 1933 (the "Securities Act"). On October 23, 1996, the Board of Directors terminated the Option Plan and no further options may be granted thereunder. On October 23, 1996, options to purchase an aggregate of 1,305,833 shares of Common Stock at an exercise price of $0.60 per share were outstanding under the Option Plan. 46 1996 Stock Incentive Plan. The Company's 1996 Stock Incentive Plan (the "Incentive Plan") provides for the granting to employees 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 ("SPRs"). The Incentive Plan was approved by the Board of Directors on October 23, 1996, amended by the Board of Directors on November 24, 1996 and approved by the stockholders on January 16, 1997. A total of 2,268,333 shares of Common Stock are currently reserved for issuance under the Incentive Plan. Shares available for future grant under the Incentive Plan will be increased as of the first day of each new fiscal year during the term of the Incentive Plan by the number of shares issuable upon exercise of options granted thereunder in the previous fiscal year, net of returns. This increase may not exceed 1,250,000 in any fiscal year. No option holder may be granted options to purchase more than 500,000 shares in any fiscal year; provided, however, that an option holder may be granted an additional 500,000 shares in connection with his or her initial service with the Company. The Incentive Plan may be administered by the Board of Directors or a committee of the Board (the "Committee"), which Committee will, in the case of options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, consist of two or more "outside directors" within the meaning of Section 162(m) of the Code. The Committee has the power to determine the terms of the options or SPRs granted, including the exercise price, the number of shares subject to each option or SPR, the exercisability thereof, and the form of consideration payable upon such exercise. In addition, the Committee has the authority to amend, suspend or terminate the Incentive Plan, provided that no such action may affect any share of Common Stock previously issued and sold or any option previously granted under the Incentive Plan. Options and SPRs granted under the Incentive Plan are not generally transferable by the optionee, and each option and SPR is exercisable during the lifetime of the optionee only by such optionee. Options granted under the Incentive Plan must generally be exercised within three months of the end of optionee's status as an employee or consultant of the Company, or within twelve months after such optionee's termination by death or disability, but in no event later than the expiration of the option's ten year term. In the case of SPRs, unless the Committee determines otherwise, the Restricted Stock Purchase Agreement will grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement will be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Committee. The exercise price of all incentive stock options granted under the Incentive Plan must be at least equal to the fair market value of the Common Stock on the date of grant. The exercise price of nonstatutory stock options and SPRs granted under the Incentive Plan is determined by the Committee, but with respect to nonstatutory stock options intended to qualify as "performance- based compensation" within the meaning of Section 162(m) of the Code, the exercise price must at least be equal to the fair market value of the Common Stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the Incentive Plan may not exceed ten years. The Incentive Plan provides that in the event of a merger of the Company with or into another corporation, a sale of substantially all of the Company's assets or a like transaction involving the Company, 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 shall provide for the Optionee to have the right to exercise the option or SPR as to all of the optioned stock, including shares as to which it would not otherwise be exercisable. If the Administrator makes an option or SPR exercisable in full in the event of a merger or sale of assets, the Administrator will notify the optionee that the option or SPR will be fully exercisable for a period of 15 days from the date of such notice, and the option or SPR will terminate upon the expiration of such period. 47 Non-employee directors are entitled to participate in the Company's Incentive Plan. The Incentive Plan provides for an automatic grant of an option to purchase 16,666 shares of Common Stock (the "First Option") to each non-employee director on the date on which the Incentive Plan becomes effective or, if later, on the date on which the person first becomes a non- employee director. After the First Option is granted to the non-employee director, he or she will automatically be granted an option to purchase 4,166 shares (a "Subsequent Option") 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. Twenty-five percent of the shares subject to the First Option shall vest on the date twelve months after the grant date of the option, and 1/48 of the shares subject to the First Option and each Subsequent Option shall become exercisable each month thereafter, provided that the optionee continues to serve as a director on such dates. The exercise price of the First Option and each Subsequent Option cannot have an exercise price lower be 100% of the fair market value per share of the Company's Common Stock on the date of the grant of the option. 1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors on November 18, 1996 and approved by the stockholders on January 16, 1997. The Company has reserved a total of 666,666 shares of Common Stock for issuance under the Purchase Plan. Shares available for future issuance under the Purchase Plan will be increased as of the first day of each new fiscal year during the term of the Purchase Plan by the number of shares issued thereunder in the prior fiscal year. The Purchase Plan, which is intended to qualify under Section 423 of the Code, as amended, permits eligible employees of the Company to purchase shares of Common Stock through payroll deductions of up to ten percent of their compensation, up to a maximum of $21,250 for all purchase periods ending within any calendar year. The Purchase Plan will be implemented in a series of successive 6-month offering periods. However, the initial offering period will begin on the effective date of this offering and will end on the last trading day in the period ending June 1997. Individuals who are eligible employees on the start day of any offering period may enter the Purchase Plan on that start date or on any subsequent quarterly entry date (January 1, April 1, July 1 or October 1). 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 the Company 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 the Company. 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. The Board may amend or modify the Purchase Plan at any time. The Purchase Plan will terminate on the last business day in October 2006, unless sooner terminated by the Board. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationship exists between the Company's 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 Messrs. Coats and Fuchs. 48 EMPLOYMENT AGREEMENTS The Company does not presently have any employment contracts in effect with the Chief Executive Officer or any of the Named Officers, except for Mr. Lowell. Mr. Lowell has an employment offer letter which provides that he is entitled to continue to receive his salary for a period of six months as severance if he is terminated without cause within one year from the commencement of his employment. Mr. Markovich also has an offer letter which entitles him to receive a severance payment equal to six months' salary if he is terminated without cause within one year of the commencement of his employment. In addition, Mr. Lorimer has an offer letter which entitles him to receive a severance payment equal to one year's salary (payable monthly) and an acceleration of all outstanding options, if he is terminated without cause, dies, becomes disabled or there occurs a change in control of the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Amended and Restated Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that a corporation's certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of their duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Restated Bylaws provide that the Company shall indemnify its directors and officers and may indemnify its employees and agents to the fullest extent permitted by law. The Company believes that indemnification under its Restated Bylaws covers at least negligence and gross negligence on the part of indemnified parties. The Company has entered into agreements to indemnify its directors and officers, in addition to the indemnification provided for in the Company's Restated Bylaws. These agreements, among other things, indemnify the Company's directors and officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person's services as a director or officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain qualified directors and officers. 49 CERTAIN TRANSACTIONS Pursuant to a Contribution Agreement and Plan of Reorganization dated May 31, 1996 among the Company, Auto-By-Tel, LLC, ABT Acceptance Company, LLC, Peter R. Ellis, John C. Bedrosian, the John C. Bedrosian and Judith D. Bedrosian Revocable Trust (the "Trust"), and Robert S. Grimes, the Company issued to the Trust, Mr. Ellis and Mr. Grimes 5,354,166, 6,187,500 and 833,333 shares of Common Stock of the Company, respectively, in exchange for the transfer to the Company of their respective membership interests in Auto-By- Tel, LLC and ABT Acceptance Company, LLC. On July 31, 1996, the Company issued to Robert S. Grimes, a director, officer and significant stockholder of the Company, an option to purchase 250,000 shares of Common Stock of the Company at an exercise price of $0.60 per share, which option vests over two years. From time to time, the Company has advanced funds to Peter R. Ellis, the Company's President and Chief Executive Officer. At no time did Mr. Ellis' indebtedness to the Company exceed $30,000. As of January 30, 1997, no advances to Mr. Ellis were outstanding. From May 31, 1996 through June 28, 1996, John C. Bedrosian, a director and significant stockholder of the Company made loans to the Company in the aggregate principal amount of $1,081,000. These loans were repaid in full on August 28, 1996 and all promissory notes evidencing such debt were canceled. In connection with the Company's lease of its principal offices, the Company was required to establish a $175,000 letter of credit. On June 19, 1996, Mr. Bedrosian co-signed this letter of credit and pledged a certificate of deposit as collateral. Mr. Bedrosian has also personally guaranteed the Company's Merchant Card Agreement, and has provided a personal guarantee to the financial institution that issued the Company's corporate credit cards, guaranteeing the payment of all outstanding indebtedness under these credit facilities. On August 23, 1996, the Company issued 1,500,000 shares of Series A Preferred Stock at $10.00 per share in a private placement transaction. The holders of such Series A Preferred Stock are entitled to certain registration rights with respect to the shares of Common Stock issued or issuable upon conversion thereof. See "Description of Capital Stock--Registration Rights." Each share of Series A Preferred Stock will convert on a five-for-three basis into an aggregate of 2,500,000 shares of Common Stock (at a conversion price of $6.00 per share) on or immediately prior to the closing of this offering. Investors in this financing consisted of General Electric Capital Corporation (800,000 shares of Series A Preferred Stock), National Union Fire Insurance Company of Pittsburgh, PA (an affiliate of American International Group ("AIG") (400,000 shares of Series A Preferred Stock), ContiTrade Services L.L.C. (200,000 shares of Series A Preferred Stock) and Michael Fuchs (100,000 shares of Series A Preferred Stock). From July 9, 1996 through August 13, 1996, Michael Fuchs, made loans to the Company 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 the Company's Board of Directors. On January 30, 1997, the Company issued 967,915 shares of Series B Preferred Stock at $9.35 per share in a private placement transaction. The holders of such Series B Preferred Stock are entitled to certain registration rights with respect to the shares of Common Stock issued or issuable upon conversion thereof. See "Description of Capital Stock--Registration Rights." Each share of Series B Preferred Stock will convert on a one-for-one basis into an aggregate of 967,915 shares of Common Stock on or immediately prior to the closing of the Offering. Investors in this financing consisted of General Electric Capital Corporation (534,760 shares of Series B Preferred Stock), National Union Fire Insurance Company of Pittsburgh, PA (an affiliate of American International Group ("AIG") (267,380 shares of Series B Preferred Stock), ContiTrade Services L.L.C. (133,690 shares of Series B Preferred Stock) and Michael Fuchs (32,085 shares of Series B Preferred Stock). In 1996, the Company paid approximately $120,000 in legal fees and expenses to Dewey Ballantine. Mr. Lorimer was a partner at Dewey Ballantine during fiscal 1996 when he joined Auto-By-Tel as Vice President, General Counsel and Secretary. 50 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of January 31, 1997 and as adjusted to reflect the sale of Common Stock offered hereby for (i) each person or entity who is known by the Company to beneficially own five percent or more of the outstanding Common Stock of the Company, (ii) each of the Company's directors, (iii) each of the Named Officers, and (iv) all directors and executive officers of the Company as a group:
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY PRIOR TO OFFERING(1) NUMBER OWNED AFTER OFFERING(1) ------------------------- OF SHARES ----------------------- NAME OR GROUP OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT - ---------------------------------- --------------- ------- --------- --------------- ------- Peter R. Ellis(2).................... 6,075,167 38.2% 400,000 5,675,167 -- c/o Auto-By-Tel Corporation 18872 MacArthur Boulevard, Suite 200 Irvine, California 92612-1400 John C. Bedrosian(3)................. 5,354,166 33.7 -- 5,354,166 -- c/o Auto-By-Tel Corporation 18872 MacArthur Boulevard, Suite 200 Irvine, California 92612-1400 Jeffrey H. Coats(4).................. 1,868,093 11.8 -- 1,868,093 -- General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06927 Robert S. Grimes(5).................. 958,333 6.0 -- 958,333 -- 152 West 57th Street New York, NY 10019 National Union Fire Insurance........ 934,046 5.9 -- 934,046 -- Company of Pittsburgh, PA 200 Liberty Street 19th Floor New York, New York 10281 W. Randolph Ellspermann(6)........... 41,666 * -- 41,666 * Mark W. Lorimer(6)................... 0 0 -- 0 0 Michael J. Lowell(6)................. 0 0 -- 0 0 Brian B. MacDonald(6)................ 41,666 * -- 41,666 * John M. Markovich(6)................. 0 0 -- 0 0 Michael Fuchs(7)..................... 198,751 1.3 -- 198,751 * All directors and executive officers as a group (8 persons)(8)........... 14,537,842 91.5 400,000 14,137,842 --
- -------- * Less than 1% (1) Assumes no exercise of the Underwriters' over-allotment option. 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 held by that person that are currently exercisable or exercisable within 60 days of January 31, 1997 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. (2) Includes 33,333 shares held by certain irrevocable trusts established for family members of Mr. Ellis as to which Mr. Ellis' spouse maintains sole voting power. Excludes 108,333 shares held by family members of Mr. Ellis as to which Mr. Ellis disclaims beneficial ownership. (3) All shares are held in The John C. Bedrosian and Judith D. Bedrosian Revocable Trust in which Mr. Bedrosian maintains shared voting powers. (4) Shares held by General Electric Capital Corporation. Mr. Coats is a managing director of GE Equity Capital Group, Inc., an affiliate thereof, and is a director of the Company. Excludes 16,666 shares subject to options granted to Mr. Coats, and subsequently assigned to General Electric Capital Corporation, none of which are exercisable within 60 days of January 31, 1997. (5) Includes 125,000 shares subject to options exercisable within 60 days of January 31, 1997. Includes an aggregate of 8,333 shares held in irrevocable trusts as to which Mr. Grimes' spouse maintains sole voting power. (6) Represents shares subject to options exercisable within 60 days of January 31, 1997. Excludes 93,333, 500,000, 166,666, 83,333, and 200,000 shares subject to outstanding options granted to Messrs. Ellspermann, Lorimer, Lowell, MacDonald and Markovich, respectively, none of which are exercisable within 60 days of January 31, 1997. (7) Excludes 16,666 shares subject to options granted to Mr. Fuchs, none of which are exercisable within 60 days of January 31, 1997. (8) Includes 166,666 shares subject to options exercisable within 60 days of January 31, 1997 to Mr. Markovich. 51 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering, the outstanding Common Stock of the Company will consist of shares, $0.001 par value. As of January 31, 1997, there were 15,895,136 shares of Common Stock outstanding (assuming the conversion of all outstanding shares of Preferred Stock) held of record by approximately 26 stockholders. COMMON STOCK A total of 50,000,000 shares of Common Stock of the Company will be authorized upon the closing of the Offering. Holders of Common Stock are entitled to one vote per share in all matters to be voted on by the stockholders. Subject to the preferences of the Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available for payment. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights 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 non-assessable, and the shares of Common Stock to be issued upon completion of the Offering will be fully paid and non-assessable. PREFERRED STOCK Pursuant to the Company's Amended and Restated Certificate of Incorporation, the Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the Common Stock. The Board of Directors, without stockholder approval, can issue Preferred Stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of Common Stock. Preferred Stock could thus be issued quickly with terms calculated to delay or prevent a change in control of the Company 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 the Company has no plans to issue any of the Preferred Stock. REGISTRATION RIGHTS Pursuant to an agreement between the Company and the holders (the "Holders") of approximately 15,322,248 shares of Common Stock and securities convertible into Common Stock (collectively, and as converted, the "Registrable Securities"), the Holders are entitled to certain rights with respect to the registration of such shares under the Act. If the Company proposes to register any of its securities under the Act, either for its own account or for the account of other Holders exercising registration rights, the Holders are entitled to notice of such registration and are entitled to include shares of Registrable Securities therein. Additionally, the Holders are also entitled to certain demand registration rights pursuant to which they may require the Company to file a registration statement under the Act at the Company's expense with respect to their shares of Registrable Securities, and the Company is required to use its best efforts to effect such registration. All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration and the right of the Company not to effect a requested registration within one year of an initial public offering of the Company's securities, such as the Offering made hereby, or if such requested registration would have an anticipated aggregate offering to the public of less than $30,000,000. 52 DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Anti-Takeover Law The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner or unless the interested stockholder acquired at least 85% of the corporation's voting stock (excluding shares held by certain designated stockholders) in the transaction in which it became an interested stockholder. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the previous three years did own, 15% or more of the corporation's voting stock. Limitation of Director and Officer Liability The Company's Amended and Restated Certificate of Incorporation and Bylaws contain certain provisions relating to the limitation of liability and indemnification of directors and officers. The Company's Amended and Restated Certificate of Incorporation provides that directors of the Company may not be held personally liable to the Company or its stockholders for a breach of fiduciary duty, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the Delaware General Corporation Law, relating to prohibited dividends, distributions and repurchases or redemptions of stock, or (iv) for any transaction from which the director derives an improper benefit. In addition, the Company's Amended and Restated Certificate of Incorporation and Bylaws provide that the Company shall indemnify its directors and officers to the fullest extent authorized by Delaware law. No Stockholder Action by Written Consent Prior to the closing of the Offering, the Company's Amended and Restated Certificate of Incorporation will provide that the stockholders can take action only at a duly called annual or special meeting of stockholders. Accordingly, stockholders of the Company 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 the Company. TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. has been appointed as the transfer agent and registrar for the Company's Common Stock. Its telephone number for such purposes is (818) 971-4758. 53 SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no market for the Common Stock of the Company. 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, based upon shares outstanding as of January 31, 1997, the Company will have outstanding an aggregate of shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options. Of these shares, the 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 the Company, as that term is defined in Rule 144 of the Securities Act ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 described below. SALES OF RESTRICTED SHARES The remaining 15,495,136 shares of Common Stock held by existing stockholders are "restricted securities" under Rule 144 ("Restricted Shares"). The number of shares of Common Stock available for sale in the public market is limited by restrictions under the Securities Act and lock-up agreements under which the holders of such shares have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this Prospectus (the "lock-up period") without the prior written consent of Montgomery Securities. On the date of this Prospectus, no shares other than the offered hereby will be eligible for sale. In addition, following the expiration of the lock-up period, none of the Restricted Shares will become available for sale in the public market until the expiration of their two year holding periods. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years (including the holding period of any prior owner, except if the prior owner was an Affiliate) would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of Common Stock then outstanding (which will equal approximately shares immediately after the Offering); or (ii) 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. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an Affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years (including the holding period of any prior owner except an Affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144; therefore, unless otherwise restricted, "144(k) shares" could be sold immediately upon the completion of the Offering. All of the Restricted Shares, however, will have been held for less than one year upon completion of the Offering. Upon completion of the Offering, the holders of 15,322,248 shares of Common Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital 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 The Company intends to file a registration statement under the Securities Act covering shares of Common Stock reserved for issuance for options outstanding under the Option Plan and the Incentive Plan and reserved for issuance under the Purchase Plan. See "Management--Stock Plans." Such registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to Affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with the 54 Company or the lock-up agreements described above. A total of 4,197,500 shares have been reserved for issuance under the Option Plan, the Incentive Plan and the Purchase Plan. As of January 31, 1997, options to purchase 2,471,231 shares of Common Stock were issued and outstanding under the Option Plan and no options had been granted under the Incentive Plan. See "Management--Stock Plans." In addition, under Rule 701 of the Securities Act as currently in effect, any employee, consultant or advisor of the Company who purchased shares from the Company in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144. LOCK-UP AGREEMENTS All officers, directors, and other stockholders of the Company have agreed not to sell, offer, contract or grant any option to sell, make any short sale, pledge, transfer, establish an open "put equivalent position" within the meaning of the Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 180 days after the date of this Prospectus, without the prior written consent of Montgomery Securities. In addition, under the terms of the Option Plan and Incentive Plan, holders of options to purchase Common Stock are obligated not to sell or transfer any shares of the Company during such 180- day period if so requested by the Company or the underwriters. See "Underwriting." 55 UNDERWRITING The Underwriters named below, represented by Montgomery Securities, Cowen & Company and Robertson, Stephens & Company LLC (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters are committed to purchase all of such shares, if any are purchased.
UNDERWRITER NUMBER OF SHARES ----------- ---------------- Montgomery Securities....................................... Cowen & Company............................................. Robertson, Stephens & Company LLC........................... --------- Total..................................................... =========
The Representatives have advised the Company that the Underwriters initially propose to offer the Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow to selected dealers a concession of not more than $[ ] per share, and the Underwriters may allow, and such dealers may reallow, a concession of not more than $[ ] per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Representatives. The shares of Common Stock are offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial shares of Common Stock to be purchased by the Underwriters. To the extent the Underwriters exercise this option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with the offering. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. The shares of Common Stock offered hereby have not been and will not be qualified for distribution under the securities legislation of any of the provinces of Canada. Accordingly, the shares of Common Stock offered hereby may not be distributed in Canada, except pursuant to a prospectus exemption under applicable securities legislation. Each Underwriter has agreed that it will not distribute any shares of Common Stock in Canada except in accordance with a prospectus exemption under applicable securities legislation. All of the Company's officers, directors and stockholders have agreed that they will not, without the prior written consent of Montgomery Securities (which consent may be withheld in its sole discretion) and subject to certain limited exceptions, directly or indirectly, sell, offer, contract or grant any option to sell, make any short sale, pledge, transfer, establish an open "put equivalent position" within the meaning of the Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise dispose of any shares of Common Stock, options or warrants to acquire Common Stock, or securities exchangeable or exercisable for or convertible into Common Stock currently owned either of record or beneficially by them for a period commencing on the date of this Prospectus and continuing to a date 180 days after the first date any of the shares of Common Stock offered hereby are released by the Underwriters for sale to the public. Montgomery Securities may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to these lock-up agreements. In 56 addition, the Company has agreed that, for a period of 180 days after the date of this Prospectus, it will not, without the consent of Montgomery Securities, issue, offer, sell or grant options to purchase or otherwise dispose of any equity securities or securities convertible into or exchangeable for equity securities except for (i) the shares of Common Stock offered hereby, (ii) shares of Common Stock issued pursuant to the exercise of outstanding options and (iii) options to purchase shares of Common Stock granted pursuant to the Incentive Plan and shares of Common Stock issued pursuant to the exercise of such options. See "Management--Stock Plans" and "Shares Eligible for Future Sale." Prior to the Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in such negotiations are the history of, and prospects for, the Company and the industry in which it competes, an assessment of the Company's management, its past and present operations and financial performance, the prospects for future earnings of the Company, the present state of the Company's development, the general condition of the securities markets at the time of the Offering, the market prices of and demand for publicly traded common stocks of companies in recent periods and other factors deemed relevant. The Representatives have informed the Company that the Underwriters do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the number of shares of Common Stock offered hereby. The Company and the Selling Stockholder have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. 57 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. Certain legal matters in connection with the Common Stock offered hereby will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California. EXPERTS The consolidated financial statements as of and for the period from inception (January 31, 1995) to December 31, 1995 and as of and for the year ended December 31, 1996 appearing in this Prospectus and Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in giving said report. ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission (the "Commission"), Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to such Registration Statement, exhibits and schedules. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7 World Trade Center, 13th Floor, New York, NY 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661, and copies of all or any part thereof, including any exhibit thereto, may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. The Commission maintains a World Wide Web Site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. 58 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES 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......................... F-5 Consolidated Statements of Cash Flows................................... F-6 Notes to Consolidated Financial Statements.............................. F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Auto-By-Tel Corporation: We have audited the accompanying consolidated balance sheets of Auto-By-Tel Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the period from inception (January 31, 1995) to December 31, 1995 and the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Auto-By-Tel Corporation and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for the period from inception (January 31, 1995) to December 31, 1995 and the year ended December 31, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California January 22, 1997, (except Note 8, as to which the date is January 30, 1997) F-2 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, PRO FORMA ------------------------ STOCKHOLDERS' EQUITY 1995 1996 DECEMBER 31, 1996 ----------- ----------- --------------------- (UNAUDITED) (NOTE 8.C.) ASSETS Current assets: Cash and cash equivalents, includes restricted amounts of $0 and $985,000, respectively................ $ 48,000 $ 9,062,000 Accounts receivable, net of allowance for doubtful accounts of $20,000 and $162,000, respectively...... 14,000 298,000 Prepaid advertisement........ -- 716,000 Other........................ 114,000 186,000 ----------- ----------- Total current assets....... 176,000 10,262,000 Property and equipment, net.... 102,000 1,425,000 Other assets................... 7,000 611,000 ----------- ----------- Total assets............... $ 285,000 $12,298,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............. $ 87,000 $ 651,000 Deferred revenue............. 356,000 2,326,000 Customer deposits............ -- 554,000 Other current liabilities.... 16,000 771,000 Due to shareholder........... 816,000 -- ----------- ----------- Total current liabilities.. 1,275,000 4,302,000 ----------- ----------- Commitments and contingencies Stockholders' equity: Convertible preferred stock, Series A, $0.001 par value, 1,500,000 shares authorized; none issued and outstanding at December 31, 1995; 1,500,000 shares issued and outstanding at December 31, 1996, aggregate liquidation preference of $15,000,000 (5,000,000 shares authorized, none issued and outstanding, pro forma)..... -- 2,000 $ -- Common stock, $0.001 par value; 16,666,666 shares authorized; none issued and outstanding at December 31, 1995; 12,427,221 shares issued and outstanding at December 31, 1996 (50,000,000 shares authorized, 14,927,221 shares issued and outstanding, pro forma)..... -- 12,000 16,000 Members' interests/additional paid-in capital............. 40,000 15,073,000 24,121,000 Deferred compensation........ -- (26,000) (26,000) Accumulated deficit.......... (1,030,000) (7,065,000) (7,065,000) ----------- ----------- ----------- Total stockholders' equity (deficit)................. (990,000) 7,996,000 $17,046,000 ----------- ----------- ----------- Total liabilities and stockholders' equity...... $ 285,000 $12,298,000 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (JANUARY 31, 1995) TO YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1996 ------------------ ----------------- Revenues.................................. $ 274,000 $ 5,025,000 ----------- ----------- Operating expenses: Marketing and advertising............... 476,000 4,439,000 Selling, training and support........... 454,000 3,193,000 Technology development.................. 99,000 1,393,000 General and administrative.............. 275,000 2,159,000 ----------- ----------- 1,304,000 11,184,000 ----------- ----------- Loss from operations.................. (1,030,000) (6,159,000) ----------- ----------- Other income (expense): Interest income......................... -- 148,000 Interest expense........................ -- (24,000) ----------- ----------- -- 124,000 ----------- ----------- Net loss.............................. $(1,030,000) $(6,035,000) =========== =========== Net loss per common and common equivalent share.................................... $ (.07) $ (.38) =========== =========== Weighted average common and common equivalent shares outstanding............ 15,270,154 15,800,184 =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-4 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SERIES A CONVERTIBLE PREFERRED STOCK COMMON STOCK ---------------- ------------------ MEMBERS' INTEREST/ ADDITIONAL NUMBER OF NUMBER OF PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY (DEFICIT) --------- ------ ---------- ------- ----------- ------------ ----------- ---------------- Balance, Inception (January 31, 1995)..... -- $ -- -- $ -- $ -- $ -- $ -- $ -- Sale of members' interest in ABT for cash.................. -- -- -- -- 40,000 -- -- 40,000 Net loss............... -- -- -- -- -- -- (1,030,000) (1,030,000) --------- ------ ---------- ------- ----------- -------- ----------- ---------- Balance, December 31, 1995................... -- -- -- -- 40,000 -- (1,030,000) (990,000) --------- ------ ---------- ------- ----------- -------- ----------- ---------- Sale of members' interest in ABTAC for cash.................. -- -- -- -- 50,000 -- -- 50,000 Issuance of Common Stock in exchange for members' interest..... -- -- 12,374,999 12,000 (12,000) -- -- -- Issuance of Common Stock options with an exercise price of $0.60 per share....... -- -- -- -- 87,000 (87,000) -- -- Issuance of Series A Preferred Stock at $10.00 per share for cash, net of costs of $135,000.............. 1,450,000 2,000 -- -- 14,363,000 -- -- 14,365,000 Issuance of Series A Preferred Stock at $10.00 per share upon conversion of debt.... 50,000 -- -- -- 500,000 -- -- 500,000 Issuance of Common Stock for services in August 1996........... -- -- 10,000 -- 20,000 -- -- 20,000 Issuance of Common Stock upon exercise of stock options......... -- -- 42,222 -- 25,000 -- -- 25,000 Amortization of deferred compensation. -- -- -- -- -- 61,000 -- 61,000 Net loss............... -- -- -- -- -- -- (6,035,000) (6,035,000) --------- ------ ---------- ------- ----------- -------- ----------- ---------- Balance, December 31, 1996................... 1,500,000 $2,000 12,427,221 $12,000 $15,073,000 $(26,000) $(7,065,000) $7,996,000 ========= ====== ========== ======= =========== ======== =========== ==========
The accompanying notes are an integral part of these consolidated statements. F-5 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
INCEPTION (JANUARY 31, 1995) YEAR ENDED TO DECEMBER 31, 1995 DECEMBER 31, 1996 -------------------- ----------------- Cash flows from operating activities: Net loss.............................. $(1,030,000) $(6,035,000) Adjustments to reconcile net loss to net cash used in operating activities-- Depreciation and amortization....... 25,000 178,000 Provision for bad debt.............. 20,000 145,000 Amortization of deferred compensation....................... -- 61,000 Changes in assets and liabilities: Increase in accounts receivable... (34,000) (429,000) Increase in prepaid advertisement. -- (716,000) Increase in other current assets.. (114,000) (72,000) Increase in other assets.......... (7,000) (604,000) Increase in accounts payable...... 87,000 564,000 Increase in deferred revenue...... 356,000 1,970,000 Increase in customer deposits..... -- 554,000 Increase in other current liabilities...................... 16,000 775,000 ----------- ----------- Net cash used in operating activities..................... (681,000) (3,609,000) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment... (127,000) (1,501,000) ----------- ----------- Cash flows from financing activities: Proceeds from sale of common stock.... -- 25,000 Proceeds from sale of members' interest in ABT...................... 40,000 -- Proceeds from sale of members' interest in ABTAC.................... -- 50,000 Proceeds from issuance of Series A Preferred Stock, net................. -- 14,365,000 Proceeds from issuance of notes payable.............................. 816,000 765,000 Repayments of notes payable........... -- (1,081,000) ----------- ----------- Net cash provided by financing activities..................... 856,000 14,124,000 ----------- ----------- Net increase in cash and cash equivalents............................ 48,000 9,014,000 Cash and cash equivalents, at beginning of period.............................. -- 48,000 ----------- ----------- Cash and cash equivalents, at end of period................................. $ 48,000 $ 9,062,000 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for income taxes................................ $ 2,000 $ 4,000 =========== =========== Cash paid during the period for interest............................. $ -- $ 24,000 =========== =========== Supplemental disclosure of noncash activities: During August 1996, 50,000 shares of Series A Preferred Stock were issued in exchange for $500,000 previously advanced to the Company under three notes payable. During September 1996, 10,000 shares of Common Stock with a fair market value of $20,000 were issued for consulting services During May 1996, 12,374,999 shares of Common Stock were issued to founding shareholders in exchange for members' interests
The accompanying notes are an integral part of these consolidated statements. F-6 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. The Company Auto-By-Tel Corporation (the Company) is establishing a nationally branded Internet-based marketing service for new and used vehicles and related consumer services. The Company's Web site (www.autobytel.com) enables consumers to gather information on automobiles and light duty trucks (vehicles) and shop for vehicles and related consumer services from their home or office. The Company's services are free to consumers and, to date, the Company has derived substantially all of its revenues from fees paid by subscribing dealerships located in the United States and Canada. The business commenced operations as a limited liability company (See Note 5.b.). b. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, its predecessors (See Note 5.b.) and its wholly-owned subsidiaries: Auto-By-Tel Marketing Corporation, Auto-By-Tel Acceptance Corporation, Auto-By-Tel Insurance Services, Inc. and Auto-By-Tel Canada, Inc.. All intercompany transactions and balances have been eliminated. c. Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents and those with maturities greater than three months are considered to be short-term investments. d. 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. Leasehold improvements are stated at cost. Amortization is provided using the straight-line method over the lesser of the lease term or the estimated useful lives of the respective assets. e. Revenue Recognition Substantially all revenues to date have consisted of marketing fees paid by franchises of subscribing dealerships. These marketing fees are comprised of an initial fee, a monthly fee and an annual fee. The initial fee and annual fee are recognized ratably over the service period of 12 months. The monthly fee is recognized in the period the service is provided. Deferred revenue is comprised of unamortized initial and annual fees. f. Advertising and Promotion Costs Advertising and promotion costs consist primarily of fees paid to automotive information providers, online services providers, online search engines and print advertising. Advertising and promotion costs are recorded as expense in the period that the advertisement appears or the service is provided. g. Technology Development Technology development expenses consist primarily of personnel and related compensation costs and contract labor to support software development and configuration and implementation of the Company's Internet, telecommunications and support system infrastructure. Technology development expenditures are charged to expense as incurred. F-7 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) h. Stock-Based Compensation The Company accounts for stock-based compensation issued to employees using the intrinsic value based method as prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees" (APB No. 25). Under the intrinsic value based method, compensation is the excess, if any, of the fair value of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. Compensation, if any, is recognized over the applicable service period, which is usually the vesting period. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). This standard, if fully adopted, changes the methods of accounting for employee stock-based compensation plans to the fair value based method. For stock options, fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock (not applicable for private entities), expected dividends and the risk-free interest rate over the expected life of the option. Compensation expense, if any, is recognized over the applicable service period, which is usually the vesting period. The adoption of the accounting methodology of SFAS No. 123 is optional and the Company has elected to continue accounting for stock-based compensation issued to employees using APB No. 25; however, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS No. 123 are required to be presented (See Note 7). i. Income Taxes The Company accounts for income taxes using the asset and liability method as prescribed by SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Prior to May 31, 1996, the business operated as limited liability companies taxed as partnerships under the provisions of the Internal Revenue Code of 1986 (Internal Revenue Code). Under those provisions, the Company was not subject to corporate income taxes on its taxable income. Instead, the Company's taxable income or loss prior to May 31, 1996 is includable in the individual income tax returns of its members. Effective May 31, 1996, as a result the reorganization under the terms of a Contribution Agreement and Plan of Organization, the business was reorganized as a C Corporation under the provisions of the Internal Revenue Code (See Note 5.b.). The reorganization required that the Company record the cumulative tax effect of temporary differences between book income and taxable income as deferred tax assets and deferred tax liabilities (net of valuation allowance) in accordance with SFAS No. 109. At May 31, 1996, the cumulative tax effect of these temporary differences was immaterial. j. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported 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. k. Fair Value of Financial Instruments The carrying amount of the Company's financial instruments approximates fair value. F-8 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) l. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Substantially all of the Company's cash and cash equivalents are invested in one money market fund with underlying assets consisting primarily of commercial paper. To date, accounts receivable have been derived from marketing fees billed to franchises of subscribing dealerships located in the United States and Canada. The Company generally requires no collateral. The Company maintains reserves for potential credit losses; historically, such losses have been minor and within management's expectations. From inception (January 31, 1995) through December 31, 1996, no subscribing dealership franchise accounted for greater than 10% of the accounts receivable or revenue of the Company. The Company conducts its business within one industry segment within the United States and Canada. 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. m. Foreign Currency Translation Assets and liabilities of the Canadian operations are remeasured from Canadian dollars into U.S. dollars in accordance with Financial Accounting Standards Board Statement No. 52. Revenues and expenses are translated at average monthly exchange rates prevailing during the period. Resulting translation adjustments are immaterial. n. New Accounting Pronouncements The Company adopted SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of" on January 1, 1996. This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of this standard did not have a material impact on the consolidated financial statements. o. Net Loss Per Share Net loss per share is computed based on the weighted average number of shares of common stock outstanding and common equivalent shares from stock options (under the treasury stock method, if dilutive). In accordance with certain SEC Staff Accounting Bulletins, such computations include all common equivalent shares (using the treasury stock method and the anticipated public offering price) issued twelve months prior to the filing of the Initial Public Offering (IPO) as if they were outstanding for all periods presented. Furthermore, common equivalent shares from convertible preferred stock that will automatically convert upon the completion of the Company's proposed IPO are included in the calculation for all periods presented as if converted using the treasury stock method. (2) PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, -------------------- 1995 1996 -------- ---------- Computer hardware.................................. $ 88,000 $1,125,000 Furniture and equipment............................ 39,000 412,000 Leasehold improvements............................. -- 77,000 -------- ---------- 127,000 1,614,000 Less--Accumulated depreciation and amortization.... (25,000) (189,000) -------- ---------- $102,000 $1,425,000 ======== ==========
F-9 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) DUE TO SHAREHOLDER During 1995 and 1996, the Company's Chairman and co-founder advanced funds to the Company totaling $1,081,000. During 1996, these advances were converted to notes that were payable on demand and bore interest at a rate of 8% per annum. These notes were paid in full using the proceeds of the Series A Preferred Stock offering (See Note 5.a). (4) INCOME TAXES No provision for federal and state income taxes has been recorded as the Company incurred net operating losses through December 31, 1996. As of December 31, 1996, the Company had approximately $4.7 million of federal and state net operating loss carryforwards available to offset future taxable income; such carryforwards expire in various years through 2011. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses carried forward may be impaired or limited in certain circumstances. Events which may cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three year period. As of December 31, 1996, the effect of such limitation, if imposed, has not been determined. Net deferred income tax assets, totaling approximately $2.0 million at December 31, 1996, consist primarily of the tax effect of net operating loss carryforwards, reserves and accrued expenses which are not yet deductible for tax purposes. The Company has provided a full valuation allowance on these deferred income tax assets because of the uncertainty regarding their realization. (5) STOCKHOLDERS' EQUITY a. Series A Convertible Preferred Stock On August 22, 1996, the Board of Directors of the Company authorized 1,500,000 shares of Series A Convertible Preferred Stock (Series A Preferred). On August 23, 1996, the Company 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 $500,000 previously advanced to the Company under three notes payable. In addition, $1,081,000 of the proceeds were used to repay notes due to the Company's Chairman and co-founder. Each share of Series A Preferred will be automatically converted into 1.67 shares of common stock upon the earliest of (i) the closing of an underwritten public offering of the Company's common stock with a minimum per share price of $9.00 per share, and minimum aggregate proceeds of $30 million; (ii) the written consent of two-thirds of the holders of Series A Preferred; or (iii) when fewer than 300,000 shares of Series A Preferred remain outstanding. Each share of Series A Preferred is also convertible into 1.67 shares of common stock at the option of the holder. The Company has reserved 2,500,000 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, shall be entitled to elect one director (to be increased to two directors if the authorized number of total directors is increased to greater than five members). Each share of Series A 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 A Preferred shall be declared at an annual rate of $0.80 per share. As of December 31, 1996, no dividends have been declared. F-10 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the event of liquidation, the Series A Preferred has preference over the common stock in the amount of $10.00 per share, plus declared but unpaid dividends. b. Common Stock Auto-By-Tel LLC (ABT), a California limited liability company, was organized in January 1995 and began operations in March 1995. ABT Acceptance Company LLC (ABTAC), an affiliated Company under common control, was formed in February 1996. ABT and ABTAC (the LLC's) were reorganized as of May 31, 1996 pursuant to the terms of a Contribution Agreement and Plan of Organization (the Agreement) entered into by all of the members of the LLC's. Under the terms of the Agreement, the interests of the members were transferred to Auto-By-Tel Corporation, a Delaware corporation, in a tax-free transaction. As the LLC's 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 the Company at their historical cost. In consideration for their respective ownership interests, the members of ABT and ABTAC received 12,374,999 shares of common stock of the Company. c. Stock Split and Increase of Authorized Shares On November 24, 1996, the Board of Directors authorized a 5-for-3 stock split (the Stock Split) of the Company's Common Stock. All references in the financial statements to number of shares, per share amounts and market prices of the Company's common stock have been retroactively restated to reflect the effect of the Stock Split. The Board of Directors has also approved, effective upon the completion of the IPO, a recapitalization that would increase the total of authorized shares of Common Stock to 50,000,000 and an increase in the total number of authorized shares of preferred stock to 7,467,915. (6) COMMITMENTS a. Operating Leases The Company has an operating lease for its corporate office facilities which expires in 2001. At December 31 , 1996, future minimum lease payments under this noncancelable, five year operating lease are as follows:
YEAR ENDING DECEMBER 31, ------------------------ 1997............................................................. $142,000 1998............................................................. 184,000 1999............................................................. 204,000 2000............................................................. 218,000 2001............................................................. 150,000 -------- $898,000 ========
Rent expense was $22,000 and $92,000 for the period from inception (January 31, 1995) to December 31, 1995 and the year ended December 31, 1996, respectively. b. Marketing Agreements The Company has multi-year agreements with automotive information providers that make available to consumers vehicle research data over the Internet. Such agreements are generally for a term of three to five years and require that the Company pay fees to these companies based on the volume of information received by the Company from these services. The minimum annual commitments under these agreements aggregate to $120,000. F-11 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) c. Letter of Credit In connection with the Company's lease of its principal offices, the Company's Chairman co-signed a letter of credit and pledged a personal certificate of deposit as collateral. The Company's chairman has also personally guaranteed the Company's Merchant Card Agreement, and has provided a personal guarantee to the financial institution that issued the Company's corporate credit cards, guaranteeing the payment of all outstanding indebtedness under these credit facilities. As of December 31, 1996, the Company had total outstanding letters of credit of approximately $1.0 million collateralized by restricted cash balances of approximately $985,000. d. Advertisement Purchase Commitment In November 1996, the Company entered into a commitment to purchase approximately $1.0 million in a television advertisement to be aired during the Super Bowl in January 1997. Such costs will be expensed in the first quarter of 1997, when the advertisement appears. (7) STOCK PLANS 1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the Option Plan) was approved by the Board of Directors and the stockholders on May 18, 1996. The Option Plan provides for the granting to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and for the grant to employees, consultants and directors of nonstatutory stock options. Under the Option Plan, the exercise price of all incentive stock options granted under the Option Plan cannot be lower than the fair market value of the Common Stock 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 the Company, 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 1996 Option Plan may be up to 10 years. On October 23, 1996, the Board of Directors terminated the Option Plan and no further options may be granted thereunder. Upon termination, options to purchase an aggregate of 1,305,833 shares of Common Stock at an exercise price of $0.60 per share were outstanding under the Option Plan. 1996 Stock Incentive Plan. The Company's 1996 Stock Incentive Plan (the Incentive Plan) provides for the granting to employees 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 (SPRs). The Incentive Plan was approved by the Board of Directors on October 23, 1996, amended by the Board of Directors on November 24, 1996 and approved by the stockholders on January 16, 1997. A total of 2,268,333 shares of Common Stock are currently reserved for issuance under the Incentive Plan. Shares available for future grant under the Incentive Plan will be increased as of the first day of each new fiscal year during the term of the Incentive Plan by the number of shares issuable upon exercise of options granted thereunder in the previous fiscal year, net of returns. F-12 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Non-employee directors are entitled to participate in the Company's Incentive Plan. The Incentive Plan provides for an automatic grant of an option to purchase 16,666 shares of Common Stock to each non-employee director on the date on which the Incentive Plan becomes effective or, if later, 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 4,166 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 ten years. Such options vest at various rates over 36 months and the exercise price per share shall be 100% of the fair market value of the Company's Common Stock on the date of the grant of the option. 1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock Purchase Plan (the Purchase Plan) was adopted by the Board of Directors on November 18, 1996 and approved by the stockholders on January 16, 1997. The Company has reserved a total of 666,666 shares of Common Stock for issuance under the Purchase Plan. Shares available for future issuance under the Purchase Plan will be increased as of the first day of each new fiscal year during the term of the Purchase Plan by the number of shares issued thereunder in the prior fiscal year. The Purchase Plan, which is intended to qualify under Section 423 of the Code, as amended, permits eligible employees of the Company to purchase shares of Common Stock through payroll deductions of up to ten percent of their compensation, up to a certain maximum amount for all purchase periods ending within any calendar year. 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 the Company. 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. During the year ended December 31, 1996, the Company granted options under the aforementioned plans to purchase an aggregate of 2,352,066 shares of Common Stock at various exercise prices ranging from $0.60 to $7.50 per share. During the year ended December 31, 1996, the Company has recorded, based upon an independent appraisal obtained by the Company's Board of Directors, $87,000 of deferred compensation expense relating to certain options. This amount will be amortized over the vesting periods of the options, which is generally one to three years. Amortization of deferred compensation for the year ended December 31, 1996 was $61,000. F-13 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the status of the Company's stock options as of December 31, 1996 and changes during the period is presented below:
WEIGHTED- AVERAGE EXERCISE OPTIONS PRICE --------- --------- Outstanding at December 31, 1995...................... -- -- Granted............................................... 2,352,066 $ 2.16 Exercised............................................. (42,222) 0.60 Canceled.............................................. (29,029) 0.60 --------- ------ Outstanding at December 31, 1996...................... 2,280,815 $ 2.21 ========= ====== Options exercisable at December 31, 1996.............. 586,111 $ 0.60 ========= ====== Options available for future grant.................... 1,250,000 ========= Weighted-average fair value of options granted during the year whose exercise price is less than the market price of the stock on the grant date (254,167 options)............................................. $ 1.63 $ 0.60 ========= ====== Weighted-average fair value of options granted during the year whose exercise price exceeds the market price of the stock on the grant date (2,097,899 options)............................................. $ 0.77 $ 2.35 ========= ======
The fair value of each option granted during 1996 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 (required for public companies only), (iii) weighted-average risk-free interest rate of approximately 6.70%, and (iv) expected life of 6 years. The following table summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- -------------------------- WEIGHTED-AVERAGE NUMBER EXERCISE PRICE NUMBER OUTSTANDING CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE -------------- ------------------ ---------------- ----------- -------------- $0.60 1,262,482 9.5 years 586,111 $0.60 $3.00 741,667 9.8 years -- -- $6.00 12,500 9.9 years -- -- $7.50 264,166 9.9 years -- --
Had compensation cost for the Company's 1996 grants for its stock-based compensation plan been determined consistent with SFAS No. 123, the Company's net loss, and net loss per common share for the year ended December 31, 1996 would approximate the pro forma amounts below:
AS REPORTED PRO FORMA ----------- ----------- Net loss.......................................... $(6,035,000) $(6,270,000) =========== =========== Net loss per common share......................... $ (.38) $ (0.40) =========== ===========
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. F-14 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (8) SUBSEQUENT EVENTS AND PRO FORMA PRESENTATION a. Series B Convertible Preferred Stock Sale On January 24, 1997, the Board of Directors of the Company authorized 967,915 shares of Series B Convertible Preferred Stock (Series B Preferred). On January 30, 1997, the Company completed the sale of 967,915 shares of Series B Preferred at $9.35 per share through a private placement offering. Each share of Series B Preferred will be automatically converted into one share of common stock upon the earliest of (i) the closing of an underwritten public offering of the Company's common stock with a minimum per share price of $9.00 per share, and minimum aggregate proceeds of $30 million; (ii) the written consent of two-thirds of the holders of Series B Preferred; or (iii) when fewer than 300,000 shares of Series B Preferred remain outstanding. Each share of Series B Preferred is also convertible into one share of common stock at the option of the holder. The Company has reserved 1,309,686 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 except with respect to election of directors, whereby the holders, voting separately as a class, shall be entitled to elect one director (to be increased to two directors if the authorized number of total directors is increased to greater than five members). 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 $0.75 per share. 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. b. On January 24, 1997 the Company granted options to various employees to purchase 190,398 shares of common stock at an exercise price of $8.80 per share, the estimated fair market value as determined by the Board of Directors. c. Unaudited Pro Forma Presentation On January 24, 1997, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock in connection with an IPO. If the offering is consummated under the terms presently anticipated, each share of Series A and Series B Convertible Preferred Stock outstanding at January 30, 1997 will automatically convert to 1.67 and 1.0 shares, respectively, of common stock upon closing of the IPO. The effect of the sale of the Series B Preferred discussed above and the conversion of Series A Preferred outstanding at December 31, 1996 (See Note 5.a) has been reflected in the accompanying unaudited pro forma balance sheet as of December 31, 1996. F-15 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the shares of Common Stock to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or that the information contained herein is correct as of any time subsequent to the date hereof. --------------------- TABLE OF CONTENTS ---------------------
Page ---- Prospectus Summary......................................................... 3 Risk Factors............................................................... 6 Use of Proceeds............................................................ 17 Dividend Policy............................................................ 17 Capitalization............................................................. 18 Dilution................................................................... 19 Selected Consolidated Financial Data....................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 21 Business................................................................... 27 Management................................................................. 41 Certain Transactions....................................................... 50 Principal and Selling Stockholders......................................... 51 Description of Capital Stock............................................... 52 Shares Eligible for Future Sale............................................ 54 Underwriting............................................................... 56 Legal Matters.............................................................. 58 Experts.................................................................... 58 Additional Information..................................................... 58 Index to Consolidated Financial Statements................................. F-1
Until , 1997 (25 days after the date of this Prospectus) all dealers effecting transactions in the registration securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [LOGO] COMMON STOCK --------------- PROSPECTUS --------------- MONTGOMERY SECURITIES COWEN & COMPANY ROBERTSON, STEPHENS & COMPANY , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of the Common Shares being registered. All of the amounts shown are estimates except for the SEC registration fee and the NASD filing fee. SEC Registration Fee.............................................. $16,728 NASD Filing Fee................................................... 6,020 Nasdaq National Market Listing Fee................................ * Blue Sky Qualification Fees and Expenses.......................... * Printing and Engraving Expenses................................... * Legal Fees and Expenses........................................... * Accounting Fees and Expenses...................................... * Transfer Agent and Registrar Fees................................. * Directors' and Officers' Insurance................................ * Miscellaneous..................................................... * ------- Total........................................................... $ * =======
- -------- * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Underwriters have agreed to indemnify the Company, its directors and each person who controls it within the meaning of Section 15 of the Securities Act with respect to any statement in or omission from the Registration Statement or the Prospectus or any amendment or supplement thereto if such statement or omission was made in reliance upon information furnished in writing to the Company by the Underwriters specifically for or in connection with the preparation of the Registration Statement, the Prospectus, or any such amendment or supplement thereto. Section 145 of the Delaware General Corporation Law empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) arising under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. The Delaware General Corporation Law provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, vote of stockholders or otherwise. Article IX of the Company's Amended and Restated Certificate of Incorporation eliminates the personal liability of directors and officers to the fullest extent permitted by the laws of the state of Delaware. The effect of the foregoing is to require the Company to indemnify the officers and directors of the Company for any claim arising against any such person in their official capacities if such person acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since the Company's inception, the Company has made the following sales of securities that were not registered under the Securities Act: 1. On May 31, 1996, the Company issued and sold 12,374,999 shares of Common Stock in exchange for membership interests in Auto-By-Tel LLC and Auto-By- Tel Acceptance Corporation LLC, in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. 2. During the period from July 3, 1996 through January 30, 1997, the Company issued options to purchase an aggregate of 2,542,464 shares of Common Stock pursuant to the Option Plan in reliance on Rule 701 promulgated under the Securities Act. 3. On August 23, 1996, the Company issued and sold 1,500,000 shares of Series A Preferred Stock in a private placement for an aggregate consideration of $15,000,000 million in cash and cancellation of indebtedness. In connection with such financing, the Company issued (i) 200,000 shares to ContiTrade Services L.L.C. in exchange for $2,000,000 in cash, (ii) 400,000 shares to National Union Fire Insurance Company of Pittsburgh, PA in exchange for $4,000,000 in cash, (iii) 800,000 shares to General Electric Capital Corporation in exchange for $8,000,000 in cash, and (iv) 100,000 Michael Fuchs in exchange for $1,000,000 in cash and cancellation of indebtedness. Sales of Series A Preferred Stock were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. 4. On August 27, 1996, the Company issued and sold 6,000 shares to a consultant of the Company in reliance on Rule 701 promulgated under the Securities Act. 5. On January 30, 1997, the Company 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, the Company 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, and (iv) 32,085 shares to Michael Fuchs in exchange for $300,000 in cash. Sales of Series B Preferred Stock were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS 1.1 Form of Underwriting Agreement (draft of January 24, 1997) 3.1 Restated Certificate of Incorporation of the Company certified by the Secretary of State of the State of Delaware 3.2 Restated Bylaws of Auto-By-Tel Corporation adopted October 23, 1996 4.1+ Form of Stock Certificate 4.2 Amended and Restated Investors' Rights Agreement dated January 30, 1997 among Registrant and the Investors named in Exhibit A thereto 5.1+ Opinion and Consent of Wilson Sonsini Goodrich & Rosati Form of Indemnification Agreement between the Company and its 10.1 directors and officers 10.2 Employment Offer Letter dated October 24, 1996 from Registrant to Mark W. Lorimer 10.3 Employment Offer Letter dated December 16, 1996 from Registrant to John M. Markovich
II-2 10.4 Employment Offer Letter dated October 20, 1996 from Registrant to Michael 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* Marketing Agreement dated July 22, 1996 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 10.9* Marketing Agreement dated March 27, 1996 between Registrant and Microsoft Corporation 10.10* Advertising Agreement dated October 15, 1996 between Registrant and Digital City Inc. 10.11* Marketing Agreement dated February 8, 1996 between Registrant and Edmund Publications Corporation 10.12* Referral Agreement dated September 6, 1996 between Registrant and Automotive Information Center 10.13(a)-(h) Forms of Dealership Subscription Agreements 10.14 Lease Agreement dated June 1996 between Registrant and McDonnell Douglas Realty Company 10.15 Sublease Agreement dated October 31, 1996 between Registrant and Silicon Valley Bank 10.16* Financing Inquiry Referral Agreement dated October 25, 1996 among Registrant, as obligor, Auto-By-Tel Acceptance Corporation and Chase Manhattan Automotive Financial Corporation 10.17+* Service Agreement dated as of February 1, 1997 between Registrant and Integrated Warranty Services, Inc. 11.1 Statement Regarding Computation of Per Share Earnings 21.1 Subsidiaries of the Company 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants (see Page II-5) 23.2+ Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1) 24.1 Power of Attorney (see Page II-6) 27.1 Financial Data Schedule
- -------- + To be filed by amendment. * Confidential treatment has been requested for certain portions which have been blacked out in the copy of the exhibit filed with the Commission. The omitted information has been filed separately with the Commission pursuant to the application for confidential treatment. (b) FINANCIAL STATEMENT SCHEDULES Schedule II--Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-3 (b) Insofar as indemnification for liabilities arising under the Securities 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 Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (i) For purposes of determining any liability under the Securities 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 by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (ii) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Orange County, California January 30, 1997 II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF IRVINE, STATE OF CALIFORNIA, ON THE 30TH DAY OF JANUARY, 1997. Auto-by-Tel Corporation By: /s/ John M. Markovich ------------------------------------------ JOHN M. MARKOVICH CHIEF FINANCIAL OFFICER POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS PETER R. ELLIS, JOHN C. BEDROSIAN, JOHN M. MARKOVICH AND MARK W. LORIMER AND EACH OF THEM ACTING INDIVIDUALLY, AS HIS ATTORNEY-IN-FACT, EACH WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING POST-EFFECTIVE AMENDMENTS), AND TO SIGN ANY REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AND ALL POST-EFFECTIVE AMENDMENTS THERETO, AND TO FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR SAID ATTORNEY TO ANY AND ALL AMENDMENTS TO SAID REGISTRATION STATEMENT. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Peter R. Ellis President Chief January 30, _________________________________ Executive Officer 1997 PETER R. ELLIS (Principal Executive Officer) and Director /s/ John C. Bedrosian Chairman of the Board January 30, _________________________________ 1997 JOHN C. BEDROSIAN /s/ John M. Markovich Chief Financial Officer January 30, _________________________________ (Principal Financial 1997 JOHN M. MARKOVICH and Accounting Officer) /s/ Robert S. Grimes Executive Vice President January 30, _________________________________ and Director 1997 ROBERT S. GRIMES /s/ Jeffrey H. Coats Director January 30, _________________________________ 1997 JEFFREY H. COATS /s/ Michael Fuchs Director January 30, _________________________________ 1997 MICHAEL FUCHS II-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II To the Board of Directors and Shareholders of Auto-By-Tel Corporation: We have audited in accordance with generally accepted auditing standards the consolidated financial statements of Auto-By-Tel Corporation and subsidiaries included in this registration statement and have issued our report thereon dated January 22, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed at S-2 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Orange County, California January 22, 1997 S-1 AUTO-BY-TEL CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS --------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ----------- ---------- ---------- ---------- ---------- --------- For the period from inception (January 31, 1995) to December 31, 1995: Allowance for doubtful accounts............. $ -- $ 25,000 $ -- $ -- $ 25,000 ======= ======== ===== ====== ======== For the year ended December 31, 1996: Allowance for doubtful accounts............. $25,000 $145,000 $ -- $8,000 $162,000 ======= ======== ===== ====== ========
S-2 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------------ ----------- 1.1 Form of Underwriting Agreement (draft of January 24, 1997) 3.1 Restated Certificate of Incorporation of the Company certified by the Secretary of State of the State of Delaware 3.2 Restated Bylaws of Auto-By-Tel Corporation adopted October 23, 1996 4.1+ Form of Stock Certificate 4.2 Amended and Restated Investors' Rights Agreement dated January 30, 1997 among Registrant and the Investors named in Exhibit A thereto 5.1+ Opinion and Consent of Wilson Sonsini Goodrich & Rosati 10.1 Form of Indemnification Agreement between the Company and its di- rectors and officers 10.2 Employment Offer Letter dated October 24, 1996 from Registrant to Mark W. Lorimer 10.3 Employment Offer Letter dated December 16, 1996 from Registrant to John M. Markovich 10.4 Employment Offer Letter dated October 20, 1996 from Registrant to Michael 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* Marketing Agreement dated July 22, 1996 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 10.9* Marketing Agreement dated March 27, 1996 between Registrant and Microsoft Corporation 10.10* Advertising Agreement dated October 15, 1996 between Registrant and Digital City Inc. 10.11* Marketing Agreement dated February 8, 1996 between Registrant and Edmund Publications Corporation 10.12* Referral Agreement dated September 6, 1996 between Registrant and Automotive Information Center 10.13(a)-(h) Forms of Dealership Subscription Agreements 10.14 Lease Agreement dated June 1996 between Registrant and McDonnell Douglas Realty Company 10.15 Sublease Agreement dated October 31, 1996 between Registrant and Silicon Valley Bank 10.16* Financing Inquiry Referral Agreement dated October 25, 1996 among Registrant, as obligor, Auto-By-Tel Acceptance Corporation and Chase Manhattan Automotive Financial Corporation 10.17+* Service Agreement dated as of February 1, 1997 between Registrant and Integrated Warranty Services, Inc. 11.1 Statement Regarding Computation of Per Share Earnings 21.1 Subsidiaries of the Company 23.1 Consents of Arthur Andersen LLP, Independent Public Accountants (see Page II-5) 23.2+ Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1) 24.1 Power of Attorney (see Page II-6) 27.1 Financial Data Schedule
- -------- + To be filed by amendment. * Confidential treatment has been requested for certain portions which have been blacked out in the copy of the exhibit filed with the Commission. The omitted information has been filed separately with the Commission pursuant to the application for confidential treatment. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT, DRAFT OF 1/24/97 EXHIBIT 1.1 [___________] SHARES AUTO-BY-TEL CORPORATION COMMON STOCK UNDERWRITING AGREEMENT [__________], 1997 MONTGOMERY SECURITIES COWEN & COMPANY ROBERTSON, STEPHENS, & COMPANY LLC As Representatives of the several Underwriters c/o Montgomery Securities 600 Montgomery Street San Francisco, California 94111 Dear Sirs: SECTION 1. Introductory. Auto-By-Tel Corporation, a Delaware ------------ corporation (the "Company"), proposes to issue and sell [__________] shares of its authorized but unissued common stock (the "Common Stock"), and Peter R. Ellis (the "Selling Stockholder") proposes to sell [__________] shares of the issued and outstanding Common Stock, to the several underwriters named in Schedule A annexed hereto (the "Underwriters"), for whom you are acting as Representatives. Said aggregate of [__________] shares are herein called the "Firm Common Shares." In addition, the Company proposes to grant to the Underwriters an option to purchase up to [__________] additional shares of Common Stock (the "Optional Common Shares"), as provided in Section 5 hereof. The Firm Common Shares and, to the extent such option is exercised, the Optional Common Shares are hereinafter collectively referred to as the "Common Shares." You have advised the Company and the Selling Stockholder that the Underwriters propose to make a public offering of their respective portions of the Common Shares on the effective date of the registration statement hereinafter referred to, or as soon thereafter as in your judgment is advisable. The Company and the Selling Stockholder hereby confirm their respective agreements with respect to the purchase of the Common Shares by the Underwriters as follows: SECTION 2. Representations and Warranties of the Company and ------------------------------------------------- the Selling Stockholder. The Company and the Selling Stockholder represent and - ----------------------- warrant to the several Underwriters that: (a) A registration statement on Form S-1 (File No. 333-___) with respect to the Common Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and has been filed with the Commission. The Company has prepared and has filed or proposes to file prior to the effective date of such registration statement an amendment or amendments to such registration statement, which amendment or amendments have been or will be similarly prepared. There have been delivered to you four signed copies of such registration statement and amendments, together with four copies of each exhibit filed therewith. Conformed copies of such registration statement and amendments (but without exhibits) and of the related preliminary prospectus have been delivered to you in such reasonable quantities as you have requested for each of the Underwriters. The Company will next file with the Commission one of the following: (i) prior to effectiveness of such registration statement, a further amendment thereto, including the form of final prospectus, (ii) a final prospectus in accordance with Rules 430A and 2 424(b) of the Rules and Regulations or (iii) a term sheet (the "Term Sheet") as described in and in accordance with Rules 434 and 424(b) of the Rules and Regulations. As filed, the final prospectus, if one is used, or the Term Sheet and Preliminary Prospectus, if a final prospectus is not used, shall include all Rule 430A Information and, except to the extent that you shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the date and time that this Agreement was executed and delivered by the parties hereto, or, to the extent not completed at such date and time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company shall have previously advised you in writing would be included or made therein. The term "Registration Statement" as used in this Agreement shall mean such registration statement at the time such registration statement becomes effective and, in the event any post-effective amendment thereto becomes effective prior to the First Closing Date (as hereinafter defined), shall also mean such registration statement as so amended; provided, however, that such term shall also include (i) all Rule 430A Information deemed to be included in such registration statement at the time such registration statement becomes effective as provided by Rule 430A of the Rules and Regulations and (ii) any registration statement filed pursuant to Rule 462(b) of the Rules and Regulations relating to the Common Shares. The term "Preliminary Prospectus" as used in this Agreement shall mean any preliminary prospectus referred to in the preceding paragraph and any preliminary prospectus included in the Registration Statement at the time it becomes effective that omits Rule 430A Information. The term "Prospectus" as used in this Agreement shall mean (i) the prospectus relating to the Common Shares in the form in which it is first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, (ii) if a Term Sheet is not used and no filing pursuant to Rule 424(b) of the Rules and Regulations is required, the form of final prospectus included in the Registration Statement at the time such registration statement becomes effective or (iii) if a Term Sheet is used, the Term Sheet in the form in which it is first filed with the Commission pursuant to Rule 424(b) of 3 the Rules and Regulations, together with the Preliminary Prospectus included in the Registration Statement at the time it becomes effective. The term "Rule 430A Information" as used in this Agreement means information with respect to the Common Shares and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A of the Rules and Regulations. (b) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed in all material respects to the requirements of the Act and the Rules and Regulations and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and at the time the Registration Statement becomes effective, and at all times subsequent thereto up to and including each Closing Date hereinafter mentioned, the Registration Statement and the Prospectus, and any amendments or supplements thereto, will contain all material statements and information required to be included therein by the Act and the Rules and Regulations and will in all material respects conform to the requirements of the Act and the Rules and Regulations, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, no representation or warranty contained in this subsection (b) shall be applicable to information contained in or omitted from any Preliminary Prospectus, the Registration Statement, the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter, directly or through the Representatives, specifically for use in the preparation thereof. (c) The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 22 to the Registration Statement. The Company and each 4 of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, with full power and authority (corporate and other) to own and lease their properties and conduct their respective businesses as described in the Prospectus; the Company owns all of the outstanding capital stock of its subsidiaries free and clear of all claims, liens, charges and encumbrances; the Company and each of its subsidiaries are in possession of and operating in compliance with all authorizations, licenses, permits, consents, certificates and orders material to the conduct of their respective businesses, all of which are valid and in full force and effect; the Company and each of its subsidiaries are duly qualified to do business and in good standing as foreign corporations in each jurisdiction in which the ownership or leasing of properties or the conduct of their respective businesses requires such qualification, except for jurisdictions in which the failure to so qualify would not have a material adverse effect upon the Company or the subsidiary; and no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (d) The Company has an authorized and outstanding capital stock as set forth under the heading "Capitalization" in the Prospectus; the issued and outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof contained in the Prospectus. All issued and outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable. Except as disclosed in or contemplated by the Prospectus and the financial statements of the Company, and the related notes thereto, included in the Prospectus, neither the Company nor any subsidiary has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, 5 or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (e) The Common Shares to be sold by the Company have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof contained in the Prospectus. No preemptive rights or other rights to subscribe for or purchase exist with respect to the issuance and sale of the Common Shares by the Company pursuant to this Agreement. No stockholder of the Company has any right which has not been waived to require the Company to register the sale of any shares owned by such stockholder under the Act in the public offering contemplated by this Agreement. No further approval or authority of the stockholders or the Board of Directors of the Company will be required for the transfer and sale of the Common Shares to be sold by the Selling Stockholder or the issuance and sale of the Common Shares to be sold by the Company as contemplated herein. (f) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company in accordance with its terms. The making and performance of this Agreement by the Company and the consummation of the transactions herein contemplated will not violate any provisions of the certificate of incorporation or bylaws, or other organizational documents, of the Company or any of its subsidiaries, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the 6 Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to the Company or any of its subsidiaries or any of its respective properties. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except for compliance with the Act, the Blue Sky laws applicable to the public offering of the Common Shares by the several Underwriters and the clearance of such offering with the National Association of Securities Dealers, Inc. (the "NASD"). (g) Arthur Andersen LLP, who have expressed their opinion with respect to the financial statements [and schedules] filed with the Commission as a part of the Registration Statement and included in the Prospectus and in the Registration Statement, are independent accountants as required by the Act and the Rules and Regulations. (h) The financial statements [and schedules] of the Company, and the related notes thereto, included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the respective dates of such financial statements [and schedules], and the results of operations and changes in financial position of the Company for the respective periods covered thereby. Such statements[, schedules] and related notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis as certified by the independent accountants named in subsection (g) of this Section 2. No other financial statements or schedules are required to be included in the Registration Statement. The selected financial data set forth in the Prospectus under the captions "Capitalization" and "Selected Financial Data" fairly present the information set forth therein on the basis stated in the Registration Statement. 7 (i) Except as disclosed in the Prospectus, and except as to defaults which individually or in the aggregate would not be material to the Company, neither the Company nor any of its subsidiaries is in violation or default of any provision of its certificate of incorporation or bylaws, or other organizational documents, or is in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound; and there does not exist any state of facts which constitutes an event of default on the part of the Company or any such subsidiary as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default. (j) There are no contracts or other documents required to be described in the Registration Statement or to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations which have not been described or filed as required. The contracts so described in the Prospectus are accurate and complete; all such contracts are in full force and effect on the date hereof; and neither the Company nor any of its subsidiaries, nor to the best of the Company's knowledge, any other party is in breach of or default under any of such contracts. (k) There are no legal or governmental actions, suits or proceedings pending or, to the best of the Company's knowledge, threatened to which the Company or any of its subsidiaries is or may be a party or of which property owned or leased by the Company or any of its subsidiaries is or may be the subject, or related to environmental or discrimination matters, which actions, suits or proceedings might, individually or in the aggregate, prevent or adversely affect the transactions contemplated by this Agreement or result in a material adverse change in the condition (financial or otherwise), properties, business, results of 8 operations or prospects of the Company and its subsidiaries; and no labor disturbance by the employees of the Company or any of its subsidiaries exists or is imminent which might be expected to affect adversely such condition, properties, business, results of operations or prospects. Neither the Company nor any of its subsidiaries is a party or subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body, administrative agency or other governmental body. (l) The Company or the applicable subsidiary has good and marketable title to all the properties and assets reflected as owned in the financial statements hereinabove described (or elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such financial statements (or elsewhere in the Prospectus), or (ii) those which are not material in amount and do not adversely affect the use made and proposed to be made of such property by the Company and its subsidiaries. The Company or the applicable subsidiary holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Company. Except as disclosed in the Prospectus, the Company owns or leases all such properties as are necessary to its operations as now conducted or as proposed to be conducted. (m) Since the respective dates as of which information is given in the Registration Statement and Prospectus, and except as described in or specifically contemplated by the Prospectus: (i) the Company and its subsidiaries have not incurred any material liabilities or obligations, indirect, direct or contingent, or entered into any material verbal or written agreement or other transaction which is not in the ordinary course of business or which could result in a material reduction in the future earnings of the Company and its subsidiaries; (ii) the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance; (iii) the Company has not paid or declared any dividends or other distributions with respect to its capital stock and the Company and its subsidiaries are not in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the capital stock (other than upon the sale of 9 the Common Shares hereunder and upon the exercise of options and warrants described in the Registration Statement) or indebtedness material to the Company and its subsidiaries (other than in the ordinary course of business); and (v) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Company and its subsidiaries. (n) Except as disclosed in or specifically contemplated by the Prospectus, the Company and its subsidiaries have sufficient trademarks, trade names, patent rights, mask works, copyrights, licenses, approvals and governmental authorizations to conduct their businesses as now conducted; the expiration of any trademarks, trade names, patent rights, mask works, copyrights, licenses, approvals or governmental authorizations would not have a material adverse effect on the condition (financial or otherwise), business, results of operations or prospects of the Company or its subsidiaries; and the Company has no knowledge of any material infringement by it or its subsidiaries of trademark, trade name rights, patent rights, mask works, copyrights, licenses, trade secret or other similar rights of others, and there is no claim being made against the Company or its subsidiaries regarding trademark, trade name, patent, mask work, copyright, license, trade secret or other infringement which could have a material adverse effect on the condition (financial or otherwise), business, results of operations or prospects of the Company and its subsidiaries. (o) The Company has not been advised, and has no reason to believe, that either it or any of its subsidiaries is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be so in compliance would not materially adversely affect the condition (financial or otherwise), business, results of operations or prospects of the Company and its subsidiaries. 10 (p) The Company and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes shown as due thereon; and the Company has no knowledge of any tax deficiency which has been or might be asserted or threatened against the Company or its subsidiaries which could materially and adversely affect the business, operations or properties of the Company and its subsidiaries. (q) The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (r) The Company has not distributed and will not distribute prior to the First Closing Date any offering material in connection with the offering and sale of the Common Shares other than the Prospectus, the Registration Statement and the other materials permitted by the Act. (s) Each of the Company and its subsidiaries maintain insurance of the types and in the amounts generally deemed adequate for its business, including, but not limited to, insurance covering real and personal property owned or leased by the Company and its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. (t) Neither the Company nor any of its subsidiaries has at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (u) The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common 11 Stock to facilitate the sale or resale of the Common Shares. SECTION 3. Representations, Warranties and Covenants of the ------------------------------------------------ Selling Stockholder. - ------------------- (a) The Selling Stockholder represents and warrants to, and agrees with, the several Underwriters that: (i) The Selling Stockholder has, and on the First Closing Date hereinafter mentioned will have, good and marketable title to the Common Shares proposed to be sold by him hereunder on the First Closing Date and full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver such Common Shares hereunder, free and clear of all voting trust arrangements, liens, encumbrances, equities, security interests, restrictions and claims whatsoever; and upon delivery of and payment for such Common Shares hereunder, the Underwriters will acquire good and marketable title thereto, free and clear of all liens, encumbrances, equities, claims, restrictions, security interests, voting trusts or other defects of title whatsoever. (ii) The Selling Stockholder agrees that the Common Shares to be sold by him are subject to the interests of the Company and the Underwriters and that the obligations of the Selling Stockholder hereunder shall not be terminated, except as provided in this Agreement, by any act of the Selling Stockholder, by operation of law, by the death or incapacity of the Selling Stockholder or by the occurrence of any other event. If the Selling Stockholder should die or become incapacitated, or if any other event should occur, before the delivery of the Common Shares hereunder, documents evidencing Common Shares shall be delivered by the heirs, assignees, successors or legal representatives of the Selling Stockholder, as the case may be, in accordance with the terms and conditions of this Agreement as if such death, incapacity or other event had not occurred. This Agreement has been duly executed and delivered by the Selling Stockholder. 12 (iii) The performance of this Agreement and the consummation of the transactions contemplated hereby will not result in a breach or violation by the Selling Stockholder of any of the terms or provisions of, or constitute a default by the Selling Stockholder under, any indenture, mortgage, deed of trust, trust (constructive or other), loan agreement, lease, franchise, license or other agreement or instrument to which the Selling Stockholder is a party or by which the Selling Stockholder or any of his properties is bound, any statute, or any judgment, decree, order, rule or regulation of any court or governmental agency or body applicable to the Selling Stockholder or any of his properties. (iv) The Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Shares. (b) The Selling Stockholder agrees with the Company and the Underwriters not to offer to sell, sell or contract to sell or otherwise dispose of any shares of Common Stock or securities convertible into or exchangeable for any shares of Common Stock, for a period of 180 days after the first date that any of the Common Shares are released by you for sale to the public, without the prior written consent of Montgomery Securities, which consent may be withheld at the sole discretion of Montgomery Securities. SECTION 4. Representations and Warranties of the Underwriters. -------------------------------------------------- The Representatives, on behalf of the several Underwriters, represent and warrant to the Company and to the Selling Stockholder that the information set forth (i) on the cover page of the Prospectus with respect to price, underwriting discounts and commissions and terms of offering and (ii) under "Underwriting" in the Prospectus was furnished to the Company by and on behalf of the Underwriters for use in connection with the preparation of the Registration Statement and the Prospectus and is correct in all material respects. The Representatives represent and warrant that they have been authorized by 13 each of the other Underwriters as the Representatives to enter into this Agreement on its behalf and to act for it in the manner herein provided. SECTION 5. Purchase, Sale and Delivery of Common Shares. On -------------------------------------------- the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, (i) the Company agrees to issue and sell to the Underwriters [_________] of the Firm Common Shares and (ii) the Selling Stockholder agrees to sell to the Underwriters [_______] of the Firm Common Shares. The Underwriters agree, severally and not jointly, to purchase from the Company and the Selling Stockholder, respectively, the number of Firm Common Shares described below. The purchase price per share to be paid by the several Underwriters to the Company and to the Selling Stockholder, respectively, shall be $[___] per share. The obligation of each Underwriter to the Company shall be to purchase from the Company that number of full shares which (as nearly as practicable, as determined by you) bears to [__________] the same proportion as the number of shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Common Shares. The obligation of each Underwriter to the Selling Stockholder shall be to purchase from the Selling Stockholder that number of full shares which (as nearly as practicable, as determined by you) bears to [__________] the same proportion as the number of shares set forth opposite the name of such Underwriter in Schedule A hereto bears to the total number of Firm Common Shares. Delivery of certificates for the Firm Common Shares to be purchased by the Underwriters and payment therefor shall be made at the offices of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or such other place as may be agreed upon by the Company and the Representatives) at such time and date, not later than the third (or, if the Firm Common Shares are priced, as contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30 P.M. Washington D.C. time, the fourth) full business day following the first date that any of the 14 Common Shares are released by you for sale to the public, as you shall designate by at least 48 hours' prior notice to the Company or at such other time and date, not later than one week after such third or fourth, as the case may be, full business day as may be agreed upon by the Company and the Representatives (the "First Closing Date"); provided, however, that if the Prospectus is at any time prior to the First Closing Date recirculated to the public, the First Closing Date shall occur upon the later of the third or fourth, as the case may be, full business day following the first date that any of the Common Shares are released by you for sale to the public or the date that is 48 hours after the date that the Prospectus has been so recirculated. Delivery of certificates for the Firm Common Shares shall be made by or on behalf of the Company and the Selling Stockholder to you, for the respective accounts of the Underwriters with respect to the Firm Common Shares to be sold by the Company and the Selling Stockholder against payment by you, for the accounts of the several Underwriters, of the purchase price therefor by a wire transfer of immediately available funds to an account designated by the Company and by the Selling Stockholder in proportion to the number of Firm Common Shares to be sold by the Company and the Selling Stockholder, respectively. The certificates for the Firm Common Shares shall be registered in such names and denominations as you shall have requested at least two full business days prior to the First Closing Date, and shall be made available for checking and packaging on the business day preceding the First Closing Date at a location in New York, New York, as may be designated by you. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. In addition, on the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of [________] Optional Common Shares at the purchase price per share to be paid for the Firm Common Shares, for use solely in covering any over-allotments made by you for the account 15 of the Underwriters in the sale and distribution of the Firm Common Shares. The option granted hereunder may be exercised at any time (but not more than once) within 30 days after the first date that any of the Common Shares are released by you for sale to the public, upon notice by you to the Company setting forth the aggregate number of Optional Common Shares as to which the Underwriters are exercising the option, the names and denominations in which the certificates for such shares are to be registered and the time and place at which such certificates will be delivered. Such time of delivery (which may not be earlier than the First Closing Date), being herein referred to as the "Second Closing Date," shall be determined by you, but if at any time other than the First Closing Date shall not be earlier than three nor later than five full business days after delivery of such notice of exercise. The number of Optional Common Shares to be purchased by each Underwriter shall be determined by multiplying the number of Optional Common Shares to be sold by the Company pursuant to such notice of exercise by a fraction, the numerator of which is the number of Firm Common Shares to be purchased by such Underwriter as set forth opposite its name in Schedule A and the denominator of which is [__________] (subject to such adjustments to eliminate any fractional share purchases as you in your discretion may make). Certificates for the Optional Common Shares will be made available for checking and packaging on the business day preceding the Second Closing Date at a location in New York, New York, as may be designated by you. The manner of payment for and delivery of the Optional Common Shares shall be the same as for the Firm Common Shares purchased from the Company as specified in the two preceding paragraphs. At any time before lapse of the option, you may cancel such option by giving written notice of such cancellation to the Company. If the option is cancelled or expires unexercised in whole or in part, the Company will register under the Act the number of Option Shares as to which the option has not been exercised. You have advised the Company and the Selling Stockholder that each Underwriter has authorized you to accept delivery of its Common Shares and to make payment and receipt therefor. You, individually and not as the Representatives of the Underwriters, may (but shall not be 16 obligated to) make payment for any Common Shares to be purchased by any Underwriter whose funds shall not have been received by you by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. Subject to the terms and conditions hereof, the Underwriters propose to make a public offering of their respective portions of the Common Shares as soon after the effective date of the Registration Statement as in the judgment of the Representatives is advisable and at the public offering price set forth on the cover page of and on the terms set forth in the final prospectus, if one is used, or on the first page of the Term Sheet, if one is used. SECTION 6. Covenants of the Company. The Company covenants ------------------------ and agrees that: (a) The Company will use its best efforts to cause the Registration Statement and any amendment thereof, if not effective at the time and date that this Agreement is executed and delivered by the parties hereto, to become effective. If the Registration Statement has become or becomes effective pursuant to Rule 430A of the Rules and Regulations, or the filing of the Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations, the Company will file the Prospectus, properly completed, pursuant to the applicable paragraph of Rule 424(b) of the Rules and Regulations within the time period prescribed and will provide evidence satisfactory to you of such timely filing. The Company will promptly advise you in writing (i) of the receipt of any comments of the Commission, (ii) of any request of the Commission for amendment or supplement to the Registration Statement (either before or after it becomes effective), any Preliminary Prospectus or the Prospectus or for additional information, (iii) when the Registration Statement shall have become effective, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose. If the Commission shall 17 enter any such stop order at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment. The Company will not file any amendment or supplement to the Registration Statement (either before or after it becomes effective), any Preliminary Prospectus or the Prospectus of which you have not been furnished with a copy a reasonable time prior to such filing or to which you reasonably object or which is not in compliance with the Act and the Rules and Regulations. (b) The Company will prepare and file with the Commission, promptly upon your request, any amendments or supplements to the Registration Statement or the Prospectus which in your judgment may be necessary or advisable to enable the several Underwriters to continue the distribution of the Common Shares and will use its best efforts to cause the same to become effective as promptly as possible. The Company will fully and completely comply with the provisions of Rule 430A of the Rules and Regulations with respect to information omitted from the Registration Statement in reliance upon such Rule. (c) If at any time within the nine-month period referred to in Section 10(a)(3) of the Act during which a prospectus relating to the Common Shares is required to be delivered under the Act any event occurs, as a result of which the Prospectus, including any amendments or supplements, would include an untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or if it is necessary at any time to amend the Prospectus, including any amendments or supplements, to comply with the Act or the Rules and Regulations, the Company will promptly advise you thereof and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment or supplement which will effect such compliance and will use its best efforts to cause the same to become effective as soon as possible; and, in case any Underwriter is required to deliver a prospectus after such nine-month period, the Company upon request, but at the expense of such Underwriter, will promptly prepare such amendment or amendments to the Registration Statement and such Prospectus or Prospec- 18 tuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act. (d) As soon as practicable, but not later than 45 days after the end of the first quarter ending after one year following the "effective date of the Registration Statement" (as defined in Rule 158(c) of the Rules and Regulations), the Company will make generally available to its security holders an earnings statement (which need not be audited) covering a period of 12 consecutive months beginning after the effective date of the Registration Statement which will satisfy the provisions of the last paragraph of Section 11(a) of the Act. (e) During such period as a prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, the Company, at its expense, but only for the nine-month period referred to in Section 10(a)(3) of the Act, will furnish to you and the Selling Stockholder or mail to your and the Selling Stockholder's orders copies of the Registration Statement, the Prospectus, the Preliminary Prospectus and all amendments and supplements to any such documents in each case as soon as available and in such quantities as you and the Selling Stockholder may request, for the purposes contemplated by the Act. (f) The Company shall cooperate with you and your counsel in order to qualify or register the Common Shares for sale under (or obtain exemptions from the application of) the Blue Sky laws of such jurisdictions as you designate, will comply with such laws and will continue such qualifications, registrations and exemptions in effect so long as reasonably required for the distribution of the Common Shares. The Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise you promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Common Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of 19 any order suspending such qualification, registration or exemption, the Company, with your cooperation, will use its best efforts to obtain the withdrawal thereof. (g) During the period of five years hereafter, the Company will furnish to the Representatives and, upon request of the Representatives, to each of the other Underwriters: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other report filed by the Company with the Commission, the NASD or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its Common Stock. (h) During the period of 180 days after the first date that any of the Common Shares are released by you for sale to the public, without the prior written consent of either Montgomery Securities or each of the Representatives (which consent may be withheld at the sole discretion of Montgomery Securities or the Representatives, as the case may be), the Company will not (other than pursuant to outstanding options and warrants described in the Registration Statement) issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities or any other securities convertible into or exchangeable with Common Stock or any other equity security of the Company. (i) The Company will apply the net proceeds of the sale of the Common Shares sold by it substantially in accordance with the statements under the caption "Use of Proceeds" in the Prospectus. (j) The Company will use its best efforts to qualify or register the Common Stock for sale in non-issuer transactions under (or obtain exemptions from the 20 application of) the Blue Sky laws of the State of California (and thereby permit market making transactions and secondary trading in the Common Stock in California), will comply with such Blue Sky laws and will continue such qualifications, registrations and exemptions in effect for a period of five years after the date hereof. (k) The Company will use its best efforts to designate the Common Stock for quotation as a national market system security on the NASD Automated Quotation System. (l) Not later than 4:00 P.M. on the business day following the date Common Shares are released by the Underwriters for sale to the public, the Company shall deliver or cause to be delivered copies of the Prospectus in such quantities and at such places as the Representatives shall request. You, on behalf of the Underwriters, may, in your sole discretion, waive in writing the performance by the Company of any one or more of the foregoing covenants or extend the time for their performance. SECTION 7. Payment of Expenses. Whether or not the transactions ------------------- contemplated hereunder are consummated or this Agreement becomes effective or is terminated, the Company and, unless otherwise paid by the Company, the Selling Stockholder agree to pay all costs, fees and expenses incurred in connection with the performance of their obligations hereunder and in connection with the transactions contemplated hereby, including without limiting the generality of the foregoing, (i) all expenses incident to the issuance and delivery of the Common Shares (including all printing and engraving costs), (ii) all fees and expenses of the registrar and transfer agent of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel and the Company's independent accountants, (v) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement, each Preliminary Prospectus and the Prospectus 21 (including all exhibits and financial statements) and all amendments and supplements provided for herein, this Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all filing fees, attorneys' fees and expenses incurred by the Company or the Underwriters in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Common Shares for offer and sale under the Blue Sky laws, (vii) the filing fee of the NASD, and (viii) all other fees, costs and expenses referred to in Item 13 of the Registration Statement. The Underwriters may deem the Company to be the primary obligor with respect to all costs, fees and expenses to be paid by the Company and by the Selling Stockholder hereunder. Except as provided in this Section 7, Section 9 and Section 11 hereof, the Underwriters shall pay all of their own expenses, including the fees and disbursements of their counsel (excluding those relating to qualification, registration or exemption under the Blue Sky laws and the Blue Sky memorandum referred to above). This Section 7 shall not affect any agreement between the Company and the Selling Stockholder relating to the payment of expenses. The Selling Stockholder will pay (directly or by reimbursement) all fees and expenses incident to the performance of his obligations under this Agreement which are not otherwise specifically provided for herein, including but not limited to (i) any fees and expenses of counsel for the Selling Stockholder and (ii) all expenses and taxes incident to the sale and delivery of the Common Shares to be sold by the Selling Stockholder to the Underwriters hereunder. SECTION 8. Conditions of the Obligations of the Underwriters. ------------------------------------------------- The obligations of the several Underwriters to purchase and pay for the Firm Common Shares on the First Closing Date and the Optional Common Shares on the Second Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholder herein set forth as of the date hereof and as of the First Closing Date or the Second Closing Date, as the case may be, to the accuracy of the 22 statements of Company officers and the Selling Stockholder made pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholder of their respective obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:00 P.M. (or, in the case of a registration statement filed pursuant to Rule 462(b) of the Rules and Regulations relating to the Common Shares, not later than 10:00 P.M.), Washington, D.C. time, on the date of this Agreement, or at such later time as shall have been consented to by you; if the filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall have been filed in the manner and within the time period required by Rule 424(b) of the Rules and Regulations; and prior to such Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Company, the Selling Stockholder or you, shall be contemplated by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement, or otherwise, shall have been complied with to your satisfaction. (b) You shall be satisfied that since the respective dates as of which information is given in the Registration Statement and Prospectus, (i) there shall not have been any change in the capital stock (other than pursuant to the exercise of outstanding options and warrants described in the Registration Statement) of the Company or any of its subsidiaries or any material change in the indebtedness (other than in the ordinary course of business) of the Company or any of its subsidiaries, (ii) except as set forth or contemplated by the Registration Statement or the Prospectus, no material oral or written agreement or other transaction shall have been entered into by the Company or any of its subsidiaries, which is not in the ordinary course of business or which could result in a material reduction in the future earnings of the Company and its subsidiaries, (iii) no loss or damage (whether or not insured) to the property of the 23 Company or any of its subsidiaries shall have been sustained which materially and adversely affects the condition (financial or otherwise), business, results of operations or prospects of the Company and its subsidiaries, (iv) no legal or governmental action, suit or proceeding affecting the Company or any of its subsidiaries which is material to the Company and its subsidiaries or which affects or may affect the transactions contemplated by this Agreement shall have been instituted or threatened, and (v) there shall not have been any material change in the condition (financial or otherwise), business, management, results of operations or prospects of the Company and its subsidiaries which makes it impractical or inadvisable in the judgment of the Representatives to proceed with the public offering or purchase the Common Shares as contemplated hereby. (c) There shall have been furnished to you, as Representatives of the Underwriters, on each Closing Date, in form and substance satisfactory to you, except as otherwise expressly provided below: (i) An opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Company and the Selling Stockholder, addressed to the Underwriters and dated the First Closing Date or the Second Closing Date (in the latter case with respect to the Company only), as the case may be, to the effect that: (1) Each of the Company and each of its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business as a foreign corporation and is in good standing in all other jurisdictions where the ownership or leasing of properties or the conduct of its business requires such qualification, except for jurisdictions in which the failure to so qualify would not have a material adverse effect on the Company and its subsidiaries, and has full corporate power and authority to own its properties and conduct its business as described in the Registration Statement; (2) The authorized, issued and outstanding capital stock of the Company is as set forth 24 under the caption "Capitalization" in the Prospectus; all necessary and proper corporate proceedings have been taken in order to authorize validly such authorized Common Stock; all outstanding shares of Common Stock (including the Firm Common Shares and any Optional Common Shares) have been duly and validly issued, are fully paid and nonassessable, have been issued in compliance with federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase any securities and conform to the description thereof contained in the Prospectus; without limiting the foregoing, there are no preemptive or other rights to subscribe for or purchase any of the Common Shares to be sold by the Company hereunder; (3) All of the issued and outstanding shares of the Company's subsidiaries have been duly and validly authorized and issued, are fully paid and nonassessable and are owned beneficially by the Company free and clear of all liens, encumbrances, equities, claims, security interests, voting trusts or other defects of title whatsoever; (4) The certificates evidencing the Common Shares to be delivered hereunder are in due and proper form under Delaware law, and when duly countersigned by the Company's transfer agent and registrar, and delivered to you or upon your order against payment of the agreed consideration therefor in accordance with the provisions of this Agreement, the Common Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable, will not have been issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities and will conform in all respects to the description thereof contained in the Prospectus; (5) Except as disclosed in or specifically contemplated by the Prospectus, to the best of such counsel's knowledge, there are no outstanding options, warrants or other rights calling for the issuance of, and no commitments, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company; 25 (6) The Registration Statement has become effective under the Act, and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement or preventing the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or are pending or contemplated by the Commission; any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has been made in the manner and within the time period required by such Rule 424(b); (7) The Registration Statement, the Prospectus and each amendment or supplement thereto (except for the financial statements and schedules included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; (8) To the best of such counsel's knowledge, there are no franchises, leases, contracts, agreements or documents of a character required to be disclosed in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement which are not disclosed or filed, as required; (9) To the best of such counsel's knowledge, there are no legal or governmental actions, suits or proceedings pending or threatened against the Company which are required to be described in the Prospectus which are not described as required; (10) The Company has full right, power and authority to enter into this Agreement and to sell and deliver the Common Shares to be sold by it to the several Underwriters; this Agreement has been duly and validly authorized by all necessary corporate action by the Company, has been duly and validly executed and delivered by and on behalf of the Company, and is a valid and binding agreement of the Company in accordance with its terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and except as to those provisions relating to 26 indemnity or contribution for liabilities arising under the Act as to which no opinion need be expressed; and no approval, authorization, order, consent, registration, filing, qualification, license or permit of or with any court, regulatory, administrative or other governmental body is required for the execution and delivery of this Agreement by the Company or the consummation of the transactions contemplated by this Agreement, except such as have been obtained and are in full force and effect under the Act and such as may be required under applicable Blue Sky laws in connection with the purchase and distribution of the Common Shares by the Underwriters and the clearance of such offering with the NASD; (11) The execution and performance of this Agreement and the consummation of the transactions herein contemplated will not conflict with, result in the breach of, or constitute, either by itself or upon notice or the passage of time or both, a default under, any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of its or their property may be bound or affected which is material to the Company and its subsidiaries, or violate any of the provisions of the certificate of incorporation or bylaws, or other organizational documents, of the Company or any of its subsidiaries or, so far as is known to such counsel, violate any statute, judgment, decree, order, rule or regulation of any court or governmental body having jurisdiction over the Company or any of its subsidiaries or any of its or their property; (12) Neither the Company nor any subsidiary is in violation of its certificate of incorporation or bylaws, or other organizational documents, or to the best of such counsel's knowledge, in breach of or default with respect to any provision of any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument known to such counsel to which the Company or any such subsidiary is a party or by which it or any of its properties may be bound or affected, except where such default would not materially 27 adversely affect the Company and its subsidiaries; and, to the best of such counsel's knowledge, the Company and its subsidiaries are in compliance with all laws, rules, regulations, judgments, decrees, orders and statutes of any court or jurisdiction to which they are subject, except where noncompliance would not materially adversely affect the Company and its subsidiaries; (13) To the best of such counsel's knowledge, no holders of securities of the Company have rights which have not been waived to the registration of shares of Common Stock or other securities, because of the filing of the Registration Statement by the Company or the offering contemplated hereby; (14) To the best of such counsel's knowledge, this Agreement has been duly authorized, executed and delivered by or on behalf of the Selling Stockholder; and the performance of this Agreement and the consummation of the transactions herein contemplated by the Selling Stockholder will not result in a breach of, or constitute a default under, any indenture, mortgage, deed of trust, trust (constructive or other), loan agreement, lease, franchise, license or other agreement or instrument to which the Selling Stockholder is a party or by which the Selling Stockholder or any of his property may be bound, or violate any statute, judgment, decree, order, rule or regulation known to such counsel of any court or governmental body having jurisdiction over the Selling Stockholder or any of his property; and to the best of such counsel's knowledge, no approval, authorization, order or consent of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of this Agreement or the consummation by the Selling Stockholder of the transactions contemplated by this Agreement, except such as have been obtained and are in full force and effect under the Act and such as may be required under the rules of the NASD and applicable Blue Sky laws; (15) To the best of such counsel's knowledge, the Selling Stockholder has full right, power and authority to enter into this Agreement and to sell, transfer and deliver the Common Shares to be sold on the 28 First Closing Date by the Selling Stockholder hereunder, and good and marketable title to such Common Shares so sold, free and clear of all liens, encumbrances, equities, claims, restrictions, security interests, voting trusts, or other defects of title whatsoever, will be transferred to the Underwriters (whom counsel may assume to be bona fide purchasers) who purchase such Common Shares hereunder; (16) To the best of such counsel's knowledge, this Agreement is a valid and binding agreement of the Selling Stockholder, enforceable against the Selling Stockholder in accordance with its terms except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and except with respect to those provisions relating to indemnities or contributions for liabilities under the Act, as to which no opinion need be expressed; and (17) No transfer taxes are required to be paid in connection with the sale and delivery of the Common Shares to the Underwriters hereunder. In rendering such opinion, such counsel may rely, as to matters of local law, on opinions of local counsel and, as to matters of fact, on certificates of the Selling Stockholder and of officers of the Company and of governmental officials, in which case their opinion is to state that they are so doing and that the Underwriters are justified in relying on such opinions or certificates and copies of said opinions or certificates are to be attached to the opinion. Such counsel shall also include a statement to the effect that nothing has come to such counsel's attention that would lead such counsel to believe that either at the effective date of the Registration Statement or at the applicable Closing Date the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 29 (ii) Such opinion or opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the incorporation of the Company, the sufficiency of all corporate proceedings and other legal matters relating to this Agreement, the validity of the Common Shares, the Registration Statement and the Prospectus and other related matters as you may reasonably require, and the Company and the Selling Stockholder shall have furnished to such counsel such documents and shall have exhibited to them such papers and records as they may reasonably request for the purpose of enabling them to pass upon such matters. In connection with such opinions, such counsel may rely on representations or certificates of officers of the Company and governmental officials. (iii) A certificate of the Company executed by the Chairman of the Board or President and the chief financial or accounting officer of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (1) The representations and warranties of the Company set forth in Section 2 of this Agreement are true and correct as of the date of this Agreement and as of the First Closing Date or the Second Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to such Closing Date; (2) The Commission has not issued any order preventing or suspending the use of the Prospectus or any Preliminary Prospectus filed as a part of the Registration Statement or any amendment thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and to the best of the knowledge of the respective signers, no proceedings for that purpose have been instituted or are pending or contemplated under the Act; (3) Each of the respective signers of the certificate has carefully examined the 30 Registration Statement and the Prospectus; in his opinion and to the best of his knowledge, the Registration Statement and the Prospectus and any amendments or supplements thereto contain all statements required to be stated therein regarding the Company and its subsidiaries; and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (4) Since the initial date on which the Registration Statement was filed, no agreement, written or oral, transaction or event has occurred which should have been set forth in an amendment to the Registration Statement or in a supplement to or amendment of any prospectus which has not been disclosed in such a supplement or amendment; (5) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as disclosed in or contemplated by the Prospectus, there has not been any material adverse change or a development involving a material adverse change in the condition (financial or otherwise), business, properties, results of operations, management or prospects of the Company and its subsidiaries; and no legal or governmental action, suit or proceeding is pending or threatened against the Company or any of its subsidiaries which is material to the Company and its subsidiaries, whether or not arising from transactions in the ordinary course of business, or which may adversely affect the transactions contemplated by this Agreement; since such dates and except as so disclosed, neither the Company nor any of its subsidiaries has entered into any oral or written agreement or other transaction which is not in the ordinary course of business, or which could result in a material reduction in the future earnings of the Company, or incurred any material liability or obligation, direct, contingent or indirect, made any change in its capital stock, made any material change in its short-term debt or funded debt or repurchased or otherwise acquired any of the Company's capital stock; and the Company has not declared or paid any dividend, or made any other distribution, upon 31 its outstanding capital stock payable to stockholders of record on a date prior to the First Closing Date or Second Closing Date; and (6) Since the respective dates as of which information is given in the Registration Statement and the Prospectus and except as disclosed in or contemplated by the Prospectus, the Company and its subsidiaries have not sustained a material loss or damage by strike, fire, flood, windstorm, accident or other calamity (whether or not insured). (iv) On the First Closing Date, a certificate, dated the First Closing Date and addressed to you, signed by the Selling Stockholder to the effect that the representations and warranties of the Selling Stockholder in this Agreement are true and correct, as if made at and as of the First Closing Date, and the Selling Stockholder has complied with all the agreements and satisfied all the conditions on his part to be performed or satisfied prior to the First Closing Date. (v) On the date before this Agreement is executed and also on the First Closing Date and the Second Closing Date, a letter addressed to you, as Representatives of the Underwriters, from Arthur Andersen LLP, independent accountants, the first one to be dated the day before the date of this Agreement, the second one to be dated the First Closing Date and the third one (in the event of a Second Closing) to be dated the Second Closing Date, in form and substance satisfactory to you. (vi) On or before the First Closing Date, letters from the Selling Stockholder, each holder of the Common Stock and each director and officer of the Company, in form and substance satisfactory to you, confirming that for a period of 180 days after the first date that any of the Common Shares are released by you for sale to the public, such person will not, without the prior written consent of Montgomery Securities (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell, make any short sale (including without limitation any "short vs. the box"), pledge, transfer, establish an open 32 "put equivalent position" within the meaning of Rule 16a-1(h) of the Exchange Act or otherwise dispose of any shares of Common Stock, options or warrants to acquire Common Stock, or securities exchangeable or exercisable for or convertible into Common Stock. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are satisfactory to you and to Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters. The Company shall furnish you with such manually signed or conformed copies of such opinions, certificates, letters and documents as you request. Any certificate signed by any officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the statements made therein. If any condition to the Underwriters' obligations hereunder to be satisfied prior to or at the First Closing Date is not so satisfied, this Agreement at your election will terminate upon notification by you as Representatives to the Company and the Selling Stockholder without liability on the part of any Underwriter, the Company or the Selling Stockholder, except for the expenses to be paid or reimbursed by the Company and the Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof. SECTION 9. Reimbursement of Underwriters' Expenses. --------------------------------------- Notwithstanding any other provisions hereof, if this Agreement shall be terminated by you pursuant to Section 8 hereof, or if the sale to the Underwriters of the Common Shares at the First Closing is not consummated because of any refusal, inability or failure on the part of the Company or the Selling Stockholder to perform any agreement herein or to comply with any provision hereof, the Company agrees to reimburse you and the other Underwriters upon demand for all out-of-pocket expenses that shall have been reasonably incurred by you and them in connection with the proposed purchase and the sale of the Common Shares, including but not limited to fees and disbursements of counsel, printing expenses, travel expenses, postage, telegraph charges and telephone charges 33 relating directly to the offering contemplated by the Prospectus. Any such termination shall be without liability of any party to any other party except that the provisions of this Section 9, Section 7 and Section 11 hereof shall at all times be effective and shall apply. SECTION 10. Effectiveness of Registration Statement. You, the --------------------------------------- Company and the Selling Stockholder will use your, its and his best efforts to cause the Registration Statement to become effective, to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if such stop order be issued, to obtain as soon as possible the lifting thereof. SECTION 11. Indemnification. --------------- (a) The Company and the Selling Stockholder agree, jointly and severally, to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act against any losses, claims, damages, liabilities or expenses, joint or several, to which such Underwriter or such controlling person may become subject, under the Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them not misleading, or arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company or the Selling Stockholder contained herein or any failure of the Company or the Selling Stockholder to perform their respective obligations hereunder or under law; and will reimburse each Underwriter and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by such 34 Underwriter or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that neither the Company nor the Selling Stockholder will be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with the information furnished to the Company pursuant to Section 4 hereof. In addition to their other obligations under this Section 11(a), the Company and the Selling Stockholder agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, or any inaccuracy in the representations and warranties of the Company or the Selling Stockholder herein or failure to perform its obligations hereunder, all as described in this Section 11(a), they will reimburse each Underwriter on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's or the Selling Stockholder's obligation to reimburse each Underwriter for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, each Underwriter shall promptly return it to the Company together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim reimbursement payments which are not made to an Underwriter within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement will be in addition to any liability which the Company or the Selling Stockholder may otherwise have. 35 (b) Each Underwriter will severally indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act and the Selling Stockholder against any losses, claims, damages, liabilities or expenses to which the Company, any such director, officer, or controlling person or the Selling Stockholder may become subject, under the Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with the information furnished to the Company pursuant to Section 4 hereof; and will reimburse the Company, any such director, officer or controlling person or the Selling Stockholder for any legal and other expense reasonably incurred by the Company, any such director, officer or controlling person or the Selling Stockholder in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. In addition to its other obligations under this Section 11(b), each Underwriter severally agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 11(b) which relates to information furnished to the Company pursuant to Section 4 hereof, it will reimburse the Company (and, to the extent applicable, each such officer, director or controlling person or the 36 Selling Stockholder) on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company (and, to the extent applicable, each such officer, director or controlling person or the Selling Stockholder) for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company (and, to the extent applicable, each such officer, director and controlling person and the Selling Stockholder) shall promptly return it to the Underwriters together with interest, compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have 37 reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Representatives in the case of paragraph (a), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) If the indemnification provided for in this Section 11 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Selling Stockholder and the Underwriters from the offering of the Common Shares or (ii) if the 38 allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Selling Stockholder and the Underwriters in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company, the Selling Stockholder and the Underwriters shall be deemed to be in the same proportion, in the case of the Company and the Selling Stockholder, as the total price paid to the Company and the Selling Stockholder, respectively, for the Common Shares sold by them to the Underwriters (net of underwriting commissions but before deducting expenses) bears to the total price to public set forth on the cover of the Prospectus and, in the case of the Underwriters, as the underwriting commissions received by them bears to the total price to public set forth on the cover of the Prospectus. The relative fault of the Company, the Selling Stockholder and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Company, the Selling Stockholder or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in subsection (c) of this Section 11, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in subsection (c) of this Section 11 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this subsection (d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under such subsection (c) for purposes of indemnification. The Company, the Selling 39 Stockholder and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined solely by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 11, no Underwriter shall be required to contribute any amount in excess of the amount of the total underwriting commissions received by such Underwriter in connection with the Common Shares underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 11 are several in proportion to their respective underwriting commitments and not joint. (e) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in subsections (a) and (b) of this Section 11, including the amounts of any requested reimbursement payments and the method of determining such amounts, shall be settled by arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Such an arbitration would be limited to the operation of the interim reimbursement provisions contained in subsections (a) and (b) of this Section 11 and would not resolve the ultimate propriety or enforceability of the obligation to reimburse expenses which is created by the provisions of such subsections (a) and (b). 40 SECTION 12. Default of Underwriters. It shall be a condition ----------------------- to this Agreement and the obligations of the Company and the Selling Stockholder to sell and deliver the Common Shares hereunder, and of each Underwriter to purchase the Common Shares in the manner as described herein, that, except as provided in this paragraph, each of the Underwriters shall purchase and pay for all the Common Shares agreed to be purchased by such Underwriter hereunder upon tender to the Representatives of all such shares in accordance with the terms hereof. If any Underwriter or Underwriters default in their obligations to purchase Common Shares hereunder on either the First Closing Date or the Second Closing Date and the aggregate number of Common Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase on such Closing Date does not exceed 10% of the total number of Common Shares which the Underwriters are obligated to purchase on such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Common Shares which such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of Common Shares with respect to which such default occurs is more than the above percentage and arrangements satisfactory to the Representatives and the Company for the purchase of such Common Shares by other persons are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non- defaulting Underwriter, the Company or the Selling Stockholder, except for the expenses to be paid by the Company and the Selling Stockholder pursuant to Section 7 hereof and except to the extent provided in Section 11 hereof. In the event that Common Shares to which a default relates are to be purchased by the non-defaulting Underwriters or by another party or parties, the Representatives or the Company shall have the right to postpone the First Closing Date or the Second Closing Date, as the case may be, for not more than five business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected. As used in this Agreement, the term "Underwriter" includes any person substituted for 41 an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. SECTION 13. Effective Date. This Agreement shall become -------------- effective immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions, (i) if at the time of execution of this Agreement the Registration Statement has not become effective, at 2:00 P.M., California time, on the first full business day following the effectiveness of the Registration Statement, or (ii) if at the time of execution of this Agreement the Registration Statement has been declared effective, at 2:00 P.M., California time, on the first full business day following the date of execution of this Agreement; but this Agreement shall nevertheless become effective at such earlier time after the Registration Statement becomes effective as you may determine on and by notice to the Company or by release of any of the Common Shares for sale to the public. For the purposes of this Section 13, the Common Shares shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Common Shares or upon the release by you of telegrams (i) advising Underwriters that the Common Shares are released for public offering, or (ii) offering the Common Shares for sale to securities dealers, whichever may occur first. SECTION 14. Termination. Without limiting the right to ----------- terminate this Agreement pursuant to any other provision hereof: (a) This Agreement may be terminated by the Company by notice to you and the Selling Stockholder, or by you by notice to the Company and the Selling Stockholder, at any time prior to the time this Agreement shall become effective as to all its provisions, and any such termination shall be without liability on the part of the Company or the Selling Stockholder to any Underwriter (except for the expenses to be paid or reimbursed by the Company and the Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof) or of any Underwriter to the Company or the Selling Stockholder (except to the extent provided in Section 11 hereof). 42 (b) This Agreement may also be terminated by you prior to the First Closing Date by notice to the Company (i) if additional material governmental restrictions, not in force and effect on the date hereof, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange or on the American Stock Exchange or in the over the counter market by the NASD, or trading in securities generally shall have been suspended on either such exchange or in the over the counter market by the NASD, or a general banking moratorium shall have been established by federal, New York or California authorities, (ii) if an outbreak of major hostilities or other national or international calamity or any substantial change in political, financial or economic conditions shall have occurred or shall have accelerated or escalated to such an extent, as, in the judgment of the Representatives, to affect adversely the marketability of the Common Shares, (iii) if any adverse event shall have occurred or shall exist which makes untrue or incorrect in any material respect any statement or information contained in the Registration Statement or Prospectus or which is not reflected in the Registration Statement or Prospectus but should be reflected therein in order to make the statements or information contained therein not misleading in any material respect, or (iv) if there shall be any action, suit or proceeding pending or threatened, or there shall have been any development or prospective development involving particularly the business or properties or securities of the Company or any of its subsidiaries or the transactions contemplated by this Agreement, which, in the reasonable judgment of the Representatives, may materially and adversely affect the Company's business or earnings and makes it impracticable or inadvisable to offer or sell the Common Shares. Any termination pursuant to this subsection (b) shall be without liability on the part of any Underwriter to the Company or the Selling Stockholder or on the part of the Company or the Selling Stockholder to any Underwriter (except for expenses to be paid or reimbursed by the Company and the Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof. 43 (c) This Agreement shall also terminate at 5:00 P.M., California time, on the tenth full business day after the Registration Statement shall have become effective if the initial public offering price of the Common Shares shall not then as yet have been determined as provided in Section 5 hereof. Any termination pursuant to this subsection (c) shall be without liability on the part of any Underwriter to the Company or the Selling Stockholder or on the part of the Company or the Selling Stockholder to any Underwriter (except for expenses to be paid or reimbursed by the Company and the Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof. SECTION 15. Failure of the Selling Stockholder to Sell and ---------------------------------------------- Deliver. If the Selling Stockholder shall fail to sell and deliver to the - ------- Underwriters the Common Shares to be sold and delivered by him at the First Closing Date under the terms of this Agreement, then the Underwriters may at their option, by written notice from you to the Company and the Selling Stockholder, either (i) terminate this Agreement without any liability on the part of any Underwriter or, except as provided in Sections 7, 9 and 11 hereof, the Company or the Selling Stockholder, or (ii) purchase the shares which the Company has agreed to sell and deliver in accordance with the terms hereof. In the event of a failure by the Selling Stockholder to sell and deliver as referred to in this Section 15, either you or the Company shall have the right to postpone the Closing Date for a period not exceeding seven business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected. SECTION 16. Representations and Indemnities to Survive Delivery. --------------------------------------------------- The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, of the Selling Stockholder and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person or the Selling Stockholder, as the case may be, and will survive 44 delivery of and payment for the Common Shares sold hereunder and any termination of this Agreement. SECTION 17. Notices. All communications hereunder shall be in ------- writing and, if sent to the Representatives shall be mailed, delivered or telegraphed and confirmed to you at 600 Montgomery Street, San Francisco, California 94111, Attention: James C. Hale, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California 90071, Attention: Rod A. Guerra, Jr.; and if sent to the Company or the Selling Stockholder shall be mailed, delivered or telegraphed and confirmed to the Company at 18872 MacArthur Boulevard, Suite 200, Irvine, California 92612, Attention: Peter R. Ellis, with a copy to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, Attention: Richard J. Char. The Company, the Selling Stockholder or you may change the address for receipt of communications hereunder by giving notice to the others. SECTION 18. Successors. This Agreement will inure to the ---------- benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 12 hereof, and to the benefit of the officers and directors and controlling persons referred to in Section 11 hereof, and in each case their respective successors, personal representatives and assigns, and no other person will have any right or obligation hereunder. No such assignment shall relieve any party of its obligations hereunder. The term "successors" shall not include any purchaser of the Common Shares as such from any of the Underwriters merely by reason of such purchase. SECTION 19. Representation of Underwriters. You will act as ------------------------------ Representatives for the several Underwriters in connection with all dealings hereunder, and any action under or in respect of this Agreement taken by you jointly or by Montgomery Securities, as Representatives, will be binding upon all the Underwriters. SECTION 20. Partial Unenforceability. The invalidity or ------------------------ unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or 45 provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. SECTION 21. Applicable Law. This Agreement shall be governed -------------- by and construed in accordance with the internal laws (and not the laws pertaining to conflicts of laws) of the State of California. SECTION 22. General. This Agreement constitutes the entire ------- agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in several counterparts, each one of which shall be an original, and all of which shall constitute one and the same document. In this Agreement, the masculine, feminine and neuter genders and the singular and the plural include one another. The section headings in this Agreement are for the convenience of the parties only and will not affect the construction or interpretation of this Agreement. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company, the Selling Stockholder and you. 46 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed copies hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholder and the several Underwriters, including you, all in accordance with its terms. Very truly yours, AUTO-BY-TEL CORPORATION By:__________________________ Title: _____________________________ PETER R. ELLIS The foregoing Underwriting Agreement is hereby confirmed and accepted by us in San Francisco, California as of the date first above written. MONTGOMERY SECURITIES COWEN & COMPANY ROBERTSON, STEPHENS, & COMPANY LLC Acting as Representatives of the several Underwriters named in the attached Schedule A. By: MONTGOMERY SECURITIES By:______________________________ Title: Partner 47 SCHEDULE A Number of Firm Common Shares Name of Underwriter to Be Purchased - ------------------- --------------- Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . Cowen & Company . . . . . . . . . . . . . . . . . . . . . . . . . . Robertson, Stephens & Company LLC . . . . . . . . . . . . . . . . . _________ TOTAL . . . . . . . . . . . . . . . . . . . . . ========= 48 EX-3.1 3 RESTATED CERTIFICATE OF INC. OF THE CO. (DELAWARE) EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF OF AUTO-BY-TEL CORPORATION (Pursuant to Section 228, 242 and 245 of the General Corporation Law of the State of Delaware) Auto-By-Tel Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Delaware General Corporation Law") DOES HEREBY CERTIFY: FIRST: That this Corporation was originally incorporated on May 17, 1996 under the name of Auto-By-Tel Corporation, pursuant to the Delaware General Corporation Law. SECOND: That the Board of Directors has duly adopted resolutions proposing to amend and restate the Restated Certificate of Incorporation of this Corporation filed with the Secretary of State of Delaware on August 23, 1996, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this Corporation to solicit the consent of the stockholders therefor which resolution setting forth the proposed amendment and restatement is as follows: RESOLVED, that the Restated Certificate of Incorporation of this Corporation be amended and restated in its entirety as follows: "ARTICLE I The name of the Corporation is Auto-By-Tel Corporation (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE IV (A) Classes of Stock. This Corporation is authorized to issue two classes ---------------- of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that this Corporation is authorized to issue is fifty seven million four hundred sixty-seven thousand nine hundred fifteen (57,467,915). The number of shares of Preferred Stock authorized to be issued is seven million four hundred sixty-seven thousand nine hundred fifteen (7,467,915), par value $0.001 per share, one million five hundred thousand (1,500,000) of which have been designated Series A Preferred Stock (the "Series A Preferred Stock"), nine hundred sixty seven thousand nine hundred fifteen (967,915) of which have been designated Series B Preferred Stock (the "Series B Preferred Stock") and five million (5,000,000) of which shall be undesignated. The number of shares of Common Stock authorized to be issued is fifty million (50,000,000), par value $.001 per share. Upon the filing of this Amended and Restated Certificate of Incorporation, each three shares of Common Stock of the Corporation shall be reconstituted as and converted into five shares of Common Stock (the "Stock Split). (B) Rights, Preferences and Restrictions of the Preferred Stock. ----------------------------------------------------------- The undesignated shares of Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The rights, preferences, privileges, and restrictions granted to and imposed on the Preferred Stock are as set forth below in this Article IV(B). Section 1. Dividends. --------- (a) The holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, payable in preference and priority to any declaration or payment of any dividend on the Series B Preferred Stock or Common Stock of the Corporation, dividends in cash at an annual rate of $.80 per share of Series A Preferred Stock. The holders of outstanding shares of Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, payable in preference and priority to any declaration or payment of any dividend on the Common Stock of the Corporation, dividends in cash at an annual rate of $.80 per share of Series B Preferred Stock. The right to such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Series A Preferred Stock or Series B Preferred Stock by reason of the fact that dividends on such shares are not declared in any prior year. No dividend or other distribution shall be made with respect to the Series B Preferred Stock in any fiscal year until full dividends at the rate set forth in this Section 1(a) have been paid on the Series A Preferred Stock. No dividend or other distribution -2- shall be made with respect to the Common Stock in any fiscal year until full dividends at the rate set forth in this Section 1(a) have been paid on the Series A Preferred Stock and Series B Preferred Stock. (b) Definition of Distribution. For purposes of this Section 1, -------------------------- unless the context otherwise requires, a "distribution" shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, payable other than in Common Stock, or the purchase or redemption of shares of the Corporation (other than repurchases at cost of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase) for cash or property. Section 2. Liquidation Preference. ---------------------- (a) In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series B Preferred Stock or Common Stock, an amount equal to $10.00 per share for each share of Series A Preferred Stock then held by them (as adjusted for any stock split, combination, consolidation, or stock distributions or stock dividends effected with respect to such shares after the Original Issue Date) plus all declared but unpaid dividends, if any (the "Series A Liquidation Preference"); provided that upon the occurrence of any event described in Section 2 (d) below, the holders of Series A Preferred Stock shall be entitled to receive, at their option, either the Series A Liquidation Preference described above or the consideration, if any, which would be payable to such holders as of they had converted their shares of Series A Preferred Stock into Common Stock immediately prior to such event. If the assets and funds thus distributed among the holders of Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and surplus funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock then held by them. (b) After payment has been made to the holders of Series A Preferred Stock of the full amounts to which they shall be entitled as set forth in subparagraph (a) of this Section 2, the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock, an amount equal to $9.35 per share for each share of Series B Preferred Stock then held by them (as adjusted for any stock split, combination, consolidation, or stock distributions or stock dividends effected with respect to such shares after the Original Issue Date) plus all declared but unpaid dividends, if any (the "Series B Liquidation Preference"); provided that upon the occurrence of any event described in Section 2(d) below, the holders of Series B Preferred Stock shall be entitled to receive, at their option, either the Series B Liquidation Preference described above or the -3- consideration, if any, which would be payable to such holders as of they had converted their shares of Series B Preferred Stock into Common Stock immediately prior to such event. If the assets and funds thus distributed among the holders of Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and surplus funds of the Corporation legally available for distribution to the holders of Series B Preferred Stock shall be distributed ratably among the holders of the Series B Preferred Stock in proportion to the number of shares of Series B Preferred Stock then held by them. (c) After payment has been made to the holders of Series A Preferred Stock and Series B Preferred Stock of the full amounts to which they shall be entitled as set forth in subparagraphs (a) and (b) of this Section 2, then the entire remaining assets and surplus funds of the Corporation legally available for distribution, if any, shall be distributed ratably among the holders of Common Stock based upon the number of shares of Common Stock then held by them. (d) A merger or consolidation of the Corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Corporation, in which the stockholders of the Corporation receive distributions in cash or securities of another corporation or corporations as a result of such consolidation or merger and in which the stockholders of the Corporation do not own at least 50% of the voting power of the surviving corporation after the consolidation or merger, or a sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 2. Section 3. Conversion. The holders of the Series A Preferred Stock and ---------- Series B Preferred Stock shall have conversion rights (the "Conversion Rights") as follows: (a) Right to Convert. Each share of Series A Preferred Stock and ---------------- Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $10.00 in the case of the Series A Preferred Stock, or $9.35 in the case of the Series B Preferred Stock, by the Conversion Price, determined as hereinafter provided, in effect for such series of Preferred Stock at the time of conversion. The initial Conversion Price per share of the Series A Preferred Stock shall be $10.00 and the initial Conversion Price for the Series B Preferred Stock shall be $9.35, provided, however, that in the event that the -------- ------- Corporation has not consummated an initial public offering of its Common Stock on or prior to July 31, 1997, then the initial Conversion Price of the Series B Preferred Stock shall be deemed to be $6.91 for all purposes under this Article IV. The Conversion Price per share of the Series A Preferred Stock and Series B Preferred Stock shall be subject to adjustment as hereinafter provided. Upon conversion, all declared and unpaid dividends on the Series A Preferred Stock and Series B Preferred Stock shall be paid in cash, to the extent legally permitted and in accordance with Section 4(B)(1)(a) hereof. (b) Automatic Conversion. -------------------- -4- (i) Each share of Series A Preferred Stock and Series B Preferred Stock shall, with notice to the holders thereof delivered promptly thereafter, automatically be converted into shares of Common Stock at the applicable Conversion Price then in effect upon the earlier of (A) the date upon which this Corporation obtains the consent of the holders of two-thirds of the then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class, (B) (1) in the case of Series A Preferred Stock, the date on which fewer than 300,000 shares of Series A Preferred Stock (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) remain outstanding, or (2) in the case of Series B Preferred Stock, the date on which fewer than 200,000 shares of Series B Preferred Stock (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) remain outstanding, or (C) the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public at a price per share (before deduction of underwriter discounts and commissions and offering expenses) of not less than $9.00 per share (appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends effected with respect to such shares after the Original Issue Date) and an aggregate offering price to the public of not less than $30,000,000 (the "Initial Public Offering"). (ii) In the event of the automatic conversion of the Series A Preferred Stock and Series B Preferred Stock as set forth in Section 3(b)(i)(C) above, the person(s) entitled to receive the Common Stock issuable upon such conversion shall not be deemed to have converted such shares until immediately prior to the closing of such sale of securities. (c) Mechanics of Conversion. No fractional shares of Common Stock ----------------------- shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then current fair value of the Common Stock, as determined in good faith by the Board of Directors. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued; provided, however, that in the event of an automatic conversion pursuant to Section 3(b)(i), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by -5- it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of automatic conversion on the record date for such conversion, which shall not be earlier than the date notice of conversion is received by holders, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments to Conversion Price for Stock Splits, Distributions --------------------------------------------------------------- and Recapitalizations. - --- ----------------- (i) Stock Splits, Subdivisions, Dividends and Distributions. ------------------------------------------------------- In the event this Corporation should at any time or from time to time after the Original Issue Date (as defined below), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price in effect for each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. The Stock Split effected by Section IV(A) of this Amended and Restated Certificate of Incorporation shall not cause any adjustment to the Conversion Price of the Series B Preferred Stock. (ii) Combinations. If the number of shares of Common Stock ------------ outstanding at any time after the Original Issue Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination (or the date of such combination if no record date is fixed), the Conversion Price in effect for each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. (iii) Other Distributions. In the event this Corporation shall at ------------------- any time or from time to time after the Original Issue Date, fix a record date for the determination of holders of Common Stock entitled to receive a distribution payable in securities of the Corporation or other persons, evidences of indebtedness issued by this Corporation or other persons, assets or options or -6- rights not referred to in Section 3(d)(i), then, in each such case for the purpose of this Section 3(d)(iii), the holders of shares of Preferred Stock shall, as of such record date, be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of such record date. (iv) Recapitalization. If at any time or from time to time there ---------------- shall be a recapitalization of the Common Stock whereby the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by reorganization, reclassification or otherwise, (other than a subdivision, dividend, combination or merger or sale of assets transaction provided for elsewhere in this Section 3), provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the shares of Preferred Stock the number of shares of stock or other securities or property of the Corporation which a holder of Common Stock deliverable upon conversion would have been entitled to receive on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Conversion Price then in effect for each series of Preferred Stock and the number of shares issuable upon conversion of shares of Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (e) Adjustments to Conversion Price. Subject to the terms of Section ------------------------------- 6 hereof, the Conversion Price in effect from time to time for each series of Preferred Stock shall be subject to adjustment in certain cases as follows: (i) Special Definitions. For purposes of this Section 3, the ------------------- following definitions shall apply: (A) "Options" shall mean rights, options or warrants to ------- subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which the ------------------- first share of such series of Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of ---------------------- indebtedness, Preferred Stock or other securities convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common" shall mean all shares of ---------------------------- Common Stock issued (or, pursuant to Section 3(e)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (1) upon conversion of shares of Series A Preferred Stock or Series B Preferred Stock; -7- (2) up to a maximum of 3,530,833 shares (as appropriately adjusted for any stock splits, combinations, consolidations, or stock distributions or dividends with respect to such shares) to officers, directors or employees of, or consultants to, the Corporation (other than Peter Ellis or John Bedrosian) pursuant to a stock grant, stock option plan or stock purchase plan or other stock incentive agreement or arrangement approved by the Board of Directors; (3) as a dividend or distribution on Series A Preferred Stock or Series B Preferred Stock; (4) in connection with any transaction for which adjustment is made pursuant to Section 3(d) hereof; (5) upon the exercise of warrants granted incidental to a bona fide commercial transaction (unless the grant of such warrant is opposed by the holders of more than two-thirds of the Series A Preferred Stock and Series B Preferred Stock, voting together as a single class, following notice from the Corporation to the holders of Series A Preferred Stock and Series B Preferred Stock to be delivered to such holders at least ten (10) business days prior to such grant; provided further that no notice need be given and the holders of the Series A Preferred Stock and Series B Preferred Stock shall not have the right to object to the issuance of warrants to purchase up to a maximum of 5,000 shares so long as they are granted incidental to a bona fide commercial transaction and approved by the Board of Directors); and (6) any shares of Common Stock issued, issuable or, pursuant to Section 3(e)(iii), deemed to be issued, if the holders of a majority of the Series A Preferred Stock and Series B Preferred Stock, voting together as a class, agree in writing that such shares shall not constitute Additional Shares of Common. (ii) No Adjustment of Conversion Price. Subject to the terms of --------------------------------- Section 6 hereof, no adjustment in the Conversion Price for each series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price for such Series in effect on the date of, and immediately prior to, such issue. (iii) Options and Convertible Securities. In the event the ---------------------------------- Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number, including provisions designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares -8- of Common shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3(e)(v) hereof) of such Additional Shares of Common would be less than the Conversion Price for such series of Preferred Stock in effect on the date of, and immediately prior to, such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: (A) no further adjustment in the Conversion Price for a series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time, by reason of antidilution provisions or otherwise, for any change in the consideration payable to the Corporation, or change in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect an appropriate increase or decrease reflecting such change insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; provided, however, that no such adjustment of the Conversion Price shall affect Common Stock previously issued upon conversion of the Preferred Stock; (C) upon the expiration or cancellation of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration or cancellation, be recomputed as if: (1) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all Convertible Securities which were actually converted or exchanged plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and (2) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such -9- Options were actually exercised; and (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (1) the applicable Conversion Price on the original adjustment date, or (2) the applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional ---------------------------------------------------------- Shares of Common. In the event this Corporation shall issue Additional Shares - ---------------- of Common (including Additional Shares of Common deemed to be issued pursuant to Section 3(e)(iii)) for a consideration per share less than the Conversion Price for a particular series of Preferred Stock in effect on the date of, and immediately prior to, such issue, then and in such event, the Conversion Price of such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and (y) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued; provided, that, for the purposes of this Section 3(e)(iv), all shares of Common Stock issuable upon exercise, conversion or exchange of outstanding Options or Convertible Securities or Preferred Stock shall be deemed to be outstanding; and, further provided, that immediately after any Additional Shares of Common are deemed issued pursuant to Section 3(e)(iii), such Additional Shares of Common shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this ------------------------------ Section 3(e), the consideration received by the Corporation for the issue of any Additional Shares of Common shall be computed as follows: (A) Such consideration shall: (1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith in the exercise of reasonable business judgment by the Board of Directors of the Corporation; and (3) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) -10- and (2) above, as determined in good faith by the Board of Directors of the Corporation. (B) Options and Convertible Securities. ---------------------------------- (1) The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to Section 3(e)(iii) shall be the sum of (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities plus (y) the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration, including any provisions designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. (2) The number of Additional Shares of Common deemed to have been issued pursuant to Section 3(e)(iii) hereof shall be the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number, including any provisions designed to protect against dilution) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price in effect for a series of Preferred Stock pursuant to this Section 3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such series of Preferred Stock. Section 4. Redemption. The Preferred Stock shall not be redeemable. ---------- Section 5. Voting Rights. ------------- (a) General. Except as otherwise required by law or as set ------- forth herein, each holder of shares of Preferred Stock shall be entitled to vote in all matters for which shareholders are entitled to vote, that number of votes equal to the whole number of shares of the Corporation's Common Stock issued or issuable upon the conversion of such holder's shares of Preferred Stock immediately after the close of business on the record date fixed for a shareholder meeting or the effective date of such written consent. -11- (b) Board of Directors. The authorized number of directors of ------------------ the Corporation shall be set forth in the Bylaws of the Corporation and may be increased or decreased by an amendment to such Bylaws in accordance with their provisions. As long as 600,000 or more of the shares of Series A Preferred Stock originally issued remain outstanding, the holders of shares of Series A Preferred Stock, voting separately as a class, shall be entitled to elect one (1) director of the Corporation at each annual election of directors (and to fill any vacancies with respect thereto); provided that if the authorized number of directors is increased to greater than five (5) members, the holders of shares of Series A Preferred Stock, voting separately as a class, shall be entitled to elect two (2) directors at each annual election of directors (and to fill any vacancies with respect thereto). Section 6. Covenants. In addition to any other rights provided by law, --------- so long as at least an aggregate of 600,000 shares of Preferred Stock are outstanding, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of two-thirds of the outstanding shares of the Preferred Stock, voting as a single class: (a) amend or repeal any provision of, or add any provision to, this Corporation's Certificate of Incorporation or Bylaws if such action would alter or change the preferences, rights, privileges, or powers of, or the restrictions provided for the benefit of, any series of Preferred Stock in an adverse manner; (b) increase the number of directors to greater than ten (10) members; (c) increase the number of authorized shares of any series of Preferred Stock; (d) sell any shares for consideration other than cash or the forgiveness of debt; (e) authorize any new shares or reclassify any Common Stock into shares of any class of stock having any preference or priority as to dividends, redemption rights, liquidation preferences, conversion rights, voting rights or rights otherwise superior to or on a parity with any such preference or priority of any series of Preferred Stock; (f) sell or otherwise dispose of all or substantially all of the assets or business of the Corporation; (g) effect a consolidation, reorganization or merger (including, without limitation, the issuance of any shares of stock, or rights to acquire shares of stock, which would result in the stockholders of the Corporation immediately prior to such issuance owning less than two-thirds of the voting power of the Corporation on a fully diluted basis after such issuance) of the Corporation with or into any other corporation; (h) declare or pay any dividends, in cash or otherwise, or make any distributions to its shareholders, or purchase, redeem or otherwise acquire any of its outstanding capital stock, or set -12- apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any shares of its capital stock; (i) purchase, acquire or agree to purchase or acquire or invest in the business, property or assets of, or any securities of, any other company or business, except that the Corporation may (A) invest its excess cash in Cash Equivalents and (B) make such purchase, acquisition or investment with respect to a wholly-owned subsidiary of the Corporation to the extent otherwise permitted hereunder; (j) create, assume, incur, issue, guarantee or otherwise become directly or indirectly liable in respect of any Indebtedness; (k) without the approval of the director or directors designated by the holders of the Preferred Stock, enter into any compensation or benefit arrangement with any employee, officer or director which would result in total taxable compensation from the Corporation and its subsidiaries of greater than $150,000 per annum; provided, however, that the Corporation may hire two (2) additional executive officers at annual taxable compensation from the Corporation and its subsidiaries of up to $250,000 each without complying with the provisions of this Section 6; or (l) sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any properties or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate other than in the ordinary course of business. For purposes of this Section 6: (1) the term "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (ii) certificates of deposit or Eurodollar time deposits having maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications described in clause (ii) above, and (iv) commercial paper of any person that is not a subsidiary or an Affiliate of the Corporation having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, and maturing within six months after the date of acquisition; (2) the term "Indebtedness" means, with respect to any person or entity, calculated without duplication, any indebtedness of such person or entity, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances or representing capital lease obligations or the balance deferred and unpaid of the purchase price of any -13- property, or guarantees of any of the foregoing, except any such balance that constitutes an accrued expense or trade payable to the extent that any such accrued expense or trade payable is not more than 90 days overdue or is otherwise being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; and (3) the term "Affiliate" means, with respect to any person or entity, any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with, such person or entity (for purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through the ownership of voting securities, by agreement or otherwise); provided that no holder of Preferred Stock (or Common Stock issued upon conversion thereof) shall be deemed to be an Affiliate. Notwithstanding the foregoing, the Corporation may undertake an initial public offering unless the initial public offering is opposed in writing by the holders of two-thirds of the Preferred Stock, voting as a single class, following notice to such holders at least 30 days prior to the filing of a registration statement with the Securities and Exchange Commission relating to such initial public offering. In addition, in connection with any such initial public offering, unless the holders of two-thirds of the Preferred Stock shall have opposed such initial public offering as aforesaid, the holders of the Preferred Stock shall not have a separate vote as a single class with respect to amendments to the Certificate of Incorporation in connection with such initial public offering to increase the authorized Common Stock, create a class of undesignated Preferred Stock, or effect a stock split, which amendments are proposed in connection with such initial public offering. Notwithstanding any other provision herein, the requirement of the approval of the holders of two-thirds of the holders of Preferred Stock in this Section 6 shall not be amended or modified without the unanimous approval of the holders of Preferred Stock. Section 7. Reacquired Shares. Any shares of Preferred Stock purchased ----------------- or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 8. Status of Converted or Redeemed Stock. In the event any ------------------------------------- shares of Preferred Stock shall be redeemed or converted, the shares so converted or redeemed shall be canceled and shall not have the status of authorized but unissued shares of Preferred and shall not be issuable by the corporation and the Certificate of Incorporation of this corporation shall be amended to effect the corresponding reduction in the corporation's capital stock. ARTICLE V -14- The Corporation is to have perpetual existence. ARTICLE VI The election of directors need not be by written ballot unless a stockholder demands election by written ballot at a meeting of stockholders and before voting begins or unless the Bylaws of the Corporation shall so provide. ARTICLE VII The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. ARTICLE VIII In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, alter, amend or repeal the Bylaws of the Corporation. ARTICLE IX (A) No director shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director (1) shall be liable under Section 174 of the General Corporation Law of the State of Delaware or any amendment thereto or successor provision thereto, or (2) shall be liable by reason that, in addition to any and all other requirements for liability, he: (i) shall have breached his duty of loyalty to the Corporation or its stockholders; (ii) shall not have acted in good faith or, in failing to act, shall not have acted in good faith; (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law; or (iv) shall have derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after the date hereof to authorize corporate action further eliminating or limiting the personal liability of directors, -15- then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. (B) The Corporation shall indemnify to the fullest extent permitted under and in accordance with the laws of the State of Delaware any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (C) Expenses incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall (in the case of any action, suit or proceeding against a director of the Corporation) or may (in the case of any action, suit or proceeding against an officer, employee or agent) be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IX. (D) The indemnification and other rights set forth in this Article IX shall not be exclusive of any provisions with respect thereto in the By-Laws or any other contract or agreement between the Corporation and any officer, director, employee or agent of the Corporation. (E) Neither the amendment nor repeal of this Article IX, paragraph (B), (C) or (D), nor the adoption of any provision of this Certificate of Incorporation inconsistent with Article IX, paragraph (B), (C) or (D), shall eliminate or reduce the effect of this Article IX, paragraphs (B), (C) or (D), in respect of any matter occurring before such amendment, repeal or adoption of an inconsistent provision or in respect of any cause of action, suit or claim relating to any such matter which would have given rise to a right of indemnification or right to receive expenses pursuant to this Article IX, paragraph (B), (C) or (D), if such provision had not been so amended or repealed or if a provision inconsistent therewith had not been so adopted. ARTICLE X At the election of directors of the Corporation, each holder of stock of any class or series shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. ARTICLE XI -16- Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the laws of the State of Delaware) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE XII Effective upon the Initial Public Offering (as defined in Article IV Section 3(b)(i) above), the stockholders of the corporation may not take action by written consent without a meeting but must take such action at a duly called annual or special meeting of stockholders. ARTICLE XIII Subject to the limitations set forth herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred herein are granted subject to this reservation." *** THIRD: The foregoing amendment was approved by the holders of the requisite number of shares of said Corporation in accordance with Section 228 of the Delaware General Corporation Law. FOURTH: That said amendments were duly adopted in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law. We hereby further declare and certify under penalty of perjury under the laws of the State of Delaware that the facts set forth in the foregoing certificate are true and correct of our own knowledge and that this certificate is our act and deed. -17- IN WITNESS WHEREOF, we have executed and subscribed to this Certificate and do hereby affirm the foregoing as true under the penalties of perjury this ____ day of January, 1997. ----------------------------------- Peter R. Ellis, President ----------------------------------- Mark W. Lorimer, Secretary EX-3.2 4 RESTATED BYLAWS OF AUTO-BY-TEL, 10/23/96 EXHIBIT 3.2 RESTATED BYLAWS OF AUTO-BY-TEL CORPORATION (A DELAWARE CORPORATION) ADOPTED OCTOBER 23, 1996 RESTATED BYLAWS OF AUTO-BY-TEL CORPORATION (a Delaware corporation) TABLE OF CONTENTS Page ---- ARTICLE I CORPORATE OFFICES................................................. 1 ----------------- 1.1 REGISTERED OFFICE........................................... 1 ----------------- 1.2 OTHER OFFICES............................................... 1 ------------- ARTICLE II MEETINGS OF STOCKHOLDERS.......................................... 1 ------------------------ 2.1 PLACE OF MEETINGS........................................... 1 ----------------- 2.2 ANNUAL MEETING.............................................. 1 -------------- 2.3 SPECIAL MEETING............................................. 2 --------------- 2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................ 2 -------------------------------- 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND ------------------------------------------ STOCKHOLDER BUSINESS........................................ 2 -------------------- 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................ 3 -------------------------------------------- 2.7 QUORUM...................................................... 3 ------ 2.8 ADJOURNED MEETING; NOTICE................................... 3 ------------------------- 2.9 VOTING...................................................... 4 ------ 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING..... 4 ------------------------------------------------------- 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................. 4 ------------------------------------------ 2.12 PROXIES..................................................... 5 ------- 2.13 ORGANIZATION................................................ 5 ------------ 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE....................... 5 ------------------------------------- ARTICLE III DIRECTORS......................................................... 6 --------- 3.1 POWERS...................................................... 6 ------ 3.2 NUMBER OF DIRECTORS......................................... 6 ------------------- 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.................... 6 ---------------------------------------- 3.4 RESIGNATION AND VACANCIES................................... 6 ------------------------- -i- TABLE OF CONTENTS (Continued) Page ---- 3.5 REMOVAL OF DIRECTORS........................................ 7 -------------------- 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................... 8 ---------------------------------------- 3.7 FIRST MEETINGS.............................................. 8 -------------- 3.8 REGULAR MEETINGS............................................ 8 ---------------- 3.9 SPECIAL MEETINGS; NOTICE.................................... 8 ------------------------ 3.10 QUORUM...................................................... 9 ------ 3.11 WAIVER OF NOTICE............................................ 9 ---------------- 3.12 ADJOURNMENT................................................. 9 ----------- 3.13 NOTICE OF ADJOURNMENT....................................... 9 --------------------- 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING........... 10 ------------------------------------------------- 3.15 FEES AND COMPENSATION OF DIRECTORS.......................... 10 ---------------------------------- 3.16 APPROVAL OF LOANS TO OFFICERS............................... 10 ----------------------------- 3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION...... 10 ------------------------------------------------------ 3.18 NOMINATION OF DIRECTORS; STOCKHOLDER BUSINESS AT ------------------------------------------------ ANNUAL MEETINGS............................................. 10 --------------- ARTICLE IV COMMITTEES........................................................ 12 ---------- 4.1 COMMITTEES OF DIRECTORS..................................... 12 ----------------------- 4.2 MEETINGS AND ACTION OF COMMITTEES........................... 13 --------------------------------- 4.3 COMMITTEE MINUTES........................................... 13 ----------------- ARTICLE V OFFICERS.......................................................... 14 -------- 5.1 OFFICERS.................................................... 14 -------- 5.2 ELECTION OF OFFICERS........................................ 14 -------------------- 5.3 SUBORDINATE OFFICERS........................................ 14 -------------------- 5.4 REMOVAL AND RESIGNATION OF OFFICERS......................... 14 ----------------------------------- 5.5 VACANCIES IN OFFICES........................................ 15 -------------------- 5.6 CHAIRMAN OF THE BOARD....................................... 15 --------------------- 5.7 PRESIDENT................................................... 15 --------- 5.8 VICE PRESIDENTS............................................. 15 --------------- 5.9 SECRETARY................................................... 16 --------- 5.10 CHIEF FINANCIAL OFFICER..................................... 16 ----------------------- 5.11 ASSISTANT SECRETARY......................................... 16 ------------------- -ii- TABLE OF CONTENTS (Continued) Page ---- 5.12 ADMINISTRATIVE OFFICERS..................................... 17 ----------------------- 5.13 AUTHORITY AND DUTIES OF OFFICERS............................ 17 -------------------------------- ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 17 ------------------------------------------------------------------ 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 17 ----------------------------------------- 6.2 INDEMNIFICATION OF OTHERS................................... 18 ------------------------- 6.3 INSURANCE................................................... 19 --------- ARTICLE VII RECORDS AND REPORTS............................................... 19 ------------------- 7.1 MAINTENANCE AND INSPECTION OF RECORDS....................... 19 ------------------------------------- 7.2 INSPECTION BY DIRECTORS..................................... 19 ----------------------- 7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................ 20 -------------------------------- 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............. 20 ---------------------------------------------- 7.5 CERTIFICATION AND INSPECTION OF BYLAWS...................... 20 -------------------------------------- ARTICLE VIII GENERAL MATTERS................................................... 20 --------------- 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING....... 20 ----------------------------------------------------- 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................... 21 ----------------------------------------- 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.......... 21 -------------------------------------------------- 8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES............ 21 ------------------------------------------------ 8.5 SPECIAL DESIGNATION ON CERTIFICATES......................... 22 ----------------------------------- 8.6 LOST CERTIFICATES........................................... 22 ----------------- 8.7 TRANSFER AGENTS AND REGISTRARS.............................. 22 ------------------------------ 8.8 CONSTRUCTION; DEFINITIONS................................... 23 ------------------------- 8.9 RESTRICTIONS ON TRANSFER OF SHARES.......................... 23 ---------------------------------- ARTICLE IX AMENDMENTS........................................................ 24 ---------- -iii- BYLAWS ------ OF -- AUTO-BY-TEL CORPORATION ----------------------- (a Delaware corporation) ARTICLE I CORPORATE OFFICES ----------------- 1.1 REGISTERED OFFICE ----------------- The registered office of the corporation shall be fixed in the Certificate of Incorporation of the corporation. 1.2 OTHER OFFICES ------------- The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS ----------------- Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING -------------- The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the third Friday in June in each year at 3:00 p.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING --------------- A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more stockholders holding shares in the aggregate entitled to cast not less than fifty percent (50%) of the votes of all shares of stock owned by stockholders entitled to vote at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.6 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS -------------------------------- All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS --------------------------------------------------------------- To be properly brought before an annual meeting or special meeting, nominations for the election of directors or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors or (c) otherwise properly brought before the meeting by a stockholder. 2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE -------------------------------------------- Written notice of any meeting of stockholders shall be given either personally or by first-class mail or by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.7 QUORUM ------ The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 2.7 of these bylaws. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum. 2.8 ADJOURNED MEETING; NOTICE ------------------------- When a meeting is adjourned to another time and place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 3 2.9 VOTING ------ The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners, and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------------- Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such consents shall be delivered to the corporation by delivery to it registered office in the state of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Effective upon the closing of a firm commitment underwritten initial public offering of any of the corporation's securities pursuant to a registration statement on Form S-1 filed under the Securities Act of 1933, as amended, the stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING ------------------------------------------ For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date. If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new 4 record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. The record date for any other purpose shall be as provided in Section 8.1 of these bylaws. 2.12 PROXIES ------- Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, telefacsimile or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.13 ORGANIZATION ------------ The president, or in the absence of the president, the chairman of the board, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the president, the chairman of the board, and all of the vice presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall deter mine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE ------------------------------------- The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 5 ARTICLE III DIRECTORS --------- 3.1 POWERS ------ Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS ------------------- The board of directors shall consist of five (5) members. The number of directors may be changed by an amendment to this bylaw, duly adopted by the board of directors or by the stockholders, or by a duly adopted amendment to the certificate of incorporation. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS ---------------------------------------- Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES ------------------------- Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum). Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. 6 Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 REMOVAL OF DIRECTORS -------------------- Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, if and so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors. Effective upon the closing of a firm commitment underwritten public offering of any of the corporation's securities pursuant to a registration statement on Form S-1 under the Securities Act of 1933, as amended, any director may be removed from office by the stockholders of the corporation 7 only for cause. 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ---------------------------------------- Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting of the board, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such participating directors shall be deemed to be present in person at the meeting. 3.7 FIRST MEETINGS -------------- The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.8 REGULAR MEETINGS ---------------- Regular meetings of the board of directors may be held without notice at such time as shall from time to time be determined by the board of directors. If any regular meeting day shall fall on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. 3.9 SPECIAL MEETINGS; NOTICE ------------------------ Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, telecopy or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telecopy or telegram, it 8 shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.10 QUORUM ------ A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.12 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the certificate of incorporation and applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the quorum for that meeting. 3.11 WAIVER OF NOTICE ---------------- Notice of a meeting need not be given to any director (i) who signs a waiver of notice, whether before or after the meeting, or (ii) who attends the meeting other than for the express purposed of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. All such waivers shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.12 ADJOURNMENT ----------- A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting of the board to another time and place. 3.13 NOTICE OF ADJOURNMENT --------------------- Notice of the time and place of holding an adjourned meeting of the board need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.9 of these bylaws, to the directors who were not present at the time of the adjournment. 9 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------- Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board of directors. 3.15 FEES AND COMPENSATION OF DIRECTORS ---------------------------------- Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.15 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.16 APPROVAL OF LOANS TO OFFICERS ----------------------------- The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any of its subsidiaries, including any officer or employee who is a director of the corporation or any of its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION ------------------------------------------------------ In the event only one director is required by these bylaws or the certificate of incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to the board of directors. 3.18 NOMINATION OF DIRECTORS; STOCKHOLDER BUSINESS AT ANNUAL MEETINGS ---------------------------------------------------------------- Subject to the rights of holders of any class or series of stock having a preference over the Comon Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the board of directors or any nominating committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally. However, a stockholder 10 generally entitled to vote in the election of directors may nominate one or more persons for election as directors at a meeting only of written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, 60 days in advance of such meeting and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth the following information: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder, each nominee or any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the board of directors of the corporation; and (e) the consent of each nominee to serve as a director of the corporation if so elected. At the request of the board of directors any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. A majority of the board of directors may reject any nomination by a stockholder not timely made or otherwise not in accordance with the terms of this Section 3.18. If a majority of the board of directors reasonably determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 3.18 in any material respect, the secretary of the corporation shall promptly notify such stockholder of the deficiency in writing. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the secretary within such period of time, not to exceed ten days from the date such deficiency notice is given to the stockholder, as a majority of the board of directors shall reasonably determine. If the deficiency is not cured within such period, or if a majority of the board of directors reasonably determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this Section 3.18 in any material respect, then a majority of the board of directors may reject such stockholder's nomination. The secretary of the corporation shall notify a stockholder in writing whether the stockholder's nomination has been made in accordance with the time and information requirements of this Section 3.18. At an annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the chairman of the meeting or (ii) by any stockholder of the corporation who complies with the notice procedures set forth in this Section 3.18. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of 11 the corporation not less than 60 days prior to the meeting; provided, however, that in the event that less than 70 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting the following information: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder and (d) any material direct or indirect interest, financial or otherwise of the stockholder or its affiliates or associates in such business. The board of directors may reject any stockholder proposal not timely made in accordance with this Section 3.18. If the board of directors determines that the information provided in a stockholder's notice does not satisfy the informational requirements hereof, the secretary of the corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall then have an opportunity to cure the deficiency by providing additional information to the secretary within such period of time, not to exceed ten days from the date such deficiency notice is given to the stockholder, as the board of directors shall determine. If the deficiency is not cured within such period, or if the board of directors determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this Section 3.18, then the board of directors may reject such stockholder's proposal. The secretary of the corporation shall notify a stockholder in writing whether the stockholder's proposal has been made in accordance with the time and information requirements hereof. This provision shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the board of directors, but in connection therewith no new business shall be acted upon at any such meeting unless stated, filed and received as herein provided. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with procedures set forth in this Section 3.18. ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS ----------------------- The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a 12 majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have and may exercise all the powers and authority of the board, but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution or (v) amend the bylaws of the corporation; and, unless the board resolution estab lishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 MEETINGS AND ACTION OF COMMITTEES --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the following provisions of Article III of these bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13 (notice of adjournment) and Section 3.14 (board action by written consent without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the com mittee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. 4.3 COMMITTEE MINUTES ----------------- Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 13 ARTICLE V OFFICERS -------- 5.1 OFFICERS -------- The Corporate Officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents (however denominated), one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. In addition to the Corporate Officers of the Company described above, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the president of the corporation in accordance with the provisions of Section 5.12 of these bylaws. 5.2 ELECTION OF OFFICERS -------------------- The Corporate Officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment, and shall hold their respective offices for such terms as the board of directors may from time to time determine. 5.3 SUBORDINATE OFFICERS -------------------- The board of directors may appoint, or may empower the president to appoint, such other Corporate Officers as the business of the corporation may require, each of whom shall hold office for such period, have such power and authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. The president may from time to time designate and appoint Administrative Officers of the corporation in accordance with the provisions of Section 5.12 of these bylaws. 5.4 REMOVAL AND RESIGNATION OF OFFICERS ----------------------------------- Subject to the rights, if any, of a Corporate Officer under any contract of employment, any Corporate Officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of a Corporate Officer chosen by the board of directors, by any Corporate Officer upon whom such power of removal may be conferred by the board of directors. 14 Any Corporate Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the Corporate Officer is a party. Any Administrative Officer designated and appointed by the president may be removed, either with or without cause, at any time by the president. Any Administrative Officer may resign at any time by giving written notice to the president or to the secretary of the corporation. 5.5 VACANCIES IN OFFICES -------------------- A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD --------------------- The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise such other powers and perform such other duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT --------- Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS --------------- In the absence or disability of the president, and if there is no chairman of the board, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 15 5.9 SECRETARY --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of the board of directors, committees of directors and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director for a purpose reasonably related to his position as a director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He or she shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.11 ASSISTANT SECRETARY ------------------- The assistant secretary, if any, or, if there is more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to 16 act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 5.12 ADMINISTRATIVE OFFICERS ----------------------- In addition to the Corporate Officers of the corporation as provided in Section 5.1 of these bylaws and such subordinate Corporate Officers as may be appointed in accordance with Section 5.3 of these bylaws, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the president of the corporation. Administrative Officers shall perform such duties and have such powers as from time to time may be determined by the president or the board of directors in order to assist the Corporate Officers in the furtherance of their duties. In the performance of such duties and the exercise of such powers, however, such Administrative Officers shall have limited authority to act on behalf of the corporation as the board of directors shall establish, including but not limited to limitations on the dollar amount and on the scope of agreements or commitments that may be made by such Administrative Officers on behalf of the corporation, which limitations may not be exceeded by such individuals or altered by the president without further approval by the board of directors. 5.13 AUTHORITY AND DUTIES OF OFFICERS -------------------------------- In addition to the foregoing powers, authority and duties, all officers of the corporation shall respectively have such authority and powers and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES ------------------------------------------------- AND OTHER AGENTS ---------------- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation shall mean any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or 17 (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. The corporation shall be required to indemnify a director or officer in connection with an action, suit, or proceeding (or part thereof) initiated by such director or officer only if the initiation of such action, suit, or proceeding (or part thereof) by the director or officer was authorized by the board of Directors of the corporation. The corporation shall pay the expenses (including attorney's fees) incurred by a director or officer of the corporation entitled to indemnification hereunder in defending any action, suit or proceeding referred to in this Section 6.1 in advance of its final disposition; provided, however, that payment of expenses incurred by a director or officer of the corporation in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Section 6.1 or otherwise. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the corporation's Certificate of Incorporation, these bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. 6.2 INDEMNIFICATION OF OTHERS ------------------------- The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify any person (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 18 6.3 INSURANCE --------- The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 MAINTENANCE AND INSPECTION OF RECORDS ------------------------------------- The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books and other records of its business and properties. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS ----------------------- Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. 19 7.3 ANNUAL STATEMENT TO STOCKHOLDERS -------------------------------- The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ---------------------------------------------- The chairman of the board, if any, the president, any vice president, the chief financial officer, the secretary or any assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of the stock of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 7.5 CERTIFICATION AND INSPECTION OF BYLAWS -------------------------------------- The original or a copy of these bylaws, as amended or otherwise altered to date, certified by the secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the stockholders of the corporation, at all reasonable times during office hours. ARTICLE VIII GENERAL MATTERS --------------- 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING ----------------------------------------------------- For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted and which shall not be more than sixty (60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided by law. If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the applicable resolution. 20 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS ----------------------------------------- From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED -------------------------------------------------- The board of directors, except as otherwise provided in these bylaws, may authorize and empower any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such power and authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES ------------------------------------------------ The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Certificates for shares shall be of such form and device as the board of directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a summary statement or reference to the powers, designations, preferences or other special rights of such stock and the qualifications, limitations or restrictions of such preferences and/or rights, if any; a statement or summary of liens, if any; a conspicuous notice of restrictions upon transfer or registration of transfer, if any; a statement as to any applicable voting trust agreement; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. 21 Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.5 SPECIAL DESIGNATION ON CERTIFICATES ----------------------------------- If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.6 LOST CERTIFICATES ----------------- Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.7 TRANSFER AGENTS AND REGISTRARS ------------------------------ The board of directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, each of which shall be an incorporated bank or trust company -- either domestic or 22 foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the board of directors may designate. 8.8 CONSTRUCTION; DEFINITIONS ------------------------- Unless the context requires otherwise, the general provisions, rules of construction and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Without limiting the generality of this provision, as used in these bylaws, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both an entity and a natural person. 8.9 RESTRICTIONS ON TRANSFER OF SHARES ---------------------------------- Before there can be a valid sale or transfer for consideration of any of the shares (the term "shares" shall include any securities convertible into shares) of the corporation by any holder thereof, such holder shall first offer those shares to the corporation or its designee in the following manner: (a) The offering stockholder shall deliver a notice in writing by mail or otherwise to the secretary of the corporation stating the price, terms, and conditions of such proposed sale or transfer, the number of shares to be sold or transferred, and such stockholder's intention so to sell or transfer the shares. Within ten (10) days thereafter, the corporation shall have the prior right to purchase all (but not less than all unless this requirement is waived by the seller) of the shares offered at the price and upon the terms and conditions stated in such notice. Should the corporation fail to purchase all of said shares, then, at the expiration of said ten (10) day period or prior thereto upon the determination of the corporation to purchase none of such shares so offered, the offering stockholder may sell or transfer to any person or persons all shares of stock referred to in such stockholder's notice to the secretary that were not purchased by the corporation, but only with a period of one hundred twenty (120) days from the date of such stockholder's first notice; provided, however, that such stockholder shall not sell or transfer such shares at a lower price or on terms more favorable to the purchaser or transferee than those specified in the notice to the secretary. After said 120-day period, the foregoing procedure for first offering shares to the corporation shall again apply. (b) Within the limitations herein provided, the corporation may purchase the shares of this corporation from any offering stockholder; provided, however, that at no time shall the corporation be permitted to purchase all of its outstanding voting shares. Any sale or transfer or purported sale or transfer of the shares of the corporation shall be null and void unless the terms, conditions, and provisions of this Section 8.9 are strictly observed and followed. (c) The corporation shall place an appropriate legend on all certificates for its shares referring to the provisions of this Section 8.9 restricting the transfer of shares. (d) Effective upon the closing of a firm commitment underwritten initial public offering of any of the corporation's securities pursuant to a registration statement on Form S-1 filed under the 23 Securities Act of 1933, as amended, the stockholders shall no longer be subject to the restrictions on transfer provided by this Section 8.9 ARTICLE IX AMENDMENTS ---------- The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book. 24 EX-4.2 5 AMENDED & RESTATED INVESTORS' RIGHTS AGREEMENT EXHIBIT 4.2 AUTO-BY-TEL CORPORATION ------------------------------------------------ AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT DATED AS OF JANUARY 30, 1997 ------------------------------------------------ TABLE OF CONTENTS
PAGE ---- ARTICLE 1 - Definitions................................................. 1 ARTICLE 2 - Requested Registration...................................... 2 2.1 Request for Registration........................................ 2 2.2 Underwriting.................................................... 3 ARTICLE 3 - Company Registration........................................ 4 3.1 Notice of Registration to Holders............................... 4 3.2 Underwriting.................................................... 5 ARTICLE 4 - Registration on Form S-3.................................... 5 4.1 Request for S-3 Registration.................................... 5 4.2 Underwriting.................................................... 6 ARTICLE 5 - Expenses of Registration.................................... 7 ARTICLE 6 - Registration Procedures..................................... 7 6.1 Filings; Information............................................ 7 ARTICLE 7 - Indemnification............................................. 11 ARTICLE 8 - Lockup Agreement............................................ 13 ARTICLE 9 - Information by Holder....................................... 13 ARTICLE 10 - Rule 144 Reporting......................................... 14 ARTICLE 11 - Co-Sale Rights; Drag-Along Rights.......................... 14 11.1 Co-Sale Rights.................................................. 14 11.2 Drag-Along Rights............................................... 15 11.3 Compliance...................................................... 16 11.4 Improper Transfers Ineffective.................................. 16 11.5 No Transfer to Competitors...................................... 16 11.6 Transfer of Registration Rights................................. 16 11.7 Legends......................................................... 16 11.8 Termination of Rights........................................... 17
-i- TABLE OF CONTENTS (continued)
Page ---- ARTICLE 12 - Termination of Registration Rights......................... 17 ARTICLE 13 - Limitations on Registration Rights Granted to Other Securities........................................... 17 ARTICLE 14 - Miscellaneous.............................................. 18 14.1 Waivers and Amendments.......................................... 18 14.2 Governing Law................................................... 18 14.3 Successors and Assigns.......................................... 18 14.4 Entire Agreement................................................ 18 14.5 Notices......................................................... 18 14.6 Severability.................................................... 19 14.7 Titles and Subtitles............................................ 19 14.8 Counterparts.................................................... 19 ARTICLE 15 - Aggregation................................................ 19
-ii- AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amended and Restated Investors' Rights Agreement (the "Agreement") is made and entered into as of January 30, 1997 by and among Auto-By-Tel Corporation, a Delaware corporation (the "Company"), the undersigned holders of the capital stock of the Company ("Holders"), and those other persons and entities who have or shall have executed this Agreement and whose names appear on the Schedule of Investors' Rights Holders attached hereto as Exhibit A, as --------- such Schedule may be amended from time to time pursuant to Section 13 hereof. RECITALS A. The Company has issued and sold shares of its Series A Preferred Stock to the persons and entities whose names appear on the Schedule of Investors' Rights Holders attached as Exhibit A hereto under the caption "Series A --------- Investors," and in consideration thereof, has granted to the Series A Investors and certain other stockholders certain rights pursuant to an Investors' Rights Agreement dated as of August 23, 1996 (the "August 1996 Agreement"). B. In connection with the Company's sale of Series B Preferred Stock to the investors whose names appear on Exhibit A hereto under the caption "Series B --------- Investors" (the "Series B Investors"), the parties to the August 1996 Agreement desire to amend and restate such agreement. The parties to the August 1996 Agreement also wish to add the Series B Investors as parties to this Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained herein, the parties hereto agree to amend and restate the August 1996 Agreement as follows: ARTICLE 1 Definitions ----------- As used herein, the following terms shall have the following respective meanings: 1.1 "Commission" shall mean the Securities and Exchange Commission or any ---------- other federal agency at the time administering the Securities Act. 1.2 "Executive Stockholders" shall mean John Bedrosian, Robert Grimes and ----------------------- Peter Ellis. 1.3 "Holders" shall mean and include any person or persons who have ------- executed this Agreement and whose names appear on the Schedule of Investors' Rights Holders or who shall, pursuant to Article 13 hereof, become parties hereto, and any qualifying transferees under Article 11 hereof who hold Registrable Securities. 1.4 "Initiating Holders" shall mean any Holder or Holders (exclusive of ------------------ John Bedrosian, Robert Grimes and Peter Ellis) who in the aggregate own at least 40% of the Registrable Securities (exclusive of shares held by John Bedrosian, Robert Grimes and Peter Ellis) which have not been previously resold to the public in a registered public offering. 1.5 "Initial Public Offering" shall mean the closing of a firm commitment ----------------------- underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the offer and sale of common stock of the Company (the "Common Stock") to the public at an aggregate offering price to the public of at least thirty million dollars ($30,000,000) at a per share price of not less than nine dollars ($9.00) per share. 1.6 The terms "register," "registered" and "registration" refer to a -------- ---------- ------------ registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. 1.7 "Registrable Securities" means shares of (i) any and all Common Stock ---------------------- of the Company issued or issuable to John Bedrosian, Peter Ellis or Robert Grimes, and (ii) any and all Common Stock of the Company issued or issuable upon conversion of shares of the Series A Preferred Stock or Series B Preferred Stock of the Company. 1.8 "Registration Expenses" shall mean all expenses incurred by the --------------------- Company in complying with Articles 2, 3 and 4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, listing fees, fees and disbursements of legal counsel for the Company, fees and disbursements of separate legal counsel for the Holders (up to a maximum of $10,000), blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). 1.9 "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. ARTICLE 2 Requested Registration ---------------------- 2.1 Request for Registration. In case the Company shall receive from the ------------------------ Initiating Holders a written request that the Company effect any registration with respect to all or a part of the Registrable Securities, the Company will: (a) within ten (10) days after its receipt thereof give written notice of the proposed registration to all other Holders; and -2- (b) as soon as practicable, use its best efforts to effect such registration (including, without limitation, preparation of a registration statement and prospectus complying as to form with the requirements of the Securities Act, the execution of an undertaking to file post-effective amendments, appropriate qualifications under the applicable blue sky or other state securities laws and appropriate compliance with exemptive regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as is specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; provided, that the Company shall not be obligated to take any action to effect such registration pursuant to this Section 2.1 under the following circumstances: (1) Prior to the earlier of (i) July 1, 1998, or (ii) one year following the effective date of the Company's Initial Public Offering; or (2) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration; or (3) After the Company has effected two such registrations pursuant to this Subsection 2.1(b) and such registrations have been declared or ordered effective; or (4) If the Registrable Securities to be registered have an anticipated offering price to the public of less than $30,000,000. Subject to the foregoing clauses (1) through (4), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as possible, but in any event, within ninety (90) days after receipt of the request or requests of the Initiating Holders; provided, however, that if the Company shall furnish to such Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors it has been determined that (i) such a filing would adversely affect any proposed financing or acquisition by the Company, or (ii) such a filing would otherwise represent undue hardship for or would impose undue potential liability on the Company, the Company shall be entitled to delay the filing of such registration statement for an additional period up to one hundred twenty (120) days after receipt of the request of the Initiating Holders. 2.2 Underwriting. If the Initiating Holders intend to distribute the ------------ Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1 and the Company shall include such information in the written notice referred to in Subsection 2.1(a). The right of any Holder to registration pursuant to Section 2.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. -3- (a) The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, provided, however, that the managing underwriter shall be of nationally recognized standing and must be approved by the Company, which approval shall not be unreasonably withheld. Notwithstanding any other provision of this Section 2.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, the Initiating Holders shall so advise all Holders of Registrable Securities who have elected to participate in such offering, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all such Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders. (b) If any Holder of Registrable Securities disapproves of the terms of the underwriting, he may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. Any Registrable Securities which are excluded from the underwriting by reason of the underwriter's marketing limitation or withdrawn by a Holder of Registrable Securities from such underwriting shall be withdrawn from such registration. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company, employees of the Company and other holders of the Company's Common Stock may include securities for its (or their) own account in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited by the underwriter and the proposed price at which the securities will be offered to the public is not reduced. (c) Inclusion of Shares by Company. If the managing underwriter has ------------------------------ not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or for the account of others in such registration if the managing underwriter so agrees and if the number of Registrable Securities held by Initiating Holders which would otherwise have been included in such registration and underwriting will not thereby be limited. The inclusion of such shares shall be on the same terms as the registration of shares held by the Initiating Holders. In the event that the underwriters exclude some of the securities to be registered, the securities to be sold for the account of the Company and any other holders shall be excluded in their entirety prior to the exclusion of any Registrable Securities. ARTICLE 3 Company Registration -------------------- 3.1 Notice of Registration to Holders. If at any time or from time to --------------------------------- time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: (a) give to each Holder 20 days' prior written notice thereof; and -4- (b) include in such registration (and any related qualification under blue sky laws or other compliance requirements), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 15 days after receipt of such written notice from the Company, by any Holder or Holders. 3.2 Underwriting. If the registration of which the Company gives notice ------------ is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.1(a). In such event, the right of any Holder to registration pursuant to this Article 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Article 3, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may (i) in the case of the Company's Initial Public Offering, exclude some or all Registrable Securities; provided, however, that no Registrable Securities may be excluded if any securities other than Registrable Securities are included and (ii) in the case of any other offering, reduce the number of Registrable Securities proposed to be registered to not less than 25% of the total shares originally proposed to be underwritten. The Company shall so advise all Holders and all the other holders distributing their securities through such underwriting of such exclusions or reductions, and (subject to the foregoing sentence) the number of Registrable Securities held by Holders that may be included in the registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by all such Holders at the time of filing the registration statement. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, but the Holder shall continue to be bound by Article 8 hereof. ARTICLE 4 Registration on Form S-3 ------------------------ 4.1 Request for S-3 Registration. The Company shall use its best efforts ---------------------------- to qualify for registration on Form S-3 or any successor form to Form S-3. After the Company has qualified for the use of Form S-3, Holders of the outstanding Registrable Securities shall have the right to request two registrations on Form S-3. The number of shares of Registrable Securities that may be included on the Form S-3 shall be allocated among all Holders in proportion to the respective amounts of Registrable Securities entitled to inclusion in such registration at the time of filing the registration statement. Notwithstanding the foregoing: -5- (a) The Company shall not be required to effect a registration pursuant to this Article 4 within 180 days following the effective date of any registration statement filed pursuant to Article 2 or 3 hereof. (b) The Company shall not be required to effect a registration pursuant to this Article 4 unless the shares of Registrable Securities for which the Holder or Holders are requesting registration have a reasonably anticipated aggregate price to the public (before deduction of underwriting discounts and expenses) of at least $5,000,000. (c) The Company shall not be required to effect more than one registration pursuant to this Article 4 in any consecutive 12-month period. The Company shall promptly give written notice to all Holders of Registrable Securities of the receipt of a request for registration pursuant to this Article 4 and shall provide a reasonable opportunity for other Holders to participate in the registration, provided that if the registration is for an underwritten offering, the terms of Section 4.2 shall apply to all participants in such offering. Subject to the foregoing, the Company will use its best efforts to file a registration statement on Form S-3 covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Holders, but in any event within 90 days after receipt of the request or requests of the Initiating Holders. 4.2 Underwriting. If the Holders intend for the distribution of the ------------ Registrable Securities covered by the registration on Form S-3 to be effected by means of a firm commitment underwriting, they shall so advise the Company. In such event, the right of any Holder to registration pursuant to this Article 4 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting. (a) The Company (together with all Holders proposing to distribute their securities through such underwriting) shall enter into an underwriting agreement in customary form with a managing underwriter of nationally recognized standing selected for such underwriting by a majority in interest of the Holders requesting registration on Form S-3 and approved by the Company, which approval shall not unreasonably be withheld. Notwithstanding any other provision of this Article 3, if the managing underwriter advises the Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the underwriters may exclude some or all of the shares requested to be included in such registration, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the managing underwriter's marketing limitation shall be included in such registration. (b) If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration; provided, however, that if by the withdrawal of such -6- Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 4.2(b). (c) Inclusion of Shares by Company. If the managing underwriter has ------------------------------ not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or for the account of others in such registration if the managing underwriter so agrees and if the number of Registrable Securities held by Holders requesting registration on Form S-3 which would otherwise have been included in such registration and underwriting will not thereby be limited. The inclusion of such shares shall be on the same terms as the registration of shares held by the Initiating Holders. In the event that the underwriters exclude some of the securities to be registered on Form S-3, the securities to be sold for the account of the Company and any other holders shall be excluded in their entirety prior to the exclusion of any Registrable Securities. ARTICLE 5 Expenses of Registration ------------------------ All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Articles 2, 3 and 4 hereof shall be borne by the Company (exclusive of underwriting discounts and commissions). All underwriting discounts and commissions relating to securities registered by the Holders shall be borne by the holders of such securities pro rata on the basis --- ---- of the number of shares so registered. ARTICLE 6 Registration Procedures ----------------------- 6.1 Filings; Information. Whenever the Company is required to effect or -------------------- cause the registration of Registrable Securities pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the Commission a registration statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days (or shorter period as is required to complete the distribution of the securities); -7- provided that the Company may postpone the filing of a registration statement in accordance with Section 2.1 hereof. (b) The Company will as expeditiously as possible prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days or such shorter period which will terminate when all securities covered by such registration statement have been sold (but not before the expiration of the 90-day period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply with the provisions if the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by each Selling Holder thereof set forth in such registration statement; (c) The Company will, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish each Holder, one counsel representing all such Holders to be selected by a majority-in-interest of such Holders, and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, together with exhibits thereto, which documents will be subject to review and approval by the foregoing within five days after delivery, and thereafter furnish to such Holders, counsel and underwriters, if any, for their review and comments such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents or information as such Holder, counsel or underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holders; (d) After the filing of the registration statement, the Company will promptly notify each Holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (e) The Company will use its best efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as any Holder reasonably (in light of such Holder's intended plan of distribution) requests, and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the Registrable Securities owned by such Holder; provided that the Company will not be required to (A) qualify generally -------- to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction; (f) The Company will immediately notify each Holder of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the -8- occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to each Holder any such supplement or amendment; (g) The Company will enter into customary agreements (including, if applicable, an underwriting agreement in customary form and which is reasonably satisfactory to the Company) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities and the Holders may, at their option, require that any or all of the representations, warranties and covenants of the Company or to or for the benefit of such underwriters also be made to and for the benefit of such Holders. (h) The Company will make available to each Holder of such Registrable Securities (and will deliver to their counsel) and each underwriter, if any, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company, its counsel or auditors and will also make available for inspection by any Holder of such Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the disclosure or release of such Records is requested or required pursuant to oral questions, interrogatories, requests for information or documents or a subpoena or other order from a court of competent jurisdiction or other process; provided that -------- prior to any disclosure or release pursuant to clause (ii), the Inspectors shall provide to the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waive such Inspectors' obligation not to disclose such Records; and, provided, further that -------- ------- if failing the entry of a protective order or the waiver by the Company permitting the disclosure or release of such Records, the Inspectors, upon advice of counsel, are compelled to disclose such Records, the Inspectors may disclose that portion of the Records which counsel has advised the Inspectors that the Inspectors are compelled to disclose. Each Holder of such Registrable Securities agrees that information obtained by it solely as a result of such inspections (not including any information obtained from a third party who, insofar as is known to the Holder after reasonable inquiry, is not prohibited from providing such information by contractual, legal or fiduciary obligation to the Company) shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates unless and until such information is made generally available to the public. Each Holder of such Registrable Securities further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; -9- (i) The Company will furnish to each Holder and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the Holders of Registrable Securities included in such offering or the managing underwriter thereof reasonably requests; (j) The Company will otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (k) The Company will use its best efforts (a) to cause all such Registrable Securities to be listed on a national securities exchange (if such Registrable Securities are not already so listed) and on each additional national securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange or (b) to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of the Commission or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; (l) The Company will appoint a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and (m) In connection with an underwritten offering, the Company will participate, to the extent reasonably requested by the managing underwriter for the offering or the Holders, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows"; provided, that the Company shall not be obligated to participate in more than one such offering in any 12-month period. The Company may require each Holder of Registrable Securities to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the NASD. The Company may exclude from such registration any Holder who fails to provide such information. Each Holder agrees that, upon receipt of any notice from the Company of any happening of any event of the kind described in Section 6.1(f) hereof, such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended -10- prospectus contemplated by Section 6.1(f) hereof, and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 6.1(a) hereof) by the number of days during the period from and including the date of giving of notice pursuant to Section 6.1(f) hereof to the date when the Company shall make available to the Holders of the Registrable Securities covered by such registration statement a prospectus supplemented or amended to conform with the requirements of Section 6.1(f) hereof. ARTICLE 7 Indemnification --------------- 7.1 The Company will indemnify each Holder and each underwriter, if any, and each of their respective officers, directors, partners, representatives and agents and such Holder's legal counsel and independent accountants, if any, and each person controlling any such persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, provided such settlement is effected with the written consent of the Company (which consent shall not be unreasonably withheld), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein, a material fact required to be stated therein or necessary to make the statements therein, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or any state securities laws applicable to the Company and relating to action or inaction by the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder and each underwriter, if any, and each of their respective officers, directors, partners, representatives and agents and such Holder's legal counsel and independent accountants, and each person controlling any such persons, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein. 7.2 Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and its legal counsel and independent accountants, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, -11- and each other such Holder, each of its officers, directors, partners, legal counsel and independent accountants, if any, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, provided such settlement is effected with the written consent of the Holder (which consent shall not be unreasonably withheld), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, partners, legal counsel, independent accountants, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, other document or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Holder; provided, however, that notwithstanding any other provision contained herein the obligations of such Holders hereunder shall be limited to an amount equal to the proceeds to each such Holder of Registrable Securities sold as contemplated herein. 7.3 Each party entitled to indemnification under this Article 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of the Indemnified Party if representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure is prejudicial to the ability of the Indemnifying Party to defend the action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. 7.4 If the indemnification provided for in this Article 7 is unavailable to an Indemnified Party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Party under such paragraph, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and by the Holders from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to -12- reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Holders in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Holders in connection with the offering of the Registrable Securities shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Registrable Securities as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Registrable Securities. The relative fault of the Company and of the Holders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this Article 7 are several in proportion to the respective number of Registrable Securities they sell, and not joint. ARTICLE 8 Lockup Agreement ---------------- In consideration for the Company agreeing to its obligations under this Agreement, each Holder agrees in connection with the Company's Initial Public Offering, upon the request of the underwriters managing the underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of such underwriters for such period of time (not to exceed one hundred and eighty (180) days) from the effective date of such registration as the underwriters may specify; provided, however, that (i) such Holder shall have no obligation to enter into the agreement described herein unless all executive officers and directors and holders of more than 10% of the Company's voting power of the Company enter into similar agreements, and (ii) nothing herein shall prevent any Holder that is a corporation from making a distribution of Registrable Securities to the shareholders thereof that is otherwise in compliance with applicable securities laws. ARTICLE 9 Information by Holder --------------------- The Holder or Holders of Registrable Securities included in any registration shall furnish in writing to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. -13- ARTICLE 10 Rule 144 Reporting ------------------ With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of securities of the Company to the public without registration, the Company agrees to: 10.1 Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the Company's Initial Public Offering; and 10.2 Use its best efforts to then file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") (at any time after it has become subject to such reporting requirements); and 10.3 So long as a Holder owns any Registrable Securities, furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. ARTICLE 11 Co-Sale Rights; Drag-Along Rights --------------------------------- 11.1 Co-Sale Rights. -------------- (a) If any Executive Stockholder proposes to sell, exchange, transfer or in any other manner dispose of his Registrable Securities other than to an affiliate of such Executive Stockholder, such Executive Stockholder shall first give notice in writing (the "Co-Sale Notice") to the Company and each other Holder setting forth the terms and conditions of the proposed sale and the name and address of the proposed purchaser. (b) Each other Holder shall have the right, exercisable by written notice to the Executive Stockholder and the Company given within 30 days after the receipt of the Co-Sale Notice, to elect to participate in the proposed sale given. Each Holder that so notifies the Executive Stockholder and the Company shall have the right to sell an amount of Registrable Securities equal to the product obtained by multiplying (i) the total number of shares of Common Stock or Preferred Stock owned by such Holder by (ii) a fraction, the numerator of which is the aggregate number of shares of Common -14- Stock or Preferred Stock proposed to be purchased by the proposed purchaser and the denominator of which is the aggregate number of shares of Common Stock or Preferred Stock owned by the Executive Stockholder and all Holders electing to exercise their rights under this Section 11.1. Such purchase shall be made at the highest price per share and on the same terms and conditions specified in the Co-Sale Notice. (c) The closing of the proposed sale shall be held at the time and place designated by the proposed purchaser, but in any event within 30 days of the later to occur of (i) receipt of notice from each Holder as to whether he elects to participate in the proposed sale or (ii) expiration of the 15-day co- sale period if the notice has not been provided by all Holders. Each Holder participating in the proposed sale shall deliver at the closing his shares of Common Stock or Preferred Stock to the purchaser free and clear of all liens, pledges and other encumbrances and accompanied by stock transfer powers duly endorsed for transfer. 11.2 Drag-Along Rights. ----------------- (a) If at any time and from time to time after the date of this Agreement, Holders holding at least 50% of the Registrable Securities (the "Control Holders") wish to sell or exchange in a bona fide arm's-length transaction all the shares of Common Stock or Preferred Stock then owned by them, the Control Holders shall have the right (the "Drag-Along Right") to require all of the Holders to sell all of the shares of Common Stock or Preferred Stock then owned by such Shareholders for the same per share consideration, and otherwise on the same terms received by the Control Holders, to the proposed purchaser; provided, however, that no Holder shall be obligated to sell any shares of Common Stock or Preferred Stock then owned by such Holder unless such Holder shall realize an internal rate of return on such Holder's investment in the Company of at least 30%. (b) To exercise a Drag-Along Right, the Control Holder shall first give notice in writing (the "Drag-Along Notice") to each Holder and the Company setting forth (i) the name and address of the proposed purchaser and (ii) the proposed purchase price, terms of payment and other material terms and conditions of the proposed purchaser's offer. Each Holder shall thereafter be obligated to sell all of his shares of Common Stock or Preferred Stock subject to such Drag-Along Notice; provided, however, that no Holder shall be obligated to sell any shares of Common Stock or Preferred Stock then owned by such Holder unless such Holder shall realize an internal rate of return on such Holder's investment in the Company of at least 30%. (c) The closing of the proposed sale shall be held at the time and place designated by the proposed purchaser, but in any event within 30 days from receipt by all the Holders and the Company of the Drag-Along Notice. Each Holder shall deliver at the closing his shares of Common Stock or Preferred Stock to the proposed purchaser free and clear of all liens, pledges encumbrances and accompanied by stock transfer powers duly endorsed for transfer. If the sale is not consummated within such 30-day period, then no Holder shall be obligated to sell his Common Stock or Preferred Stock pursuant to that specific Drag-Along Right, but each Holder shall remain subject to the provisions of this Section 11.2. -15- (d) Nothing in this Section 11.2 shall limit the Company's ability to undertake a merger or reorganization in accordance with the Delaware General Corporation Law and the Company's Restated Certificate of Incorporation. 11.3 Compliance. Any sale, exchange, transfer or other disposition must ---------- comply with provisions of this Agreement, and the prospective transferee must agree to be bound by this Agreement and execute a counterpart hereof (and/or such further documents as may be necessary in the opinion of the Company to make it a party hereto), after which such prospective transferee shall be deemed to be a Holder for purposes of this Agreement. 11.4 Improper Transfers Ineffective. Any purported sale, exchange, ------------------------------ transfer or other disposition of shares of Common Stock or Preferred Stock which is in violation of the provisions of this Agreement shall be void and of no force and effect whatsoever, and the Company shall not record any such event on its books or treat any such transferee as the owner of such shares for any purpose. 11.5 No Transfer to Competitors. From the date hereof through September -------------------------- 15, 1997, no Registrable Securities or Common Stock issued upon the conversion thereof may be sold or transferred to a competitor of the Company. A "competitor" shall be any person or entity engaged in (or who has announced plans to engage in) the selling, leasing, marketing or manufacturing of automobiles, automobile financing or automobile insurance, or the provision of advisory or marketing services related thereto of the Company, or to an "affiliate" (within the meaning of Rule 144 (17 C.F.R. (S)230.144) of the rules and regulations promulgated under the Securities Act, an "Affiliate") of a Competitor. Notwithstanding the foregoing, any Holder may at any time sell, transfer, assign or otherwise dispose of any shares of Series A Preferred or Common Stock issued upon conversion of the Series A Preferred to (i) any executor, administrator of such Holder's estate, ancestors, descendants, siblings, or spouse, (ii) any Affiliate of the Holder, (iii) any other Holder or any of its affiliates, or (iv) in the case of any Holder that is a partnership, to any constituent of such Holder or any affiliate of any such constituent. Following September 15, 1997, all restrictions on transfer set forth in the first two sentences of this Section 11.5 shall be of no further force and effect. 11.6 Transfer of Registration Rights. The rights to cause the Company to ------------------------------- register securities granted to Holders under Articles 2, 3 and 4 hereof may only be assigned in connection with a Transfer of the Holder's Shares accomplished in accordance with the provisions of this Section 11. All transferees and assignees of the rights to cause the Company to register securities granted Holders under Articles 2, 3 and 4 hereof, as a condition to the transfer of such rights, shall agree in writing to be bound by the agreements set forth herein. 11.7 Legends. All certificates or instruments representing Transfer ------- Shares, whether now outstanding or subsequently issued, shall be surrendered to the Company for endorsement or be endorsed by the Company prior to their issuance with the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH, AN AGREEMENT AMONG THE COMPANY AND THE HOLDERS -16- OF THESE SECURITIES AND CERTAIN OTHER HOLDERS OF THE COMPANY'S STOCK, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY." The Company shall not transfer any of the Transfer Shares on its books without first ascertaining compliance with all of the applicable provisions of this Agreement with respect to such transfer. 11.8 Termination of Rights. This rights granted in this Article 11 shall --------------------- terminate on the earliest of (i) the closing of the Company's Initial Public Offering, (ii) the date on which the Company first becomes subject to filing reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act), (iii) the date on which quotations for the Common Stock of the Company are reported on the automated quotation system of the National Association of Securities Dealers, Inc. or on an equivalent quotation system or shares of the Common Stock of the Company are listed on a national securities exchange registered under the Exchange Act, and (iv) the merger or consolidation of the Company with or into any other corporation or entity, other than a wholly-owned subsidiary of the Company, or a sale of all or substantially all of the assets of the Company, as a result of which the stockholders of the Company immediately prior to such transaction hold less than 50% of the voting power of the surviving corporation. ARTICLE 12 Termination of Registration Rights ---------------------------------- Following the Company's Initial Public Offering, the rights granted pursuant to this Agreement shall terminate as to any Holder at such time as such Holder may sell all such Holder's shares under Rule 144, or a successor rule, in any three month period. ARTICLE 13 Limitations on Registration Rights Granted to Other Securities -------------------------------------------------------------- The parties hereto agree that additional holders may be added as parties to this Agreement with respect to any or all securities of the Company held by them; provided, however, that from and after the date of this Agreement, the Company shall not without the prior written consent of the Holders of two-thirds of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company providing for the grant to such holder of registration rights superior to those granted herein. Any additional parties shall execute a counterpart of this Agreement, and upon execution by such additional parties and by the Company, shall be considered Holders for purposes of this Agreement, and shall be added to the Schedule of Investors' Rights Holders. -17- ARTICLE 14 Miscellaneous ------------- 14.1 Waivers and Amendments. With the written consent of the Company and ---------------------- the holders of two-thirds of the then outstanding Series A Preferred Stock and Series B Preferred Stock, any shares of Common Stock issued upon conversion of the Preferred Stock, and the Common Stock held by the Executive Stockholders, all voting together as a class on an as-converted basis, the obligations and rights of the Company and the Holders under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely) or amended; provided, however, that no such waiver or amendment shall reduce the aforesaid number of shares, the Holders of which are required to consent to any waiver or amendment, without the consent of all the Holders. Upon the effectuation of each such waiver or amendment, the Company shall promptly give written notice thereof to any Holders who have not previously consented thereto in writing. This Agreement or any provision hereof may be amended, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought, except to the extent provided in this Section 14.1. Notwithstanding any other provision herein, the requirement of the approval of the holders of two-thirds of the Registrable Securities to amend this Agreement or waive rights hereunder shall not be amended or modified without the unanimous approval of the holders of the Series A Preferred Stock and Series B Preferred Stock, voting as a single class. 14.2 Governing Law. This Agreement shall be governed by and construed ------------- under the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state. Each party hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for California and of any California state court sitting in Orange County, California (and of the appropriate appellate courts) for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby and irrevocably waives, to the fullest extent permitted by applicable law, any objection to venue laid therein. Process in any such proceeding may be served on such party anywhere in the world, whether within or without the State of California. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any matter directly or indirectly arising out of or relating to this Agreement. 14.3 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 14.4 Entire Agreement. This Agreement constitutes the full and entire ---------------- understanding and agreement between the parties with regard to the subject matter hereof. 14.5 Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be deemed effectively given upon personal delivery; upon confirmed transmission by telecopy; or three (3) days following deposit with the United States Post Office, by certified mail, postage -18- prepaid, addressed (i) if to a Holder, to such address as such Holder shall have furnished to the Company in writing, or (ii) if to the Company, to 18872 MacArthur Blvd., Irvine, California, to the attention of the General Counsel, or to such other address as the Company shall have furnished to the Holders in writing. 14.6 Severability. In case any provision of this Agreement shall be ------------ invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 14.7 Titles and Subtitles. The titles of the sections and subsections of -------------------- this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 14.8 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together constitute one instrument. ARTICLE 15 Aggregation ----------- Shares of capital stock of the Company owned by partnerships and corporations having substantially common ownership interests or managed by the same principals and owned by individual investors affiliated with one another may be aggregated for the purposes of calculating the aggregate percentage of capital stock of the Company owned by any Holder and any permitted transferee hereunder. -19- The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" AUTO-BY-TEL CORPORATION By: ----------------------------- Peter R. Ellis, President "HOLDER" By: ----------------------------- Name: --------------------------- Title: -------------------------- The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" AUTO-BY-TEL CORPORATION By: ----------------------------- Peter R. Ellis, President "HOLDER" CONTITRADE SERVICES L.L.C. By: ----------------------------- Name: ---------------------------- Title: --------------------------- The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" AUTO-BY-TEL CORPORATION By: ------------------------------ Peter R. Ellis, President "HOLDER" NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA By: ------------------------------ Name: ---------------------------- Title: --------------------------- The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" AUTO-BY-TEL CORPORATION By: ------------------------------ Peter R. Ellis, President "HOLDER" GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------ Name: ---------------------------- Title: --------------------------- The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" AUTO-BY-TEL CORPORATION By: ------------------------------ Peter R. Ellis, President "HOLDER" MICHAEL FUCHS By: ------------------------------ Name: ---------------------------- Title: --------------------------- EXHIBIT A --------- SCHEDULE OF INVESTORS' RIGHTS HOLDERS Name - ---------------------------------------------------------------- Series A Investors - ------------------ ContiTrade Services L.L.C. National Union Fire Insurance Company of Pittsburgh, PA General Electric Capital Corporation Michael Fuchs Executive Stockholders - ---------------------- John Bedrosian Peter Ellis Robert Grimes Series B Investors - ------------------ ContiTrade Services L.L.C. National Union Fire Insurance Company of Pittsburgh, PA General Electric Capital Corporation Michael Fuchs EX-10.1 6 FORM OF INDEM. AGMT. BET. CO. AND DIRECTORS & OFF. EXHIBIT 10.1 AUTO-BY-TEL CORPORATION INDEMNIFICATION AGREEMENT This Indemnification Agreement ("AGREEMENT") is entered into as of the ___ day of ______________, 1997 by and between Auto-By-Tel Corporation, a Delaware corporation (the "COMPANY") and _______________________________ ("Indemnitee"). RECITALS -------- A. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. C. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancing of expenses to Indemnitee to the maximum extent permitted by law. E. In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. --------------- (a) Indemnification of Expenses. The Company shall indemnify --------------------------- Indemnitee to the fullest extent permitted by Delaware law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a "CLAIM") by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE EVENT") against any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter "EXPENSES"), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no later than five days after written demand by Indemnitee therefor is presented to the Company. (b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations --------------- of the Company under Section 1(a) shall be subject to the condition that the Reviewing Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c) hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 1(c) hereof. Indemnitee shall have the right, within 60 days of a determination by the Reviewing Party that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, or within 30 days or Indemnitee's request for payment if there has been no determination by the Reviewing Party, to commence litigation in any court of competent jurisdiction, or seek an award in -2- arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association, which award shall be deemed final, unappealable and binding, to determine whether Indemnitee should be indemnified under applicable law, or to challenge any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor. Any such court or arbitrator, as the case ma be, shall thereupon have the exclusive authority to make such determination unless and until such court or arbitrator dismisses or otherwise terminates such action without having made a determination. The Company hereby consents to service of process and to appear in any such proceeding. In any such action before the court or arbitrator, Indemnitee shall be presumed to be entitled to indemnification and the Company shall have the burden of proving that indemnification is not required under this Agreement. All fees and expenses of any arbitrator pursuant to this provision and all reasonable fees and expenses of counsel retained by Indemnitee in connection with any court or arbitration finding an obligation greater than that assumed by the Company prior to commencement of such court action or arbitration shall be paid by the Company. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. (c) Change in Control. The Company agrees that if there is a Change ----------------- in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitees to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by Indemnitee. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (d) Mandatory Payment of Expenses. Notwithstanding any other ----------------------------- provision of this Agreement other than Section 9 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 2. Expenses; Indemnification Procedure. ----------------------------------- (a) Advancement of Expenses. The Company shall advance all Expenses ----------------------- incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than five days after written demand by Indemnitee therefor to the Company. -3- (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition -------------------------------- precedent to Indemnitees' right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitees' power. (c) No Presumptions; Burden of Proof. For purposes of this Agreement, the -------------------------------- termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its --------------- equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) Notice to Insurers. If, at the time of the receipt by the Company ------------------ of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated -------------------- hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee counsel shall be at the expense of the Company. The Company shall have the -4- right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim against Indemnitee without the consent of the Indemnitee provided the Company holds the Indemnitee harmless in connection with any such settlement. 3. Additional Indemnification Rights; Nonexclusivity. ------------------------------------------------- (a) Scope. The Company hereby agrees to indemnify Indemnitee to the ----- fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Restated Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 8(a) hereof. (b) Amendment to Indemnification Rights. The Company shall not adopt ----------------------------------- any amendment to its Restated Certificate of Incorporation, as amended (the "Certificate") or By-Laws the effect of which would be to deny, diminish or encumber Indemnitee's rights to indemnity pursuant to the Restated Certificate of Incorporation, By-Laws, the Delaware General Corporation Law or any other applicable law as applied to any act or failure to act occurring in whole or in part prior to the date (the "Effective Date") upon which the amendment was approved by the Company's Board of Directors or stockholders, as the case may be. In the event that the Company shall adopt any amendment to its Restated Certificate of Incorporation or By-Laws the effect of which is to change Indemnitee's rights to indemnity under such instruments, such amendment shall apply only to acts or failures to act occurring entirely after the Effective Date thereof. The Company shall give written notice to Indemnitee of any proposal which respect to any such amendment no later than the date such amendment is first presented to the Board of Directors (or any committee thereof) for consideration, and shall provide a copy of any such amendment to Indemnitee promptly after its adoption. (c) Nonexclusivity. The indemnification provided by this Agreement -------------- shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity. 4. No Duplication of Payments. The Company shall not be liable -------------------------- under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has -5- otherwise actually received payment (under any insurance policy, Certificate of Incorporation, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5. Partial Indemnification. If Indemnitee is entitled under any provision ----------------------- of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee are entitled. 6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge --------------------- that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Liability Insurance. ------------------- (a) Except as provided in (b) below, the Company hereby agrees to use its best efforts to obtain and maintain directors and officers liability insurance for Indemnitee so long as Indemnitee shall continue to serve as a director, officer or key employee of the Company, and, thereafter, so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that Indemnitee was a director, officer or key employee of the Company. (b) The Company shall have no obligation hereunder to obtain or maintain directors and officers liability insurance if, in the reasonable business judgment of the Board of Directors of the Company, such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited, by exclusions or otherwise, so as to provide an insufficient benefit. (c) To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. (d) The Company shall give prompt written notice to Indemnitee of any amendment or other change or modification, or any proposed amendment change or modification, to any policy of directors and officers liability insurance maintained by the Company and covering Indemnitee. -6- 8. Exceptions. Any other provision herein to the contrary notwithstanding, ---------- the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify Indemnitee for ---------------------------- Indemnitee's acts, omissions or transactions from which Indemnitee or the Indemnitee may not be relieved of liability under applicable law; (b) Claims Initiated by Indemnitee. To indemnify or advance expenses ------------------------------ to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be; (c) Lack of Good Faith. To indemnify Indemnitee for any expenses ------------------ incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses -------------------------- and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 9. Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter -------- ------- period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 10. Construction of Certain Phrases. ------------------------------- (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other -7- enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (c) For purposes of this Agreement a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 20% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company's assets. (d) For purposes of this Agreement, "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(c) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other -8- than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (e) For purposes of this Agreement, a "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee are seeking indemnification, or Independent Legal Counsel. (f) For purposes of this Agreement, "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 11. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be binding -------------------------------------- upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company's request. 13. Attorneys' Fees. In the event that any action is instituted by --------------- Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee material defenses to such action was made in bad faith or was frivolous. -9- 14. Notice. All notices and other communications required or permitted ------ hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee address as set forth beneath Indemnitee signatures to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten days' advance written notice to the other party hereto. 15. Consent to Jurisdiction. The Company and Indemnitee each hereby ----------------------- irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. Severability. The provisions of this Agreement shall be severable in ------------ the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. Choice of Law. This Agreement shall be governed by and its provisions ------------- construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof. 18. Subrogation. In the event of payment under this Agreement, the Company ----------- shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. Amendment and Termination. No amendment, modification, termination or ------------------------- cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. -10- 20. Integration and Entire Agreement. This Agreement sets forth the entire -------------------------------- understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. No Construction as Employment Agreement. Nothing contained in this --------------------------------------- Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AUTO-BY-TEL CORPORATION By: ------------------------------------ Title: --------------------------------- Address: ------------------------------- ------------------------------- AGREED TO AND ACCEPTED BY: - -------------------------------------- Name: -------------------------------- Address: ------------------------------ ------------------------------ -11- EX-10.2 7 EMPLOYMENT OFFER LET., 10/24/96, FROM REG. TO M.W.L EXHIBIT 10.2 AUTO-BY-TEL CORPORATION 18872 MACARTHUR BLVD. IRVINE, CALIFORNIA 92612-1400 as of October 24, 1996 Mark W. Lorimer 20 Ridgewood Terrace Maplewood, New Jersey 07040 Dear Mark: You have asked us to confirm the agreement we made on October 23, 1996 concerning your employment by Auto-By-Tel Corporation ("ABT"). We agreed, subject only to the commencement of your employment, to the terms set forth in this letter. You will be employed for 42 months (subject to extension as we may agree) as General Counsel of ABT with the responsibilities customarily associated with such position and your position will not diminish during your employment. You will be paid an annual base salary of no less than $200,000 (plus any bonuses awarded by the board in their discretion). You will be granted 10-year stock options, under ABT's 1996 Stock Incentive Plan, to purchase 300,000 shares of ABT common stock at an exercise price of $5.00 per share (the "Options") -- which will become exercisable as follows: 100,000 on the six month anniversary of this letter, 66,666 at the end of each of the two successive twelve-month periods thereafter and 66,668 at the end of the following twelve month period (resulting in full exercisability at the end of 42 months). The Options will not preclude you from consideration for other equity grants in the discretion of the board. You will be entitled to participation in all of the employee benefit plans, programs and policies in effect while employed which are generally available to senior executives of ABT, including health insurance coverage for you (and availability of health insurance coverage for your immediate family through the plan at your cost) (none of which shall be diminished during your employment). ABT will promptly reimburse you for all business expenses you incur while employed. If you are terminated due to willful fraud in connection with your job, or the deliberate or intentional repeated failure to substantially perform your duties that materially harms ABT, or are convicted for, or plead nolo contendere ---- ---------- to, a charge of commission of a felony (such items are called "Cause"), you will receive no severance and all non-exercisable Options will be forfeit. If you are terminated without Cause, or if you die, or become permanently disabled, all of the Options shall automatically be exercisable, and you will receive one year's base salary (payable monthly) as "Severance Pay," but your salary at any new job shall reduce, or eliminate, ABT's obligation to pay further Severance Pay. If you quit after ABT breaches this Agreement, or there is an agreement made to sell or merge or consolidate ABT with another entity which changes the ownership of ABT by more than 50%, or ABT insists you relocate, it will be treated as though you were terminated without Cause. You may make and manage passive personal business investments of your choice and serve on the board of directors of other companies and serve in any capacity with any civic, educational or charitable organization, or any trade association, without seeking or obtaining approval by the board, so long as such activities don't prevent you from doing your job. ABT will indemnify and hold you harmless as much as it can for any good faith act you take in performance of your job. ABT will pay your reasonable out-of-pocket moving expenses, including the cost of no more than three househunting trips with your wife and kids to Orange County, moving your belongings and selves and the brokerage commission you incur in selling your house. ABT will also make up any tax consequences you suffer, at the time they become due, because of the costs paid by ABT pursuant to this paragraph. Until you move to California, which you promise to do as soon as you reasonably can, we will work out the arrangements for your working out of your house, and/or working for a couple of weeks in the office here, or commuting; and your expenses will be reimbursed. I have received all of the approvals I need to bind ABT to this letter agreement, so, if you believe this correctly describes our agreement, please confirm by signing below. Very truly yours, ----------------------------------- Peter Ellis, President and CEO Auto-By-Tel Corporation Confirmed: - ------------------------ Mark W. Lorimer -2- EX-10.3 8 EMPLOYMENT OFFER LET., 12/16/96, FROM REG. TO J.M.M EXHIBIT 10.3 AUTO-BY-TEL CORPORATION 18872 MacArthur Blvd. Irvine, California 92612-1400 December 16, 1996 Mr. John M. Markovich 5108 Middlebrook Court Santa Rosa, CA 95404 Dear John: This letter will confirm our agreement concerning your employment by Auto-By-Tel Corporation ("ABT"). We agreed, subject only to the commencement of your employment (the date of such commencement, (the "Start Date")), to the terms set forth in this letter. You will be employed in the position of Chief Financial Officer of ABT and will report to the President of ABT. During the term of your employment, you will discharge your assigned duties in good faith and to the best of your abilities. You will devote all of your working time to ABT and your duties thereto, although you may manage passive investments and perform such charitable functions as you desire, so long as they do not interfere with your duties to ABT. During the first six months of your employment, you will be paid a monthly salary of $10,000 and thereafter you will be paid on the basis of an annual base salary of no less than $150,000 (plus any bonuses awarded in the discretion of ABT). You will be granted stock options, under ABT's 1996 Stock Incentive Plan, to purchase 120,000 shares of ABT common stock at an exercise price to be established by ABT's Board of Directors, but in no event to exceed $12.50 (the "Options"). The Options will vest as follows: 30,000 on each of the six, eighteenth, thirtieth and forty-second month anniversary dates of the Start Date. You will be entitled to participate in all of the employee benefit plans, programs and policies in effect while employed which are generally available to senior executives of ABT, subject to the terms, conditions and limitations of such plans, programs and policies. If you quit, or are terminated due to (i) willful fraud or the deliberate or intentional repeated failure to substantially perform your job, or (ii) conviction for, or plea of no contest to, a felony charge, then you will receive no severance and all non-exercisable Options will be forfeit. If you are terminated for any other reason prior to the first anniversary date of the Start Date, then you shall receive six (6) months severance pay at the rate you would have received if you had not been so terminated (and presuming no raise or bonus). Any amounts you earn from a subsequent employer while receiving severance pay from ABT shall reduce the amount of severance pay due from ABT by a like amount. Mr. John M. Markovich December 16, 1996; p.2 ABT will pay your reasonable out of pocket moving expenses, which you estimate to be $12,000. ABT will pay the brokerage commission you incur in selling your house together with a tax gross-up on such amount to be paid when you incur the cost. ABT will pay up to $1,500 per month, for a maximum of three (3) months for temporary housing costs pending the sale of your house. All expenses reimbursable pursuant to the terms of this letter shall be paid against evidence of their incurrence. If we have any dispute during the term of your employment, it shall be submitted only to binding arbitration to be held in Orange County under the rules of the American Arbitration Association, from whose arbitrated decision, we both agree there shall be no judicial appeal. If you believe that this correctly describes our agreement, please confirm by signing the enclosed copy of this letter in the space provided below and returning same to me. Very truly yours, /s/ PETER ELLIS --------------------------- Peter Ellis, President Auto-By-Tel Corporation CONFIRMED AS OF THE DATE FIRST ABOVE WRITTEN /s/ JOHN M. MARKOVICH - -------------------------- John M. Markovich EX-10.4 9 EMPLOYMENT OFFER LET., 10/20/96, FROM REG. TO M.L. EXHIBIT 10.4 LETTER OF AGREEMENT 10-20-96 Auto-By-Tel Corp. has verbally entered into an agreement for the employment of Mike Lowell as COO of Auto-By-Tel Marketing Corp. The scope of responsibilities cover the entire management of the operations of the ABT Marketing Company. The COO will report directly to the President and CEO of the parent company, Auto- By-Tel Corp. The duties include the overall management of the dealer sales organization, information and technology development, legal and financial. The starting agreed upon salary will be $120,000 per year. Bonus plan for 1996 is not currently considered. Bonus plan for 1997 will be acted upon by Board of Directors and its compensation committee and no promises or guarantees are made as of this agreement. Additionally 100,000 shares of Auto-By-Tel Corp. common shall be made available under the employee stock option plan under the following terms. 25,000 shares vested 6 months after start date of employment 25,000 shares one year after vested in first option 25,000 shares second year after vested in first option 25,000 shares third year after vested in first option The vesting price will be determined by legal consul and is to be the lowest possible responsible option price at time of this agreement. In consideration is undervalued stock options and the affect on earnings. The amount is anticipated to be a maximum of 80% of [the price was determined to be $5 per share on 10/27/96] the lower range of the initial listing price of the anticipated IPO of ABT Corp. The option dollar amount should be known to employee prior to actual start date. Mike Lowell will receive, in the event of a termination without cause, a six month continuation of salary if terminated within one (1) year from start date. The continuation of salary stops if he accepts employment with another company during the six month period. /s/ PETE ELLIS - --------------- Pete Ellis President Auto-By-Tel EX-10.5 10 1996 STOCK OPTION PLAN EXHIBIT 10.5 AUTO-BY-TEL CORPORATION 1996 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees ------------- appointed pursuant to Section 4 of the Plan. (b) "Applicable Laws" means the legal requirements relating to the --------------- administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code and the applicable laws of any foreign country or jurisdiction where Options will be or are being granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a Committee appointed by the Board of --------- Directors in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means Auto-By-Tel Corporation, a Delaware corporation. ------- (h) "Consultant" means any person who is engaged by the Company or ---------- any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. If and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company. (i) "Continuous Status as an Employee or Consultant" means that the ---------------------------------------------- employment or consulting relationship with the Company, any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (j) "Employee" means any person, including Officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "Officer" means a person who is an officer of the Company ------- within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "Option" means a stock option granted pursuant to the Plan. ------ (q) "Optioned Stock" means the Common Stock subject to an Option. -------------- (r) "Optionee" means an Employee or Consultant who receives an -------- Option. (s) "Parent" means a "parent corporation", whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 1996 Stock Option Plan. ---- (u) "Section 16(b)" means Section 16(b) of the Securities Exchange ------------- Act of 1934, as amended. (v) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 below. (w) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,075,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, -------- however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. Administration of the Plan. -------------------------- (a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a committee appointed by the Board. (b) Plan Procedure after the Date, if any, upon Which the Company ------------------------------------------------------------- becomes Subject to the Exchange Act. - ----------------------------------- (i) Administration with Respect to Directors and Officers. With ----------------------------------------------------- respect to grants of Options to Employees who are also Officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (ii) Multiple Administrative Bodies. If permitted by Rule ------------------------------ 16b-3, the Plan may be administered by different bodies with respect to directors, non-director Officers and Employees who are neither directors nor Officers. (iii) Administration With Respect to Consultants and Other ---------------------------------------------------- Employees. With respect to grants of Options to Employees or Consultants who - --------- are neither directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) Effect of Administrator's Decision. All decisions, ---------------------------------- determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 25,000 Shares. (ii) In connection with his or her initial employment, an Employee may be granted Options to purchase up to an additional 100,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option will be counted against the limit set forth in subsection (i) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the shareholders of the Company, as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan, but in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day from the date of such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an ---------------------- Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, ----------------- the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Rule 16b-3. Options granted to persons subject to Section 16(b) ---------- of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (f) Buyout Provisions. The Administrator may at any time offer to ----------------- buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options. Options may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. ---------------------------------------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Merger. In the event of a merger of the Company with or into ------ another corporation, the Option may be assumed or an equivalent option may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option is not assumed or substituted, the Option shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger, the option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option for each Share of Optioned Stock subject to the Option to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Administrator shall approve from time to time. 17. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws and the rules of any stock exchange upon which the Common Stock is listed. 18. Information to Optionees and Purchasers. The Company shall provide to --------------------------------------- each Optionee, not less frequently than annually, copies of annual financial statements. The Company shall also provide such statements to each individual who acquires Shares pursuant to the Plan while such individual owns such Shares. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. AUTO-BY-TEL CORPORATION 1996 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. XIX. NOTICE OF STOCK OPTION GRANT ---------------------------- FIELD(1) You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Date of Grant FIELD(2) Vesting Commencement Date FIELD(2) Exercise Price per Share $FIELD(3) Total Number of Shares Granted FIELD(4) Total Exercise Price $FIELD(5) Type of Option: XX Incentive Stock Option -- Nonstatutory Stock Option -- Term/Expiration Date: FIELD(6) Vesting Schedule: ---------------- You may exercise this Option, in whole or in part, according to the following vesting schedule: One-third (1/3) of the Shares subject to the Option shall vest on October 31, 1996, one-third (1/3) of the Shares subject to the Option shall vest one year from the Vesting Commencement Date, and the remaining one-third (1/3) of the Shares subject to the Option shall vest two years from the Vesting Commencement Date. Termination Period: ------------------ You may exercise this Option for three months after your employment or consulting relationship with the Company terminates, or for such longer period upon your death or disability as provided in the Plan. If your status changes from Employee to Consultant or Consultant to Employee, this Option Agreement shall remain in effect. In no case may you exercise this Option after the Term/Expiration Date as provided above. XX. AGREEMENT --------- 1. Grant of Option. Auto-By-Tel Corporation, a Delaware corporation (the --------------- "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1996 Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option shall be exercisable during its ----------------- term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. In the event of Optionee's death, disability or other termination of the employment or consulting relationship, this Option shall be exercisable in accordance with the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option shall be exercisable by written ------------------ notice (in the form attached as Exhibit A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Optionee's Representations. In the event the Shares purchasable -------------------------- pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement. 4. Lock-Up Period. Optionee hereby agrees that if so requested by the -------------- Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 5. Method of Payment. Payment of the Exercise Price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (d) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. 6. Restrictions on Exercise. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. 7. Termination of Relationship. In the event an Optionee's Continuous --------------------------- Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 8. Disability of Optionee. Notwithstanding the provisions of Section 6 ---------------------- above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 9. Death of Optionee. In the event of termination of Optionee's ----------------- Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 10. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 11. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as Incentive Stock Options and Options granted to more than ten percent (10%) shareholders shall apply to this Option. 12. Tax Consequences. Set forth below is a brief summary as of the date ---------------- of this Option of some of the federal and state tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercise of ISO. If this Option qualifies as an ISO, there will --------------- be no regular federal income tax liability or state income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (b) Exercise of ISO Following Disability. If the Optionee's ------------------------------------ Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within three months of such termination for the ISO to be qualified as an ISO. (c) Exercise of Nonstatutory Stock Option. There may be a regular ------------------------------------- federal income tax liability and state income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (d) Disposition of Shares. In the case of an NSO, if Shares are held --------------------- for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and state income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and state income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (e) Notice of Disqualifying Disposition of ISO Shares. If the Option ------------------------------------------------- granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. 13. Entire Agreement; Governing Law. The Plan is incorporated herein by ------------------------------- reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by Delaware law except for that body of law pertaining to conflict of laws. AUTO-BY-TEL CORPORATION a Delaware corporation By: OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: Optionee Residence Address: EXHIBIT A --------- 1996 STOCK PLAN EXERCISE NOTICE Auto-By-Tel Corporation 18872 MacArthur Boulevard, Suite 200 Irvine, CA 92612-1400 Attention: Secretary 1. Exercise of Option. Effective as of today, 19 ------------------ ---------------- --, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase shares of the Common Stock (the "Shares") of --------------- Auto-By-Tel Corporation (the "Company") under and pursuant to the 1996 Stock Option Plan (the "Plan") and the [_] Incentive [_] Nonstatutory Stock Option Agreement dated , 19 (the "Option Agreement"). ------------------------- --- 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Shareholder. Until the stock certificate evidencing such --------------------- Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Optionee shall enjoy rights as a shareholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. Company's Right of First Refusal. Before any Shares held by Optionee -------------------------------- or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall --------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty ---------------------------------- (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the -------------- Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the ------- option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the -------------------------- Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary -------------------------------------- contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. -2- (g) Termination of Right of First Refusal. The Right of First ------------------------------------- Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 5. Tax Consultation. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 6. Restrictive Legends and Stop-Transfer Orders. -------------------------------------------- (a) Legends. Optionee understands and agrees that the Company shall ------- cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. -3- Optionee understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner, a copy of which is attached to Exhibit B, the Investment Representation Statement. (b) Stop-Transfer Notices. Optionee agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 8. Interpretation. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee. 9. Governing Law; Severability. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the State of Delaware excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 10. Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 11. Further Instruments. The parties agree to execute such further ------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 12. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- full Exercise Price for the Shares. -4- 13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are ---------------- incorporated herein by reference. This Agreement, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee Submitted by: Accepted by: OPTIONEE: FIELD(1) Auto-By-Tel Corporation By: - ----------------------------------- ---------------------------------- (Signature) Title: ------------------------------- Address: Address: - ------- ------- - ----------------------------------- 18872 MacArthur Boulevard, Suite 200 Irvine, CA 92612-1400 - ----------------------------------- -5- EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE : FIELD(1) COMPANY : AUTO-BY-TEL CORPORATION SECURITY : COMMON STOCK AMOUNT : DATE : In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two years after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (e) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. (f) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached. Signature of Optionee: ------------------------------------ Date: , 19 ----------------------- -- -2- ATTACHMENT 1 STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE ---------------------------------------------------- Title 10. Investment - Chapter 3. Commissioner of Corporations 260.141.11: Restriction on Transfer. (a) The issuer of any security ---------- ----------------------- upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (1) to the issuer; (2) pursuant to the order or process of any court; (3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (5) to holders of securities of the same class of the same issuer; (6) by way of gift or donation inter vivos or on death; (7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the edge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or (15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification require ment by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." EX-10.6 11 1996 STOCK INCENTIVE PLAN EXHIBIT 10.6 AUTO-BY-TEL CORPORATION 1996 STOCK INCENTIVE PLAN 1. Purposes of the Plan. The purposes of this Stock Incentive Plan are: -------------------- . to attract and retain the best available personnel for positions of substantial responsibility; . to provide additional incentive to Employees, Directors and Consultants; and . to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees as ------------- shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the --------------- administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a committee of Directors appointed by the --------- Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means Auto-By-Tel Corporation. ------- (h) "Consultant" means any person, including an advisor, engaged by ---------- the Company or a Parent or Subsidiary to render services and who is compensated for such services. (i) "Director" means a member of the Board. -------- (j) "Disability" means total and permanent disability as defined in ---------- Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, -------- employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (m) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) the last reported sale price of the Common Stock of the Company on the Nasdaq National Market or, if no such reported sale takes place on any such day, the average of the closing bid and asked prices, or (ii) if such Common Stock shall then be listed on a national securities exchange (other than the Nasdaq National Market), the last reported sale price or, if no such reported sale takes place on any such day, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (iii) if such Common Stock shall not be quoted on such National Market System nor listed or admitted to trading on a national securities exchange, then the average of the closing bid and asked prices, as reported by The Wall Street Journal for the over-the-counter market, or (iv) if none of the foregoing is applicable, then the Fair Market Value of a share of Common Stock shall be determined by the Board in its discretion. (n) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Inside Director" means a Director who is an Employee. --------------- (p) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (q) "Notice of Grant" means a written or electronic notice --------------- evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (r) "Officer" means a person who is an officer of the Company ------- within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. -2- (s) "Option" means a stock option granted pursuant to the Plan. ------ (t) "Option Agreement" means an agreement between the Company and ---------------- an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (u) "Option Exchange Program" means a program whereby outstanding ----------------------- options are surrendered in exchange for options with a lower exercise price. (v) "Optioned Stock" means the Common Stock subject to an Option or -------------- Stock Purchase Right. (w) "Optionee" means the holder of an outstanding Option or Stock -------- Purchase Right granted under the Plan. (x) "Outside Director" means a Director who is not an Employee. ---------------- (y) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (z) "Plan" means this 1996 Stock Incentive Plan. ---- (aa) "Restricted Stock" means shares of Common Stock acquired ---------------- pursuant to a grant of Stock Purchase Rights under Section 11 below. (bb) "Restricted Stock Purchase Agreement" means a written agreement ----------------------------------- between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any ---------- successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (dd) "Service Provider" means an Employee, Director or Consultant. An individual shall not cease to be a Service Provider by virtue of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. -3- (ee) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 14 of the Plan. (ff) "Stock Purchase Right" means the right to purchase Common Stock -------------------- pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (gg) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 14 ------------------------- of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is Shares, increased annually on the first day of --------- each of the Company's fiscal years during the term of the Plan in an amount equal to _% of the Company's common stock issued and outstanding at the close of business on the last day of the immediately preceding fiscal year (the "Annual Replenishment"), with only the initial shares and subsequent annual --------- increases in an amount equal to the lesser of (i) shares, or (ii) the --------- number of shares subject to the Annual Replenishment to be available for issuance as "incentive stock options" qualified under Section 422 of the Code. All of the shares issuable under the Plan may be authorized, but unissued, or reacquired Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under -------- the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Multiple Administrative Bodies. The Plan may be ------------------------------ administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the Administrator -------------- determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. -4- (iii) Rule 16b-3. To the extent desirable to qualify ---------- transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the -------------------- Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; -5- (x) to modify or amend each Option or Stock Purchase Right (subject to Section 16(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable and shall be subject to the consent or disapproval of the Administrator; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's ---------------------------------- decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may ----------- be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. ----------- (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. -6- (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 500,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 500,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 14. (iv) If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 14), the canceled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall ------------ become effective upon the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option -------------- Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. --------------------------------------- (a) Exercise Price. The per share exercise price for the Shares to -------------- be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. -7- (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is --------------------------------- granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the --------------------- acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or -8- (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an ------------------------------------------------- Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option was vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service ---------------------- Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option at any time within -9- twelve (12) months from the date of termination, but only to the extent that the Option was vested on the date of termination (and in no event later than the expiration of the term of the Option as set forth in the Option Agreement). If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service ----------------- Provider, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was vested in the Option at the date of death plus as to one year's additional vesting (up to a maximum of 100% vesting in the Shares subject to the Option). If, at the time of death, the Optionee is not vested in his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to ----------------- buy out for a payment in cash or Shares, an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines ----------------- otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. -10- (c) Other Provisions. The Restricted Stock Purchase Agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Stockholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan. 12. Automatic Option Grants to Outside Directors. -------------------------------------------- (a) First Option. Each Outside Director who becomes an Outside ------------ Director after the effective date of this Plan shall be automatically granted an Option to purchase [ ] Shares (the "First Option") on the date on which ---------- such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (b) Subsequent Option. Each Outside Director shall be automatically ----------------- granted an Option to purchase [_________] Shares (a "Subsequent Option") on September 1 of each year; provided that he or she is then an Outside Director -------- and, provided further, that as of such date, he or she shall have served on the -------- ------- Board for at least the preceding six (6) months. (c) Terms of Options. The terms of First Options and Subsequent ---------------- Options granted hereunder shall be as follows: (A) the term of the Option shall be ten (10) years. (B) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant. In the event that the date of grant is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant. (C) [25%] of the Shares subject to the Option shall vest twelve months after the date of grant, and [1/48] of the Shares subject to the Option shall vest each month thereafter so that 100% of the Shares subject to the Option shall be vested [four (4)] years from the grant date, subject to the Optionee remaining a Service Provider as of such vesting dates.] 13. Non-Transferability of Options and Stock Purchase Rights. Unless -------------------------------------------------------- determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the -11- Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or ------------------------------------------------------------------ Asset Sale. ---------- (a) Changes in Capitalization. Subject to any required action by ------------------------- the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. -12- If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 15. Date of Grant. The date of grant of an Option or Stock Purchase ------------- Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend or terminate the Plan. (b) Stockholder Approval. The Company shall obtain stockholder -------------------- approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, ---------------------------------- suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 17. Conditions Upon Issuance of Shares. ---------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant to the ---------------- exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the -13- issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of -------------------------- an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 18. Inability to Obtain Authority. The inability of the Company to obtain ----------------------------- authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 19. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 20. Stockholder Approval. The Plan shall be subject to approval by the -------------------- stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -14- 1996 STOCK INCENTIVE PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Date of Grant _________________________ Vesting Commencement Date _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: _________________________ Vesting Schedule: ---------------- This Option may be exercised, in whole or in part, in accordance with the following schedule: One-third of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/36 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee continuing to be a Service Provider on such dates. Termination Period: ------------------ This Option may be exercised for 3 months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for such longer period as provided in the Plan. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT --------- 1. Grant of Option. The Plan Administrator of the Company hereby grants --------------- to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option is exercisable during its term in ----------------- accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an ------------------ exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Chief Financial Officer of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. -2- 3. Method of Payment. Payment of the aggregate Exercise Price shall be ----------------- by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; or (b) check; or (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or (e) with the Administrator's consent, delivery of Optionee's promissory note (the "Note") in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the "applicable federal rate" prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement. 4. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Tax Consequences. Some of the federal tax consequences relating to ---------------- this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. --------------------- (i) Nonstatutory Stock Option. The Optionee may incur regular ------------------------- federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If -3- the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Incentive Stock Option. If this Option qualifies as an ISO, ---------------------- the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. (b) Disposition of Shares. --------------------- (i) NSO. If the Optionee holds NSO Shares for at least one year, --- any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. (ii) ISO. If the Optionee holds ISO Shares for at least one year --- after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) Notice of Disqualifying Disposition of ISO Shares. If the ------------------------------------------------- Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. 7. Entire Agreement; Governing Law. The Plan is incorporated herein by ------------------------------- reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely -4- to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES --------------------------------- THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: AUTO-BY-TEL CORPORATION _______________________________ ______________________________________ Signature By _______________________________ ______________________________________ Print Name Title _______________________________ Residence Address _______________________________ CONSENT OF SPOUSE ----------------- -5- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. _______________________________________ Spouse of Optionee -6- EXHIBIT A --------- 1996 STOCK INCENTIVE PLAN EXERCISE NOTICE AUTO-BY-TEL CORPORATION 18872 MacArthur Boulevard, Suite 200 Irvine, CA 92612 Attention: Chief Financial Officer 1. Exercise of Option. Effective as of today, ________________, 199__, ------------------ the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Auto-By-Tel Corporation (the "Company") under and pursuant to the 1996 Stock Incentive Plan (the "Plan") and the Stock Option Agreement dated _____________, 19___ (the "Option Agreement"). The purchase price for the Shares shall be $_____________, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the ------------------- full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser ---------------------------- has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the --------------------- appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer ---------------- adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are ------------------------------- incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter -7- hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: AUTO-BY-TEL CORPORATION _____________________________ ___________________________________ Signature By _____________________________ ___________________________________ Print Name Chief Financial Officer Address: Address: - ------- ------- _____________________________ AUTO-BY-TEL CORPORATION _____________________________ 18872 MacArthur Boulevard, Suite 200 Irvine, CA 92612 _____________________________ Date Received -8- EXHIBIT B --------- SECURITY AGREEMENT This Security Agreement is made as of __________, 19___ between Auto-By-Tel Corporation, a Delaware corporation ("Pledgee"), and ______________ ("Pledgor"). Recitals -------- Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated ________ (the "Option"), between Pledgor and Pledgee under Pledgee's 1996 Stock Incentive Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price of $________ per share, for a total purchase price of $__________. The Note and the obligations thereunder are as set forth in Exhibit C to the Option. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of --------------------------------------------- the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter --------------------------------------- into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the principal sum of the ----------------------- Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. The Shares are free of all other encumbrances, ------------ defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common Stock is ------------------ now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all ------------- payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge ----------------- any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this ------------------ pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of ------- this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under --------------------- Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder here -2- under upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of ---- all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency ---------- proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross ---------------------- negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that ----------------------------------- the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the --------------------- terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and ------------- governed under the internal substantive laws, but not the choice of law rules, of California. -3- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" _________________________________ Signature _________________________________ Print Name Address: _________________________________ _________________________________ "PLEDGEE" AUTO-BY-TEL CORPORATION, a Delaware corporation ________________________________ Signature ________________________________ Print Name ________________________________ Title "PLEDGEHOLDER" ________________________________ Secretary of Auto-By-Tel Corporation -4- EXHIBIT C --------- NOTE $_______________ Irvine, CA ______________, 19___ FOR VALUE RECEIVED, _______________ promises to pay to Auto-By-Tel Corporation, a Delaware corporation (the "Company"), or order, the principal sum of _______________________ ($_____________), together with interest on the unpaid principal hereof from the date hereof at the rate of _______________ percent (____%) per annum, compounded semiannually. Principal and interest shall be due and payable on __________, 19___. Payment of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of ________________. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee, director or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. ____________________________________ ____________________________________ EX-10.7 12 1996 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.7 AUTO-BY-TEL CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1996 Employee Stock Purchase Plan of Auto-By-Tel Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" shall mean the Board of Directors of the ----- Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as ---- amended. (c) "Common Stock" shall mean the Common Stock of the ------------ Company. (d) "Company" shall mean Auto-By-Tel Corporation and any ------- Designated Subsidiary of the Company. (e) "Compensation" shall mean all base straight time gross ------------ earnings and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "Designated Subsidiary" shall mean the Subsidiary which --------------------- have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual who is an Employee -------- of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first day of each --------------- Offering Period. (i) "Exercise Date" shall mean the last day of each Purchase ------------- Period. (j) "Fair Market Value" shall mean, as of any date, the ----------------- value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable, or; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (4) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "Offering Periods" shall mean the periods of ---------------- approximately six (6) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after January 1 and July 1 of each year and terminating on the last Trading Day in the periods ending six months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or after June 30, 1997. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "Plan" shall mean this Employee Stock Purchase Plan. ---- (m) "Purchase Price" shall mean an amount equal to 85% of -------------- the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (n) "Purchase Period" shall mean the approximately six month --------------- period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. -2- (o) "Reserves" shall mean the number of shares of Common -------- Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (p) "Subsidiary" shall mean a corporation, domestic or ---------- foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "Trading Day" shall mean a day on which national stock ----------- exchanges and the Nasdaq System are open for trading. 3. Eligibility. ----------- (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive, ---------------- overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after January 1 and July 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or after June 31, 1997. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter. -3- 5. Participation. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. Payroll Deductions. ------------------ (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding ten (10%) of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the -4- Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering --------------- Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than Thirty Thousand (30,000) shares (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof and in Section 423(b)(8) of the Code. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period. 8. Exercise of Option. Unless a participant withdraws from the ------------------ Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier with drawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date -------- on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal. ---------- (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall -5- not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. Termination of Employment. ------------------------- Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. 12. Interest. No interest shall accrue on the payroll deductions of -------- a participant in the Plan. 13. Stock. ----- (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 400,000 shares, increased annually on the first day of each of the Company's fiscal years during the term of the Plan in an amount equal to (i) 400,000 shares minus (ii) the number of shares available for issuance under the Plan as of such date, all of which share numbers are subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof. The Shares may be authorized, but unissued, or reacquired Common Stock. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. -6- 14. Administration. The Plan shall be administered by the Board or -------------- a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such partici pant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither payroll deductions credited to a --------------- participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 17. Use of Funds. All payroll deductions received or held by the ------------ Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. Reports. Individual accounts shall be maintained for each ------- participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. -7- 19. Adjustments Upon Changes in Capitalization, Dissolution, ------------------------------------------------------- Liquidation, Merger or Asset Sale. --------------------------------- (a) Changes in Capitalization. Subject to any required ------------------------- action by the shareholders of the Company, the Reserves, as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the -------------------------- proposed dissolution or liquidation of the Company, the Offering Periods shall terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. (c) Merger or Asset Sale. In the event of a proposed sale -------------------- of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. Amendment or Termination. ------------------------ (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required. -8- (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. Notices. All notices or other communications by a participant ------- to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan. The Plan shall become effective upon the earlier ------------ to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. 24. Automatic Transfer to Low Price Offering Period. To the extent ----------------------------------------------- permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. -9- EXHIBIT A --------- AUTO-BY-TEL CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: ___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. _____________________________________________________ hereby elects to participate in the Auto-By-Tel Corporation 1996 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 1 to 10%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only): ___________________________________________________________________________ ____________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I - hereby agree to notify the Company in writing --------------------------------------------- within 30 days after the date of any disposition of my shares and I will ------------------------------------------------------------------------ make adequate provision for Federal, state or other tax withholding ------------------------------------------------------------------- obligations, if any, which arise upon the disposition of the Common Stock. ------------------------------------------------------------------------- The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print)______________________________________________ (First) (Middle) (Last) ____________________________ ______________________________________________ Relationship ______________________________________________ (Address) -2- Employee's Social Security Number: ____________________________________ Employee's Address: ____________________________________ ____________________________________ ____________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________ ________________________________________ Signature of Employee ________________________________________ Spouse's Signature (If beneficiary other than spouse) -3- EXHIBIT B --------- AUTO-BY-TEL CORPORATION ----------------------- 1996 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Auto-By-Tel Corporation 1996 Employee Stock Purchase Plan which began on ____________, 19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically termi nated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ________________________________ ________________________________ ________________________________ Signature: ________________________________ Date:__________________________ EX-10.8 13 MARKETING AGMT. BET REG. AND AMER. INT. 7/22/96 EXHIBIT 10.8 MARKETING AGREEMENT between AUTO-BY-TEL ACCEPTANCE CORPORATION on the one hand, 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 THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA and AUTO-BY-TEL, INC. as Guarantor of the obligations of AUTO-BY-TEL ACCEPTANCE CORPORATION hereunder [*] Confidential Treatment has been requested for certain portions of this exhibit. TABLE OF CONTENTS -----------------
Page 1. REPRESENTATIONS AND WARRANTIES................................... 2 Section 1.1 Representations and Warranties of ABTAC and ABT. 2 Section 1.2 Representations and Warranties of AIC........... 2 2. MARKETING ARRANGEMENT............................................ 3 Section 2.1 Phases of Marketing Arrangement................. 3 Section 2.2 Preparation of Marketing Materials.............. 4 Section 2.3 Ownership of Marketing Materials................ 4 Section 2.4 Development Costs............................... 4 3. COVENANTS, DUTIES AND RIGHTS OF AIC.............................. 5 Section 3.1 Regulatory Authorizations....................... 5 Section 3.2 Initial Product Offering........................ 5 Section 3.3 Low Cost Products............................... 5 Section 3.4 Reservation of Rights........................... 5 Section 3.5 Toll Free Number................................ 5 Section 3.6 Cross-Promotion................................. 5 Section 3.7 Payment of Development Costs.................... 6 Section 3.8 Books and Records; Auditing..................... 6 4. COVENANTS, DUTIES AND RIGHTS OF ABTAC AND ABT.................... 6 Section 4.1 Insurance Marketing Materials................... 6 Section 4.2 Relationships with ABT Friends.................. 6 Section 4.3 Hyperlink Development; Costs.................... 7 Section 4.4 Cross-Promotion................................. 7 Section 4.5 Guarantee....................................... 7 Section 4.6 Additional Services............................. 7 5. [RESERVED]....................................................... 7 6. EXCLUSIVITY...................................................... 7 Section 6.1 Exclusivity..................................... 7 Section 6.2 Exception From Exclusivity...................... 8 Section 6.3 AIC Marks....................................... 8 Section 6.4 ABT Marks....................................... 8 7. FIRST REFUSAL.................................................... 8 Section 7.1 New Product..................................... 8 Section 7.2 Right of First Refusal.......................... 8 8. COMPENSATION..................................................... 8 9. POLICIES......................................................... 9 Section 9.1 Product Control................................. 9 Section 9.2 Underwriting and Administration................. 9 Section 9.3 Policy and Quote Records........................ 9
i Section 9.4 Billing......................................... 9 Section 9.5 Authority as Insurance Provider................. 9 Section 9.6 Privacy......................................... 10 Section 9.7 Fair Credit Reporting........................... 10 10. CONFIDENTIALITY.................................................. 10 Section 10.1 Confidential Information........................ 10 Section 10.2 Return of Confidential Information.............. 10 Section 10.3 Survival of Confidentiality..................... 10 11. USE OF NAMES/TRADEMARKS.......................................... 11 Section 11.1 Limitation on Use of AIC Marks.................. 11 Section 11.2 Limitation on Use of ABT Marks.................. 11 Section 11.3 Low Cost Logo................................... 11 Section 11.4 Use of User Data................................ 11 12. INDEPENDENT CONTRACTOR........................................... 11 Section 12.1 No Joint Venture................................ 11 Section 12.2 Limitations on Authority........................ 11 13. [RESERVED]....................................................... 12 14. TERM AND TERMINATION............................................. 12 Section 14.1 Renewal......................................... 12 Section 14.2 Cure Period..................................... 12 Section 14.3 Termination upon Insolvency..................... 12 Section 14.4 Termination Upon Use of Marks................... 12 Section 14.5 Responsibilities Upon Termination............... 12 15. INDEMNIFICATION.................................................. 13 16. NOTICES.......................................................... 13 Section 16.1 Legal and Regulatory Proceedings................ 13 Section 16.2 Addresses, etc.................................. 13 17. MISCELLANEOUS.................................................... 13 Section 17.1 Choice of Law, Venue, Jurisdiction.............. 13 Section 17.2 Assignment...................................... 13 Section 17.3 Modification; Waiver............................ 14 Section 17.4 Entire Agreement................................ 14 Section 17.5 Remedies........................................ 14 Section 17.6 References and Section Headings................. 14 Section 17.7 Severability.................................... 14 Section 17.8 Signatures and Recording........................ 14
ii MARKETING AGREEMENT THIS AGREEMENT is made as of July 22, 1996, between AUTO-BY-TEL ACCEPTANCE CORPORATION ("ABTAC") a Delaware corporation, having its offices at 2711 E. Coast Highway, Suite 203, Corona Del Mar, California 92625, on the one hand, 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 (collectively "AIC"), all member companies of American International Group, Inc. having offices at 505 Carr Road, Wilmington, Delaware 19809, on the other hand and AUTO-BY-TEL, INC. ("ABT") a Delaware corporation, having its offices at 2711 E. Coast Highway, Suite 203, Corona Del Mar, California 92625, in its capacity as Guarantor of ABTAC's obligations hereunder ("ABT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, AIC underwrites private passenger automobile, homeowner/tenant/condo, and personal umbrella liability insurance ("Products"), as well as (directly or through its affiliates) the products ("Additional Products") enumerated on Schedule A hereto and has experience in providing direct response marketing; and WHEREAS, AIC wishes to market Products, but primarily private passenger automobile insurance, to users of ABT's Internet Website and those Websites of its contractual partners which are approved by AIC from time to time ("Users"); and WHEREAS, AIC and ABTAC share a common philosophy on delivering a low-cost, high-quality program to Users; and WHEREAS, AIG Marketing, Inc. ("AIGM") acts as a marketing group for and on behalf of AIC and in such capacity has negotiated this Agreement on behalf of AIC and will provide such services and compensation as set forth herein; and WHEREAS, ABT is engaged in the marketing of automobile pricing and automobile buying services to Users via the Internet and ABTAC is a wholly-owned subsidiary of ABT established to, among other things, enter into arrangements pursuant to which Users are afforded the opportunity to enter into transactions they may find beneficial; and WHEREAS, ABT, through ABTAC, is desirous of authorizing and providing AIC access to its Internet Server ("Server"); and WHEREAS, AIC is desirous of securing access to the Server for the publication, display and exhibition of AIC's direct response sales materials to ABT Users. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, ABT, ABTAC and AIC agree as follows: [*] Confidential Treatment has been requested for certain portions of this exhibit. REPRESENTATIONS AND WARRANTIES. Section 1.1 Representations and Warranties of ABTAC and ABT. Each of ABTAC ----------------------------------------------- and ABT, as the case may be, hereby makes the following representations and warranties to AIC: (a) Each of ABT and ABTAC has been duly organized and is validly existing as a corporation under the laws of the state of Delaware and each 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 this Agreement. (b) Each of ABT and ABTAC has the requisite power and authority and legal right to execute and deliver this Agreement, engage in the transactions contemplated by this Agreement, and perform and observe those terms and conditions of this Agreement to be performed or observed by it hereunder. The person or persons signatory to this Agreement and any document executed pursuant to it on behalf of each of ABT and ABTAC have full power and authority to bind either ABT or ABTAC, as the case may be. The execution, delivery and performance of this Agreement, and the performance by each of ABT and ABTAC of all transactions contemplated herein and therein, have been duly authorized by all necessary and appropriate corporate action on the part of ABT and ABTAC, as the case may be. (c) This Agreement has been duly authorized and executed by each of ABT and ABTAC and is valid, binding and enforceable against each of them 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 each of ABT and ABTAC of this Agreement do not conflict with any term or provision of (i) its certificates 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 either ABT or ABTAC or (iii) any agreement to which either ABT or ABTAC is a party or by which its property is bound. (d) 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 either ABT or ABTAC of this Agreement. (e) There is no action, proceeding or investigation pending or, to the best knowledge of both ABT and ABTAC, threatened against either of them before any court, administrative agency or other tribunal (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, or (iii) which could reasonably be expected to materially and adversely affect the performance by either of them of their respective obligations under, or the validity or enforceability of, this Agreement. (f) ABTAC or ABT, as the case may be, has all regulatory approvals, authorizations, licenses, permits and other permissions, consents and authorities whatsoever, as needed to operate the ABT Website. (g) ABTAC or ABT, as the case may be, 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 Insurance Marketing Materials as defined hereafter (the "ABT Marks") Section 1.2 Representations and Warranties of AIC. AIC hereby makes the ------------------------------------- following representations and warranties, to ABTAC: (a) AIC 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 AIC to conduct its business or to perform its obligations under this Agreement. 2 (b) AIC 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, this Agreement. The person or persons signatory to this Agreement and any document executed pursuant to it on behalf of AIC have full power and authority to bind AIC. The execution, delivery and performance of this Agreement, and the performance by AIC of all transactions contemplated herein and therein, have been duly authorized by all necessary and appropriate and corporate action on the part of AIC. (c) This Agreement has been duly authorized and executed by AIC and is valid, binding and enforceable against AIC 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 AIC of this Agreement do not conflict with any term or provision of the certificate of incorporation or bylaws of AIC, or any law, rule, regulation, order, judgment, writ, injunction or decree applicable to AIC of any court, regulatory body, administrative agency or governmental body having jurisdiction over AIC. (d) 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 AIC of this Agreement. (e) There is no action, proceeding or investigation pending or, to the best knowledge of AIC, threatened against it before any court, administrative agency or other tribunal (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, or (iii) which could reasonably be expected to materially and adversely affect the performance by AIC of its obligations under, or the validity or enforceability of, this Agreement. (f) AIC warrants that it has all regulatory approvals, authorizations, licenses, permits and other permissions, consents and authorities whatsoever, as needed (i) to offer and sell the Products in each of the states [*] (the "Excepted States"), territories and the District of Columbia of the United States (the "Territory") and to otherwise perform its obligations under this Agreement, and (ii) to use any Insurance Marketing Materials (as defined in Section 2.2 of this Agreement) developed by AIC, or provided for inclusion in any Insurance Marketing Materials developed jointly with ABTAC. (g) AIC 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 Insurance Marketing Materials as defined hereafter (the "AIC Marks"). 2. MARKETING ARRANGEMENT. Section 2.1 Phases of Marketing Arrangement. ABTAC and AIC shall cooperate ------------------------------- to provide the means for Users interested in the Products to establish contact with AIC and purchase Products in three phases as follows: (a) "'Phase 1' - Toll Free Telephone Marketing" Users accessing the ABT Website shall be able to click on an icon and access another page at the ABT Website containing information about the Products as well as a toll free telephone number. Users dialing the toll free number will be connected to AIC employees who shall provide further information about the Products and take User information in order to prepare a request for quote (an "RFQ"). AIC will evaluate the RFQs for which they have received sufficient User information (either on the first User call or after subsequent contact) and quote qualified Users prices for the requested Products. [*] (b) "'Phase 2' - Electronic File Transfer" Users accessing the ABT Website shall be able to click on an icon and access another page at the ABT Website containing information about the Products as well as an RFQ which the User can fill out and submit electronically. The ABT Website will forward the RFQ files electronically to AIC. Upon receipt of the RFQ files, AIC employees shall evaluate the RFQs for which they have received sufficient User information (either at first or after subsequent contact) and quote any qualified User prices for the requested Products. Phase 2 shall commence on such [*] Confidential Treatment Requested 3 date as AIC and ABTAC agree (cooperatively and in good faith) which date is expected to be [*] Phase 2 shall end when AIC and ABTAC agree that Phase 3 shall commence. (c) "'Phase 3' - Internet Hyperlink" Users accessing the ABT Website shall be able to click on an icon and be hyperlinked to an AIC Website containing information about the Products as well as an insurance RFQ which the User can fill out and submit electronically. The AIC Website will evaluate the RFQ file in real time (subject to System capabilities) and, if satisfactory (either at first or after subsequent contact), will quote any qualified User prices for the requested Products. Phase 3 shall commence on such date as AIC and ABTAC agree (cooperatively and in good faith) which date is expected to be [*] Section 2.2 Preparation of Marketing Materials. AIC and ABTAC shall ---------------------------------- cooperate to prepare and produce (in each Phase of development) the Web page or pages describing the Products on the ABT Website (the "Insurance Info Pages"), the Phase 2 ABT Website request for quote and electronic transfer mechanism, the Phase 3 hyperlink and AIC Website request for quote, and all other marketing materials (the "Collateral Materials") to be used to market and advertise the Products or the Insurance Info Pages (the Insurance Info Pages and the Other Materials, collectively, the "Insurance Marketing Materials"). (b) The content and form of the Insurance Marketing Materials must be approved in writing by both AIC and ABTAC prior to use. Any modification in any Insurance Marketing Materials shall be submitted by the party proposing the modification to the other party in writing for approval. Unless the requested modification is in any Insurance Marketing Material which is subject to any filing or notice requirement with any governmental entity, which materials are under the sole control of AIC, the party receiving such submission shall preliminarily respond to the submitting party within two (2) business days of receipt of such submission and shall deliver its final approval or disapproval within [*] business days of receipt of such submission. Approval of requested modifications in Insurance Marketing Materials shall not be unreasonably withheld or delayed. ABTAC acknowledges that any change in any Insurance Marketing Materials subject to any filing or notice requirement with any governmental entity may take considerable time to secure the required approvals or to make the required filings. AIC acknowledges that the ABT Website may (and is likely to) change from time-to-time in response to, among other things, new display and/or hyperlink technologies, Internet server consolidation or congestion, and changes in Internet providers. Section 2.3 Ownership of Marketing Materials. Insurance Marketing -------------------------------- Materials shall be owned by ABT if provided by ABT, AIC if provided by AIC, and by AIC if jointly produced. Ownership rights with respect to the AIC Marks and the ABT Marks shall not be affected by this Section 2.3. Section 2.4 Development Costs. AIC shall pay [*] for the development of the ----------------- Insurance Marketing Materials; provided, however, that the parties hereto agree -------- ------- that AIC's obligations to pay [*] 3. COVENANTS, DUTIES AND RIGHTS OF AIC. Section 3.1 Regulatory Authorizations. AIC shall, at its own cost and ------------------------- expense, secure and maintain all regulatory approvals, authorizations, licenses, permits and other permissions, consents and authorities whatsoever, as needed to offer and sell the Products in the Territory ("Insurance Approval"). AIC shall use its best efforts to either (i) secure Insurance Approval as needed to offer and sell the Products in the Excepted States and the provinces of Canada, or (ii) to establish relationships with insurance producers or underwriters in the Excepted States and the provinces of Canada which will allow the offering and sale of Products in such jurisdictions in a manner which, as closely as possible, mirrors the offering and sale of Products in the Territory. AIC shall give ABTAC written notice promptly upon securing Insurance Approval in any Excepted State or province of Canada and thereafter for all purposes such jurisdiction shall be considered part of the Territory. AIC shall be responsible for all aspects of any relationship established pursuant to clause (ii) of the second sentence of this Section 3.1, and all Products sold pursuant to any such relationship shall, for all purposes of this Agreement, be considered Products sold within the Territory. [*] Confidential Treatment Requested 4 Section 3.2 Initial Product Offering. AIC shall initially offer only ------------------------ automobile insurance, but shall use its best efforts to offer all Products by [*] In addition, AIC will facilitate the development of plans to market those Additional Products through marketing on the ABT Website, either directly, or through relationships between ABTAC and AIC affiliates offering such products, which such relationships shall be facilitated and established in accordance with Section 3.6 of this Agreement. Section 3.3 Low Cost Products. AIC shall offer low-cost, high-quality ----------------- Products to qualified Users. AIC shall not offer insurance products similar to the Products at prices lower than those quoted for the Products to qualified Users except through distribution channels with lower distribution and/or acquisition costs to AIC. For purposes of this Section 3.3, the similarity of the Products shall be determined on the basis of the coverage terms, limitations and conditions and the price levels shall be determined on the basis of persons of like underwriting profiles seeking similar insurance products. Section 3.4 Reservation of Rights. AIC reserves the right to suspend, --------------------- restrict or modify the offer and sale of the Products to accommodate regulations; provided, however, that AIC shall use its best efforts to limit -------- ------- such suspension, restriction or modification to the smallest scope possible (in both qualitative and temporal terms) to enable ABTAC to realize the full expectancy of this Agreement. (b) AIC reserves the right to use the services of AIGM for various marketing, servicing and administrative functions under this Agreement; provided, however, that AIC shall remain responsible at all times for its - -------- ------- obligations under this Agreement. Section 3.5 Toll Free Number. AIC shall secure and maintain at least one ---------------- toll free telephone number for use in Phase 1. AIC shall (i) inform ABTAC of such number, (ii) use its best efforts not to change such number, and (iii) devote sufficient numbers of its trained employees to the answering of such number so that Users dialing the number have to wait, on average, no more than three minutes to be connected to an employee who will take the User's RFQ and provide any requested information. From the commencement of Phase 1, the toll free number shall be so staffed no less than [*] hours per day on weekdays and [*] hours per day on Saturdays. AIC acknowledges that ABTAC believes that the Internet is utilized most heavily during non-business hours and on weekends, and therefore agrees that it shall perform test marketing of expanded hours for the staffing of the toll free number. Section 3.6 Cross-Promotion. AIC shall promote and advertise the ABT --------------- Website on the Website of AIGM, and shall use its best efforts to promote and advertise the ABT Website on the Websites of all AIC corporate affiliates and all AIC affinity partners (collectively, the "AIC Friends") and to promote recognition and awareness of the ABT Website via ongoing public relations efforts. AIC shall use its best efforts to secure the cooperation of the AIC Friends in ABTAC's development and implementation of hyperlinks between the Websites of the AIC Friends, on the one hand, and the ABT Website, on the other. AIC agrees to facilitate the development of relationships between AIC's affiliates and ABTAC with respect to the marketing of Additional Products or any other personal or commercial insurance products to Users. Any compensation to be paid to ABTAC by the AIC affiliate offering such products shall be mutually agreed upon by ABTAC and the related AIC affiliate. Section 3.7 Payment of Development Costs. AIC shall promptly, and in any ---------------------------- event, within 30 business days, pay ABTAC for any reasonable out-of-pocket costs in connection with the development of the hyperlinks contemplated by Phase 3 and by Section 4.3 of this Agreement. (b) AIC shall, subject to the reimbursement limit set forth in Section 2.4, promptly, and in any event, within [*] pay ABTAC for [*] in connection with the development of the electronic transmission mechanism contemplated by Phase 2. Section 3.8 Books and Records; Auditing. AIC shall keep complete and --------------------------- accurate records of all of its activities under this Agreement at the address specified in Section 16.2 of this Agreement. AIC shall, no later than the 30th day of each month, deliver to ABTAC (i) the amounts to which ABTAC is entitled pursuant to Section 8 of this Agreement, and (ii) a report setting forth the amounts to be paid to ABTAC hereunder, accompanied by detail sufficient to permit ABTAC to determine the basis of the computation and the accuracy of the amount, together with a list of all Users of ABT's Website which have contacted AIC through the toll free number provided on ABT's Website and such other information as ABTAC shall reasonably request from time to time in order to monitor the performance of this Agreement. Subject to the [*] Confidential Treatment Requested 5 provisions of the Insurance Information and Privacy Protection Model Act, as enacted in various states (as so enacted, the "Privacy Act"), all records maintained by AIC related to this Agreement shall be open to inspection and copying by ABTAC's employees, agents, attorneys, accountants or other authorized representatives at reasonable times during normal business hours. (b) ABTAC may also appoint public accountants of its choice, and at its sole expense, for the purpose of auditing AIC's performance of its obligations under this Agreement and AIC agrees to grant such accountants access to all records necessary to determine the compliance of AIC with the compensation provisions of this Agreement. If the results of such audit reveal a discrepancy between the amounts paid by AIC 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 AIC, by the withholding of [*] of such amount from the payments to be made to ABTAC over the succeeding twelve months. If the discrepancy is in ABTAC's favor and exceeds [*] then AIC shall reimburse ABTAC for the full cost of the audit. 4. COVENANTS, DUTIES AND RIGHTS OF ABTAC AND ABT. Section 4.1 Insurance Marketing Materials. ABTAC shall maintain the ----------------------------- Insurance Marketing Materials (as available) at the ABT Website. Section 4.2 Relationships with ABT Friends. ABT and ABTAC shall use best ------------------------------ efforts to establish and maintain relationships with major automobile-related products and service providers on the Internet (such entities with which ABT or ABTAC has established such relationships, the "ABT Friends") such as, among others, Edmund's, Microsoft, Auto-Site and Kelly Blue Book which relationships may include toll free "800" numbers and/or hyperlinks with the Websites of the ABT Friends to the ABT Website allowing users at ABT Friends' Websites to link to the ABT Website and view the Insurance Marketing Materials and/or hyperlinks between the Websites of those ABT Friends approved in advance by AIC with the Website of AIGM. If ABTAC proposes to establish a hyperlink between the Website of AIGM and that of any ABT Friend, it shall submit such proposal to AIC in advance for approval. AIC shall preliminarily respond to ABTAC within two (2) business days of receipt of such submission and shall deliver its final approval or disapproval within five (5) business days of receipt of such submission. Approval of such proposed hyperlinks shall not be unreasonably withheld. AIC and ABTAC agree that (i) any compensation to be paid to any ABT Friends in connection with any relationship with respect to users at or originating at their Websites shall be solely the responsibility of ABTAC and (ii) any such users shall be considered Users for all purposes under this Agreement. Section 4.3 Hyperlink Development; Costs. ABTAC shall use its best ---------------------------- efforts to develop and implement the electronic transfer mechanism necessary for Phase 2 and the hyperlink necessary for Phase 3. (b) ABTAC shall use its best efforts to develop and implement hyperlinks between the Websites of the AIC Friends and that of ABT to allow users of the Websites of the AIC Friends to link to the ABT Website. (c) ABTAC shall, no less frequently than monthly and no more frequently than weekly (and in connection with the electronic transfer mechanism necessary for Phase 2, subject to the reimbursement limit set forth in Section 2.4), submit to AIC for reimbursement ABTAC's out-of-pocket expenses incurred in connection with this Section 4.3, such submission to be accompanied by detail sufficient to permit AIC to determine the basis of the computation and the accuracy of the amount claimed. Such reimbursement shall be made by AIC within 30 days of receipt of the related request. Section 4.4 Cross-Promotion. ABTAC shall promote and advertise the ABT --------------- Website through Internet search engines and other public mass media and to promote recognition and awareness of the ABT Website via ongoing public relations efforts. Section 4.5 Guarantee. ABT hereby unconditionally and irrevocably --------- guarantees to AIC, 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 this Agreement, whether due or to become due, secured or unsecured, absolute or contingent, joint or several ("Obligations"). The Guarantor agrees that AIC and ABTAC may mutually agree to modify the Obligations or any agreement between AIC and ABTAC without in any way impairing or affecting this Guarantee. [*] Confidential Treatment Requested 6 Section 4.6 Additional Services. ABTAC hereby agrees that it shall provide ------------------- AIC, upon request of AIC, the following additional services: (a) Consulting services concerning marketing of automobile insurance to ABT Users; (b) Data concerning persons requesting the Phase 1 toll free number directly from ABT corporate offices; (c) E-Mail monitoring and consulting service in respect of and during Phase 3; (d) Hyperlink monitoring and consulting service in respect of and during Phase 3; (e) Access to officers of ABT for Internet marketing trend updates; and (f) Icon design consulting services for AIGM Website. 5. [RESERVED] 6. EXCLUSIVITY. Section 6.1 Exclusivity. The parties hereto shall have an exclusive ----------- arrangement for the [*] of the Initial Term (as defined in Section 14.1 of this Agreement) (such [*] the "Initial Exclusivity Period") whereby ABT and ABTAC, separately or together, shall not provide Website access to any other underwriter of Products and whereby AIC shall not market Products with any other Internet automobile buying program, automobile purchase assistance or financing program, automobile pricing service, vehicle information service or on-line service including, among others both existing and to be created or initiated, America On-Line, Microsoft, Prodigy, CompuServe and NetCom (collectively, "Internet Auto Providers"). The exclusivity of this Agreement shall automatically continue for a [*] period beyond the Initial Exclusivity Period, and thereafter for successive [*] periods, unless one party shall give the other party written notice not less than [*] days prior to the end of the Initial Exclusivity Period or the then current 12 month exclusivity period, as the case may be, that the exclusivity shall end at the end of the Initial Exclusivity Period or the then current [*] exclusivity period, as the case may be. (b) After the termination of the exclusivity of this Agreement, if either party uses the "Prohibited Marketing Term" ascribed to it in this clause (b), the other party shall have the right, but not the obligation, to terminate this Agreement upon [*] days written notice. With respect to AIC, the Prohibited Marketing Term shall be "[x] Low Cost Auto Insurance [y]" where "x" is the name of any Internet Auto Provider, and "y" is the name of AIC or any affiliate thereof or any variation thereon which conveys or links "x," "y" and the term Low Cost within any logo, service mark, trademark or icon. With respect to ABTAC or ABT, the Prohibited Marketing Term shall be "ABT Low Cost Auto Insurance [y]" where "y" is the name of any underwriter of Products except AIC or any affiliate thereof which conveys or links ABT or any affiliate thereof to "y" and the term Low Cost within any logo, service mark, trademark or icon. Section 6.2 Exception From Exclusivity. AIC's relationship with United -------------------------- Buying Services, Inc., as in effect on the date of this Agreement, is exempt from the provisions of Section 6.1 of this Agreement. Section 6.3 AIC Marks. If, either in conjunction with a properly noticed --------- termination of exclusivity or at any time after such notice is delivered, AIC intends to use any AIC Marks in conjunction with the offering or sale of Products through any Internet Auto Providers, then AIC must give ABTAC [*] days prior written notice thereof. Section 6.4 ABT Marks. If, either in conjunction with a properly noticed --------- termination of exclusivity or at any time after such notice is delivered, ABT or ABTAC intends to use any ABT Marks in conjunction with the marketing of any Products outside of the terms of this Agreement, then ABTAC must give AIC [*] days prior written notice thereof. [*] Confidential Treatment Requested 7 7. FIRST REFUSAL. Section 7.1 New Product. In the event that either (i) an insurer or entity ----------- other than AIC or any of its affiliates (a "Competing Insurer") proposes a program to offer on the ABT Website any personal or commercial insurance other than the Products offered pursuant to this Agreement (a "New Product") or (ii) ABTAC wishes to market a New Product through a Competing Insurer, then ABTAC shall immediately give AIC written notice of such New Product and the related terms (the "New Product Notice"). Section 7.2 Right of First Refusal. ABTAC hereby grants to AIC the right of ---------------------- first refusal to offer such New Product to ABT's Users on terms no less favorable to ABTAC or ABT's Users than those proposed by the Competing Insurer. AIC shall be obligated to respond with its intent to ABTAC within 10 business days after its receipt of the New Product Notice. If AIC does not respond within such period, ABTAC may market such New Product on terms no less favorable than those set forth in the related New Product Notice. 8. COMPENSATION. During the term of this Agreement, for the services to be performed by ABTAC hereunder (except for those services under Section 4.6 hereof), ABTAC shall be paid compensation by AIC calculated in accordance with Schedule B attached hereto and made a part hereof. All payments due ABTAC hereunder shall be made within [*] days after the end of the month they become due. For the services to be performed by ABTAC under Section 4.6 hereof, ABTAC shall be paid by AIC compensation for each year (or portion thereof) by August 31 of such year in an amount to be determined in good faith discussions to be held between AIC and ABTAC based on the value of such services. 9. POLICIES. Section 9.1 Product Control. Subject to its obligations under Section 3.3 --------------- hereof to offer low-cost insurance products, AIC reserves the sole right and power, exercisable in good faith at any time, to change the terms, rates, conditions, or other provisions contained in the Products or to reject requests for quotes for the Products or to rescind or refuse to renew or cancel any policy issued hereunder, in accordance with AIC's underwriting standards, except as may be limited by the terms of the policies or by applicable law or regulation. AIC further reserves the sole right and power to change its underwriting standards for the Products in accordance with sound insurance practices consistent with AIC's normal business practices and subject to applicable insurance law and further to suspend, restrict or modify the offer and sale of the Products for regulatory reasons. AIC shall inform ABTAC in writing promptly upon its taking any action under this Section 9.1. In the event AIC suspends the offer and sale of Products (or so restricts or modifies such offer and sale so as to render the Products unavailable to the majority of Users previously qualified for such Products on the terms and conditions previously offered) in any jurisdiction or area within the Territory, it shall use its best efforts to make provision for the offer and sale by another underwriter of Products in such jurisdiction or area in a manner which minimizes the effect of such suspension upon the orderly marketing of the Products in such jurisdiction or area, and maximizes the expectancy of ABTAC under this Agreement. If AIC has not made such provision within [*] of any such suspension, ABTAC shall be entitled to establish a relationship with another underwriter of Products in such jurisdiction or area, such relationship to be for a term not to exceed twelve months, and shall be entitled to make such agreements as necessary to secure such relationship, including the use of a Prohibited Marketing Term (in connection with the offering and sale of Products in such jurisdiction or area), and no aspect of such relationship or agreements shall give rise to any rights of AIC under this Agreement. Section 9.2 Underwriting and Administration. AIC shall, at its expense, ------------------------------- provide all underwriting, policy issuance services, policyholder services, premium disbursement and accounting services, premium collection, claims adjustment, and all other administrative services required for policies issued pursuant to this Agreement. Section 9.3 Policy and Quote Records. All policy and quote records for the ------------------------ policies issued hereunder shall be the property of AIC. Policy records shall include but not be limited to all policy requests for quotes, policy declarations pages, policy underwriting files and policy claim files, or computer data files containing such information. [*] Confidential Treatment Requested 8 Section 9.4 Billing. AIC shall be responsible for the billing and ------- collection of insurance premiums from all Users who purchase insurance under this Agreement. Section 9.5 Authority as Insurance Provider. Nothing in this Agreement ------------------------------- shall be construed to mean that either ABT or ABTAC is a broker or an agent, and in no event shall either ABT or ABTAC have any authority or represent itself as having authority other than as is specifically set forth in this Agreement. Without limiting the generality of the foregoing, neither ABT nor ABTAC shall do any of the following: (a) Attempt to or make, waive, alter or change any term, rate or condition stated in any AIC policy, contract or AIC approved form; bind coverage; or discharge any contract in the name of AIC. (b) Offer to pay or pay directly or indirectly any rebate of premiums or any other inducement not specified in the policy to any person. (c) Transact business in contravention of the rules and regulations of an Insurance Department and/or other governmental authorities having jurisdiction of all subject matters embraced within this Agreement. Section 9.6 Privacy. (a) ABTAC recognizes that, in the performance of its ------- obligations under this Agreement, if permitted by the Privacy Act and other applicable laws, AIC may disclose personal or privileged information about individuals collected or received in connection with insurance transactions. Since the disclosure of such information is protected by law, ABTAC agrees that it will not redisclose any such privileged information of which ABTAC has actual notice without the individual's written authorization, unless such disclosure is permitted by law. (b) ABT and ABTAC represents and warrants to AIC that neither ABT nor ABTAC shall use such information as is disclosed by AIC pursuant to Section 9.6(a) other than in connection with the marketing of a product or service. Section 9.7 Fair Credit Reporting. Nothing herein shall be construed to --------------------- require or imply that AIC is required to provide User information to ABT or ABTAC in contravention of the Fair Credit Reporting Act (the "FCRA"). AIC is not a "consumer reporting agency" as defined in the FCRA. 10. CONFIDENTIALITY. Section 10.1 Confidential Information. In performing their obligations ------------------------ pursuant to this Agreement, the parties may be provided access to and receive disclosure of certain confidential and/or proprietary information about the other including but not limited to names of Users, information provided by Users to AIC for the purpose of obtaining an insurance quotation, names of policyholders, marketing philosophy and objectives, financial results, technological developments, computer system information (including information provided in connection with the development of the Phase 2 and Phase 3 applications and links), trade secrets, and other materials and information that such party considers confidential and/or proprietary ("Confidential Information"). Unless expressly provided otherwise in this Agreement, AIC, ABT and ABTAC agree not to give, sell, or in any way transfer, either directly or indirectly, Confidential Information to any person or organization for any purpose without the prior written approval of the other, except as may be required by law, rule or regulation (including any filings under any securities law) or court order. Notwithstanding anything to the contrary herein, AIC, ABT and ABTAC may use Confidential Information for market research purposes upon written consent from the other party, to the extent permissible by law. AIC, ABT and ABTAC promise to make best efforts to see that all parties including employees comply with this provision. These obligations as to confidentiality and nonuse shall survive the termination of this Agreement. Section 10.2 Return of Confidential Information. Except as otherwise herein ---------------------------------- provided, all Confidential Information furnished by one party to the other in connection with this Agreement is the exclusive property of that party and shall be returned to that party upon request or upon termination of this Agreement. Section 10.3 Survival of Confidentiality. All obligations and duties of the --------------------------- parties with respect to Confidential Information shall survive for [*] after the termination of this Agreement. Confidential Information shall no longer be considered Confidential Information to the extent that such information (a) is developed by a party independently, without [*] Confidential Treatment Requested 9 reference to any Confidential Information of the other party's; (b) is obtained from a third party authorized to disclose it; (c) becomes a part of the public domain without the fault of the disclosing party; (d) is released by the disclosing party to third parties without similar restrictions; or (e) is released from such restrictions by prior written agreement. 11. USE OF NAMES/TRADEMARKS. Section 11.1 Limitation on Use of AIC Marks. ABTAC agrees that neither ------------------------------ it nor ABT shall use the AIC Marks without AIC's prior written consent. (b) AIC hereby grants to ABT and ABTAC a limited license to use and reproduce any AIC Mark approved in accordance with Sections 2.2(b) and 11.1(a) of this Agreement, in connection with the marketing arrangements set forth in this Agreement and for no other purpose, and hereby agrees to provide ABT and ABTAC, for the sole purpose of marketing the Products, acceptable copies of the appropriate AIC Marks for purposes of reproduction. (c) For so long as AIC or one of its affiliates has the right to use the mark "AIG," AIC shall permit ABTAC to use the term "Auto-By-Tel Low Cost Auto Insurance From AIG" in marketing the Products during the term of this Agreement; provided, however, that the permission granted hereby shall not diminish AIC's - -------- ------- rights to approve the form and content of any Insurance Marketing Materials pursuant to Section 2.2(b) hereof. Section 11.2 Limitation on Use of ABT Marks. (a) AIC agrees that it shall ------------------------------ not use the ABT Marks without ABTAC's prior written consent. (b) ABTAC hereby grants to AIC a limited license to use and reproduce any ABT Mark approved in accordance with Sections 2.2(b) and 11.2(a) of this Agreement, in connection with the marketing arrangements set forth in this Agreement and for no other purpose, and hereby agree to provide AIC, for the sole purpose of marketing the Products, acceptable copies of the appropriate ABT Marks for purposes of reproduction. Section 11.3 Low Cost Logo. The "Auto-By-Tel; Low Cost Auto Insurance ------------- Through [NAME OF PROVIDER]" logo, and all variations and derivatives shall remain the exclusive property of ABTAC; provided, however, that such logo shall -------- ------- not refer to AIC after the termination of this Agreement. Section 11.4 Use of User Data. Notwithstanding anything in this Agreement ---------------- to the contrary, AIC shall give to ABT and ABTAC User information subject to Sections 9.6 and 9.7 which may be used by ABT and ABTAC in any lawful manner, including for solicitation of such Users for financial products marketed through the ABT Website, automobile pricing, purchasing, leasing and information services offered or marketed through the ABT Website and any affinity programs in which ABT or ABTAC may participate. The ownership interest in such User data shall be held by AIC. Neither ABT nor ABTAC is an agent for purposes of collection of insurance data. 12. INDEPENDENT CONTRACTOR. Section 12.1 No Joint Venture. Nothing contained in this Agreement creates ---------------- or is intended to create the relationship of a joint venture, partnership, agency or association between AIC and ABTAC. Nothing in this Agreement shall be construed to mean that either ABT or ABTAC is a broker or an agent, and in no event may ABTAC bind AIC to any contract of insurance or vary the terms of any such contract, nor may AIC bind ABT or ABTAC to any relationship or vary the terms of any agreement between ABT or ABTAC and any third party. Section 12.2 Limitations on Authority. Each of AIC, ABT and ABTAC shall ------------------------ have only those powers enumerated herein and none other shall be implied. Without limiting the generality of the foregoing, neither AIC, ABT nor ABTAC shall do any of the following: (a) Make, accept or endorse notes, endorse checks payable to the other party, or otherwise incur any expense or liability on behalf of the other party. 10 (b) Waive a forfeiture. (c) Extend the time for the payment of monies due the other party beyond the time agreed to by the other party. (d) Collect money for the other party. (e) Institute, prosecute, or maintain any legal proceedings in connection with any matter pertaining to the other party's business, unless otherwise approved in writing by the other party, nor accept legal process on behalf of the other party. (f) Hold itself out as an authorized agent of the other party in order to deal with any regulatory authority or file any contract or policy on behalf of the other party or contact or discuss any matter with any regulatory authority on behalf of the other party without written approval of that party. 13. [RESERVED] 14. TERM AND TERMINATION. Section 14.1 Renewal. This Agreement shall remain in effect for a period ------- of [*] from the effective date ("Initial Term"). This Agreement shall automatically renew for subsequent [*] ("Renewal Term") unless written notice is given by either party of its intention to terminate this Agreement at the expiration of the Initial Term or any Renewal Term, as the case may be, at least [*] prior to such expiration. 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. Section 14.2 Cure Period. 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, cancel 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 a cancellation hereunder. This Section 14.2 shall not apply to termination pursuant to Section 14.3 or Section 14.4 of this Agreement. Section 14.3 Termination Upon Insolvency. At any party's option, and upon --------------------------- written notice of exercise of the option, this Agreement terminates 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 14.4 Termination Upon Use of Marks. If any party shall give notice ----------------------------- to the other, under Section 6.1(b), then the Agreement shall terminate 30 days after receipt of such notice. Section 14.5 Responsibilities Upon Termination. The termination of this --------------------------------- Agreement shall not terminate, affect, or impair any rights, obligations, or other liabilities of any party hereto which may accrue prior to such termination or which, under the terms of this Agreement, continue after the termination. After termination of this Agreement, coverage under the insurance policies issued hereunder shall continue pursuant to their terms. Ownership of all renewals written after termination of this Agreement shall at all times remain with AIC. Each party shall return all property and information rightfully belonging to the other party which is in its possession at the time of termination except as otherwise provided herein. The provisions of this Paragraph 14.5 shall survive termination of this Agreement. [*] Confidential Treatment Requested 11 15. INDEMNIFICATION. Each party shall hold the other (and its directors, officers, employees and authorized agents) harmless from and against any damages, liabilities, claims, charges, reasonable attorneys' fees, or other costs arising from or in connection with any claim, action, or proceeding relating to or arising from (a) any grossly negligent act or omission or any intentional misconduct relating to the subject matter of this Agreement or (b) the failure to comply with the terms of this Agreement. The provisions of this Section 15 shall survive the termination of this Agreement. 16. NOTICES. Section 16.1 Legal and Regulatory Proceedings. Each party shall promptly -------------------------------- notify the others of any legal or regulatory proceeding or threat of legal or regulatory proceeding with respect to any matters which are the subject of this Agreement, except AIC shall have no obligation to notify ABTAC of legal proceedings involving claims under the Products. Section 16.2 Addresses, etc. All notices pursuant to this Agreement shall -------------- be by facsimile transmission, by personal delivery, or by registered or certified mail, return receipt requested, to the addresses of the parties listed below, or such other address as any party listed below shall specify in writing to the others in a notice conforming to this Section 16.2: If to AIC: AIG MARKETING, INC. 505 Carr Road Wilmington, DE 19809 Attention: J. Ernest Hansen, President, or his successor If to ABTAC: AUTO-BY-TEL ACCEPTANCE CORPORATION 2711 E. Coast Highway, Suite 203 Corona Del Mar, CA 92625 Attention: Peter Ellis, President, or his successor with copies to: R.S. GRIMES & CO. 152 West 57th Street, 24th Floor New York, NY 10019 Attention: Robert S. Grimes, President, or his successor 17. MISCELLANEOUS. Section 17.1 Choice of Law, Venue, Jurisdiction. This Agreement shall be ---------------------------------- governed by the internal laws of the State of New York. The parties agree that any action in law or in equity brought under this Agreement shall be brought only in a state or federal court seated in New York County, New York, and each party hereto consents to the exclusive jurisdiction of such court and venue of such action. 12 Section 17.2 Assignment. Without the prior written consent of the other ---------- party, which consent shall not be unreasonably withheld, this Agreement may not be assigned in whole or in part by any party other than to an affiliate and subsidiary (provided (A) such affiliate or subsidiary (i) shall agree in writing to be bound by the terms of this Agreement and (ii) has a net worth immediately following the assignment equal to or greater than that of the assignor, and (B) the assignor gives written assurances that it will cause the assignee to perform as contained herein or the assignor will perform in the assignee's place). Notwithstanding the foregoing, ABTAC may assign this Agreement to ABT or any wholly owned subsidiary of ABT or ABTAC, provided, however, that the guarantee of ABT pursuant to Section 4.5 herein shall apply as to such subsidiary assignee in the same manner as it applied to ABTAC. Section 17.3 Modification; Waiver. This Agreement may only be revised -------------------- and/or modified in a writing which must be executed by each of the parties to this Agreement. No other change, modification, addition, or deletion to any portion of this Agreement will be valid or binding upon any of them. Section 17.4 Entire Agreement. This Agreement constitutes the entire ---------------- Agreement between the parties with respect to the subject matter contained herein and supersedes all oral or written negotiations of the parties. Section 17.5 Remedies. All remedies of any party are cumulative. Waiver by -------- any party of any obligation of any other party does not constitute waiver of any future or other obligation of said party. Section 17.6 References and Section Headings. Any reference to the singular ------------------------------- shall include reference to the plural and vice versa. Section headings are for description only and shall not be used to interpret this Agreement. Section 17.7 Severability. If any part, term, or provision of this ------------ Agreement shall be held void, illegal, or unenforceable, the validity of the remaining portions or provisions shall not be affected thereby. Section 17.8 Signatures and Recording. This Agreement shall not go into ------------------------ force until duly executed on behalf of ABTAC, ABT and AIC. Each party represents and warrants that each of the respective officers executing this Agreement on its behalf is duly authorized by its Board of Directors and is acting within the scope of his or her authority to bind said party under this Agreement. 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement below through their duly authorized officers as of the date first above written. 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 THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA By: /S/ JOHN G. COLOGNA -------------------------- John G. Colona, Vice President AUTO-BY-TEL ACCEPTANCE CORPORATION By: /S/ PETER R. ELLIS ------------------------- Peter Ellis, President AUTO-BY-TEL, INC., as Guarantor By: /S/ PETER R. ELLIS ------------------------- Peter Ellis, President 14 SCHEDULE A ADDITIONAL PRODUCTS AIG Life Division - ----------------- Mega Term (High Limit Term Life) Graded Premium Life Senior Life Birthday Life Whole Life Universal Life Survivorship Universal Life Fixed Annuities Variable Annuities Variable Life AIG A & H Division - ------------------ Hospital Indemnity Hospital Accident Cancer Coverage Accidental Death & Dismemberment (AD&D) AIG Warranty Services - --------------------- Mechanical Breakdown Vehicle Service Agreement (VSA) GAP Coverage (stand alone or with above-mentioned products) Computer Warranty Coverage AIG Capital Management Corp. - ---------------------------- AIG All Ages Funds Schedule A-1 SCHEDULE B [*] [*] Confidential Treatment Requested EXAMPLE # 1 [*] [*] Confidential Treatment Requested EXAMPLE # 2 [*] [*] Confidential Treatment Requested EXAMPLE # 3 [*] [*] Confidential Treatment Requested EXAMPLE # 4 [*] [*] Confidential Treatment Requested EXAMPLE # 5 [*] [*] Confidential Treatment Requested EXAMPLE # 6 [*] [*] Confidential Treatment Requested SCHEDULE C AIGM COMPENSATION FROM AIC [*] [*] Confidential Treatment Requested PROFIT SHARING CONTINGENCY CHART -------------------------------- [*] [*] Confidential Treatment Requested AMERICAN INTERNATIONAL COMPANIES c/o AIG Marketing, Inc. 505 Carr Road Wilmington, Delaware 19809 July 23, 1996 Auto-By-Tel, Inc. 2711 East Coast Highway Suite 203 Corona del Mar, California 92625 Attention: Mr. Peter Ellis, President - ---------- Re: Marketing Agreement between Auto-By-Tel Acceptance Corporation on the one hand, 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 on the other hand, and Auto-By-Tel, Inc. as Guarantor of the obligations of Auto-By-Tel Acceptance Corporation dated as of July 22, 1996 (the "Marketing Agreement") ---------------------------------------------------------------------- Gentlemen: Reference is made to Section 8 of the above-referenced Marketing Agreement. Capitalized terms used herein and in the attached Schedule A, and not defined herein or therein, shall have the meanings ascribed thereto in the Marketing Agreement. This will confirm our agreement that compensation to be paid for the services provided to AIC pursuant to Section 4.6 of the Marketing Agreement shall be calculated and paid in accordance with the attached Schedule A on or before August 31, 1997, and on each August 31st thereafter for as long as the Marketing Agreement is in effect. Please confirm that this represents our understanding with respect to the foregoing matter by executing a copy of this letter in the space provided below and returning to the undersigned. Best regards. Very truly yours, 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 THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA By: /S/ JOHN G. COLONA ------------------- John G. Colona, Vice President cc: Mr. Robert S. Grimes Robert S. Grimes & Company 152 West 57th Street 24th Floor New York, NY 10019 CONFIRMED AS OF JULY 24, 1996 AUTO-BY-TEL ACCEPTANCE CORP. By: /S/ PETER R. ELLIS ----------------------------------- Peter Ellis, President -2- SCHEDULE A [*] [*] Confidential Treatment Requested -3- [*] [*] Confidential Treatment Requested -4- ADDITIONAL COMPENSATION CHART ----------------------------- [*] [*] Confidential Treatment Requested EX-10.9 14 MARKETING AGMT. BET. REG. AND MICROSOFT, 3/27/96 EXHIBIT 10.9 MICROSOFT ONLINE MARKETING AGREEMENT THIS ONLINE MARKETING AGREEMENT ("Agreement") is made and entered into as of the later of the two signature dates below (the "Effective Date") by and between AUTO-BY-TEL, LLC ("ABT"), a California limited liability company, and MICROSOFT CORPORATION ("MS"), a Washington, U.S.A. corporation. Recitals -------- i. MS has established an online service for the Microsoft Network called "CarSource" that includes research materials and other useful information about Automobiles (as defined below) and accessories. ii. ABT operates an Automobile marketing company which has subscribing dealers throughout the United States. ABT plans to expand operations with subscribing dealers in other territories outside the United States. iii. MS and ABT wish to enter into a business relationship to develop and implement an Automobile marketing service on CarSource for persons interested in purchasing Automobiles in the United States, Canada, and other territories subject to all the terms and conditions of this Agreement. NOW, THEREFORE, the parties agree as follows: Agreement --------- 1. DEFINITIONS. In addition to the terms defined elsewhere in this ----------- Agreement, the following terms, when used herein, shall have the following meanings: 1.1 "Automobile" shall mean any kind of motor vehicle, including, but not limited to, passenger vehicles, trucks, and vans. 1.2 "CarSource" shall mean the MS-sponsored service on the Microsoft Network ("MSN") that includes information and materials related to Automobiles, including any successor products and/or services that appear on MSN or the Internet's World Wide Web. 1.3 "Person" or "Persons" shall mean an individual, corporation, partnership, unincorporated association, trust, joint venture or other organization or entity. 1.4 "Dealer" shall mean an independently operated retail seller of Automobiles that is located in the United States, Canada or other territories and is a subscribing member to ABT's marketing program. [*] Confidential Treatment has been requested for portions of this exhibit. 2. ONLINE MARKETING SERVICE ------------------------ 2.1 Within a reasonable period after the Effective Date, MS shall, with the assistance of ABT, develop and post a digital page or portion thereof on CarSource featuring information about ABT's auto marketing and financing services and an interactive electronic order form in substantially the form of Exhibit A hereto (an "E-form"). At least [*] during the term of this Agreement, - --------- MS or its representatives shall download all E-forms that have been completed by CarSource users and transmit them to ABT via electronic mail or other reasonable means to ensure prompt delivery to ABT. No later than [*] after receiving each E-form, ABT shall forward the E-form to one of its subscribing Dealers who will call the CarSource user with information regarding the price and availability of the vehicle request. 2.2 ABT may offer information regarding Automobile financing and leasing options to CarSource users in response to an E-form request for such information. 2.3 ABT shall at all times conduct its operations with respect to the marketing program described above in a reasonable and professional manner in accordance with all applicable laws and regulations. 2.4 The rights set forth in Sections 2.1 and 2.2 above are granted on a non-exclusive basis; provided, that MS shall not grant such rights to any other party during the term of this Agreement on terms and conditions that are more favorable than the terms and conditions of this Agreement. 3. TERM. The term of this Agreement shall be [*] from the Effective Date ---- unless terminated earlier in accordance with Section 12. 4. FEES. ---- 4.1 Marketing Fees. ABT shall pay MS a fee of [*] -------------- for [*] whether or not the CarSource users purchase an Automobile through ABT or its Dealers. MS shall not forward any incomplete E-forms to ABT. No marketing fee shall be paid or incurred by ABT for [*] ABT shall not deduct or withhold any amounts from such payments, except for any applicable taxes which are required to be withheld or deducted by applicable law. 4.2 Finance & Leasing Fees. ABT shall pay to MS [*] ---------------------- that ABT receives from each Third Party in connection with such a financing or leasing transaction. The parties understand and agree that at the time of signing this Agreement, the [*] fees that ABT expects to pay to MS are as follows: [*]. ABT shall not deduct or withhold any [*] Confidential Treatment Requested -2- amounts from such payments, except for any applicable taxes which are required to be withheld or deducted by applicable law. ABT shall at all times act in good faith with respect to the calculation and payment of such fees and shall not attempt to limit such fees by restructuring its financial arrangement with lending institutions so as to avoid payment of the fees described in this Section. In addition to the fees described in this Section 4, ABT shall pay MS the fees described in Section 10.2. 5. PAYMENT SCHEDULE. Within [*] days after the end of each ---------------- [*] with respect to which ABT owes MS any fees pursuant to Section 4 and/or 10.2, ABT shall furnish MS a statement together with payment for any amount shown thereby to be due to MS. The fee statement shall contain information about (a) the number of E-forms received from MS during the period, (b) the total marketing fee payment to MS, (c) the number of CarSource users referred by ABT to financing entities during the period, (d) the number of CarSource users who completed a financing transaction for an Automobile with a financing entity referred by ABT during the period, (e) the total amount of financing origination fees received by ABT during the period, pursuant to this Agreement (f) the total amount of the financing origination fee payment to MS, (g) the amount of any deductions from amounts payable to MS and the method of calculating such deductions, (h) the number of CarSource users who completed a user survey authorized under Section 10.2, (i) the number of CarSource users who registered for the affinity program described in Section 10.2, (j) the amount of any fees payable to MS pursuant to Section 10.2, and (k) any other information that is relevant to the payment terms described in this Agreement. 6. HYPERLINK. During the term of this Agreement, ABT shall prominently --------- feature a hyperlink to the uniform resource locator for MS CarSource on ABT's World Wide Web home page in the manner set forth on Exhibit B hereto. ABT shall --------- not materially modify the placement, size, presentation or layout of the hyperlink to MS CarSource without the written consent of MS, which shall not be unreasonably withheld. In addition, ABT shall not place hyperlinks to World Wide Web home pages of on-line services that compete with CarSource (e.g., Edmunds, Autoinfocenter, Autolink) on the same level as the hyperlink to CarSource. MS hereby consents to the use of the "Microsoft" and "CarSource" trademarks for the limited purposes described in this Section 6. 7. USE OF TRADEMARKS. ABT hereby grants MS the right to use and ----------------- publish in connection with the promotion of the services described in Section 2 of this Agreement the following unregistered trademarks and trade names which are associated with ABT ("ABT's Trademarks"): Auto-by-Tel Auto-by-Tel, LLC MS shall add the appropriate trademark symbol or designation (i.e., (TM) or R), as shown above wherever ABT's Trademarks are first mentioned in CarSource. ABT shall promptly notify MS in the event that any person shall challenge its right to use such Trademarks in connection with the Business (defined below). The rights granted by this section shall not preclude MS from creating, developing, applying for and obtaining and otherwise using and enjoying any logos, trademarks and trade names of its own with respect to any products or services, nor applying for and obtaining copyright and/or trademark protection therefor. [*] Confidential Treatment Requested -3- 8. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF ABT. ABT hereby ------------------------------------------------- represents, warrants, and covenants to MS that: 8.1 ABT has the full and exclusive right and power to enter into and perform according to the terms of this Agreement. Without limiting the foregoing, ABT warrants that (i) to the best of ABT's knowledge, ABT has the full and exclusive right to grant MS the licenses granted herein to use the trademarks and trade names and, to the best of ABT's knowledge, the use of such trademarks and tradenames by MS as provided under this Agreement will not violate any trademark, or other proprietary right of any third party, and (ii) it shall not violate any rights of privacy of any third party in providing the services described in Section 2. 8.2 Personnel of ABT shall be available to consult with respect to the matters governed by this Agreement with MS and its personnel, at such times and for such periods as MS may reasonably request. 8.3 ABT and its officers, directors, employees, contractors, agents and representatives shall conduct all activities related to this Agreement in compliance with all applicable laws or regulations including, but not limited to the laws and regulations relating to the sale and brokerage of automobiles, telemarketing, consumer credit, and tax laws. 8.4 ABT has obtained standard form general liability insurance from a nationally-recognized insurance provider and such policy has limits of [*] and coverage of [*] and ABT shall maintain such insurance (or comparable replacement insurance) at all times during the term of this Agreement and for a period of one year thereafter. The representations, warranties, and covenants contained in this Section 8 are continuous in nature and shall survive termination or expiration of this Agreement except as expressly stated in Section 8.4. 9. INDEMNITY. --------- 9.1 ABT hereby agrees to indemnify, pay the defense costs of, and hold MS harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including attorneys' fees, costs, and expert witnesses' fees) arising out of or in connection with any claim which, taking the claimant's allegations to be true, (a) would result in a breach by ABT of any of ABT's warranties and covenants set forth in this Agreement, or (b) would constitute a violation of any applicable law or regulation governing the business of ABT. ABT shall reimburse MS on demand for any payment made by MS in respect of any liability or claim to which the foregoing indemnity relates, and which has resulted in an adverse judgment against MS or has been settled with the written consent of ABT. Prompt notice shall be given to ABT of any claim to which the foregoing indemnity relates. The indemnity provisions hereof shall survive any termination or expiration of this Agreement. [*] Confidential Treatment Requested -4- 9.2 MS hereby agrees to indemnify, pay the defense costs of, and hold ABT harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including attorneys' fees, costs, and expert witnesses' fees) arising out of or in connection with any claim which is related to MS's operation of CarSource, except for claims, demands, costs, liabilities, losses, expenses and damages arising out of or in connection with any claim related to the business of ABT and such other claims as ABT has an obligation to indemnify MS pursuant to Section 9.1 of this Agreement. MS shall reimburse ABT on demand for any payment made by ABT in respect of any liability or claim to which the foregoing indemnity relates, and which has resulted in an adverse judgment against ABT or has been settled with the written consent of MS. Prompt notice shall be given to MS of any claim to which the foregoing indemnity relates. The indemnity provisions hereof shall survive any termination or expiration of this Agreement. 10. NONDISCLOSURE AGREEMENT. ----------------------- 10.1 Each party expressly undertakes to retain in confidence and to require its distributors, resellers and all other contractors to retain in confidence all information and know-how transmitted to such party that the disclosing party has identified as being proprietary and/or confidential or which, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as proprietary and/or confidential. Without limiting the foregoing, the existence and all terms and conditions of this Agreement shall be considered confidential and shall not be disclosed (except to either party's attorneys and accountants on a need-to-know basis or under order from a court of competent jurisdiction) without the prior written consent of the other party. Except as specifically provided for in this Agreement, ABT shall not use the information about individual CarSource users (including information disclosed on E-forms) or disclose such information to any third party except as specifically authorized by MS in this Agreement or consented to in writing by MS; by way of illustration and not limitation, ABT agrees that it shall not disclose information about individual CarSource users to any on-line service provider, on-line marketing company, automobile magazine publisher, or automobile company without the express written permission of MS. 10.2 ABT may conduct follow up surveys to CarSource users who submit requests to ABT. These surveys shall be sent via email within one week of the original request submission. The primary purpose of such surveys will be to measure customer satisfaction with the ABT auto marketing and finance services, the performance of individual Dealers, type of vehicle purchased, etc. As part of the email survey, ABT may offer to CarSource users free membership in an ABT affinity program of auto-related discounts, products, and services. For every CarSource user who accepts ABT's offer to join the affinity program, ABT shall pay to MS a fee of [*]. This fee is in addition to any Marketing Fees or Finance and Leasing fees earned with respect to said CarSource user pursuant to Section 5 of this Agreement. 11. AUDITS ------ 11.1 ABT agrees to keep all proper records and books of account and all proper entries therein relating to the referral of prospective Automobile purchasers and the financing of Automobiles purchased by CarSource users referred to ABT by MS and MS' fees therefrom. [*] Confidential Treatment Requested -5- 11.2 MS may cause an audit to be made, at its expense, of ABT's applicable records in order to verify statements rendered hereunder; provided, that if there is a greater than [*] discrepancy between the amounts paid by ABT to MS and the amounts that should have been paid, according to the statements, as audited, then ABT shall pay MS, in addition to any unpaid fees, the cost of such audit. Any such audit shall be conducted only by a nationally-recognized independent certified public accountant (other than on a contingency fee basis) who is not the primary internal auditor for either ABT or MS, upon thirty (30) days prior written notice to ABT, and shall be conducted during regular business hours at ABT's offices and in such a manner as not to interfere with ABT's normal business activities. The results of any such audit shall be subject to the nondisclosure obligations set forth in Section 10. 12. TERMINATION. MS may terminate this Agreement by written notice to ABT ----------- at any time if it determines [*] that the services provided by ABT and/or its Dealers jeopardize MS's good name or brands or expose MS to financial or legal risks that are unacceptable to MS, as determined by MS in its sole discretion. In addition, MS may terminate this Agreement for any other cause or no cause upon [*] advance written notice. 13. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION. MS shall cease ----------------------------------------------------- all transmission of the E-form and references to ABT in CarSource on or before [*] after the date of expiration or termination of this Agreement. ABT shall cease all references to CarSource and its hyperlink to CarSource on or before [*] after the termination or expiration of this Agreement. 14. DELIVERY OF LEGAL NOTICES. During the term of this Agreement, ABT ------------------------- shall promptly deliver to MS, and in no event less than ten (10) days after receipt by ABT, copies of any and all (a) letters from third parties, including governmental agencies, that relate to the potential commencement of legal or administrative proceedings against ABT in connection with the business described in this Agreement (the "business"), and (b) all summons, complaints, and petitions served by third parties upon ABT in connection with legal or administrative proceedings arising out of the Business, except to the extent that such disclosure would be prevented by the terms of a protective order of a court or governmental entity. 15. GOVERNING LAW, VENUE, ATTORNEYS' FEES ------------------------------------- 15.1 This Agreement shall be construed and controlled by the laws of the State of Washington, and ABT further consents to jurisdiction by the state or federal courts sitting in the State of Washington. Process may be served on either party by U.S. Mail, postage prepaid, certified or registered, return receipt requested, or by such other method as is authorized by law. 15.2 If either MS or ABT employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs, including expert witness fees. [*] Confidential Treatment Requested -6- 16. NOTICES AND REQUESTS. All notices and requests in connection with -------------------- this Agreement shall be deemed given as of the day they are (i) deposited in the U.S. mails, postage prepaid, certified or registered, return receipt requested; or (ii) sent by overnight courier, charges prepaid, with a confirming fax; and addressed as follows: COMPANY: AUTO-BY-TEL., LLC 2711 E. Coast Highway Suite 203 Corona Del Mar, CA 92625 Attention: President Fax: (714) 675-4062 Phone: (714) 675-7171 MS: MICROSOFT CORPORATION One Microsoft Way Redmond, WA 98052-6399 Attention: Vice President, Worldwide Consumer Division with a cc to: MICROSOFT CORPORATION One Microsoft Way Redmond, WA 98052-6399 Attention: Law & Corporate Affairs Department Fax: U.S. Legal Group (206) 936-7329 or to such other address as the party to receive the notice or request so designates by written notice to the other. 17. NO ASSIGNMENT. Neither party may assign this Agreement, or any ------------- portion thereof, to any third party unless the other party expressly consents to such assignment in writing. Any attempted assignment without such consent shall give the non-assigning party the right to terminate this Agreement effective upon written notice. 18. LEGAL RELATIONSHIP. This Agreement is intended solely as a services ------------------ agreement, and no partnership, joint venture, employment, agency, franchise, or other form of Agreement or relationship is intended. 19. SEVERABILITY. In the event that any provision of this Agreement is ------------ found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms. The parties intend that the provisions of this Agreement be enforced to the fullest extent permitted by applicable law. -7- 20. ENTIRE AGREEMENT/MODIFICATION/OFFER. The parties hereto agree that ----------------------------------- this Agreement constitutes the entire Agreement between the parties with respect to the subject matter hereof and merges all prior and contemporaneous communications. It shall not be modified except by a written agreement dated subsequent hereto signed on behalf of ABT and MS by their duly authorized representatives. Neither this Agreement nor any written or oral statements related hereto constitute an offer, and this Agreement shall not be legally binding until executed by both parties hereto. 21. BINDING EFFECT. Subject to the limitations herein before expressed, -------------- this Agreement will inure to the benefit of and be binding upon the parties, their successors, administrators, heirs, and permitted assigns. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates indicated below. MICROSOFT CORPORATION AUTO-BY-TEL, LLC. /S/ GARTH HITCHINS /S/ PETER R. ELLIS - ---------------------------- ---------------------------- By By GARTH HITCHINS PETER R. ELLIS - ---------------------------- ---------------------------- Name (Print) Name (Print) PRODUCT UNIT MANAGER PRESIDENT - ---------------------------- ---------------------------- Title Title MARCH 27, 1996 MARCH 11, 1996 - ---------------------------- ---------------------------- Date Date -8- EXHIBIT A --------- ELECTRONIC ORDER FORM --------------------- A completed Electronic Order Form will contain the following information: First Name Last Name Street Address, Apt./Suite # City State Zip Code Phone Number Year, Make, and Model of Vehicle Requested -9- EXHIBIT B --------- ABT Screen Shot -10- EX-10.10 15 ADVER. AGMT. BET. REG. AND DIGITAL CITY, 10/15/96 EXHIBIT 10.10 ADVERTISING AGREEMENT --------------------- This Agreement, effective as of October 15, 1996, is made and entered into by Digital City, Inc. ("DCI"), a Delaware corporation with its principal offices at 8619 Westwood Center Drive, Vienna, VA 22182, and Auto-By-Tel ("Advertiser"), with its principal offices or address at 18872 MacArthur Blvd., Suite 200, Irvine, California 92612-1400. INTRODUCTION ------------ DCI is a subsidiary of America Online, Inc. that operates the Digital City(SM) brand service (the "DCI Service") which assembles, packages and markets local interactive consumer content and services for particular metropolitan or other local areas throughout the United States and the World through the America Online(R) Service ("AOL"), the World Wide Web and other distribution partners. Auto-By-Tel Inc. is an online marketing program that, among other things, assists consumers in buying or leasing new automobiles via electronic purchase requests on the Internet. Advertiser wishes to include an advertising icon (the "Icon") consisting of logo identification and a prominent photo or graphic with caption on the Main screen, the Main Auto screen, and various other screens of the DCI Service markets listed in Exhibit C hereto (the "Markets") which, when activated, will provide access to an Advertiser site on the DCI Service (the "Advertising Site"). Advertiser's involvement with the Digital City web-site on the World Wide Web is not addressed in this contract and will be addressed at a later date when it becomes available. TERMS 1. Duties of DCI. 1.1 During the Term, DCI shall create and display the Icon and the Advertising Site. Subscribers to the DCI Service may click on the Icon in order to activate a link to the Advertising Site. The design, contents, rotation, and placement of the Icon and Advertising site shall be as mutually agreed upon by DCI and Advertiser and are specified in Exhibit A hereto. 1.2 Exclusivity. During the Term, DCI agrees that it will not sell advertising in any of the Markets to marketing programs where electronic new car lease or purchase requests are routed to a marketing company, to new car brokers or to automobile manufacturers. Exclusivity does not effect individual dealer or automobile manufacturer advertisements, used car sales, or classified sections of Digital City Markets. DCI subscribers may solicit price quotes by telephone or by email directly from automobile dealers and manufacturers provided that the advertising icon appearing on the DCI Service, if any, connected to such dealers and manufacturers does not directly invite DCI subscribers to receive a price quote. This Section 1.2 shall have no affect on advertising sold into the Markets prior to the commencement of this Agreement. [*] Confidential Treatment has been requested for certain portions of this exhibit 1.3 Advertiser will be given two keywords for promotion within the DCI Service. They are AUTOBYTEL and AUTO-BY-TEL. 1.4 Overhead Account. DCI shall grant [*] on AOL, for which the ---------------- standard subscription and usage charges will be waived during the Term ("Overhead Accounts") for the exclusive purpose of enabling Advertiser and its agents to perform Advertiser's duties under this Agreement. Advertiser shall be responsible for the actions taken under or through its Overhead Accounts, which actions are subject to (i) DCI's applicable rules and policies; (ii) any surcharges, including, without limitation, all premium charges, transaction charges, and any applicable communication surcharges incurred by any Overhead Account issued to Advertiser; and (iii) the AOL Terms of Service. Upon the termination of this Agreement, such Overhead Account, related screen names and any associated usage credits or similar rights, shall automatically terminate. DCI shall have no liability for loss of any data or content related to the proper termination of any such Overhead Account. 1.5 Advertiser will be provided with a Plus Group to monitor the performance of the Advertising Site. A Plus Group is the traffic measurement system used to analyze online activity within the DCI Service. Nielsen audited traffic information will be provided as it becomes available. 1.6 DCI is obligated to provide Production of [*] Rainman [*] for Advertiser which [*] the introduction of the product and links to the Advertiser web site. 1.7 DCI will provide Advertiser with up to [*] production changes in artwork for the Icon at no cost. Subsequently, Advertiser will be subject to negotiated rates for production. 2. Duties of Advertiser. 2.1 Advertiser is obligated to purchase each Market within [*] launch of such Market. 2.2 Advertiser shall respond promptly and professionally to questions, comments, complaints and other reasonable requests from DCI subscribers regarding the Advertising Site. 2.3 Advertiser will provide for the timely delivery of automotive price quotes to DCI consumers. 2.4 Advertiser agrees to pay DCI according to section 5 below, "Revenues To DCI". 3. Rights of DCI. 3.1 Advertiser agrees that (i) DCI has the right to market, display, transmit and promote the Advertising Site as provided above and (ii) subscribers to the DCI Service have the right [*] Confidential Treatment Requested -2- to access and use the Advertising Site and the content and services contained therein (including any of the Advertiser's trademarks, trade names and service marks included within the Advertising Site). 3.2 Subject to Sections 1.2 and 1.3, DCI will retain the right to distribute automotive content of all types in the DCI automotive areas online. 4. Performance Clause. 4.1 The [*] of advertising will be given to Advertiser at [*]. The [*] will begin upon activation of the affinity button in each Market. The affinity button is a button on the welcome screen of America Online that links to local Digital City markets. 4.2 After the [*] provided in Section 4.1 above, there will be a [*] "start up" period. 4.3 In each Market, after the [*] period set forth in Sections 4.1 and 4.2 above has ended, a measurement figure of [*] will take effect for the remainder of the Term. If the [*] in which [*] Advertiser may terminate this Agreement by written notice to DCI [*] prior to the desired termination date. Advertiser will make verified "Purchase Request" figures available to DCI prior to any termination by Advertiser pursuant to this Section 4.3. For purposes of this Agreement, "Purchase Request" shall mean that a user of the DCI Service has requested a price quote online from Advertiser. 5. Revenue to DCI. 5.1 Advertiser will pay to DCI according to the [*] as set forth in Exhibits B, C, and D. 5.2 Advertiser will make a [*] payment of [*] for the first amounts due in respect of this Agreement upon execution of this Agreement. 5.3 Advertiser will be billed for new Digital City markets at the beginning of the [*] month after the market has been activated. 6. Confidential Information. Each Party acknowledges that all information disclosed pursuant to this Agreement, including the terms of this Agreement, shall be considered confidential (collectively, "Confidential Information"). Each Party agrees that it shall take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the term of this Agreement and for a period of [*] following expiration or termination of this Agreement, to prevent the duplication or disclosure of Confidential Information. Notwithstanding the foregoing, Confidential Information shall not include materials or information that (i) are already, or [*] Confidential Treatment Requested -3- otherwise become, generally known by third parties as a result of no act or omission of the disclosing party; (ii) subsequent to disclosure hereunder are lawfully received by the disclosing party from a third party having the right to disseminate the information and without restriction on disclosure; (iii) are generally furnished to others by any party without restriction on disclosure; (iv) were already known by the disclosing party and were not received from a third party in breach of that third party's obligations of confidentiality; (v) are required to be disclosed by applicable law, rule or regulation of any government or governmental agency or by court order; or (vi) are independently developed by the disclosing party without the use of Confidential Information. 7. Term. The initial term of this Agreement is for [*] from execution date of the Agreement (the "Initial Term") and shall be automatically extended for an additional period equal to the length of the Initial Term (the "Renewal Term") unless this Agreement has been terminated in accordance with Section 4.3 or unless Advertiser notifies DCI in writing of its election to have the Agreement expire at least thirty (30) days in advance of the Initial Term. 8. If Advertiser wishes to make any changes to the Icon, Advertiser must request such changes in writing. There will be one icon used for all Markets. Advertiser may change the Icon twice per month at no cost. Any changes must be approved by DCI. 9. Advertiser represents and warrants that neither the Icon nor the Advertising Site in any respect: (i) infringes on any copyright, trademark, U.S. patent or any other proprietary right of any third party; (ii) violates any applicable law or regulation; or (iii) violates the Terms of Service of AOL. 10. Each party shall promptly inform the other party of any event or circumstance, and shall provide such party with all relevant information, related to the Icon and/or Advertising Site which could reasonably lead to a claim, demand, or liability of or against such party/or its affiliates by any third party. 11. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM ANY ASPECT OF THE TRANSACTION DESCRIBED HEREIN. NEITHER PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER FOR MORE THAN THE AMOUNTS PAID TO DCI BY ADVERTISER HEREUNDER. 12. NEITHER PARTY MAKES AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE DCI SERVICE AND AOL OR ANY PORTION THERETO, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, DCI SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE [*] Confidential Treatment Requested -4- NUMBER OF PERSONS WHO WILL ACCESS THE ICON AND (II) ANY BENEFIT ADVERTISER MIGHT OBTAIN INCLUDING THE ICON WITHIN THE DCI SERVICE. 13. Each Party will defend, indemnify, save and hold harmless the other party and the officers, directors, agents, affiliates, distributors, franchisees and employees of the other party from any and all third party claims, demands, liabilities, costs or expenses, including reasonable outside and in-house attorneys' fees ("Liabilities"), resulting from the indemnifying party's breach of any material obligation, duty, representation or warranty of this Agreement, except where Liabilities result from the gross negligence or knowing and willful misconduct of the other Party. 14. Either party may terminate this Agreement at any time in the event of a material breach of this Agreement by the other party. 15. In addition, DCI shall have the right, at any time, to remove the Icon if DCI determines, in its sole discretion, that any part of the Icon or the Advertising Site violates the Terms of Service of AOL. In the event that DCI exercises its rights under this Section 15, DCI shall refund to Advertiser a pro rata portion of the fee which Advertiser has paid to DCI for display of the Icon. 16. The Parties to this Agreement are independent contractors. Neither Party is an agent, representative, or partner of the other Party. This Agreement shall not be interpreted or construed to create an association, agency, joint venture or partnership between the Parties or to impose any liability attributable to such a relationship upon either Party. The failure of either Party to insist upon or enforce strict performance by the other Party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such Party's right to assert or rely upon any such provision or right in that or any other instance. DCI reserves the right to review any press releases, advertising materials, etc, that mention DCI or include DCI's logo. 17. Sections 6, 10, 11, 12, 13 and 16 shall survive the completion, expiration, termination or cancellation of this Agreement. 18. This Agreement sets forth the entire agreement between the Parties, and supersedes any and all prior agreements of the Parties with respect to the transactions set forth herein. Neither Party shall be bound by, and each Party specifically objects to any term, condition or other provision which is different from or in addition to the provisions of this Agreement, unless such change, amendment or modification of any provision of this Agreement is set forth in a subsequent written instrument duly signed by both Parties. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law, and the remainder of this Agreement shall remain in full force and effect. This Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the Commonwealth of Virginia except for its conflicts of laws principles. -5- 19. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. DIGITAL CITY, INC. AUTO-BY-TEL, INC. By: /S/ RJ SMITH By: /S/ PETER R. ELLIS --------------------------------- ------------------------------- Print Name: RJ SMITH Print Name: PETER R. ELLIS ------------------------- ---------------------------- Title: VICE-PRESIDENT/GENERAL MANAGER Title: PRESIDENT ------------------------------ --------------------------------- -6- EXHIBIT A ICON AND ADVERTISING SITE ------------------------- 1. The Icon. The Icon may consist of the Advertiser logo or another marketing icon that is mutually agreed upon by DCI and Advertiser. The Icon must fit the dimensions consistent with DCI screen format. Placement and Rotation A. Digital City -Main Screens. The Advertising Icon shall have placement on the Main screen of each Digital City Market for the equivalent of [*] of the front screen views for [*] B. Digital City- Auto Screens. The Advertiser Icon will have permanent placement on the Front Auto screens of Digital City for the duration of this Agreement in [*] C. Integrated Marketing. The Advertiser Icon will be incorporated into a rotation that provides placement on a variety of other screens throughout the Digital City service in each participating city for the duration of this contract. This will include exposure in the different sections of Digital City, headline slots, and mentions on the Digital City welcome screens. 2. The Advertiser site on AOL. When clicked, the Advertiser Icon will link to an Advertiser page developed for the America Online environment. The design of this page will be determined and mutually agreed upon by the Advertiser creative staff and Digital City. This page will be produced by Digital City and will be integrated with the Advertiser web-site on the Internet. Additional pages must be approved by DCI. Upon mutual agreement and under a separate contract Advertiser will also be able to incorporate third party automotive information into the Advertising Site subject to Advertiser paying the DCI negotiated rates for production. DCI retains all rights to review and approve of the third party material and to distribute it's own third party automotive content in the DCI automotive areas; provided that any material appearing on the Advertising Site on the execution date of this Agreement shall be deemed to be approved by DCI. [*] Confidential Treatment Requested EXHIBIT B COST BREAKDOWN -------------- [*] [*] Confidential Treatment Requested EXHIBIT C ROLL-OUT AND PRICING SCHEDULE ----------------------------- [*] [*] Confidential Treatment Requested EXHIBIT D CONTRACT TOTALS --------------- [*] [*] Confidential Treatment Requested EX-10.11 16 MARKETING AGMT. BET. REG. AND EDM. PUB. 2/8/96 EXHIBIT 10.11 MARKETING AGREEMENT This Agreement is made as of February 8, 1996, by and between Auto-By-Tel, LLC, a California limited liability company with its principal place of business at 2711 E. Coast Highway, Suite 203, Corona Del Mar, California 92625 (hereafter "ABT") and Edmund Publications Corp., a New York Corporation with its principal place of business at 300 N. Sepulveda Blvd., Suite 2050, El Segundo, California 90245 (hereafter "Edmund's"). RECITALS WHEREAS, ABT is in the business of providing new vehicle purchase and lease requests and other information to dealers of new automobiles and trucks; WHEREAS, ABT obtains information for use by dealers of new automobiles and trucks through Consumer inquiries on the Internet, Online services and other sources; WHEREAS, Edmund's is in the business of providing Consumers information to aid them in their purchase or lease of new automobiles and trucks; WHEREAS, Edmund's provides such information in print publications, on the Internet and through other sources; WHEREAS, ABT and Edmund's desire to enter into an agreement whereby Edmund's will provide marketing information to ABT. NOW THEREFORE, in consideration of the promises and covenants contained herein, the parties agree as follows: A. Definitions ----------- 1. "Edmund's Site" shall mean that information and text reflected on the Internet, and other online sources established by Edmund's for the purpose of providing information to aid Consumers in their purchase or lease of new cars and trucks. Despite the use of the singular "Site", "Edmund's Site" shall refer to all Internet and online services used by Edmund's as of the date of this Agreement and thereafter. However, "Edmund's Site" shall not include any Internet or other online source established by a third party under license from Edmund's. 2. "Consumer" shall mean those persons who use or otherwise obtain information from "Edmund's Site." 3. "ABT Purchase Request" shall mean a request by a Consumer for assistance with the purchase or lease of a new automobile or truck from whatever source. [*] Confidential Treatment has been requested for certain portions of this exhibit B. Consumer Request for the Purchase or Lease of Automobiles and Trucks -------------------------------------------------------------------- 1. Term of Agreement ----------------- This agreement shall be deemed to have commenced on January 1, 1996 and shall expire on [*] provided, however, that if Edmund's does ----------------- not receive from ABT in calendar year 1997 aggregate fees (including the amounts referred to in Section C hereof and any additional amounts voluntarily paid by ABT) of at least [*] Edmund's may terminate this Agreement on not less than [*] given to ABT on or before [*]. This Agreement may be terminated prior to such dates only (i) by Edmund's in the event that ABT does not pay the fees due Edmund's for ABT Purchase Requests originated by Edmund's within 30 days of the date billed for such ABT Purchase Requests, in the event that ABT does not pay the amounts required by Section C hereof within [*]of ABT's receipt of such origination fees, or in the event ABT breaches any of the other terms of this Agreement, and (ii) by ABT in the event that Edmund's breaches any of the terms of this Agreement, or if Edmund's terminates the "Edmund's Site." Nothing herein shall preclude Edmund's from discontinuing the "Edmund's Site," any of its publications, or its entire business, or shall give ABT any rights against Edmund's hereunder as a result of any such discontinuation. 2. Pricing Information ------------------- The "Edmund's Site" shall, so long as it is maintained by Edmund's, reflect pricing information in the United States for the sale of automobiles and trucks which is current and accurate. 3. ABT Information --------------- Edmund's shall recommend ABT on the "Edmund's Site" as a dealer-based purchasing/leasing program for new automobiles and trucks. This recommendation shall be approved as to form and content by ABT, such approval not to be unreasonably withheld. This recommendation shall be exclusive and Edmund's shall not recommend any dealers (sellers/lessors) of automobiles and trucks or other marketing programs for automobiles and trucks of like nature to ABT, except with the written consent of ABT. (By way of example, Edmund's may recommend or refer Consumers directly to automobile and truck manufacturers, since manufacturers do not offer a marketing program which is "of like nature" to ABT's marketing program. Edmund's shall mirror ABT's Internet Form on Edmund's Internet Site (or other like text and graphics approved by ABT). Edmund's and ABT shall work together to develop and maintain a file transfer process where both parties can determine whether the ABT Purchase Requests have been originated by Edmund's. 4. Fees to be Paid to Edmund's --------------------------- a. ABT shall pay Edmund's [*] which is received directly from Edmund's either from the "Edmund's Site" [*] [*] in any calendar year, ABT shall pay Edmund's [*]. However, for purposes of [*] Confidential Treatment Requested -2- calculating the amount of fees to be paid to Edmund's, [*] b. ABT shall pay Edmund's any fees due it pursuant to this paragraph within 30 days of receipt of billing. c. All ABT Purchase Requests and information contained therein received from Edmund's Site shall be the sole property of ABT. 5. Additional Advertisements ------------------------- In its print publications and CD ROM products, Edmund's shall advertise ABT's services in a form and content approved by ABT. In these advertisements, Edmund's shall be permitted to place Edmund's' address for the "Edmund's Site." C. Financing of Automobiles ------------------------ 1. Edmund's shall recommend an entity later identified by ABT for automobile and truck financing as ABT's source of automobile and truck financing in a form and content approved by ABT, provided that this financing program is in full operation within [*] of the signing of this Agreement. 2. ABT shall pay Edmund's [*] which it received as a result of [*] D. Non-competition and Confidentiality ----------------------------------- 1. Confidentiality --------------- Edmund's agrees to keep confidential and not disclose to any third party, without ABT's prior written consent, any confidential or proprietary information in its possession with respect to ABT's services. Edmund's will give notice of such covenant to its employees and require its employees to comply with such covenant. Such covenant shall not apply to any such information that is or becomes generally available to third parties other than as a result of its disclosure by Edmund's or its employees, which was available to Edmund's prior to its disclosure to Edmund's by ABT, or which is made available to Edmund's by a source other than ABT and its representatives. If Edmund's is requested to produce any of such confidential or proprietary information by order of any governmental agency, court or civil process, Edmund's may, upon less than five days' written notice to ABT, release such information. [*] Confidential Treatment Requested -3- 2. Non-Competition --------------- For the term of this Agreement and for [*] following the termination of this Agreement pursuant to paragraph A.1., neither Edmund's nor its subsidiaries or affiliates or their respective directors, officers, employees or agents shall directly engage in the business of providing new vehicle purchase and lease requests to dealers of new automobiles and trucks. However, following such termination of this Agreement Edmund's shall be entitled to refer Consumers to other third parties who, like ABT, are engaged in such business, and following such termination Edmund's shall be entitled to advertise other automotive broker services. 3. Indemnification --------------- Edmund's agrees to indemnify and hold harmless ABT and its subsidiaries and affiliates and their respective directors, members, managers, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements and costs, (including attorneys' fees and expenses) arising out of or relating to any third party claim arising from the negligent or wrongful acts or omissions of Edmund's, its subsidiaries and affiliates, and their respective directors, officers, employees and agents. ABT agrees to indemnify and hold harmless Edmund's and its subsidiaries and affiliates and their respective directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements and costs, (including attorneys' fees and expenses) arising out of or relating to any third party claim arising from the negligent or wrongful acts or omissions of ABT, its subsidiaries and affiliates, and their respective directors, members, managers, officers, employees and agents. In addition, ABT hereby assigns to Edmund's any benefits of any indemnification or similar agreement or arrangement that ABT has received, or hereafter receives, from third parties with whom ABT does business (such as dealers), to the extent that such indemnification does not compromise ABT's rights of indemnification from such third parties. 4. Trade Marks and Service Marks ----------------------------- Any and all trade marks and service marks associated with ABT are and shall remain the exclusive property of ABT. If during the term of this Agreement a trade mark registration is filed by ABT, all rights belong to ABT who shall bear the cost of such registration. Edmund's is permitted to use the trade mark and service mark of ABT only as set forth herein or only as authorized in writing by ABT. E. Miscellaneous ------------- 1. Independent Parties ------------------- The relationship between ABT and Edmund's is, and at all times shall remain, solely that of independent parties, and shall not be, or construed to be a joint venture, partnership, fiduciary, or other relationship of any nature. [*] Confidential Treatment Requested -4- 2. Notices ------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing, and shall be deemed as given of the day it is deposited in the U.S. Mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement, or such address as the party to receive the notice or request so designates by written notice to the other. 3. Headings -------- The titles and captions of the various paragraphs and sub paragraphs of this Agreement are inserted for convenience only, and are not a part of this Agreement, nor shall they be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. 4. Severability ------------ The invalidity of any of the provisions or clauses in this Agreement shall not affect any remaining provisions, clauses, or applications which can be given effect without the invalid provision or clause. To this end, the provisions, of this Agreement are declared to be severable. 5. Waivers ------- A waiver of either party to exercise in any respect any right provided for herein, including the termination of this Agreement, shall not be deemed a waiver of any right hereunder. 6. Governing Law and Jurisdiction ------------------------------ This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of California. Any dispute or claim arising between the parties hereto, shall be brought in a court of competent jurisdiction located in the State of California and the parties hereto agree to jurisdiction in California. 7. Attorney's Fees --------------- In the event any litigation is initiated by any of the parties to enforce any of the provisions of this Agreement, the prevailing party shall be entitled to receive from the other party its reasonable attorney's fees incurred in such litigation. 8. Entire Agreement ---------------- This Agreement may be modified, amended or waived in any respect only by a written instrument signed by all the parties hereof. This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties hereto. Each party to this Agreement acknowledges that no representations, -5- inducements, promises or agreements, orally or otherwise have been made by any party, or anyone acting on behalf of any party which are not contained in this Agreement and that neither party enters this Agreement in reliance upon a later agreement regarding an ABT Associated Financing Program. 9. Authority --------- The parties hereto have authorized the signatories identified below to enter this Agreement on behalf of Edmund's and ABT, respectively. EDMUND PUBLICATIONS CORP. AUTO-BY-TEL, LLC a New York Corporation a California limited liability company By:__________________________________ By:___________________________________ Title:_______________________________ Title:________________________________ -6- EX-10.12 17 REFERRAL AGMT. BET. REG & AUTO INFO. CEN., 9/6/96 EXHIBIT 10.12 AUTOMOTIVE INFORMATION CENTER REFERRAL AGREEMENT THIS REFERRAL AGREEMENT ("Agreement") is entered into as of the 6 day of - Sept 1996, ("Effective Date") by and between Automotive Information Center - ---- -- ("AIC"), a New York General Partnership whose address is 360 Massachusetts Avenue, Acton, MA 01720, and Auto-By-Tel Corporation ("ABT"),whose address is 2711 East Coast Highway, Suite 203, Corona Del Mar, CA, 92625. W I T N E S S E T H: WHEREAS AIC has developed a site on the World Wide Web portion of the Internet ("AutoSite"), a service on CompuServe ("AutoSite on CIS"), and a service on CompuServe's WOW! ("AutoSite on WOW!") (collectively, the "Sites"), and wishes to provide to ABT a referral service whereby users of the Sites may submit Purchase Request Forms to ABT, in consideration of the payments described herein. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, AIC and ABT (collectively, the "Parties") hereby agree as follows: I. DEFINITIONS. As used in this Agreement, these terms, whether in singular or plural, have the following meanings: (a) "AutoSite" - AIC's World Wide Web site having the URL www.autosite.com. (b) "AutoSite on CIS" - AIC's vehicle information service hosted on CompuServe Information Service. (c) "AutoSite on WOW!" - AIC's vehicle information hosted on CompuServe's WOW! service. (d) "Completed Form" - An ABT Purchase Request Form available online at the Sites which has been filled out by a user of one of the Sites and which may contain, at ABT's option, include an application for financing. In order for the form to be a Completed Form, all fields designated in advance by ABT as mandatory fields must be completed by the a user. (e) "Buy It Here!" page - a promotional page, hosted at AutoSite and on AutoSite on WOW! (but not at AutoSite on CIS) and maintained and controlled by AIC, which will contain promotional information about ABT and links to the ABT Purchase Request Forms and ABT Promotional Page. (f) "ABT promotional page" - a page hosted at AutoSite and on AutoSite on WOW! (but not at AutoSite on CIS) which contains promotional information and/or images about ABT, supplied to AIC by ABT. This page will have a link to the ABT Purchase Request Form. II. SERVICES. (a) Services provided at AutoSite and at AutoSite on WOW!. (i) AIC agrees to list ABT on its "Buy It Here!" page at AutoSite and at AutoSite on WOW!, and to incorporate links to the ABT Purchase Request Form, to be hosted at AutoSite and at AutoSite on [*] Confidential Treatment has been requested for portions of this exhibit. WOW!, on its "Buy It Here!" page. The "Buy It Here!" page will be linked to from pages in the New Car Showroom area on AutoSite and on AutoSite on WOW!, which may include the following:
PAGE TYPE DESCRIPTION APPROXIMATE # OF PAGES [*]
AIC reserves the right to change the structure and functionality of AutoSite and of AutoSite on WOW! and the pages contained within AutoSite and within AutoSite on WOW! at any time and at its sole discretion, but will use best efforts to link to the "Buy It Here!" page from prominent pages on AutoSite and on AutoSite on WOW!. AIC shall notify ABT promptly of changes to AutoSite or to AutoSite on WOW! on pages which promote ABT services. (ii) AIC agrees to incorporate an ABT promotional page at AutoSite and on AutoSite on WOW!, with links from the "Buy It Here!" page and to/from each ABT Purchase Request Form. (iii) AIC agrees to process the input from the ABT Purchase Request Forms on AutoSite and on AutoSite on WOW! and to write such processed input to an ASCII-format file, which shall be placed at 15-minute intervals on an FTP site where ABT may retrieve it at its convenience. (b) Services provided at AutoSite on CIS. (i) AIC agrees to incorporate a button in its AutoSite on CIS menu which will lead to an ABT Purchase Request Form. (ii) AIC agrees to include a limited amount of text, as determined by AIC, promoting ABT in the "Buying Your Car" section in each report on AutoSite on CIS. (iii) AIC agrees to exercise its best efforts to process the input from the Purchase Request Forms on AutoSite on CIS programmatically into an ASCII text file once each business day, and to make that file electronically available to ABT for retrieval at its convenience. However, AIC shall not be responsible for lack of access to said input due to circumstances beyond its control. [*] Confidential Treatment Requested -2- (iv) All efforts described in this Section II.(b) are subject to approval by CompuServe. III. LIMITED EXCLUSIVITY. AIC and ABT agree that for the term of this agreement, AIC will not offer services described in [*] to other buying services, provided however that if AIC determines [*] AIC may terminate this agreement, in which case AIC agrees that it will not offer a similar referral service to other buying services before the balance of the term. IV. NO FULFILLMENT OBLIGATIONS. AIC shall have no responsibility or obligations with respect to the fulfillment of goods or services ordered via the Sites from or through ABT, and all fulfillment-related tasks shall be performed by or cause to be performed by ABT. V. ABT PROMOTIONAL PAGE AND PURCHASE REQUEST FORM DESIGN. Within [*] of the execution of this Agreement, ABT shall deliver to AIC any text and images it may wish to incorporate into its Promotional Page and Purchase Request Form, including specifications detailing which fields on the Purchase Request Form are mandatory. Within [*] of receiving these components, AIC will deliver to ABT for ABT's approval a sample Promotional Page and a sample Purchase Request Form. Upon such written approval, AIC will complete and install these pages on AutoSite. In addition, AIC shall exercise its best efforts to install the Purchase Request Form on AutoSite on CIS and on AutoSite on WOW! as quickly as is reasonably possible, but shall not be responsible for delays beyond its control. ABT recognizes that AIC has no control over timing of installation of pages on AutoSite on CIS or AutoSite on WOW!. VI. TERM. The term of this Agreement ("Initial Term") shall be [*] from the date on which the ABT Promotional Page and the ABT Purchase Request Form have first been installed on AutoSite (the "Commencement Date"), which shall be not later than [*]. This Agreement shall be automatically renewed for up to [*] ("Renewal Periods") without further notice unless the Agreement is terminated by written notice from either party to the other at [*] prior to the end of the then- current Initial Term or Renewal Period. VII. FEES. In consideration of the above, ABT agrees to pay AIC its stated Marketing Fee and a Purchase Referral Fee as defined in the attached and hereby incorporated Automotive Information Center Referral Rate Card. (a) The Marketing Fee will be due on the first of each month, in advance, for the month to come. (b) The Purchase Referral Fee for Completed Forms will be due on the [*] for referrals from [*] AIC will send ABT a statement in the [*] detailing the number of Completed Forms processed by AIC on behalf of ABT during [*] and the amount owed for such Completed Forms. AIC shall maintain adequate records of Completed Forms to verify billings for a period of not less than one year after the term of this Agreement. Any failure by AIC to submit statements to [*] Confidential Treatment Requested -3- ABT, or the late submittal of such statements, shall not be construed as a waiver of any obligation of ABT to pay Purchase Referral Fees to AIC. VIII. LIMITED WARRANTY. AIC does not warrant and specifically disclaims any representations that [*] If AIC has prior knowledge of planned interruptions of service on any of the Sites it will use reasonable best efforts to notify ABT of such interruptions. AIC represents and warrants, subject to II.b.4., that (i) it has power, authority and authorization to enter into this agreement and perform its obligations hereunder and that the person executing this Agreement on behalf of AIC is empowered to do so, (ii) neither the execution of this Agreement nor the performance of AIC's obligations hereunder conflict with any other agreement to which AIC is a party, including any agreements pertaining or related to the Sites. ABT represents and warrants that (i) it has power, authority and authorization to enter into this agreement and perform its obligations hereunder and that the person executing this Agreement on behalf of ABT is empowered to do so, (ii) neither the execution of this Agreement nor the performance of ABT's obligations hereunder conflict with any other agreement to which ABT is a party. Nothing contained herein shall be construed to mean that AIC is responsible in any way for the contents of ABT's Purchase Request Form or any promotional text concerning ABT. ABT is entirely responsible for such contents and all obligations with respect to ABT's customers or potential customers. ABT agrees that it shall include any and all proprietary notices of third parties in materials supplied to AIC. EXCEPT AS EXPRESSLY SET FORTH IN THIS PARAGRAPH, AIC DISCLAIMS ALL OTHER EXPRESS WARRANTIES AND ALL WARRANTIES, DUTIES AND OBLIGATIONS IMPLIED IN LAW, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. AIC'S LIMITED WARRANTY SET FORTH HEREIN IS IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF AIC FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE SITES OR THE SERVICES. IX. LIMITATION OF LIABILITY. AIC WILL NOT BE RESPONSIBLE TO ABT OR ANY THIRD PARTIES UNDER ANY CIRCUMSTANCES FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL PUNITIVE, OR EXEMPLARY DAMAGES OR LOSSES WHICH ABT MAY INCUR IN CONNECTION WITH THE SERVICES OR OTHERWISE REGARDLESS OF THE TYPE OF CLAIM OR THE NATURE OF THE CAUSE OF ACTION, EVEN IF AIC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR LOSS. IN NO EVENT SHALL AIC'S LIABILITY FOR DIRECT DAMAGES INCURRED IN ANY TERM FOR ANY REASON AND UPON ANY CAUSE OF ACTION ARISING FROM OR RELATING TO THE AGREEMENT OR THE SUBJECT MATTER HEREOF EXCEED THE FEES PAID TO AIC BY ABT HEREUNDER IN SAID TERM IN WHICH THE DAMAGES ARE INCURRED. X. CONFIDENTIALITY. AIC covenants and agrees that it will not disclose the identities or addresses of persons who complete ABT's Purchase Request Form with the Sites to any third party, or use such information for AIC's own purposes, provided, however, that AIC reserves the right to disclose general information regarding numbers of hits and demographics of persons accessing the Sites or any portion thereof. [*] Confidential Treatment Requested -4- XI. PROPRIETARY RIGHTS: INDEMNIFICATION ABT agrees and acknowledges that AIC and its suppliers own all rights, title and interest in and to the Sites, subject solely to ABT's rights in and to the information and content supplied to AIC by ABT hereunder. Nothing in this Agreement or otherwise shall be construed to convey to ABT any interest whatsoever in the Sites, including, without limitation, any HTML, JAVA, CGI programs, or any other custom programs or scripts developed hereunder. ABT represents and warrants to AIC that ABT owns or otherwise has the right to convey to AIC the information and content provided to AIC and that such information and content does not infringe intellectual property rights of any third party. ABT represents and warrants that it has obtained, and currently has, any and all grants of rights from third parties which may be required to display text, graphics or other materials in its Promotional Page and its Purchase Request Form as specified by ABT. ABT represents and warrants that it has set forth or described in the Agreement any and all requirements of ABT's suppliers, if any, including, without limitation, ABT's obligations set forth in Section IV, with respect to content and form of materials to be used in any ABT Promotional Page and ABT Purchase Request Form, including, without limitation, any requirements with respect to intellectual property rights and/or notices. AIC reserves the right not to exhibit on the Sites any image or text for which AIC determines inadequate information has been provided. ABT agrees to defend and indemnify and hold harmless AIC and its owners, proprietors, officers, shareholders, directors, employees, affiliates and subsidiaries from and against any and all claims, proceedings, damages, injuries, liability, losses, costs and expenses (including, without limitation, reasonable attorneys' fees) arising out of or relating to any acts by ABT undertaken in connection with the Sites, including, without limitation, those arising out of or related to any breach of any ABT warranty, or any ABT Promotional Page or ABT Purchase Request Form, or information or content which ABT supplies to AIC hereunder. [*] XII. OPERATION OF THE SITES. AIC shall have sole discretion to determine all aspects of the operation of the Sites, and, except where otherwise expressly provided in this Agreement in Section V, all matters relating to the content, structure, and sequence of material appearing in the Sites, including, but not limited to, the navigational and functional standards for the Sites. AIC shall have the right, at its discretion at any time, to reject, exclude, or remove from the Sites any material which in its reasonable judgement is objectionable, obscene, or defamatory. XIII. SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, then this Agreement shall continue in full force and effect without said provision; provided, however, that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. XIV. GENERAL. (a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, and ABT hereby agrees to the jurisdiction of its courts. (b) The section headings contained herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. [*] Confidential Treatment Requested -5- (c) This Agreement sets forth the entire agreement and understanding of the parties hereto concerning the subject matter hereof, and supersedes all prior agreements, arrangements, and understandings between the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Automotive Information Center Auto-By-Tel By: /s/ WAYNE R. LILLEY By: /s/ PETE ELLIS -------------------------- --------------------------- Name: Wayne R. Lilley Name: Pete Ellis Title: Chief Executive Officer Title: ------------------------ Federal Tax ID: --------------- -6- Automotive Information Center Referral Rates I. PURCHASE REFERRAL FEE. The rate stated below (the "Purchase Referral Fee") applies to each Completed Form (including, at ABT's option, application for financing), as defined in the Automotive Information Center Referral Agreement submitted by any user [*] [*] II. MARKETING FEE. [*] [*] Confidential Treatment Requested -7- EX-10.13 18 FORMS OF DEALERSHIP SUBSCRIPTION AGREEMENTS EXHIBIT 10.13(a) ABT SUBSCRIPTION AGREEMENT -------------------------- THIS AGREEMENT made this ((Ck_RcvdTxt)) by and between Auto-By-Tel Marketing Corporation, a Delaware Corporation, with its principal place of business at 18872 MacArthur Boulevard, Second Floor, Irvine CA 92612-1400 ("ABT"), and ((Dealer_Corp)), a(n) ((STTxt)) ((Entity)), d.b.a. ((Dealer_DBA)), with its principal place of business at ((Bill_Addr)), ((City)) ((ST)) ((Dlr_Zip)). RECITALS -------- WHEREAS, ABT is in the business of locating persons interested in purchasing and/or leasing automobiles and/or trucks primarily through electronic media ("Potential Purchasers"): WHEREAS, Dealer is a dealer of automobiles and/or trucks who wishes to participate in a program where ABT provides certain information about Potential Purchasers to Dealer which will facilitate Dealer's sales of automobiles to Potential Purchasers and thereby decrease marketing costs which, in turn, will allow Dealer to offer automobiles and trucks at a competitive price; WHEREAS, ABT has invested considerable amounts of money in order to acquire relevant information about Potential Purchasers from the Internet and on-line computer services; and WHEREAS, ABT wishes to ensure that Dealer will provide a high level of service to Potential Purchasers provided to the Dealer through their participation in this program. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, ABT AND DEALER AGREE AS FOLLOWS: 1. SERVICES TO BE PERFORMED. ------------------------ ABT shall provide a marketing program on the Internet and Online Services to attract Potential Purchasers and shall forward information regarding the Potential Purchasers identified for the make subscribed and in the zip code area subscribed to the Dealer. 2. USE OF SERVICES. --------------- (a) Dealer Participation. Dealer agrees to abide by ABT's Customer -------------------- Service Standards as more fully described in Paragraph 10 below, which may be revised from time to time by ABT. Dealer shall designate one key employee to be provided instructions by ABT or its authorized agent. Dealer shall notify ABT within ten (10) days of any change in the assignment of any designated key employee. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall promptly sign any confidentiality agreements submitted by ABT to protect ABT's proprietary rights. ABT shall notify Dealer in writing of any revisions or additions to the Customer Service Standards, and such revisions shall take effect immediately upon Dealer's receipt thereof. Without limiting the generality of the foregoing, Dealer acknowledges that Auto-By-Tel will institute a financing program whereby customers may receive low-cost financing from sources provided by Auto-By-Tel through its web site (the "Financing Arrangements"). Dealer agrees with ABT that low-cost Financing Arrangements pursuant to which customers would (i) receive a financing proposal in conjunction with their receipt of a vehicle price quote, and (ii) close both the vehicle acquisition and financing quickly through Dealer, would be viewed by customers as an improvement in the Auto-By-Tel program, consequently increasing the attractiveness of the ABT program and its value to Dealer. Dealer agrees to cooperate fully with the Financing Arrangements instituted by ABT through its web site, including without limitation entering into customary closing administration arrangements with finance companies as requested by ABT, and to take such actions as reasonably requested by such finance companies or ABT to ensure that customers receive a high level of service and satisfaction in connection with the Financing Arrangements. After ABT commences the Financing Arrangements, Dealer acknowledges that changes in the Customer Services Guidelines may from time to time pertain to such Financing Arrangements. (b) Use of System and Modifications. It is agreed to by the parties that ------------------------------- the use of ABT's services is restricted solely to Dealer and its designated employees and other duly authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. 3. EQUIPMENT. --------- (a) ABT Equipment. ABT warrants that it possesses or has access to and ------------- the right to use computer equipment and other office equipment necessary for ABT to perform its services contemplated by this Agreement. (b) Dealer Equipment. Dealer, at its sole cost and expense, shall provide ---------------- the computer and other office equipment specified from time to time by ABT to use and receive the services to be provided hereunder by ABT. (c) Equipment Maintenance, Risk of Loss. Dealer shall maintain all of ----------------------------------- their computer and office equipment in good and proper working order and repair. Dealer shall assume all responsibility for loss or damage to Dealer's equipment in the utilization of the services to be provided hereunder by ABT. 4. TITLE TO SYSTEM, TRADEMARKS. --------------------------- The services to be provided hereunder by ABT, together with any modifications and/or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. Any and all trademarks and service marks associated with ABT are and shall remain the exclusive property of ABT. If, during the term of this Agreement, a trademark registration is filed by ABT, all rights belong to ABT who shall also bear the costs for such registration. Dealer is permitted to use the trademark and service mark only as set forth herein or only as authorized in writing by ABT. 5. ASSIGNMENT OF TERRITORY. ----------------------- Subject to the terms and conditions set forth in this Agreement, ABT hereby grants to Dealer the non-transferable right to use the services to be performed by ABT, as contemplated by this Agreement, within the geographic area designated by the following zip codes: ((Territory)) and for the following make of motor vehicles: ((Franchise)) (the "Territory"). ABT may change the Dealer's Territory upon thirty (30) days written notice. Notwithstanding the foregoing, ABT retains the right, directly or through other dealerships, to market and use its System and services in all areas other than Dealer's Territory, and within Dealer's Territory for all makes of motor vehicles not listed above. 6. SUBSCRIPTION FEES. ----------------- (a) Dealer shall pay ABT ((Amt_Text)) dollar(s) (((Amount))) as an initial start-up fee concurrently with Dealer's execution of this Agreement. (b) Dealer shall pay ABT the amount of ((Monthly)) as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the dealer. (c) Dealer shall pay ABT an annual fee on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer prior to the anniversary date of this Agreement. (d) If ABT terminates this Agreement pursuant to Section 8(b)(ii) for no reason or Dealer terminates this Agreement pursuant to Section 8(c)(iii), ABT shall refund a prorated amount of fees paid under this Agreement for the remaining portion of the period with respect to which such fees had been paid, except that the monthly fees due for the month in which the Agreement is terminated shall not be refunded or prorated. (The startup fee shall be deemed to have been paid for the first year this Agreement is in effect.) In no other circumstances shall any amounts paid under this Agreement be refundable. 7. TAXES. ----- Dealer shall, in addition to any other amounts payable under this Agreement, pay all taxes - federal, state, local or otherwise, excluding income taxes attributable to the income of ABT however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 8. TERM AND TERMINATION. -------------------- (a) This Agreement shall be for a term of three (3) years, provided that ABT, in its sole discretion, may extend the term of this Agreement for an additional two (2) years. (b) ABT may terminate this Agreement: (i) immediately if Dealer does not adhere to the Customer Service Standards in effect, or any fees due ABT pursuant to Section 6 are outstanding more than thirty (30) days, or if any amount payable to ABT under Sections 7 or 13 are outstanding more than thirty (30) days after ABT makes a written request therefor, or any other breach by Dealer of this Agreement is not cured within ten (10) days after written notification by ABT of such breach; or (ii) at any other time, for any reason or for no reason, upon thirty (30) days written notice to the Dealer. (c) Dealer may terminate this Agreement: (i) immediately, if an order for liquidation against ABT is entered and not stayed in a bankruptcy proceeding; (ii) immediately, if ABT is guilty of willful misconduct in the performance of its duties under this Agreement; (iii) upon thirty (30) days written notice delivered within ten (10) days of the effective date of any shrinkage of Dealer's Territory pursuant to Section 5; or (iv) at any other time, in its sole discretion, upon thirty (30) days written notice to ABT. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in paragraphs 2b, 4, 12, 13, 14, 15, & 21. 9. PERIODIC OPERATIONS REPORTS. --------------------------- (a) Reports. ABT shall furnish to Dealer, on a quarterly basis, an ------- operations report which shall include the number of inquiries received by ABT from Potential Purchasers in Dealer's Territory. Dealer shall report to ABT on a monthly basis the number and names of Potential Purchasers who purchased motor vehicles from Dealer, the number of vehicles financed and the amounts financed and such other information as ABT may from time to time request. (b) Duty of Care. ABT shall not be liable for any loss of data, delays ------------ and/or errors in transmitting data occurring for any reason or for any damages arising as a consequence thereof. Page 1 ((ABT_DLRN)) ((Dealer_ID)) Parent ID ((Parent_ID)) ((Franchise)) 10. CUSTOMER SERVICE STANDARDS. -------------------------- Dealer shall relay to Potential Purchasers a full and complete response to the Potential Purchasers' inquiries transmitted by ABT to Dealer within 24 hours of receipt of the inquiry from ABT. Dealer's initial response shall be by telephone and shall disclose (i) the availability of the vehicle inquired about, (ii) the manufacturer's suggested retail price of the vehicle, (iii) all requested options, (iv) the price at which the Dealer will sell/lease the vehicle with all requested options to the Potential Purchaser, and (v) all other terms and costs required by law to be disclosed to prospective purchasers (all such information, the "Dealer Information"). In order to improve the services offered by ABT while maintaining uniform delivery of such services, ABT may, from time to time, amend the Customer Service Standards, or impose additional Customer Service Standards upon thirty (30) days notice to Dealer. Dealer acknowledges that maintenance of the ABT Customer Service Standards is crucial to the value of ABT's services and agrees to adopt such amendments or additions, even though they may require more work or expense to implement. ABT agrees that it will not impose amendments or additions unless they are applied to all Dealers. 11. DEALER'S COVENANTS. ------------------ Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer Information transmitted to a Potential Purchaser shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle still remains available for sale, and Dealer agrees to include a statement to such effect in the Dealer Information. 12. CONFIDENTIALITY. --------------- ABT agrees to treat all records and other information provided by Dealer, with respect to terms of sale, financing or leasing of motor vehicles, confidential, except that this information may be transmitted to consumers making inquiries concerning the terms of purchase, financing or leasing of motor vehicle(s). Dealer, on behalf of itself and its employees, agrees to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart ABT's services, or the concept thereof, to any person or entity whatsoever other than employees of Dealer. Notwithstanding the foregoing, if either party is required to produce any such information by order of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five days written notice to the other party, release required information. During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. Dealer acknowledges and agrees that it will keep such trade secrets confidential, and the sale or unauthorized use or disclosure of any of ABT's trade secrets constitutes theft and will greatly damage ABT. 13. INDEMNIFICATION. --------------- Dealer agrees to indemnify and hold harmless ABT and its subsidiaries and/or affiliates and their respective members, managers, directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases and/or finances a motor vehicle(s) from Dealer through the utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. In all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or ordered to be done, in accordance with the terms of this Agreement or instructions properly received pursuant hereto, if done in good faith and without gross negligence or willful or wanton misconduct. 14. EXCLUSIVITY. ----------- Dealer acknowledges that the value to Dealer of this agreement is based on the unique package of services marketed to automobile customers by ABT and ABT's reputation for delivering such services on a consistent basis. Dealer agrees that certain key elements of the ABT package of services are: (i) electronic transmission of customer purchase or lease requests; (ii) rapid response by dealers to consumer pricing or lease pricing requests, including immediate telephone contact with upfront, firm pricing provided over the phone on such call; (iii) customer paperwork completed or nearly completed prior to customer arrival at the dealership for pickup so as to ensure the customer spends as little time as possible at the dealership for pickup; and (iv) Dealer training and support to implement the ABT package of services and to maintain the style and reputation of the ABT package of services (collectively the "Key Elements'). Dealer acknowledges that ABT has spent, and will spend, considerable time and money developing its package of services and training Dealer to deliver such services in a consistent way which maintains ABT's distinctive market presence and reputation. Accordingly, Dealer agrees that during the Term of this Agreement (and for one (1) year thereafter if this Agreement is terminated unless it is terminated by the Dealer pursuant to section 8(c)(iii)), Dealer and its affiliates will not, directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not, directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not participate in any pricing, credit or financing, insurance or information service involving or made available on the Internet, online or by other electronic means. Without contradicting the foregoing, Dealer may establish and maintain its own web site and/or participate in any factory direct program. Notwithstanding any other provisions of this Agreement, in the event Dealer breaches this Section 14, the provisions of this Section shall remain in full force and effect for one (1) year after such breach is cured. Dealer acknowledges that the provisions of this Section 14 were a material inducement to ABT in entering into this Agreement, and that ABT would not have entered into this Agreement with Dealer in the absence of such provisions. Dealer acknowledges and agrees that compliance with the provisions of Sections 12 and 14 is necessary to protect the business and good will of ABT, and that any breach of Sections 12 or 14 will result in irreparable and continuing damage to ABT, for which money damages may not provide adequate relief. Accordingly, Dealer agrees that during the "Exclusivity Period" (as defined below), Dealer and its affiliates will not directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not participate in any pricing, credit or financing, insurance or information service involving or made available on the Internet, online or by other electronic means. For purposes of this Section 14, the "Exclusivity Period" commences on the date of this Agreement, and terminates one year after the date of termination; provided, however, that if ----------------- this Agreement is terminated any time after the first anniversary of the date hereof, then the Exclusivity Period terminates six months after the date of termination; provided, further, however, that if this Agreement is terminated by -------------------------- Dealer pursuant to Section 8(c)(iii) hereof, then the Exclusivity Period terminates on the date of termination of the Agreement. 15. WARRANTY LIMITATION. ------------------- ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTIES, EXPRESSED OR IMPLIED ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES, OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 16. ADVERTISEMENTS. -------------- From time to time, ABT may provide Dealer with camera-ready and other logos, trademarks, artwork and materials for the limited purpose of inclusion, at Dealer's option, within Dealer print and television advertisements to promote the association of Dealer with the ABT program. ABT shall grant Dealer a revocable, limited license to use such materials for such limited purposes, and Dealer shall use such materials in no other manner. Any such materials shall remain at all times the property of ABT, they shall be returned upon request, and the limited license herein granted may be revoked at any time by written notice to Dealer. 17. NOTICES. ------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 18. ASSIGNMENT. ---------- This Agreement and the rights and duties hereunder shall not be assignable by the Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder shall be assignable by ABT. 19. INDEPENDENT CONTRACTORS. ----------------------- The relationship between ABT and Dealer created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. 20. NO WAIVER. --------- The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any right hereunder. 21. SEVERABILITY, GOVERNING LAW AND JURISDICTION. -------------------------------------------- If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, such determination shall in no way alter or impair the validly, legality and enforceability of the remaining provisions of this Agreement. This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of California. Any dispute or claim arising between the parties hereto shall be brought in a court of competent jurisdiction located in the County of Orange in the State of California and the parties hereto agree to jurisdiction in California. 22. COOPERATION. ----------- Upon the request of ABT, Dealer agrees to confirm in writing, in form satisfactory to ABT and provided by ABT at its own expense, any amendment, modification, change in original terms or other action which alters the terms of this Agreement and which was taken or initiated by ABT pursuant to rights granted to, or reserved by, ABT hereunder. 23. OTHER AGREEMENTS. ---------------- This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in a writing signed by the party to be charged. Auto-By-Tel Corporation, a Delaware Corporation Dealer: ((Dealer_Corp)) By: By: -------------------------- -------------------------- Name: Peter Ellis Name: ((Sirname)) ((Dlr_First)) ((Dlr_Last)) Title: President Title: ((Dlr_Title)) Page ((ABT_DlrN)) ((Dealer_ID)) Parent ID ((Parent_ID)) ((Franchise)) EXHIBIT 10.13(b) ABT SUBSCRIPTION AGREEMENT -------------------------- THIS AGREEMENT made this ((Ck_RcvdTxt)) by and between Auto-By-Tel Marketing Corporation, a Delaware Corporation, with its principal place of business at 2711 E. Coast Highway, Corona Del Mar, California 92625 ("ABT"), and ((Dealer_Corp)), a(n) ((STTxt)) ((Entity)), d.b.a. ((Dealer_DBA)), with its principal place of business at ((Bill_Addr)), ((City)) ((ST)) ((Dlr_Zip.)). RECITALS -------- WHEREAS, ABT is in the business of locating persons interested in purchasing and/or leasing automobiles and/or trucks primarily through electronic media ("Potential Purchasers"); WHEREAS, Dealer is a dealer of automobiles and/or trucks who wishes to participate in a program where ABT provides certain information about Potential Purchasers to Dealer which will facilitate Dealer's sales of automobiles to Potential Purchasers and thereby decrease marketing costs which, in turn, will allow Dealer to offer automobiles and trucks at a competitive price; WHEREAS, ABT has invested considerable amounts of money in order to acquire relevant information about Potential Purchasers from the Internet and on-line computer services; and WHEREAS, ABT wishes to ensure that Dealer will provide a high level of service to Potential Purchasers provided to the Dealer through their participation in this program. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, ABT AND DEALER AGREE AS FOLLOWS: 1. SERVICES TO BE PERFORMED ------------------------ ABT shall provide a marketing program on the Internet and Online Services to attract Potential Purchasers and shall forward information regarding the Potential Purchasers identified for the make subscribed and in the zip code area subscribed to the Dealer. 2. USE OF SERVICES. --------------- (a) Dealer Participation. Dealer agrees to abide by ABT's Customer -------------------- Service Standards as more fully described in Paragraph 10 below, which may be revised from time to time. Dealer shall designate one key employee to be provided instructions by ABT or its authorized agent. Should the assignment of any designated key employee change, Dealer shall notify ABT. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall sign any necessary confidentiality agreements to protect ABT's propriety rights. (b) Use of System and Modifications. It is agreed to by the parties that ------------------------------- the use of ABT's services is restricted solely to Dealer and its designated employees and other duly authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. 3. EQUIPMENT. --------- (a) ABT Equipment. ABT warrants that it possesses or has access to and ------------- the right to use computer equipment and other office equipment necessary for ABT to perform its services contemplated by this Agreement. (b) Dealer Equipment. Dealer, at its sole cost and expense, shall provide ---------------- the computer and other office equipment necessary to use and receive the services to be provided hereunder by ABT. (c) Equipment Maintenance, Risk of Loss. Dealer shall maintain all of ----------------------------------- their computer and office equipment necessary for the utilization of the services to be provided hereunder by ABT in good and proper working order and repair. Dealer shall assume all responsibility for loss or damage to Dealer's equipment in the utilization of the services to be provided hereunder by ABT. 4. TITLE TO SYSTEM. --------------- The services to be provided hereunder by ABT, together with any modifications and/or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. 5. ASSIGNMENT OF TERRITORY ----------------------- Subject to the terms and conditions set forth in this Agreement, ABT hereby grants to Dealer the exclusive, non-transferable right to use the services to be performed by ABT, as contemplated by this Agreement, within the geographic area designated by the following zip codes: ((Territory)) and for the following make of motor vehicles: ((Franchise)) (the "Territory"). Notwithstanding the foregoing, ABT retains the right, directly or through other dealerships, to market and use its System and services in all areas other than Dealer's Territory, and within Dealer's Territory for all makes of motor vehicles not listed above. 6. SUBSCRIPTION FEES. ----------------- (a) Dealer shall pay ABT ((Amt_Text)) dollar(s) (((Amount))) as an initial start-up fee concurrently with Dealer's execution of this Agreement. (b) Dealer shall pay ABT the amount of ((Monthly)) as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the dealer. (c) Dealer shall pay ABT an annual fee on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer 60 days prior to the anniversary date of this Agreement. 7. TAXES. ----- Dealer shall, in addition to any other amounts payable under this Agreement, pay all taxes - federal, state, local or otherwise - however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 8. TERM. ---- This Agreement shall be for a term of five (5) years, commencing upon the date hereof and terminating on ((Term_DateTxt)) unless sooner terminated according to the provisions hereof. Either party may terminate this Agreement, at their sole option and for any reason whatsoever, at any time by providing the other party 30 days written notice. This Agreement may be terminated by ABT immediately and without notice in the event that Dealer does not adhere to ABT's Customer Service Standards or in the event that any fees due ABT are outstanding more than 30 days. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in paragraphs 2b, 4, 12, 13, 15, and 22. 9. PERIODIC OPERATIONS REPORTS --------------------------- (a) Reports. ABT shall furnish to Dealer, on a quarterly basis, an ------- operations report which shall include die number of inquiries received by ABT from consumers in Dealer's exclusive Territory. Dealer shall report to ABT on a monthly basis the number and names of Potential Purchasers who purchased motor vehicles from Dealer, the number of vehicles financed and the amounts financed and such other information as ABT may from time to time request. (b) Duty of Care. ABT shall not be liable for any loss of data, delays ------------ and/or errors in transmitting data occurring by reason of circumstances beyond its reasonable control or for any damages rising as a consequence thereof. 10. CUSTOMER SERVICE STANDARDS -------------------------- Dealer shall relay to Potential Purchasers a full and complete response to the Potential Purchasers' inquiries transmitted by ABT to Dealer within 24 hours of receipt of the inquiry from ABT, exclusive of Saturdays, Sundays and holidays recognized by the federal government. Dealer's initial response shall be by telephone and shall disclose the availability of the vehicle inquired about, the manufacturers suggested retail price of the vehicle and all requested options and the price at which the Dealer will sell/lease the vehicle with all requested options to the Potential Purchaser. In addition, Dealer shall provide information as to all other terms and costs required by law to be disclosed to prospective purchasers (the "Dealer Information"). 11. DEALER'S COVENANTS. ------------------ Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer Information transmitted to consumer shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle remains available for sale. 12. CONFIDENTIALITY. --------------- ABT agrees to treat all records and other information provided by Dealer, with respect to terms of sale, financing or leasing of motor vehicles, confidential, except that this information may be transmitted to consumers making inquiries concerning the terms of purchase, financing or leasing of motor vehicle(s). Dealer, on behalf of itself and its employees, agrees to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart ABT's services, or the concept thereof, to any person or entity whatsoever other than employees of Dealer. Notwithstanding the foregoing, if either party is required to produce any such information by order of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five days written notice to the other party, release required information. 13. INDEMNIFICATION. --------------- Dealer agrees to indemnify and hold harmless ABT and its subsidiaries and/or affiliates and their respective members, managers, directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases and/or finances a motor vehicle(s) from Dealer through the utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. In all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or omitted to be done, in accordance with the terms of this Agreement or instructions properly received pursuant hereto, if done in good faith and without negligence or willful or wanton misconduct. 14. TRADE SECRETS. ------------- (a) During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. (b) Dealer acknowledges and agrees that the sale or unauthorized use or disclosure of any of ABT's trade secrets constitutes unfair competition. 15. WARRANTY LIMITATION. ------------------- ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTEES, EXPRESSED OR IMPLIED, ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES, OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 16. TRADEMARKS AND SERVICE MARKS. ---------------------------- Any and all trademarks and service marks associated with ABT are and shall remain the exclusive property of ABT. If during the term of this Agreement, a trademark registration is filed by ABT, all rights belong to ABT who shall also bear the costs for such registration. Dealer is permitted to use the trademark and service mark only as set forth herein or only as authorized in writing by ABT. 17. ADVERTISEMENTS. -------------- In all new car display print advertisements which are equal to or greater than 14 column inches, Dealer shall also include ABT's service mark as well as its Internet address in one of the formats depicted in Exhibit A such that the ABT service mark and Internet address are clearly legible. 18. NOTICES. ------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 19. ASSIGNMENT. ---------- This Agreement and the rights and duties hereunder shall not be assignable by the Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder shall be assignable by ABT. 20. INDEPENDENT CONTRACTORS. ----------------------- The relationship between ABT and Dealer created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. 21. NO WAIVER. --------- The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any right hereunder. 22. SEVERABILITY. ------------ If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, such determination shall in no way alter or impair the validity, legality and enforceability of the remaining provisions of this Agreement. 23. GOVERNING LAW AND JURISDICTION. ------------------------------ This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of California. Any dispute or claim arising between the parties hereto shall be brought in a court of competent jurisdiction located in the County of Orange in the State of California and the parties hereto agree to jurisdiction in California. -2- 24. OTHER AGREEMENTS. ---------------- This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in a writing signed by the party to be charged. Auto-By-Tel Marketing Corporation, Dealer: ((Dealer_Corp)) a Delaware Corporation By:___________________________ By:__________________________________________ Name: Mr. Pete Ellis Name: ((Sirname)) ((Dlr_First)) ((Dlr_Last)) Title: President Title: ((Dlr_Title)) -3- EXHIBIT 10.13(c) ABT SUBSCRIPTION AGREEMENT THIS AGREEMENT made this ((Ck_RcvdTxt)), by and between Auto-By-Tel Marketing Corporation, a Delaware Corporation, with its principal place of business at 2711 E. Coast Highway, Corona Del Mar, California 92625 ("ABT"), and , a(n) ((STTxt)) ((Entity)), with its principal place of business at ((Bill_Addr)), ((City)), ((ST)) ((Dlr_Zip)). ("Dealer"). WHEREAS ABT is in the business of locating persons interested in purchasing or leasing automobiles or trucks primarily through electronic media ("Potential Purchasers"); WHEREAS Dealer is a dealer of automobiles and/or trucks who wishes to participate in a program where ABT provides certain information about Potential Purchasers to Dealer which will facilitate Dealer's sales of automobiles to Potential Purchasers and thereby decrease marketing costs which, in turn, will allow Dealer to offer automobiles and trucks at a competitive price; WHEREAS ABT has invested considerable amounts of money in order to acquire relevant information about Potential Purchasers from the Internet and Online computer services; and WHEREAS ABT wishes to ensure that Dealer will provide a high level of service to Potential Purchasers provided to Dealer through their participation in this program. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, ABT and Dealer agree as follows: 1. Services to be Performed ------------------------ ABT shall provide a marketing program on the Internet and Online Services to attract Potential Purchasers and shall forward information regarding Potential Purchasers identified for the vehicle make subscribed and in the postal code area assigned to Dealer. 2. Use of Services --------------- (a) Dealer Participation. Dealer agrees to abide by ABT's Customer Service -------------------- Standards as more fully described in Paragraph 10 below, which may be revised from time to time. Dealer shall designate one key employee to be provided instructions by ABT or its authorized agent. Should the assignment of any designated key employee change, Dealer shall notify ABT. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall sign any necessary confidentiality agreements to protect ABT's proprietary rights. (b) Use of System and Modifications. It is agreed to by the parties that the ------------------------------- use of ABT's services is restricted solely to Dealer and its designated employees and other duly authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. 3. Equipment --------- (a) ABT Equipment. ABT warrants that it possesses or has access to and the ------------- right to use computer equipment and other office equipment necessary for ABT to provide the services contemplated by this Agreement. (b) Dealer Equipment. Dealer, at its sole cost and expense, shall provide the ---------------- computer and other office equipment necessary to use and receive the services to be provided hereunder by ABT. (c) Equipment Maintenance, Risk of Loss. Dealer shall maintain all of its ----------------------------------- computer and office equipment necessary for the utilization of the services to be provided hereunder by ABT in good and proper working order and repair. Dealer shall assume all responsibility for loss or damage to Dealer's equipment in the utilization of the services to be provided hereunder by ABT. 4. Title to System --------------- The services to be provided hereunder by ABT, together with any modifications or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. 5. Assignment of Territory ----------------------- Subject to the terms and conditions set forth in this Agreement, ABT hereby grants to Dealer the exclusive, non-transferable right to use the services to be performed by ABT as contemplated by this Agreement, within the geographic area designated by the following postal code: and for the following make of motor vehicles: ((Franchise)) the "Territory"). Notwithstanding the foregoing, ABT retains the right, directly or through other dealerships, to market and use its System and services in all areas other than Dealer's Territory, and within Dealer's Territory for all makes of motor vehicles not listed above. 6. Subscription Fees ----------------- (a) Dealer shall pay ABT the amount of (((Amount)) plus G.S.T. as an initial start-up fee concurrently with Dealer's execution of this Agreement. (b) Dealer shall pay ABT the amount of ((Monthly)), plus G.S.T. as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the dealer. (c) Dealer shall pay ABT an annual fee plus G.S.T. on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer sixty (60) days prior to the anniversary date of this Agreement. 7. Taxes ----- Dealer shall, in addition to any other amounts payable under this Agreement, pay all taxes - federal, provincial, local or otherwise - however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 8. Term ---- This Agreement shall be for a term of five (5) years, commencing upon the date hereof and terminating on ((Term_DateTxt)) unless sooner terminated according to the provisions hereof. Either party may terminate this Agreement, at their sole option and for any reason whatsoever, at any time by providing the other party thirty (30) days written notice. This Agreement may be terminated by ABT immediately and without notice in the event that Dealer does not adhere to ABT's Customer Service ,Standards, or in the event that any fees due to ABT are outstanding more than thirty (30) days. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in Paragraph 2b, 4, 12, 13, 15, and 22. 9. Periodic Operations Reports --------------------------- (a) Reports. ABT shall furnish to Dealer, on a quarterly basis, an operations ------- report which shall include the number of inquiries received by ABT from consumers in Dealer's exclusive Territory. Dealer shall report to ABT on a monthly basis the number and names of individuals who purchased motor vehicles from Dealer, the number of vehicles financed and the amounts financed and such other information as ABT may from time to time request. (b) Duty of Care. ABT shall not be liable for any loss of data, delays and/or ------------ errors in transmitting data occurring by reason of circumstances beyond its reasonable control or for any damages arising as a consequence thereof. 10. Customer Service Standards -------------------------- Dealer shall relay to Potential Purchasers a full and complete response to the Potential Purchasers' inquiries transmitted by ABT to Dealer within twenty-four (24) hours of receipt of the inquiry from ABT, exclusive of Saturdays, Sundays and statutory holidays, Dealer's initial response shall be by telephone and shall disclose the availability of the vehicle inquired about, the manufacturer's suggested retail price of the vehicle and all requested options and the price at which Dealer will sell/lease the vehicle with all requested options to the Potential Purchaser. In addition, Dealer shall provide information as to all other terms and costs required by law to be disclosed to the Potential Purchaser (the "Dealer Information"). 11. Dealer's Covenants ------------------ Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer Information transmitted to Potential Purchasers shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle remains available for sale. 12. Confidentiality --------------- ABT agrees to treat all records and other information provided by Dealer with respect to terms of sale, financing or leasing of motor vehicles confidential except that this information may be transmitted to consumers making inquiries concerning the terms of purchase, financing or leasing of motor vehicle(s). Dealer, on behalf of itself and its employees, agrees to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart information about ABT's services, or the concept thereof, to any person or entity whatsoever other than employees of Dealer and Potential Purchasers. Notwithstanding the foregoing, if either party is required to produce any such information by order of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five days' written notice to the other party, release required information. 13. Indemnification. --------------- Dealer agrees to indemnify and hold harmless ABT and its subsidiaries and/or affiliates and their respective members, managers, directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgements, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases and/or finances a motor vehicle(s) from Dealer through the utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. ln all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or omitted to be done, in accordance with the terms of this Agreement or instructions properly received pursuant hereto, if done in good faith and without negligence or wilful or wanton misconduct. 14. Trade Secrets ------------- (a) During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. (b) Dealer acknowledges and agrees that the sale or unauthorized use or disclosure of any of ABT's trade secrets constitutes a breach of section 12 of this Agreement. 15. Warranty Limitation ------------------- ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTIES, EXPRESSED OR IMPLIED, ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 16. Trademarks and Services Marks ----------------------------- Any and all trademarks and service marks associated with ABT are and shall remain the exclusive property of ABT. If during the term of this Agreement, a trademark registration is filed by ABT, Dealer acknowledges that all fights to such trademark belong to ABT who shall also bear the costs of such registration. Dealer is permitted to use such trademark and service marks only as set forth herein or only as authorized in writing by ABT. 17. Advertisements -------------- In all print advertisements for Dealer automobiles, services, or other goods which are equal to or greater than fourteen (14) column inches, Dealer shall also include ABT's service mark as well as its Internet address in one of the formats depicted in Rider A such that the ABT service mark and Internet address are clearly legible. 18. Notices ------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the Canadian or U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 19. Assignment ---------- This Agreement and the rights and duties hereunder shall not be assignable by Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder may be assigned by ABT at its sole discretion. 20. Independent Contractors ----------------------- The relationship between ABT and Dealer created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. 21. No Waiver --------- The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any right hereunder. 22. Severability ------------ If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, this shall in no way alter or impair the validity, legality and enforceability of the remaining provisions of this Agreement. 23. Governing Law and Jurisdiction ------------------------------ This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of California. Any dispute or claim arising between the parties hereto shall be brought in a court of competent jurisdiction located in the County of Orange in the State of California and the parties hereto agree to attorn to the jurisdiction of the courts of California. 24. Other Agreements ---------------- This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged. Auto-By-Tel Marketing Corporation, a Delaware Corporation DEALER: ((DEALER_CORP)) Per: Per: ------------------------------- ------------------------------- Name: Pete Ellis Name: ((Sirname)) ((Dlr_Flrst))((Dir_Last)) Title: President Title: ((Dir_Title)) canagr.doc EXHIBIT 10.13(d) ABT SUBSCRIPTION AGREEMENT -------------------------- THIS AGREEMENT made this ((Ck_RcvdTxt)). by and between Auto-By-Tel Marketing Corporation, a Delaware Corporation, with its principal place of business at 2711 E. Coast Highway, Corona Del Mar, California 92625 ("ABT"), and ((Dealer_Corp)), a(n) ((STTxt)) ((Entity)), d.b.a.((-Dealer_DBA.)), with its principal place of business at ((Bill_Addr.)), ((City)) ((ST)) ((Dlr_zip)). RECITALS -------- WHEREAS, ABT is in the business of operating advertising programs primarily through electronic media; WHEREAS, Dealer is a dealer of automobiles and/or trucks who wishes to participate in said program; WHEREAS, ABT has invested considerable amounts of money in order to operate the program on the Internet and on-line computer services; and WHEREAS, Dealer agrees to provide a high level of service to members of the public reached through the program. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, ABT AND DEALER AGREE AS FOLLOWS: 1. Services to be Performed. ------------------------ ABT shall provide an advertising program on the Internet and Online Services to the public and shall forward information regarding inquiries made for the make subscribed and in the zip code area subscribed to by Dealer. 2. Use of Services. --------------- (a) Dealer Participation. Dealer agrees to abide by ABT's Customer -------------------- Service Standards as more fully described in Paragraph 10 below, which may be revised from time to time. Dealer shall designate one key employee to be provided instructions by ABT or its authorized agent. Should the assignment of any designated key employee change, Dealer shall notify ABT. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall sign any necessary confidentiality agreements to protect ABT's rights. (b) Use of System and Modifications. It is agreed to by the parties that ------------------------------- the use of ABT's program is restricted solely to Dealer and its designated employees and other duly authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. 3. Equipment. --------- (a) ABT Equipment. ABT warrants that it possesses or has access to and ------------- the right to use computer equipment and other office equipment necessary for ABT to perform its services contemplated by this Agreement. (b) Dealer Equipment. Dealer, at its sole cost and expense, shall provide ---------------- the computer and other office equipment necessary to use and receive the services to be provided hereunder by ABT. (c) Equipment Maintenance, Risk of Loss. Dealer shall maintain all of ----------------------------------- their computer and office equipment necessary for the utilization of the services to be provided hereunder by ABT in good and proper working order and repair. Dealer shall assume all responsibility for loss or damage to Dealer's equipment in the utilization of the services to be provided hereunder by ABT. 4. Title to System. --------------- The services to be provided hereunder by ABT, together with any modifications and/or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. 5. Assignment of Territory. ----------------------- (a) Subject to the terms and conditions set forth in this Agreement, Dealer subscribes to utilize the program within the geographic area designated by the following zip codes: ((Territory)) and for the following make of motor vehicles: ((Franchise)) (the "Territory"). (b) Notwithstanding the foregoing, ABT retains the right to reassign or revise Dealers zip code area and subscription fees as necessary to accommodate entry of additional dealers into the program . 6. Subscription Fees. ------------------ Subject to the provisions of paragraph 5. b: (a) Dealer shall pay ABT ((Amt_Text)) dollar(s) ((Amount)) as an initial start-up fee concurrently with Dealer's execution of this Agreement. (b) Dealer shall pay ABT the amount of ((Monthly)). as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the dealer. (c) Dealer shall pay ABT an annual fee on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer 60 days prior to the anniversary date of this Agreement. 7. Taxes. ----- Dealer shall, in addition to any other amounts payable under this Agreement, pay all taxes - federal, state, local or otherwise - however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 8. Term. ---- This Agreement shall be for a term of five (5) years, commencing upon the date hereof and terminating on ((Term_DateTxt)) unless sooner terminated or revised according to the provisions hereof. Either party may terminate this Agreement, at their sole option and for any reason whatsoever, at any time by providing the other party 30 days written notice. This Agreement may be terminated by ABT immediately and without notice in the event that Dealer does not adhere to ABT's Customer Service Standards or in the event that any fees due ABT are outstanding more than 30 days. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in paragraphs 2b, 4, 12, 13, 15, and 22. 9. Periodic Operations Reports. --------------------------- (a) Reports. ABT shall furnish to Dealer, on a quarterly basis, an ------- operations report which shall include the number of inquiries received by ABT from Dealer's zip code area. Dealer shall report to ABT on a monthly basis the number and names of Potential Purchasers who purchased motor vehicles from Dealer, the number of vehicles financed and the amounts financed and such other information as ABT may from time to time request. (b) Duty of Care. ABT shall not be liable for any loss of data, delays ------------- and/or errors in transmitting data occurring by reason of circumstances beyond its reasonable control or for any damages arising as a consequence thereof. 10. Customer Service Standards. -------------------------- Dealer shall relay full and complete response to the inquiries transmitted by ABT to Dealer within 24 hours of receipt of the inquiry from ABT, exclusive of Saturdays, Sundays and holidays recognized by the federal government. Dealer's initial response shall be by telephone and shall disclose the availability of the vehicle inquired about, the manufacturers suggested retail price of the vehicle and all requested options and the price at which the Dealer will sell the vehicle with all requested options. In addition, Dealer shall provide information as to all other terms and costs required by law to be disclosed (the "Dealer Information"). 11. Dealer's Covenants. ------------------ Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer Information transmitted shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle remains available for sale. 12. Confidentiality. --------------- ABT agrees to treat all records and other information provided by Dealer, with respect to terms of sale, financing or leasing of motor vehicles, confidential. Dealer, on behalf of itself and its employees, agrees to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart ABT's services, or the concept thereof, to any person or entity whatsoever other than employees of Dealer. Notwithstanding the foregoing, if either party is required to produce any such information by order of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five days written notice to the other party, release required information. 13. Indemnification. --------------- Dealer agrees to indemnify and hold harmless ABT and its subsidiaries and/or affiliates and their respective members, managers, directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases and/or finances a motor vehicle(s) from Dealer through the utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. In all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or omitted to be done, in accordance with the terms of this Agreement or instructions properly received pursuant hereto, if done in good faith and without negligence or willful or wanton misconduct. 14. Trade Secrets. ------------- (a) During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. (b) Dealer acknowledges and agrees that the sale or unauthorized use or disclosure of any of ABT's trade secrets constitutes unfair competition. 15. Warranty Limitation. ------------------- ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTIES, EXPRESSED OR IMPLIED, ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES, OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 16. Trademarks and Service Marks. ---------------------------- Any and all trademarks and service marks associated with ABT are and shall remain the exclusive property of ABT. lf during the term of this Agreement, a trademark registration is filed by ABT, all rights belong to ABT who shall also bear the costs for such registration. Dealer is permitted to use the trademark and service mark only as set forth herein or only as authorized in writing by ABT. 17. Advertisements. -------------- In all new car display print advertisements which are equal to or greater than 14 column inches, Dealer shall also include ABT's service mark as well as its Internet address in one of the formats depicted in Exhibit A such that the ABT service mark and Internet address are clearly legible. 18. Notices. ------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 19. Assignment. ---------- This Agreement and the rights and duties hereunder shall not be assignable by the Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder shall be assignable by ABT. 20. Independent Contractors. ----------------------- The relationship between ABT and Dealer created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. 21. No Waiver. --------- The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any right hereunder. 22. Severability. ------------ If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, such determination shall in no way alter or impair the validly, legality and enforceability of the remaining provisions of this Agreement. 23. Governing Law and Jurisdiction. ------------------------------ This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of Texas. Any dispute or claim arising between the parties hereto shall be brought in a court of competent jurisdiction located in the County of Travis in the State of Texas and the parties hereto agree to jurisdiction in Texas. 24. Other Agreements. ---------------- This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in a writing signed by the party to be charged. Auto-By-Tel Marketing Corporation, a Delaware Corporation Dealer: ((Dealer_Corp)) By:____________________________ By:_________________________________________ Name: Mr. Pete Ellis Name: ((Surname)) ((Dir_First)) ((Dir_Last)) Title: President Title: ((Dir_Title)) abt-tx.doc EXHIBIT 10.13(e) ABT SUBSCRIPTION AGREEMENT -------------------------- THIS AGREEMENT made this ((Ck_RcvdTxt)) by and between Auto-By-Tel Marketing Corporation, a Delaware Corporation, with its principal place of business at 18872 MacArthur Boulevard, Second Floor, Irvine CA 92612-1400 ("ABT"), and ((Dealer_Corp)), a(n) ((STTxt)) ((Entity)), d.b.a. ((Dealer_DBA)), with its principal place of business at ((Bill_Addr)), ((City)) ((ST)) ((Dlr_Zip)). RECITALS -------- WHEREAS, ABT is in the business of locating persons interested in purchasing and/or leasing automobiles and/or trucks primarily through electronic media ("Potential Purchasers"): WHEREAS, Dealer is a franchised dealer of new automobiles and/or trucks who wishes to participate in a program where ABT provides certain information about Potential Purchasers to Dealer which will facilitate Dealer's sales of automobiles to Potential Purchasers and thereby decrease marketing costs which, in turn, will allow Dealer to offer automobiles and trucks at a competitive price; WHEREAS, ABT has invested considerable amounts of money in order to acquire relevant information about Potential Purchasers from the Internet and on-line computer services; and WHEREAS, ABT wishes to ensure that Dealer will provide a high level of service to Potential Purchasers provided to the Dealer through their participation in this program. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, ABT AND DEALER AGREE AS FOLLOWS: 1. SERVICES TO BE PERFORMED. ------------------------ ABT shall provide a marketing program on the Internet and Online Services to attract Potential Purchasers and shall forward information regarding the Potential Purchasers identified for the make subscribed and in the zip code area subscribed to the Dealer. 2. USE OF SERVICES. --------------- (a) Dealer Participation. Dealer agrees to abide by ABT's Customer Service -------------------- Standards as more fully described in Paragraph 10 below, which may be revised from time to time by ABT. Dealer shall designate one key employee to be provided instructions by ABT or its authorized agent. Dealer shall notify ABT within ten (10) days of any change in the assignment of any designated key employee. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall promptly sign any confidentiality agreements submitted by ABT to protect ABT's proprietary rights. ABT shall notify Dealer in writing of any revisions or additions to the Customer Service Standards, and such revisions shall take effect immediately upon Dealer's receipt thereof. Without limiting the generality of the foregoing, Dealer acknowledges that Auto-By-Tel will institute a financing program whereby customers may receive low-cost financing from sources provided by Auto-By-Tel through its web site (the "Financing Arrangements"). Dealer agrees with ABT that low-cost Financing Arrangements pursuant to which customers would (i) receive a financing proposal in conjunction with their receipt of a vehicle price quote, and (ii) close both the vehicle acquisition and financing quickly through Dealer, would be viewed by customers as an improvement in the Auto-By-Tel program, consequently increasing the attractiveness of the ABT program and its value to Dealer. Dealer agrees to cooperate fully with the Financing Arrangements instituted by ABT through its web site, including without limitation entering into customary closing administration arrangements with finance companies as requested by ABT, and to take such actions as reasonably requested by such finance companies or ABT to ensure that customers receive a high level of service and satisfaction in connection with the Financing Arrangements. After ABT commences the Financing Arrangements, Dealer acknowledges that changes in the Customer Services Guidelines may from time to time pertain to such Financing Arrangements. (b) Use of System and Modifications. It is agreed to by the parties that the ------------------------------- use of ABT's services is restricted solely to Dealer and its designated employees and other duly authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. 3. EQUIPMENT. --------- (a) ABT Equipment. ABT warrants that it possesses or has access to and the ------------- right to use computer equipment and other office equipment necessary for ABT to perform its services contemplated by this Agreement. (b) Dealer Equipment. Dealer, at its sole cost and expense, shall provide ---------------- the computer and other office equipment specified from time to time by ABT to use and receive the services to be provided hereunder by ABT. (c) Equipment Maintenance, Risk of Loss. Dealer shall maintain all of their ----------------------------------- computer and office equipment in good and proper working order and repair. Dealer shall assume all responsibility for loss or damage to Dealer's equipment in the utilization of the services to be provided hereunder by ABT. 4. TITLE TO SYSTEM, TRADEMARKS. --------------------------- The services to be provided hereunder by ABT, together with any modifications and/or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. Any and all trademarks and service marks associated with ABT are and shall remain the exclusive property of ABT. If, during the term of this Agreement, a trademark registration is filed by ABT, all rights belong to ABT who shall also bear the costs for such registration. Dealer is permitted to use the trademark and service mark only as set forth herein or only as authorized in writing by ABT. 5. ASSIGNMENT OF TERRITORY. ----------------------- Subject to the terms and conditions set forth in this Agreement, ABT hereby grants to Dealer the non-transferable right to use the services to be performed by ABT, as contemplated by this Agreement, within the geographic area designated by the following zip codes: ((Territory)) and for the following make of motor vehicles: ((Franchise)) (the "Territory"). ABT may change the Dealer's Territory upon thirty (30) days written notice. Notwithstanding the foregoing, ABT retains the right, directly or through other dealerships, to market and use its System and services in all areas other than Dealer's Territory, and within Dealer's Territory for all makes of motor vehicles not listed above. 6. SUBSCRIPTION FEES. ----------------- (a) Dealer shall pay ABT ((Amt_Text)) (((Amount))) as an initial start-up fee concurrently with Dealer's execution of this Agreement. (b) Dealer shall pay ABT the amount of ((Nu_Fee)) as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the dealer. (c) Dealer shall pay ABT an annual fee on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer prior to the anniversary date of this Agreement. (d) If ABT terminates this Agreement pursuant to Section 8(b)(ii) for no reason or Dealer terminates this Agreement pursuant to Section 8(c)(iii), ABT shall refund a prorated amount of fees paid under this Agreement for the remaining portion of the period with respect to which such fees had been paid, except that the monthly fees due for the month in which the Agreement is terminated shall not be refunded or prorated. (The startup fee shall be deemed to have been paid for the first year this Agreement is in effect.) In no other circumstances shall any amounts paid under this Agreement be refundable. 7. TAXES. ----- Dealer shall, in addition to any other amounts payable under this Agreement, pay all taxes - federal, state, local or otherwise, excluding income taxes attributable to the income of ABT - however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 8. TERM AND TERMINATION. -------------------- (a) This Agreement shall be for a term of five (5) years unless terminated earlier pursuant to this Section 8. (b) ABT may terminate this Agreement: (i) immediately if Dealer does not adhere to its obligations under Sections 2(a) and 10, or if any fees due ABT pursuant to Section 6 are outstanding more than thirty (30) days, or if any amount payable to ABT under Sections 7 or 13 are outstanding more than thirty (30) days after ABT makes a written request therefor, or any other breach by Dealer of this Agreement is not cured within ten (10) days after written notification by ABT of such breach; or (ii) at any other time, for any reason or for no reason, upon thirty (30) days written notice to the Dealer. (c) Dealer may terminate this Agreement: (i) immediately, if an order for liquidation against ABT is entered and not stayed in a bankruptcy proceeding; (ii) immediately, if ABT is guilty of willful misconduct in the performance of its duties under this Agreement; (iii) upon thirty (30) days written notice delivered within ten (10) days of the effective date of any shrinkage of Dealer's Territory pursuant to Section 5; or (iv) at any other time, in its sole discretion, upon thirty (30) days written notice to ABT. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in paragraphs 2b, 4, 12, 13, 14, 15, & 21. 9. PERIODIC OPERATIONS REPORTS. --------------------------- (a) Reports. ABT shall furnish to Dealer, on a quarterly basis, an ------- operations report which shall include the number of inquiries received by ABT from Potential Purchasers in Dealer's Territory. Dealer shall report to ABT on a monthly basis the number and names of Potential Purchasers who purchased motor vehicles from Dealer, the number of vehicles financed and the amounts financed and such other information as ABT may from time to time request. (b) Duty of Care. ABT shall not be liable for any loss of data, delays ------------ and/or errors in transmitting data occurring for any reason or for any damages arising as a consequence thereof. 10. CUSTOMER SERVICE STANDARDS. -------------------------- In addition to those obligations set out in 2(a) above, Dealer shall relay to Potential Purchasers a full and complete response to the Potential Purchasers' inquiries transmitted by ABT to Dealer within 24 hours of receipt of the inquiry from ABT. Dealer's initial response shall be by telephone and shall disclose (i) the availability of the vehicle inquired about, (ii) the manufacturer's suggested retail price of the vehicle, (iii) all requested options, (iv) the price at which the Dealer will sell/lease the vehicle with all requested options to the Potential Purchaser, and (v) all other terms and costs required by law to be disclosed to prospective purchasers (all such information, the "Dealer Information"). In order to improve the services offered by ABT while maintaining uniform delivery of such services, ABT may, from time to time, amend the Customer Service Standards, or impose additional Customer Service Standards upon thirty (30) days notice to Dealer. Dealer acknowledges that maintenance of the ABT Customer Service Standards is crucial to the value of ABT's services and agrees to adopt such amendments or additions, even though they may require more work or expense to implement. ABT agrees that it will not impose amendments or additions unless they are applied to all Dealers. 11. DEALER'S COVENANTS. ------------------ Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer Information transmitted to a Potential Purchaser shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle still remains available for sale, and Dealer agrees to include a statement to such effect in the Dealer Information. 12. CONFIDENTIALITY. --------------- ABT agrees to treat all records and other information provided by Dealer, with respect to terms of sale, financing or leasing of motor vehicles, confidential, except that this information may be transmitted to consumers making inquiries concerning the terms of purchase, financing or leasing of motor vehicle(s). Dealer, on behalf of itself and its employees, agrees to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart ABT's services, or the concept thereof, to any person or entity whatsoever other than employees of Dealer. Notwithstanding the foregoing, if either party is required to produce any such information by order of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five days written notice to the other party, release required information. During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. Dealer acknowledges and agrees that it will keep such trade secrets confidential, and the sale or unauthorized use or disclosure of any of ABT's trade secrets constitutes theft and will greatly damage ABT. 13. INDEMNIFICATION. --------------- Dealer agrees to indemnify and hold harmless ABT and its subsidiaries and/or affiliates and their respective members, managers, directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases and/or finances a motor vehicle(s) from Dealer through the utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. In all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or omitted to be done, in accordance with the terms of this Agreement or instructions properly received pursuant hereto, if done in good faith and without gross negligence or willful or wanton misconduct. 14. EXCLUSIVITY. ----------- Dealer acknowledges that the value to Dealer of this agreement is based on the unique package of services marketed to automobile customers by ABT and ABT's reputation for delivering such services on a consistent basis. Dealer agrees that certain key elements of the ABT package of services are: (i) electronic transmission of customer purchase or lease requests; (ii) rapid response by dealers to consumer pricing or lease pricing requests, including immediate telephone contact with upfront, firm pricing provided over the phone on such call; (iii) customer paperwork completed or nearly completed prior to customer arrival at the dealership for pickup so as to ensure the customer spends as little time as possible at the dealership for pickup; and (iv) Dealer training and support to implement the ABT package of services and to maintain the style and reputation of the ABT package of services (collectively the "Key Elements"). Dealer acknowledges that ABT has spent, and will spend, considerable time and money developing its package of services and training Dealer to deliver such services in a consistent way which maintains ABT's distinctive market presence and reputation. Accordingly, Dealer agrees that during the Term of this Agreement (and for one (1) year thereafter if this Agreement is terminated unless it is terminated by the Dealer pursuant to section 8(c)(iii)), Dealer and its affiliates will not, directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not, directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not participate in any pricing, credit or financing, insurance or information service involving or made available on the Internet, online or by other electronic means. Without contradicting the foregoing, Dealer may establish and maintain its own web site and/or participate in any factory direct program. Notwithstanding any other provisions of this Agreement, in the event Dealer breaches this Section 14, the provisions of this Section shall remain in full force and effect for one (1) year after such breach is cured. Dealer acknowledges that the provisions of this Section 14 were a material inducement to ABT in entering into this Agreement, and that ABT would not have entered into this Agreement with Dealer in the absence of such provisions. Dealer acknowledges and agrees that compliance with the provisions of Sections 12 and 14 is necessary to protect the business and good will of ABT, and that any breach of Sections 12 or 14 will result in irreparable and continuing damage to ABT, for which money damages may not provide adequate relief. Accordingly, Dealer agrees that during the "Exclusivity Period" (as defined below), Dealer and its affiliates will not, directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not participate in any pricing, credit or financing, insurance or information service involving or made available on the Internet, online or by other electronic means. For purposes of this Section 14, the "Exclusivity Period" commences on the date of this Agreement, and terminates one year after the date of termination; provided, however, that if ----------------- this Agreement is terminated any time after the first anniversary of the date hereof, then the Exclusivity Period terminates six months after the date of termination; provided, further, however, that if this Agreement is terminated by -------------------------- Dealer pursuant to Section 8(c)(iii) hereof, then the Exclusivity Period terminates on the date of termination of the Agreement. 15. WARRANTY LIMITATION. ------------------- ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTIES, EXPRESSED OR IMPLIED ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES, OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 16. ADVERTISEMENTS. -------------- From time to time, ABT may provide Dealer with camera-ready and other logos, trademarks, artwork and materials for the limited purpose of inclusion, at Dealer's option, within Dealer print and television advertisements to promote the association of Dealer with the ABT program. ABT shall grant Dealer a revocable, limited license to use such materials for such limited purposes, and Dealer shall use such materials in no other manner. Any such materials shall remain at all times the property of ABT, they shall be returned upon request, and the limited license herein granted may be revoked at any time by written notice to Dealer. 17. NOTICES. ------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 18. ASSIGNMENT. ---------- This Agreement and the rights and duties hereunder shall not be assignable by the Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder shall be assignable by ABT. 19. INDEPENDENT CONTRACTORS. ----------------------- The relationship between ABT and Dealer created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. 20. NO WAIVER. --------- The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any right hereunder. 21. SEVERABILITY, GOVERNING LAW AND JURISDICTION. -------------------------------------------- If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, such determination shall in no way alter or impair the validly, legality and enforceability of the remaining provisions of this Agreement. This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of California. Any dispute or claim arising between the parties hereto shall be brought in a court of competent jurisdiction located in the County of Orange in the State of California and the parties hereto agree to jurisdiction in California. 22. COOPERATION. ----------- Upon the request of ABT, Dealer agrees to confirm in writing, in form satisfactory to ABT and provided by ABT at its own expense, any amendment, modification, change in original terms or other action which alters the terms of this Agreement and which was taken or initiated by ABT pursuant to rights granted to, or reserved by, ABT hereunder. Page 2 23. OTHER AGREEMENTS. ---------------- This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in a writing signed by the party to be charged. Auto-By-Tel Marketing Corporation By: _____________________________________________ Name: Peter Ellis Title: President Dealer: ((Dealer_Corp)) By: _______________________________________________ Name: ((Dlr_First)) ((Dlr_Last)) Title: ((Dlr_Title)) EXHIBIT 10.13(f) ABT SUBSCRIPTION AGREEMENT -------------------------- THIS AGREEMENT made this ((Ck_RcvdTxt)) by and between Auto-By-Tel Marketing Corporation, a Delaware Corporation, with its principal place of business at 18872 MacArthur Boulevard, Second Floor, Irvine CA 92612-1400("ABT"), and ((Dealer_Corp)), a(n) ((STTxt)) ((Entity)), d.b.a. ((Dealer_DBA)), with its principal place of business at ((Bill_Addr)), ((City)) ((ST)) ((Dlr_Zip)). RECITALS -------- WHEREAS, ABT is in the business of operating advertising programs primarily through electronic media: WHEREAS, Dealer is a dealer of automobiles and/or trucks who wishes to participate in said program; WHEREAS, ABT has invested considerable amounts of money in order to operate the program on the Internet and on-line computer services; and WHEREAS, Dealer agrees to provide a high level of service to members of the public reached through the program. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, ABT AND DEALER AGREE AS FOLLOWS: 1. SERVICES TO BE PERFORMED. ------------------------ ABT shall provide an advertising program on the Internet and Online Services to the public and shall forward information regarding inquiries made for the make subscribed and in the zip code area subscribed to by Dealer. 2. USE OF SERVICES. --------------- (a) Dealer Participation. Dealer agrees to abide by ABT's Customer Service -------------------- Standards as more fully described in Paragraph 10 below, which may be revised from time to time. Dealer shall designate one key employee to be provided instructions by ABT or its authorized agent. Should the assignment of any designated key employee change, Dealer shall notify ABT. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall sign any necessary confidentiality agreements to protect ABT's rights. (b) Use of System and Modifications. It is agreed to by the parties that the ------------------------------- use of ABT's program is restricted solely to Dealer and its designated employees and other duly authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. 3. EQUIPMENT. --------- (a) ABT Equipment. ABT warrants that it possesses or has access to and the ------------- right to use computer equipment and other office equipment necessary for ABT to perform its services contemplated by this Agreement. (b) Dealer Equipment. Dealer, at its sole cost and expense, shall provide ---------------- the computer and other office equipment necessary to use and receive the services to be provided hereunder by ABT. (c) Equipment Maintenance, Risk of Loss. Dealer shall maintain all of their ----------------------------------- computer and office equipment necessary for the utilization of the services to be provided hereunder by ABT in good and proper working order and repair. Dealer shall assume all responsibility for loss or damage to Dealer's equipment in the utilization of the services to be provided hereunder by ABT. 4. TITLE TO SYSTEM. --------------- The services to be provided hereunder by ABT, together with any modifications and/or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. 5. ASSIGNMENT OF TERRITORY. ----------------------- (a) Subject to the terms and conditions set forth in this Agreement, Dealer subscribes to utilize the program within the geographic area designated by the following zip codes: ((Territory)) and for the following make of motor vehicles: ((Franchise)) (the "Territory"). (b) Notwithstanding the foregoing, ABT retains the right to reassign or revise Dealers zip code area and subscription fees as necessary to accommodate entry of additional dealers into the program. 6. SUBSCRIPTION FEES. ----------------- Subject to the provisions of paragraph 5.b: (a) Dealer shall pay ABT ((Amt_Text)) (((Amount))) as an initial start-up fee concurrently with Dealer's execution of this Agreement. (b) Dealer shall pay ABT the amount of ((Monthly)) as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the dealer. (c) Dealer shall pay ABT an annual fee on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer 60 days prior to the anniversary date of this Agreement. 7. TAXES. ----- Dealer shall, in addition to any other amounts payable under this Agreement, pay all taxes - federal, state, local or otherwise - however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 8. TERM. ---- This Agreement shall be for a term of five (5) years, commencing upon the date hereof and terminating on the ((Term_DateTxt)) unless sooner terminated or revised according to the provisions hereof. Either party may terminate this Agreement, at their sole option and for any reason whatsoever, at any time by providing the other party 30 days written notice. This Agreement may be terminated by ABT immediately and without notice in the event that Dealer does not adhere to ABT's Customer Service Standards or in the event that any fees due ABT are outstanding more than 30 days. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in paragraphs 2b, 4, 12, 13, 15, and 22. 9. PERIODIC OPERATIONS REPORTS. --------------------------- (a) Reports. ABT shall furnish to Dealer, on a quarterly basis, an ------- operations report which shall include the number of inquiries received by ABT from Dealer's zip code area. Dealer shall report to ABT on a monthly basis the number and names of Potential Purchasers who purchased motor vehicles from Dealer, the number of vehicles financed and the amounts financed and such other information as ABT may from time to time request. (b) Duty of Care. ABT shall not be liable for any loss of data, delays ------------ and/or errors in transmitting data occurring by reason of circumstances beyond its reasonable control or for any damages arising as a consequence thereof. 10. CUSTOMER SERVICE STANDARDS. -------------------------- Dealer shall relay full and complete response to the inquiries transmitted by ABT to Dealer within 24 hours of receipt of the inquiry from ABT, exclusive of Saturdays, Sundays and holidays recognized by the federal government. Dealer's initial response shall be by telephone and shall disclose the availability of the vehicle inquired about, the manufacturers suggested retail price of the vehicle and all requested options and the price at which the Dealer will sell the vehicle with all requested options. In addition, Dealer shall provide information as to all other terms and costs required by law to be disclosed (the "Dealer Information"). Page 1 11. DEALER'S COVENANTS. ------------------ Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer Information transmitted shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle remains available for sale. 12. CONFIDENTIALITY. ---------------- ABT agrees to treat all records and other information provided by Dealer, with respect to terms of sale, financing or leasing of motor vehicles, confidential. Dealer, on behalf of itself and its employees, agrees to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart ABT's services, or the concept thereof, to any person or entity whatsoever other than employees of Dealer. Notwithstanding the foregoing, if either party is required to produce any such information by order of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five days written notice to the other party, release required information. 13. INDEMNIFICATION. ---------------- Dealer agrees to indemnify and hold harmless ABT and its subsidiaries and/or affiliates and their respective members, managers, directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases and/or finances a motor vehicle(s) from Dealer through the utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. In all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or omitted to be done, in accordance with the terms of this Agreement or instructions properly received pursuant hereto, if done in good faith and without negligence or willful or wanton misconduct. 14. TRADE SECRETS. ------------- (a) During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. (b) Dealer acknowledges and agrees that the sale or unauthorized use or disclosure of any of ABT's trade secrets constitutes unfair competition. 15. WARRANTY LIMITATION. ------------------- ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTIES, EXPRESSED OR IMPLIED ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES, OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 16. TRADEMARKS AND SERVICE MARKS. ---------------------------- Any and all trademarks and service marks associated with ABT are and shall remain the exclusive property of ABT. If during the term of this Agreement, a trademark registration is filed by ABT, all rights belong to ABT who shall also bear the costs for such registration. Dealer is permitted to use the trademark and service mark only as set forth herein or only as authorized in writing by ABT. 17. ADVERTISEMENTS. --------------- In all new car display print advertisements which are equal to or greater than 14 column inches, Dealer shall also include ABT's service mark as well as its Internet address in one of the formats depicted in Exhibit A such that the ABT service mark and Internet address are clearly legible. 18. NOTICES. -------- All notices and requests in connection with this Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 19. ASSIGNMENT. ---------- This Agreement and the rights and duties hereunder shall not be assignable by the Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder shall be assignable by ABT. 20. INDEPENDENT CONTRACTORS. ----------------------- The relationship between ABT and Dealer created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. 21. NO WAIVER. --------- The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any right hereunder. 22. SEVERABILITY. ------------ If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, such determination shall in no way alter or impair the validly, legality and enforceability of the remaining provisions of this Agreement. 23. GOVERNING LAW AND JURISDICTION. ------------------------------ This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of Texas. Any dispute or claim arising between the parties hereto shall be brought in a court of competent jurisdiction located in the County of Travis in the State of Texas and the parties hereto agree to jurisdiction in Texas. 24. OTHER AGREEMENTS. ---------------- This Agreement supersedes any and all agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in a writing signed by the party to be charged. Auto-By-Tel Marketing Corporation, a Delaware Corporation By: _____________________________________________________ Name: Mr. Pete Ellis Title: President Dealer: ((Dealer_Corp)) By: _____________________________________________________ Name: ((Sirname)) ((Dlr_First)) ((Dlr_Last)) Title: ((Dlr_Title)) Page 2 EXHIBIT 10.13(g) ABT USED CAR CYBERSTORE SUBSCRIPTION AGREEMENT ---------------------------------------------- THIS AGREEMENT made this ((CyberStDate)) by and between Auto-By-Tel Marketing Corporation, a Delaware corporation, with its principal place of business at 18872 MacArthur Blvd., Irvine, CA 92612-1400 ("ABT"), and ((DealerCorp)) "Dealer"), a ((StateofInc)) ((Entity)), with its principal place of business at ((BillingAddress)), ((City)), ((StateOrProvince)) ((PostalCode)). RECITALS -------- WHEREAS, ABT is in the business of, among other things, locating persons interested in purchasing and/or leasing used automobiles and/or trucks ("vehicles") primarily through electronic media ("Potential Purchasers"), and has created a Web site application and related technology and services pursuant to which Dealer may publish information concerning and pictures of used vehicles (the "Cyberstore") to enable Potential Purchasers to locate and consider purchases thereof; WHEREAS, Dealer is a dealer of used vehicles and is a franchised dealer of new automobiles and/or trucks that subscribes to ABT's new car program and is a licensee of ABT's proprietary software programs (the "Dealer Real Time System"); WHEREAS, Dealer wishes to participate in a program where ABT provides certain information about Potential Purchasers to Dealer which will facilitate Dealer's sales of used vehicles to Potential Purchasers and thereby decrease marketing costs which, in turn, will allow Dealer to offer used vehicles at competitive prices; WHEREAS, ABT has invested considerable amounts of money in order to acquire relevant information about Potential Purchasers from the internet and on-line computer services and to develop the relevant technology and know-how for the Cyberstore; and ABT wishes to ensure that Dealer will provide a high level of service to Potential Purchasers provided to the Dealer through their participation in this program. NOW, THEREFORE, in consideration for the mutual covenants and promises contained herein, ABT and Dealer agree as follows: 1. ABT Cyberstore Marketing Program. -------------------------------- (a) ABT Obligations. ABT shall provide a marketing program on the --------------- internet and online services to attract Potential Purchasers under the service mark "ABT Used Car Cyberstore." ABT shall establish and maintain a database permitting Dealer to publish information on "ABT Certified" (as described below) vehicles and permitting access to internet users to information contained therein through the ABT Web site. The database shall be accessible by Potential Purchasers who shall search the database for used vehicles by make, model and option specification. Purchase requests shall be routed to dealers with the appropriate used vehicle in the database in accordance with geographic and other parameters established by ABT from time to time. Page 1 (b) Certification Program. Only vehicles that are "ABT Certified" may --------------------- be offered for sale through the Cyberstore. "ABT Certified" vehicles shall be those which meet all checklist requirements specified by ABT from time to time. The requirement shall be set forth on a form (the "Checklist") which will be provided to Dealer from time to time, which may contain 130 or more areas of compliance to be met before any vehicle is ABT Certified, and which may be amended by ABT from time to time. ABT shall specify the methodology of inspection for compliance with the Checklist, which may include contracting with a third party service provider ("Inspectors"), chosen by ABT, to inspect vehicles which Dealer may wish to offer for sale through the Cyberstore. Dealer agrees to cooperate fully with the Inspectors and to answer any questions asked by the Inspectors with full and complete information. Dealer agrees to provide ABT or the Inspectors with all information a reasonable vehicle purchaser would want to know in evaluating a purchase of any vehicle. Dealer shall indemnify ABT for all liabilities for customary third party claims arising in connection with vehicles dealer certifies pursuant to the ABT certification program. (c) Service Support. ABT shall provide or cause to be provided a --------------- service allowing Dealer to upload used vehicle information and images to the Cyberstore database on a periodic basis, and, at Dealer's expense, shall make available training resources to facilitate the use of the equipment, software and other aspects of the Cyberstore program. Dealer will permit access to ABT, or its agents or contractors, as requested to photograph, inspect and gather data for input to the Cyberstore database through use of the ABT Real Time System. ABT, or its agents, will, on two occasions, provide on-site service support and assist Dealer personnel in uploading vehicle information to the Cyberstore, as well as adding and deleting vehicles from the system. Subsequent service support shall be available from ABT at per diem rates established by ABT from time to time. (d) ABT Equipment. ABT warrants that it possesses or has access to ------------- and the right to use computer equipment and other office equipment necessary for ABT to perform its services contemplated by this agreement. (e) ABT Reports. ABT shall furnish to Dealer, on a quarterly basis, ----------- an operations report which shall include the number of inquiries from Potential Purchasers of used vehicles forwarded to Dealer. 2. Dealer Participation and Obligations. ------------------------------------ (a) Dealer Participation. Dealer shall designate at least one and no -------------------- more than three key employees who shall be the ABT contact persons for purposes of being provided instructions by ABT or its authorized agent. Dealer shall notify ABT within ten (10) days of any change in the assignment of any designated key employee. Dealer shall be responsible for costs, if any, associated with the training of its key employees to use ABT's services. Dealer shall promptly sign, and shall cause all designated key employees to sign, any confidentiality agreements submitted by ABT to protect ABT's proprietary rights. (b) Customer Service Standards. Dealer agrees to abide by ABT's Used -------------------------- Car Cyberstore Customer Service Standards designed to insure the quality of the ABT programs and the quality and consistency of Dealer's participation in such programs. ABT may, from time to time, amend the Used Car Cyberstore Customer Service Standards, or impose additional Used Page 2 Car Cyberstore Customer Service Standards upon thirty (30) days notice to Dealer. Dealer acknowledges that maintenance of the Used Car Cyberstore Customer Service Standards is crucial to the value of ABT's services and agrees to adopt such amendments or additions, even through they may require more work or expense to implement. The Used Car Cyberstore Customer Service Standards include the following: i) Dealer will warranty all vehicles purchased from Dealer through the services of the Cyberstore. The coverage of the warranty shall be no less favorable to the purchaser than the law of the state in which Dealer is located, and in no event shall be less favorable than "Three months or 3,000 miles, whichever comes first." The warranty shall cover all matters governed by applicable law and by the form of warranty attached hereto. Dealer will indemnify ABT for any third party claims arising under any warranty. ii) Dealer will provide prices for display on the ABT Web site of all vehicles posted to the Cyberstore. Dealer will price such vehicles competitively, but there shall be no maximum price specified by ABT. iii) Dealer will offer, and inform each purchaser in writing of, a repurchase option, enabling any purchaser to return a purchased vehicle to Dealer within 72 hours or 300 miles, whichever comes first. Dealer will refund 100% of the monies collected by Dealer with respect to any repurchased vehicle, provided there has been no damage to the vehicle. Dealer will provide each purchaser the name and phone number of the Dealer employee to contact to exercise the repurchase option. Dealer shall facilitate the exercise of such option in good faith using its best efforts to maximize the purchaser's satisfaction with the repurchase experience, and in any event shall refund such monies within five (5) business days. iv) Dealer will participate in any emergency repair system established by ABT, which system will permit any purchaser of a Cyberstore vehicle who is more than 100 miles from their residence and encounters a situation where the vehicle is not operational (i.e. cannot be driven), to contact the nearest Cyberstore Dealer (the "Repairing Dealer") and have such Repairing Dealer perform any warranted service or repair. The Repairing Dealer will contact the dealership through which the purchaser acquired its vehicle (the "Selling Dealer") and receive an irrevocable purchase order (an "R.O.") from the Selling Dealer to appropriately repair the vehicle. For other covered items, the owner should return to the selling dealer. In the interest of customer satisfaction, and improved inter-dealer relations, the resulting R.O. will be calculated on an internal basis of "cost plus 25%" for parts and labor in all states, except for those states with higher mandates, in which states the applicable law will govern. In the event of a "major" repair (i.e. engine or transmission), the selling dealer will have the option of providing alternate transportation to the customer, retrieving the affected unit, and repairing such unit at the selling dealer's service location. In Page 3 the event of any dispute between the Selling Dealer and the Repairing Dealer, ABT will act as arbiter and ABT's decisions will be final and binding upon Dealer. v) Dealer will participate in financing programs offered through Auto-By-Tel Acceptance Corporation ("ABTAC"). Dealer agrees that low-cost financing arrangements pursuant to which customers would (i) receive a financing proposal, and (ii) close both the vehicle acquisition and financing quickly through Dealer, would be viewed by Potential Purchasers as an improvement in the Auto-By-Tel Program, consequently increasing the attractiveness of the Used Car Cyberstore and its value to Dealer. Dealer agrees to cooperate fully with the financing arrangements instituted by ABTAC through the ABT Web site, including without limitation entering into customary closing administration arrangements with finance companies as requested by ABTAC, and to take such actions as reasonably requested by such finance companies or ABTAC to ensure that customers receive a high level of service and satisfaction in connection with the finance arrangements. After ABTAC institutes its financing program, Dealer acknowledges that changes in the Used Car Cyberstore Customer Service Guidelines may from time to time pertain to such financing programs. (vi) Dealer agrees to adopt ABT sales procedures on used vehicle transactions, including, without limitation, firm phone price quotes, advanced paperwork preparation, minimization of purchaser time spent closing transactions, and "no hassle" sales. Dealer shall relay to Potential Purchasers a full and complete response to the Potential Purchasers' inquiries transmitted by ABT to Dealer within 24 hours for receipt of the inquiry from ABT. Dealer's initial response shall be by telephone and shall disclose (i) the availability of the vehicles inquired about, (ii) all requested options, (iii) the price at which the Dealer will sell/lease the vehicle with all requested options to the Potential Purchasers, and (iv) all other terms and costs required by law to be disclosed to prospective purchasers, or from time to time specified by ABT to be disclosed to Potential Purchasers (all such information, the "Dealer Information"). Dealer hereby covenants and agrees that all of the terms and conditions contained in Dealer information transmitted to a Potential Purchaser shall remain in full force and effect and be binding upon Dealer for a period of seven (7) days after its transmittal provided the identified vehicle still remains available for sale, and Dealer agrees to include a statement to such effect in the Dealer Information. (vii) Dealer agrees to cooperate fully with ABT and its agents and contractors with respect to all systems aspects and inspections concerning the Cyberstore, as such systems and inspections are specified by ABT from time to time. (c) Use of System and Modifications. It is agreed to by the parties ------------------------------- that the use of ABT's services is restricted solely to Dealer and its designated employees and other duly Page 4 authorized licensees of ABT. Dealer shall not compete with ABT in providing the services herein discussed. (d) Dealer Equipment. In order to assure high quality service ---------------- delivered consistently by all dealers participating in the Cyberstore, ABT shall, from time to time, specify the equipment and software required by Dealer to participate in the Cyberstore. Dealer, at its sole cost and expense, shall provide the computer and other office equipment specified from time to time by ABT to use and receive the services to be provided hereunder by ABT, including, without limitation, the ABT Dealer Real Time Program personal computer and software. Dealer shall maintain all of their computer and office equipment in good and proper working order and repair. Dealer shall assume all responsibility for loss, damage and maintenance of Dealer's equipment and hereby holds ABT, its officers, directors, agents and other representatives harmless from any claim in connection therewith. (e) Dealer Report. Dealer shall report to ABT on a monthly basis the ------------- number and names of Potential Purchasers who purchased used vehicles from Dealer, the number of used vehicles financed and the amounts financed and such other information as ABT may from time to time request. (f) Advertising; Press Releases. From time to time ABT may provide --------------------------- Dealer with camera-ready copy and other logos, trademarks, artwork and materials for the limited purpose of inclusion, at Dealer's option, within Dealer print and television advertisements to promote the association of Dealer with the ABT program. ABT shall grant Dealer a revocable, limited license to use such materials for such limited purposes, and Dealer shall use such materials for such limited purposes, and Dealer shall use such materials in no other manner. Any such materials shall remain at all times the property of ABT, and they shall be returned upon request, and the limited license herein granted may be revoked at any time by written notice to Dealer. Dealer shall not issue any press releases or make any public announcements of any of the transactions contemplated by this Agreement except as may be mutually agreed to in writing by Dealer and ABT. 3. Title to System, Trademarks. The services to be provided hereunder by --------------------------- ABT, together with any modifications and/or improvements therein made by ABT or Dealer during the term of this Agreement, or any extensions thereof, and all copies thereof are proprietary to ABT and title thereto remains in ABT. All applicable rights to patents, copyrights, trademarks and trade secrets in the System and in the name "Auto-By-Tel" and its logo are and shall remain solely in ABT. Any and all trademarks and service marks associated with ABT, including "Used Car Cyberstore," are and shall remain the exclusive property of ABT. If, during the term of this Agreement, trademark registrations are filed by ABT, all rights belong to ABT, and ABT shall bear the costs for such registration(s). Dealer is permitted to use the trademarks and service marks only as set forth herein or only as authorized in writing by ABT. 4. Subscription Fees. ----------------- (a) Dealer shall pay ABT ((FirstCyberSignupAmt)) ($2500.00 for a single franchise dealer (one used location supporting one new car franchise), and $3500.00 for a multi-franchise dealer (a single used vehicle location supporting multiple new car franchises)) as an initial start-up fee concurrently with Dealer's execution of this Agreement. Page 5 (b) Dealer shall pay ABT the amount of ((CyberMthFee)) as a monthly subscription fee which is due and payable on the first day of every month. ABT may change this monthly subscription fee upon thirty (30) days written notice of the increased price to the Dealer. (c) Dealer shall pay ABT an annual fee on the first anniversary date of this Agreement and each anniversary thereafter. A notice indicating the amount of the annual fee will be sent to the Dealer sixty (60) days prior to each anniversary date of this Agreement. (d) Dealer shall pay ABT a per vehicle fee with respect to all vehicles offered for sale by Dealer through the Cyberstore in accordance with Schedule A attached hereto. Such fee shall be payable with respect to each day any vehicle is identified on the ABT Web site as available for purchase. (e) If ABT terminates this Agreement pursuant to Section 6(b)(ii) for no reason, ABT shall refund a prorated amount of fees paid under this Agreement for the remaining portion of the period with respect to which such fees had been paid, except that the monthly fees due for the month in which the Agreement is terminated shall not be refunded or prorated. (The startup fee shall be deemed to have been paid for the first year this Agreement is in effect.) In no other circumstances shall any amounts paid under this Agreement be refundable. 5. Taxes. Dealer shall, in addition to any other amounts payable under ----- this Agreement, pay all taxes -- federal, state, local or otherwise, excluding income taxes attributable to the income of ABT -- however designated which are levied or imposed by reason of the services provided under this Agreement. Without limiting the foregoing, Dealer shall promptly pay to ABT an amount equal to any such items actually paid or required to be collected or paid by ABT. 6. Term and Termination. -------------------- (a) This Agreement shall be for a term of five (5) years, unless terminated sooner pursuant to this Section 6. (b) ABT may terminate this Agreement (i) immediately if Dealer does not adhere to the Used Car Cyberstore Customer Service Standards in effect, or any amounts due ABT pursuant to Section 4 are outstanding more than thirty (30) days, or, if any amount payable to ABT under Sections 5 or 8 are outstanding more than thirty (30) days after ABT makes a written request therefor, or any other breach by Dealer of this Agreement is not cured within ten (10) days after written notification by ABT of such breach or Dealer is in breach of any other Agreement to which ABT (or any of its affiliates) and Dealer are both parties; or (ii) at any other time, for any reason or for no reason, upon thirty (30) days written notice to the Dealer; or (iii) immediately, if Dealer is in default under any other agreement between ABT (or any of its affiliates), on the one hand, and Dealer (or any of its affiliates) on the other, or if Dealer ceases for any reason to participate in the ABT Real Time Program or the ABT new car purchase program, or any ABTAC financing program. (c) Dealer may terminate this Agreement (i) immediately, if an order for liquidation against ABT is entered and not stayed in a bankruptcy proceeding; (ii) immediately, Page 6 if ABT is guilty of willful misconduct in the performance of its duties under this Agreement; or (iii) at any other time, in its sole discretion, upon thirty (30) days written notice to ABT. If this Agreement is terminated prior to the date set forth herein, the parties agree to continue to be bound to the covenants and promises set forth in paragraphs 2(f), 3, 5, 6, 7, 8, 9, 10, 11 and 12. 7. Confidentiality. ABT agrees to treat all records and other information --------------- provided by Dealer, with respect to terms of sale, financing or leasing of vehicles, confidential, except that this information may be transmitted to consumers making inquiries concerning the terms of purchase, financing or leasing of used vehicle(s). Dealer, on behalf of itself and its employees, agree to keep all information with respect to ABT's services confidential and, without the previous written consent of ABT, Dealer shall not impart ABT's services, or the concept thereof, to any person or entity whatsoever other than the designated key employees of the Dealer. Notwithstanding the foregoing, if either party is required to produce any such information by or of any government agency, court of competent jurisdiction, or other regulatory body, it may, upon not less than five (5) days written notice to the other party, release required information. During the term of this Agreement, Dealer will have access to and become acquainted with various trade secrets, consisting of formulas, strategies, processes, computer programs, compilations of information, records, specifications, and contractual information, all of which are owned by ABT and regularly used in the operation of ABT's business. Dealer acknowledges and agrees that it will keep such trade secrets confidential, and the sale or unauthorized use or disclosure of any of ABT's trade secrets will greatly damage ABT. In the event of the termination of this Agreement in accordance with its terms, Dealer will, upon request of ABT, promptly deliver to ABT all software and other written information and documents provided in connection with this or any other Agreement between ABT and Dealer, in the possession of Dealer, or any personnel thereof, including all copies, reproductions, summaries, analyses and extracts thereof or based thereon. 8. Indemnification. Dealer agrees to indemnify and hold harmless ABT and --------------- its subsidiaries and/or affiliates and their respective directors, officers, employees and agents against any and all losses, liabilities, claims, awards, damages, judgments, settlements, and costs, including fees and expenses, arising out of or related to any third party claim (including, but not limited to, any claim for damages by any person or entity who purchases, leases, and/or finances a used vehicle(s) from Dealer through utilization of ABT's services) resulting from the use of ABT's services provided hereunder. Dealer shall defend and settle, at its sole cost and expense, all suits or proceedings arising out of any of the foregoing, provided ABT gives Dealer prompt notice of any such claim of which it learns. In all events, ABT shall have the right to participate in the defense of any such suit or proceedings through counsel of its own choosing. ABT shall be without liability to Dealer with respect to anything done, or omitted to be done, in connection with this Agreement or instructions received pursuant hereto, if done without gross negligence or willful or wanton misconduct. 9. Exclusivity. Dealer acknowledges that the value to Dealer of this ----------- Agreement is based on the unique package of services marketed to Potential Purchasers of used vehicles by ABT and ABT's reputation for delivering such services on a consistent basis. Dealer agrees that certain key elements of the ABT packages of services are (i) electronic transmission of customer purchase or lease requests; (ii) rapid response by dealers to consumer pricing or lease pricing request, including immediate telephone contact with up-front, firm pricing provided over the Page 7 phone on such call; (iii) customer paperwork completed or nearly completed prior to customer arrival at the dealership for pickup so as to ensure the customer spends as little time as possible at the dealership for pickup; and (iv) Dealer training and support to implement the ABT package of services and to maintain the style and reputation of the ABT sales program and package of services; and (v) the provision of any service pursuant to which a Potential Purchaser may search a database containing vehicles posted by more than one dealer (collectively, the "Key Elements"). Dealer acknowledges that ABT has spent, and will spend, considerable time and money developing its package of services and training Dealer to deliver such services in a consistent way which maintains ABT's distinctive market presence and reputation. Accordingly, Dealer agrees that during the "Exclusivity Period" (as defined below), Dealer and its affiliates will not, directly or indirectly, participate with any third party in any arrangement or agreement which involves any or all of the Key Elements, and will not participate in any pricing, credit or financing, insurance or information service involving or made available on the Internet, online or by other electronic means. For purposes of this Section 9, the "Exclusivity Period" commences on the date of this Agreement, and terminates one year after the date of termination; provided, however, that if this Agreement is terminated anytime ----------------- after the first anniversary of the date hereof, then the Exclusivity Period terminates six months after the date of termination. Without contradicting the foregoing, Dealer may establish and maintain its own Web site and/or participate in any factory direct program. Notwithstanding any other provisions of this Agreement, in the event Dealer breaches this Section 9, the provisions of this Section shall remain in full force and effect for one (1) year after such breach is cured. Dealer acknowledges that the provisions of this Section 9 were a material inducement to ABT in entering into this Agreement, and that ABT would not have entered into this Agreement with Dealer in the absence of such provisions. Dealer acknowledges and agrees that compliance with the provisions of Sections 7 and 9 is necessary to protect the business and good will of ABT, and that any breach of Sections 7 or 9 will result in irreparable and continuing damage to ABT, for which money damages may not provide adequate relief. Accordingly, Dealer agrees that in the event Dealer shall breach or threaten to breach Sections 7 and 9, in addition to any other relief to which ABT may be entitled, ABT shall be entitled to temporary, preliminary or permanent injunctive relief, without proof of actual damages that have been or may be sustained by ABT as a result of such breach, and recovery of all reasonable sums expended and costs, including reasonable attorneys' fees, incurred by ABT to enforce the provisions of Sections 7 and 9 hereof. 10. Warranty Limitation. ABT MAKES NO WARRANTY REGARDING THE PERFORMANCE ------------------- OF THE SERVICES HEREUNDER AND DEALER SPECIFICALLY WAIVES ALL WARRANTIES, EXPRESSED OR IMPLIED ARISING OUT OF OR IN CONNECTION WITH THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT BY ABT. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ABT BE LIABLE FOR ANY LOSS OF BUSINESS PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES, OR FOR THE CLAIMS OF DAMAGES MADE BY ANY THIRD PARTY EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ABT SHALL NOT BE LIABLE FOR ANY LOSS OF DATA, DELAYS AND/OR ERRORS IN TRANSMITTING DATA OCCURRING FOR ANY REASON OR FOR ANY DAMAGES ARISING AS A CONSEQUENCE THEREOF. Page 8 11. Notices. All notices and requests in connection with this ------- Agreement shall be given or made upon the respective parties in writing and shall be deemed as given on the day it is deposited in the U.S. mail, postage prepaid, certified or registered, return receipt requested, and addressed as designated at the top of this Agreement or to such address as the party to receive the notice or request so designates by written notice to the other. 12. Miscellaneous. ------------- (a) Assignment. This Agreement and the rights and duties hereunder ---------- shall not be assignable by the Dealer except upon written consent of ABT. This Agreement and the rights and duties hereunder shall be assignable by ABT. (b) Independent Contractors. The relationship between ABT and Dealer ----------------------- created by this Agreement shall be that of independent contractor. Nothing contained in this Agreement shall be construed as creating or constituting a partnership, agency, or joint venture between ABT and Dealer. (c) No Waiver. The failure of either party to exercise in any respect --------- any right provided for herein shall not be deemed a waiver of any right hereunder. (d) Severability Clause. Any part, provision, representation or ------------------- warranty of this Agreement that is prohibited or that is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement that is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto waive any provision of law that prohibits or renders void or unenforceable any provision hereof. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any Person of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate, in good faith, to develop a structure, the economic effect of which is as close as possible to the economic effect of this Agreement, without regard to such invalidity. (e) Governing Law; Consent to Forum. This Agreement has been ------------------------------- negotiated, executed and delivered at and shall be deemed to have been made in California. This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to the conflict of laws rules therein. The parties hereto hereby consent and agree that the California state courts, or at ABT's option, the United States District Courts sitting in California, shall have exclusive jurisdiction to hear and determine any claims or disputes between the parties hereto pertaining to this Agreement or to any matter arising out of or related to this Agreement. The parties hereto expressly submit and consent in advance to such jurisdiction in any action or suit commenced in any such court, and hereby waive any objection which it may have based upon lack of personal jurisdiction, improper venue or forum non conveniens and hereby consent to the granting for such legal or equitable relief as is deemed appropriate by such court. Nothing in this Agreement shall be deemed or operate to affect the right of either party to serve legal process in any other manner permitted by law, or to preclude Page 9 the enforcement by either party of any judgment or order obtained in such forum or the taking of any action under this Agreement to enforce same in any other appropriate forum or jurisdiction. (f) WAIVER OF TRIAL BY JURY. EACH PARTY HERETO WAIVES THE RIGHT TO ----------------------- TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (g) Cooperation. Upon the request of ABT, Dealer agrees to confirm in ----------- writing, in form satisfactory to ABT and provided by ABT at its own expense, any amendment, modification, change in original terms or other action which alters the terms of this Agreement and which was taken or initiated by ABT pursuant to rights granted to, or reserved by, ABT hereunder. (h) Judicial Interpretation. Should any provision of this Agreement ----------------------- require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any party by reason of the rule of construction that a document is to be construed more strictly against the party who itself or through its agent prepared the same, it being agreed that all parties hereto have participated in the preparation of this Agreement. (i) Counterparts. This Agreement may be executed simultaneously in ------------ any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. (j) Advice from Independent Counsel. The parties hereto understand ------------------------------- that this Agreement is a legally binding agreement that affects such party's rights. Each party represents to the other that it has received legal advice from counsel of its choice regarding the meaning and legal significance of this Agreement, and that it is satisfied with its legal counsel and the advice received from it. (k) Other Agreements. This Agreement supersedes any and all ---------------- agreements, either oral or written, between the parties and contains all of the representations, covenants, and agreements between the parties with respect to the rendering of the services described in this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not contained in this Agreement, and that no other agreement, statement, or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in a writing signed by the party to be charged. Page 10 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to set their hands as of the date first above written. Auto-By-Tel Marketing Corporation By ______________________________ Name: Peter R. Ellis Title: President ((DealerCorp)) By _______________________________ Name: ((DealerFirstName)) ((DealerLastName)) Title: ((DealerTitle)) Page 11 SCHEDULE A - ---------- ABT CYBERSTORE SUBSCRIPTION AGREEMENT Daily Charges Based on Per Unit Per Day ---------------------------------------
0-25 $2.00 Per Day Per Unit 26-49 $1.75 Per Day Per Unit 50-75 $1.50 Per Day Per Unit 76+ $1.25 Per Day Per Unit
Page 12 EXHIBIT 10.13(h) ABTAC FINANCE PROGRAM PARTICIPATION AND POWER OF ATTORNEY --------------------------------------------------------- AGREEMENT --------- This ABTAC FINANCE PROGRAM PARTICIPATION AND POWER OF ATTORNEY AGREEMENT ("Agreement") is entered into as of the ((FinanceStDate)) between AUTO-BY-TEL ACCEPTANCE CORPORATION, a Delaware corporation ("ABTAC"), and ((Dealer_Corp)) dba ((Dealer_DBA)) ("Dealer"). WITNESSETH: ---------- WHEREAS, Dealer and Auto-By-Tel Marketing Corporation are parties to one or more subscription agreements governing the forwarding of purchase requests through the Website of its affiliate Auto-By-Tel Corporation, which agreement(s) contemplate the provision by ABTAC of certain financial services as part and parcel of the Auto-By-Tel customer service program; WHEREAS, ABTAC has entered into arrangements with certain companies to make available to Auto-By-Tel customers through Auto-By-Tel subscribing dealers certain financial services, and ABTAC intends to enter into further such arrangements; WHEREAS, to facilitate such arrangements, Dealer has agreed to grant ABTAC a power-of-attorney to execute and deliver the dealer agreements related to such arrangements on behalf of Dealer; WHEREAS, to facilitate such arrangements, ABTAC has requested that Dealer instruct ABTAC to specify to each financing source a binding amount of "dealer participation" or with respect to the sale of certain retail installment contracts and lease financing agreements, which amount Dealer will be paid directly by the financing source; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, ABTAC and Dealer agree as follows: 1. Dealer Participation. Dealer hereby instructs ABTAC to inform each -------------------- and every finance company which becomes one of the financing sources available to Auto-By-Tel customers, that Dealer agrees that it will accept as compensation for financing transactions the amounts computed in accordance with the formulas set forth on Schedule A, subject to customary conditions and terms (including those in the applicable dealer agreement or similar arrangement). Dealer agrees to return an executed copy of Schedule A to ABTAC forthwith, and agrees that if it fails to so return the Schedule, then the Dealer Election set forth on Schedule A shall be deemed to be "Flat Fee Program: No Rate Increase." Dealer shall have the right, on thirty (30) days written notice, to amend the participation election percentage, provided Dealer does not amend such election -------- more frequently than once every ninety (90) days, and provided that Dealer's election is within the parameters established on Schedule A. 2. Power of Attorney. Dealer hereby agrees to deliver to ABTAC, together ----------------- with this Agreement, a power of attorney in the form attached hereto as Exhibit A empowering ABTAC to enter Page 1 into Auto-By-Tel Acceptance Corporation Master Retail Sales and Lease Financing Agreements (the "Dealer Agreements") substantially in the form of Exhibit B, with such terms as are incorporated from the Auto-By-Tel Acceptance Corporation Master Retail Sale and Lease Financing Standard Provisions set forth on Exhibit C, together with the additional terms as ABTAC may determine are necessary and proper and customary in the industry, the execution of a Dealer Agreement by ABTAC on behalf of Dealer constituting conclusive evidence of such determination. 3. Term of Agreement. The term of this Agreement shall run concurrently ----------------- with that of the Subscription Agreement between Dealer and Auto-By-Tel Marketing Corporation. 4. Miscellaneous. ANY DISPUTE OR CLAIM ARISING HEREUNDER MAY BE BROUGHT ------------- ONLY TO A COURT OF COMPETENT JURISDICTION LOCATED IN ORANGE COUNTY IN THE STATE OF CALIFORNIA, AND THE PARTIES HERETO AGREE TO THE JURISDICTION OF SUCH COURT AND WAIVE ANY JURY TRIAL. This Agreement and the rights and duties hereunder may be assigned by ABTAC, and may be assigned by the Dealer only upon written consent of ABTAC. The failure of either party to exercise any right provided for herein shall not be deemed a waiver. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the rest of this Agreement shall remain valid and enforceable. This Agreement shall be governed and construed in accordance with the internal laws of the State of California. This Agreement supersedes any and all agreements and understandings between the parties and contains all terms between the parties with respect to the subject matter hereof. Any modifications of this Agreement will be effective only if in writing and signed by both parties. IN WITNESS WHEREOF, each of the parties hereto have caused its duly authorized representative to execute this Agreement on its behalf as of the date first written above. AUTO-BY-TEL ACCEPTANCE CORPORATION By: _____________________________ W. Randolph Ellspermann Chief Operating Officer Date: ____________________________ ((Dealer_Corp)) - ------------- dba ((Dealer_DBA)) By: _____________________________ Signature of ((Dlr_First)) ((Dlr_Last)) Title: ((Dlr_Title)) Date: ____________________________ Page 2 SCHEDULE A ---------- ABTAC DEALER RETAIL PLAN FEATURES ELECTION ------------------------------------------ RETAIL INSTALLMENT SALE FINANCING PARTICIPATION ----------------------------------------------- A. Flat Fee Program ---------------- If dealer elects NOT to increase the customer financing rate (APR) over the finance source buy rate (minimum rate), the following fee schedule will be paid to dealer directly by finance source, subject to the charge back provisions of the lender per the dealer agreement.
Amount Financed Dealer Fee --------------- ---------- $25,000 + $75 15,001 - 25,000 50 less than $15,000 25
B. Rate Participation Program -------------------------- If dealer elects to INCREASE the customer rate over financing source buy rate, dealer will be paid up front 76% of the contract interest rate markup directly by finance source, subject to the charge back provisions of the lender per the dealer agreement. (The finance source shall pay from the Flat Fee Program if the calculated amount under the Rate Participation Program is less than the Flat Fee Program.) C. DEALER ELECTION (CIRCLE ONE) Flat Fee Program: No rate increase Rate Participation Program: 0.25 % increase 0.50 % increase 0.75 % increase 1.00 % increase I understand that each ABTAC finance contract will be pre-approved at the ---- finance source buy rate plus the dealer participation rate shown above, if any, ---- and that both the customer and dealer will be notified of the customer finance rate (APR) by Auto-By-Tel. An exception to this practice will be for sub-prime borrowers, when the lender may not permit the indicated markup, in which case dealer will receive maximum permissible amount. Dealer Principal: ________________________________________ Date: __________ Signature of ((Dlr_First)) ((Dlr_Last)) Page 3 EXHIBIT A (PAGE 1 OF 2) POWER OF ATTORNEY ((Dealer_Corp)) dba ((Dealer_DBA)) a ((Entity)) organized and existing under the laws of the State of ((STTxt)) (the "Dealer"), hereby grants to AUTO- BY-TEL ACCEPTANCE CORPORATION ("ABTAC"), a power of attorney (this "Power of Attorney"), with full power of substitution and delegation, to take any and all actions in the name and on behalf of the Dealer, which ABTAC determines, in its sole and unreviewable discretion, are necessary or desirable to negotiate, execute, deliver and bind Dealer to one or more Auto-By-Tel Acceptance Corporation Master Retail Sales and Lease Financing Agreements (each, an "Agreement") with one or more finance companies (each, a "FinCo"), or to amend any provision of any Agreement previously executed and to otherwise act in my behalf with respect to all matters in connection with or related to the Agreement. The Dealer hereby acknowledges receipt of a copy of the Agreement, which is in all respects acceptable to the Dealer. The Dealer hereby acknowledges that ABTAC is given rights to make all decisions, including the determination of any provisions of any Exhibit C to the Agreement and give and receive certain notices with respect to the Agreement. The Dealer hereby expressly agrees to such provisions, and agrees to be bound by any notice or decision given, received or made by ABTAC pursuant to any Agreement. The Dealer agrees that it will not question the sufficiency of any instrument executed by ABTAC, attorney-in-fact pursuant to this Power of Attorney, notwithstanding that this instrument and/or the Agreement fails to recite the consideration therefor or recites merely a nominal consideration; any person dealing with the subject matter of such instrument may do so as if full consideration therefor had been expressed therein. I hereby ratify and confirm all that ABTAC, my attorney-in-fact has or shall lawfully do or cause to be done by virtue hereof. This Power of Attorney cannot be changed orally. It shall not be affected, except for prospective revocation, by the subsequent disability, incompetence, bankruptcy, liquidation or other circumstance of the principal. This Power of Attorney may be revoked by the Dealer upon written notice to ABTAC and to each FinCo with which the Dealer has entered into a Agreement, either by its own signature or through the power herein granted, but such revocation shall not effect any Agreement binding upon the Dealer prior to such revocation, which Agreements shall remain binding upon the Dealer in all respects. IN WITNESS WHEREOF, the undersigned a duly authorized representative of the Dealer hereunto sets his hand as of this _______ day of _______________________, 199_____. ((Dealer_Corp)) dba ((Dealer_DBA)) By: _______________________________ Name: ((Dlr_First)) ((Dlr_Last)) Title: ((Dlr_Title)) Page 4 EXHIBIT A (PAGE 2 OF 2) STATE OF ______________) : ss.: COUNTY OF ______________ ) BE IT REMEMBERED, that on this ___ day of __________, 199__, before me the undersigned, a Notary Public in and for the County and State aforesaid, came ______________, the ((Dlr_Title)) _______________ of ((Dealer_Corp)) dba ((Dealer_DBA)) a ((Entity)) duly organized, incorporated and existing under and by virtue of the laws of ((STTxt)), who is personally known to me to be such officer, and who is personally known to me to be the same person who executed, as such officer, the within instrument on behalf of said company, and such person duly acknowledged the execution of the same to be the act and deed of said company. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal, the day and year last above written. ____________________________________ Notary Public My commission expires: _____________________ Page 5 EXHIBIT B AUTO-BY-TEL ACCEPTANCE CORPORATION MASTER RETAIL SALES AND LEASE FINANCING AGREEMENT THIS AGREEMENT AMONG the automobile dealer identified below ("Dealer") having its principal place of business at the address identified below, and the finance company identified below ("FinCo") having its principal place of business at the address identified below, sets out the terms under which FinCo will purchase retail installment contracts and/or leases and leased vehicles from Dealer and the rights and obligations between Dealer and FinCo with regard to such retail installment contracts and/or leases and leased vehicles. PARAGRAPH A. INCORPORATION BY REFERENCE -------------------------- PARTS I [INSERT II AND/OR III AND/OR IV] of the Auto-By-Tel Acceptance Corporation Retail Sales and Lease Financing Agreement Standard Provisions (herein called the "Standard Provisions"), a copy of which are attached hereto as Annex A, are hereby incorporated herein by reference with the same force and effect as though fully set out herein. PARAGRAPH B. ADDITIONAL PROVISIONS --------------------- Each of the following provisions, which constitute part of this Agreement, is numbered to conform with the format of the Standard Provisions: ((DEALER_CORP)) DBA ((DEALER_DBA)) Dated:__________________________ , 199____ . [FINCO] ((Dealer_Corp)) By: ---------------------------- Authorized Signature - Title ((Dealer_DBA)) ---------------------------- ((Address)) Street Address of Dealer ((City)) ((ST)) ((Dlr_Zip)) ---------------------------- City and State By: AUTO-BY-TEL ACCEPTANCE CORPORATION, as Attorney-In-Fact By: ----------------------- Name: Title: Page 6 EXHIBIT C AUTO-BY-TEL ACCEPTANCE CORPORATION MASTER RETAIL SALES AND LEASE FINANCING AGREEMENT STANDARD PROVISIONS PART I -- PROVISIONS OF GENERAL APPLICABILITY 1. DEALER'S GENERAL WARRANTIES. For the term of this Agreement, Dealer warrants and agrees that: (a) Dealer has the power and authorization to enter into this Agreement, and the person signing this Agreement binds Dealer to this Agreement. (b) Dealer is duly organized under the laws of the state of its organization, and it is and will remain in good standing in the state of its organization. (c) At the time that Dealer enters into a retail installment contract ("Contract") or lease which is submitted to FinCo and at the time such Contract or lease and related leased vehicle (together, a "Lease Transaction") (hereinafter, the term "Financing Contract" is used to describe Contracts or a Lease Transactions, or, as the context requires, both) is assigned by Dealer to FinCo, Dealer is properly licensed and authorized to enter into the Financing Contract and sell such Financing Contract to FinCo. Dealer has all other licenses required to conduct its business as presently conducted, and is in compliance with all applicable laws, rules and regulations, including without limitation, (i) all applicable laws relating to doing business under a trade name or as a partnership, and (ii) all applicable requirements of the Fair Credit Reporting Act and the Equal Credit Opportunity Act and all other federal, state and local laws, rules and regulations applicable to the extension of credit and consumer protection or otherwise applicable to the sale or lease of a vehicle, including, without limitation, so called "fair lending rules". (d) All documents and financial statements of Dealer, and any guarantors of Dealer's obligations to FinCo, provided to FinCo pursuant hereto, either prior to or after signing this Agreement, are accurate. (e) If, after FinCo purchases a Financing Contract, Dealer receives any payments due thereunder, Dealer shall promptly deliver the payments to FinCo. (f) Dealer will not submit to FinCo credit information with respect to an applicant if Dealer believes, or has reason to believe, such applicant did not authorize the submission of such Application (defined below) to FinCo. (g) Dealer has complied with all applicable transaction reporting requirements including, without limitation, the requirement under Section 60501 of the Internal Revenue Code, as may be amended from time to time and its implementing regulations, to report cash receipts of more than $10,000. (h) Dealer will promptly forward to the proper authorities all federal, state and local fees and taxes, including, without limitation, all applicable federal luxury taxes due in connection with the sale of a vehicle relating to a Financing Contract (each, a "Vehicle"). (i) Dealer does not charge its customers (each, a "Buyer") for filing fees or other costs paid by Dealer to public officials to perfect FinCo's security interest in the Vehicle, except where allowed by law, nor does Dealer make any type of charge, including documentary or processing charges, which Dealer does not make in any other cash transaction. Page 7 2. DEALER LIABILITY. (a) If any Dealer representation, warranty or covenant made in this Agreement to FinCo is breached or untrue or FinCo reasonably believes is breached or untrue prior to purchasing the Contract, FinCo may choose not to purchase such Financing Contract. Dealer will indemnify and hold FinCo harmless from any claim, suit, loss, liability or expense, including court costs and attorneys' fees, incurred by FinCo in connection with such Financing Contract which FinCo did not purchase. (b) Upon Dealer's payment of the unpaid balance of a Financing Contract, such Financing Contract shall be assigned and/or endorsed by FinCo to Dealer without recourse and without warranties of any kind and sent by certified mail to Dealer. (c) If Dealer breaches this Agreement or any other agreement with FinCo relating to a Financing Contract, Dealer shall pay FinCo upon demand all losses and expenses incurred by FinCo as a result thereof, including attorney's fees and costs of litigation. 3. ADVERTISING. Dealer agrees not to identify FinCo in any advertising placed in any medium (including signs on Dealer's premises) without prior written approval of FinCo. Dealer shall indemnify FinCo for any losses or expenses, including attorney's fees and costs of litigation, suffered by FinCo in any judicial or administrative proceeding because of any claim or defense asserted against FinCo as a result of any advertising placed by Dealer, regardless of FinCo's consent to such advertising. 4. OFFSET. FinCo may deduct from any deposit, security, funds, or obligation due Dealer any amount Dealer owes FinCo under this Agreement or any other agreement between FinCo and Dealer. 5. TERMINATION. FinCo or Dealer may terminate the Agreement upon written notice to the other party at the address specified below, Agreement, or such other address as FinCo or Dealer may notify the other party from time to time. The termination of this Agreement shall not release FinCo or Dealer from any obligations incurred with regard to any Financing Contract purchased, or with regard to any Financing Contract which FinCo has indicated it would purchase upon receipt of satisfactory documentation. The indemnification, representations, warranties and covenants provisions contained in this Agreement shall survive the termination of this Agreement. 6. LAW GOVERNING. The Agreement shall be governed by the laws of the state in which FinCo is located, as set forth on the front of the Agreement. Should any part of this Agreement be determined to be unenforceable by a court, such unenforceability shall not affect the rest of this Agreement. 7. NOTICES. Notices hereunder must be in writing addressed to the respective party at the appropriate address set forth on the signature page of the Agreement or such other address of which the party may give the other notice and will be mailed, U.S. mail with first class postage prepaid. Notices will be effective two (2) days after mailing. Each party will provide the other notice of a change in such first party's address. Page 8 8. MISCELLANEOUS. No modification or waiver of any term of the Agreement or any amendments to this Agreement shall be binding unless made by written agreement signed by an authorized representative of Dealer and an authorized officer of FinCo. No failure or delay by either party in exercising any right or remedy hereunder shall operate as a waiver thereof. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. If any provision of this Agreement is found invalid, the remaining provisions of this Agreement shall survive. Neither this Agreement nor any of the activities contemplated hereby shall be deemed to create any partnership, joint venture, agency or employer- employee relationship between Dealer and FinCo. Dealer is not granted any express or implied right to bind FinCo in any manner whatsoever. The Agreement shall be binding upon the parties, their representatives, heirs, beneficiaries, successors and assigns; provided, however, that this Agreement shall not be -------- ------- assigned by Dealer without the prior written approval of FinCo. The Agreement shall be effective only upon execution or acceptance by an authorized representative of FinCo in the state in which FinCo is located as identified on the front of this Agreement. 9. AMENDMENTS. This Agreement may be amended only by (a) a separate writing which is dated and executed by both FinCo and Dealer, or (b) a separate writing which is received by Dealer from FinCo in which case the amendments in the writing received by Dealer shall be deemed accepted without qualification by Dealer upon submission of the first Financing Contract application to FinCo following Dealer's receipt of the writing. 10. ASSIGNMENT. Dealer cannot assign this Agreement or any rights under it without FinCo's prior written permission. FinCo can assign this Agreement and its rights under it without notice to or permission from Dealer. To the extent allowed by law, FinCo can use and assign any information about leases and leased vehicles purchased by FinCo. 11. ADDITIONAL DOCUMENTS AND SHOWINGS. Dealer agrees to provide FinCo with such additional information and documents as FinCo may reasonably request, including, but not limited to, evidence of compliance by Dealer with all of Dealer's obligations hereunder, evidence relating to all warranties and representations of Dealer hereunder, and the most recent financial statements for Dealer and any guarantors of Dealer's obligations to FinCo. Dealer hereby authorizes FinCo to investigate Dealer's creditworthiness. 12. ACTIONS BY FINCO. Dealer understands and agrees that FinCo may without notice to Dealer extend the due dates of rental or installment payments due or to become due under any Financing Contract, amend any Financing Contract by agreement with the Buyer or otherwise deal with the Buyer or any other party obligated to FinCo in connection with the transaction in whatever manner FinCo deems reasonable and appropriate, without affecting Dealer's obligations to FinCo under this Agreement. Dealer understands that FinCo reserves the right from time to time to change its policy as to the type of Financing Contracts it will purchase. The temporary or permanent discontinuance of the purchases of one of more types of Financing Contracts shall not affect the terms of this Agreement which apply to previously purchased Financing Contracts of any type. 13. LEGAL PROCEEDINGS. If either party institutes legal proceedings to enforce any of the terms of this agreement, the prevailing party in such proceeding shall be entitled to recover its attorneys' fees and court costs incurred in the action. Page 9 PART II -- PROVISIONS GOVERNING RETAIL INSTALLMENT CONTRACTS 1. SALE AND PURCHASE OF CONTRACTS. (a) If a potential Buyer has been referred to FinCo pursuant to this Agreement, wishes to enter into a retail installment contract ("Contract") with Dealer, Dealer may solicit credit information concerning Buyer from Buyer, provided it is provided to FinCo. Such information shall include a credit application ("Application") completed by Buyer, an outline of the proposed terms of the transaction, and such additional information as FinCo may request. FinCo in its sole discretion will make a decision in the state in which the FinCo is located as to whether it will purchase a Contract if documentation satisfactory to FinCo is received. If FinCo decides it will purchase the Contract upon receipt of such documentation, Dealer will execute an assignment of the Contract to FinCo and send the Contract, together with the assignment, to FinCo. (b) If all documentation referred to in Section 1(a) is received, FinCo will purchase in the state in which the FinCo is located the Contract and pay Dealer the amount financed as shown on the Contract. 2. ADDITIONAL PAYMENTS TO DEALER. FinCo will determine the amount payable to Dealer in connection with the purchase of a Contract pursuant to the provisions it shall provide Dealer from time to time (the "Retail Plan Features"). Any such amount will be paid to Dealer less any obligations of Dealer to FinCo. If the credits due Dealer are insufficient to cover amounts owed to FinCo, the shortage will be paid promptly by Dealer. 3. DEALER SUBVENTION (a) From time to time Dealer may wish to offer its customers lower retail rates and/or higher residual values (i.e., the "balloon" value, or last scheduled payment amount under "Balloon Financings") than those ordinarily offered by FinCo in connection with Contracts and Balloon Financings. In addition, from time to time Dealer may wish to participate in automobile manufacturers' programs which offer customers special finance interest rates and/or higher residual values than those ordinarily offered by FinCo in connection with Contracts and Balloon Financings. FinCo may be willing from time to time to acquire Contracts and Balloon Financings originated through Dealer pursuant to this Agreement which are subject to such rates and/or residual values in accordance with the terms of this Agreement and the Retail Plan Features. (b) FinCo will announce its standard rates for Contracts and Balloon Financings and residual values for Balloon Financings from time to time as contemplated by this Agreement. If Dealer chooses to offer a Contract or Balloon Financing using a lower rate and/or a higher residual value than FinCo would ordinarily accept under this Agreement and if Dealer wishes that FinCo acquire such Contract or Balloon Financing, Dealer will pay FinCo by check a subsidy ("Support Payment") equal to, in the case of a residual enhancement, the result of the calculations provided in the work sheet as FinCo may specify from time to time, or in the case of a rate subsidy, the difference between what the customer's scheduled total of payments would have been at FinCo's minimum rate for such Contract or Balloon Financing and the actual total of payments stated in that Contract or Balloon Financing. In the case of a manufacturer's program, FinCo may make arrangements directly with the manufacturer for receipt of the Support Payment. Dealer will also otherwise comply with such procedures as FinCo may establish from time to time. Dealer will present the required Support Payment to FinCo at the time the Contract or Balloon Financing is presented to FinCo for funding, and if no Support Payment is submitted, FinCo will have no obligation to fund that Contract or Balloon Financing. In the case of a residual enhancement, Dealer will complete the appropriate work sheet and include it with the documentation presented to FinCo for funding. In all other respects, FinCo will acquire subsidized Contracts and Balloon Financings in accordance with FinCo's standard procedures, including credit underwriting and documentation requirements and, except as expressly provided herein, such transactions will be subject to the Page 10 provisions of this Agreement. Dealer acknowledges that no portion of the Support Payment will be refunded by FinCo to Dealer in the event of early termination of a Contract or Balloon Financing or otherwise. (c) Despite any Support Payment, Dealer agrees that the cash price of the Vehicle stated in each Contract or Balloon Financing and/or in the related purchase order will be no higher than the price that the customer would pay in a purchase solely for cash. Dealer will not directly or indirectly cause or allow the Support Payment to be charged or passed along to any retail customer. Dealer will comply with any laws requiring disclosure of the Support Payment as part of the finance charge or requiring disclosure that the Support Payment may affect the cash price. Dealer will treat the Support Payment as general dealership overhead and will not charge it separately to credit customers. Dealer will not discriminate against any customer on a basis prohibited by law in making retail financing available at a reduced rate of finance charge, at a higher residual value or otherwise. Dealer will not offer a subsidized rate on a Contract or Balloon Financing if FinCo's loan documentation in Dealer's state would require FinCo to offer a refinancing of the obligation at maturity at the same rate and/or payment. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Dealer represents, warrants and covenants with respect to each Contract and the assignment to FinCo thereof that: (a) to the best of Dealer's knowledge (i) no statements made or furnished to FinCo by Buyer, Dealer or any other person are untrue or incomplete; (ii) Buyer has not financed the down payment of the Vehicle; (iii) Buyer is a bona fide applicant having legal capacity to enter into the Contract; (iv) the signature of Buyer on all documents is genuine; and (v) the amount stated in the Contract to be due will in fact be due and payable at the time or times provided therein free of any claims, defenses, setoffs or counterclaims; and (vi) Buyer has never violated any laws concerning liquor or narcotics; (b) Dealer has sold the Vehicle described in the Contract and the proceeds of the Contract are to be used to pay for such Vehicle and related items; (c) Dealer had indefeasible title to the Vehicle immediately prior to the purchase by Buyer, and the right and authority to sell the Vehicle to Buyer, free and clear of all liens and encumbrances; (d) Dealer has, and has assigned to FinCo, good and sole title to the Contract, free and clear of all liens and encumbrances; (e) Dealer will secure and perfect for FinCo a security interest in the Vehicle free and clear of any liens or encumbrances, and deliver to FinCo written evidence satisfactory to FinCo of such security interest within six months of the date of the Contract; (f) the description of the Vehicle is true and complete in the Contract and the Vehicle will be or has been duly delivered to and accepted without revocation by Buyer; (g) insurance or other coverage provided or arranged by Dealer does not violate any applicable law or regulation and insurance documentation and rebates of unearned premiums, if any, will be delivered to Buyer within the time required by law; (h) the Vehicle is insured by a company acceptable to FinCo against fire, theft and collision, FinCo is loss payee and written evidence of such insurance has been or will promptly be provided to FinCo; (i) all optional credit insurance sold by Dealer to Buyer is for the full term of the Contract and is limited to coverage of Buyer, including any co- buyer; Page 11 (j) Dealer has provided Buyer, and each co-buyer, with a completed Contract and any other document as required by applicable law, and the information filled in thereon by Dealer is accurate; (k) each other instrument in connection with the Contract giving rights to Dealer, including guaranties, and all signatures thereon are genuine, each such instrument has been duly authorized and executed, all parties hereto are adults with full legal capacity to contract and each such instrument is valid, binding and enforceable in accordance with its terms and against all parties thereto except as enforcement may be affected by bankruptcy and similar laws affected creditors' rights generally; (l) all agreements and warranties of Dealer relative to the Vehicle, other than agreements relative to its acquisition by Dealer, are contained either in the Contract or in this Agreement, and Dealer has made all disclosures required by applicable law to be made in connection with the Contract including disclosures required in any advertisement of the sale transaction and any related purchase order; (m) the conduct of Dealer in developing the sale transaction shall not subject FinCo to suit or administrative proceeding under any state or federal law, rule or regulation including, without limitation, the Federal Truth in Lending Act the Federal Equal Credit Opportunity Act and the California Rees- Levering Act; (n) the Contract is not in default; (o) except for monies which FinCo has agreed are to be retained by Dealer, Dealer has not received any monies which Dealer shall not have transferred to FinCo with the Contract, properly endorsed to FinCo where appropriate, and Dealer has not loaned any of such sums to the Buyer; (p) Dealer has furnished FinCo all credit information received by Dealer relative to the contract and such information is, to the best of Dealer's knowledge, true, complete and accurate; (q) the Buyer is not an employee of Dealer or a member of such an employee's immediate family; and (r) possession of the Vehicle was not obtained by the Buyer's use of a fraudulent scheme, trick or devise not otherwise covered elsewhere by these warranties. To the extent that any representation, warranty or covenant made by Dealer in this Agreement differs from or is in conflict with any representation, warranty or covenant made by Dealer in the assignment of any Contract, the representation, warranty or covenant of this Agreement shall control. 5. FINCO'S REMEDIES UPON DEALER DEFAULT OR BREACH OF WARRANTY. FinCo's purchase, or acceptance for purchase, of a Contract does not prevent FinCo from exercising its rights against Dealer for a breach of the requirements in Sections 1 and 2 or the warranties in Section 4 with respect to such Contract. If Dealer breaches a warranty in this Agreement, or defaults in the performance of an obligation in this Agreement, or a Contract purchased by FinCo does not meet the requirements in Sections 1 and 2, then Dealer shall repurchase from FinCo the Contract which is subject to the breach, default, or failure to meet requirements. The repurchase shall be at the price and in the manner described in Section 6. In addition to repurchase, FinCo shall have all other rights and remedies available under applicable law and all of those available under this Agreement. All of FinCo's rights and remedies are cumulative. Should suit be initiated by FinCo to enforce any provision of this Agreement, FinCo shall be entitled to an award of all reasonable costs incurred, including attorney's fees. Any funds, leases, vehicles, or other property of any kind of Dealer which comes into FinCo's possession secure Dealer's obligations to FinCo and can be liquidated by FinCo and applied to Dealer's obligations to FinCo. If Dealer breaches a warranty in this Agreement or defaults in the performance of an obligation in this Agreement, FinCo is not obligated to purchase any more Contracts from Dealer whether or not FinCo approved the Contract before the default or breach. Page 12 6. DEALER REPURCHASE OF CONTRACTS. For each Contract which Section 5 requires Dealer to repurchase, Dealer shall promptly pay FinCo, upon receipt of FinCo's demand, any or all of the following amounts at the election of FinCo: (i) the unpaid balance of the Contract affected by such breach or untruth; (ii) all losses and expenses incurred by FinCo as a result of such breach or untruth; and (iii) out-of-pocket expenses paid or incurred by FinCo in connection with the collection of any amount due under any such Contract, including attorney's fees and costs of litigation, whether by or against FinCo, and expenses with respect to repossessing, storing, repairing and selling the Vehicle. In addition, Dealer shall indemnify FinCo for any losses and expenses, including attorneys' fees and costs of litigation, suffered by FinCo in any judicial or administrative proceeding because of any claim or defense asserted against FinCo as a result of any act or omission on the part of Dealer, including, at the election of FinCo, the unpaid balance of such Contract. PART III -- PROVISIONS GOVERNING LEASES AND LEASED VEHICLES 1. PURCHASE OF LEASES AND LEASED VEHICLES. (a) FinCo shall purchase from Dealer each lease, and the leased vehicle, that Dealer submits to FinCo for purchase if Dealer has provided FinCo with all documentation and any other information which FinCo may require in connection with the Lease Transaction, Lessee has the insurance required by the lease, and the Lease Transaction (i) is documented with a lease contract form provided by FinCo, (ii) has been properly executed by lessee and Dealer, (iii) has been properly assigned by Dealer to FinCo, (iv) has been approved by FinCo no more than 60 days before FinCo's receipt of the properly executed and assigned lease from Dealer, and (v) complies with FinCo's purchase criteria and procedures, including those in the handbooks, bulletins and other documents provided by FinCo to Dealer. (b) For each lease and leased vehicle purchased by FinCo from Dealer, the purchase price shall be an amount agreed on by Dealer and FinCo, consistent with FinCo's purchase criteria. The purchase price shall be payable by FinCo to Dealer within ten (10) days after FinCo accepts a lease for purchase. At the time Dealer submits a lease to FinCo for purchase, Dealer shall inform FinCo if anyone is owed money for the leased vehicle. FinCo may pay the purchase price either (i) jointly to Dealer and the person who is owed money for the vehicle; or (ii) directly to such person, to the extent money is owed, and pay the remainder to Dealer. FinCo may deduct from the purchase price payment any amounts Dealer owes FinCo. (c) To the extent not done at the time Dealer submits a lease to FinCo for purchase, Dealer hereby assigns to FinCo all of its rights, title and interest in and with respect to the lease and leased vehicle. Dealer hereby appoints FinCo as Dealer's attorney in fact to act in Dealer's name to complete any assignment, including the signing of Dealer's name on a lease and any vehicle transfer and registration documents. Dealer authorizes FinCo to retain and endorse any payments to Dealer received by FinCo which FinCo is entitled to in connection with an assigned lease and leased vehicle. FinCo can assign to a qualified intermediary FinCo's right to purchased leased vehicles from Dealer. Without FinCo's prior consent, Dealer shall not facilitate any sublease or assignment of a lease and leased vehicle purchased by FinCo. 2. SERVICE CONTRACTS. (a) A leased vehicle submitted to FinCo for purchase can be covered by a service contract if the form, administrator, and underwriter of the contract are approved by FinCo and the contract is cancelable by the lessee and FinCo. The lessee may pay Dealer in full for the service contract at the time the lease is signed, or the cost to the lessee for the service contract may be included in the capitalized cost of the lease to the extent allowed by FinCo's purchase criteria. (b) When Dealer becomes aware that a lessee has canceled a service contract, Dealer shall immediately notify FinCo. In the event of any type of cancellation of a service contract, the lessee shall be entitled to a refund of the Page 13 unearned portion of the service contract price as provided in the service contract or the lease or as otherwise required by law, which ever provides for the largest refund. Dealer shall be responsible for the payment of the refund up to the amount Dealer collected or otherwise received in connection with the sale of the service contract. Dealer shall remit payment of the refund to the lessee or FinCo as instructed by FinCo. If so provided in the lease, the refund will be subject to FinCo's security interest. 3. NO RECOURSE TO DEALER FOR LESSEE DEFAULT. Unless otherwise agreed to by Dealer in writing, FinCo's purchase of leases shall be without recourse to Dealer for the Lessee's failure to perform the Lessee's obligations under the lease. 4. DEALER'S SPECIFIC WARRANTIES FOR EACH LEASE AND LEASED VEHICLE. As to each lease and leased vehicle purchased by FinCo, Dealer warrants that as of the date FinCo purchases the lease and leased vehicle: (a) Dealer has, and has assigned to FinCo, good and sole title to the lease and leased vehicle both of which are free and clear from all liens, claims and encumbrances; (b) Dealer has complied with all applicable state, federal and local laws and regulations applicable to the Lease Transaction; (c) Dealer has completed the lease contract form correctly. Dealer has not made any oral or written promise, affirmation, warranty or representation to any lessee that is not contained in the lease. The lessee is not in default under the lease. All information provided or delivered by Dealer regarding the leased vehicle is true, including but not limited to the description of the vehicle and the installation of optional equipment. The lessee has no right to revoke the lease and no offsets or counterclaims regarding, or defenses to, the enforcement of the lease. The lessee has accepted the vehicle with all options Dealer agreed to have installed and with the vehicle in good operating order and in the condition represented by Dealer; (d) Dealer has titled and registered the leased vehicle, or has made application therefor, as instructed by FinCo; (e) the Lease Transaction complies with the requirements in Section 1 and Section 4; (f) the lessee has paid to the Dealer all amounts payable to Dealer by the lessee for the Lease Transaction. Dealer has paid, or will pay when due, all taxes due for Dealer's sale and ownership of the leased vehicle, except to the extent that FinCo informs Dealer in writing that FinCo will remit the sales tax; (g) Dealer has accurately explained the lease provisions to the lessee. Dealer has negotiated and explained the lease in English, unless Dealer complied with applicable laws for non-English transactions and notified FinCo in writing; (h) all credit information provided or delivered by Dealer as to the lessee is true, complete and accurate to the best of Dealer's information and belief. Dealer has verified that the lessee named on the lease is the person who signed the lease and is the person identified in, and who signed, the credit application as the applicant. Dealer does not know of any facts not told to FinCo in writing which indicate that the lease will be uncollectible or unenforceable or that the lessee will not be the principal driver of the leased vehicle; (i) the lease and all signatures thereon are genuine, the lease has been duly authorized and executed by the lessee, the lessee is an adult with full legal capacity to contract and the lease is valid and binding upon the lessee; Page 14 (j) each other instrument executed in connection with the lease giving rights to Dealer, including guaranties, and all signatures thereon are genuine, each such instrument has been duly authorized and executed, all parties thereto are adults with full legal capacity to contract and each such instrument is valid, binding and enforceable in accordance with its terms and against all parties thereto except as enforcement may be affected by bankruptcy and similar laws affecting creditor's rights generally; (k) all agreements and warranties of Dealer relative to the vehicle, other than agreements relative to its acquisition by Dealer, are contained either in the lease or in this Agreement, and Dealer has made all disclosures required by applicable law to be made in connection with the lease including disclosures required in any advertisement of the Lease Transaction and any related purchase order; (l) an exact, completely filled-in legible copy of the lease was delivered to the lessee prior to the time of its execution; (m) the vehicle has not been delivered to the lessee but shall have been delivered to the lessee together with all accessories and opinions agreed by Dealer to be delivered with the vehicle and accepted for purposes of the lease prior to transmittal of the lease to FinCo; (n) Dealer has orally verified that the lessee has in effect insurance providing the coverages required under the lease and providing FinCo the rights contemplated to be available to the lessor under the lease (and such coverages and rights will be in effect for at least 30 days after delivery to the lessee of the vehicle); To the extent that any representation, warranty or covenant made by Dealer in this Agreement differs from or is in conflict with any representation, warranty or covenant made by Dealer in the assignment of any Lease Transaction, the representation, warranty or covenant of this Agreement shall control. 5. FINCO'S REMEDIES UPON DEALER DEFAULT OR BREACH OF WARRANTY. FinCo's purchase, or acceptance for purchase, of a lease and leased vehicle does not prevent FinCo from exercising its rights against Dealer for a breach of the requirements in Section 1 or the warranties in Section 4 with respect to such Lease Transaction. If Dealer breaches a warranty in this Agreement, or defaults in the performance of an obligation in this Agreement, or a Lease Transaction purchased by FinCo does not meet the requirements in Section 1 or the warranties in Section 4, then Dealer shall repurchase from FinCo the Lease Transaction which is subject to the breach, default, or failure to meet requirements. The repurchase shall be at the price and in the manner described in Section 6. In addition to repurchase, FinCo shall have all other rights and remedies available under applicable law and all of those available under this Agreement. All of FinCo's rights and remedies are cumulative. Should suit be initiated by FinCo to enforce any provision of this Agreement, FinCo shall be entitled to an award of all reasonable costs incurred, including attorney's fees. Any funds, leases, vehicles, or other property of any kind of Dealer which comes into FinCo's possession secure Dealer's obligations to FinCo and can be liquidated by FinCo and applied to Dealer's obligations to FinCo. If Dealer breaches a warranty in this Agreement or defaults in the performance of an obligation in this Agreement, FinCo is not obligated to purchase any more leases or leased vehicles from Dealer whether or not FinCo approved the Lease Transaction before the default or breach. 6. DEALER REPURCHASE OF LEASES. (a) For each Lease Transaction which Section 5 requires Dealer to repurchase, the purchase price shall be the sum of (1) all amounts past due under the lease, (2) the depreciation portion of the remaining unpaid monthly payments, (3) the residual value of the leased vehicle, and (4) any rate participation paid by FinCo to Dealer. In addition to the repurchase price, Dealer shall pay FinCo (i) the amount of any tax assessed on the repurchase, and (ii) any amounts for fees and taxes which the lease requires the lessee to pay. Page 15 (b) Dealer shall pay the repurchase price, and applicable taxes within ten (10) days after FinCo's request. Dealer shall pay the repurchase price regardless of whether or not the leased vehicle is available to Dealer or the payment obligations in the lease have been modified. Payment of the repurchase price shall assign to Dealer, without recourse and "AS IS WHERE IS", all of FinCo's right, title and interest in and to the lease and leased vehicle. If Dealer acquires any rights in the vehicle before paying FinCo the repurchase price, FinCo shall have a security interest in those rights to secure payment of the repurchase price. 7. MAINTENANCE OF VEHICLES. FinCo shall have no obligation to service any leased vehicle purchased by FinCo from Dealer. Dealer shall service each leased vehicle purchased by FinCo from Dealer at the Lessee's or FinCo's request to the extent of Dealer's best servicing capabilities and at prices consistent with prices charged to other customers of Dealer. Dealer shall perform applicable warranty service for each leased vehicle purchased by FinCo from Dealer. If a leased vehicle purchased by FinCo is returned to Dealer in connection with an early termination or scheduled termination of the lease Dealer shall within two (2) business days notify FinCo and safe keep the leased vehicle until recovered by FinCo. 8. ADDITIONAL PAYMENTS TO DEALER. FinCo will determine the amount payable to Dealer in connection with Lease Transactions pursuant to the provisions it shall provide Dealer from time to time (the "Retail Plan Features"). Any such amount will be paid to Dealer less any obligations of Dealer to FinCo. If the credits due Dealer are insufficient to cover amounts owed to FinCo, the shortage will be paid promptly by Dealer. 9. LEASE CONTRACT FORMS. FinCo shall provide Dealer with fill-in-the-blanks lease contract forms for Lease Transactions to be submitted by Dealer. The preprinted part of the contract forms will meet FinCo's purchase criteria for acceptable lease contract forms. FinCo makes no representations or warranties of any kind, express or implied, as to the form, substance or enforceability of any such lease contract forms. Dealer acknowledges that if it enters into a lease using a lease contract form provided by FinCo, then the lease will be binding on Dealer and the lessee to the extent required by law, whether or not FinCo purchases the lease. Page 16 EX-10.14 19 LEASE AGMT. BET. REG. & MCD. DOUG. REAL., 8/1/96 EXHIBIT 10.11 GRUBB & ELLIS SUMMARY OF LEASE 1. LANDLORD: McDonnell Douglas Realty Company, a California Corporation 2. LANDLORD'S ADDRESS: 4060 Lakewood Boulevard, 6th Floor Long Beach, California 90808-1700 3. TENANT'S ADDRESS: 18872 MacArthur Blvd, #200 Irvine, California 92715 4. RENTABLE SQUARE FEET: 12,280 Square Feet 5. USE: General office use. 6. TARGET COMMENCEMENT DATE: August 1, 1996 7. TERMINATION DATE: July 31, 2001 8. LEASE TERM: 60 Months 9. BASE NET RENT PER RSF: Months Rental Rate/RSF -------- --------------- 01 - 12 $0.85 FSG 13 - 24 $1.20 FSG 25 - 36 $1.35 FSG 37 - 48 $1.45 FSG 49 - 60 $1.53 FSG 10. TENANT'S PROPORTIONATE SHARE: 26.81% 11. BASE YEAR: 1996 12. SECURITY DEPOSIT: $20,600.00 (to be delivered to Landlord prior to the start of the 36th month of the lease term). 13. HOLD OVER: 150% of last months rent. 14. ASSIGNMENT & SUBLEASING: Landlord shall not unreasonably withhold.
15. PARKING: 40 unreserved spaces, 4 reserved spaces. Tenant shall be allowed to use an additional 5 stalls, as available and a location to be determined by Landlord at no additional charge to Tenant throughout 16. OPTION TO CANCEL: None 17. RENEWAL OPTION: Tenant shall have one (1), five (5) year option at fair market value. Tenant must provide at least six (6) months and not sooner than nine (9) months prior written notice. (See addendum). 18. TENANT IMPROVEMENTS: Landlord grants Tenant a "Tenant Allowance" of Twenty Dollars ($20.00) per usable square foot. 19. TENANT INSURANCE: See Exhibit "I". 20. SIGNAGE: Tenant, at Tenant's sole cost if approved by the city, shall be entitled to monument signage. 21. KEY PHONE NUMBERS: ASSET MANAGEMENT ---------------- Prentiss Properties 18881 Von Karman Avenue, Suite 200 Irvine, California 92715 Phone: (714) 833-2133 BROKER ------ Mr. Carl Johnson Grubb & Ellis Company 4000 MacArthur Blvd. Suite 1500 Newport Beach, California 92660 (714) 833-2900 Fax - (714) 833-8037
THE INFORMATION CONTAINED HEREIN WAS OBTAINED FROM THIRD PARTIES, AND IT HAS BEEN INDEPENDENTLY VERIFIED BY THE REAL ESTATE BROKERS. BUYERS/TENANTS SHOULD HAVE THE EXPERTS OF THEIR CHOICE INSPECT THE PROPERTY AND VERIFY ALL INFORMATION. REAL ESTATE BROKERS ARE NOT QUALIFIED TO ACT AS OR SELECT EXPERTS WITH RESPECT TO LEGAL, TAX, ENVIRONMENTAL BUILDING CONSTRUCTION, SOILS-DRAINAGE OR OTHER SUCH MATTERS. OFFICE BUILDING LEASE BETWEEN MCDONNELL DOUGLAS REALTY COMPANY LANDLORD AND AUTO-BY-TEL CORPORATION, A DELAWARE CORPORATION TENANT TABLE OF CONTENTS PAGE ---- BASIC LEASE TERMS.................................................. 1 Landlord...................................................... 1 Landlord's Address............................................ 1 Tenant........................................................ 1 Tenant's Address.............................................. 1 Project....................................................... 1 Building...................................................... 1 Premises...................................................... 1 Tenant's Percentage........................................... 1 Target Commencement Date...................................... 1 Commencement Date............................................. 1 Initial Monthly Base Rent..................................... 2 Adjustment to Monthly Base Rent............................... 2 Option Term Rent.............................................. 2 Security Deposit.............................................. 2 Tenant Improvements........................................... 2 Tenant Improvement Allowance.................................. 2 Permitted Use................................................. 2 Parking Spaces................................................ 2 Initial Monthly Parking Rent.................................. 2 Base Year..................................................... 2 Broker(s)..................................................... 2 Interest Rate................................................. 2 Guarantor(s).................................................. 3 Exhibits...................................................... 3 Addendum...................................................... 3 PREMISES AND COMMON AREAS.......................................... 3 Premises...................................................... 3 Mutual Covenants.............................................. 3 Tenant's Use of Common Areas.................................. 3 Landlord's Reservation of Rights.............................. 3 TERM; COMMENCEMENT DATE............................................ 4 POSSESSION......................................................... 4 Delivery of Possession........................................ 4 Condition of Premises......................................... 4 Use and Occupancy Prior to Commencement Date.................. 4 RENT............................................................... 4 Monthly Base Rent............................................. 4 Additional Rent............................................... 4 Late Payments................................................. 5 OPERATING EXPENSES................................................. 5 Operating Expenses............................................ 5 Base Year Operating Expenses.................................. 5 Estimate Statement............................................ 5 Actual Statement.............................................. 5 Miscellaneous................................................. 5 After-Hours HVAC.............................................. 6 Tenant's Audit Rights......................................... 6 SECURITY DEPOSIT................................................... 6 -i- TABLE OF CONTENTS (CONTINUED) PAGE ---- USE................................................................ 7 Tenant's Use of the Premises.................................. 7 Compliance.................................................... 7 Hazardous Materials........................................... 7 NOTICES............................................................ 8 BROKERS............................................................ 8 SURRENDER; HOLDING OVER............................................ 8 Surrender..................................................... 8 Holding Over.................................................. 8 TAXES ON TENANT'S PROPERTY......................................... 8 ALTERATIONS........................................................ 9 REPAIRS............................................................ 10 Landlord's Obligations........................................ 10 Tenant's Obligations.......................................... 10 Tenant's Failure to Repair.................................... 10 LIENS.............................................................. 11 ENTRY BY LANDLORD.................................................. 11 UTILITIES AND SERVICES............................................. 11 WAIVER AND INDEMNIFICATION......................................... 11 Tenant's Waiver............................................... 11 Tenant's Indemnification of Landlord.......................... 12 Survival; No Release of Insurers.............................. 12 INSURANCE.......................................................... 12 Tenant's Insurance............................................ 12 Supplemental Tenant Insurance Requirements.................... 13 Tenant's Use.................................................. 13 Cancellation of Landlord's Policies........................... 14 Mutual Waiver of Subrogation.................................. 14 DAMAGE OR DESTRUCTION.............................................. 14 Partial Destruction........................................... 14 Substantial Destruction....................................... 14 Notice........................................................ 14 Tenant's Termination Rights................................... 14 Tenant's Costs and Insurance Proceeds......................... 15 Abatement of Rent............................................. 15 Damage Near End of Term....................................... 15 Waiver of Termination Right................................... 15 Termination................................................... 15 -ii- TABLE OF CONTENTS (CONTINUED) PAGE ---- EMINENT DOMAIN..................................................... 15 Substantial Taking............................................ 15 Partial Taking; Abatement of Rent............................. 15 Condemnation Award............................................ 16 Temporary Taking.............................................. 16 DEFAULTS AND REMEDIES.............................................. 16 Default By Tenant............................................. 16 Notices....................................................... 17 Landlord's Remedies; Termination.............................. 17 Landlord's Remedies; Re-Entry Rights.......................... 17 Landlord's Remedies Re-Letting................................ 17 Landlord's Remedies Performance for Tenant.................... 18 Late Payment.................................................. 18 Lien for Rent................................................. 18 Rights and Remedies Cumulative................................ 18 LANDLORD'S DEFAULT................................................. 18 ASSIGNMENT AND SUBLETTING.......................................... 18 Restriction on Transfer....................................... 18 Corporate and Partnership Transfers........................... 19 Permitted Controlled Transfers................................ 19 Transfer Notice............................................... 19 Landlord's Options............................................ 19 Reasonable Disapproval........................................ 19 Additional Conditions......................................... 20 Excess Rent................................................... 20 Termination Rights............................................ 20 No Release.................................................... 20 Administrative and Attorneys' Fees............................ 21 SUBORDINATION...................................................... 21 ESTOPPEL CERTIFICATE............................................... 21 Tenant's Obligations.......................................... 21 Tenant's Failure to Deliver................................... 21 BUILDING PLANNING.................................................. 22 RULES AND REGULATIONS.............................................. 22 MODIFICATION AND CURE RIGHT OF LANDLORD'S MORTGAGEES AND LESSORS... 22 Modifications................................................. 22 Cure Rights................................................... 22 DEFINITION OF LANDLORD............................................. 22 WAIVER............................................................. 22 -iii- TABLE OF CONTENTS (CONTINUED) PAGE ---- PARKING............................................................ 23 Grant of Parking Rights....................................... 23 Visitor Parking............................................... 23 Use of Parking Spaces......................................... 23 General Provisions............................................ 23 Cooperation with Traffic Mitigation Measures.................. 24 Parking Rules and Regulations................................. 24 FORCE MAJEURE...................................................... 24 SIGNS.............................................................. 24 LIMITATION ON LIABILITY............................................ 24 FINANCIAL STATEMENTS............................................... 25 QUIET ENJOYMENT.................................................... 25 MISCELLANEOUS...................................................... 25 Conflict of Laws.............................................. 25 Successors and Assigns........................................ 25 Professional Fees and Costs................................... 25 Terms and Headings............................................ 25 Time.......................................................... 25 Prior Agreements Amendments................................... 25 Separability.................................................. 25 Recording..................................................... 26 Counterparts.................................................. 26 Nondisclosure of Lease Terms.................................. 26 Use of Project or Building Name............................... 26 No Light and Air Easement..................................... 26 RESOLUTION OF DISPUTES............................................. 26 Reference of Dispute.......................................... 26 Cooperation................................................... 27 Allocation of Costs........................................... 27 EXECUTION OF LEASE................................................. 27 Joint and Several Obligations................................. 27 Tenant as Corporation or Partnership.......................... 27 Examination of Lease.......................................... 27 -iv- OFFICE BUILDING LEASE --------------------- THIS OFFICE BUILDING LEASE ("Lease") is entered into as of the _____ day of June, 1996 by and between McDonnell Douglas Realty Company, a California corporation ("Landlord"), and AUTO-BY-TEL CORPORATION, a Delaware corporation ("Tenant"). 1. BASIC LEASE TERMS. For purposes of this Lease, the following ----------------- terms have the following definitions and meanings: (a) LANDLORD: McDonnell Douglas Realty Company, a California -------- corporation. (b) LANDLORD'S ADDRESS: ------------------ McDonnell Douglas Realty Company 4060 Lakewood Boulevard 6th Floor Long Beach, CA 90808-1700 Attention: Lease Administrator with a copy to: Prentiss Properties 18881 Von Karman Avenue, Suite 220 Irvine, CA 92715 Attention: Property Manager or such other place(s) as Landlord may from time to time designate by notice to Tenant. (c) TENANT: AUTO-BY-TEL CORPORATION, a Delaware corporation ------ (d) TENANT'S ADDRESS: ---------------- After the Commencement Date, to the Premises or to: To the Premises, attention: Brian MacDonald Prior to the Commencement Date: 2711 East Coast Highway Suite 203 Corona Del Mar, California 92625 Attention: Brian MacDonald (e) PROJECT: The real property commonly known as Douglas Plaza ------- and located in the City of Irvine ("City"), County of Orange ("County"), State of California ("State"), as shown on the site plan attached hereto as Exhibit "A". - ----------- (f) BUILDING: The office building located within the -------- Development, containing approximately 45,802 rentable square feet, with the street address of 18872 MacArthur Boulevard, Irvine, California. (g) PREMISES: The premises outlined on the floor plan attached -------- hereto as Exhibit "B", located on the second floor of the Building, in Suite ----------- 200, containing 12,280 rentable square feet and 11,767 usable square feet. (h) TENANT'S PERCENTAGE: Tenant's percentage of the Building on ------------------- a rentable square foot basis, which initially is 26.81%. (i) TERM: 5 Lease Years. ---- (j) TARGET COMMENCEMENT DATE: August 1, 1996. ------------------------ (k) COMMENCEMENT DATE: The earlier to occur of (i) the date ----------------- Landlord notifies Tenant that the Tenant Improvements are Substantially Complete (as defined in Exhibit "C" attached hereto), or (ii) the date Tenant occupies ----------- all or a portion of the Premises for any purpose. (l) INITIAL MONTHLY BASE RENT: $10,438.00 (based on $0.85 per ------------------------- rentable square foot), subject to adjustment/abatement as provided in SUBSECTION 1(m), and as otherwise provided in this Lease. (m) ADJUSTMENT TO MONTHLY BASE RENT: Monthly Base Rent will be ------------------------------- adjusted in accordance with the following: LEASE YEAR OR MONTHS MONTHLY BASE RENT -------------------- --------------------------------- Months 13-24 $14,736.00, based on $1.20 per rentable square foot. Months 25-36 $16,578.00, based on $1.35 per rentable square foot. Months 37-48 $17,806.00, based on $1.45 per rentable square foot. Months 49-60 $18,788.40, based on $1.53 per rentable square foot. (n) OPTION TERM RENT: See Addendum. ---------------- (o) SECURITY DEPOSIT: $20,600.00, to be delivered to Landlord ---------------- prior the start of the 36th month of the Term. See Addendum for Letter of Credit requirements. (p) TENANT IMPROVEMENTS: All tenant improvements installed or ------------------- to be installed by Landlord or Tenant within the Premises to prepare the Premises for occupancy pursuant to the terms of the Work Letter Agreement attached hereto as Exhibit "C". ----------- (q) TENANT IMPROVEMENT ALLOWANCE: Up to $20.00 per usable ---------------------------- square foot, to be provided and applied as set forth in the Work Letter Agreement attached hereto as Exhibit "C". ----------- (r) PERMITTED USE: General office use in compliance with ------------- applicable laws, and no other use without the express written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. (s) PARKING SPACES: 40 unreserved spaces -------------- 4 reserved spaces Tenant shall be allowed to use an additional 5 stalls, as available and in a location to be determined by Landlord at no additional charge to Tenant throughout the term of the lease. (t) INITIAL MONTHLY PARKING RENT: ---------------------------- No charge per unreserved space No charge per reserved space After the initial Term, the rate for Monthly Parking Rent shall be subject to adjustment per Section 32. (u) BASE YEAR: 1996. --------- (v) BROKER(S): --------- Tenant's Broker: Professional Real Estate Services --------------------------------- Landlord's Broker: Prentiss Property Services (w) INTEREST RATE: shall mean the greater of ten percent (10%) ------------- per annum or two percent (2%) in excess of the prime lending or reference rate of Wells Fargo Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the calendar month immediately prior to the event giving rise to the Interest Rate imposition; provided, however, the Interest Rate will in no event exceed the maximum interest rate permitted to be charged by applicable law. -2- (x) GUARANTOR(S): N/A. ------------ (y) EXHIBITS: A through I, inclusive, which Exhibits are -------- attached to this Lease and incorporated herein by this reference. As provided in SECTION 3, a completed version of Exhibit "D" will be delivered to Tenant after ----------- Landlord delivers possession of the Premises to Tenant. (z) ADDENDUM: The Addendum attached to this Lease and -------- incorporated herein by this reference. This SECTION 1 represents a summary of the basic terms and definitions of this Lease. In the event of any inconsistency between the terms contained in this SECTION 1 and any specific provision of this Lease, the terms of the more specific provision shall prevail. 2. PREMISES AND COMMON AREAS ------------------------- (a) PREMISES. Landlord hereby leases to Tenant and Tenant -------- hereby leases from Landlord, without representation or warranty, express or implied, the Premises described in SUBSECTION 1(g). The rentable square feet and usable square feet of the Premises and the Building set forth above in SECTION 1 shall be deemed to be the rentable square feet and usable square feet of the Premises and Building for all purposes, whether the actual rentable square feet or usable square feet may be more or less than the amounts set forth above. In that regard, Landlord and Tenant have each been given an opportunity to measure or re-measure the square footage of the Premises prior to execution of this Lease and Landlord and Tenant each hereby waive any rights they may have following execution of this Lease to remeasure the Premises or Building or claim that the rentable square feet or usable square feet of the Premises or Building is other than as set forth in SECTION 1; provided, however, that Landlord shall have the right to remeasure the Premises square footage and the Building square footage following any alterations, additions or improvements thereto. (b) MUTUAL COVENANTS. Landlord and Tenant agree that the ---------------- letting and hiring of the Premises is upon and subject to the terms, covenants and conditions contained in this Lease and each party covenants as a material part of the consideration for this Lease to keep and perform their respective obligations under this Lease. (c) TENANT'S USE OF COMMON AREAS. During the Term of this ---------------------------- Lease, Tenant shall have the nonexclusive right to use in common with Landlord and all persons, firms and corporations conducting business in the Project and their respective customers, guests, licensees, invitees, subtenants, employees and agents (collectively, "Project Occupants"), subject to the terms of this Lease, the Rules and Regulations referenced in SECTION 32 and all covenants, conditions and restrictions now or hereafter affecting the Project, the following common areas of the Building and/or the Project (collectively, the "Common Areas"), all of which shall be subject to Landlord's sole management and control and shall be operated and maintained in such manner as Landlord in its discretion shall determine: (i) The Building's common entrances, hallways, lobbies, public restrooms on multi-tenant floors, elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment within the Building which serve the Premises (collectively, "Building Common Areas"); and (ii) The parking facilities of the Project which serve the Building (subject to the provisions of Exhibit "H"), loading and unloading ----------- areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, plaza areas, fountains and similar areas and facilities situated within the Project and appurtenant to the Building which are not reserved for the exclusive use of any Project Occupants (collectively, "Project Common Areas"). (d) LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of -------------------------------- and access to the Premises and parking to be provided to Tenant under this Lease is not interfered with in an unreasonable manner, Landlord reserves for itself and for all other owner(s) and operator(s) of the Project Common Areas and the balance of the Project, the right from time to time to: (i) install, use, maintain, repair, replace and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas of the Building; (ii) make changes to the design and layout of the Project, including, without limitation, changes to buildings, driveways, entrances, loading and unloading areas, direction of traffic, landscaped areas and walkways, and, subject to the parking provisions contained in SECTION 32 and Exhibit "H", parking spaces and ----------- parking areas; and (iii) use or close temporarily the Building Common Areas, the Project Common Areas and/or other portions of the Project while engaged in making improvements, repairs or alterations to the Building, the Project, or any portion thereof. -3- 3. TERM; COMMENCEMENT DATE. The term of this Lease ("Term") will be ----------------------- for the period designated in SUBSECTION L(i), commencing on the Commencement Date, and ending as of midnight on the last day of the month in which the expiration of such period occurs (the "Expiration Date"), unless terminated earlier as provided herein. Each consecutive twelve (12) month period of the Term of this Lease, commencing on the Commencement Date, will be referred to herein as a "Lease Year". Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "D" attached hereto, will set ----------- forth the Commencement Date, the date upon which the Term of this Lease shall end, the rentable square feet within the Premises and the Building, and Tenant's Percentage and will be delivered to Tenant after Landlord delivers possession of the Premises to Tenant. The Notice will be binding upon Tenant unless Tenant objects to the Notice in writing within five (5) days of Tenant's receipt of the Notice. 4. POSSESSION. ---------- (a) DELIVERY OF POSSESSION. Landlord agrees to deliver ---------------------- possession of the Premises to Tenant in accordance with the terms of the Work Letter Agreement attached hereto as Exhibit "C". Notwithstanding the foregoing, ----------- Landlord will not be obligated to deliver possession of the Premises to Tenant until Landlord has received from Tenant all of the following: (i) a copy of this Lease fully executed by Tenant and the Letter of Credit described in the Addendum; (ii) the first installment of Monthly Base Rent; (iii) executed copies of policies of insurance or certificates thereof as required under SECTION 19 of this Lease; (iv) copies of all governmental permits and authorizations, if any, required in connection with Tenants operation of its business within the Premises; and (v) if Tenant is a corporation or partnership, such evidence of due formation, valid existence and authority as Landlord may reasonably require, which may include, without limitation, a certificate of good standing, certificate of secretary, articles of incorporation, statement of partnership, or other similar documentation. (b) CONDITION OF PREMISES. By taking possession of the --------------------- Premises, Tenant will be deemed to have accepted the Premises in its condition on the date of delivery of possession and to have acknowledged that the Tenant Improvements have been installed as required by the Work Letter Agreement and that there are no additional items needing work or repair. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the Building, the Project or any portions thereof or with respect to the suitability of same for the conduct of Tenant's business and Tenant further acknowledges that Landlord has no obligation to construct or complete any additional buildings or improvements within the Project. (c) USE AND OCCUPANCY PRIOR TO COMMENCEMENT DATE. If Tenant -------------------------------------------- shall for any reason use or occupy the Premises in any way prior to the Commencement Date, then during such prior use or occupancy Tenant shall be a tenant of Landlord and shall be subject to the covenants and agreements set forth in this Lease other than provisions pertaining to the payment of Monthly Base Rent. Nothing herein shall be construed as Landlord's consent to Tenant's use or occupancy of the Premises for any reason prior to the Commencement Date. 5. RENT. ---- (a) MONTHLY BASE RENT. Tenant agrees to pay Landlord the ----------------- Monthly Base Rent for the Premises (subject to adjustment as hereinafter provided) in advance on the first day of each calendar month during the Term, except that Tenant agrees to pay the Monthly Base Rent for the first full calendar month of the Term directly to Landlord concurrently with Tenant's delivery of the executed Lease to Landlord. If the Term of this Lease commences on a day other than the first day of a calendar month, then the rent for such period will be prorated in the proportion that the number of days this Lease is in effect during such period bears to the number of days in such month. All rent must be paid to Landlord, without any deduction or offset, in lawful money of the United States of America, at the address designated by Landlord (and if no such address is designated, at the address first set forth in SUBSECTION 1(b)) or to such other person or at such other place as Landlord may from time to time designate in writing. Monthly Base Rent will be adjusted during the Term of this Lease as provided in SUBSECTION l(m). All monthly installments of Monthly Base Rent shall be due and payable as aforesaid whether or not Landlord shall have given Tenant any prior written notice or bill with respect thereto, and Landlord shall have no obligation whatsoever to give Tenant any written notice or bill with respect to any Monthly Base Rent installment. (b) ADDITIONAL RENT. All amounts and charges to be paid by --------------- Tenant hereunder, including, without limitation, payments for Operating Expenses, insurance, repairs, parking and after-hours HVAC charges, will be considered "Additional Rent" for purposes of this Lease. Monthly Base Rent and Additional Rent and all other sums payable by Tenant under this Lease (collectively, "Rent") shall be deemed to be and shall be treated as rent and shall be payable and recoverable as rent, and Landlord shall have all rights against Tenant for default in any payment of Additional Rent or such other sum as in the case of non-payment of Monthly Base Rent. -4- (c) LATE PAYMENTS. Late payments of Monthly Base Rent and/or ------------- any item of additional rent will be subject to interest and a late charge as provided in SUBSECTION 22(f). 6. OPERATING EXPENSES. ------------------ (a) OPERATING EXPENSES. In addition to Monthly Base Rent, ------------------ throughout the Term of this Lease, Tenant agrees to pay Landlord as additional rent in accordance with the terms of this SECTION 6, Tenants Percentage (as defined in SUBSECTION 1(h) of Operating Expenses (as defined in Exhibit "E" ----------- attached hereto) to the extent Tenant's Percentage of Operating Expenses exceeds Tenant's Percentage of the Base Year Operating Expenses (as hereinafter defined). (b) BASE YEAR OPERATING EXPENSES. "Base Year Operating ---------------------------- Expenses" shall mean the actual Operating Expenses for the Base Year set forth in SUBSECTION 1(u). (c) ESTIMATE STATEMENT. As soon as practicable after the ------------------ expiration of the Base Year, and as soon as practicable after January 1st of each subsequent calendar year during the Term of this Lease, Landlord will endeavor to deliver to Tenant a statement ("Estimate Statement') wherein Landlord will estimate both the Operating Expenses and Tenant's Percentage of Operating Expenses for the then current calendar year. If the estimate of Tenants Percentage of Operating Expenses in the Estimate Statement exceeds Tenant's Percentage of Base Year Operating Expenses, Tenant agrees to pay Landlord, as Additional Rent, one-twelfth (1/12th) of such excess each month thereafter, beginning with the next installment of rent due, until such time as Landlord issues a revised Estimate Statement or the Estimate Statement for the succeeding calendar year; except that, concurrently with the regular monthly rent payment next due following the receipt of each such Estimate Statement, Tenant agrees to pay Landlord an amount equal to one monthly installment of such excess (less any applicable Operating Expenses already paid) multiplied by the number of months from January, in the current calendar year, to the month of such rent payment next due, all months inclusive. If at any time and from time to time during the Term of this Lease, Landlord reasonably determines that Tenant's Percentage of Operating Expenses for the current calendar year will be greater than the amount set forth in the then current Estimate Statement, Landlord may issue a revised Estimate Statement and Tenant agrees to pay Landlord, within ten (10) days of receipt of the revised Estimate Statement, the difference between the amount owed by Tenant under such revised Estimate Statement and the amount owed by Tenant under the original Estimate Statement for the portion of the then current calendar year which has expired. Thereafter Tenant agrees to pay Tenant's Percentage of Operating Expenses based on such revised Estimate Statement until Tenant receives the next calendar year's Estimate Statement or a new revised Estimate Statement for the current calendar year. In the event Tenant's Percentage of Operating Expenses for any calendar year is less than Tenant's Percentage of Base Year Operating Expenses, Tenant will not be entitled to a credit against any rent, additional rent or Tenant's Percentage of future Operating Expenses payable hereunder. (d) ACTUAL STATEMENT. As soon as practicable after expiration ---------------- of the calendar year following the Base Year, and as soon as practicable after expiration of each subsequent calendar year during the Term of this Lease, Landlord will also endeavor to deliver to Tenant a statement ("Actual Statement') which states the actual Operating Expenses for the preceding calendar year. If the Actual Statement reveals that Tenant's Percentage of the actual Operating Expenses is more than the total Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Tenant agrees to pay Landlord the difference in a lump sum within ten (10) days of receipt of the Actual Statement. If the Actual Statement reveals that Tenant's Percentage of the actual Operating Expenses is less than the Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Landlord will credit any overpayment toward the next monthly installment(s) of Tenant's Rent due under this Lease. (e) MISCELLANEOUS. Any delay or failure by Landlord in ------------- delivering any Estimate Statement or Actual Statement pursuant to this SECTION 6 will not constitute a waiver of its right to require an increase in rent nor will it relieve Tenant of its obligations pursuant to this SECTION 6, except that Tenant will not be obligated to make any payments based on such Estimate Statement or Actual Statement until ten (10) days after receipt of such Estimate Statement or Actual Statement. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage of the actual Operating Expenses for the year in which this Lease terminates, Tenant agrees to promptly pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall promptly be rebated by Landlord to Tenant. Prior to the expiration or sooner termination of the Lease Term and Landlord's acceptance of Tenant's surrender of the Premises, Landlord will have the right to estimate the actual Operating Expenses for the then current Lease Year and to collect from Tenant prior to Tenant's surrender of the Premises, Tenant's Percentage of any excess of such actual Operating Expenses over the estimated Operating Expenses paid by Tenant in such Lease Year. Notwithstanding anything to the contrary set forth in Exhibit "E", when calculating the Base Year Operating Expenses, such ----------- Operating Expenses shall not include any increase in Real Property Taxes and Assessments attributable to special assessments, charges, costs, or fees, or due to -5- modifications or changes in governmental laws or regulations, including but not limited to the institution of a split tax roll, and Base Year Operating Expenses shall exclude market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, and utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages and amortized costs relating to capital improvements. If, in any Lease Year, the amount of Real Property Taxes and Assessments attributable to the Project, inclusive of tenant improvements, decreases, then for purposes of all subsequent calendar years, including the calendar year in which such decrease in Real Property Taxes and Assessments occurred, Base Year Operating Expenses shall be decreased by an amount equal to the decrease in Real Property Taxes and Assessments. (f) AFTER-HOURS HVAC. In addition to Monthly Base Rent and ---------------- Tenant's Percentage of Operating Expenses, Tenant agrees to pay Landlord the cost charged by Landlord from time to time for after-hours HVAC (currently $17/hour) used by or attributable to Tenant, plus any costs to maintain the HVAC system due to Tenants after-hours HVAC usage. If such after-hours HVAC is not separately metered, Landlord may allocate to Tenant its share of the after-hours HVAC costs, as Landlord may equitably determine. Landlord shall provide Tenant a monthly invoice of the HVAC costs payable by Tenant, and Tenant shall pay for such costs within ten (10) days of receiving each invoice. (g) TENANT'S AUDIT RIGHTS. The information set out in the --------------------- statements submitted to Tenant pursuant to this SECTION 6 shall be binding on Tenant unless Tenant gives written notice to Landlord within thirty (30) days after Landlord's submission of such statement stating that Tenant intends to cause Landlord's books and records with respect to the preceding calendar year to be audited by a certified public accountant ("CPA") acceptable to Landlord, identifying the statement in question and setting out in reasonable detail the reason why such statement should not be binding on Tenant. If Tenant does not timely exercise its right to have Landlord's books and records audited, or does not cause such audit to be accomplished within ninety (90) days after notice of its election to do so, Tenant's right to object to any such statement shall lapse. Tenant shall pay all costs of such audit (including, without limitation, any and all copying costs), unless the actual amount of Additional Rent for the calendar year in question is determined by the CPA to be seven percent (7%) less than the amount of Additional Rent for the same calendar year set forth in the statement submitted to Tenant by Landlord, in which event Landlord shall pay for the audit. Any such audit shall occur only in such offices and such location as Landlord shall designate. The amount of Additional Rent payable by Tenant to Landlord shall be appropriately adjusted on the basis of such audit and, if the audit shows that Landlord has overcharged Tenant, Landlord shall credit such overcharge against the next installment of Rent coming due hereunder. 28. SECURITY DEPOSIT. Concurrently with Tenant's execution of this ---------------- Lease, Tenant will deliver to Landlord the Letter of Credit as described in, and in accordance with, the Addendum. In addition, prior to the start of the 36th month of the Term, Tenant will deposit with Landlord the Security Deposit designated in SUBSECTION 1(o). The Security Deposit is in an amount equal to one hundred ten percent (110%) of the highest Monthly Base Rent amount anticipated for the initial Lease Term. The Security Deposit will be held by Landlord as security for the full and faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Term hereof. If Tenant fully and faithfully performs its obligations under this Lease, including, without limitation, surrendering the Premises upon the expiration or sooner termination of this Lease in compliance with SUBSECTION 11(a), the Security Deposit or any balance thereof will be returned to Tenant (or, at Landlord's option, to the last assignee of Tenants interest hereunder) within thirty (30) days following the expiration of the Lease Term or as required under applicable law, provided that Landlord may retain the Security Deposit until such time as any outstanding rent or additional rent amount has been determined and paid in full. The Security Deposit is not, and may not be construed by Tenant to constitute, rent for the last month or any portion thereof. If Tenant defaults with respect to any provisions of this Lease including, but not limited to, the provisions relating to the payment of rent or additional rent, Landlord may (but will not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant agrees, within ten (10) days after Landlord's written demand therefor, to deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant's failure to do so shall constitute a default under this Lease. Landlord is not required to keep Tenant's Security Deposit separate from its general funds, and Tenant is not entitled to interest on such Security Deposit. Should Landlord sell its interest in the Premises during the Term hereof and deposit with the transferee thereof the then unappropriated Security Deposit funds, Landlord will be discharged from any further liability with respect to such Security Deposit. -6- 8. USE. --- (a) TENANT'S USE OF THE PREMISES. The Premises may be used for ---------------------------- the use or uses set forth in SUBSECTION 1(r) only, and Tenant will not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Nothing in this Lease will be deemed to give Tenant any exclusive right to such use in the Building or the Project. (b) COMPLIANCE. At Tenant's sole cost and expense, Tenant ---------- agrees to procure, maintain and hold available for Landlord's inspection, all governmental licenses and permits required for the proper and lawful conduct of Tenant's business from the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or allow the Premises to be used, altered or occupied in violation of, and Tenant, at its sole cost and expense, agrees to use and occupy the Premises and cause the Premises to be used and occupied in compliance with: (i) any and all laws, statutes, zoning restrictions, ordinances, rules, regulations, orders and rulings now or hereafter in force and any requirements of any insurer, insurance authority or duly constituted public authority having jurisdiction over the Premises, the Building or the Project now or hereafter in force, (ii) the requirements of the Board of Fire Underwriters and any other similar body, (iii) the Certificate of Occupancy issued for the Building, and (iv) any recorded covenants, conditions and restrictions and similar regulatory agreements, if any, which affect the use, occupation or alteration of the Premises, the Building and/or the Project. Tenant agrees to comply with the Rules and Regulations referenced in SECTION 28. Tenant agrees not to do or permit anything to be done in or about the Premises which will in any manner obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or unreasonably annoy them, or use or allow the Premises to be used for any unlawful or unreasonably objectionable purpose. Tenant agrees not to cause, maintain or permit any nuisance or waste in or about the Premises or elsewhere within the Project. Tenant agrees not to place a load upon the Premises exceeding the average pounds of live load per square foot of floor area specified for the Building by Landlord's architect, with the partitions to be considered a part of the live load. Landlord reserves the right to reasonably prescribe the weight and positions of safes, files and heavy equipment which Tenant desires to place in the Premises so as to distribute properly the weight thereof. Tenant agrees to install, maintain and use Tenant's business machines and mechanical equipment which may cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building in a manner so as to eliminate or minimize such vibration or noise. Tenant will be responsible for all structural engineering required to determine structural load, as well as the expense thereof. Notwithstanding anything contained in this Lease to the contrary, all transferable development rights related in any way to the Project are and will remain vested in Landlord, and Tenant hereby waives any rights thereto. Without limiting the foregoing or any other provisions of this Lease, Tenant shall be solely responsible for and shall comply with, at Tenant's sole cost and expense, all requirements of Title III of the Americans with Disabilities Act of 1990 (the "ADA") applicable to Tenant's use and occupancy of the Premises, including, without limitation, those provisions of the ADA applicable to the operational policies and activities of Tenant in the Premises and those applicable to the non-structural design and construction elements of any improvements in or to the Premises constructed by or on behalf of or paid for by Tenant (i.e., excluding only those improvements existing within the ---- Premises prior to the date of this Lease unless applicable thereto as a result of additional improvements or alterations constructed by or on behalf of or paid for by Tenant). (c) HAZARDOUS MATERIALS. Except for ordinary and general office ------------------- supplies typically used in the ordinary course of business within office buildings, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute "Hazardous Materials" as defined in this Lease), Tenant agrees not to cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, the Building, the Common Areas or any other portion of the Project by Tenant, its agents, employees, subtenants, assignees, contractors or invitees (collectively, "Tenant's Parties"), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Upon the expiration or sooner termination of this Lease, Tenant agrees to remove from the Premises, the Building and the Project, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in or under the Premises, the Building and/or the Project or any portion thereof by Tenant or any of Tenant's Parties. To the fullest extent permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord's partners, officers, directors, employees, agents, successors and assigns (collectively, "Landlord Indemnified Parties") from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in or about the Premises, the Building or any other portion of the Project and which are caused or permitted by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify Landlord of any release of Hazardous Materials in the Premises, the Building or any other portion of the Project which Tenant becomes aware of during the Term of this Lease, whether caused by Tenant or any other persons or entities. In the event of any release of Hazardous Materials caused or permitted by Tenant or any of Tenant's Parties, Landlord shall have the right to cause Tenant to immediately take all steps Landlord deems necessary or -7- appropriate to remediate such release and prevent any similar future release to the satisfaction of Landlord and Landlord's mortgagee(s). As used in this Lease, the term "Hazardous Materials" shall mean and include any hazardous or toxic materials, substances or wastes as now or hereafter designated under any law, statute, ordinance, rule, regulation, order or ruling of any agency of the State, the United States Government or any local governmental authority, including, without limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and freon and other chlorofluorocarbons. The provisions of this Subsection 8(c) will survive any termination of this Lease. 9. NOTICES. Any notice required or permitted to be given hereunder ------- must be in writing and may be given by personal delivery (including delivery by overnight courier or an express mailing service) or by mail, if sent by registered or certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at the Premises and notices to Landlord shall be sufficient if delivered to Landlord at the addresses) designated in Subsection l(b). Either party may specify a different address for notice purposes by written notice to the other, except that the Landlord may in any event use the Premises as Tenant's address for notice purposes. 10. BROKERS. The parties acknowledge that the broker(s) who ------- negotiated this Lease are stated in SUBSECTION l(v). Each party represents and warrants to the other, that, to its knowledge, no other broker, agent or finder (a) negotiated or was instrumental in negotiating or consummating this Lease on its behalf, and (b) is or might be entitled to a commission or compensation in connection with this Lease. Landlord and Tenant each agree to promptly indemnify, protect, defend and hold harmless the other from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys' fees and court costs) resulting from any breach by the indemnifying party of the foregoing representation, including, without limitation, any claims that may be asserted by any broker, agent or finder undisclosed by the indemnifying party. The foregoing mutual indemnity shall survive the expiration or earlier termination of this Lease. 11. SURRENDER; HOLDING OVER. ----------------------- (a) SURRENDER. The voluntary or other surrender of this Lease --------- by Tenant, or a mutual cancellation thereof, shall not constitute a merger, and shall, at the option of Landlord, operate as an assignment to Landlord of any or all subleases or subtenancies. Upon the expiration or sooner termination of this Lease, Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in a state of first-class order, repair and condition, ordinary wear and tear and casualty damage (if this Lease is terminated as a result thereof pursuant to SECTION 20) excepted, with all of Tenant's personal property and Alterations (as defined in SECTION 13) removed from the Premises to the extent required under SECTION 13 and all damage caused by such removal repaired as required by SECTION 13. Prior to the date Tenant is to actually surrender the Premises to Landlord, Tenant agrees to give Landlord reasonable prior notice of the exact date Tenant will surrender the Premises so that Landlord and Tenant can schedule a walk-through of the Premises to review the condition of the Premises and identify the Alterations and personal property which Tenant is to remove and any repairs Tenant is to make upon surrender of the Premises. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof alone will not be sufficient to constitute a termination of this Lease or a surrender of the Premises. (b) HOLDING OVER. Tenant will not be permitted to hold over ------------ possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, which consent Landlord may withhold in its sole discretion. If Tenant holds over after the expiration or earlier termination of the Term, Landlord may, at its option, treat Tenant as a tenant at sufferance only, and such continued occupancy by Tenant shall be subject to all of the terms, covenants and conditions of this Lease, so far as applicable, except that the Monthly Base Rent for any such holdover period shall be equal to the greater of (i) one hundred fifty percent (150%) of the Monthly Base Rent in effect under this Lease immediately prior to such holdover, or (ii) the then currently scheduled rental rate for comparable space in the Building, in either event prorated on a daily basis; Acceptance by Landlord of rent after such expiration or earlier termination will not result in a renewal of this Lease. The foregoing provisions of this SECTION 11 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord under this Lease or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease in accordance with the terms of this SECTION 11 despite demand to do so by Landlord, Tenant agrees to promptly indemnify, protect, defend and hold Landlord harmless from all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys' fees and costs), including, without limitation, costs and expenses incurred by Landlord in returning the Premises to the condition in which Tenant was to surrender it and claims made by any succeeding tenant founded on or resulting from Tenant's failure to surrender the Premises. 12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before -------------------------- delinquency all taxes and assessments (real and personal) levied against (a) any personal property or trade fixtures placed by Tenant in or about the Premises (including any increase in the assessed value of the Premises based upon the value of any such -8- personal property or trade fixtures); and (b) any Tenant Improvements or Alterations (as defined in SECTION 13) in the Premises (whether installed and/or paid for by Landlord or Tenant) to the extent such items are assessed at a valuation higher than the valuation at which tenant improvements conforming to Landlord's building standard tenant improvements are assessed. If any such taxes or assessments are levied against Landlord or Landlord's property, Landlord may, after written notice to Tenant (and under proper protest if requested by Tenant) pay such taxes and assessments, in which event Tenant agrees to reimburse Landlord all amounts paid by Landlord within ten (10) business days after demand by Landlord. 13. ALTERATIONS. After installation of the initial Tenant ----------- Improvements for the Premises pursuant to Exhibit "C", Tenant may, at its sole ----------- cost and expense, make alterations, additions, improvements and decorations to the Premises (collectively, "Alterations") subject to and upon the following terms and conditions: (a) Tenant may not make any Alterations which: (i) affect any area outside the Premises; (ii) affect the Building's structure, equipment, services or systems, or the proper functioning thereof, or Landlord's access thereto; (iii) affect the outside appearance, character or use of the Building or the Building Common Areas; (iv) in the reasonable opinion of Landlord, lessen the value of the Building; or (v) will violate or require a change in any occupancy certificate applicable to the Premises. (b) Before proceeding with any Alterations which are not prohibited in SUBSECTION 13(a), Tenant must first obtain Landlord's written approval of the plans, specifications and working drawings for such Alterations, which approval Landlord will not unreasonably withhold or delay; provided, however, Landlord's prior approval will not be required for any such Alterations which are not prohibited by SUBSECTION 13(a) and which cost less than Two Thousand Five Hundred Dollars ($2,500) as long as (i) Tenant delivers to Landlord notice and a copy of any final plans, specifications and working drawings for any such Alterations at least ten (10) days prior to commencement of the work thereof, and (ii) the other conditions of this SECTION 13 are satisfied, including, without limitation, conforming to Landlord's rules, regulations and insurance requirements which govern contractors. Landlord's approval of plans, specifications and/or working drawings for Alterations will not create any responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with applicable permits, laws, rules and regulations of governmental agencies or authorities. In approving any Alterations, Landlord reserves the right to require Tenant to increase its Security Deposit to provide Landlord with additional reasonable security for the proper installation and removal of such Alterations by Tenant as may be required by this Lease. (c) Alterations may be made or installed only by contractors and subcontractors which have been approved by Landlord, which approval Landlord will not unreasonably withhold or delay; provided, however, Landlord reserves the right to require that Landlord's designated contractor(s) for the Building be given the first opportunity to bid for any Alteration work. Before proceeding with any Alterations, Tenant agrees to provide Landlord with ten (10) days' prior written notice and Tenant's contractors must obtain, on behalf of Tenant and at Tenant's sole cost and expense: (i) all necessary governmental permits and approvals for the commencement and completion of such Alterations; and (ii) if requested by Landlord, a completion and lien indemnity bond, or other surety, reasonably satisfactory to Landlord for such Alterations. Throughout the performance of any Alterations, Tenant agrees to obtain, or cause its contractors to obtain, workers compensation insurance and general liability insurance in compliance with the provisions of SECTION 19 of this Lease. (d) All Alterations must be performed: (i) in accordance with the approved plans, specifications and working drawings; (ii) in a lien-free and first-class and workmanlike manner; (iii) in compliance with all applicable permits, laws, statutes, ordinances, rules, regulations, orders and rulings now or hereafter in effect and imposed by any governmental agencies and authorities which assert jurisdiction; (iv) in such a manner so as not to interfere with the occupancy of any other tenant in the Building, nor impose any additional expense upon nor delay Landlord in the maintenance and operation of the Building; and (v) at such times, in such manner, and subject to such rules and regulations as Landlord may from time to time reasonably designate. (e) The Tenant Improvements, including, without limitation, all affixed sinks, dishwashers and other fixtures, and all Alterations will become the property of Landlord and will remain upon and be surrendered with the Premises at the end of the Term of this Lease; provided, however, Tenant shall, prior to the end of the Term, remove such of the Alterations in the Premises as Landlord shall direct to be removed by written notice to Tenant. Landlord may also require Tenant to remove Alterations which Landlord did not have the opportunity to approve as provided in this SECTION 13. If Landlord requires Tenant to remove any Alterations, Tenant, at its sole cost, agrees to remove the identified Alterations on or before the expiration or sooner termination of this Lease and repair any damage to the Premises caused by such removal (or, at Landlord's option, Tenant agrees to pay to Landlord all of Landlord's costs of such removal and repair). -9- (f) Tenant agrees to pay Landlord, as additional rent, the reasonable costs of professional services and costs for general conditions of Landlord's third party consultants if utilized by Landlord for review of all plans, specifications and working drawings for any Alterations, within ten (10) business days after Tenant's receipt of invoices either from Landlord or such consultants. In addition, Tenant agrees to pay Landlord, within ten (10) business days after completion of any Alterations, a fee to cover Landlord's costs of supervising and administering the installation of such Alterations, in the amount of ten percent (10%) of the cost of such Alterations, but in no event less than Two Hundred Fifty Dollars ($250.00). (g) All articles of personal property owned by Tenant or installed by Tenant at its expense in the Premises (including Tenant's business and trade fixtures, furniture, movable partitions and equipment (such as telephones, copy machines, computer terminals, refrigerators and facsimile machines]) will be and remain the property of Tenant, and must be removed by Tenant from the Premises, at Tenant's sole cost and expense, on or before the expiration or sooner termination of this Lease. Tenant agrees to repair any damage caused by such removal at its cost on or before the expiration or sooner termination of this Lease. (h) If Tenant fails to remove by the expiration or sooner termination of this Lease all of its personal property, or any Alterations identified by Landlord for removal, Landlord may (without liability to Tenant for loss thereof) treat such failure as a hold-over pursuant to SUBSECTION 11(b), and/or treat such personal property and/or Alterations as abandoned and, at Tenant's sole cost and in addition to Landlord's other rights and remedies under this Lease, at law or in equity: (a) remove and store such items; and/or (b) upon ten (10) days' prior notice to Tenant, sell, discard or otherwise dispose of all or any such items at private or public sale for such price as Landlord may obtain or by other commercially reasonable means. Tenant shall be liable for all costs of disposition of Tenant's abandoned property and Landlord shall have no liability to Tenant with respect to any such abandoned property. Landlord agrees to apply the proceeds of any sale of any such property to any amounts due to Landlord under this Lease from Tenant (including Landlord's attorneys' fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant. 35. REPAIRS. ------- (a) LANDLORD'S OBLIGATIONS. Landlord agrees to repair and ---------------------- maintain the structural portions of the Building and the plumbing, heating, ventilating, air conditioning, elevator and electrical systems installed or furnished by Landlord, unless such maintenance and repairs are (i) attributable to items installed in Tenant's Premises which are above standard interior improvements (such as, for example, custom lighting, special HVAC and/or electrical panels or systems, kitchen or restroom facilities and appliances constructed or installed within Tenants Premises) or (ii) caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees, in which case Tenant will pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord will not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in SECTION 20, Tenant will not be entitled to any abatement of rent and Landlord will not have any liability by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute, ordinance, rule, regulation, order or ruling (including, without limitation, the provisions of California Civil Code Sections 1941 and 1942 and any successor statutes or laws of a similar nature). (b) TENANT'S OBLIGATIONS. Tenant agrees to keep, maintain and -------------------- preserve the Premises in first class condition and repair and, when and if needed, at Tenant's sole cost and expense, to make all repairs to the Premises and every part thereof. Any such maintenance and repairs will be performed by Landlord's contractor, or at Landlord's option, by such contractor or contractors as Tenant may choose from an approved list to be submitted by Landlord. Tenant agrees to pay all costs and expenses incurred in such maintenance and repair within seven (7) days after billing by Landlord or such contractor or contractors. Tenant agrees to cause any mechanics' liens or other liens arising as a result of work performed by Tenant or at Tenant's direction to be eliminated as provided in SECTION 15. Except as provided in SUBSECTION 14(a), Landlord has no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. (c) TENANT'S FAILURE TO REPAIR. If Tenant refuses or neglects -------------------------- to repair and maintain the Premises properly as required hereunder to the reasonable satisfaction of Landlord, Landlord, at any time following ten (10) days from the date on which Landlord makes a written demand on Tenant to effect such repair and maintenance, may enter upon the Premises and make such repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as additional rent, Landlord's costs for making such repairs plus an amount not to exceed ten percent (10%) of such costs for overhead, within ten (10) days of receipt from Landlord of a written itemized bill therefor. Any amounts not reimbursed by Tenant within such ten (10) day period will bear interest at the Interest Rate until paid by Tenant. -10- 15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's ----- or other liens to be filed against all or any part of the Project, the Building or the Premises, nor against Tenant's leasehold interest in the Premises, by reason of or in connection with any repairs, alterations, improvements or other work contracted for or undertaken by Tenant or any other act or omission of Tenant or Tenant's agents, employees, contractors, licensees or invitees. At Landlord's request, Tenant agrees to provide Landlord with enforceable, conditional and final lien releases (or other evidence reasonably requested by Landlord to demonstrate protection from liens) from all persons furnishing labor and/or materials at the Premises. Landlord will have the right at all reasonable times to post on the Premises and record any notices of non-responsibility which it deems necessary for protection from such liens. If any such liens are filed, Tenant will, at its sole cost, promptly cause such liens to be released of record or bonded so that it no longer affects title to the Project, the Building or the Premises. If Tenant fails to cause any such liens to be so released or bonded within ten (10) days after filing thereof, such failure will be deemed a material breach by Tenant under this Lease without the benefit of any additional notice or cure period described in Section 22, and Landlord may, without waiving its rights and remedies based on such breach, and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payment in satisfaction of the claims giving rise to such liens. Tenant agrees to pay to Landlord within ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord. 16. ENTRY BY LANDLORD. Landlord and its employees and agents will at ----------------- all times have the right to enter the Premises to inspect the same, to supply janitorial service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers or tenants, to post notices of nonresponsibility, and/or to repair the Premises as permitted or required by this Lease. In exercising such entry rights, Landlord will endeavor to minimize, as reasonably practicable, the interference with Tenants business, and will provide Tenant with reasonable advance notice of any such entry (except in emergency situations). Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed. Landlord will at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. Landlord will have the right to use any and all means which Landlord may reasonably deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, will not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises. Landlord will not be liable to Tenant for any damages or losses for any entry by Landlord. 17. UTILITIES AND SERVICES. Landlord agrees to furnish or cause to ---------------------- be furnished to the Premises the utilities and services described in the Standards for Utilities and Services attached hereto as Exhibit "F", subject to ----------- the conditions and in accordance with the standards set forth therein. Landlord may require Tenant from time to time to provide Landlord with a list of Tenant's employees and/or agents which are authorized by Tenant to subscribe on behalf of Tenant for any additional services which may be provided by Landlord. Any such additional services will be provided to Tenant at Tenant's cost. Landlord will not be liable to Tenant for any failure to furnish any of the foregoing utilities and services if such failure is caused by all or any of the following: (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action or inaction; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or (v) any other cause beyond Landlord's reasonable control. In addition, in the event of any stoppage or interruption of services or utilities, Tenant shall not be entitled to any abatement or reduction of rent (except as expressly provided in Exhibit "F" and, except as expressly provided in SUBSECTION 20(f) or SUBSECTION 21(b), if such failure results from a damage or taking described therein), no eviction of Tenant will result from such failure and Tenant will not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord agrees to diligently attempt to resume service promptly. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord, as described under Exhibit "F", Landlord may at its option require Tenant to pay, as additional rent, the cost, as fairly determined by Landlord, incurred by such extraordinary usage and/or Landlord may install separate meter(s) for the Premises, at Tenant's sole expense, and Tenant agrees thereafter to pay all charges of the utility providing service and Landlord will make an appropriate adjustment to Tenant's Operating Expenses calculation to account for the fact Tenant is directly paying such metered charges, provided Tenant will remain obligated to pay its proportionate share of Operating Expenses subject to such adjustment. 18. WAIVER AND INDEMNIFICATION. -------------------------- (a) TENANT'S WAIVER. Tenant, as a material part of the --------------- consideration to Landlord, hereby agrees that neither Landlord nor any Landlord Indemnified Parties (as hereinafter defined) will be liable to Tenant for, and Tenant expressly waives any and all claims it may have against Landlord or any Landlord Indemnified Parties with respect to, any and all loss or damage to property or injury to persons in, upon or about the Premises, the Building or the Project resulting from any cause whatsoever, including, without limitation, any such loss, damage or injury caused by other tenants or persons in or about the Building or the Project, caused to property -11- entrusted to employees of the Building, caused by theft or otherwise, or resulting from any casualty, explosion, falling plaster or other masonry or glass, steam, gas, electricity, water or rain which may leak from any part of the Building or any other portion of the Project or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place, or resulting from dampness; provided, however, that Landlord shall nevertheless be responsible to the extent and in the proportion that any such loss, damage or injury is ultimately determined to be caused by Landlord's gross negligence or willful misconduct; provided, further, however, that notwithstanding the foregoing or anything to the contrary contained in this Lease, neither Landlord nor any Landlord Indemnified Parties will be liable for consequential damages arising out of any loss of the use of the Premises or any equipment or facilities therein by Tenant or any Tenant Parties or for interference with light or other incorporeal hereditaments. Tenant agrees to give prompt notice to Landlord in case of fire or accidents in the Premises or the Building, or of defects therein or in the fixtures or equipment. Without limitation on the generalities of the foregoing, Tenant acknowledges that Landlord has agreed not to require Tenant to maintain business interruption or loss of income insurance and, in consideration of such agreement, Tenant specifically waives any and all claims against Landlord or any Landlord indemnified parties with respect to any and all loss or damage which would have been covered under such insurance. (b) TENANT'S INDEMNIFICATION OF LANDLORD. Tenant will be liable ------------------------------------ for, and agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord's affiliates, partners, officers, directors, employees, agents, successors and assigns (collectively, "Landlord Indemnified Parties"), from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs, including attorneys' fees and court costs (collectively, "Indemnified Claims"), arising or resulting from (i) any act or omission of Tenant or any of Tenant's agents, employees, contractors, subtenants, assignees, licensees or invitees (collectively, "Tenant Parties"); (ii) the use of the Premises and Common Areas and conduct of Tenant's business by Tenant or any Tenant Parties, or any other activity, work or thing done by Tenant or any Tenant Parties, in or about the Premises, the Building or elsewhere within the Project; and/or (iii) any default by Tenant of any obligations on Tenant's part to be performed under the terms of this Lease. Notwithstanding the foregoing, Tenant shall not be liable to the extent and in the proportion that damage or injury is ultimately determined to be caused by the gross negligence or willful misconduct of Landlord. In case any action or proceeding is brought against Landlord or any Landlord Indemnified Parties by reason of any such Indemnified Claims, Tenant, upon notice from Landlord, agrees to defend the same at Tenant's expense by counsel approved in writing by Landlord, which approval Landlord will not unreasonably withhold. (c) SURVIVAL; NO RELEASE OF INSURERS. Tenants indemnification -------------------------------- obligations under SUBSECTION 18(b) will survive the expiration or earlier termination of this Lease. Tenant's covenants, agreements and indemnification obligation in SUBSECTION 18(a) and SUBSECTION 18(b), are not intended to and will not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease. 19. INSURANCE. --------- (a) TENANT'S INSURANCE. On or before the earlier to occur of ------------------ (i) thirty (30) days after Tenant executes the Lease, or (ii) the date Tenant commences any work of any type in the Premises pursuant to this Lease (which may be prior to the Commencement Date), and continuing throughout the entire Term hereof and any other period of occupancy, Tenant agrees to keep in full force and effect, at its sole cost and expense, the following insurance: (i) Property insurance coverage written on the broadest available "all risk" (special-causes-of-loss) policy form or an equivalent form acceptable to Landlord, including at least the following perils: fire and extended coverage, smoke damage, vandalism, malicious mischief, sprinkler leakage. This insurance policy must be upon all property owned by Tenant, for which Tenant is legally liable, or which is installed at Tenant's expense, and which is located in the Building including, without limitation, any Tenant Improvements which satisfy the foregoing qualification and any Alterations, and all furniture, fittings, installations, fixtures and any other personal property of Tenant, in an amount not less than the full replacement cost thereof. (ii) Commercial General Liability Insurance or Comprehensive General Liability Insurance (on an occurrence form) insuring bodily injury, personal injury and property damage including the following divisions and extensions of coverage: Premises and Operations; Owners and Contractors protective; blanket contractual liability (including coverage for Tenant's indemnity obligations under this Lease); products and completed operations; liquor liability (if Tenant serves alcohol on the Premises); and fire legal liability in an amount not less than $250,000. Such insurance must have the following minimum limits of liability: bodily injury, personal injury and property damage - $2,000,000 each occurrence, provided that if liability coverage is provided by a Commercial General Liability policy the general aggregate limit shall apply separately and in total to this location only (per location general -12- aggregate), and provided further, such minimum limits of liability may be adjusted from year to year to reflect increases in coverages as recommended by Landlord's insurance carrier as being prudent and commercially reasonable for tenants of first class office buildings comparable to the Building, rounded to the nearest five hundred thousand dollars. (iii) Comprehensive Automobile Liability insuring bodily injury and property damage arising from all owned, non-owned and hired vehicles, if any, with minimum limits of liability of $1,000,000 per accident. (iv) Workers Compensation as required by the laws of the State of California with the following minimum limits of liability: Coverage A -statutory benefits; Coverage B -$1,000,000 per accident and disease. (v) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which, a prudent tenant would protect itself, but only to the extent coverage for such risks and amounts are available in the insurance market at commercially acceptable rates. Landlord makes no representation that the limits of liability required to be carried by Tenant under the terms of this Lease are adequate to protect Tenant's interests and Tenant should obtain such additional insurance or increased liability limits as Tenant deems appropriate. (b) SUPPLEMENTAL TENANT INSURANCE REQUIREMENTS. ------------------------------------------ (i) All policies must be in a form reasonably satisfactory to Landlord and issued by an insurer admitted to do business in the State of California. (ii) All policies must be issued by insurers with a policyholder rating of not lower than "B" and a financial rating of not less than "IX" in the most recent version of Best's Key Rating Guide. (iii) All policies must contain a requirement to notify Landlord (and Landlord's property manager and any mortgagees or ground lessors of Landlord who are named as additional insureds, if any) in writing not less than thirty (30) days prior to any material change, reduction in coverage, cancellation or other termination thereof. Tenant agrees to deliver to Landlord, as soon as practicable after placing the required insurance, but in any event within the time frame specified in SUBSECTION 19(a), certificate(s) of insurance and/or if required by Landlord, certified copies of each policy evidencing the existence of such insurance and Tenant's compliance with the provisions of this SECTION 19. Tenant agrees to cause replacement policies or certificates to be delivered to Landlord not less than thirty (30) days prior to the expiration of any such policy or policies. If any such initial or replacement policies or certificates are not furnished within the time(s) specified herein, Tenant will be deemed to be in material default under this Lease without the benefit of any additional notice or cure period provided in SUBSECTION 22(a)(iii), and Landlord will have the right, but not the obligation, to procure such insurance as Landlord deems necessary to protect Landlord's interests at Tenant's expense. If Landlord obtains any insurance that is the responsibility of Tenant under this SECTION 19, Landlord agrees to deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed and Tenant agrees to promptly reimburse Landlord for such costs as additional rent. (iv) General Liability and Automobile Liability policies under SUBSECTION 19(a)(iii) and SUBSECTION 19(a)(iv) must name Landlord and Landlord's property manager (and at Landlord's request, Landlord's mortgagees and ground lessors of which Tenant has been informed in writing) as additional insureds and must also contain a provision that the insurance afforded by such policy is primary insurance and any insurance carried by Landlord and Landlord's property manager or Landlord's mortgagees or ground lessors, if any, will be excess over and non-contributing with Tenant's insurance. (c) TENANT'S USE. Tenant will not keep, use, sell or offer for ------------ sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building or the Project Common Areas. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Building or the Project Common Areas or results in the need for Landlord to maintain special or additional insurance, Tenant agrees to pay Landlord the cost of any such increase in premiums or special or additional coverage as additional rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Building, the Project Common Areas or the Tenant Improvements showing -13- the various components of such rate, will be conclusive evidence of the several items and charges which make up such rate. Tenant agrees to promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. (d) CANCELLATION OF LANDLORD'S POLICIES. If any of Landlord's ----------------------------------- insurance policies are canceled or cancellation is threatened or the coverage reduced or threatened to be reduced in any way because of the use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, reduction of coverage, threatened reduction of coverage, increase in premiums, or threatened increase in premiums, within forty-eight (48) hours after notice thereof, Tenant will be deemed in material default of this Lease and Landlord may, at its option, either terminate this Lease or enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay Landlord the reasonable costs of such remedy as additional rent. If Landlord is unable, or elects not to remedy such condition, then Landlord will have all of the remedies provided for in this Lease in the event of a default by Tenant. (e) MUTUAL WAIVER OF SUBROGATION. Landlord and Tenant each ---------------------------- hereby waive any and all rights of recovery against the other, and against the partners, officers, employees, agents or representatives of the other, for loss of or damage to its property or the property of others under its control, to the extent such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) or would have been covered by any insurance policy required to be carried under the provisions of this Lease, at the time of such loss or damage. Each of the parties hereto, on behalf of their respective insurance companies insuring the property of either Landlord or Tenant against any such loss, to the extent of the amount of any recovery under such insurance, hereby waives any right of subrogation that it may have against the other. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation. Such waiver shall be expressly included in, and shall comply with the requirements of, the respective insurance policies. 20. DAMAGE OR DESTRUCTION. --------------------- (a) PARTIAL DESTRUCTION. If the Premises or the Building are ------------------- damaged by fire or other casualty to an extent not exceeding twenty-five percent (25%) of the full replacement cost thereof, and Landlord's contractor reasonably estimates in a writing delivered to Landlord and Tenant that the damage thereto may be repaired, reconstructed or restored to substantially its condition immediately prior to such damage within one hundred eighty (180) days from the date of such casualty, and Landlord will receive insurance proceeds sufficient to cover the costs of such repairs, reconstruction and restoration (including proceeds from Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord pursuant to SUBSECTION 20(e) to cover Tenant's obligation for the costs of repair, reconstruction and restoration of any portion of the Tenant Improvements and any Alterations for which Tenant is responsible under this Lease), then Landlord agrees to commence and proceed diligently with the work of repair, reconstruction and restoration and this Lease shall continue in full force and effect. (b) SUBSTANTIAL DESTRUCTION. Any damage or destruction to the ----------------------- Premises or the Building which Landlord is not obligated to repair pursuant to SUBSECTION 20(a) shall be deemed a substantial destruction. In the event of a substantial destruction, Landlord may elect to either: (i) repair, reconstruct and restore the portion of the Building or the Premises - damaged by such casualty, in which case this Lease shall continue in full force and effect, subject to Tenant's termination right contained in SUBSECTION 20(d); or (ii) terminate this Lease effective as of the date which is thirty (30) days after Tenant's receipt of Landlord's election to so terminate. (c) NOTICE. Under any of the conditions of SUBSECTION 20(a) or ------ SUBSECTION 20(b), Landlord agrees to give written notice to Tenant of its intention to repair or terminate, as permitted in such Subsections, within the earlier of sixty (60) days after the occurrence of such casualty, or fifteen (15) days after Landlord's receipt of the estimate from Landlord's contractor (the applicable time period to be referred to herein as the "Notice Period"). (d) TENANT'S TERMINATION RIGHTS. If Landlord elects to repair, --------------------------- reconstruct and restore pursuant to Subsection 20(b)(i), and if Landlord's contractor estimates that as a result of such damage, Tenant cannot be given reasonable use of and access to the Premises within two hundred seventy (270) days after the date of such damage, then Tenant may terminate this Lease effective upon delivery of written notice to Landlord within ten (10) days after Landlord delivers notice to Tenant of its election to so repair, reconstruct or restore. -14- (e) TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of any ------------------------------------- damage or destruction of all or any part of the Premises, Tenant agrees to immediately (i) notify Landlord thereof, and (ii) deliver to Landlord all property insurance proceeds received by Tenant with respect to any Tenant Improvements and any Alterations, but excluding proceeds for Tenant's furniture, fixtures, equipment and other personal property, whether or not this Lease is terminated as permitted in this SECTION 20, and Tenant hereby assigns to Landlord all rights to receive such insurance proceeds. If, for any reason (including Tenant's failure to obtain insurance for the full replacement cost of any Tenant Improvements and any Alterations from any and all casualties), Tenant fails to receive insurance proceeds covering the full replacement cost of any Tenant Improvements and any Alterations which are damaged, Tenant will be deemed to have self-insured the replacement cost of such items, and upon any damage or destruction thereto, Tenant agrees to immediately pay to Landlord the full replacement cost of such items, less any insurance proceeds actually received by Landlord from Landlord's or Tenant's insurance with respect to such items. (f) ABATEMENT OF RENT. In the event of any damage, repair, ----------------- reconstruction and/or restoration described in this SECTION 20, rent will be abated or reduced, as the case may be, in proportion to the degree to which Tenant's use of the Premises is impaired during such period of repair until such use is restored. Except for such abatement of rent, Tenant will not be entitled to any compensation or damages for loss of, or interference with, Tenants business or use or access of all or any part of the Premises resulting from any such damage, repair, reconstruction or restoration. (g) INABILITY TO COMPLETE. Notwithstanding anything to the --------------------- contrary contained in this SECTION 20, if Landlord is obligated or elects to repair, reconstruct and/or restore the damaged portion of the Building or the Premises pursuant to SUBSECTION 20(a) or SUBSECTION 20(b)(i), but is delayed from completing such repair, reconstruction and/or restoration beyond the date which is one hundred eighty (180) days after the date estimated by Landlord's contractor for completion thereof by reason of any causes (other than delays caused by Tenant, its subtenants, employees, agents or contractors) which are beyond the reasonable control of Landlord as described in Section 33, then either Landlord or Tenant may elect to terminate this Lease upon ten (10) days' prior written notice given to the other after the expiration of such one hundred eighty (180) day period. (h) DAMAGE NEAR END OF TERM. Landlord and Tenant shall each ----------------------- have the right to terminate this Lease if any damage to the Premises or the Building occurs during the last twelve (12) months of the Term of this Lease where Landlord's contractor estimates in a writing delivered to Landlord and Tenant that the repair, reconstruction or restoration of such damage cannot be completed within sixty (60) days after the date of such casualty. If either party desires to terminate this Lease under this SUBSECTION 20(h), it shall provide written notice to the other party of such election within ten (10) days after receipt of Landlord's contractors repair estimates. (i) WAIVER OF TERMINATION RIGHT. Landlord and Tenant agree that --------------------------- the foregoing provisions of this SECTION 20 are to govern their respective rights and obligations in the event of any damage or destruction and supersede and are in lieu of the provisions of any applicable law, statute, ordinance, rule, regulation, order or ruling now or hereafter in force which provide remedies for damage or destruction of leased premises (including, without limitation, the provisions of California Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any successor statute or laws of a similar nature). (j) TERMINATION. Upon any termination of this Lease under any ----------- of the provisions of this SECTION 20, the parties will be released without further obligation to the other from the date possession of the Premises is surrendered to Landlord except for items which have accrued and are unpaid as of the date of termination and matters which are to survive any termination of this Lease as provided in this Lease. 21. EMINENT DOMAIN. -------------- (a) SUBSTANTIAL TAKING. If the whole of the Premises, or such ------------------ part thereof as shall substantially interfere with Tenant's use and occupancy of the Premises, as contemplated by this Lease, is taken for any public or quasi- public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party will have the right to terminate this Lease effective as of the date possession is required to be surrendered to such authority. (b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking --------------------------------- of a portion of the Premises which does not substantially interfere with Tenant's use and occupancy of the Premises, then, neither party will have the right to terminate this Lease and Landlord will thereafter proceed to make a functional unit of the remaining portion of the Premises (but only to the extent Landlord receives proceeds therefor from the condemning authority), and rent will be abated with respect to the part of the Premises which Tenant is deprived of on account of such taking. Notwithstanding the immediately preceding sentence to the contrary, if any part of the floor area of the Building or the Project is taken (whether or not such taking substantially interferes with -15- Tenant's use of the Premises), Landlord may terminate this Lease upon thirty (30) days' prior written notice to Tenant if Landlord also terminates the leases of the other tenants of the Building which are leasing comparably sized space for comparable lease terms. (c) CONDEMNATION AWARD. In connection with any taking of the ------------------ Premises or the Building, Landlord will be entitled to receive the entire amount of any award which may be made or given in such taking or condemnation, without deduction or apportionment for any estate or interest of Tenant, it being expressly understood and agreed by Tenant that no portion of any such award will be allowed or paid to Tenant for any so-called bonus or excess value of this Lease, and such bonus or excess value will be the sole property of Landlord. Tenant agrees not to assert any claim against Landlord or the taking authority for any compensation because of such taking (including any claim for bonus or excess value of this Lease); provided, however, if any portion of the Premises is taken, Tenant will have the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant's furniture, fixtures, equipment and other personal property within the Premises, for Tenant's relocation expenses, and for any loss of goodwill or other damage to Tenant's business by reason of such taking. (d) TEMPORARY TAKING. In the event of taking of the Premises or ---------------- any part thereof for temporary use, (i) this Lease will remain unaffected thereby and rent will not abate, and (ii) Tenant will be entitled to receive such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking remains in force at the expiration or earlier termination of this Lease, Tenant will then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations under SECTION 11 with respect to surrender of the Premises and upon such payment Tenant will be excused from such obligations. For purpose of this SUBSECTION 21(D), a temporary taking shall be defined as a taking for a period of ninety (90) days or less. 43. DEFAULTS AND REMEDIES. --------------------- (a) DEFAULT BY TENANT. The occurrence of any one or more of the ----------------- following events will be deemed a default by Tenant: (i) The abandonment of the Premises by Tenant, which for purposes of this Lease means any absence by Tenant from the Premises for five (5) business days or longer while in default of any other provision of this Lease, or use of the Premises for any purpose other than general offices. (ii) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure continues for a period of three (3) days after written notice thereof from Landlord to Tenant; provided, however, that any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, the provisions of California Code of Civil Procedure Section 1161 regarding unlawful detainer actions or any successor statute or law of a similar nature). (iii) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subsection 22(a)(1) or Subsection 22(a)(ii), where such failure continues for a period of thirty (30) days after written notice thereof from Landlord to Tenant. The provisions of any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, California Code of Civil Procedure Section 1161 regarding unlawful detainer actions and any successor statute or similar law). If the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant will not be deemed to be in default if Tenant commences such cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion; provided, however, if the nature of Tenant's default is such that it is not reasonably susceptible of cure (for example, by way of illustration and not limitation, material misrepresentations in Tenant's financial statements), no cure periods shall be provided. (iv) (A) The making by Tenant or any Guarantor of any general assignment for the benefit of creditors; (B) the filing by or against Tenant or any Guarantor of a petition to have Tenant or such Guarantor adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (D) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. -16- (b) NOTICES. Notices given under this SECTION 22 shall specify ------- the default and one or more applicable Lease provisions, and shall demand that Tenant perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord so elects in the notice. (c) LANDLORD'S REMEDIES; TERMINATION. In the event of any -------------------------------- default by Tenant, in addition to any other remedies available to Landlord at law or in equity under applicable law (including, without limitation, the remedies of Civil Code Section 1951.4 and any successor statute or similar law), Landlord will have the immediate right and option to terminate this Lease and all rights of Tenant hereunder. If Landlord elects to terminate this Lease then, to the extent permitted under applicable law, Landlord may recover from Tenant: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rent loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rent loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, results therefrom including, but not limited to: attorneys' fees and costs; brokers' commissions; the costs of refurbishment, alterations, renovation and repair of the Premises, and removal (including the repair of any damage caused by such removal) and storage (or disposal) of Tenant's personal property, equipment, fixtures, Alterations, the Tenant Improvements and any other items which Tenant is required under this Lease to remove but does not remove, as well as the unamortized value of the Tenant Improvements. The unamortized value of the Tenant Improvements shall be determined by taking the total value of the Tenant Improvements and multiplying such value by a fraction, the numerator of which is the number of months of the Lease Term not yet elapsed as of the date on which the Lease is terminated, and the denominator of which is the total number of months of the Lease Term. As used in SUBSECTION 22(b)(i) and SUBSECTION 22(b)(ii), the "worth at the time of award" is computed by allowing interest at the Interest Rate. As used in SUBSECTION 22(b)(iii), the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (d) LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of any ------------------------------------ default by Tenant, in addition to any other remedies available to Landlord under this Lease, at law or in equity, Landlord will also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere and/or disposed of at the cost of and for the account of Tenant in accordance with the provisions of SUBSECTION 13(i) of this Lease or any other procedures permitted by applicable law. No re-entry or taking possession of the Premises by Landlord pursuant to this SUBSECTION 22(c) will be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. (e) LANDLORD'S REMEDIES RE-LETTING. In the event of the ------------------------------ vacation or abandonment of the Premises by Tenant or in the event that Landlord elects to re-enter the Premises or takes possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof on terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises in connection with such reletting. If Landlord elects to relet the Premises, then rents received by Landlord from such reletting will be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises incurred in connection with such relenting; fourth, to the payment of rent due and unpaid hereunder and the residue, if any, will be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rents received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, -17- then Tenant agrees to pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency will be calculated and paid monthly. (f) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All covenants ------------------------------------------- and agreements to be performed by Tenant under any of the terms of this Lease are to be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant fails to pay any sum of money owed to any party other than Landlord, for which it is liable under this Lease, or if Tenant fails to perform any other act on its part to be performed hereunder, Landlord may, without notice to Tenant, and without waiving or releasing Tenant from its obligations, but shall not be obligated to, make any such payment or perform any such other act to be made or performed by Tenant. Landlord's election to make any such payment or perform any such act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same on similar acts. Tenant agrees to reimburse Landlord upon demand for all sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the Interest Rate from the date of such payment by Landlord until reimbursed by Tenant. This remedy shall be in addition to any other right or remedy of Landlord set forth in this Section 22. (g) LATE PAYMENT. If Tenant fails to pay any installment of ------------ rent or any other payment for which Tenant is obligated under this Lease within five (5) days of when due, such late amount will accrue interest at the Interest Rate and Tenant agrees to pay Landlord as additional rent such interest on such amount from the date such amount becomes due until such amount is paid. In addition, Tenant agrees to pay to Landlord concurrently with such late payment amount, as additional rent, a late charge equal to five percent (5%) of the amount due to compensate Landlord for the extra costs Landlord will incur as a result of such late payment. The parties agree that (i) it would be impractical and extremely difficult to fix the actual damage Landlord will suffer in the event of Tenant's late payment, (ii) such interest and late charge represents a fair and reasonable estimate of the detriment that Landlord will suffer by reason of late payment by Tenant, and (iii) the payment of interest and late charges are distinct and separate in that the payment of interest is to compensate Landlord for the use of Landlord's money by Tenant, while the payment of late charges is to compensate Landlord for Landlord's processing, administrative and other costs incurred by Landlord as a result of Tenant's delinquent payments. Acceptance of any such interest and late charge will not constitute a waiver of the Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. Notwithstanding the foregoing, Landlord shall not impose a late charge or interest on a late installment of rent pursuant to the foregoing unless Landlord has notified Tenant within the previous twenty-four (24) months that an installment of rent was not paid when due. If Tenant incurs a late charge more than three (3) times in any period of twelve (12) months during the Lease Term, then, notwithstanding that Tenant cures the late payments for which such late charges are imposed, Landlord will have the right to require Tenant thereafter to pay all installments of Monthly Base Rent quarterly in advance throughout the remainder of the Lease Term, and the Security Deposit held by Landlord shall be increased and Tenant shall immediately pay to Landlord the amount necessary to increase the Security Deposit to no less than three (3) months Rent (whether or not any Security Deposit was previously required hereunder). (h) LIEN FOR RENT. [Intentionally Omitted.] ------------- (i) RIGHTS AND REMEDIES CUMULATIVE. All rights, options and ------------------------------ remedies of Landlord contained in this Lease will be construed and held to be cumulative, and no one of them will be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law or in equity, whether or not stated in this Lease. Nothing in this SECTION 22 will be deemed to limit or otherwise affect Tenant's indemnification of Landlord pursuant to any provision of this Lease. 44. LANDLORD'S DEFAULT. Landlord will not be in default in the ------------------ performance of any obligation required to be performed by Landlord under this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of written notice from Tenant specifying in detail Landlord's failure to perform; provided however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord will not be deemed in default if it commences such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any default by Landlord, Tenant may exercise any of its rights provided at law or in equity, subject to the limitations on liability set forth in SECTION 35 of this Lease. 24. ASSIGNMENT AND SUBLETTING. ------------------------- (a) RESTRICTION ON TRANSFER. Except as expressly provided in ----------------------- this SECTION 24, Tenant will not, either voluntarily or by operation of law, assign or encumber this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use or occupancy of the Premises by any party other than Tenant (any such assignment, encumbrance, sublease or the like is hereinafter generally referred to as a "Transfer'), without the prior written consent of Landlord, which consent Landlord will not unreasonably withhold. -18- (b) CORPORATE AND PARTNERSHIP TRANSFERS. For purposes of this ----------------------------------- SECTION 24. If Tenant is a corporation, partnership or other entity, any transfer, assignment, encumbrance or hypothecation of twenty-five percent (25%) or more (individually or in the aggregate) of any stock or other ownership interest in such entity, and/or any transfer, assignment, hypothecation or encumbrance of any controlling ownership or voting interest in such entity, will be deemed a Transfer and will be subject to all of the restrictions and provisions contained in this SECTION 24. Notwithstanding the foregoing, the immediately preceding sentence will not apply to any transfers of stock of Tenant if Tenant is a publicly-held corporation and such stock is transferred publicly over a recognized security exchange or over-the-counter market. (c) PERMITTED CONTROLLED TRANSFERS. Notwithstanding the ------------------------------ provisions of this SECTION 24 to the contrary, Tenant may assign this Lease or sublet the Premises or any portion thereof ("Permitted Transfer"), without Landlord's consent and without extending any sublease termination option to Landlord, to any parent, subsidiary or affiliate corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that: (i) at least twenty (20) days prior to such assignment or sublease, Tenant delivers to Landlord the financial statements and other financial and background information of the assignee or sublessee described in Subsection 24(d); (ii) if an assignment, the assignee assumes, in full, the obligations of Tenant under this Lease (or if a sublease, the sublessee of a portion of the Premises or Term assumes, in full, the obligations of Tenant with respect to such portion); (iii) the financial net worth of the assignee or sublessee as of the time of the proposed assignment or sublease equals or exceeds that of Tenant as of the date of execution of this Lease; (iv) Tenant remains fully liable under this Lease; and (v) the use of the Premises under SECTION 8 remains unchanged. (d) TRANSFER NOTICE. If Tenant desires to effect a Transfer, --------------- then at least thirty days prior to the date when Tenant desires the Transfer to be effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the "Transfer Notice"), stating the name, address and business of the proposed assignee, sublessee or other transferee (sometimes referred to hereinafter as "Transferee"), reasonable information (including references) concerning the character, ownership, and financial condition of the proposed Transferee, the Transfer Date, any ownership or commercial relationship between Tenant and the proposed Transferee, and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord may reasonably require. If Landlord reasonably requests additional detail, the Transfer Notice will not be deemed to have been received until Landlord receives such additional detail, and Landlord may withhold consent to any Transfer until such information is provided to it. (e) LANDLORD'S OPTIONS. Within fifteen (15) days of Landlord's ------------------ receipt of any Transfer Notice, and any additional information requested by Landlord concerning the proposed Transferee's financial responsibility, Landlord will elect to do one of the following: (i) consent to the proposed Transfer; (ii) refuse such consent, which refusal shall be on reasonable grounds including, without limitation, those set forth in SUBSECTION 24(f); or (iii) terminate this Lease as to all or such portion of the Premises which is proposed to be sublet or assigned and recapture all or such portion of the Premises for reletting by Landlord. (f) REASONABLE DISAPPROVAL. Landlord and Tenant hereby ---------------------- acknowledge that Landlord's disapproval of any proposed Transfer pursuant to SUBSECTION 24(e) will be deemed reasonably withheld if based upon any reasonable factor, including, without limitation, any or all of the following factors: (i) if the Building is less than eighty percent (80%) occupied, if the net effective rent payable by the Transferee (adjusted on a rentable square foot basis) is less than the net effective rent then being quoted by Landlord for new leases in the Building for comparable size space for a comparable period of time; (ii) the proposed Transferee is a governmental entity; (iii) the portion of the Premises to be sublet or assigned is irregular in shape with inadequate means of ingress and egress; (iv) the use of the Premises by the Transferee (A) is not permitted by the use provisions in SECTION 8 hereof, or (B) violates any exclusive use granted by Landlord to another tenant in the Building; (v) the Transfer would likely result in a significant and inappropriate increase in the use of the parking areas or Project Common Areas by the Transferee's employees or visitors, and/or significantly increase the demand upon utilities and services to be provided by Landlord to the Premises; (vi) the Transferee does not have the financial capability to fulfill the obligations imposed by the Transfer and this Lease; or (vii) the Transferee is not in Landlord's reasonable opinion consistent with Landlord's desired tenant mix. In the event Landlord withholds or conditions its consent and Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under SUBSECTION 24(f) or otherwise has breached or acted unreasonably under this SECTION 24, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies on its own behalf and, to the extent permitted under all applicable -19- laws, on behalf of the proposed Transferee. In any such action, each party shall bear its own attorneys' fees. Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant's proposed subtenant or assignee) who claim they were damaged by Landlord's wrongful withholding or conditioning of Landlord's consent. (g) ADDITIONAL CONDITIONS. A condition to Landlord's consent to --------------------- any Transfer of this Lease will be the delivery to Landlord of a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation, and, in the case of an assignment, the delivery to Landlord of an agreement executed by the Transferee in form and substance reasonably satisfactory to Landlord, whereby the Transferee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder. As a condition for granting its consent to any assignment or sublease, Landlord may require that the assignee or sublessee remit directly to Landlord on a monthly basis, all monies due to Tenant by said assignee or sublessee. As a condition to Landlord's consent to any sublease, such sublease must provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (i) terminate the sublease, or (ii) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee will attorn to Landlord, but that nevertheless Landlord will not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent. (h) EXCESS RENT. If Landlord consents to any Transfer, Tenant ----------- agrees to pay to Landlord, as additional rent, fifty percent (50%) of all sums and other consideration payable to and for the benefit of Tenant by the Transferee on account of the Transfer, less reasonable brokerage commissions, attorneys' fees and advertising costs actually expended by Tenant in connection with the Transfer, as and when such sums and other consideration are due and payable by the Transferee to or for the benefit of Tenant (or, if Landlord so requires, and without any release of Tenant's liability for the same, Tenant agrees to instruct the Transferee to pay such sums and other consideration directly to Landlord). If for any proposed sublease Tenant receives rent or other consideration, either initially or over the term of the sublease, in excess of the rent fairly allocable to the portion of the Premises which is subleased based on square footage, Tenant agrees to pay to Landlord as additional rent 50% of the excess of each such payment of rent or other consideration received by Tenant promptly after its receipt. In calculating excess rent or other consideration which may be payable to Landlord under this SUBSECTION 24(h), Tenant shall not be entitled to deduct any amounts expended or incurred by Tenant in connection with such Transfer other than as specified above. (i) TERMINATION RIGHTS. If Tenant requests Landlord's consent ------------------ to any assignment or subletting of all or a portion of the Premises, Landlord will have the right, as provided in SUBSECTION 24(e), to terminate this Lease as to all or such portion of the Premises which is proposed to be sublet or assigned effective as of the date Tenant proposes to sublet or assign all or less than all of the Premises. Landlord's right to terminate this Lease as to less than all of the Premises proposed to be sublet or assigned will not terminate as to any future additional subletting or assignment as a result of Landlord's consent to a subletting of less than all of the Premises or Landlord's failure to exercise its termination right with respect to any subletting or assignment. Landlord will exercise such termination right, if at all, by giving written notice to Tenant within thirty (30) days of receipt by Landlord of the financial responsibility information required by this Section 24. Tenant understands and acknowledges that the option, as provided in this Section 24, to terminate this Lease as to all or such portion of the Premises which is proposed to be sublet or assigned rather than approve the subletting or assignment of all or a portion of the Premises, is a material inducement for Landlord's agreeing to lease the Premises to Tenant upon the terms and conditions herein set forth. In the event of any such termination with respect to less than all of the Premises, the cost of segregating the recaptured space from the balance of the Premises will be paid by Tenant and Tenant's future monetary obligations under this Lease will be reduced proportionately on a square footage basis to correspond to the balance of the Premises which Tenant continues to lease. (j) NO RELEASE. No Transfer will release Tenant of Tenant's ---------- obligations under this Lease or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. Landlord may require that any Transferee remit directly to Landlord on a monthly basis, all monies due Tenant by said Transferee. However, the acceptance of rent by Landlord from any other person will not be deemed to be a waiver by Landlord of any provision hereof. Consent by Landlord to one Transfer will not be deemed consent to any subsequent Transfer. In the event of default by any Transferee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such Transferee or successor. Landlord may consent to subsequent assignments of this Lease or sublettings or amendments or modifications to this Lease with assignees of Tenant, -20- without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions will not relieve Tenant of liability under this Lease. (k) ADMINISTRATIVE AND ATTORNEYS' FEES. If Tenant effects a ---------------------------------- Transfer or requests the consent of Landlord to any Transfer (whether or not such Transfer is consummated), then, upon demand, Tenant agrees to pay Landlord a non-refundable administrative fee of Two Hundred Fifty Dollars ($250.00), plus any reasonable attorneys' and paralegal fees incurred by Landlord in connection with such Transfer or request for consent (whether attributable to Landlord's in-house attorneys or paralegals or otherwise). Acceptance of the Two Hundred Fifty Dollar ($250.00) administrative fee and/or reimbursement of Landlord's attorneys' and paralegal fees will in no event obligate Landlord to consent to any proposed Transfer. 25. SUBORDINATION. At the election of Landlord or any mortgagee or ------------- beneficiary with a deed of trust encumbering the Building or the Project or any portion thereof, or any lessor of a ground or underlying lease with respect to the Building or the Project or any portion thereof, this Lease will be subject and subordinate at all times to: (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building; and (ii) the lien of any mortgage or deed of trust or any other hypothecation for security now or hereafter placed upon the Project, the Building or any portion thereof, or Landlord's interest and estate in any of same, and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof which may now exist or hereafter be executed. Notwithstanding the foregoing, if any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage or deed of trust or to its ground lease, and shall give written notice thereof to Tenant at any time prior to the transfer of the Premises in foreclosure or by deed in lieu of foreclosure of such lien or otherwise (or at any time prior to the termination of the ground lease, as the case may be), then, notwithstanding any prior subordination, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. Notwithstanding the foregoing provisions of this Section 25, the transferee of the Premises upon any foreclosure sale or pursuant to any deed in lieu of foreclosure or other transfer (or the ground lessor in the event of a termination of a ground lease) shall have the right, whether or not this Lease has been terminated by or in connection with such transfer or termination of ground lease (whether voluntarily, involuntarily or by operation of law), to require Tenant to enter into a new lease of the Premises (with the transferee or ground lessor as landlord) on terms and conditions identical to those as set forth in the Lease, except that the term of the new lease shall expire on the date specified herein for the expiration of the term of this Lease. The provisions hereof are intended to be self-executing and do not require the necessity of any additional document being executed by Tenant for the purpose of effecting same. Tenant nevertheless agrees to execute and deliver to Landlord, within ten (10) days after request therefor, any documents reasonably requested by Landlord to effectuate or evidence any subordination or attornment, to make this Lease prior to the lien of any mortgage, deed of trust or ground lease or to enter into a new lease, each as described above in this SECTION 25, and failing to do so: (i) Tenant shall be in default hereunder with no right to further notice or cure, and (ii) Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact to execute and deliver such documents for Tenant, such power, being coupled with an interest and being irrevocable. Without limitation on any of the foregoing, Tenant hereby waives its rights under any law which gives or purports to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event of any such foreclosure proceeding, sale or termination of ground lease. 26. ESTOPPEL CERTIFICATE. -------------------- (a) TENANT'S OBLIGATIONS. Within ten (10) days following any -------------------- written request which Landlord may make from time to time, Tenant agrees to execute and deliver to Landlord a statement, in a form substantially similar to the form of Exhibit "G" attached hereto or as may reasonably be required by ----------- Landlord's lender, certifying: (i) the Commencement Date of this Lease; (ii) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, and stating the date and nature of such modifications); (iii) the date to which the rent and other sums payable under this Lease have been paid; (iv) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (v) such other matters reasonably requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this SECTION 26 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. (b) TENANT'S FAILURE TO DELIVER. Tenant's failure to deliver --------------------------- such statement within such time will be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one (1) month's rent has been paid in advance. Without limiting the foregoing, if Tenant fails to deliver any such statement within such ten (10) day period, Landlord may deliver to Tenant an additional request for such statement and Tenant's failure to deliver such statement to Landlord within ten (10) days after delivery of such additional request will constitute a default under this Lease. Tenant agrees to indemnify and protect -21- Landlord from and against any and all claims, damages, losses, liabilities and expenses (including attorneys' fees and costs) attributable to any failure by Tenant to timely deliver any such estoppel certificate to Landlord as required by this SECTION 26. 27. BUILDING PLANNING. [Intentionally Omitted.]. ----------------- 28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and --------------------- comply with the "Rules and Regulations," a copy of which is attached hereto and marked Exhibit "H", and all reasonable and nondiscriminatory modifications ----------- thereof and additions thereto from time to time put into effect by Landlord. Landlord will not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of any of the Rules and Regulations. 29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND --------------------------------------------------------- LESSORS. ------- (a) MODIFICATIONS. If, in connection with Landlord's obtaining ------------- or entering into any financing or ground lease for any portion of the Building or the Project, the lender or ground lessor requests modifications to this Lease, Tenant, within ten (10) days after request therefor, agrees to execute an amendment to this Lease incorporating such modifications, provided such modifications are reasonable and do not increase the obligations of Tenant under this Lease or adversely affect the leasehold estate created by this Lease. (b) CURE RIGHTS. In the event of any default on the part of ----------- Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises or ground lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the default (including with respect to any such beneficiary or mortgagee, time to obtain possession of the Premises, subject to this Lease and Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure). 30. DEFINITION OF LANDLORD. The term "Landlord," as used in this ---------------------- Lease, so far as covenants or obligations on the part of Landlord are concerned, means and includes only the owner or owners, at the time in question, of the fee title of the Premises or the lessee(s) under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title (other than a transfer for security purposes only, but including any transfer to a purchaser at a foreclosure sale or by deed in lieu of foreclosure, subject to the provisions of SECTION 25), Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be and is automatically relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, and the transferee shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such transferee, to have assumed and agreed to carry out any and all the covenants and obligations of the Landlord arising under this Lease after the date of such transfer. Subject to the provisions of SECTION 25 hereof, Tenant agrees to attorn to and recognize such transferee and shall be deemed to have attorned to and recognized such transferee without any further agreement between the parties or their successors in interest or between the parties and any such transferee, unless this Lease is terminated pursuant to specific provisions relating thereto or contained herein. Landlord and Landlord's transferees and assignees have the absolute right to transfer all or any portion of their respective title and interest in the Project, the Building, the Premises and/or this Lease without the consent of Tenant, and such transfer or subsequent transfer will not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. If any Security Deposit has been made by Tenant, Landlord may transfer such Security Deposit to the transferee and thereupon Landlord shall be discharged from any further liability in reference thereto. 31. WAIVER. The waiver by either party of any breach of any term, ------ covenant or condition herein contained will not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor will any custom or practice which may develop between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of either party to insist upon performance in strict accordance with said terms. The subsequent acceptance of rent or any other payment hereunder by Landlord will not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rent and additional rent or other sum then due will be deemed to be other than on account of the earliest installment of such rent or other amount due, nor will any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy provided in this Lease. The consent or -22- approval of Landlord to or of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant. 32. PARKING. ------- (a) GRANT OF PARKING RIGHTS. So long as this Lease is in effect ----------------------- and provided Tenant is not in default hereunder, Landlord grants to Tenant and Tenant's Authorized Users (as defined below) a license to use the number and type of parking spaces designated in SUBSECTION 1(s) subject to the terms and conditions of this SECTION 32 and the Rules and Regulations regarding parking contained in Exhibit "H" attached hereto. As consideration for the use of such ----------- parking spaces, Tenant agrees to pay to Landlord or, at Landlord's election, directly to Landlord's parking operator, as additional rent under this Lease, the parking rate set forth in SUBSECTION 1(t) or, if no rate is specified in SUBSECTION 1(t) or the rate therein ceases to be applicable, then at the prevailing parking rate for each such parking space as established by Landlord in its discretion from time to time; provided, however, the parties agree that the parking spaces designated in SUBSECTION l(s) shall be provided free of charge for the initial Term. Tenant agrees that all parking charges will be payable on a monthly basis concurrently with each monthly payment of Monthly Base Rent. Tenant agrees to submit to Landlord or, at Landlord's election, directly to Landlord's parking operator with a copy to Landlord, written notice in a form reasonably specified by Landlord containing the names, home and office addresses and telephone numbers of those persons who are authorized by Tenant to use Tenant's parking spaces on a monthly basis ("Tenant's Authorized Users") and shall use its best efforts to identify each vehicle of Tenant's Authorized Users by make, model and license number. Tenant agrees to deliver such notice prior to the beginning of the Term of this Lease and to periodically update such notice as well as upon specific request by Landlord or Landlord's parking operator to reflect changes to Tenant's Authorized Users or their vehicles. (b) VISITOR PARKING. So long as this Lease is in effect, --------------- Tenant's visitors and guests will be entitled to use those specific parking areas which are designated for short term visitor parking and which are located within the surface parking area(s), if any, and/or within the parking structure(s) which serve the Building. Visitor parking will be made available at a charge to Tenant's visitors and guests, with the rate being established by Landlord in its discretion from time to time. Tenant, at its sole cost and expense, may elect to validate such parking for its visitors and guests. All such visitor parking will be on a non-exclusive, in common basis with all other visitors and guests of the Project. (c) USE OF PARKING SPACES. Tenant will not use or allow any of --------------------- Tenant's Authorized Users to use any parking spaces which have been specifically assigned by Landlord to other tenants or occupants or for other uses such as visitor parking or which have been designated by any governmental entity as being restricted to certain uses. Tenant will not be entitled to increase or reduce its parking privileges applicable to the Premises during the Term of the Lease except as follows: If at any time Tenant desires to increase or reduce the number of parking spaces allocated to it under the terms of this Lease, Tenant must notify Landlord in writing of such desire and Landlord will have the right, in its sole and absolute discretion, to either (a) approve such requested increase in the number of parking spaces allocated to Tenant (with an appropriate increase to the additional rent payable by Tenant for such additional spaces based on the then prevailing parking rates), (b) approve such requested decrease in the number of parking spaces allocated to Tenant (with an appropriate reduction in the additional rent payable by Tenant for such eliminated parking spaces based on the then prevailing parking rates), or (c) disapprove such requested increase or decrease in the number of parking spaces allocated to Tenant. Promptly following receipt of Tenant's written request, Landlord will provide Tenant with written notice of its decision including a statement of any adjustments to the additional rent payable by Tenant for parking under the Lease, if applicable. No parking stalls will be allocated to Tenant with respect to any space leased by Tenant under the Lease which consists of less than the full incremental amounts of rentable square footage, if any, required for parking stalls. (d) GENERAL PROVISIONS. Except as otherwise set forth herein, ------------------ Landlord reserves the right to set and increase monthly fees and/or daily and hourly rates for parking privileges from time to time during the Term of the Lease. Landlord may assign any unreserved and unassigned parking spaces and/or make all or any portion of such spaces reserved, if Landlord reasonably determines that it is necessary for orderly and efficient parking or for any other reasonable reason. Failure to pay the rent for any particular parking spaces or failure to comply with any terms and conditions of this Lease applicable to parking may be treated by Landlord as a default under this Lease and, in addition to all other remedies available to Landlord under the Lease, at law or in equity, Landlord may elect to recapture such parking spaces for the balance of the Term of this Lease if Tenant does not cure such failure within the applicable cure period set forth in Section 22 of this Lease. In such event, Tenant and Tenant's Authorized Users will be deemed visitors for purposes of parking space use and will be entitled to use only those parking areas specifically designated for visitor parking subject to all provisions of this Lease applicable to such visitor parking use. Tenant's parking rights and privileges described herein are personal to Tenant and may not be assigned or transferred, or otherwise conveyed, without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. In any event, under no circumstances -23- may Tenant's parking rights and privileges be transferred, assigned or otherwise conveyed separate and apart from Tenant's interest in this Lease. (e) COOPERATION WITH TRAFFIC MITIGATION MEASURES. Tenant agrees -------------------------------------------- to use its reasonable, good faith efforts to cooperate in traffic mitigation programs which may be undertaken by Landlord independently, or in cooperation with local municipalities or governmental agencies or other property owners in the vicinity of the Building. Such programs may include, but will not be limited to, carpools, vanpools and other ridesharing programs, public and private transit, flexible work hours, preferential assigned parking programs and programs to coordinate tenants within the Project with existing or proposed traffic mitigation programs. (f) PARKING RULES AND REGULATIONS. Tenant and Tenant's ----------------------------- Authorized Users shall comply with all rules and regulations regarding parking set forth in Exhibit "H" attached hereto and Tenant agrees to cause its ----------- employees, subtenants, assignees, contractors, suppliers, customers and invitees to comply with such rules and regulations. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities. 33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered ------------- in or prevented from the performance of any act required under this Lease by reason of strikes, lock-outs, labor troubles, inability to procure standard materials, failure of power, restrictive governmental laws, regulations or orders or governmental action or inaction (including failure, refusal or delay in issuing permits, approvals and/or authorizations which is not the result of the action or inaction of the party claiming such delay), riots, insurrection, war, fire, earthquake, flood or other natural disaster, unusual and unforeseeable delay which results from an interruption of any public utilities (e.g., electricity, gas, water, telephone) or other unusual and unforeseeable delay not within the reasonable control of the party delayed in performing work or doing acts required under the provisions of this Lease, then performance of such act will be excused for the period of the delay and the period for the performance of any such act will be extended for a period equivalent to the period of such delay. The provisions of this SECTION 33 will not operate to excuse Tenant from prompt payment of rent or any other payments required under the provisions of this Lease; provided, however, that the foregoing shall not affect Tenant's rights to rental abatement following a casualty as provided in SUBSECTION 20(f). 34. SIGNS. Landlord will designate the location on the Premises, if ----- any, for one or more Tenant identification sign(s). Tenant agrees to have Landlord install and maintain Tenant's identification sign(s) in such designated location in accordance with this SECTION 34 at Tenant's sole cost and expense. Tenant has no right to install Tenant identification signs in any other location in, on or about the Premises or the Project and will not display or erect any other signs, displays or other advertising materials that are visible from the exterior of the Building or from within the Building in any interior or exterior common areas. The size, design, color and other physical aspects of any and all permitted sign(s) will be subject to (i) Landlord's written approval prior to installation, which approval may be withheld in Landlord's discretion, (ii) any covenants, conditions or restrictions governing the Premises, and (iii) any applicable municipal or governmental permits and approvals. Tenant will be responsible for all costs for installation, maintenance, repair and removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s) upon termination of this Lease and repair any damage caused by such removal, Landlord may do so at Tenant's expense. Tenant agrees to reimburse Landlord for all costs incurred by Landlord to effect any installation, maintenance or removal on Tenant's account, which amount will be deemed additional rent, and may include, without limitation, all sums disbursed, incurred or deposited by Landlord including Landlord's costs, expenses and actual attorneys' fees with interest thereon at the Interest Rate from the date of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant under this Lease are personal to Tenant and may not be assigned, transferred or otherwise conveyed to any assignee or subtenant of Tenant without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. 35. LIMITATION ON LIABILITY. In consideration of the benefits ----------------------- accruing hereunder, Tenant on behalf of itself and all successors and assigns of Tenant covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) Tenant's recourse against Landlord for monetary damages will be limited to the lesser of (i) Landlord's interest in the Building including, subject to the prior rights of any Mortgagee, Landlord's interest in the rents of the Building, or (ii) the equity interest Landlord would have in and to the Building if the Building were encumbered by debt in an amount equal to eighty percent (80%) of the value of the Building, and any insurance proceeds payable to Landlord; (b) Except as may be necessary to secure jurisdiction of the partnership, no partner of Landlord shall be sued or named as a party in any suit or action and no service of process shall be made against any partner of Landlord; -24- (c) No partner of Landlord shall be required to answer or otherwise plead to any service of process; (d) No judgment will be taken against any partner of Landlord and any judgment taken against any partner of Landlord may be vacated and set aside at any time after the fact; (e) No writ of execution will be levied against the assets of any partner of Landlord; (f) The obligations under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; (g) These covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. 36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by -------------------- Landlord and at any time during the Term of this Lease upon ten (10) days prior written notice from Landlord, Tenant agrees to provide Landlord with a current financial statement for Tenant and any guarantors of Tenant and financial statements for the two (2) years prior to the current financial statement year for Tenant and any guarantors of Tenant. Such statements are to be prepared in accordance with generally accepted accounting principles and certified by the chief financial officer of Tenant and, if such is the normal practice of Tenant, audited by an independent certified public accountant. 37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that --------------- upon Tenant paying the rent required under this Lease and paying all other charges and performing all of the covenants and provisions on Tenant's part to be observed and performed under this Lease, Tenant may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease. 38. MISCELLANEOUS. ------------- (a) CONFLICT OF LAWS. This Lease shall be governed by and ---------------- construed pursuant to the laws of the State of California. (b) SUCCESSORS AND ASSIGNS. Except as otherwise provided in ---------------------- this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. (c) PROFESSIONAL FEES AND COSTS. If either Landlord or Tenant --------------------------- should bring suit against the other with respect to this Lease, then all costs and expenses, including without limitation, actual professional fees and costs such as appraisers', accountants' and attorneys' fees and costs, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. (d) TERMS AND HEADINGS. The words "Landlord" and "Tenant" as ------------------ used herein shall include the plural as well as the singular. Words used in any gender include other genders. The section and subsection headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. (e) TIME. Time is of the essence with respect to the ---- performance of every provision of this Lease in which time of performance is a factor. (f) PRIOR AGREEMENTS; AMENDMENTS. This Lease constitutes and is ---------------------------- intended by the parties to be a final, complete and exclusive statement of their entire agreement with respect to the subject matter of this Lease. This Lease supersedes any and all prior and contemporaneous agreements and understandings of any kind relating to the subject matter of this Lease. There are no other - ----------- agreements, understandings, representations, warranties, or statements, either oral or in written form, concerning the subject matter of this Lease. No alteration, modification, amendment or interpretation of this Lease shall be binding on the parties unless contained in a writing which is signed by both parties. (g) SEPARABILITY. Any provision of this Lease which shall prove ------------ to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect. -25- (h) RECORDING. Neither Landlord nor Tenant shall record this --------- Lease nor a short form memorandum thereof without the consent of the other. (i) COUNTERPARTS. This Lease may be executed in one or more ------------ counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. (j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and ---------------------------- agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord's relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any newspaper or other publication or any other tenant or apparent prospective tenant of the Building or other portion of the Project, or real estate agent, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease. (k) USE OF PROJECT OR BUILDING NAME. Tenant may use the Project ------------------------------- or Building name in Tenant's advertising in connection with Tenant's business at the Premises and for no other purpose, except with Landlord's prior written consent. Tenant shall not have or acquire any property right or interest in the Project name or Building name. Landlord reserves the right to change the name, title, or address of the Project, Building or Premises at any time, and Tenant waives all claims for damages arising from or in connection with any such change; provided, however, that Landlord shall notify Tenant of the name change as soon as reasonably practicable following its implementation. (l) NO LIGHT AND AIR EASEMENT. Any diminution or shutting off ------------------------- of light or air by any structure which may be erected at the Project or on lands adjacent to the Building shall in no way affect this Lease, abate rent or otherwise impose any liability on Landlord. Neither does this Lease confer any right with regard to the subsurface of the land on which the Project or Building is situated. 39. RESOLUTION OF DISPUTES. Landlord and Tenant have agreed on the ---------------------- following mechanisms in order to obtain prompt and expeditious resolution of all controversies, claims or disputes arising out of or in connection with the performance or non-performance of any terms of the Lease and on the equitable and fair allocation as to Landlord's and Tenant's obligations hereunder; provided, however, that nothing contained herein shall prevent Landlord from seeking and/or obtaining summary relief under applicable unlawful detainer statutes. (a) REFERENCE OF DISPUTE. Any dispute seeking damages, -------------------- interpretation of this Lease and any dispute seeking equitable relief, such as but not limited to specific enforcement of any provision hereof, shall be heard and determined by a referee pursuant to California Code of Civil Procedure Section 638, subdivision 1. The venue of any proceeding hereunder shall be in the County, unless changed by order of the referee. (i) PROCEDURE FOR APPOINTMENT. The party seeking to ------------------------- resolve the dispute shall file in court and serve on the other party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by California law. At any time after service of the complaint, any party may request the designation of a referee to try the dispute. Thereafter the Landlord and Tenant shall use their best efforts to agree upon the selection of a referee from among the available referees at Judicial Arbitration and Mediation Service ("JAMS"). If Landlord and Tenant are unable to agree upon a referee within ten days after a written request to do so by any party, then either may petition the judge of the Superior Court to whom the case is then assigned to appoint a referee from JAMS. For the guidance of the judge making the appointment of said referee, Landlord and Tenant agree that the person so appointed shall be a retired judge from JAMS experienced in the subject matter of the dispute. (ii) STANDARDS FOR DECISION. To the extent consistent with ---------------------- the terms of this Agreement, the provisions of California Code of Civil Procedure, Sections 642, 643, 644 and 645 shall be applicable to dispute resolution by a referee hereunder. In an effort to clarify and amplify the provisions of California Code of Civil Procedure, Sections 644 and 645, Landlord and Tenant agree that the referee shall decide issues of fact and law submitted by Landlord and Tenant for decision in the same manner as required for a trial by court as set forth in California Code of Civil Procedure, Sections 631.8 and 632, and California Rules of Court, Rule 232. The referee shall try and decide the dispute according to all of the substantive and procedural law of the State of California, unless Landlord and Tenant stipulate to the contrary. When the referee has decided the dispute, the referee shall also cause the preparation of a judgment based on said decision. The judgment to be entered by the Superior Court will be based upon the decision of the referee. Landlord and Tenant agree that the referee's decision shall be appealable in the same manner as if the judge signing the judgment had tried the case. -26- (b) COOPERATION. Landlord and Tenant shall diligently cooperate ----------- with one another and the person appointed to resolve the dispute, and shall perform such acts as may be necessary to obtain a prompt and expeditious resolution of the dispute. If either party refuses to diligently cooperate, the other party, after first giving notice of its intent to rely on the provisions of this Section 39, incurs additional expenses or attorneys' fees solely as a result of such failure to diligently cooperate, the referee may award such additional expenses and attorneys' fees to the party giving such notice, even if such party is not the prevailing party in the dispute. (c) ALLOCATION OF COSTS. The cost of the proceeding shall ------------------- initially be borne equally by Landlord and Tenant, but, subject to Subsection 39(b), the Prevailing Party in such proceeding shall be entitled to recover, in addition to reasonable attorneys' fees and all other costs, its contribution for the reasonable cost of the referee as an item of recoverable costs. The referee shall include such costs in his judgment or award. 40. EXECUTION OF LEASE. ------------------ (a) JOINT AND SEVERAL OBLIGATIONS. If more than one person ----------------------------- executes this Lease as Tenant, their execution of this Lease will constitute their covenant and agreement that (i) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (ii) the term "Tenant" as used in this Lease means and includes each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, will be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. (b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes ------------------------------------ this Lease as a corporation or partnership, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that such entity is duly qualified and in good standing to do business in California and that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf, and in the case of a corporation, in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution hereof, if requested by Landlord, and in accordance with the by-laws of Tenant, and, in the case of a partnership, in accordance with the partnership agreement and the most current amendments thereto, if any, copies of which are to be delivered to Landlord on execution hereof, if requested by Landlord, and that this Lease is binding upon Tenant in accordance with its terms. (c) EXAMINATION OF LEASE. Submission of this instrument by -------------------- Landlord to Tenant for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by their duly authorized representatives as of the date first above written. LANDLORD: McDONNELL DOUGLAS REALTY COMPANY, a California corporation By: /S/ THOMAS A. OVERTURF ----------------------------------------- Name: Thomas A. Overturf Title: V.P. Development TENANT: AUTO-BY-TEL CORPORATION, a Delaware corporation By: /S/ PETER R. ELLIS ----------------------------------------- Name: Peter R. Ellis Title: President -27- EXHIBIT "C" WORK LETTER AGREEMENT --------------------- This Exhibit C is attached to and made a part of that certain Second Amendment to Lease amending that certain Douglas Plaza Lease (as amended, the "Lease") between MCDONNELL DOUGLAS REALTY COMPANY, a California corporation ("Landlord") and AUTO-BY-TEL CORPORATION, a Delaware corporation ("Tenant"), covering certain premises (the "Premises") more particularly described in Exhibit "B" to the Lease. Capitalized terms used and not otherwise defined herein shall have the meanings given in the Second Amendment. 1. TENANT IMPROVEMENTS Reference herein to "Tenant Improvements" shall include all work to be done in the Premises pursuant to the Tenant Improvement Plans described in Paragraph 2 below, including, but not limited to, partitioning, doors, ceilings, floor coverings, wall finishes (including paint and wallcovering), electrical (including lighting, switching, telephones, outlets, cabling, life safety systems, etc.), plumbing, heating, ventilating and air conditioning, fire protection, cabinets and other millwork. 2. TENANT IMPROVEMENT PLANS Landlord's architect, after meeting with Tenant, shall prepare preliminary plans for the construction of Tenant Improvements at the Premises, which shall include, without limitation, sketches and/or drawings showing locations of doors, partitioning and other requirements (the "Preliminary Plans") and has submitted same to Landlord for Landlord's approval. Following Landlord's approval, Landlord's architect shall prepare working drawings (the "Tenant Improvement Plans") based on the Preliminary Plans. Within a reasonable period after Landlord's and Tenant's approval of the Tenant Improvement Plans (Tenants approval shall be given within three (3) days after Landlord provides Tenant with a copy of same) and selection of the general contractor, Landlord will furnish to Tenant a work cost based upon the Tenant Improvement Plans ("Cost Quotation") and an estimated Tenant Improvement construction schedule (the "Work Schedule") prepared by the general contractor selected for the Tenant Improvement Work as described below. The Cost Quotation shall include construction costs and, without limitation, costs of design, architectural and engineering fees, permitting and other governmental agency fees, Landlord's general contractors overhead and supervision fees, general conditions costs and Landlord's agent's administration fees (Landlord, through its agent, will provide construction management and will charge an administration fee of four percent (4%)). Selection of the general contractor shall proceed as follows: Within a reasonable time after approval of the Tenant Improvement Plans, Landlord shall submit a bid package based on the Tenant Improvement Plans to Ticon Construction and to another qualified, licensed and bonded general contractor selected by Landlord. After receiving and reviewing both bids, Landlord shall select one of such contractors to construct the Tenant Improvements. If the Cost Quotation prepared by such contractor is not greater than the Tenant Allowance (as hereinafter defined), the Cost Quotation shall be deemed approved and Landlord shall authorize construction to commence subject to Paragraph 3 below. If the Cost Quotation is greater than the Tenant Allowance, Landlord shall notify Tenant and Tenant shall have five (5) business days in which to give notice to Landlord of Tenant's acceptance or rejection of the Cost Quotation. If Tenant rejects the Cost Quotation, Tenant shall meet with Landlord, its space planner and the selected contractor within five (5) business days to make revisions to the Tenant Improvement Plans in an effort to reduce costs. All costs of Tenant initiated changes requiring such revisions including charges for attending the meeting shall be included in the cost of the Tenant Improvements. Following such revisions, Landlord shall submit to Tenant, as soon as reasonably practicable, a new Cost Quotation, and the same procedure will be followed as set forth above until the Cost Quotation is not greater than the Tenant Allowance or Tenant has approved the Cost Quotation. Immediately thereafter, Tenant shall forthwith deposit with Landlord an amount equal to fifty percent (50%) of the difference, if any, between the Tenant Allowance and the approved Cost Quotation (with the remaining 50% payable as set forth below). Landlord shall not authorize construction to commence until Landlord has received the initial payment described above. Any time consumed in revising the Tenant Improvement Plans or revising the Cost Quotation in excess of five (5) business days shall be considered a Tenant Delay and shall not delay the Commencement Date of the Lease. 3. FINAL PRICING After the Cost Quotation has been approved, the Tenant Improvement Plans shall be submitted to the appropriate governmental body by Landlord's architect for plan checking and the issuance of a building permit, if necessary. Landlord, with Tenant's cooperation, shall cause to be made any changes in the plans and specifications necessary to obtain all necessary building permits. Concurrently therewith, Landlord shall have prepared a final pricing (which shall be subject to Tenant's reasonable approval if greater than the Tenant -28- Allowance and materially greater than the approved Cost Quotation) in accordance with the Work Schedule, taking into account any modifications which may be required to reflect changes in the plans and specifications required by governmental agencies. All Tenant Improvements to be constructed or installed in the Premises shall be performed by Landlord's designated general contractor in accordance with the Tenant Improvement Plans. No work shall commence until all required building permits, if any, have been obtained. Landlord shall have no obligation to Tenant for defects in design, workmanship or materials, but shall use its reasonable efforts to enforce the contractor's obligations therefor. Any changes to the construction work may be made only upon written request by Tenant approved in writing by Landlord, or as may be required by any governmental agency, or as may be required due to structural or unanticipated field conditions, in each instance evidenced by a written change order describing the change. In the event Tenant desires any work in addition to the Tenant Improvements in accordance with the Tenant Improvement Plans to be performed in the Premises (the "Additional Tenant Work"), Tenant, at Tenant's expense, shall cause plans and specifications for such work to be prepared, at Tenant's cost, by arranging therefor with Landlord's architect and paying for time and monies extended by Landlord's construction manager to review and approve such Additional Tenant Work. All plans and specifications for Additional Tenant Work shall be subject to review and approval by Landlord to verify, among other things, that the work is compatible with all other construction and all electrical and mechanical systems within the Building. Upon such written request, and approval of same by Landlord, Landlord shall submit to Tenant, for approval, a field order describing the change, cost proposal and Work Schedule adjustment. Tenant shall approve the change order, in writing, within five (5) business days following receipt thereof, and together with said approval shall pay Landlord the cost of such agreed upon change. Landlord may refuse to make any changes until Tenant so approves in writing the description thereof, the cost proposal and the Work Schedule adjustment, and until Tenant makes such payment. In the event Tenant fails to approve same within the five (5) business day period, then Landlord may elect (i) to agree to the foregoing on Tenant's behalf, Tenant to promptly pay the required amounts to Landlord; (ii) to withdraw the change request on Tenant's behalf; or (iii) to proceed with the Tenant Improvements, delaying any portion as reasonably necessary to accommodate the change request. Any time consumed for changes to the Tenant Improvements, or delays pursuant to clause (iii) above, shall be considered a Tenant Delay and shall not delay the Commencement Date of the Lease. Tenant shall be responsible for and shall immediately pay Landlord for the cost of any change orders, including any and all change orders required to comply with any governmental and/or code requirements affecting the Premises, and no deviation shall be permitted from Landlord's standards for the Building with respect thereto, provided the same must not require additional Building services, delay the Work Schedule, or be of a nature of quality inconsistent with Landlord's overall plan or objective for the Building. All supervision of construction and subcontractors shall be performed by the general contractor. Tenant shall not engage its own contractor or subcontractor to perform any Tenant Improvement construction. 4. CONSTRUCTION OF TENANT IMPROVEMENTS After the final pricing has been approved and all necessary building permits, if any, for the Tenant Improvements have been issued, Landlord shall enter into a construction contract with the selected contractor for the installation of the Tenant Improvements in accordance with the Tenant Improvement Plans. Landlord shall use its reasonable efforts to secure substantial completion of the work in accordance with the Work Schedule. The cost of such work shall be paid as provided in Paragraph 5 hereof. Landlord shall not be liable for any direct or indirect damages as a result of delays in construction, including, but not limited to, acts of God, inability to secure governmental approvals or permits, governmental restrictions, strikes, availability of materials or labor or delays by Tenant or its architect or anyone performing services on behalf of Tenant. 5. PAYMENT OF COST OF THE TENANT IMPROVEMENTS a. Landlord hereby grants to Tenant a "Tenant Allowance" of up to Twenty Dollars ($20.00) per square foot of usable area leased by Tenant exclusive of the square footage attributable to the common area bathrooms on the floor on which the Premises are located, for a total Tenant Allowance of up to $235,340.00. Such Tenant Allowance shall be used only for: 1. Payment of Landlord's design, engineering or plan check costs, including, without limitation, the architectural costs incurred by Landlord in connection with Landlord's architect's preparation of the Tenant Improvement Plans. Subject to the foregoing, the Tenant Allowance will not be used for the payment of any of Tenant's consultants, designers or architects. 2. The payment of plan check, permit and license fees, if any, relating to construction of the Tenant Improvements. -29- 3. Construction of the Tenant Improvements, including, without limitation, the following: (a) Demolition of existing improvements and installation within the Premises of all partitioning, doors, floor coverings, ceilings, wall coverings and painting, millwork and similar items. (b) All electrical wiring (to include computer cabling), lighting fixtures, outlets and switches, and other electrical work to be installed within the Premises. (c) The furnishing and installation of all duct work, terminal boxes, diffusers and accessories required for the completion of the heating, ventilation and air conditioning systems within the Premises, including the cost of meters and key controls, if any. (d) Any additional Tenant requirements including, but not limited to, odor control, special heating, ventilation and air conditioning, noise or vibration control or other special systems. (e) All fire and life safety control systems such a fire walls, sprinklers, halon, fire alarms, including piping, wiring and accessories installed within the Premises. (f) All plumbing, fixtures, pipes and accessories to be installed within the Premises. (g) Testing and inspection costs. (h) Contractor's fees, including but not limited to any fees based on general conditions. (i) Landlord's agent's administration fee. b. The cost of each item shall be charged against the Tenant Allowance. In the event that the cost of installing the Tenant Improvements, as established by Landlord's final pricing schedule, shall exceed the Tenant Allowance, or if any of the Tenant Improvements are not to be paid out of the Tenant Allowance as provided above, fifty percent (50%) of the excess shall be paid by Tenant to Landlord prior to the commencement of construction of the Tenant Improvements and the remainder upon Landlord's notice of substantial completion of fifty percent (50%) of the Tenant Improvements. If, after Tenant Improvement Plans have been prepared and a price therefor established by Landlord, Tenant shall require any changes or substitutions to the Tenant Improvement plans, any additional costs thereof shall be paid by Tenant to Landlord prior to the commencement of such work. Landlord shall have the right to decline Tenant's request for a change to the Tenant Improvement plans if such changes are inconsistent with this above, or if the change would, in Landlord's opinion, unreasonably delay construction of the Tenant Improvements. 6. COMPLETION The Tenant Improvements shall be deemed substantially complete notwithstanding the fact that minor details of construction, mechanical adjustments or decorations which do not materially interfere with Tenant's use and enjoyment of the Premises remain to be performed (items normally referred to as "punch list' items). Tenant acknowledges that the Tenant Improvement Work will be performed during normal business hours and may disrupt, interfere with or otherwise adversely affect Tenant's business operations at the Premises. Tenant hereby waives any and all claims against Landlord and Landlord's employees, contractors and agents arising out of or in connection with such disruption, interference or adverse affect, and agrees that Tenant shall not be entitled to any abatement of rent as a result thereof, nor shall the same be deemed an eviction of Tenant. Without limitation on the foregoing, Tenant shall not interfere with, delay or hinder Landlord, its agents, contractors or subcontractors or the Tenant Improvement Work, and shall fully cooperate with Landlord in the prosecution of the Tenant Improvement Work. -30- EXHIBIT "D" NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE ----------------------------- To: _______________________________ Date: ______________________ _______________________________ _______________________________ Re: Lease dated ______________, 19__ (the "Lease"), between McDonnell Douglas Realty Company, a California corporation ("Landlord"), and ___________________________________, a ________________ ("Tenant'), concerning Suite ______ located at ______________________________________________________ (the "Premises"). To Whom It May Concern: In accordance with the subject Lease, we wish to advise and/or confirm as follows: 1. That the Premises have been accepted by the Tenant as being substantially complete in accordance with the subject Lease and that there is no deficiency in construction except as may be indicated on the "Punch-List" prepared by Landlord and Tenant, a copy of which is attached hereto. 2. That the Tenant has possession of the subject Premises and acknowledges that under the provisions of the Lease the Commencement Date is _____________________________, and that the Term of the Lease will expire on ___________________________________________. 3. That in accordance with the Lease, Monthly Base Rent commenced to accrue on _________________________. 4. If the Commencement Date of the Lease is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter will be for the full amount of the monthly installment as provided for in the Lease. 5. Rent is due and payable in advance on the first day of each and every month during the Term of the Lease. Your rent checks should be made payable to __________________________________________________ at __________________________________________________. 6. The number of Rentable Square Feet within the Premises is ________________ square feet as determined by Landlord in accordance with the terms of the Lease. 7. The number of Rentable Square Feet within the Building is _________________ square feet as determined by Landlord in accordance with the terms of the Lease. 8. Tenant's Percentage, as adjusted based upon the number of Rentable Square Feet within the Premises, is ____________%. LANDLORD: ________________________________________ By:_____________________________________ Printed Name:___________________________ Title:__________________________________ TENANT: ________________________________________ By:_____________________________________ Printed Name:___________________________ Title:__________________________________ -31- EXHIBIT "E" DEFINITION OF OPERATING EXPENSES -------------------------------- A. ITEMS INCLUDED IN OPERATING EXPENSES. The term "Operating Expenses" as ------------------------------------ used in the Lease to which this Exhibit "E" is attached means: all direct costs ----------- and expenses of operation, maintenance and repair of the Building and the Common Areas (as such terms are defined in the Lease), including without limitation any expansion of same, as determined by standard accounting practices, calculated assuming the Building is ninety-five percent (95%) occupied in the event it is occupied in a lesser percentage, including the following costs by way of illustration but not limitation, but excluding those items specifically described as exceptions to Operating Expenses therein or in Section 3 below: 1. Real Property Taxes and Assessments (as defined in Section 2 below), and any and all impositions and assessments imposed with respect to the Building pursuant to any covenants, conditions and restrictions affecting the Project, the Common Areas or the Building; 2. water and sewer charges and the costs of electricity, heating, ventilating, air conditioning and other utilities, including, without limitation, utilities surcharges and any other costs, levies or assessments resulting from statutes or regulations promulgated by any government or quasi- government authority, in connection with the use, occupancy or alteration of the Building or the Premises or the parking facilities serving the Building or the Premises; 3. costs of insurance obtained by Landlord pursuant to Section 19 of the Lease; 4. Costs of all maintenance agreements for the Project and Common Areas and the equipment thereon, including, but not limited to, costs of security, exterior window cleaning, elevator, waste disposal, trash removal and janitorial services, plumbing, heating, ventilation and air conditioning, engineers, landscaping, gardeners and signage (other than signs of tenants of the Building); 5. costs incurred in connection with management of the Project and Building, including, without limitation: (i) wages and salaries of all employees engaged in the operation, maintenance or security of the Building or Common Areas, including payroll taxes, insurance and benefits relating thereto; (ii) the rental cost and overhead (including, without limitation, cost of supplies) of any office and storage space used to provide management services, and (iii) a management fee for the Project property manager (including Landlord if Landlord manages the Project) determined as a percentage of the annual gross revenues of the Building, and an administrative fee for Landlord's administration of the Project (including a third-party administrator if Landlord elects to contract for such services) determined as a percentage of Operating Expenses; 6. cost of supplies, materials, equipment and tools used in operation, repair and maintenance of the Project and Common Areas, including rental of personal property used for same and depreciation on a straight line basis of personal property purchased for same; 7. costs and expenses of repairs, resurfacing, repairing and other upkeep of Common Areas, maintenance, painting, lighting, cleaning and similar items, including appropriate reserves. 8. cost of accounting, audit, verification, legal and other consulting services and any additional services, whether or not provided to the Project or Common Areas at the Commencement Date but thereafter provided by Landlord in its management of the Project and Common Areas; 9. cost of repairs and maintenance (including, without limitation, repairs, replacements and alterations to cause the Building and the Common Areas to comply with any law, statute or ordinance in effect after the date hereof), and reserves reasonably deemed desirable by Landlord; any such expenditures that constitute capital improvements shall be amortized as set forth in Subsection (1) below; 10. cost of repairs and maintenance of structural portions of the Building, including the plumbing, air conditioning, heating, ventilating, and electrical systems installed or furnished by Landlord; any such expenditures that constitute capital improvements shall be amortized as set forth in Subsection (1) below; and 11. cost of implementing and administering any transportation management program applicable to substantially all of the Building which may be required by any law, statute or ordinance now or hereafter in effect. -32- 12. cost of any capital improvements made to the Building and Common Areas after the Commencement Date, and cost of replacement of any building equipment needed to operate the Building or the Common Areas at the same quality levels as prior to the replacement, each amortized over such reasonable period as Landlord shall reasonably determine, together with interest at the Interest Rate on the unamortized balance; Tenant shall pay within ten (10) days of receipt of an invoice from Landlord the cost of additional or extraordinary services provided to Tenant and not paid or payable by Tenant pursuant to other provisions of this Lease. Landlord shall have the right to establish and collect on an ongoing basis reasonable reserves for items of periodic maintenance, repair and replacement properly includable in Operating Expenses that customarily are not incurred each year, in amounts calculated to provide sufficient funds to pay for such items when necessary. B. REAL PROPERTY TAXES AND ASSESSMENTS. The term "Real Property Taxes and ----------------------------------- Assessments", as used in this Exhibit "E" and the Lease, means: any form of ----------- assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, improvement bond, tax or similar imposition imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Premises, Building, Common Areas or the Project (as such terms are defined in the Lease), adjusted to reflect an assumption that the Building is fully assessed for real property tax purposes as a completed building ready for occupancy, including the following by way of illustration but not limitation: 1. any tax on Landlord's "right" to rent or "right" to other income from the Premises or as against Landlord's business of leasing the Premises; 2. any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June, 1978 election and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants; 3. any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or other premises in the Building or the rent payable by Tenant hereunder or other tenants of the Building, including, without limitation, any gross receipts tax or excise tax levied by state, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof but not on Landlord's other operations; 4. any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and/or 5. any assessment, tax, fee, levy or charge by any governmental agency related to any transportation plan, fund or system (including assessment districts) instituted within the geographic area of which the Building is a part. C. ITEMS EXCLUDED FROM OPERATING EXPENSES. Notwithstanding the provisions -------------------------------------- of Section 1 and Section 2 above to the contrary, "Operating Expenses" shall not include: 1. Landlord's federal or state income, franchise, inheritance or estate taxes; 2. any ground lease rental; 3. costs incurred by Landlord for the repair of damage to the Building to the extent that Landlord is reimbursed by insurance or condemnation proceeds or by tenants, warrantors or other third persons; 4. depreciation, amortization and interest payments, except as specifically provided herein, and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party, where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party's services, all as determined in accordance with standard accounting practices; 5. brokerage commissions, finders' fees, attorneys' fees, space planning costs and other costs incurred by Landlord in leasing or attempting to lease space in the Building; -33- 6. interest, principal, points and fees on debt or amortization on any mortgage, deed of trust or other debt encumbering the Building or the Project; 7. costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements for tenants in the Building (including the original Tenant Improvements for the Premises), or incurred in renovating or otherwise improving, decorating, painting or redecorating space for tenants or other occupants of the Building, including space planning and interior design costs and fees; 8. attorneys' fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building; provided, however, that Operating Expenses will include those attorneys' fees and other costs and expenses incurred in connection with negotiations, disputes or claims relating to items of Operating Expenses, enforcement of rules and regulations of the Building, and such other matters relating to the maintenance of standards required of Landlord under the Lease; 9. except for the administrative/management fees described in Section 1 above, costs of Landlord's general corporate overhead; 10. all items and services for which Tenant or any other tenant in the Building reimburses Landlord (other than through operating expense pass- through provisions); 11. electric power costs for which any tenant directly contracts with the local public service company; and 12. costs arising from Landlord's charitable or political contributions. 13. costs of any extraordinary services provided to other tenants of the Project but not to Tenant; 14. executive salaries of off-site personnel employed by Landlord, except for the charge (or pro rata share) of the Project manager; 15. costs of reconstructing, modifying, altering or repairing any structural portions of the Building due to defective original construction; and 16. overhead and profit increment paid to a subsidiary, affiliate or other entity related to Landlord for services (other than management services) to the extent the same exceed competitive costs (taking into account the quality of service provided in maintaining a Class-A office building) of such services were they not so rendered by a subsidiary, affiliate or other Landlord-related entity. -34- EXHIBIT "F" STANDARDS FOR UTILITIES AND SERVICES ------------------------------------ The following standards for utilities and services are in effect. Landlord reserves the right to adopt nondiscriminatory modifications and additions thereto. Tenant shall promptly notify Landlord, in writing, of any conflict between the Rules and Regulations and any laws, statutes or ordinances applicable to Tenant's particular use or manner of use or occupancy of the Premises or the Building and Landlord and Tenant shall reasonably cooperate in the lawful and timely resolution of such conflict. Provided Tenant remains in occupancy of the Premises, and is not in default beyond applicable notice and cure periods under any of the terms, covenants, conditions, provisions or agreements of the Lease, Landlord will provide or make available the following utilities and services, subject to the terms, conditions and limitations set forth herein and in the Lease: A. Elevator Facilities. Non-attended automatic elevator facilities Monday ------------------- through Friday, except holidays, from 8 a.m. to 6 p.m., with at least one elevator available for Tenant's use at all other times. B. Heating, Ventilating, Air Conditioning. Heating, Ventilating, Air ----------------------------------------------------------------- Conditioning. On Monday through Friday, except holidays, from 8 a.m. to 6 p.m. - ------------ and on Saturday from 9 a.m. to 1:00 p.m. (and at other times for an additional charge to be fixed by Landlord), ventilation, air conditioning or heating on such days and hours, when in the reasonable judgment of Landlord it may be required for the comfortable occupancy of the Premises. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper function and protection of said air conditioning system, including keeping window coverings in the Premises extended to the full length of the window opening and adjusted as directed by Landlord whenever the system is in operation. Tenant agrees not to connect any apparatus, device, conduit or pipe to the chilled and hot water air conditioning supply lines of the Building. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter the mechanical installations or facilities of the Building or the Project or adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system will be charged to Tenant if the need for maintenance work results from either Tenants adjustment of room thermostats or Tenant's failure to comply with its obligations hereunder. Such work will be charged at hourly rates equal to then-current journeyman's wages for air conditioning mechanics. When heat generating machines, equipment, fixtures or other devices of any nature whatsoever, including by way of illustration but not by way of limitation, computer and other electronic data processing equipment, are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right, but not the obligation, to install supplementary air conditioning units in the Premises, and the cost thereof, including the cost of installation and the cost of maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. C. Electricity. Electric current to the Premises, 24 hours per day, seven ----------- days a week, during the usual business hours on business days, as required by the Building standard office lighting and fractional horsepower office business machines including copiers, personal computers and data processing equipment used by Tenant in the ordinary course of its business which use 110/220 volt electrical power, in an amount not to exceed three (3) watts per square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the Building during the period. If a separate meter is not installed at Tenant's cost, such excess cost will be established by an estimate reasonably determined by Landlord or by an engineer selected in Landlord's reasonable discretion, whose fee shall be shared equally by Landlord and Tenant. Tenant agrees not to use any apparatus or device in, upon or about the Premises (other than standard office business machines, personal computers and data processing equipment used in the ordinary course of Tenant's business) which may in any way increase the amount of such services usually furnished or supplied to said Premises, and Tenant further agrees not to connect any apparatus or device with wires, conduits or pipes, or other means by which such services are supplied, for the purpose of using additional or unusual amounts of such services without the written consent of Landlord. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge will constitute a breach of the obligation to pay rent under this Lease and will entitle Landlord to the rights therein granted for such breach. Tenant's use of electric current shall not exceed the capacity of the feeders to the Building, or the risers or wiring installation and Tenant shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises (except standard office business machines, personal computers and data processing equipment) without the prior written consent of Landlord. -35- D. Water. Water will be available in public areas for drinking and lavatory ----- purposes only, but if Tenant requires, uses or consumes water for any purpose in addition to ordinary drinking and lavatory purposes, of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant agrees to pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy Tenant will keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on such meter, as and when bills are rendered, and on default in making such payment, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated will be deemed to be additional rent payable by Tenant and collectible by Landlord as such. E. Janitorial Service. Landlord shall provide janitorial service during the ------------------ time and in the manner that janitorial service is customarily furnished in Class A office buildings in the vicinity of the Building, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant. Unless otherwise agreed to by Landlord and Tenant, no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. Tenant shall pay to Landlord as additional rent the cost of removal of any of Tenant's refuse and rubbish to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. F. Miscellaneous. Landlord also shall provide for replacement of Building ------------- standard lighting and Building standard toilet supplies. G. Interruption of Utilities or Services. Landlord reserves the right to ------------------------------------- stop service of the elevator, plumbing, ventilation, air conditioning and electrical systems, and any other services, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, when in the judgment of Landlord such actions are desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed, and Landlord will have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service or other services, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or by reason of the requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel supply. It is expressly understood and agreed that any covenants on Landlord's part to furnish any services pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, will not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. No failure or interruption of utilities or services shall entitle Tenant to terminate this Lease or abate the rent or other charges hereunder and Tenant shall not be relieved from the performance of any covenant in this Lease because of such failure. In the event any municipal, state, federal or other regulatory body (whether judicial, executive or legislative) imposes mandatory controls on Landlord or the Building or Common Areas relating to the use or conservation of energy or water, gas, light or electricity or the reduction of automobile use or automobile and other emissions, Landlord may comply (and Tenant shall comply) with such mandatory controls to the extent it can control the use of energy or light, gas, water or electricity or the reduction of automobiles, or automobile or other emissions on the Property or in the Building and Common Areas. Compliance with any of the above shall not in any event constitute a partial or complete eviction of Tenant hereunder, nor shall it entitle Tenant to any abatement or mitigation of rent or other charges, nor shall Landlord in any way be liable for damages or injury caused thereby to Tenant, Tenant's property, business, employees, customers or suppliers. Notwithstanding the foregoing, if Tenant is prevented from using, and does not use, the Premises or any material portion thereof, for five (5) consecutive business days because of an interruption or discontinuance of utilities or services caused by the wrongful acts or omissions of Landlord, and Tenant shall have given Landlord written notice respecting such interruption or discontinuance, then Tenant's base monthly rent shall be abated or reduced, as the case may be, after expiration of the applicable period of time described above ("Eligibility Period"), if any, for such time that Tenant continues to be so prevented from using, and does not use the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, based on the ratio that the unusable portion bears to the total rentable area of the Premises; provided however, if Tenant reoccupies and conducts its business from any portion of the Premises during such period, the rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date such business operations commence; and provided further that the rent abatement described above shall in no event continue after the time such utilities or services are restored. -36- EXHIBIT "G" ESTOPPEL CERTIFICATE -------------------- The undersigned, ___________________________, with a mailing address c/o _________________ ("Tenant"), hereby certifies to McDonnell Douglas Realty Company, a California corporation ("Landlord") and _____________________, as follows: A. Attached hereto is a true, correct and complete copy of that certain lease dated _____________, 19__, between Landlord and Tenant (the "Lease"), regarding the premises located at __________________ (the "Premises"). The Lease is now in full force and effect and has not been amended, modified or supplemented, except as set forth in Section 4 below. B. The Term of the Lease commenced on _____________ 19__. C. The Term of the Lease shall expire on _____________ 19__. D. The Lease has: (initial one) (____) not been amended, modified, supplemented, extended, renewed or assigned. (____) been amended, modified, supplemented, extended, renewed or assigned by the following described terms or agreements, copies of which are attached hereto: E. Tenant has accepted and is now in possession of the Premises. Tenant and Landlord acknowledge that Landlord's interest in the Lease will be assigned to ___________ ________________ and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of ________________________ is obtained, and that until further notice, payments under the Lease may continue as heretofore. F. The amount of Monthly Base Rent is $__________________. G. The amount of security deposits (if any) is $_________________. No other security deposits have been made except as follows: H. Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent or other charges under the Lease have been paid for more than thirty (30) days in advance of its due date except as follows: ___________________________________________________. I. All work required to be performed by Landlord under the Lease has been completed except as follows: ___________________________________________________. J. There are no defaults on the part of the Landlord or Tenant under the Lease except as follows: ___________________________________________________. K. Neither Landlord nor Tenant has any defense as to its obligations under the Lease and claims no set-off or counterclaim against the other party except as follows: ________________________________________________________________________________ ____________________________________________________. L. Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies other than as provided in the Lease except as follows: ____________________________________________________. All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified. The foregoing certification is made with the knowledge that _______________________ is about to fund a loan to Landlord or _________________________________ is about to purchase the Project (or part -37- thereof) from Landlord and that __________________________ is relying upon the representations herein made in funding such loan or in purchasing the Project (or part thereof). IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of _____________, 19__. TENANT: By: ________________________________________ Printed Name:_______________________________ Title:______________________________________ SAMPLE ONLY [NOT FOR EXECUTION] -38- EXHIBIT "H" RULES AND REGULATIONS --------------------- A. General Rules and Regulations. The following rules and ----------------------------- regulations govern the use of the Building and the Project Common Areas. Tenant will be bound by such rules and regulations and agrees to cause Tenant's Authorized Users, its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same. 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice may be installed or displayed on any part of the outside or inside of the Building or the Project without the prior written consent of Landlord. Landlord will have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls are to be printed, painted, affixed or inscribed at the expense of Tenant and under the direction of Landlord by a person or company designated or approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any window sill, which is visible from the exterior of the Premises, Tenant will immediately discontinue such use. Tenant agrees not to place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises including from within any interior common areas. 3. Tenant will not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Project. The halls, passages, exits, entrances, elevators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord will in all cases retain the right to control and prevent access thereto of all persons whose presence in the reasonable judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants, provided that nothing herein contained will be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant will go upon the roof of the Building. 4. Tenant will not obtain for use on the Premises ice, drinking water, food, food vendors, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such reasonable hours and under such reasonable regulations as may be fixed by Landlord. Landlord expressly reserves the right to absolutely prohibit solicitation, canvassing, sales and displays of products, goods and wares in all portions of the Project except for such activities as may be expressly requested by a tenant and conducted solely within such requesting tenant's premises. Landlord reserves the right to restrict and regulate the use of the common areas of the Project and Building by invitees of tenants providing services to tenants on a periodic or daily basis including food and beverage vendors. Such restrictions may include limitations on time, place, manner and duration of access to a tenant's premises for such purposes. Without limiting the foregoing, Landlord may require that such parties use service elevators, halls, passageways and stairways for such purposes to preserve access within the Building for tenants and the general public. 5. Landlord reserves the right to require tenants to periodically provide Landlord with a written list of any and all business invitees which periodically or regularly provide goods and services to such tenants at the premises. Landlord reserves the right to preclude all vendors from entering or conducting business within the Building and the Project if such vendors are not listed on a tenant's list of requested vendors. 6. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 8 a.m. the following business day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building or has a pass or is properly identified. Tenant will be responsible for all persons for whom it requests passes and will be liable to Landlord for all acts of such persons. Landlord will not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 7. The directory of the Building or the Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 8. All cleaning and janitorial services for the Project and the Premises will be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than -39- those approved by Landlord will be employed by Tenant or permitted to enter the Project for the purpose of cleaning the same. Tenant will not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. 9. Landlord will furnish Tenant, free of charge, with two keys to each suite entry door lock to the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install any new additional lock or bolt on any door of the Premises. Tenant, upon the termination of its tenancy, will deliver to Landlord the keys to all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, will pay Landlord therefor. 10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes, antennae or similar services, it will first obtain Landlord's approval, and comply with, Landlord's reasonable rules and requirements applicable to such services, which may include separate licensing by, and fees paid to, Landlord. 11. Freight elevator(s) will be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord, in its discretion, deems appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenants initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items will, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries will be made which impede or interfere with other tenants or the operation of the Building. 12. Tenant will not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord will have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects will, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms will be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to any tenants in the Building or Landlord, are to be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devises sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be reasonably acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property will be repaired at the expense of Tenant. 13. Tenant will not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant will not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor will Tenant bring into or keep in or about the Premises any birds or animals. 14. Tenant will not use any method of heating or air conditioning other than that supplied by Landlord without Landlord's prior written consent. 15. Tenant will not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and will refrain from attempting to adjust controls. Tenant will keep corridor doors closed, and shall keep all window coverings pulled down. 16. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building. Without the written consent of Landlord, Tenant will not use the name of the Building or the Project in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 17. Tenant will close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and lighting or gas before Tenant and its employees leave the Premises. Tenant will be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule. 18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever -40- shall be thrown therein. The expense of any breakage, stoppage or damage resulting from any violation of this rule will be borne by the tenant who, or whose employees or invitees, break this rule. Cleaning of equipment of any type is prohibited. Shaving is prohibited. 19. Tenant will not sell, or permit the sale at retail of magazines, newspapers, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant will not make any room-to-room solicitation of business from other tenants in the Project. Tenant will not use the Premises for any business or activity other than that specifically provided for in this Lease. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant will cooperate with Landlord to prevent such activities. 20. Tenant will not install any radio or television antenna, loudspeaker, satellite dishes or other devices on the roof(s) or exterior walls of the Building or the Project. Tenant will not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 21. Except for the ordinary hanging of pictures and wall decorations, Tenant will not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant will not cut or bore holes for wires. Tenant will not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 22. Tenant will not install, maintain or operate upon the Premises any vending machines without the written consent of Landlord. 23. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 24. Tenant will store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant will not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal is to be made in accordance with directions issued from time to time by Landlord. 25. The Premises will not be used for lodging or for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking will be done or permitted on the Premises without Landlord's consent, except the use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and the use of a microwave oven for employees use will be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 26. Neither Tenant nor any of its employees, agents, customers and invitees may use in any space or in the public halls of the Building or the Project any hand truck except those equipped with rubber fires and side guards or such other material-handling equipment as Landlord may approve. Tenant will not bring any other vehicles of any kind into the Building. 27. Tenant agrees to comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 29. To the extent Landlord reasonably deems it necessary to exercise exclusive control over any portions of the Common Areas for the mutual benefit of the tenants in the Building or the Project, Landlord may do so subject to reasonable, non-discriminatory additional rules and regulations. 30. Landlord may prohibit smoking in the Building and may require Tenant and any of its employees, agents, clients, customers, invitees and guests who desire to smoke, to smoke within designated smoking areas within the Project. 31. Tenant's requirements will be attended to only upon appropriate application to Landlord's asset management office for the Project by an authorized individual of Tenant. Employees of -41- Landlord will not perform any work or do anything outside of their regular duties unless under special instructions from Landlord. These Rules and Regulations are in addition to, and will not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord will be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project. Landlord reserves the right to make such other and reasonable and non- discriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional reasonable and non- discriminatory rules and regulations which are adopted. Tenant is responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. B. Parking Rules and Regulations. The following rules and ----------------------------- regulations govern the use of the parking facilities which serve the Building. Tenant will be bound by such rules and regulations and agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same: 1. Tenant will not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, subtenants, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. No vehicles are to be left in the parking areas overnight and no vehicles are to be parked in the parking areas other than normally sized passenger automobiles, motorcycles and pick-up trucks. No extended term storage of vehicles is permitted. 2. Vehicles must be parked entirely within painted stall lines of a single parking stall. 3. All directional signs and arrows must be observed. 4. The speed limit within all parking areas shall be five (5) miles per hour. 5. Parking is prohibited: in areas not striped for parking; in aisles or on ramps; where "no parking" signs are posted; in cross-hatched areas; and in such other areas as may be designated from time to time by Landlord or Landlord's parking operator. 6. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicle if such vehicle's audio theft alarm system remains engaged for an unreasonable period of time. 7. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 8. Landlord may refuse to permit any person to park in the parking facilities who violates these rules with unreasonable frequency, and any violation of these rules shall subject the violator's car to removal, at such car ownee's expense. Tenant agrees to use its best efforts to acquaint its employees, subtenants, assignees, contractors, suppliers, customers and invitees with these parking provisions, rules and regulations. 9. Parking stickers, access cards, or any other device or form of identification supplied by Landlord as a condition of use of the parking facilities shall remain the property of Landlord. Parking identification devices, if utilized by Landlord, must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking identification devices, if any, are not transferable and any device in the possession of an unauthorized holder will be void. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to Tenant or any of its agents, employees or representatives who willfully refuse to comply with these rules and regulations and all unposted city, state or federal ordinances, laws or agreements. -42- 10. Loss or theft of parking identification devices or access cards must be reported to the management office in the Project immediately, and a lost or stolen report must be filed by the Tenant or user of such parking identification device or access card at the time. Landlord has the right to exclude any vehicle from the parking facilities that does not have a parking identification device or valid access card. Any parking identification device or access card which is reported lost or stolen and which is subsequently found in the possession of an unauthorized person will be confiscated and the illegal holder will be subject to prosecution. 11. All damage or loss claimed to be the responsibility of Landlord must be reported, itemized in writing and delivered to the management office located within the Project within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord is not responsible for damage by water or fire, or for the acts or omissions of others, or for articles left in vehicles. In any event, the total liability of Landlord, if any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any car. Landlord is not responsible for loss of use. 12. The parking operators, managers or attendants are not authorized to make or allow any exceptions to these rules and regulations, without the express written consent of Landlord. Any exceptions to these rules and regulations made by the parking operators, managers or attendants without the express written consent of Landlord will not be deemed to have been approved by Landlord. 13. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicles which are used or parked in violation of these rules and regulations. 14. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and nondiscriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities. -43- EXHIBIT "I" TENANT'S INSURANCE REQUIREMENTS ------------------------------- This outlines the insurance requirements of your Lease. To assure compliance with these terms, we suggest you send a copy of this Exhibit to your insurer or agent. Initial certificates of insurance evidencing compliance with these terms and payment of premiums therefor must be provided to Landlord by the earlier of (i) thirty (30) days after execution of the Lease, and (ii) entry by Tenant or any of its agents, contractors, representatives, employees, invitees or licensees. Renewals must be provided to Landlord at least thirty (30) days before expiration of the policy in question. 1. McDonnell Douglas Realty Company should be named as certificate holder. 2. Both McDonnell Douglas Realty Company and Prentiss Properties ---- Limited, Inc. must be listed as additional insureds. 3. Comprehensive or Commercial General Liability Insurance: $2,000,000 Combined Single Limit, each occurrence $2,000,000 Aggregate (minimum) this location $2,000,000 Products/Completed Operations Aggregate $250,000 Fire Legal Liability Limit, per fire Bodily Injury, Property Damage, Personal Injury and Advertising Injury; Blanket Contractual Liability - Covering Indemnity Section 15; Products and Completed Operations Liability; and endorsements covering: Landlord as an additional insured; severability of interest; cross-liability among insured; and stating that Tenant's insurance is primary and non-contributing with any insurance carried by Landlord. 4. Tenant's Property Insurance: "All Risks" (special-causes-of-loss) coverage of Property owned by Tenant or for which the Tenant is legally liable and Tenant Improvements; full replacement cost basis. 5. Tenant's Workers' Compensation as required by law and Employers Liability Insurance (if requested) in the amount of $1,000,000.00. 6. Tenant's Automobile Insurance (if requested): $1,000,000 Combined Limit per accident; covering all owned, non- owned, hired autos (any auto). All insurance is to be with licensed insurers having a Best's rating of "BIX" or better, and must include the following: waiver of subrogation in favor of Landlord, and thirty (30) day pre-notice of cancellation/material change/non renewal to Landlord. SEND CERTIFICATE TO: McDonnell Douglas Realty Company, c/o Prentiss Properties, 18881 Von Karman, Suite 220, Irvine, CA 92715 Attention: Property Manager. -44- ADDENDUM TO LEASE THIS ADDENDUM is made this _____________ day of June, 1996 by and between McDONNELL DOUGLAS REALTY COMPANY, a California corporation ("LANDLORD") AUTO-BY- TEL CORPORATION, a Delaware corporation ("TENANT"). Upon execution by Landlord, this Addendum shall constitute a part of and be incorporated in the Douglas Plaza Office Lease dated May __, 1996 (the "Lease"). In the event of any conflict between this Addendum and provisions of the Lease, this Addendum shall prevail. 1. OPTION TO EXTEND: Tenant shall have one (1) five (5) year option (the ---------------- "Extension Option") to extend the initial term of the Lease upon and subject to the terms and conditions set forth herein. The Extension Option shall be exercised by Tenant, if at all, by written notice irrevocably exercising the Extension Option delivered to Landlord not sooner than nine (9) months and at least six (6) months prior to the expiration of the Initial Term. If Tenant exercises the Extension Option, each of the terms, covenants and conditions of the Lease shall apply during the extended Term except that the Monthly Base Rent to be paid at the commencement of the extended Term shall be determined by Landlord and Tenant as follows: by the date which is two weeks after the last date on which Tenant may exercise the Extension Option, Landlord shall notify Tenant of the fair market rental rate for the Premises, taking into consideration all applicable factors, which shall be the Monthly Base Rent payable during the extended Term ("Landlord's Rent"). If Tenant accepts Landlord's rent, then Tenant and Landlord shall enter into a written memorandum agreeing to same within two (2) weeks after Landlord notifies Tenant of Landlord's Rent, and Tenant's Extension Option shall be deemed to be effective. If Tenant does not accept Landlord's Rent, then Landlord and Tenant shall negotiate in good faith towards an agreement on Monthly Base Rent for the extended Term. If Landlord and Tenant do not agree in writing on or before two (2) weeks after Landlord notifies Tenant of Landlord's Rent on the Monthly Base Rent during the extended Term, then the Extension Option shall be deemed to be void and Landlord may market the Premises for lease for the period after the expiration of the initial Term. Notwithstanding anything contained herein to the contrary, if Tenant shall have been ten (10) or more days late in the payment of rent more than a total of five (5) times during the initial Term, or if at the time Tenant exercises the Extension Option or immediately prior to the commencement date of the extended Term Tenant is in material default under any other term, covenant or condition of the Lease, then Landlord shall have the right, in addition to all of Landlord's other rights and remedies provided in the Lease, to terminate the Extension Option already exercised by Tenant upon notice to Tenant, in which event the Term of the Lease shall end as if the Extension Option was never exercised and all future options, if any, shall automatically expire. The Extension Option is personal to the original Tenant executing this Lease and may not be assigned or exercised after any transfer, assignment or sublease of any portion of the Lease or the Premises, excluding, however, transfers, assignments or subleases which are expressly permitted under the Lease without Landlord's prior written consent, if any. 2. SIGNAGE: Standard signage shall be made available to Tenant at tenant's ------- cost, in the form of suite signage and building directory strips, subject to Building standard sign criteria. In addition, In the event Landlord is able, at no out of pocket cost to Landlord, to obtain approval from the City of Irvine, and any other approvals from other governmental or quasi governmental agencies as may be required, for a new monument sign for the subject building of which of Premises are a part, Tenant shall, subject to all applicable codes and ordinances, have the non-exclusive right to have Landlord supply and install, at Tenant's sole expense, one (1) sign (identifying Tenant) on a proportionate amount of said monument sign. All expenses associated with the installation, all related electrical costs, if any, all maintenance and repairs required to keep said sign in good repair throughout the entire lease term, and for its removal upon Tenant's vacancy of the Premises and the restoration of the monument sign to its original condition, shall be borne by Tenant. Prior to installation of said signage, Tenant shall submit an illustration of any and all signs for Landlord's approval showing the size, type, style, materials, color and method of installation. This signage is personal to Tenant and shall apply only if Tenant is continuously leasing and occupying at least one (1) full floor in the Building. 3. PARKING VALIDATIONS: Tenant shall be entitled to a fifty percent (50%) ------------------- discount on the first $100.00 of validation stamps for visitor and guest parking Tenant purchases each month. 4. LETTER OF CREDIT. Tenant shall deposit with Landlord on or prior to the ---------------- Commencement Date an unconditional, irrevocable letter of credit (such letter of credit and any substitution therefor or renewal or replacement thereof in accordance with the terms thereof or hereof being herein called the "Letter of ---------- Credit"), in substantially the form attached to this Addendum, in the amount of - ------- One Hundred Seventy-Five Thousand Dollars ($175,000) (the "Security Amount") valid for the period commencing on the opening thereof and ending at least one year after the anniversary thereof, in favor of Landlord and drawn upon a bank reasonably satisfactory to Landlord, as security for the full and punctual performance by Tenant of all of the terms of the Lease. The Letter -45- of Credit shall provide that it shall be automatically renewed annually for the then face amount in effect, for consecutive years of one (1) year each unless the issuing bank shall terminate the Letter of Credit upon any anniversary of the issuance thereof by giving Landlord notice at least thirty (30) days prior to any such anniversary, in which case Landlord may draw the entire face or principal amount of the Letter of Credit during the ten (10) days immediately preceding the then current expiration date of the Letter of Credit and hold the proceeds as described below. If an Event of Default occurs and is continuing under the Lease, Landlord may draw upon the Letter of Credit in full and the amount so drawn shall be held by Landlord subject to and in accordance with this Addendum. Landlord may then use, apply and retain the whole or any part of the security for the payment of any rental or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default, including any damages or deficiency in any re-letting of the Premises, whether accruing before or after summary proceedings or other re-entry by Landlord. In the case of every such use, application or retention, Tenant shall, on demand, pay to Landlord cash, or deposit with Landlord a replacement letter of credit, in an amount equal to the sum so used, applied or retained which shall be added to the security deposit so that the same shall be replenished to its former amount. If Tenant shall comply with all of the terms of the Lease for the first full 36 calendar months of the Lease, or if Tenant satisfies the net worth requirements hereinafter described, the Letter of Credit, without interest, shall be returned to Tenant promptly thereafter by Landlord. If Landlord shall be holding a Letter of Credit as security, then in the event of (i) a sale or lease of the Building by Landlord or other change in the identity of Landlord or (ii) the transfer of the Building by foreclosure or deed in lieu of foreclosure, Tenant will, upon ten (10) days' notice, at its expense, deliver a substitute letter of credit or endorsement to said letter of credit, naming the new landlord as the new beneficiary thereof. In the event Tenant shall default in respect of such obligation, Landlord may draw upon the Letter of Credit and transfer the proceeds thereof to the new landlord. Tenant, at its sole cost and expense, shall renew or replace the Letter of Credit at least thirty (30) days prior to its expiration with a similar Letter of Credit in the same amount issued by a bank which shall be satisfactory to Landlord. In the event the Letter of Credit or any substitute Letter of Credit is not renewed or replaced so that at all times the Letter of Credit held by Landlord hereunder is valid for a period in excess of thirty (30) days, Landlord may draw upon the Letter of Credit and hold the proceeds thereof subject to and in accordance with this Addendum. In the event of a sale or lease of the Building, Landlord shall have the right to transfer any monies held as security to the vendee or lessee, and in the event of such transfer and the assumption of this Lease by the transferee, Landlord shall ipso facto be released by Tenant from all liability for the return of such ---------- monies, and Tenant agrees to look solely to the new landlord for the return of said security. It is agreed that the foregoing shall apply to every transfer or assignment of the security to a new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the Letter of Credit or monies deposited as security and Landlord shall not be bound by such assignment, encumbrance or attempted assignment or encumbrance. Anything contained herein to the contrary notwithstanding, the Letter of Credit (if not previously drawn upon in accordance with the provisions hereof shall be released by Landlord to Tenant upon the first to occur of either of the following events: (a) Tenant has a net worth of $2,000,000 for four consecutive quarters as shown by then current financial statements, at least one of which has been audited by an independent certified public accountant acceptable to Landlord in accordance with generally accepted accounting principles consistently applied, which financial statements shall show as assets only tangible assets and no intangible assets of any kind or nature including without limitation goodwill and shall show tangible assets only at cost after depreciation in accordance with generally accepted accounting principles consistently applied; or (b) Tenant is not then in default and has not been in monetary default beyond applicable notice and cure periods under the Lease at any time during the first 36 months of the Term. -46- LETTER OF CREDIT [Letterhead of the Bank] _____________, 19__ Irrevocable Letter of Credit No . --------------------------------------------- Gentlemen: We hereby issue our Irrevocable Letter of Credit No. ("Letter of Credit" ------------------ in your favor, for the account of ____________________ for an amount not to exceed ____________________ ($___________ ), available from time to time on or after the date hereof and not later than the close of business on [INSERT A DATE WHICH IS NOT LESS THAN ONE YEAR AFTER THE COMMENCEMENT DATE] or such later date through which this credit may be automatically extended and renewed as set forth below. Drawings under this Letter of Credit shall be by one or more sight drafts, in the form of Exhibit 1 hereto, presented at our office, bearing this Letter of Credit number and accompanied by the original of this Letter of Credit and a statement by you, or the last transferee of this Letter of Credit, as the case may be, that "the amount of this drawing represents an application of the security deposit in accordance with the Lease dated _____________ by and between _______________________ as Landlord, and ____________________ as Tenant, as amended, modified or supplemented from time to time". Partial drawings under this Letter of Credit are permitted. We will, immediately after each presentation of this Letter of Credit, return the same to you, marking this Letter of Credit to show the amount paid by us and the date of such payment. This Letter of Credit may be transferred or assigned one or more times without our consent and without cost to you upon presentation to us of (i) a duly completed transfer instruction in the form of Exhibit 2 to this Letter of Credit and (ii) the original of this Letter of Credit. No other documents or presentations will be required by us in connection with any such transfer or assignment of this Letter of Credit. WE HEREBY AGREE WITH EACH DRAWER, ENDORSER AND BONA FIDE HOLDER OF ANY DRAFT DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT THAT SUCH DRAFT WILL BE DULY HONORED ON DUE PRESENTATION TO US. OUR OBLIGATIONS HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL AND SHALL NOT BE SUBJECT TO ANY DEFENSE BY REASON OF THE ACTUAL OR ALLEGED INVALIDITY, ILLEGALITY OR UNENFORCEABILITY OF THE LEASE OR OTHERWISE. It is a condition of this Letter of Credit that it shall automatically be extended and renewed for additional periods of one year from the then current expiration date hereof for the face amount then in effect. However, this Letter of Credit shall not be automatically extended and renewed if, at least thirty (30) days prior to any such expiration date, we notify you in writing at your address set forth above (or in any transfer instruction, if applicable), by certified mail, return receipt requested, that we elect not to so extend and renew this Letter of Credit. In the event we shall have so notified you of our election not to so extend and renew this Letter of Credit, then the entire face or principal amount of this Letter of Credit (as the same may have been reduced as set forth above) may be drawn upon at any time during the ten (10) days immediately preceding the then current expiration date of this Letter of Credit upon the presentation by you of only a sight draft bearing this Letter of Credit number and the original of this Letter of Credit. This Letter of Credit, if automatically extended and renewed, shall continue as set forth herein, except that the expiration date hereof shall be the first anniversary of the then current expiration date of this Letter of Credit. Subject to the last paragraph of this Letter of Credit, this Letter of Credit sets forth the full terms of our undertaking, and such undertaking shall not in any way be modified, amended or amplified by reference to any document, instrument or agreement referred to in this Letter of Credit or in which this Letter of Credit is referred -47- to or to which this Letter of Credit relates; and any such reference shall not be deemed to incorporate herein the terms of any such referenced document, instrument or agreement. THIS LETTER OF CREDIT SHALL EXPIRE AT THE CLOSE OF BUSINESS ON [INSERT A DATE WHICH IS NOT LESS THAN ONE YEAR AFTER THE COMMENCEMENT DATE] or such later date through which this Letter of Credit may be automatically extended and renewed as set forth above. All drafts, documents, instructions and communications pertinent to this Letter of Credit must be presented to our office located at _____________, _____________, Attention: Letter of Credit Department, or at any other office in _______________________________________ which may be designated by our written notice delivered to you. We represent, warrant and covenant to and with you that this Letter of Credit is duly, validly and lawfully issued and that the reimbursement obligation of the account party owing to the drawee is not, and at no time during the term of this Letter of Credit will such reimbursement obligation be, directly or indirectly secured by a security interest, or other collateral security arrangement, in any of the assets, real or personal, of the account party. This Letter of Credit is issued subject to the Uniform Customs and Practice for Documentary Credits (1993 revision), International Chamber of Commerce Publication No. 500, and any amendments thereof. This Letter of Credit shall be deemed to be a contract made under the laws of the State of California and shall, as to matters not governed by said Uniform Customs and Practice for Documentary Credits, be governed by and construed in accordance with the laws of said State. Yours very truly, [Name of Issuing Bank] By:___________________________________ Authorized Signature By:___________________________________ Authorized Signature -48- Exhibit 1 --------- DRAFT ----- Letter of Credit No.: _____________________ Date of Letter Credit: _____________________ Date of this Draft: _____________________ _____________, 199__ To the Order of _____________________ Pay ________________($_________) Dollars At Sight For value received under Letter of Credit No. ____________ To: [Insert name and address of Issuing Bank] This Draft is payable only at: [Insert name and address of Issuing Bank] _____________________ By:________________________ Title:_____________________ EXHIBIT 2 To Letter of Credit No. ___________ ______________, 199__ INSTRUCTION TO TRANSFER IN FULL Attention: Letter of Credit Division Re: Your Irrevocable Letter of Credit No. ----------------------------------------------- Gentlemen: The undersigned beneficially irrevocably transfers all rights of the undersigned beneficiary to draw under the above Letter of Credit to: (Name of Transferee) (Address of Transferee) By this transfer all rights of the undersigned beneficiary in such Letter of Credit are transferred to the transferee. The above Letter of Credit is returned herewith, and in accordance therewith we ask you to issue a new irrevocable Letter of Credit in favor of the above-named transferee in the amount of $__________ and with other provisions consistent with the above Letter of Credit. Very truly yours, __________________________________ By:_______________________________ Authorized Signature Exhibit I --------- DRAFT ----- Letter of Credit No.: _____________________ Date of Letter Credit: ____________________ Date of this Draft: _______________________ _____________, 199__ To the Order of _____________________ Pay_______________($_________) Dollars At Sight For value received under Letter of Credit No. ___________________ To: [Insert name and address of Issuing Bank] This Draft is payable only at: [Insert name and address of Issuing Bank] _____________________ By: Title: EX-10.15 20 SUBLEASE AGMT. BET. REG & SIL. VAL. BANK, 10/31/96 EXHIBIT 10.15 SUBLEASE AGREEMENT DATED OCTOBER 31, 1996 BETWEEN REGISTRANT AND SILICON VALLEY BANK OFFICE BUILDING LEASE TABLE OF CONTENTS
PAGE ---- 1. BASIC LEASE TERMS........................................ 1 2. PREMISES AND COMMON AREAS................................ 1 (a) Premises........................................ 1 (b) Mutual Covenants................................ 1 (c) Tenant's Use of Common Areas.................... 1 (d) Landlord's Reservation of Rights................ 2 3. TERM; COMMENCEMENT DATE.................................. 2 4. POSSESSION............................................... 2 (a) Delivery of Possession.......................... 2 (b) Condition of Premises........................... 2 5. RENT..................................................... 3 (a) Monthly Base Rent............................... 3 (b) Additional Rent................................. 3 (c) Late Payments................................... 3 6. OPERATING EXPENSES....................................... 3 (a) Operating Expenses.............................. 3 (b) Base Year Operating Expenses.................... 3 (c) Estimate Statement.............................. 3 (d) Actual Statement................................ 4 (e) Miscellaneous................................... 4 (f) After-Hours HVAC................................ 5 (g) Tenant's Audit Rights........................... 5 7. SECURITY DEPOSIT......................................... 5 8. USE...................................................... 5 (a) Tenant's Use of the Premises.................... 5 (b) Compliance...................................... 6 9. NOTICES.................................................. 7 10. BROKERS.................................................. 7 11. SURRENDER; HOLDING OVER.................................. 8 (a) Surrender....................................... 8 (b) Holding Over.................................... 8 12. TAXES ON TENANT'S PROPERTY............................... 8 13. ALTERATIONS.............................................. 8 -i-
TABLE OF CONTENTS (continued)
Page ---- 14. REPAIRS.................................................. 10 (a) Landlord's Obligations.......................... 10 (b) Tenant's Obligations............................ 10 (c) Tenant's Failure to Repair...................... 11 15. LIENS.................................................... 11 16. ENTRY BY LANDLORD........................................ 11 18. ASSUMPTION OF RISK AND INDEMNIFICATION................... 12 (a) Tenant's Assumption of Risk and Waiver.......... 12 (b) Indemnification................................. 12 (c) Survival; No Release of Insurers................ 13 19. INSURANCE................................................ 13 (a) Tenant's Insurance.............................. 13 (b) Supplemental Tenant Insurance Requirements...... 14 (c) Tenant's Use.................................... 14 (d) Cancellation of Landlord's Policies............. 15 (e) Mutual Waiver of Subrogation.................... 15 20. DAMAGE OR DESTRUCTION.................................... 15 (a) Partial Destruction............................. 15 (b) Substantial Destruction......................... 15 (c) Notice.......................................... 15 (d) Tenant's Termination Rights..................... 16 (e) Tenant's Costs and Insurance Proceeds........... 16 (f) Abatement of Rent............................... 16 (g) Inability to Complete........................... 16 (h) Damage Near End of Term......................... 16 (i) Waiver of Termination Right..................... 16 (j) Termination..................................... 17 21. EMINENT DOMAIN........................................... 17 (a) Substantial Taking.............................. 17 (b) Partial Taking; Abatement of Rent............... 17 (c) Condemnation Award.............................. 17 (d) Temporary Taking................................ 17 22. DEFAULTS AND REMEDIES.................................... 17 (a) Default By Tenant.................................... 17 (b) Notices.............................................. 18 (c) Landlord's Remedies; Termination..................... 18 (d) Landlord's Remedies: Re-Entry Rights................. 19 (e) Landlord's Remedies: Re-Letting...................... 19 (f) Landlord's Remedies; Performance for Tenant.......... 19 (g) Late Payment......................................... 19 (h) Intentionally omitted................................ 20 -ii-
TABLE OF CONTENTS (continued)
Page ---- (i) Rights and Remedies Cumulative....................... 20 23. LANDLORD'S DEFAULT....................................... 20 24. ASSIGNMENT AND SUBLETTING................................ 20 (a) Restriction on Transfer......................... 20 (b) Corporate and Partnership Transfers............. 20 (c) Permitted Controlled Transfers.................. 20 (d) Transfer Notice................................. 21 (e) Landlord's Options.............................. 21 (f) Reasonable Disapproval.......................... 21 (g) Additional Conditions........................... 21 (h) Excess Rent..................................... 22 (i) Intentionally omitted........................... 22 (j) No Release...................................... 22 (k) Administrative and Attorneys' Fees.............. 22 25. SUBORDINATION............................................ 23 26. ESTOPPEL CERTIFICATE..................................... 23 (a) Tenant's Obligations............................ 23 (b) Tenant's Failure to Deliver..................... 24 27. Intentionally omitted.................................... 24 28. RULES AND REGULATIONS.................................... 24 29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.............................................. 24 (a) Modifications................................... 24 (b) Cure Rights..................................... 24 30. DEFINITION OF LANDLORD................................... 24 31. WAIVER................................................... 25 32. PARKING.................................................. 25 (a) Grant of Parking Rights......................... 25 (b) Visitor Parking................................. 25 (c) Use of Parking Spaces........................... 25 (d) General Provisions.............................. 26 (e) Cooperation with Traffic Mitigation Measures.... 26 (f) Parking Rules and Regulations................... 26 33. FORCE MAJEURE............................................ 26 34. SIGNS.................................................... 27 35. LIMITATION ON LIABILITY.................................. 27 -iii-
TABEL OF CONTENTS (continued)
Page ---- 36. FINANCIAL STATEMENTS..................................... 28 37. QUIET ENJOYMENT.......................................... 28 38. MISCELLANEOUS............................................ 28 (a) Conflict of Laws................................ 28 (b) Successors and Assigns.......................... 28 (c) Professional Fees and Costs..................... 28 (d) Terms and Headings.............................. 28 (e) Time............................................ 28 (f) Prior Agreement; Amendments..................... 28 (g) Separability.................................... 28 (h) Recording....................................... 28 (i) Counterparts.................................... 28 (j) Nondisclosure of Lease Terms.................... 28 (k) Use of Project or Building Name................. 29 (l) No Light and Air Easement....................... 29 39. RESOLUTION OF DISPUTES................................... 29 (a) Reference of Dispute............................ 29 (b) Cooperation..................................... 30 (c) Allocation of Costs............................. 30 40. EXECUTION OF LEASE....................................... 30 (a) Joint and Several Obligations................... 30 (b) Tenant as Corporation or Partnership............ 30 (c) Examination of Lease............................ 30
EXHIIBITS: A Site Plan B Floor Plan C Work Letter Agreement D Notice of Lease Term Dates and Tenant's Percentage E Definition of Operation Expenses F Standards of Utilities and Services G Estoppel Certificate H Rules and Regulations I Tenant's Insurance Requirements -iv- EXHIBIT 10.15 SUBLEASE This sublease (the "Sublease") is made on October 31, 1996, between Silicon Valley Bank ("Sublandlord"), whose address is 3003 Tasman Drive, Santa Clara, CA 95054 and AUTO-BY-TEL CORP. ("Subtenant"), whose address is 18872 MacArthur Boulevard, Suite 200, Irvine, CA 92612, who agree as follows: 1. Recitals. This Sublease is made with reference to the following facts -------- and objectives: (a) The Provider Fund, as successor in interest to McDonnell Douglas Realty Company, as Landlord ("Master Landlord"), and Sublandlord, as Tenant, have entered into a written lease dated December 4, 1995, as amended by a first amendment entered into as of March 29, 1996 and a second amendment entered into as of June 1, 1996 (as amended, the "Master Lease"), regarding that certain real property located on 18872 MacArthur Boulevard (the "Building"), Suites 100 and 150, Irvine, CA 92612, as more particularly described therein (the "Premises"). A copy of the Master Lease is attached hereto as Exhibit "A". (b) Subtenant desires to sublet the portion of the Premises commonly referred to as Suite 150 ("Suite 150"), from Sublandlord on the provisions contained in this Sublease. A floor plan of Suite 150 is attached as Exhibit "B". 2. Premises. Sublandlord hereby leases to Subtenant and Subtenant hereby -------- leases from Sublandlord Suite 150. Suite 150, located on the first floor of the Building, containing 1,361 rentable square feet and 1,237 usable square feet. Subtenant's Percentage of the 45,454 square foot Building on a rentable square foot basis, is 2.99%. 3. Permitted Use. Subtenant may use Suite 150 for general office ------------- purposes, and no other use. 4. Term; Possession. The term shall commence on November 1, 1996, and ---------------- shall expire April 30, 1997. If Sublandlord is unable to deliver possession of Suite 150 by the date specified for the commencement of the term as a result of causes beyond its reasonable control, Sublandlord shall not be liable for any damage caused for failing to deliver possession, provided, however, that Subtenant shall then have the right to terminate this Sublease. Subtenant shall not be liable for any charges hereunder until Sublandlord delivers possession of Suite 150 to Subtenant, but the term shall not be extended by any delay. Subtenant shall have no right to extend the term beyond April 30, 1997; provided, however, that, if Subtenant not less than forty-five (45) days prior to the expiration date of the term, requests Sublandlord to extend the term for an additional thirty (30) day period, Sublandlord shall use its best efforts to respond to Subtenant's request within fifteen (15) days of receipt of the request. Any failure by Sublandlord to respond to the request within the fifteen (15) day period shall not be deemed an acceptance. Any such thirty (30) day extensions shall be at Sublandlord's sole discretion and shall otherwise be in accordance with the terms and conditions set forth herein. 5. Rent. Subtenant agrees to pay Sublandlord One Thousand Nine Hundred ---- Five and 40/100 Dollars ($1,905.40) rent (the "Monthly Base Rent") for Suite 150 in advance on the first day of each calendar month during the Term. All rent must be paid to Sublandlord, without any deduction or offset, in lawful money of the United States of America, at 3003 Tasman Drive, NC 822, Santa Clara, CA 95054, Attn: Shawn Street, or to such other person or at such other place as Sublandlord may from time to time designate in writing. 6. Security Deposit. On execution of this Sublease, Subtenant shall ---------------- deposit with Sublandlord Two Thousand Ninety-Five and 45/100 Dollars ($2,095.45) as a security deposit for the performance by Subtenant of the provisions of this Sublease. If Subtenant is in default, Sublandlord can use the security deposit, or any portion of it, to cure the default or to compensate Sublandlord for all damage sustained by Sublandlord resulting from Subtenant's default. Subtenant shall immediately on demand pay to Sublandlord a sum equal to the portion of the security deposit expended or applied by Sublandlord as provided in this paragraph so as to maintain the security deposit in the sum initially deposited with Sublandlord. If Subtenant is not in default at the expiration or termination of this Sublease, Sublandlord shall return the security deposit to Subtenant. Sublandlord's obligations with respect to the security deposit are those of a debtor and not a trustee. Sublandlord can maintain the security deposit separate and apart from Sublandlord's general funds or can commingle the security deposit with Sublandlord's general and other funds. Sublandlord shall not be required to pay Subtenant interest on the security deposit. 7. Incorporation by Reference; Assumption. The Master Lease is -------------------------------------- incorporated by reference into, and made a part of, this Sublease to the extent applicable to Suite 150, except for the following paragraphs: Paragraphs 3, 4(a) and (b), 5(a), 6(g), 7, 10, 24(b)-(k), 32, Exhibits A-D, Exhibit 1, Addendum to Lease Subtenant shall assume and perform to Sublandlord the Tenant's obligations to the Landlord under the foregoing Master Lease provisions to the extent that the provisions are applicable to Suite 150 under this Sublease. To the extent any of the provisions set forth in the Master Lease conflict with any of the provisions set forth in this Sublease, the provisions of this Sublease shall control. Sublandlord does not assume the obligations of the Master Landlord under the provisions of the Master Lease, but shall exercise due diligence in attempting to cause the Master Landlord to perform its obligations under the Master Lease for the benefit of Subtenant. If such obligations are not performed and materially affect Subtenant's tenancy, Subtenant may terminate this Sublease by written notice to Sublandlord. 8. Operating Expenses. Subtenant agrees to the following modifications ------------------ to Paragraph 6 of the Master Lease: In addition to Monthly Base Rent, throughout the Term of this Sublease, Subtenant agrees to pay Sublandlord as additional rent in accordance with the terms of this Sublease, Subtenant's Percentage of Operating Expenses (as defined in Exhibit "E" to the Master Lease) to the extent Subtenant's Percentage of Operating Expenses exceeds Subtenant's Percentage of the Base Year Operating Expenses for 1996. 9. Insurance. Subtenant agrees to the following modifications to --------- Paragraph 19 of the Master Lease: The minimum limits of Commercial Public Liability Insurance or Comprehensive General Liability Insurance coverage referred to in Paragraph 19(a)(iii) and of Comprehensive Automobile Liability referred to in Paragraph 19(a)(iv) shall not be less than $1,000,000. In addition to Sublandlord, Master Landlord shall also be named as an additional insured. Subtenant's insurance shall be primary insurance. Any other insurance maintained by Sublandlord or Master Landlord shall be excess only and not contributing with Subtenant's insurance. 10. Covenant of Quiet Enjoyment. Sublandlord represents that the Master --------------------------- Lease is in full force and effect and that there are no defaults on Sublandlord's part under it as of the commencement of the term of this Sublease. Subject to this Sublease terminating as provided in Paragraphs 20 and 21 of the Master Lease, and Paragraph 11 of this Sublease, Sublandlord represents that, if Subtenant performs all the provisions in this Sublease to be performed by Subtenant, Subtenant shall have and enjoy throughout the term of this Sublease the quiet and undisturbed possession of the premises. 11. Master Lease. This Sublease is subject to all the provisions of the ------------ Master Lease, and Subtenant shall not permit any act or omission to act that will violate any of the provisions of the Master Lease. -2- If the Master Lease terminates, this Sublease shall terminate and the parties shall be relieved from all liabilities and obligations under this Sublease; except that if this Sublease terminates as a result of a default of one of the parties under this Sublease or the Master Lease, or both, the defaulting party shall be liable to the nondefaulting party for all damage suffered by the nondefaulting party as a result of termination. 12. Attorneys Fees; Jury Trial Waiver; Integration. ---------------------------------------------- (a) In the event any dispute arises in connection with this Sublease, the prevailing party shall be entitled to recover all of its costs and expenses, including reasonable attorneys fees. (b) This Sublease shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Sublandlord and Subtenant hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Los Angeles, State of California. SUBLANDLORD AND SUBTENANT EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SUBLEASE, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS SUBLEASE. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. (c) This Sublease cannot be amended or terminated except by a writing signed by Sublandlord and Subtenant. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Sublease, if any, are merged into this Sublease. 13. Landlord's Approval. The effectiveness of this Sublease shall be ------------------- expressly conditioned upon the prior written consent of this Sublease by Master Landlord in strict accordance with the terms and conditions of Paragraph 24 of the Master Lease. Subtenant shall promptly reimburse Sublandlord for any costs and expenses incurred by Sublandlord in connection with obtaining the Master Landlord's consent. Sublandlord Subtenant SILICON VALLEY BANK AUTO-BY-TEL CORP. By: ______________________________ By: _______________________________ Its: _____________________________ Its: ______________________________ Above is acknowledged and agreed: THE PROVIDER FUND By: ______________________________ Its: _____________________________ -3- EXHIBIT "A" OFFICE BUILDING LEASE BETWEEN McDONNELL DOUGLAS REALTY COMPANY LANDLORD AND SILICON VALLEY BANK TENANT OFFICE BUILDING LEASE --------------------- THIS OFFICE BUILDING LEASE ("Lease") is entered into as of the _____ day of _______________, 1995 by and between McDonnell Douglas Realty Company, a California corporation ("Landlord"), and Silicon Valley Bank ("Tenant"). 1. BASIC LEASE TERMS. For purposes of this Lease, the following terms ----------------- have the following definitions and meanings: 2. PREMISES AND COMMON AREAS. ------------------------- (a) Premises. Landlord hereby leases to Tenant and Tenant hereby -------- leases from Landlord, without representation or warranty, express or implied, the Premises described in Subsection 1(g). The rentable square feet and usable square feet of the Premises and the Building set forth above in Section 1 shall be deemed to be the rentable square feet and usable square feet of the Premises and Building for all purposes, whether the actual rentable square feet or usable square feet may be more or less than the amounts set forth above. In that regard, Landlord and Tenant have each been given an opportunity to measure or re-measure the square footage of the Premises prior to execution of this Lease and Landlord and Tenant each hereby waive any rights they may have following execution of this Lease to measure or remeasure the Premises or Building or claim that the rentable square feet or usable square feet of the Premises or Building is other than as set forth in Section 1. (b) Mutual Covenants. Landlord and Tenant agree that the letting and ---------------- hiring of the Premises is upon and subject to the terms, covenants and conditions contained in this Lease and each party covenants as a material part of the consideration for this Lease to keep and perform their respective obligations under this Lease. (c) Tenant's Use of Common Areas. During the Term of this Lease, ---------------------------- Tenant shall have the nonexclusive right to use in common with Landlord and all persons, firms and corporations conducting business in the Project and their respective customers, guests, licensees, invitees, subtenants, employees and agents (collectively, "Project Occupants"), subject to the terms of this Lease, the Rules and Regulations referenced in Section 32 and all covenants, conditions and restrictions now or hereafter affecting the Project, the following common areas of the Building and/or the Project (collectively, the "Common Areas"), all of which shall be subject to Landlord's sole management and control and shall be operated and maintained in such manner as Landlord in its sole but good faith discretion shall determine: (i) The Building's common entrances, hallways, lobbies, public restrooms on multi-tenant floors, elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment within the Building which serve the Premises (collectively, "Building Common Areas"); and (ii) The parking facilities of the Project which serve the Building (subject to the provisions of Exhibit "H"), loading and unloading ----------- areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, plaza areas, fountains and similar areas and facilities situated within the Project and appurtenant to the Building which are not reserved for the exclusive use of any Project Occupants (collectively, "Project Common Areas"), provided, however, that Landlord shall use reasonable efforts to minimize interference with Tenant's use of and access to the Premises; and provided, further, that if Tenant is prevented from using, and does not use, the Premises or any material portion thereof, for three (3) consecutive business days because of Landlord's unreasonable interference with Tenant's use of and access to the Premises and Tenant shall have given Landlord written notice respecting such interference, then Tenant's Monthly Base Rent shall be abated or reduced, as the case may be, after expiration of the applicable period of time described above for such time that Tenant continues to be so prevented from using, and does not use, the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, based on the ratio that the unusable portion bears to the total rentable area of the Premises; provided, however, if Tenant reoccupies and conducts its business from any portion of the Premises during such period, the rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date such business operations commence; and provided further that the rent abatement described above shall in no event continue after the time such unreasonable interference ceases. (d) Landlord's Reservation of Rights. Provided Tenant's use of and -------------------------------- access to the Premises and parking to be provided to Tenant under this Lease is not interfered with in an unreasonable manner, Landlord reserves for itself and for all other owner(s) and operator(s) of the Project Common Areas and the balance of the Project, the right from time to time to: (i) install, use, maintain, repair, replace and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas of the Building; (ii) make changes to the design and layout of the Project, including, without limitation, changes to buildings, driveways, entrances, loading and unloading areas, direction of traffic, landscaped areas and walkways, and, subject to the parking provisions contained in Section 32 and Exhibit "H", parking spaces and ----------- parking areas; and (iii) use or close temporarily the Building Common Areas, the Project Common Areas and/or other portions of the Project while engaged in making improvements, repairs or alterations to the Building, the Project, or any portion thereof; provided, however, that Landlord shall use its best efforts to provide Tenant with reasonable advance notice of any closure of such areas. 3. TERM; COMMENCEMENT DATE. The term of this Lease ("Term") will be for ----------------------- the period designated in Subsection 1(i), commencing on the Commencement Date, and ending as of midnight on the last day of the month in which the expiration of such period occurs (the "Expiration Date"), unless terminated earlier as provided herein. Each consecutive twelve (12) month period of the Term of this Lease, commencing on the Commencement Date, will be referred to herein as a "Lease Year". Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "D" attached hereto, will set forth the ----------- Commencement Date, the date upon which the Term of this Lease shall end, the rentable square feet within the Premises and the Building, and Tenant's Percentage and will be delivered to Tenant after Landlord delivers possession of the Premises to Tenant. The Notice will be binding upon Tenant unless Tenant objects to the Notice in writing within five (5) business days of Tenant's receipt of the Notice. 4. POSSESSION. ---------- (a) Delivery of Possession. Landlord agrees to deliver possession of ---------------------- the Premises to Tenant in accordance with the terms of the Work Letter Agreement attached hereto as Exhibit "C". Notwithstanding the foregoing, Landlord will ----------- not be obligated to deliver possession of the Premises to Tenant until Landlord has received from Tenant all of the following: (i) a copy of this Lease fully executed by Tenant and the guaranty of Tenant's obligations under this Lease, if any, executed by the Guarantor(s); (ii) the Security Deposit and the first installment of Monthly Base Rent; (iii) executed copies of policies of insurance or certificates thereof as required under Section 19 of this Lease; (iv) copies of all governmental permits and authorizations, if any, required in connection with Tenant's operation of its business within the Premises; and (v) if Tenant is a corporation or partnership, such evidence of due formation, valid existence and authority as Landlord may reasonably require, which may include, without limitation, a certificate of good standing, certificate of secretary, articles of incorporation, statement of partnership, or other similar documentation. (b) Condition of Premises. By taking possession of the Premises, --------------------- Tenant will be deemed to have accepted the Premises in its condition, subject to any written punch list items to be performed by Landlord pursuant to the Work Letter Agreement, on the date of delivery of possession and to have acknowledged that the Tenant Improvements have been installed as required by the Work Letter Agreement and that there are no additional items needing work or repair. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the Building, the Project or any portions thereof or with respect to the suitability of same for the conduct of Tenant's business and Tenant further acknowledges that -2- Landlord has no obligation to construct or complete any additional buildings or improvements within the Project. (c) Use and Occupancy Prior to Commencement Date. If Tenant shall -------------------------------------------- for any reason use or occupy the Premises in any way prior to the Commencement Date, then during such prior use or occupancy Tenant shall be a tenant of Landlord and shall be subject to the covenants and agreements set forth in this Lease other than provisions pertaining to the payment of Monthly Base Rent. Nothing herein shall be construed as Landlord's consent to Tenant's use or occupancy of the Premises for any reason prior to the Commencement Date. 5. RENT. ---- (a) Monthly Base Rent. Tenant agrees to pay Landlord the Monthly ----------------- Base Rent for the Premises (subject to adjustment as hereinafter provided) in advance on the first day of each calendar month during the Term, except that Tenant agrees to pay the Monthly Base Rent for the first full calendar month of the Term directly to Landlord concurrently with Tenant's delivery of the executed Lease to Landlord. If the Term of this Lease commences on a day other than the first day of a calendar month, then the rent for such period will be prorated in the proportion that the number of days this Lease is in effect during such period bears to the number of days in such month and the excess rent, if any, paid in advance by Tenant, shall be credited toward the rent due for the next calendar month. All rent must be paid to Landlord, without any deduction or offset, in lawful money of the United States of America, at the address designated by Landlord (and if no such address is designated, at the address first set forth in Subsection 1(b)) or to such other person or at such other place as Landlord may from time to time designate in writing. Monthly Base Rent will be adjusted during the Term of this Lease as provided in Subsection 1(m). All monthly installments of Monthly Base Rent shall be due and payable as aforesaid whether or not Landlord shall have given Tenant any prior written notice or bill with respect thereto, and Landlord shall have no obligation whatsoever to give Tenant any written notice or bill with respect to any Monthly Base Rent installment. (b) Additional Rent. All amounts and charges to be paid by Tenant --------------- hereunder, including, without limitation, payments for Operating Expenses, insurance, repairs, parking and After-Hours HVAC charges, will be considered "Additional Rent" for purposes of this Lease. Monthly Base Rent and Additional Rent and all other sums payable by Tenant under this Lease (collectively, "Rent") shall be deemed to be and shall be treated as rent and shall be payable and recoverable as rent, and Landlord shall have all rights against Tenant for default in any payment of Additional Rent or such other sum as in the case of non-payment of Monthly Base Rent. (c) Late Payments. Late payments of Monthly Base Rent and/or any ------------- item of additional rent will be subject to interest and a late charge as provided in Subsection 22(f). 6. OPERATING EXPENSES. ------------------ (a) Operating Expenses. In addition to Monthly Base Rent, ------------------- throughout the Term of this Lease, Tenant agrees to pay Landlord as additional rent in accordance with the terms of this Section 6, Tenant's Percentage (as defined in Subsection 1(h) of Operating Expenses (as defined in Exhibit "E" ------------ attached hereto) to the extent Tenant's Percentage of Operating Expenses exceeds Tenant's Percentage of the Base Year Operating Expenses (as hereinafter defined). (b) Base Year Operating Expenses. "Base Year Operating Expenses" ---------------------------- shall mean the actual Operating Expenses for the Base Year set forth in Subsection 1(u). (c) Estimate Statement. As soon as practicable after the expiration ------------------ of the Base Year, and as soon as practicable after January 1st of each subsequent calendar year during the Term of this Lease, Landlord will endeavor to deliver to Tenant a statement ("Estimate Statement") wherein Landlord will estimate both the Operating Expenses and Tenant's Percentage of Operating Expenses for the then current calendar year. If the estimate of Tenant's Percentage of Operating Expenses in the Estimate Statement exceeds Tenant's Percentage of Base Year Operating Expenses, Tenant agrees to pay Landlord, as Additional Rent, one-twelfth (1/12th) of such excess each month thereafter, beginning with the next installment of rent due, until such time as Landlord issues a revised -3- Estimate Statement or the Estimate Statement for the succeeding calendar year, except that, concurrently with the regular monthly rent payment next due following the receipt of each such Estimate Statement, Tenant agrees to pay Landlord an amount equal to one monthly installment of such excess (less any applicable Operating Expenses already paid) multiplied by the number of months from January, in the current calendar year, to the month of such rent payment next due, all months inclusive. If at any time and from time to time during the Term of this Lease, Landlord reasonably determines that Tenant's Percentage of Operating Expenses for the current calendar year will be greater than the amount set forth in the then current Estimate Statement, Landlord may issue a revised Estimate Statement and Tenant agrees to pay Landlord, within twenty (20) days of receipt of the revised Estimate Statement the difference between the amount owed by Tenant under such revised Estimate Statement and the amount owed by Tenant under the original Estimate Statement for the portion of the then current calendar year which has expired. Thereafter Tenant agrees to pay Tenant's Percentage of Operating Expenses based on such revised Estimate Statement until Tenant receives the next calendar year's Estimate Statement or a new revised Estimate Statement for the current calendar year. In the event Tenant's Percentage of Operating Expenses for any calendar year is less than Tenant's Percentage of Base Year Operating Expenses, Tenant will not be entitled to a credit against any rent, additional rent or Tenant's Percentage of future Operating Expenses payable hereunder. (d) Actual Statement. As soon as practicable after expiration of the ---------------- calendar year following the Base Year, and as soon as practicable after expiration of each subsequent calendar year during the Term of this Lease, Landlord will also endeavor to deliver to Tenant a statement ("Actual Statement") which states the actual Operating Expenses for the preceding calendar year. If the Actual Statement reveals that Tenant's Percentage of the actual Operating Expenses is more than the total Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Tenant agrees to pay Landlord the difference in a lump sum within thirty (30) days of receipt of the Actual Statement. If the Actual Statement reveals that Tenant's Percentage of the actual Operating Expenses is less than the Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Landlord will credit any overpayment toward the next monthly installment(s) of Tenant's Percentage of the Operating Expenses due under this Lease. (e) Miscellaneous. Any delay or failure by Landlord in delivering ------------- any Estimate Statement or Actual Statement pursuant to this Section 6 will not constitute a waiver of its right to require an increase in rent nor will it relieve Tenant of its obligations pursuant to this Section 6, except that Tenant will not be obligated to make any payments based on such Estimate Statement or Actual Statement until twenty (20) days after receipt of such Estimate Statement or Actual Statement. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage of the actual Operating Expenses for the year in which this Lease terminates, Tenant agrees to promptly pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall promptly be rebated by Landlord to Tenant. Prior to the expiration or sooner termination of the Lease Term and Landlord's acceptance of Tenant's surrender of the Premises, Landlord will have the right to estimate the actual Operating Expenses for the then current Lease Year and to collect from Tenant prior to Tenant's surrender of the Premises, Tenant's Percentage of any excess of such actual Operating Expenses over the estimated Operating Expenses paid by Tenant in such Lease Year. Notwithstanding anything to the contrary set forth in Exhibit "E", when calculating the Base Year Operating Expenses, such Operating - ----------- Expenses shall not include any increase in Real Property Taxes and Assessments attributable to special assessments, charges, costs, or fees, or due to modifications or changes in governmental laws or regulations, including but not limited to the institution of a split tax roll, and Base Year Operating Expenses shall exclude market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, and utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages and amortized costs relating to capital improvements. If, in any Lease Year, the amount of Real Property Taxes and Assessments attributable to the Project inclusive of tenant improvements, decreases, then for purposes of all subsequent calendar years, including the calendar year in which such decrease in Real Property Taxes and Assessments occurred, Base Year Operating Expenses shall be decreased by an amount equal to the decrease in Real Property Taxes and Assessments. -4- (f) After-Hours HVAC. In addition to Monthly Base Rent and Tenant's ---------------- Percentage of Operating Expenses, Tenant agrees to pay Landlord the cost charged by Landlord from time to time (which cost as of the date of this Lease is $17.00 per hour) for After-Hours HVAC used by Tenant, plus any costs to maintain the HVAC system due to Tenants After-Hours HVAC usage. Landlord shall provide Tenant a monthly invoice of the HVAC costs payable by Tenant, and Tenant shall pay for such costs within twenty (20) days of receiving each invoice. (g) Tenant's Audit Rights. The information set out in the statements --------------------- submitted to Tenant pursuant to this Section 6 shall be binding on Tenant unless Tenant gives written notice to Landlord within one hundred twenty (120) days after Landlord's submission of such statement stating that Tenant intends to cause Landlord's books and records (which shall include applicable back-up information) with respect to the preceding calendar year to be audited by a certified public accountant ("CPA"), or other qualified specialist approved in advance by Landlord, qualified to audit said statements and reasonably acceptable to Landlord, identifying the statement in question and setting out in reasonable detail the reason why such statement should not be binding on Tenant. If Tenant does not timely exercise its right to have Landlord's books and records audited, or does not cause such audit to be accomplished within ninety (90) days after notice of its election to do so, Tenant's right to object to any such statement shall lapse. Tenant shall pay all costs of such audit (including, without limitation, any and all copying costs), unless the actual amount of Additional Rent for the calendar year in question is properly determined by the CPA to be five percent (5%) less than the amount of Additional Rent for the same calendar year set forth in the statement submitted to Tenant by Landlord, in which event Landlord shall pay the reasonable cost of such audit. Any such audit shall occur only in such offices and such location as Landlord shall designate. The amount of Additional Rent payable by Tenant to Landlord shall be appropriately adjusted on the basis of such audit and, if the audit shows that Landlord has overcharged Tenant, Landlord shall credit such overcharge against the next installment of Additional Rent coming due hereunder. 7. SECURITY DEPOSIT. Concurrently with Tenants execution of this Lease, ---------------- Tenant will deposit with Landlord the Security Deposit designated in Subsection 1(o). The Security Deposit is in an amount equal to one hundred ten percent (110%) of the highest Monthly Base Rent amount anticipated for the initial Lease Term. The Security Deposit will be held by Landlord as security for the full and faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Term hereof. If Tenant fully and faithfully performs its obligations under this Lease, including, without limitation, surrendering the Premises upon the expiration or sooner termination of this Lease in compliance with Subsection 11(a), the Security Deposit or any balance thereof will be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest hereunder) within thirty (30) days following the expiration of the Lease Term or as required under applicable law, provided that Landlord may retain the Security Deposit until such time as any outstanding rent or additional rent amount has been determined and paid in full. The Security Deposit is not, and may not be construed by Tenant to constitute, rent for the last month or any portion thereof. If Tenant defaults with respect to any provisions of this Lease including, but not limited to, the provisions relating to the payment of rent or additional rent, Landlord may (but will not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant agrees, within ten (10) days after Landlord's written demand therefor, to deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant's failure to do so shall constitute a default under this Lease. Landlord is not required to keep Tenant's Security Deposit separate from its general funds, and Tenant is not entitled to interest on such Security Deposit. Should Landlord sell its interest in the Premises during the Term hereof and deposit with the transferee thereof the then unappropriated Security Deposit funds, Landlord will be discharged from any further liability with respect to such Security Deposit, upon the assumption by such Transferee of Landlord's obligations under this Lease. 8. USE. --- (a) Tenant's Use of the Premises. The Premises may be used for the ---------------------------- use or uses set forth in Subsection 1(r) only, and Tenant will not use or permit the Premises to be used for any -5- other purpose without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Nothing in this Lease will be deemed to give Tenant any exclusive right to such use in the Building or the Project (b) Compliance. At Tenant's sole cost and expense, Tenant agrees to ---------- procure, maintain and hold available for Landlord's inspection, all governmental licenses and permits required for the proper and lawful conduct of Tenant's business from the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or allow the Premises to be used, altered or occupied in violation of, and Tenant, at its sole cost and expense, agrees to use and occupy the Premises and cause the Premises to be used and occupied in compliance with: (i) any and all laws, statutes, zoning restrictions, ordinances, rules, regulations, orders and rulings now or hereafter in force and any requirements of any insurer, insurance authority or duly constituted public authority having jurisdiction over the Premises, the Building or the Project now or hereafter in force, (ii) the requirements of the Board of Fire Underwriters and any other similar body, (iii) the Certificate of Occupancy issued for the Building, and (iv) any recorded covenants, conditions and restrictions and similar regulatory agreements, if any, which affect the use, occupation or alteration of the Premises, the Building and/or the Project Notwithstanding the foregoing, Tenant's obligation to use and occupy the Premises in compliance with items (i) through (iv) above shall not apply with respect to any noncompliance of the Premises with items (i) through (iv) above existing on the date of delivery of possession of the Premises to Tenant. Landlord shall be responsible for rectifying any such pre-existing noncompliance at Landlord's expense. In addition, Landlord shall construct the Tenant Improvements as described in Exhibit "C" in conformity with all applicable codes and regulations of - ----------- governmental authorities having jurisdiction over the Building and Premises and with all valid building permits and other authorizations from appropriate governmental agencies when required. Tenant agrees to comply with the Rules and Regulations referenced in Section 28. Tenant agrees not to do or permit anything to be done in or about the Premises which will in any manner obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or unreasonably annoy them, or use or allow the Premises to be used for any unlawful or unreasonably objectionable purpose. Tenant agrees not to cause, maintain or permit any nuisance or waste in or about the Premises or elsewhere within the Project. Tenant agrees not to place a load upon the Premises exceeding the average pounds of live load per square foot of floor area specified for the Building by Landlord's architect with the partitions to be considered a part of the live load. Landlord reserves the right to reasonably prescribe the weight and positions of safes, files and heavy equipment which Tenant desires to place in the Premises so as to distribute properly the weight thereof. Tenant agrees to install, maintain and use Tenant's business machines and mechanical equipment which may cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building in a manner so as to eliminate or minimize such vibration or noise. Tenant will be responsible for all structural engineering required to determine structural load, as well as the expense thereof. Notwithstanding anything contained in this Lease to the contrary, all transferable development rights related in any way to the Project are and will remain vested in Landlord, and Tenant hereby waives any rights thereto. Without limiting the foregoing or any other provisions of this Lease, Tenant shall be solely responsible for and shall comply with, at Tenant's sole cost and expense, all requirements of Title III of the Americans with Disabilities Act of 1990 (the "ADA") applicable to Tenant's use and occupancy of the Premises, including, without limitation, those provisions of the ADA applicable to the operational policies and activities of Tenant in the Premises and those applicable to the non-structural design and construction elements of any improvements in or to the Premises constructed by or on behalf of Tenant after delivery of possession of the Premises (i.e., excluding only the initial Tenant Improvements to be constructed by Landlord pursuant to Exhibit "C" and other improvements existing within the Premises ----------- prior to the date of delivery of possession of the Premises to Tenant unless applicable thereto as a result of additional improvements or alterations constructed by or on behalf of Tenant). (c) Hazardous Materials. Except for ordinary and general office ------------------- supplies typically used in the ordinary course of business within office buildings, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute "Hazardous Materials" as defined in this Lease), Tenant agrees not to cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, the Building, the Common Areas or any other portion of the Project by Tenant, its agents, employees, subtenants, assignees, contractors or invitees (collectively, "Tenant's Parties"), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute -6- discretion. Upon the expiration or sooner termination of this Lease, Tenant agrees to remove from the Premises, the Building and the Project, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in or under the Premises, the Building and/or the Project or any portion thereof by Tenant or any of Tenant's Parties. To the fullest extent permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord's partners, officers, directors, employees, agents, successors and assigns (collectively, "Landlord Indemnified Parties") from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in or about the Premises, the Building or any other portion of the Project and which are caused or permitted by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify Landlord of any release of Hazardous Materials in the Premises, the Building or any other portion of the Project which Tenant becomes aware of during the Term of this Lease, whether caused by Tenant or any other persons or entities. In the event of any release of Hazardous Materials caused or permitted by Tenant or any of Tenant's Parties, Landlord shall have the right to cause Tenant to immediately take all steps Landlord deems necessary or appropriate to remediate such release and prevent any similar future release to the satisfaction of Landlord and Landlord's mortgagee(s). As used in this Lease, the term "Hazardous Materials" shall mean and include any hazardous or toxic materials, substances or wastes as now or hereafter designated under any law, statute, ordinance, rule, regulation, order or ruling of any agency of the State, the United States Government or any local governmental authority, including, without limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and freon and other chlorofluorocarbons. The provisions of this Subsection 8(c) will survive any termination of this Lease. 9. NOTICES. All notices required or permitted by this Lease shall be in ------- writing and may be delivered (a) in person (by hand, by messenger or by courier service), (b) by U.S. Postal Service Express Mail, Federal Express or other overnight courier, or (c) by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Section 9. The addresses set forth in Subsections l(b) and l(d) of this Lease shall be the address of each party for notice purposes. Landlord or Tenant may by written notice to the other specify a different address for notice purposes, except that upon Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for the purpose of mailing or delivering notices to Tenant; provided, however, that a copy of such notice shall also be sent to the address for copies specified in Subsection 1(d). A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereinafter designate by written notice to Tenant. Notices delivered by U.S. Express Mail, Federal Express or other courier shall be deemed given on the date delivered by the carrier to the appropriate party's address for notice purposes. If any notice is transmitted by facsimile transmission, the notice shall be deemed delivered upon telephone confirmation of receipt of the transmission thereof at the appropriate party's address for notice purposes. If notice is received on Saturday, Sunday or a legal holiday, it shall be deemed received on the next business day. Nothing contained herein shall be construed to limit Landlord's right to serve any notice to pay rent or quit or similar notice by any method permitted by applicable law, and any such notice shall be effective if served in accordance with any method permitted by applicable law whether or not the requirements of this Section have been met. 10. BROKERS. The parties acknowledge that the broker(s) who negotiated ------- this Lease are stated in Subsection l(v). Each party represents and warrants to the other, that to its knowledge, no other broker, agent or finder (a) negotiated or was instrumental in negotiating or consummating this Lease on its behalf, and (b) is or might be entitled to a commission or compensation in connection with this Lease. Landlord and Tenant each agree to promptly indemnify, protect, defend and hold harmless the other from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys' fees and court costs) resulting from any breach by the indemnifying party of the foregoing representation, including, without limitation, any claims that may be asserted by any broker, agent or finder undisclosed by the indemnifying party. The foregoing mutual indemnity shall survive the expiration or earlier termination of this Lease. -7- 11. SURRENDER; HOLDING OVER. ----------------------- (a) Surrender. The voluntary or other surrender of this Lease by --------- Tenant, or a mutual cancellation thereof, shall not constitute a merger, and shall, at the option of Landlord, operate as an assignment to Landlord of any or all subleases or subtenancies. Upon the expiration or sooner termination of this Lease, Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in a state of first-class order, repair and condition, ordinary wear and tear and casualty damage (if this Lease is terminated as a result thereof pursuant to Section 20) excepted, with all of Tenant's personal property and Alterations (as defined in Section 13) removed from the Premises to the extent required under Section 13 and all damage caused by such removal repaired as required by Section 13. Prior to the date Tenant is to actually surrender the Premises to Landlord, Tenant agrees to give Landlord reasonable prior notice of the exact date Tenant will surrender the Premises so that Landlord and Tenant can schedule a walk-through of the Premises to review the condition of the Premises and identify the Alterations and personal property which Tenant is to remove and any repairs Tenant is to make upon surrender of the Premises. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof alone will not be sufficient to constitute a termination of this Lease or a surrender of the Premises. (b) Holding Over. Tenant will not be permitted to hold over ------------ possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, which consent Landlord may withhold in its sole discretion. If Tenant holds over after the expiration or earlier termination of the Term, Landlord may, at its option, treat Tenant as a tenant at sufferance only, and such continued occupancy by Tenant shall be subject to all of the terms, covenants and conditions of this Lease, so far as applicable, except that the Monthly Base Rent for any such holdover period shall be equal to one hundred twenty five percent (125%) of the Monthly Base Rent in effect under this Lease immediately prior to such holdover, prorated on a daily basis; Acceptance by Landlord of rent after such expiration or earlier termination will not result in a renewal of this Lease. The foregoing provisions of this Section 11 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord under this Lease or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease in accordance with the terms of this Section 11 despite demand to do so by Landlord, Tenant agrees to promptly indemnify, protect, defend and hold Landlord harmless from all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys' fees and costs), including, without limitation, costs and expenses incurred by Landlord in returning the Premises to the condition in which Tenant was to surrender it and claims made by any succeeding tenant founded on or resulting from Tenant's failure to surrender the Premises. 12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency -------------------------- all taxes and assessments (real and personal) levied against (a) any personal property or trade fixtures placed by Tenant in or about the Premises (including any increase in the assessed value of the Premises based upon the value of any such personal property or trade fixtures); and (b) any Tenant Improvements or Alterations (as defined in Section 13) in the Premises (whether installed and/or paid for by Landlord or Tenant) to the extent such items are assessed at a valuation higher than the valuation at which tenant improvements conforming to Landlord's building standard tenant improvements are assessed. If any such taxes or assessments are levied against Landlord or Landlord's property, Landlord may, after written notice to Tenant (and under proper protest if requested by Tenant) pay such taxes and assessments, in which event Tenant agrees to reimburse Landlord all amounts paid by Landlord within ten (10) business days after demand by Landlord. Landlord shall promptly deliver to Tenant a copy of any tax or assessment bill received by Landlord that sets forth amounts owing by Tenant pursuant to this Section 12. 13. ALTERATIONS. After installation of the initial Tenant Improvements ----------- for the Premises pursuant to Exhibit "C", Tenant may, at its sole cost and ----------- expense, make alterations, additions, improvements and decorations to the Premises (collectively, "Alterations") subject to and upon the following terms and conditions: (a) Except as set forth in the approved Plans for the Tenant Improvements pursuant to Exhibit "C", Tenant may not make any Alterations ----------- (without Landlord's prior written consent which may be withheld in Landlord's sole discretion), which: (i) affect any area outside the -8- Premises; (ii) affect the Building's structure, equipment, services or systems, or the proper functioning thereof, or Landlord's access thereto; (iii) affect the outside appearance, character or use of the Building or the Building Common Areas; (iv) in the reasonable opinion of Landlord, lessen the value of the Building; or (v) will violate or require a change in any occupancy certificate applicable to the Premises. (b) Before proceeding with any Alterations which are not prohibited in Subsection 13(a), Tenant must first obtain Landlord's written approval of the plans, specifications and working drawings for such Alterations, which approval Landlord will not unreasonably withhold or delay; provided, however, Landlord's prior approval will not be required for any such Alterations which are not prohibited by Subsection 13(a) and which cost less than Seven Thousand Five Hundred Dollars ($7,500) as long as (i) Tenant delivers to Landlord notice and a copy of any final plans, specifications and working drawings for any such Alterations at least ten (10) days prior to commencement of the work thereof, and (ii) the other conditions of this Section 13 are satisfied, including, without limitation, conforming to Landlord's rules, regulations and insurance requirements which govern contractors. Landlord's approval of plans, specifications and/or working drawings for Alterations will not create any responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with applicable permits, laws, rules and regulations of governmental agencies or authorities, and (iii) such alterations are nonstructural and primarily of a cosmetic nature such as (without limitation) painting or carpeting. In approving any Alterations, Landlord reserves the right to reasonably require Tenant to increase its Security Deposit to provide Landlord with additional reasonable security for the proper installation and removal of such Alterations by Tenant as may be required by this Lease. (c) Alterations may be made or installed only by contractors and subcontractors which have been approved by Landlord, which approval Landlord will not unreasonably withhold or delay; provided, however, Landlord reserves the right to require that Landlord's designated contractor(s) for the Building be given the first opportunity to bid for any Alteration work. Before proceeding with any Alterations, Tenant agrees to provide Landlord with ten (10) days' prior written notice and Tenant's contractors must obtain, on behalf of Tenant and at Tenant's sole cost and expense: (i) all necessary governmental permits and approvals for the commencement and completion of such Alterations; and (ii) if reasonably requested by Landlord, a completion and lien indemnity bond, or other surety, reasonably satisfactory to Landlord for such Alterations. Throughout the performance of any Alterations, Tenant agrees to obtain, or cause its contractors to obtain, workers compensation insurance and general liability insurance in compliance with the provisions of Section 19 of this Lease. (d) All Alterations must be performed: (i) in accordance with the approved plans, specifications and working drawings; (ii) in a lien-free and first-class and workmanlike manner, (iii) in compliance with all applicable permits, laws, statutes, ordinances, rules, regulations, orders and rulings now or hereafter in effect and imposed by any governmental agencies and authorities which assert jurisdiction; (iv) in such a manner so as not to interfere with the occupancy of any other tenant in the Building, nor impose any additional expense upon nor delay Landlord in the maintenance and operation of the Building; and (v) at such times, in such manner, and subject to such rules and regulations as Landlord may from time to time reasonably designate. (e) The Tenant Improvements, including, without limitation, all affixed sinks, dishwashers and other fixtures, and all Alterations will become the property of Landlord and will remain upon and be surrendered with the Premises at the end of the Term of this Lease; provided, however, Tenant shall, prior to the end of the Term, remove such of the Alterations in the Premises as Landlord shall direct to be removed by Tenant by written notice provided that Landlord notified Tenant at the time Tenant requested approval for the Alteration in question that removal thereof would be required at the end of the Term. Landlord may also require Tenant to remove Alterations which Landlord did not have the opportunity to approve as provided in this Section 13. If Landlord requires Tenant to remove any Alterations, which Landlord has the right to request to remove as set forth above, Tenant, at its sole cost, agrees to remove the identified Alterations on or before the expiration or sooner termination of this Lease and repair any damage to the Premises caused by such removal. -9- (f) Tenant agrees to pay Landlord, as additional rent, the reasonable costs of professional services and costs for general conditions of Landlord's third party consultants if utilized by Landlord for review of all plans, specifications and working drawings for any Alterations, within ten (10) business days after Tenant's receipt of invoices either from Landlord or such consultants. In addition, Tenant agrees to pay Landlord, within twenty (20) days after completion of any Alterations, a fee to cover Landlord's costs of supervising and administering the installation of such Alterations (provided Landlord actually supervises or administers such installation), in the amount of five percent (5%) of the cost of such Alterations. (g) All articles of personal property owned by Tenant or installed by Tenant at its expense in the Premises (including Tenant's business and trade fixtures, furniture, movable partitions and equipment (such as telephones, copy machines, computer terminals, refrigerators and facsimile machines) will be and remain the property of Tenant and must be removed by Tenant from the Premises, at Tenant's sole cost and expense, on or before the expiration or sooner termination of this Lease. Tenant agrees to repair any damage caused by such removal at its cost on or before the expiration or sooner termination of this Lease. (h) If Tenant fails to remove by the expiration or sooner termination of this Lease all of its personal property, or any Alterations identified by Landlord for removal, Landlord may (without liability to Tenant for loss thereto treat such failure as a hold-over pursuant to Subsection 11(b), and/or treat such personal property and/or Alterations as abandoned and, at Tenant's sole cost and in addition to Landlord's other rights and remedies under this Lease at law or in equity: (a) remove and store such items; and/or (b) upon twenty (20) days' prior notice to Tenant, sell, discard or otherwise dispose of all or any such items at private or public sale for such price as Landlord may obtain or by other commercially reasonable means. Tenant shall be liable for all costs of disposition of Tenant's abandoned property and Landlord shall have no liability to Tenant with respect to any such abandoned property. Landlord agrees to apply the proceeds of any sale of any such property to any amounts due to Landlord under this Lease from Tenant (including Landlord's attorneys' fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant 14. REPAIRS. ------- (a) Landlord's Obligations. Landlord agrees to repair and maintain ---------------------- the structural portions of the Building and the plumbing, heating, ventilating, air conditioning, elevator and electrical systems installed or furnished by Landlord, unless such maintenance and repairs are (i) attributable to items installed in Tenant's Premises which are above standard interior improvements (such as, for example, custom lighting, special HVAC and/or electrical panels or systems, kitchen or restroom facilities and appliances constructed or installed within Tenant's Premises) or (ii) caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees, in which case Tenant will pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord will not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Section 20, Tenant shall not be entitled to any abatement of rent and Landlord will not have any liability by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute, ordinance, rule, regulation, order or ruling (including, without limitation, the provisions of California Civil Code Sections 1941 and 1942 and any successor statutes or laws of a similar nature). (b) Tenant's Obligations. Except for matters which are Landlord's -------------------- obligation as specified in Subsection 14(a), Tenant agrees to keep, maintain and preserve the Premises in first class condition and repair, normal wear and tear excepted, and, when and if needed, at Tenant's sole cost and expense, to make all repairs to the Premises and every part thereof. Any such maintenance and repairs will be performed by Landlord's contractor, or at Landlord's option, by such contractor or contractors as Tenant may choose from an approved list to be submitted by Landlord. Tenant agrees to pay all costs and expenses incurred in such maintenance and repair within twenty (20) days after -10- billing by Landlord or such contractor or contractors. Tenant agrees to cause any mechanics' liens or other liens arising as a result of work performed by Tenant or at Tenant's direction to be eliminated as provided in Section 15. Except as provided in Subsection 14(a), Landlord has no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. (c) Tenant's Failure to Repair. If Tenant refuses or neglects to -------------------------- repair and maintain the Premises properly as required hereunder to the reasonable satisfaction of Landlord, Landlord, at any time following ten (10) days from the date on which Landlord makes a written demand on Tenant to effect such repair and maintenance, may enter upon the Premises and make such repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as additional rent Landlord's costs for making such repairs plus an amount not to exceed ten percent (10%) of such costs for overhead, within twenty (20) days of receipt from Landlord of a written demised bill therefor. Any amounts not reimbursed by Tenant within such twenty (20) day period will bear interest at the Interest Rate until paid by Tenant. 15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or ----- other liens to be filed against all or any part of the Project, the Building or the Premises, nor against Tenant's leasehold interest in the Premises, by reason of or in connection with any repairs, alterations, improvements or other work contracted for or undertaken by Tenant or any other act or omission of Tenant or Tenant's agents, employees, contractors, licensees or invitees. At Landlord's request Tenant agrees to provide Landlord with enforceable, conditional and final lien releases (or other evidence reasonably requested by Landlord to demonstrate protection from liens) from all persons furnishing labor and/or materials at the Premises. Landlord will have the right at all reasonable times to post on the Premises and record any notices of non-responsibility which it deems necessary for protection from such liens. If any such liens are filed, Tenant will, at its sole cost, promptly cause such liens to be released of record or bonded so that it no longer affects title to the Project, the Building or the Premises. If Tenant fails to cause any such liens to be so released or bonded within thirty (30) days after notice of the filing thereof, such failure will be deemed a material breach by Tenant under this Lease without the benefit of any additional notice or cure period described in Section 22, and Landlord may, without waiving its rights and remedies based on such breach, and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payment in satisfaction of the claims giving rise to such liens. Tenant agrees to pay to Landlord within ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord. 16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all ----------------- times, upon 24 hours prior notice except in emergencies, have the right to enter the Premises to inspect the same, to supply janitorial service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers or tenants, to post notices of nonresponsibility, and/or to repair the Premises as permitted or required by this Lease. In exercising such entry rights, Landlord will endeavor to minimize, as reasonably practicable, the interference with Tenant's business, and will provide Tenant with reasonable advance notice of any such entry (except in emergency situations). Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed. Landlord will at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. Landlord will have the right to use any and all means which Landlord may reasonably deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, will not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises. Landlord will not be liable to Tenant for any damages or losses for any entry by Landlord. 17. UTILITIES AND SERVICES. Landlord agrees to furnish or cause to be ---------------------- furnished to the Premises the utilities and services described in the Standards for Utilities and Services attached hereto as Exhibit "F", subject to the ----------- conditions and in accordance with the standards set forth therein. Landlord may require Tenant from time to time to provide Landlord with a list of Tenant's employees and/or agents which are authorized by Tenant to subscribe on behalf of Tenant for any additional services which may be provided by Landlord. Any such additional services will be provided to Tenant -11- at Tenant's cost. Landlord will not be liable to Tenant for any failure to furnish any of the foregoing utilities and services if such failure is caused by all or any of the following: (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character, (iii) governmental regulation, moratorium or other governmental action or inaction; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or (v) any other cause beyond Landlord's reasonable control. In addition, in the event of any stoppage or interruption of services or utilities, Tenant shall not be entitled to any abatement or reduction of rent (except as expressly provided in Exhibit "F" and, except as expressly provided ----------- in Subsection 20(f) or Subsection 21(b), if such failure results from a damage or taking described therein), no eviction of Tenant will result from such failure and Tenant will not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord agrees to diligently attempt to resume service promptly. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord, as described under Exhibit "F", Landlord may at its option require Tenant to pay, ----------- as additional rent, the cost, as fairly determined by Landlord, incurred by such extraordinary usage and/or Landlord may install separate meter(s) for the Premises, at Tenant's sole expense, and Tenant agrees thereafter to pay all charges of the utility providing service and Landlord will make an appropriate adjustment to Tenant's Operating Expenses calculation to account for the fact Tenant is directly paying such metered charges, provided Tenant will remain obligated to pay its proportionate share of Operating Expenses subject to such adjustment. 18. ASSUMPTION OF RISK AND INDEMNIFICATION. -------------------------------------- (a) Tenant's Assumption of Risk and Waiver. Tenant as a material -------------------------------------- part of the consideration to Landlord, hereby agrees that neither Landlord nor any Landlord Indemnified Parties (as hereinafter defined) will be liable to Tenant for, and Tenant expressly assumes the risk of and waives any and all claims it may have against Landlord or any Landlord Indemnified Parties with respect to, any and all loss or damage to property or injury to persons in, upon or about the Premises, the Building or the Project resulting from any cause whatsoever, including, without limitation, any such loss, damage or injury caused by other tenants or persons in or about the Building or the Project, caused to property entrusted to employees of the Building, caused by theft or otherwise, or resulting from any casualty, explosion, falling plaster or other masonry or glass, steam, gas, electricity, water or rain which may leak from any part of the Building or any other portion of the Project or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place, or resulting from dampness; provided, however, that Landlord shall nevertheless be responsible to the extent and in the proportion that any such loss, damage or injury is ultimately determined to be caused by Landlord's gross negligence or willful misconduct; provided, further, however, that notwithstanding anything to the contrary contained in this Lease, neither Landlord nor any Landlord Indemnified Parties will be liable for consequential damages arising out of any loss of the use of the Premises or any equipment or facilities therein by Tenant or any Tenant Parties or for interference with light or other incorporeal hereditaments. Tenant agrees to give prompt notice to Landlord in case of fire or accidents in the Premises or the Building, or of defects therein or in the fixtures or equipment. (b) Indemnification. Tenant will be liable for, and agrees to --------------- promptly indemnity, protect, defend and hold harmless Landlord and Landlord's affiliates, partners, officers, directors, employees, agents, successors and assigns (collectively, "Landlord Indemnified Parties"), from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs, including attorneys' fees and court costs (collectively, "Indemnified Claims"), arising or resulting from (i) any act or omission of Tenant or any of Tenant's agents, employees, contractors, subtenants, assignees, licensees or invitees (collectively, "Tenant Parties"); (ii) the use of the Premises and Common Areas and conduct of Tenant's business by Tenant or any Tenant Parties, or any other activity, work or thing done, permitted or suffered by Tenant or any Tenant Parties, in or about the Premises, the Building or elsewhere within the Project; and/or (iii) any default by Tenant of any obligations on Tenant's part to be performed under the terms of this Lease. Notwithstanding the foregoing, Tenant shall not be liable to the extent and in the proportion that damage or injury is ultimately determined to be caused by the gross negligence or willful misconduct of Landlord. In case any action or proceeding is brought against Landlord or any Landlord Indemnified Parties by reason of any such Indemnified Claims, Tenant, upon notice from Landlord, -12- agrees to defend the same at Tenant's expense by counsel approved in writing by Landlord, which approval Landlord will not unreasonably withhold. Landlord shall indemnify, defend and hold harmless Tenant and its affiliates, partners, officers, directors, employees, agents, successors and assigns from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs, including attorneys' fees and court costs arising or resulting from injuries to or death of any person or damage to any property arising out of any occurrence on or in the Common Areas, to the extent proximately caused by the gross negligence or willful misconduct of Landlord. (c) Survival; No Release of Insurers. Landlord's and Tenant's -------------------------------- indemnification obligations under Subsection 18(b) will survive the expiration or earlier termination of this Lease. Landlord's and Tenant's covenants, agreements and indemnification obligation in Subsection 18(a) and Subsection 18(b), are not intended to and will not relieve any insurance carrier of its obligations under policies carried or required to be carried by Tenant pursuant to the provisions of this Lease. 19. INSURANCE. --------- (a) Tenant's Insurance. On or before the earlier to occur of (i) ------------------ thirty (30) days after Tenant executes the Lease, or (ii) the date Tenant commences any work of any type in the Premises pursuant to this Lease (which may be prior to the Commencement Date), and continuing throughout the entire Term hereof and any other period of occupancy, Tenant agrees to keep in full force and effect, at its sole cost and expense, the following insurance: (i) "All Risks" property insurance including at least the following perils: fire and extended coverage, smoke damage, vandalism, malicious mischief, sprinkler leakage (including earthquake sprinkler leakage). This insurance policy must be upon all property owned by Tenant, for which Tenant is legally liable, or which is installed at Tenant's expense, and which is located in the Building including, without limitation, any Tenant Improvements which satisfy the foregoing qualification and any Alterations, and all furniture, fittings, installations, fixtures and any other personal property of Tenant in an amount not less than the full replacement cost thereof. If there is a dispute as to full replacement cost, the decision of Landlord or any mortgagee of Landlord will be presumptive. (ii) One (1) year insurance coverage for business interruption and loss of income and extra expense insuring the same perils described in Subsection 19(a)(i), in such amounts as will reimburse Tenant for any direct or indirect loss of earnings attributable to any such perils including prevention of access to the Premises, Tenant's parking areas or the Building as a result of any such perils. (iii) Commercial Public Liability Insurance or Comprehensive General Liability Insurance (on an occurrence form) insuring bodily injury, personal injury and property damage including the following divisions and extensions of coverage: Premises and Operations; Owners and Contractors protective; blanket contractual liability (including coverage for Tenant's indemnity obligations under this Lease); products and completed operations; liquor liability (if Tenant serves alcohol on the Premises); and fire and water damage legal liability in an amount sufficient to cover the replacement value of the Premises, including Tenant Improvements, that are rented under the terms of this Lease. Such insurance must have the following minimum limits of liability: bodily injury, personal injury and property damage - $2,000,000 each occurrence, provided that if liability coverage is provided by a Commercial General Liability policy the general aggregate limit shall apply separately and in total to this location only (per location general aggregate), and provided further, such minimum limits of liability may be adjusted from year to year to reflect increases in coverages as recommended by Landlord's insurance carrier as being prudent and commercially reasonable for tenants of first class office buildings comparable to the Building, rounded to the nearest five hundred thousand dollars. (iv) Comprehensive Automobile Liability insuring bodily injury and property damage arising from all owned, non-owned and hired vehicles, if any, with minimum limits of liability of $2,000,000 per accident. -13- (v) Worker's Compensation as required by the laws of the State of California with the following minimum limits of liability: Coverage A - statutory benefits; Coverage B - $1,000,000 per accident and disease. (vi) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which, a prudent tenant would protect itself, but only to the extent coverage for such risks and amounts are available in the insurance market at commercially acceptable rates. Landlord makes no representation that the limits of liability required to be carried by Tenant under the terms of this Lease are adequate to protect Tenant's interests and Tenant should obtain such additional insurance or increased liability limits as Tenant deems appropriate. (b) Supplemental Tenant Insurance Requirements. ------------------------------------------ (i) All policies must be in a form reasonably satisfactory to Landlord and issued by an insurer admitted to do business in the State of California. (ii) All policies must be issued by insurers with a policyholder rating of "A" and a financial rating of "X" in the most recent version of Bests Key Rating Guide. (iii) All policies must contain a requirement to notify Landlord (and Landlord's property manager and any mortgagees or ground lessors of Landlord who are named as additional insureds, if any) in writing not less than thirty (30) days prior to any material change, reduction in coverage, cancellation or other termination thereof. Tenant agrees to deliver to Landlord, as soon as practicable after placing the required insurance, but in any event within the time frame specified in Subsection 19(a), certificate(s) of insurance and/or if required by Landlord, certified copies of each policy evidencing the existence of such insurance and Tenant's compliance with the provisions of this Section 19. Tenant agrees to cause replacement policies or certificates to be delivered to Landlord not less than thirty (30) days prior to the expiration of any such policy or policies. If any such initial or replacement policies or certificates are not furnished within the time(s) specified herein, Tenant will be deemed to be in material default under this Lease without the benefit of any additional notice or cure period provided in Subsection 22(a)(iii), and Landlord will have the right, but not the obligation, to procure such insurance as Landlord deems necessary to protect Landlord's interests at Tenant's expense. If Landlord obtains any insurance that is the responsibility of Tenant under this Section 19, Landlord agrees to deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed and Tenant agrees to promptly reimburse Landlord for such costs as additional rent. (iv) General Liability and Automobile Liability policies under Subsection 19(a)(iii) and Subsection 19(a)(iv) must name Landlord and Landlord's property manager (and at Landlord's request Landlord's mortgagees and ground lessors of which Tenant has been informed in writing) as additional insureds and must also contain a provision that the insurance afforded by such policy is primary insurance and any insurance carried by Landlord and Landlord's property manager or Landlord's mortgagees or ground lessors, if any, will be excess over and non-contributing with Tenant's insurance. (c) Tenant's Use. Tenant will not keep, use, sell or offer for sale ------------ in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building or the Project Common Areas. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Building or the Project Common Areas or results in the need for Landlord to maintain special or additional insurance, Tenant agrees to pay Landlord the cost of any such increase in premiums or special or additional coverage as additional rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Building, the Project Common Areas or the Tenant -14- Improvements showing the various components of such rate, will be conclusive evidence of the several items and charges which make up such rate. Tenant agrees to promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. (d) Cancellation of Landlord's Policies. If any of Landlord's ----------------------------------- insurance policies are canceled or cancellation is threatened or the coverage reduced or threatened to be reduced in any way because of any use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises which is inconsistent with the permitted use thereof, and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, reduction of coverage, threatened reduction of coverage, increase in premiums, or threatened increase in premiums, within forty-eight (48) hours after notice thereof, Tenant will be deemed in material default of this Lease and Landlord may, at its option, either terminate this Lease or enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay Landlord the reasonable costs of such remedy as additional rent. If Landlord is unable, or elects not to remedy such condition, then Landlord will have all of the remedies provided for in this Lease in the event of a default by Tenant. (e) Mutual Waiver Of Subrogation. Landlord and Tenant each hereby ---------------------------- waive any and all rights of recovery against the other, and against the partners, officers, employees, agents or representatives of the other, for loss of or damage to its property or the property of others under its control, to the extent such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) or would have been covered by any insurance policy required to be carried under the provisions of this Lease, at the time of such loss or damage. Each of the parties hereto, on behalf of their respective insurance companies insuring the property of either Landlord or Tenant against any such loss, to the extent of the amount of any recovery under such insurance, hereby waives any right of subrogation that it may have against the other. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation. Such waiver shall be expressly included in, and shall comply with the requirements of, the respective insurance policies. 20. DAMAGE OR DESTRUCTION. --------------------- (a) Partial Destruction. If the Premises or the Building are damaged ------------------- by fire or other casualty to an extent not exceeding twenty-five percent (25%) of the full replacement cost thereof, and Landlord's contractor reasonably estimates in a writing delivered to Landlord and Tenant that the damage thereto may be repaired, reconstructed or restored to substantially its condition immediately prior to such damage within one hundred twenty (120) days from the date of such casualty, and Landlord will receive insurance proceeds sufficient --- to cover the costs of such repairs, reconstruction and restoration (including proceeds from Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord pursuant to Subsection 20(e) to cover Tenant's obligation for the costs of repair, reconstruction and restoration of any portion of the Tenant Improvements and any Alterations for which Tenant is responsible under this Lease), then Landlord agrees to commence and proceed diligently with the work of repair, reconstruction and restoration and this Lease shall continue in full force and effect. (b) Substantial Destruction. Any damage or destruction to the ----------------------- Premises or the Building which Landlord is not obligated to repair pursuant to Subsection 20(a) shall be deemed a substantial destruction. In the event of a substantial destruction, Landlord may elect to either (i) repair, reconstruct and restore the portion of the Building or the Premises damaged by such casualty, in which case this Lease shall continue in full force and effect, subject to Tenant's termination right contained in Subsection 20(d); or (ii) terminate this Lease effective as of the date of substantial destruction. (c) Notice. Under any of the conditions of Subsection 20(a) or ------ Subsection 20(b), Landlord agrees to give written notice to Tenant of its intention to repair or terminate, as permitted in such Subsections, within the earlier of thirty (30) days after the occurrence of such casualty, or fifteen -15- (15) days after Landlord's receipt of the estimate from Landlord's contractor (the applicable time period to be referred to herein as the "Notice Period"). (d) Tenant's Termination Rights. If Landlord elects to repair, --------------------------- reconstruct and restore pursuant to Subsection 20(b)(i), and if Landlord's contractor estimates that as a result of such damage, Tenant cannot be given reasonable use of and access to the Premises within one hundred eighty (180) days after the date of such damage, then Tenant may terminate this Lease effective upon delivery of written notice to Landlord within ten (10) days after Landlord delivers notice to Tenant of its election to so repair, reconstruct or restore. Said termination shall be effective as of the date of substantial destruction. (e) Tenant's Costs and Insurance Proceeds. In the event of any ------------------------------------- damage or destruction of all or any part of the Premises, Tenant agrees to immediately (i) notify Landlord thereof, and (ii) deliver to Landlord all property insurance proceeds received by Tenant with respect to any Tenant Improvements and any Alterations, but excluding proceeds for Tenant's furniture, fixtures, equipment and other personal property, whether or not this Lease is terminated as permitted in this Section 20, and Tenant hereby assigns to Landlord all rights to receive such insurance proceeds. If, for any reason (including Tenant's failure to obtain insurance for the full replacement cost of any Tenant Improvements and any Alterations from any and all casualties), Tenant fails to receive insurance proceeds covering the full replacement cost of any Tenant Improvements and any Alterations which are damaged, Tenant will be deemed to have self-insured the replacement cost of such items, and upon any damage or destruction thereto, Tenant agrees to immediately pay to Landlord the full replacement cost of such items, less any insurance proceeds actually received by Landlord from Landlord's or Tenant's insurance with respect to such items. (f) Abatement of Rent. In the event of any damage, repair, ----------------- reconstruction and/or restoration described in this Section 20, rent will be abated or reduced, as the case may be, in proportion to the degree to which Tenant's use of the Premises is impaired during such period of repair until such use is restored. Except for such abatement of rent, Tenant will not be entitled to any compensation or damages for loss of, or interference with, Tenant's business or use or access of all or any part of the Premises resulting from any such damage, repair, reconstruction or restoration. (g) Inability to Complete. Notwithstanding anything to the contrary --------------------- contained in this Section 20, if Landlord is obligated or elects to repair, reconstruct and/or restore the damaged portion of the Building or the Premises pursuant to Subsection 20(a) or Subsection 20(b)(1), but is delayed from completing such repair, reconstruction and/or restoration beyond the date which is ninety (90) days after the date estimated by Landlord's contractor for completion thereof by reason of any causes (other than delays caused by Tenant, its subtenants, employees, agents or contractors) which are beyond the reasonable control of Landlord as described in Section 33, then either Landlord or Tenant may elect to terminate this Lease upon ten (10) days' prior written notice given to the other after the expiration of such ninety (90) day period. (h) Damage Near End of Term. Landlord and Tenant shall each have the ----------------------- right to terminate this Lease if any damage to the Premises or the Building occurs during the last twelve (12) months of the Term of this Lease where Landlord's contractor estimates in a writing delivered to Landlord and Tenant that the repair, reconstruction or restoration of such damage cannot be completed within sixty (60) days after the date of such casualty. If either party desires to terminate this Lease under this Subsection 20(h), it shall provide written notice to the other party of such election within ten (10) days after receipt of Landlord's contractor's repair estimates. (i) Waiver of Termination Right. Landlord and Tenant agree that the --------------------------- foregoing provisions of this Section 20 are to govern their respective rights and obligations in the event of any damage or destruction and supersede and are in lieu of the provisions of any applicable law, statute, ordinance, rule, regulation, order or ruling now or hereafter in force which provide remedies for damage or destruction of leased premises (including, without limitation, the provisions of California Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any successor statute or laws of a similar nature). -16- (j) Termination. Upon any termination of this Lease under any of the ----------- provisions of this Section 20, the parties will be released without further obligation to the other from the date possession of the Premises is surrendered to Landlord except for items which have accrued and are unpaid as of the date of termination and matters which are to survive any termination of this Lease as provided in this Lease. 21. EMINENT DOMAIN. -------------- (a) Substantial Taking. If the whole of the Premises, or such part ------------------ thereof as shall substantially interfere with Tenant's use and occupancy of the Premises, as contemplated by this Lease, is taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party will have the right to terminate this Lease effective as of the date possession is required to be surrendered to such authority. (b) Partial Taking; Abatement of Rent. In the event of a taking of a --------------------------------- portion of the Premises which does not substantially interfere with Tenant's use and occupancy of the Premises, then, neither party will have the right to terminate this Lease and Landlord will thereafter proceed to make a functional unit of the remaining portion of the Premises (but only to the extent Landlord receives proceeds therefor from the condemning authority), and rent will be abated with respect to the part of the Premises which Tenant is deprived of on account of such taking. (c) Condemnation Award. In connection with any taking of the Premises ------------------ or the Building, Landlord will be entitled to receive the entire amount of any award which may be made or given in such taking or condemnation, without deduction or apportionment for any estate or interest of Tenant, it being expressly understood and agreed by Tenant that no portion of any such award will be allowed or paid to Tenant for any so-called bonus or excess value of this Lease, and such bonus or excess value will be the sole property of Landlord. Tenant agrees not to assert any claim against Landlord or the taking authority for any compensation because of such taking (including any claim for bonus or excess value of this Lease); provided, however, if any portion of the Premises is taken, Tenant will have the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant's furniture, fixtures, equipment and other personal property within the Premises, for Tenant's relocation expenses, and for any loss of goodwill or other damage to Tenant's business by reason of such taking. (d) Temporary Taking. In the event of taking of the Premises or any ---------------- part thereof for temporary use, (i) this Lease will remain unaffected thereby and rent will abate proportionately, and (ii) Landlord will be entitled to receive such portion or portions of any award made for such use with respect to the period of the taking which is within the Term. For purpose of this Subsection 21(d), a temporary taking shall be defined as a taking for a period of sixty (60) days or less. 22. DEFAULTS AND REMEDIES. --------------------- (a) Default By Tenant. The occurrence of any one or more of the ----------------- following events will be deemed a default by Tenant: (i) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by tenant hereunder, as and when due, where such failure continues for a period of five (5) business days after written notice thereof from Landlord to Tenant provided, however, that any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, the provisions of California Code of Civil Procedure Section 1161 regarding unlawful detainer actions or any successor statute or law of a similar nature). (ii) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subsection 22(a)(i) or Subsection 22(a)(11), where such failure continues for a period of thirty (30) days after written notice thereof from Landlord to Tenant. The -17- provisions of any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, California Code of Civil Procedure Section 1161 regarding unlawful detainer actions and any successor statute or similar law). If the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant will not be deemed to be in default if Tenant commences such cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion; provided, however, if the nature of Tenant's default is such that it is not reasonably susceptible of cure (for example, by way of illustration and not limitation, material misrepresentations in Tenant's financial statements), no cure periods shall be provided. (iii) (A) The making by Tenant or any guarantor of any general assignment for the benefit of creditors; (B) the filing by or against Tenant or any guarantor of a petition to have Tenant or such guarantor adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (D) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. (b) Notices. Notices given under this Section 22 shall specify the ------- default and one or more applicable Lease provisions, and shall demand that Tenant perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord so elects in the notice. (c) Landlord's Remedies; Termination. In the event of any default by -------------------------------- Tenant, in addition to any other remedies available to Landlord at law or in equity under applicable law (including, without limitation, the remedies of Civil Code Section 1951.4 and any successor statute or similar law), Landlord will have the immediate right and option to terminate this Lease and all rights of Tenant hereunder. If Landlord elects to terminate this Lease then, to the extent permitted under applicable law, Landlord may recover from Tenant: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rent loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rent loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, results therefrom including, but not limited to: reasonable attorneys' fees and costs; brokers' commissions; the costs of refurbishment alterations, renovation and repair of the Premises, and removal (including the repair of any damage caused by such removal) and storage (or disposal) of Tenant's personal property, equipment, fixtures, Alterations, the Tenant Improvements and any other items which Tenant is required under this Lease to remove but does not remove, as well as the unamortized value of any Tenant Improvement costs (less any reasonable residual value of the Tenant Improvements) incurred by Landlord pursuant to this Lease. The unamortized value of such costs shall be determined by taking the total of such costs and multiplying such value by a fraction, the numerator of which is the number of months of the Lease Term not yet elapsed as of the date on which the Lease is terminated. and the denominator of which is the total number of months of the Lease Term. -18- As used in Subsection 22(b)(i) and Subsection 22(b)(ii), the "worth at the time of award" is computed by allowing interest at the Interest Rate. As used in Subsection 22(b)(iii), the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (d) Landlord's Remedies: Re-Entry Rights. In the event of any default ------------------------------------ by Tenant in addition to any other remedies available to Landlord under this Lease, at law or in equity, Landlord will also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere and/or disposed of at the cost of and for the account of Tenant in accordance with the provisions of Subsection 13(h) of this Lease or any other procedures permitted by applicable law. No re-entry or taking possession of the Premises by Landlord pursuant to this Subsection 22(d) will be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. (e) Landlord's Remedies: Re-Letting. In the event of the vacation or ------------------------------- abandonment of the Premises by Tenant or in the event that Landlord elects to re-enter the Premises or takes possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof on terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises in connection with such reletting. If Landlord elects to relet the Premises, then rents received by Landlord from such reletting will be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any reasonable cost of such reletting; third, to the payment of the reasonable cost of any alterations and repairs to the Premises incurred in connection with such reletting; fourth, to the payment of rent due and unpaid hereunder and the residue, if any, will be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rents received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency will be calculated and paid monthly. (f) Landlord's Remedies; Performance for Tenant. Except as otherwise ------------------------------------------- expressly specified herein, all covenants and agreements to be performed by Tenant under any of the terms of this Lease are to be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant fails to pay any sum of money owed to any party other than Landlord, for which it is liable under this Lease, or if Tenant fails to perform any other act on its part to be performed hereunder, Landlord may, without prior notice to Tenant, and without waiving or releasing Tenant from its obligations, but shall not be obligated to, make any such payment or perform any such other act to be made or performed by Tenant Landlord's election to make any such payment or perform any such act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same on similar acts. Tenant agrees to reimburse Landlord upon demand for all sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the Interest Rate from the date of such payment by Landlord until reimbursed by Tenant. This remedy shall be in addition to any other right or remedy of Landlord set forth in this Section 22. (g) Late Payment. If Tenant fails to pay any installment of rent or ------------ any other payment for which Tenant is obligated under this Lease within five (5) business days of when due, such late amount will accrue interest at the Interest Rate and Tenant agrees to pay Landlord as additional rent such interest on such amount from the date such amount becomes due until such amount is paid. In addition, Tenant agrees to pay to Landlord concurrently with such late payment amount, as additional rent, a late charge equal to five percent (5%) of the amount due to compensate Landlord for the extra costs Landlord will incur as a result of such late payment The parties agree that (i) it would be impractical and extremely difficult to fix the actual damage Landlord will suffer in the event of Tenant's late payment, (ii) such interest and late charge represents a fair and reasonable estimate of the detriment that Landlord will suffer by reason of late payment by Tenant, and (iii) the payment of interest and late charges are distinct and separate in that the payment of interest is to -19- compensate Landlord for the use of Landlord's money by Tenant, while the payment of late charges is to compensate Landlord for Landlord's processing, administrative and other costs incurred by Landlord as a result of Tenant's delinquent payments. Acceptance of any such interest and late charge will not constitute a waiver of the Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. Notwithstanding the foregoing, Landlord shall not ignore a late charge or interest on a late installment of rent pursuant to the foregoing unless Landlord has notified Tenant within the previous twelve (12) months that an installment of rent was not paid within five (5) business days of when due; and Landlord shall not impose a late charge or interest on any other late payment pursuant to the foregoing unless Landlord has notified Tenant within the previous twelve (12) months that a payment (other than a rental installment) was not paid within five (5) business days of when due. If Tenant incurs a late charge more than three (3) times in any period of twelve (12) months during the Lease Term, then, notwithstanding that Tenant cures the late payments for which such late charges are imposed, Landlord will have the right to require Tenant thereafter to pay all installments of Monthly Base Rent quarterly in advance throughout the remainder of the Lease Term, and the Security Deposit held by Landlord shall be increased and Tenant shall immediately pay to Landlord the amount necessary to increase the Security Deposit to no less than three (3) months Rent (whether or not any Security Deposit was previously required hereunder). (h) Intentionally omitted. (i) Rights and Remedies Cumulative. All rights, options and remedies ------------------------------ of Landlord contained in this Lease will be construed and held to be cumulative, and no one of them will be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law or in equity, whether or not stated in this Lease. Nothing in this Section 22 will be deemed to limit or otherwise affect Tenant's indemnification of Landlord pursuant to any provision of this Lease. 23. LANDLORD'S DEFAULT. Landlord will not be in default in the ------------------ performance of any obligation required to be performed by Landlord under this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of written notice from Tenant specifying in detail Landlord's failure to perform; provided however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord will not be deemed in default if it commences such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any default by Landlord, Tenant may exercise any of its rights provided at law or in equity, subject to the limitations on liability set forth in Section 35 of this Lease. 24. ASSIGNMENT AND SUBLETTING. ------------------------- (a) Restriction on Transfer. Except as expressly provided in this ----------------------- Section 24, Tenant will not, either voluntarily or by operation of law, assign or encumber this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use or occupancy of the Premises by any party other than Tenant (any such assignment, encumbrance, sublease or the like will sometimes be referred to as a "Transfer"), without the prior written consent of Landlord, which consent Landlord will not unreasonably withhold. (b) Corporate and Partnership Transfers. For purposes of this Section ----------------------------------- 24, if Tenant is a corporation, partnership or other entity, any transfer, assignment, encumbrance or hypothecation of fifty percent (50%) or more (individually or in the aggregate) of any stock or other ownership interest in such entity, and/or any transfer, assignment, hypothecation or encumbrance of any controlling ownership or voting interest in such entity, will be deemed a Transfer and will be subject to all of the restrictions and provisions contained in this Section 24. Notwithstanding the foregoing, the immediately preceding sentence will not apply to any transfers of stock of Tenant if Tenant is a publicly-held corporation and such stock is transferred publicly over a recognized security exchange or over-the-counter market. (c) Permitted Controlled Transfers. Notwithstanding the provisions of ------------------------------ this Section 24 to the contrary, Tenant may assign this Lease or sublet the Premises or any portion thereof -20- ("Permitted Transfer"), without Landlord's consent and without extending any sublease termination option to Landlord, to any parent, subsidiary or affiliate corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant or to any person or entity which acquires all or substantially all the assets of Tenant's business as a going concern, provided that (i) at least twenty (20) days prior to such assignment or sublease, Tenant delivers to Landlord the financial statements and other financial and background information of the assignee or sublessee described in Subsection 24(d); (ii) if an assign- ment, the assignee assumes, in full, the obligations of Tenant under this Lease (or if a sublease, the sublessee of a portion of the Premises or Term assumes, in full, the obligations of Tenant with respect to such portion); (iii) the financial net worth of the assignee or sublessee as of the time of the proposed assignment or sublease equals or exceeds the lesser of $10,000,000 or that of Tenant as of the date of execution of this Lease; and (iv) the use of the Premises under Section 8 remains unchanged. (d) Transfer Notice. Except for Permitted Transfers, if Tenant --------------- desires to effect a Transfer, then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the "Transfer Notice"), stating the name, address and business of the proposed assignee, sublessee or other transferee (sometimes referred to hereinafter as "Transferee"), reasonable information (including references) concerning the character, ownership, and financial condition of the proposed Transferee, the Transfer Date, any ownership or commercial relationship between Tenant and the proposed Transferee, and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord may reasonably require. If Landlord reasonably requests additional detail, the Transfer Notice will not be deemed to have been received until Landlord receives such additional detail, and Landlord may withhold consent to any Transfer until such information is provided to it. (e) Landlord's Options. Within fifteen (15) days of Landlord's ------------------ receipt of any Transfer Notice, and any additional information reasonably requested by Landlord concerning the proposed Transferee's financial responsibility, Landlord will elect to do one of the following: (i) consent to the proposed Transfer, or (ii) refuse such consent which refusal shall be on reasonable grounds including, without limitation, those set forth in Subsection 24(f). (f) Reasonable Disapproval. Landlord and Tenant hereby acknowledge ---------------------- that Landlord's disapproval of any proposed Transfer pursuant to Subsection 24(e) will be deemed reasonably withheld if based upon any reasonable factor, including, without limitation, any or all of the following factors: (i) the proposed Transferee is a governmental entity; (ii) the portion of the Premises to be sublet or assigned is irregular in shape with inadequate means of ingress and egress; (iii) the use of the Premises by the Transferee (A) is not permitted by the use provisions in Section 8 hereof, or (B) violates any exclusive use granted by Landlord to another tenant in the Building; (iv) the Transfer would likely result in a significant and inappropriate increase in the use of the parking areas or Project Common Areas by the Transferee's employees or visitors, and/or significantly increase the demand upon utilities and services to be provided by Landlord to the Premises or (v) the Transferee does not have the financial capability to fulfill the obligations imposed by the Transfer and this Lease. In the event Landlord withholds or conditions its consent and Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Subsection 24(f) or otherwise has breached or acted unreasonably under this Section 24, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee. In any such action, each party shall bear its own attorneys' fees. (g) Additional Conditions. A condition to Landlord's consent to any --------------------- Transfer of this Lease will be the delivery to Landlord of a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation (provided, however, that Tenant may submit for Landlord's conditional consent the unexecuted but substantially final form of the transfer document in question), and, in the case of an assignment the delivery to Landlord of an agreement executed by the Transferee -21- in form and substance reasonably satisfactory to Landlord, whereby the Transferee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder. As a condition for granting its consent to any assignment or sublease, Landlord may require that the assignee or sublessee remit directly to Landlord on a monthly basis, all monies due to Tenant by said assignee or sublessee, except any excess rent to which Tenant may be entitled under Subsection 24(h). As a condition to Landlord's consent to any sublease, such sublease must provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (i) terminate the sublease, or (ii) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee will attorn to Landlord, but that nevertheless Landlord will not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent. (h) Excess Rent. If Landlord consents to any Transfer, Tenant agrees ----------- to pay to Landlord, as additional rent fifty (50%) of all the "Profits" payable by the sublessee or assignee pursuant to any approved sublease or assignment. As used herein, "Profits" shall mean the gross revenue and all other consideration payable for, or by reason of the assignment or sublease, including, but not limited to, any sums paid for personal property, goodwill, Tenant's business or services in excess of the fair market value thereof, sums paid for tenant improvements or fixtures, and any rental amounts paid, less: (a) the rental amounts paid to Landlord by Tenant during the period of the sublease term or during the assignment allocable to the portion of the Premises in question; (b) any reasonable improvement allowance or other reasonable economic concession actually paid by Tenant to sublessee or assignee, (c) customary brokers' commissions actually paid by Tenant; (d) reasonable attorneys' fees paid by Tenant to prepare and/or review the transfer documents in connection with the assignment or sublease; and (e) reasonable costs actually incurred by Tenant to advertise the space for such sublease or assignment Tenant and Landlord acknowledge and agree that it shall not be unreasonable for Landlord to require, as a condition for its consent to a proposed assignment or subletting, a written agreement between Tenant, Landlord and the proposed assignee or sublessee stating that 50% of the Profits shall be the property of Landlord and agreeing that such amounts shall, at Landlord's option, be payable to Landlord by Tenant or directly to Landlord by the assignee or sublessee. (i) Intentionally omitted. (j) No Release. No Transfer will release Tenant of ----------- Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. However, the acceptance of rent by Landlord from any other person will not be deemed to be a waiver by Landlord of any provision hereof. Consent by Landlord to one Transfer will not be deemed consent to any subsequent Transfer. In the event of default by any Transferee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such Transferee or successor. Landlord may consent to subsequent assignments of this Lease or sublettings or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant and without obtaining its or their consent thereto and any such actions will not relieve Tenant of liability under this Lease. The dissolution of the original Tenant hereunder following a Permitted Transfer that is a merger, consolidation or asset purchase in compliance with Section 24(a) shall not require Landlord's consent provided the successor Tenant fully assumes all of the original Tenant's obligations under this Lease from and after the date of this Lease. (k) Administrative and Attorneys' Fees. If Tenant effects a Transfer ---------------------------------- or requests the consent of Landlord to any Transfer (whether or not such Transfer is consummated), then, upon demand, Tenant agrees to pay Landlord a non-refundable administrative fee of Two Hundred Fifty Dollars ($250.00), plus any reasonable attorneys' and paralegal fees incurred by Landlord, not to exceed $1,000, in connection with such Transfer or request for consent (whether attributable to -22- Landlord's in-house attorneys or paralegals or otherwise). Acceptance of the Two Hundred Fifty Dollar ($250.00) administrative fee and/or reimbursement of Landlord's attorneys' and paralegal fees will in no event obligate Landlord to consent to any proposed Transfer. 25. SUBORDINATION. At the election of Landlord or any mortgagee or ------------- beneficiary with a deed of trust encumbering the Building or the Project or any portion thereof, or any lessor of a ground or underlying lease with respect to the Building or the Project or any portion thereof, this Lease will be subject and subordinate at all times to: (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building; and (ii) the lien of any mortgage or deed of trust or any other hypothecation for security now or hereafter placed upon the Project, the Building or any portion thereof, or Landlord's interest and estate in any of same, and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof which may now exist or hereafter be executed. Notwithstanding the foregoing, if any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage or deed of trust or to ground lease, and shall give written notice thereof to Tenant at any time prior to the transfer of the Premises in foreclosure or by deed in lieu of foreclosure of such lien or otherwise (or at any time prior to the termination of the ground lease, as the case may be), then, notwithstanding any prior subordination, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. Notwithstanding the foregoing provisions of this Section 25, the transferee of the Premises upon any foreclosure sale or pursuant to any deed in lieu of foreclosure or other transfer (or the ground lessor in the event of a termination of a ground lease) shall have the right, whether or not this Lease has been terminated by or in connection with such transfer or termination of ground lease (whether voluntarily, involuntarily or by operation of law), and provided that such transferee shall not disturb Tenant's rights under this Lease so long as Tenant is not in default to require Tenant to attorn to such transferee and/or to enter into a new lease of the Premises (with the transferee or ground lessor as landlord) on terms and conditions identical to those as set forth in the Lease, except that the term of the new lease shall expire on the date specified herein for the expiration of the term of this Lease. The provisions hereof are intended to be self-executing and do not require the necessity of any additional document being executed by Tenant for the purpose of effecting same. Tenant nevertheless agrees to execute and deliver to Landlord, within ten (10) business days after receipt of Landlord's request therefor, any documents reasonably requested by Landlord to effectuate or evidence any subordination or adornment, to make this Lease prior to the lien of any mortgage, deed of trust or ground lease or to enter into a new lease, each as described above in this Section 25, provided, however, that if Tenant fails to execute and deliver to Landlord any such subordination or attornment documents within such period, Landlord shall make a second request of Tenant to provide such documents, and Tenant shall then have ten (10) additional business days from the date of Tenant's receipt of Landlord's request for such documents to execute and deliver them to Landlord, and failing to do so: (i) Tenant shall be in default hereunder with no right to further notice or cure, and (ii) Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in- fact to execute and deliver such documents for Tenant, such power, being coupled with an interest and being irrevocable. Without limitation on any of the foregoing, Tenant hereby waives its rights under any law which gives or purports to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event of any such foreclosure proceeding, sale or termination of ground lease. 26. ESTOPPEL CERTIFICATE. -------------------- (a) Tenant's Obligations. Within ten (10) business days following -------------------- receipt of any written request which Landlord may make from time to time, Tenant agrees to execute and deliver to Landlord a statement in a form substantially similar to the form of Exhibit "G" attached hereto or as may reasonably be ----------- required by Landlord's lender, certifying: (i) the Commencement Date of this Lease; (ii) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, and stating the date and nature of such modifications); (iii) the date to which the rent and other sums payable under this Lease have been paid; (iv) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (v) such other matters reasonably requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Section 26 may be relied -23- upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. (b) Tenant's Failure to Deliver. Tenant's failure to deliver such --------------------------- statement within such time will be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one (1) month's rent has been paid in advance. Without limiting the foregoing, if Tenant fails to deliver any such statement within such ten (10) business day period, Landlord may deliver to Tenant an additional request for such statement and Tenant's failure to deliver such statement to Landlord within ten (10) business days after delivery of such additional request will constitute a default under this Lease. 27. Intentionally omitted. 28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply --------------------- with the "Rules and Regulations," a copy of which is attached hereto and marked Exhibit "H" and all reasonable and nondiscriminatory modifications thereof and - ----------- additions thereto from time to time put into effect by Landlord. Landlord will, upon request by Tenant notify other tenants of the Building of clear violations by such tenants of the Rules and Regulations that adversely affect Tenant's use of the Premises, but Landlord will in no event be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of any of the Rules and Regulations. 29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS. ------------------------------------------------------------------ (a) Modifications. If, in connection with Landlord's obtaining or ------------- entering into any financing or ground lease for any portion of the Building or the Project, the lender or ground lessor requests modifications to this Lease, Tenant, within ten (10) days after request therefor, agrees to execute an amendment to this Lease incorporating such modifications, provided such modifications are reasonable and do not increase the obligations of Tenant under this Lease or adversely affect the leasehold estate created by this Lease. (b) Cure Rights. In the event of any default on the part of Landlord, ----------- Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises or ground lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the default (including with respect to any such beneficiary or mortgagee, time to obtain possession of the Premises, subject to this Lease and Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure). 30. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, ---------------------- so far as covenants or obligations on the part of Landlord are concerned, means and includes only the owner or owners, at the time in question, of the fee title of the Premises or the lessee(s) under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title (other than a transfer for security purposes only, but including any transfer to a purchaser at a foreclosure sale or by deed in lieu of foreclosure, subject to the provisions of Section 25), Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be and is automatically relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, and the transferee shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such transferee, to have assumed and agreed to carry out any and all the covenants and obligations of the Landlord arising under this Lease after the date of such transfer. Subject to the provisions of Section 25 hereof, Tenant agrees to attorn to and recognize such transferee and shall be deemed to have attorned to and recognized such transferee without any further agreement between the parties or their successors in interest or between the parties and any such transferee. Landlord and Landlord's transferees and assignees have the absolute right to transfer all or any portion of their respective title and interest in the Project, the Building, the Premises and/or this Lease without the consent of Tenant and such transfer or subsequent transfer will not be deemed a violation on Landlord's part of any of -24- the terms and conditions of this Lease. If any Security Deposit has been made by Tenant, Landlord may transfer such Security Deposit to the transferee, and upon the assumption of such transferee of Landlord's obligations under this Lease, Landlord shall be discharged from any further liability in reference thereto. 31. WAIVER. The waiver by either party of any breach of any term, ------ covenant or condition herein contained will not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor will any custom or practice which may develop between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of either party to insist upon performance in strict accordance with said terms. The subsequent acceptance of rent or any other payment hereunder by Landlord will not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rent and additional rent or other sum then due will be deemed to be other than on account of the earliest installment of such rent or other amount due, nor will any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy provided in this Lease. The consent or approval of Landlord to or of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant. 32. PARKING. ------- (a) Grant of Parking Rights. So long as this Lease is in effect and ----------------------- provided Tenant is not in default hereunder, Landlord grants to Tenant and Tenant's Authorized Users (as defined below) a license to use the number and type of parking spaces designated in Subsection 1(s) subject to the terms and conditions of this Section 32 and the Rules and Regulations regarding parking contained in Exhibit "H" attached hereto. As consideration for the use of such ----------- parking spaces, Tenant agrees to pay to Landlord or, at Landlord's election, directly to Landlord's parking operator, as additional rent under this Lease, the parking rate set forth in Subsection 1(t) or, if no rate is specified in Subsection 1(t) or the rate therein ceases to be applicable, then at the prevailing parking rate for each such parking space as established by Landlord in its discretion from time to time, provided, however, that Tenant's employee parking consisting of up to four (4) spaces per every 1,000 usable square feet of space leased by Tenant, shall be free of charge for the initial Term of the Lease. Tenant agrees that all parking charges will be payable on a monthly basis concurrently with each monthly payment of Monthly Base Rent. Tenant agrees to submit to Landlord or, at Landlord's election, directly to Landlord's parking operator with a copy to Landlord, written notice in a form reasonably specified by Landlord containing the names, home and office addresses and telephone numbers of those persons who are authorized by Tenant to use Tenant's parking spaces on a monthly basis ("Tenant's Authorized Users") and shall use its best efforts to identify each vehicle of Tenant's Authorized Users by make, model and license number. Tenant agrees to deliver such notice prior to the beginning of the Term of this Lease and to periodically update such notice upon specific request by Landlord or Landlord's parking operator to reflect changes to Tenant's Authorized Users or their vehicles. (b) Visitor Parking. So long as this Lease is in effect, --------------- Tenant's visitors and guests will be entitled to use those specific parking areas which are designated for short term visitor parking and which are located within the surface parking area(s), if any, and/or within the parking structure(s) which serve the Building. Visitor parking will be made available at a charge to Tenant's visitors and guests, with the rate being established by Landlord in its discretion from time to time at such rates being charged to other tenants in the Building without special arrangements as to parking rates. Tenant, at its sole cost and expense, may elect to validate such parking for its visitors and guests. All such visitor parking will be on a non-exclusive, in common basis with all other visitors and guests of the Project. (c) Use of Parking Spaces. Tenant will not use or allow any of --------------------- Tenant's Authorized Users to use any parking spaces which have been specifically assigned by Landlord to -25- other tenants or occupants or for other uses such as visitor parking or which have been designated by any governmental entity as being restricted to certain uses. Tenant will not be entitled to increase or reduce its parking privileges applicable to the Premises during the Term of the Lease except as follows: If at any time Tenant desires to increase or reduce the number of parking spaces allocated to it under the terms of this Lease, Tenant must notify Landlord in writing of such desire and Landlord will have the right in its good faith but sole discretion, to either (a) approve such requested increase in the number of parking spaces allocated to Tenant (with an appropriate increase to the additional rent payable by Tenant for such additional spaces based on the then prevailing parking rates), (b) approve such requested decrease in the number of parking spaces allocated to Tenant (with an appropriate reduction in the additional rent payable by Tenant for such eliminated parking spaces based on the then prevailing parking rates), or (c) disapprove such requested increase or decrease in the number of parking spaces allocated to Tenant. Promptly following receipt of Tenant's written request, Landlord will provide Tenant with written notice of its decision including a statement of any adjustments to the additional rent payable by Tenant for parking under the Lease, if applicable. No parking stalls will be allocated to Tenant with respect to any space leased by Tenant under the Lease which consists of less than the full incremental amounts of rentable square footage, if any, required for parking stalls, calculated on a 1 stall for each 250 usable square feet basis. (d) General Provisions. Except as otherwise provided in this ------------------ Paragraph 32 and in the Addendum, Landlord reserves the right to set and increase monthly fees and/or daily and hourly rates for parking privileges from time to time during the Term of the Lease. Landlord may assign any unreserved and unassigned parking spaces and/or make all or any portion of such spaces reserved, if Landlord reasonably determines that it is necessary for orderly and efficient parking or for any other reasonable reason. Failure to pay the rent for any particular parking spaces or failure to comply with any terms and conditions of this Lease applicable to parking may be treated by Landlord as a default under this Lease and, in addition to all other remedies available to Landlord under the Lease, at law or in equity, Landlord may elect to recapture such parking spaces for the balance of the Term of this Lease if Tenant does not cure such failure within the applicable cure period set forth in Section 22 of this Lease. In such event, Tenant and Tenant's Authorized Users will be deemed visitors for purposes of parking space use and will be entitled to use only those parking areas specifically designated for visitor parking subject to all provisions of this Lease applicable to such visitor parking use. Tenant's parking rights and privileges described herein are personal to Tenant and may not be assigned or transferred, or otherwise conveyed, without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. In any event under no circumstances may Tenant's parking rights and privileges be transferred, assigned or otherwise conveyed separate and apart from Tenant's interest in this Lease. (e) Cooperation with Traffic Mitigation Measures. Landlord and Tenant -------------------------------------------- agree to use their reasonable, good faith efforts to cooperate in traffic mitigation programs which may be undertaken by Landlord independently, or in cooperation with local municipalities or governmental agencies or other property owners in the vicinity of the Building. Such programs may include, but will not be limited to, carpools, vanpools and other ridesharing programs, public and private transit. flexible work hours, preferential assigned parking programs and programs to coordinate tenants within the Project with existing or proposed traffic mitigation programs. (f) Parking Rules and Regulations. Tenant and Tenant's Authorized ----------------------------- Users shall comply with all rules and regulations regarding parking set forth in Exhibit "H" attached hereto and Tenant agrees to cause its employees, - ----------- subtenants, assignees, contractors, suppliers, customers and invitees to comply with such rules and regulations. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities. 33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in ------------- or prevented from the performance of any act required under this Lease by reason of strikes, lock-outs, labor troubles, inability to procure standard materials, failure of power, restrictive governmental laws, regulations or orders or governmental action or inaction (including failure, refusal or delay in issuing permits, approvals and/or authorizations which is not the result of the action or inaction of the party claiming such delay), riots, insurrection, war, fire, earthquake, flood or other natural disaster, unusual and unforeseeable delay which results from an interruption of any public utilities (e.g., electricity, gas, -26- water, telephone) or other unusual and unforeseeable delay not within the reasonable control of the party delayed in performing work or doing acts required under the provisions of this Lease, then performance of such act will be excused for the period of the delay and the period for the performance of any such act will be extended for a period equivalent to the period of such delay. The provisions of this Section 33 will not operate to excuse Tenant from prompt payment of rent or any other payments required under the provisions of this Lease. 34. SIGNS. Subject to the, provisions of Paragraph 4 of the Addendum, ----- Landlord will designate the location on the Premises, if any, for one or more Tenant identification sign(s). Tenant agrees to have Landlord install and maintain Tenant's identification sign(s) in such designated location in accordance with this Section 34 at Tenant's sole cost and expense. Tenant has no right to install Tenant identification signs in any other location in, on or about the Premises or the Project and will not display or erect any other signs, displays or other advertising materials that are visible from the exterior of the Building or from within the Building in any interior or exterior common areas. The size, design, color and other physical aspects of any and all permitted sign(s) will be subject to (i) Landlord's written approval prior to installation, which approval may be withheld in Landlord's discretion, (ii) any covenants, conditions or restrictions governing the Premises, and (iii) any applicable municipal or governmental permits and approvals. Tenant will be responsible for all costs for installation, maintenance, repair and removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s) upon termination of this Lease and repair any damage caused by such removal, Landlord may do so at Tenant's expense. Tenant agrees to reimburse Landlord for all costs incurred by Landlord to effect any installation, maintenance or removal on Tenant's account, which amount will be deemed additional rent, and may include, without limitation, all sums disbursed, incurred or deposited by Landlord including Landlord's costs, expenses and actual attorneys' fees with interest thereon at the Interest Rate from the date of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant under this Lease are personal to Tenant and may not be assigned, transferred or otherwise conveyed to any assignee or subtenant of Tenant without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. In the event of any conflict between the provisions of this Section 34 and those of Paragraph 4 of the Addendum, the provisions of Paragraph 4 of the Addendum shall control. 35. LIMITATION ON LIABILITY. In consideration of the benefits accruing ----------------------- hereunder, Tenant on behalf of itself and all successors and assigns of Tenant covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) Tenant's recourse against Landlord for monetary damages will be limited to Landlord's interest in the Building including, subject to the prior rights of any Mortgagee, Landlord's interest in the rents of the Building, and any insurance proceeds payable to Landlord; (b) Except as may be necessary to secure jurisdiction of the partnership, no partner of Landlord shall be sued or named as a party in any suit or action and no service of process shall be made against any partner of Landlord; (c) No partner of Landlord shall be required to answer or otherwise plead to any service of process; (d) No judgment will be taken against any partner of Landlord and any judgment taken against any partner of Landlord may be vacated and set aside at any time after the fact; (e) No writ of execution will be levied against the assets of any partner of Landlord; (f) The obligations under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; (g) These covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. -27- 36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by -------------------- Landlord and at any time during the Term of this Lease upon ten (10) business days prior written notice from Landlord, Tenant agrees to provide Landlord with a current financial statement for Tenant and any guarantors of Tenant and financial statements for the two (2) years prior to the current financial statement year for Tenant and any guarantors of Tenant. Such statements are to be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, audited by an independent certified public accountant. 37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon --------------- Tenant paying the rent required under this Lease and paying all other charges and performing all of the covenants and provisions on Tenant's part to be observed and performed under this Lease, Tenant may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease. 38. MISCELLANEOUS. ------------- (a) Conflict of Laws. This Lease shall be governed by and construed ---------------- pursuant to the laws of the State. (b) Successors and Assigns. Except as otherwise provided in this ---------------------- Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. (c) Professional Fees and Costs. Subject to the provisions of Article --------------------------- 39, if either Landlord or Tenant should bring suit against the other with respect to this Lease, then all reasonable costs and expenses, including without limitation, actual professional fees and costs such as appraisers', accountants' and reasonable attorneys' fees and costs, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action. (d) Terms and Headings. The words "Landlord" and "Tenant" used herein ------------------ shall include the plural as well as the singular. Words used in any gender include other genders. The Section and subsection headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. (e) Time. Time is of the essence with respect to the performance of ---- every provision of this Lease in which time of performance is a factor. (f) Prior Agreement; Amendments. This Lease constitutes and is --------------------------- intended by the parties to be a final, complete and exclusive statement of their entire agreement with respect to the subject matter of this Lease. This Lease supersedes any and all prior and contemporaneous agreements and understandings of any kind relating to the subject matter of this Lease. There are no other - ----------- agreements, understandings, representations, warranties, or statements, either oral or in written form, concerning the subject matter of this Lease. No alteration, modification, amendment or interpretation of this Lease shall be binding on the parties unless contained in a writing which is signed by both parties. (g) Separability. Any provision of this Lease which shall prove to be ------------ invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect. (h) Recording. Neither Landlord nor Tenant shall record this Lease --------- nor a short form memorandum thereof without the consent of the other. (i) Counterparts. This Lease may be executed in one or more ------------ counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. (j) Nondisclosure of Lease Terms. Tenant acknowledges and agrees that ---------------------------- the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair -28- Landlord's relationship with other tenants. Accordingly, Tenant agrees that ft, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any newspaper or other publication or any other tenant or apparent prospective tenant of the Building or other portion of the Project, or real estate agent other than CB Madison or another agent exclusively serving Tenant, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease. (k) Use of Project or Building Name. Tenant may use the Project or ------------------------------- Building name in Tenant's advertising in connection with Tenant's business at the Premises and for no other purpose, except with Landlord's prior written consent Tenant shall not have or acquire any property right or interest in the Project name or Building name. Landlord reserves the right to change the name or title of the Project. Building or Premises at any time, and Tenant waives all claims for damages arising from or in connection with any such change; provided, however, that Landlord shall notify Tenant of the name change as soon as reasonably practicable following its implementation. (l) No Light and Air Easement. Any diminution or shutting off of ------------------------- light or air by any structure which may be erected at the Project or on lands adjacent to the Building shall in no way affect this Lease, abate rent or otherwise impose any liability on Landlord. Neither does this Lease confer any right with regard to the subsurface of the land on which the Project or Building is situated. 39. RESOLUTION OF DISPUTES. Landlord and Tenant have agreed on the ---------------------- following mechanisms in order to obtain prompt and expeditious resolution of all controversies, claims or disputes arising out of or in connection with the performance or non-performance of any terms of the Lease and on the equitable and fair allocation as to Landlord's and Tenant's obligations hereunder, provided, however, that nothing contained herein shall prevent Landlord from seeking and/or obtaining summary relief under applicable unlawful detainer statutes. (a) Reference of Dispute. Any dispute seeking damages, interpretation -------------------- of this Lease and any dispute seeking equitable relief, such as but not limited to specific enforcement of any provision hereof, shall be heard and determined by a referee pursuant to California Code of Civil Procedure Section 638, subdivision 1. The venue of any proceeding hereunder shall be in the County, unless changed by order of the referee. (i) Procedure for Appointment. The party seeking to resolve the ------------------------- dispute shall file in court and serve on the other party a complaint describing the matters in dispute. Service of the complaint shall be as prescribed by California law. At any time after service of the complaint, any party may request the designation of a referee to try the dispute. Thereafter the Landlord and Tenant shall use their best efforts to agree upon the selection of a referee from among the available referees at Judicial Arbitration and Mediation Service ("JAMS"). If Landlord and Tenant are unable to agree upon a referee within ten days after a written request to do so by any party, then either may petition the judge of the Superior Court to whom the case is then assigned to appoint a referee from JAMS. For the guidance of the judge making the appointment of said referee, Landlord and Tenant agree that the person so appointed shall be a retired judge from JAMS experienced in the subject matter of the dispute. (ii) Standards for Decision. To the extent consistent with the ---------------------- terms of this Agreement, the provisions of California Code of Civil Procedure, Sections 642, 643, 644 and 645 shall be applicable to dispute resolution by a referee hereunder. In an effort to clarify and amplify the provisions of California Code of Civil Procedure, Sections 644 and 645, Landlord and Tenant agree that the referee shall decide issues of fact and law submitted by Landlord and Tenant for decision in the same manner as required for a trial by court as set forth in California Code of Civil Procedure, Sections 631.8 and 632, and California Rules of Court Rule 232. The referee shall try and decide the dispute according to all of the substantive and procedural law of the State of California, unless Landlord and Tenant stipulate to the contrary. When the referee has decided the dispute, the referee shall also cause the preparation of a judgment based on said decision. The judgment to be entered by the Superior Court will be based upon the decision of the referee. Landlord and Tenant agree that the -29- referee's decision shall be appealable in the same manner as if the judge signing the judgment had tried the case. (b) Cooperation. Landlord and Tenant shall diligently cooperate with ----------- one another and the person appointed to resolve the dispute, and shall perform such acts as may be necessary to obtain a prompt and expeditious resolution of the dispute. If either party refuses to diligently cooperate, the other party, after first giving notice of its intent to rely on the provisions of this Section 39, incurs additional expenses or attorneys' fees solely as a result of such failure to diligently cooperate, the referee may award such additional expenses and attorneys' fees to the party giving such notice, even if such party is not the prevailing party in the dispute. (c) Allocation of Costs. The cost of the proceeding shall initially ------------------- be borne equally by Landlord and Tenant, but, subject to Subsection 39(b), the Prevailing Party in such proceeding shall be entitled to recover, in addition to reasonable attorneys' fees and all other costs, its contribution for the reasonable cost of the referee as an item of recoverable costs. The referee shall include such costs in his judgment or award. 40. EXECUTION OF LEASE. ------------------ (a) Joint and Several Obligations. Intentionally omitted. ----------------------------- (b) Tenant as Corporation or Partnership. If Tenant executes this ------------------------------------ Lease as a corporation or partnership, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that such entity is duly qualified and in good standing to do business in California and that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf, and in the case of a corporation, in accordance with a duly adopted resolution of the board of directors of Tenant a copy of which is to be delivered to Landlord on execution hereof, if requested by Landlord, and in accordance with the by-laws of Tenant, and, in the case of a partnership, in accordance with the partnership agreement and the most current amendments thereto, if any, copies of which are to be delivered to Landlord on execution hereof, if requested by Landlord, and that this Lease is binding upon Tenant in accordance with its terms. (c) Examination of Lease. Submission of this instrument by Landlord -------------------- to Tenant for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by their duly authorized representatives as of the date first above written. LANDLORD: MCDONNELL DOUGLAS REALTY COMPANY, a California corporation By: --------------------------------- Name: -------------------------- Title: ------------------------- -30- TENANT: SILICON VALLEY BANK By: --------------------------------- Name: -------------------------- Title: ------------------------- By: --------------------------------- Name: -------------------------- Title: ------------------------- -31- EXHIBIT "E" DEFINITION OF OPERATING EXPENSES -------------------------------- 1. Items Included In Operating Expenses. The term "0perating Expenses" ------------------------------------ as used in the Lease to which this Exhibit "E" is attached means: all direct ----------- costs and expenses of operation, maintenance and repair of the Building and the Common Areas (as such terms are defined in the Lease), including without limitation any expansion of same, as determined by standard accounting practices, calculated assuming the Building is ninety-five percent (95%) occupied in the event it is occupied in a lesser percentage, including the following costs by way of illustration but not limitation, but excluding those items specifically described as exceptions to Operating Expenses therein or in Section 3 below: (a) Real Property Taxes and Assessments (as defined in Section 2 below), and any and all impositions and assessments imposed with respect to the Building pursuant to any covenants, conditions and restrictions affecting the Project, the Common Areas or the Building; (b) Water and sewer charges and the costs of electricity, healing, ventilating, air conditioning and other utilities including, without limitation, utilities surcharges and any other costs, levies or assessments resulting from statutes or regulations promulgated by any government or quasi-government authority, in connection with the use, occupancy or alteration of the Building or the Premises or the parking facilities serving the Building or the Premises; (c) Costs of insurance obtained by Landlord pursuant to Section 19 of the Lease; provided, however, that Operating Expenses shall not include costs arising from earthquake insurance when included in the Base Year or, if subsequently obtained, imputed into the Base Year; (d) Costs of all maintenance agreements for the Project and Common Areas and the equipment thereon, including, but not limited to, costs of security, exterior window cleaning, elevator, waste disposal, trash removal and janitorial services, plumbing, healing, ventilation and air conditioning, engineers, landscaping, gardeners and signage (other than signs of tenants of the Building); (e) Costs incurred in connection with management of the Project and Building, including, without limitation: (i) wages and salaries of all employees engaged in the operation, maintenance or security of the Building or Common Areas, including payroll taxes, insurance and benefits relating thereto; provided, however, that to the extent such employees' work relates to other properties in addition to the Building, such costs shall be reasonably allocated by Landlord between the Building and such other properties, and provided, further, that Operating Expenses shall not include the costs of any concierge unless included in the Base Year or, if subsequently incurred, imputed into the Base Year; (ii) the rental cost and overhead (including, without limitation, cost of supplies) of any office and storage space used to provide management services, and (ii) a management fee for the Project property manager (including Landlord if Landlord manages the Project) consistent with management fees being charged to tenants of space comparable in size to the Premises in other first class office buildings in the John Wayne Airport area of Orange County, California, determined as a percentage of Operating Expenses; provided, however, that such management fees shall not exceed 10% of Operating Expenses; (f) Cost of supplies, materials, equipment and tools used in operation, repair and maintenance of the Project and Common Areas, including rental of personal property used for same and depreciation on a straight line basis of personal property purchased for same; (g) Costs and expenses of repairs, resurfacing, repairing and other upkeep of Common Areas, maintenance, painting, lighting, cleaning and similar items, including appropriate reserves. (h) Cost of accounting, audit, verification, legal and other consulting services and any additional services, whether or not provided to the Project or Common Areas at the Commencement Date but thereafter provided by Landlord in its management of the Project and Common Areas; (i) Cost of repairs and maintenance (including, without limitation, repairs, replacements and alterations to cause the Building and the Common Areas to comply with any law, statute or ordinance in effect after the date hereof), and reserves reasonably deemed desirable by Landlord; any such expenditures that constitute capital improvements shall be amortized as set forth below; (j) Cost of repairs and maintenance of structural portions of the Building, including the plumbing, air conditioning, heating, ventilating, and electrical systems installed or furnished by Landlord; any such expenditures that constitute capital improvements shall be amortized as set forth below; and (k) Cost of implementing and administering any transportation management program applicable to substantially all of the Building which may be required by any law, statute or ordinance now or hereafter in effect. (l) Cost of capitalized expenditures which are (i) reasonably intended to produce a reduction in Operating Expenses or energy consumption, but only to the extent of the reduction; or (ii) required under any governmental law or regulation that was not applicable to the Building at the time it was originally constructed; or (iii) for replacement of any Building equipment or improvements needed to operate the Building at the same quality levels as prior to the replacement, each amortized over such reasonable period as Landlord shall reasonably determine, together with interest at the Interest Rate on the unamortized balance. Tenant shall pay within twenty (20) days of receipt of an invoice from Landlord the cost of additional or extraordinary services provided to Tenant and not paid or payable by Tenant pursuant to other provisions of this Lease. Landlord shall have the right to establish and collect on an ongoing basis reasonable reserves for items of periodic maintenance, repair and replacement properly includable in Operating Expenses that customarily are not incurred each year, in amounts calculated to provide sufficient funds to pay for such items when necessary. 2. Real Property Taxes and Assessments. The term "Real Property Taxes ----------------------------------- and Assessments", as used in this Exhibit "E" and the Lease, means: any form of ----------- assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, improvement bond, tax or similar imposition imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Premises, Building, Common Areas or the Project (as such terms are defined in the Lease), adjusted to reflect an assumption that the Building is fully assessed for real property tax purposes as a completed building ready for occupancy, including the following by way of illustration but not limitation: (a) any tax on Landlord's "right" to rent or "right" to other income from the Premises or as against Landlord's business of leasing the Premises; (b) any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June, 1978 election and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants; (c) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or other premises in the Building or the rent payable by Tenant hereunder or other tenants of the Building, including, without limitation, any gross receipts tax or excise tax levied by state, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof but not on Landlord's other operations; -2- (d) any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and/or (e) any assessment, tax, fee, levy or charge by any governmental agency related to any transportation plan, fund or system (including assessment districts) instituted within the geographic area of which the Building is a part. 3. Items Excluded From Operating Expenses. Notwithstanding the -------------------------------------- provisions of Section 1 and Section 2 above to the contrary, "Operating Expenses" shall not include: (a) Landlord's federal or state income, franchise, inheritance or estate taxes; (b) any ground lease rental; (c) costs incurred by Landlord for the repair of damage to the Building to the extent that Landlord is reimbursed by insurance or condemnation proceeds or by tenants, warrantors or other third persons; (d) depreciation, amortization and interest payments, except as specifically provided herein, and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party, where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party's services, all as determined in accordance with standard accounting practices; (e) brokerage commissions, finders' fees, attorneys' fees, space planning costs and other costs incurred by Landlord in leasing or attempting to lease space in the Building; (f) interest, principal, points and fees on debt or amortization on any mortgage, deed of trust or other debt encumbering the Building or the Project; (g) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements for tenants in the Building (including the original Tenant Improvements for the Premises), or incurred in renovating or otherwise improving, decorating, painting or redecorating space for tenants or other occupants of the Building, including space planning and interior design costs and fees; (h) attorneys' fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building; provided, however, that Operating Expenses will include those reasonable attorneys' fees and other costs and expenses incurred in connection with negotiations, disputes or claims relating to items of Operating Expenses, enforcement of rules and regulations of the Building, and such other matters relating to the maintenance of standards required of Landlord under the Lease, except to the extent Landlord recovers such fees directly from Tenant or other tenants pursuant to their lease or other agreement in question; (i) except for the administrative/management fees described in Section 1 above, costs of Landlord's general corporate overhead; (j) all items and services for which Tenant or any other tenant in the Building reimburses Landlord (other than through operating expense pass-through provisions); (k) electric power costs for which any tenant directly contracts with the local public service company; (l) costs arising from Landlord's charitable or political contributions; (m) costs of any extraordinary services provided to other tenants of the Project but not to Tenant; -3- (n) executive salaries of off-site personnel employed by Landlord, except for the charge (or pro rata share) of the Project manager or asset manager; (o) costs of reconstructing, modifying, altering or repairing any structural portions of the Building due to defective original construction; (p) overhead and profit increment paid to a subsidiary, affiliate or other entity related to Landlord for services (other than management services) to the extent the same exceed competitive costs (taking into account the quality of service provided in maintaining a Class-A office building) of such services were they not so rendered by a subsidiary, affiliate or other Landlord-related entity; and (q) costs incurred by Landlord for replacements which are considered capital improvements under generally accepted accounting practices, except as expressly permitted in Section 1 above. -4- EXHIBIT "F" STANDARDS FOR UTILITIES AND SERVICES ------------------------------------ The following standards for utilities and services are in effect. Landlord reserves the right to adopt nondiscriminatory modifications and additions thereto. Tenant shall promptly notify Landlord, in writing, of any conflict between the Rules and Regulations and any laws, statutes or ordinances applicable to Tenant's particular use or manner of use or occupancy of the Premises or the Building and Landlord and Tenant shall reasonably cooperate in the lawful and timely resolution of such conflict. Provided Tenant remains in occupancy of the Premises, and is not in default beyond applicable notice and cure periods under any of the terms, covenants, conditions, provisions or agreements of the Lease, Landlord will provide or make available the following utilities and services, subject to the terms, conditions and limitations set forth herein and in the Lease: 1. Elevator Facilities. Non-attended automatic elevator facilities ------------------- Monday through Friday, except holidays, from 8 a.m. to 6 p.m. 2. Heating, Ventilating, Air Conditioning. On Monday through Friday, -------------------------------------- except holidays, from 8:00 a.m. to 6:00 p.m. and on Saturday from 9:00 a.m. to 1:00 p.m. (and at other times for an additional standard hourly charge to be fixed by Landlord, which hourly charge is currently $17.00 per hour), ventilation, air conditioning or heating on such days and hours, when in the reasonable judgment of Landlord it may be required for the comfortable occupancy of the Premises. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper function and protection of the air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the air conditioning system. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter the mechanical installations or facilities of the Building or the Project or adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system will be charged to Tenant if the need for maintenance work results from either Tenant's adjustment of room thermostats or Tenant's failure to comply with its obligations hereunder. Such work will be charged at hourly rates equal to then-current journeyman's wages for air conditioning mechanics. When heat generating machines, equipment, fixtures or other devices of any nature whatsoever, including by way of illustration but not by way of limitation, computer and other electronic data processing equipment, are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right, but not the obligation, after prior written notice to Tenant to install supplementary air conditioning units in the Premises, and the cost thereof, including the commercially reasonable cost of installation and the commercially reasonable cost of maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord, which demand shall be accompanied by reasonable notice of the amount owing. 3. Electricity. Electric current to the Premises, 24 hours per day, ----------- seven days a week, during the usual business hours on business days, as required by the Building standard office lighting and fractional horsepower office business machines including copiers, personal computers and word processing equipment which use 110 volt electrical power, in an amount not to exceed three (3) watts per square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the Building during the period. If a separate meter is not installed at Tenant's cost, such excess cost will be established by an estimate reasonably determined by Landlord or by an engineer selected in Landlord's reasonable discretion, whose fee shall be shared equally by Landlord and Tenant. Tenant agrees not to use any apparatus or device in, upon or about the Premises (other than standard office business machines, personal computers and word processing equipment) which may in any way increase the amount of such services usually furnished or supplied to said Premises, and Tenant further agrees not to connect any apparatus or device with wires, conduits or pipes, or other means by which such services are supplied, for the purpose of using additional or unusual amounts of such services without the written consent of Landlord which shall not be unreasonably withheld. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge will constitute a breach of the obligation to pay rent under this Lease and will entitle Landlord to the rights therein granted for such breach. Tenant's use of electric current shall not exceed the capacity of the feeders to the Building, or the risers or wiring installation and Tenant shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises (except standard office business machines, personal computers and word processing equipment) without the prior written consent of Landlord which will not be unreasonably withheld. 4. Water. Water will be available in public areas for drinking and ----- lavatory purposes only, but if Tenant requires, uses or consumes water for any purpose in addition to ordinary drinking and lavatory purposes, Landlord may, after written notice to Tenant, install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant agrees to pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy Tenant will keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on such meter, as and when bills are rendered, and on default in making such payment, Landlord may, after written notice to Tenant, pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated will be deemed to be additional rent payable by Tenant and collectible by Landlord as such. 5. Janitorial Service. Landlord shall provide janitorial service during ------------------ the time and in the manner that janitorial service is customarily furnished in Class A office buildings in the vicinity of the Building, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant. Unless otherwise agreed to by Landlord and Tenant, no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. Tenant shall pay to Landlord as additional rent the cost of removal of any of Tenant's refuse and rubbish to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. 6. Miscellaneous. Landlord also shall provide for replacement of ------------- Building standard lighting and Building standard toilet supplies. 7. Interruption of Utilities or Services. Landlord reserves the right to ------------------------------------- stop service of the elevator, plumbing, ventilation, air conditioning and electrical systems, and any other services, when necessary, by reason of accident or emergency or for reasonable repairs, alterations or improvements, when in the reasonable judgment of Landlord such actions are desirable or necessary to be made (provided that in such instance Landlord shall endeavor to provide reasonable advance notice and to minimize interference with Tenant's business), until said repairs, alterations or improvements shall have been completed, and Landlord will have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service or other services, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or by reason of the requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel supply. It is expressly understood and agreed that any covenants on Landlord's part to furnish any services pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, will not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. No failure or interruption of utilities or services shall entitle Tenant to terminate this Lease or abate the rent or other charges hereunder and Tenant shall not be relieved from the performance of any covenant in this Lease because of such failure. In the event any municipal, state, federal or other regulatory body (whether judicial, executive or legislative) imposes mandatory controls on Landlord or the Building or Common Areas relating to the use or conservation of energy or water, gas, light or electricity or the reduction of automobile use or automobile and other emissions, Landlord may comply (and Tenant shall comply) with such mandatory controls to the extent it can control the use of energy or light, gas, water or electricity or the reduction of automobiles, or automobile or other emissions on the Property or in the Building and Common Areas. Compliance with any of the above shall not in any event constitute a partial or complete eviction of Tenant hereunder, nor shall it entitle Tenant to any abatement or mitigation of rent or other charges, -2- nor shall Landlord in any way be liable for damages or injury caused thereby to Tenant, Tenant's property, business, employees, customers or suppliers. Notwithstanding the foregoing, if Tenant is prevented from using, and does not use, the Premises or any material portion thereof, for five (5) consecutive business days because of an interruption or discontinuance of utilities or services caused by the wrongful acts or omissions of Landlord, and Tenant shall have given Landlord written notice respecting such interruption or discontinuance, then Tenant's base monthly rent shall be abated or reduced, as the case may be, after expiration of the applicable period of time described above ("Eligibility Period"), if any, for such time that Tenant continues to be so prevented from using, and does not use, the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, based on the ratio that the unusable portion bears to the total rentable area of the Premises; provided however, if Tenant reoccupies and conducts its business from any portion of the Premises during such period, the rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date such business operations commence; and provided further that the rent abatement described above shall in no event continue after the time such utilities or services are restored. -3- EXHIBIT "G" ESTOPPEL CERTIFICATE -------------------- The undersigned, ________________________________________, with a mailing address c/o _________________________________________ ("Tenant"), hereby certifies to McDonnell Douglas Realty Company, a California corporation ("Landlord") and __________________________________, as follows: 1. Attached hereto is a true, correct and complete copy of that certain lease dated ______________________, 19___, between Landlord and Tenant (the "Lease"), regarding the premises located at __________________________________ (the "Premises"). The Lease is now in full force and effect and has not been amended, modified or supplemented, except as set forth in Section 4 below. 2. The Term of the Lease commenced on _______________, 19___. 3. The Term of the Lease shall expire on _______________, 19___. 4. The Lease has: (initial one) (_____) not been amended, modified, supplemented, extended, renewed or assigned. (_____) been amended, modified, supplemented, extended, renewed or assigned by the following described terms or agreements, copies of which are attached hereto: 5. Tenant has accepted and is now in possession of the Premises. Tenant and Landlord acknowledge that Landlord's interest in the Lease will be assigned to ________________ and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of ___________________________ is obtained, and that until further notice, payments under the Lease may continue as heretofore. 6. The amount of Monthly Base Rent is $_____________________. 7. The amount of security deposits (if any) is $ ________________. No other security deposits have been made except as follows: ___________________________________________________________ 8. Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent or other charges under the Lease have been paid for more than thirty (30) days in advance of its due date except as follows: ___________________________________________________________ 9. All work required to be performed by Landlord under the Lease has been completed except as follows: ___________________________________________________________ 10. There are no defaults on the part of the Landlord or Tenant under the Lease except as follows: ___________________________________________________________ 11. Neither Landlord nor Tenant has any defense as to its obligations under the Lease and claims no set-off or counterclaim against the other party except as follows: ___________________________________________________________ ___________________________________________________________ 12. Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies other than as provided in the Lease except as follows: ___________________________________________________________. All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified. The foregoing certification is made with the knowledge that __________________________ __________________________ is about to fund a loan to Landlord or _________________ is about to purchase the Project (or part thereof) from Landlord and that _____________________________ is relying upon the representations herein made in funding such loan or in purchasing the Project (or part thereof). IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of _______________, 19___. TENANT: By:________________________________________ Printed Name:_________________________ Title:________________________________ SAMPLE ONLY [NOT FOR EXECUTION] -2- EXHIBIT "H" RULES AND REGULATIONS --------------------- A. General Rules and Regulations. The following rules and regulations ----------------------------- govern the use of the Building and the Project Common Areas. Tenant will be bound by such rules and regulations and agrees to cause Tenants Authorized Users, its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same. 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice may be installed or displayed on any part of the outside or inside of the Building or the Project without the prior written consent of Landlord. Landlord will have the right to remove, at Tenants expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls are to be printed, painted, affixed or inscribed at the expense of Tenant and under the direction of Landlord by a person or company designated or approved by Landlord. 2. If Landlord reasonably objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any window sill, which is visible from the exterior of the Premises, Tenant will immediately discontinue such use. Tenant agrees not to place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises including from within any interior common areas. 3. Tenant will not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Project. The halls, passages, exits, entrances, elevators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord will in all cases retain the right to control and prevent access thereto of all persons whose presence in the reasonable judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants, provided that nothing herein contained will be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant will go upon the roof of the Building. 4. Tenant will not obtain for use on the Premises ice, drinking water, food, food vendors, beverage, towel or other similar services upon the Premises, except under such reasonable regulations as may be fixed by Landlord; provided, however, that nothing herein shall be deemed to permit Landlord to prohibit Tenant from obtaining pizza delivery, lunch catering, coffee and water services and the like. Landlord expressly reserves the right to absolutely prohibit solicitation, canvassing, sales and displays of products, goods and wares in all portions of the Project except for such activities as may be expressly requested by a tenant and conducted solely within such requesting tenant's premises. Landlord reserves the right to restrict and regulate the use of the common areas of the Project and Building by invitees of tenants providing services to tenants on a periodic or daily basis including food and beverage vendors. Such restrictions may include reasonable limitations on time, place, manner and duration of access to a tenant's premises for such purposes. Without limiting the foregoing, Landlord may require that such parties use service elevators, halls, passageways and stairways for such purposes to preserve access within the Building for tenants and the general public. 5. Landlord reserves the right to require tenants to periodically provide Landlord with a written list of any and all business invitees which regularly provide goods and services to such tenants at the premises. 6. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 8 a.m. the following business day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building or has a pass or is properly identified. Tenant will be responsible for all persons for whom it requests passes and will be liable to Landlord for all acts of such persons. Landlord will not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 7. The directory of the Building or the Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 8. All cleaning and janitorial services for the Project and the Premises will be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord will be employed by Tenant or permitted to enter the Project for the purpose of cleaning the same. Tenant will not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. 9. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge, not to exceed $4.00 per key, for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install any new additional lock or bolt on any door of the Premises. Tenant, upon the termination of its tenancy, will deliver to Landlord the keys to all doors which have been furnished to Tenant and in the event of loss of any keys so furnished, will pay Landlord therefor. 10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes, antennae or similar services, it will first obtain Landlord's approval, and comply with, Landlord's reasonable rules and requirements applicable to such services, which may include separate licensing by, and fees paid to, Landlord. Landlord acknowledges that alarm systems installed in connection with Tenant's operation of a banking branch office and maintenance of a safe are deemed approved, subject to compliance with the Lease provisions regarding Alteration. 11. Freight elevator(s) will be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord, in its discretion, deems appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items will, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries will be made which impede or interfere with other tenants or the operation of the Building. 12. Tenant will not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord will have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects will, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms will be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to any tenants in the Building or Landlord, are to be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devises sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be reasonably acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property will be repaired at the expense of Tenant. 13. Tenant will not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant will not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor will Tenant bring into or keep in or about the Premises any birds or animals. -2- 14. Tenant will not use any method of heating or air conditioning other than that supplied by Landlord without Landlord's prior written consent. 15. Tenant will not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and will refrain from attempting to adjust controls. Tenant will keep corridor doors closed, and shall keep all window coverings pulled down. 16. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name of the Building. Without the written consent of Landlord, Tenant will not use the name of the Building or the Project in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 17. Tenant will close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and lighting or gas before Tenant and its employees leave the Premises. Tenant will be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule. 18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from any violation of this rule will be borne by the tenant who, or whose employees or invitees, break this rule. Cleaning of equipment of any type is prohibited. 19. Tenant will not sell, or permit the sale at retail of magazines, newspapers, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant will not make any room-to-room solicitation of business from other tenants in the Project. Tenant will not use the Premises for any business or activity other than that specifically provided for in this Lease. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant will cooperate with Landlord to prevent such activities. 20. Tenant will not install any radio or television antenna, loudspeaker, satellite dishes or other devices on the roof(s) or exterior walls of the Building or the Project. Tenant will not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 21. Except for the ordinary hanging of pictures and wall decorations, Tenant will not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant will not cut or bore holes for wires. Tenant will not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 22. Tenant will not install, maintain or operate upon the Premises any vending machines without the written consent of Landlord which will not be unreasonably withheld. 23. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 24. Tenant will store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant will not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal is to be made in accordance with directions issued from time to time by Landlord. -3- 25. The Premises will not be used for lodging or for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking will be done or permitted on the Premises without Landlord's consent, except the use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and the use of a microwave oven for employees use will be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 26. Neither Tenant nor any of its employees, agents, customers and invitees may use in any space or in the public halls of the Building or the Project any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant will not bring any other vehicles of any kind (except for motorized wheelchairs) into the Building. 27. Tenant agrees to comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 29. To the extent Landlord reasonably deems it necessary to exercise exclusive control over any portions of the Common Areas for the mutual benefit of the tenants in the Building or the Project, Landlord may do so subject to reasonable, non-discriminatory additional rules and regulations. 30. Landlord may prohibit smoking in the Building and may require Tenant and any of its employees, agents, clients, customers, invitees and guests who desire to smoke, to smoke within designated smoking areas within the Project. 31. Tenant's requirements will be attended to only upon appropriate application to Landlord's asset management office for the Project by an authorized individual of Tenant. Employees of Landlord will not perform any work or do anything outside of their regular duties unless under special instructions from Landlord. These Rules and Regulations are in addition to, and will not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other Tenant, but no such waiver by Landlord will be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the project. Landlord reserves the right to make such other reasonable and non- discriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional reasonable and non- discriminatory rules and regulations which are adopted. Tenant is responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. B. Parking Rules and Regulations. The following rules and regulations ----------------------------- govern the use of the parking facilities which serve the Building. Tenant will be bound by such rules and regulations and agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same: 1. Tenant will not permit or allow any vehicles that belong to or any controlled by Tenant or Tenant's employees, subtenants, customers or invitees to be loaded, unloaded or parked in areas other than those designed by Landlord for such activities. No vehicles are to be left in the parking areas overnight and no vehicles are to be parked in the parking areas other than normally -4- sized passenger automobiles, motorcycles and pick-up trucks. No extended term storage of vehicles is permitted. 2. Vehicles must be parked entirely within painted stall lines of a single parking stall. 3. All directional signs and arrows must be observed. 4. The speed limit within all parking areas shall be five (5) miles per hour. 5. Parking is prohibited: in areas not striped for parking; in aisles or on ramps; WHERE "no parking" signs are posted; in cross-hatched areas; and in such other areas as may be designated from time to time by Landlord or Landlord's parking operator. 6. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicle if such vehicle's audio theft alarm system remains engaged for an unreasonable period of time. 7. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 8. Landlord may refuse to permit any person to park in the parking facilities who violates these rules with unreasonable frequency, and any violation of these rules shall subject the violator's car to removal, at such car owner's expense. Tenant agrees to use its best efforts to acquaint its employees, subtenants, assignees, contractors, suppliers, customers and invitees with these parking provisions, rules and regulations. 9. Parking stickers, access cards, or any other device or form or identification supplied by Landlord as a condition of use of the parking facilities shall remain the property of Landlord. Parking identification devices, if utilized by Landlord, must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking identification devices, if any, are not transferable and any device in the possession of an unauthorized holder will be void. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to Tenant or any of its agents, employees or representatives who willfully refuse to comply with these rules and regulations and all unposted city, state or federal ordinances, laws or agreements. 10. Loss or theft of parking identification devices or access cards must be reported to the management office in the Project immediately, and a lost or stolen report must be filed by the Tenant or user of such parking identification device or access card at the time. Landlord has the right to exclude any vehicle from the parking facilities that does not have a parking identification device or valid access card. Any parking identification device or access card which is reported lost or stolen and which is subsequently found in the possession of an unauthorized person will be confiscated and the illegal holder will be subject to prosecution. 11. All damage or loss claimed to be the responsibility of Landlord must be reported, itemized in writing and delivered to the management office located within the Project within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord is not responsible for damage by water or fire, or for the acts or omissions of others, or for articles left in vehicles. In any event, the total liability of Landlord, if any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any car. Landlord is not responsible for loss of use. -5- 12. The parking operators, managers or attendants are not authorized to make or allow any exceptions to these rules and regulations, without the express written consent of Landlord. Any exceptions to these rules and regulations made by the parking operators, managers or attendants without the express written consent of Landlord will not be deemed to have been approved by Landlord. 13. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicles which are used or parked in violation of these rules and regulations. 14. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities. -6- EXHIBIT "B" 18872 MacArthur Blvd. #150 1,361 RSF OFFICE BUILDING LEASE --------------------- THIS OFFICE BUILDING LEASE ("Lease") is entered into as of the ___ day of __________, 1995 by and between McDonnell Douglas Realty Company, a California corporation ("Landlord"), and Silicon Valley Bank ("Tenant"). 1. BASIC LEASE TERMS. For purposes of this Lease, the following terms ----------------- have the following definitions and meanings: (a) Landlord: McDonnell Douglas Realty Company, a California -------- corporation. (b) Landlord's Address: ------------------ McDonnell Douglas Realty Company 4060 Lakewood Boulevard 6th Floor Long Beach, CA 90808-1700 Attention: Lease Administrator with a copy to: Prentiss Properties 18881 Von Karman Avenue, Suite 1225 Irvine, CA 92715 Attention: Property Manager or such other place(s) as Landlord may from time to time designate by notice to Tenant. (c) Tenant: Silicon Valley Bank ------ (d) Tenant's Address: ---------------- After the Commencement Date, to the Premises with a copy to: Glen G. Simmons, Executive Vice President Human Resources & Administration Silicon Valley Bank 3003 Tasman Drive, NC 830 Santa Clara, California 95054 Prior to the Commencement Date: 4600 Campus Drive Suite 105 Newport Beach, California 92660 (e) Project: The real property commonly known as Douglas Plaza and ------- located in the City of Irvine ("City"), County of Orange ("County"), State of California ("State"), as shown on the site plan attached hereto as Exhibit "A". ----------- (f) Building: The office building located within the Development, -------- containing approximately 45,454 rentable square feet, with the street address of 18872 MacArthur Boulevard, Irvine, California 92715. (g) Premises: The premises outlined on the floor plan attached hereto -------- as Exhibit "B", located on the first floor of the Building, in Suite 100 ----------- containing 8,197 rentable square feet and 7,452 usable square feet. (h) Tenant's Percentage: Tenant's percentage of the Building on a ------------------- rentable square foot basis, which initially is 17.90%. (i) (j) Target Commencement Date: March 1, 1996. ------------------------ (k) Commencement Date: The earlier to occur of (i) the date Landlord ----------------- notifies Tenant that the Tenant Improvements are Substantially Completed (as defined in Exhibit "C" attached hereto), or (ii) the date Tenant occupies all or ----------- a portion of the Premises for the purpose of conducting Tenant's business. (l) Initial Monthly Base Rent: ------------------------- (m) Adjustment to Monthly Base Rent: Monthly Base Rent will be ------------------------------- adjusted in accordance with the following: LEASE YEAR OR MONTHS MONTHLY BASE RENT -------------------- ----------------- (n) Option Term Rent: ---------------- (o) Security Deposit: ---------------- (p) Tenant Improvements: All tenant improvements installed or to be ------------------- installed by Landlord or Tenant within the Premises to prepare the Premises for occupancy pursuant to the terms of the Work Letter Agreement attached hereto as Exhibit "C". - ----------- (q) Tenant Improvement Allowance: See Work Letter Agreement attached ---------------------------- hereto as Exhibit "C". ----------- (r) Permitted Use: General office, banking and/or related uses in ------------- compliance with applicable laws, and no other use without the express written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. (s) Parking Spaces: -------------- (t) Initial Monthly Parking Rent: ---------------------------- (u) Base Year: 1996. --------- (v) Broker(s): --------- Tenant's Broker: C8/Madison, Jeff Shepard Landlord's Broker: Prentiss Properties Limited, Inc. (w) Interest Rate: shall mean the greater of ten percent (10%) per ------------- annum or two percent (2%) in excess of the prime lending or reference rate of Wells Fargo Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the calendar month immediately prior to the event giving rise to the Interest Rate imposition; provided, however, the Interest Rate will in no event exceed the maximum Interest Rate permitted to be charged by applicable law. (x) Guarantor(s): n/a ------------ -2- (y) Exhibits: A through I, inclusive, which Exhibits are attached to -------- this Lease and incorporated herein by this reference. As provided in Section 3, a completed version of Exhibit "D" will be delivered to Tenant after Landlord delivers possession of the Premises to Tenant. (z) Addendum: The Addendum, if any, attached to this Lease and -------- incorporated herein by this reference. 2. PREMISES AND COMMON AREAS. ------------------------- (a) Premises. Landlord hereby leases to Tenant and Tenant hereby -------- leases from Landlord, without representation or warranty, express or implied, the Premises described in Subsection 1(g). The rentable square feet and usable square feet of the Premises and the Building set forth above in Section 1 shall be deemed to be the rentable square feet and usable square feet of the Premises and Building for all purposes, whether the actual rentable square feet or usable square feet may -3- AMENDMENT NO. 1 TO LEASE ------------------------ This Amendment to Lease (this "Amendment") is entered into as of March 29, 1996 between MCDONNELL DOUGLAS REALTY COMPANY, a California corporation ("Landlord") and SILICON VALLEY BANK, a California corporation ("Tenant"). RECITALS -------- A. Tenant is the tenant under that certain Douglas Plaza Office lease dated, December 1, 1995 (the "Lease") covering certain premises (the "Premises") within the building (the "Building") commonly known as 18872 MacArthur Boulevard, City of Irvine, County of Orange, California, which Premises are describe as Suite 100 on the first floor of the Building containing approximately 8,197 rentable square feet, all as more particularly set forth in the Lease. B. Tenant desires to modify the Premises by adding thereto a portion of the first floor of the Building, consisting of approximately 227 rentable square feet, and Landlord has agreed to do so on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows (capitalized terms used and not otherwise defined herein shall have the meanings given in the Lease). AGREEMENT --------- 1. Modification of Premises. Upon the terms and conditions set forth in ------------------------ this Amendment No. 1, effective as of the Effective Date (as hereinafter defined), the Premises shall be and hereby are amended to add and include 227 rentable square feet, as depicted on Exhibit A attached hereto and incorporated --------- herein and to the Lease by this reference. From and after the Effective Date, all references herein and in the Lease to the "Premises" shall mean, unless the context clearly indicates to the contrary, the Premises described in the Lease together with the additional 227 rentable square footage as described herein. The Premises, as amended hereby, contains in the aggregate approximately 8,424 rentable square feet. 2. Tenant Improvements. The Plans identified in Schedule 1 to the Work ------------------- Letter Agreement attached as Exhibit "C" to the Lease are hereby amended to include the revisions thereto dated February 7, 1996 prepared by Landlord's architect, incorporating the additional square footage described above. It is expressly understood that any changes to the Plans requested by Tenant subsequent to the exception of the Lease and this subsequent Amendment shall be treated as a change (and Tenant Lease shall be treated as a change) (and Tenant shall be responsible for all costs attributable thereto) as described in the above referenced Work Letter Agreement. 3. Base Rent; Operating Expenses. The Base Rent and Tenant's ----------------------------- proportionate share of Operating Expenses set forth in the Lease shall be increased to reflect the additional square footage added to the Premises pursuant to this Amendment. Accordingly, Subsection 1.(l) and 1.(h) of the Base Lease Provisions are hereby replaced with the following: "(i) Initial Monthly Base Rent: ------------------------- "(h) Tenant's Percentage: Tenant's percentage of the Building on a ------------------- rentable square foot basis, which initially is 18.53%." 4. Security Deposit: The parties acknowledge that Landlord currently is ---------------- holding a ________ Security Deposit from Tenant. Concurrently with the execution of this Amendment, Tenant shall provide Landlord with additional security in the amount of _____ for a total Security Deposit of ________________ and agrees that Landlord shall retain the total of such above amounts as security for the Lease, which shall be governed by the provisions in the Lease with respect to Security Deposit. 5. Confirmations. Tenant hereby certifies and confirms to Landlord that ------------- as of Tenant's execution and delivery hereof, Landlord is not in default under the Lease and Tenant has no claims, defense or offset with respect to the Lease. 6. Entire Agreement. The Lease, as affected by this Amendment, contains ---------------- the entire agreement of Landlord and Tenant and is hereby reaffirmed, and the provisions thereof, as so affected, shall remain in full force and effect. Without limiting the generality of the foregoing, all provisions of the Lease which could be reasonably and logically construed as applicable to this Amendment shall apply to this Amendment as well as the Lease, and those provisions of the Lease which are specifically superseded by or clearly inconsistent with the provisions of this Amendment shall have no further application. 7. Further Assurances. Tenant shall, upon request by Landlord, execute ------------------ and deliver such documentation and information and take such action as may be action as may be reasonably necessary to effectuate the intent of this Amendment or to implement the provisions hereof. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the day and year first written above. Landlord: MCDONNELL DOUGLAS REALTY COMPANY, a California corporation By: -------------------------------- Stephen J. Barker Director of Business Operations Tenant: SILICON VALLEY BANK, a California corporation By: -------------------------------- Print Name: ------------------------ Its: -------------------------- -2- EXHIBIT A --------- DEPICTION OF ADDITION TO PREMISES -3- AMENDMENT NO. 2 TO LEASE ------------------------ This Amendment No. 2 to Lease (this "Amendment") is entered into as of June 1, 1996, (the "Effective Date") between MCDONNELL DOUGLAS REALTY COMPANY, a California corporation ("Landlord") and SILICON VALLEY BANK, a California corporation ("Tenant"). RECITALS -------- A. Tenant is the tenant under that certain Douglas Plaza Office Lease dated, December 1, 1995 and Amendment No. 1 to Lease dated March 29, 1996 (collectively the "Lease") covering certain premises (the "Premises") within the building (the "Building") commonly known as 18872 MacArthur Boulevard, City of Irvine, County of Orange, California, which Premises are described as Suite 100 on the first floor of the Building containing approximately 8,424 rentable square feet, all as more particularly set forth in the Lease. B. Tenant desires to amend the Lease to, among other things, (i) expand the Premises to include the remainder of the first floor of the Building to be known as Suite 100, consisting of approximately 1,361 rentable square feet and 1,237 usable square feet, as generally depicted on Exhibit A attached hereto (the "Additional Premises"); and (ii) provide for certain additional amendments and modifications to the Lease occasioned by the addition of the Additional Premises. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows (capitalized terms used and not otherwise defined herein shall have the meanings given in the Lease). AGREEMENT --------- 1. Modification of Premises. Upon the terms and conditions set forth in ------------------------ this Amendment No. 2, effective as of the Effective Date the Premises shall be and hereby are amended to add and include the Additional Premises. From and after the Effective Date, all references herein and in the Lease to the "Premises" shall mean, unless the context clearly indicates to the contrary, the Premises described in the Lease together with the Additional Premises (containing in the aggregate approximately 9,785 rentable square feet and 8,895 usable square feet) and Exhibit A shall mean Exhibit A to the Lease together --------- --------- with Exhibit A to this Amendment. --------- 2. Condition of Premises. Tenant acknowledge and agrees that (i) Tenant --------------------- has inspected the Premises and accepts them as being in good and sanitary order, condition and repaid, (ii) Landlord has made no representation and has given no warranty to Tenant regarding the Premises, including, without limitation, any representation or warranty regarding the fitness of the Premises for Tenant's intended use or for any other purpose, and (iii) Tenant shall accept and occupy the premises in its "AS IS" condition and "WITH ALL FAULTS." 3. Base Rent; Operating Expenses. The Base Rent and Tenant's ----------------------------- proportionate share of Operating Expenses set forth in the Lease shall be increased to reflect the additional square footage added to the Premises pursuant to this Amendment. Accordingly, Subsection 1.(h) and 1.(i) of the Base Lease Provisions are hereby replaced with the following: "(h) Tenant's Percentage: Tenant's percentage of the Building on a ------------------- rentable square foot basis, which initially is 21.53%." "(i) Initial Monthly Base Rent: ------------------------- 4. Security Deposit. The parties acknowledge that Landlord currently is ---------------- holding a ________ Security Deposit from Tenant. Concurrently with the execution of this Amendment, Tenant shall provide Landlord with additional security in the amount of _____ (for a total Security Deposit of _______________) and agrees that Landlord shall retain the total of such above amounts as security for the Lease, which shall be governed by the provisions in the Lease with respect to Security Deposit. 5. Parking. ------- 6. Confirmations. Tenant hereby certifies and confirms to Landlord that ------------- as of Tenant's execution and delivery hereof, Landlord is not in default under the Lease and Tenant has no claims, defense or offset with respect to the Lease. 7. Entire Agreement. The Lease, as affect by this Amendment, contains ---------------- the entire agreement of Landlord and Tenant and is hereby reaffirmed, and the provisions thereof, as so affected, shall remain in full force and effect. Without limiting the generality of the foregoing, all provisions of the Lease which could be reasonably and logically construed as applicable to this Amendment shall apply to this Amendment as well as the Lease, and those provisions of the Lease which are specifically superseded by or clearly inconsistent with the provisions of this Amendment shall have no further application. 8. Further Assurances. Landlord and Tenant shall, upon request of the ------------------ other, execute and deliver such documentation and information and take such other action as may be reasonably mecessary to effectuate the intent of this Amendment or to implement the provisions hereof. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the day and year first written above. Landlord: MCDONNELL DOUGLAS REALTY COMPANY, a California corporation By: -------------------------------- -------------------------------- -------------------------------- Tenant: SILICON VALLEY BANK, a California corporation By: -------------------------------- Print Name: ------------------------ Its: -------------------------- -2- EXHIBIT A --------- 18872 MacArthur Blvd. #150 1,361 RSF -3- EX-10.16 21 FIN. INQ. REF. AGMT. AMG. REG. & CHASE, 10/25/96 EXHIBIT 10.16 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 [*] Confidential Treatment has been requested for certain portions of this exhibit. in writing and with reasonable notice, 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 [*] (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, [*] 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 of such rate raise determined in accordance with the [*] Confidential Treatment Requested 2 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 [*] 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, [*] 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. (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 [*] Confidential Treatment Requested 3 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 [*] of the Applications within the two (2) business hours after electronic receipt of the Application and a further [*] of such time. Compliance with these performance standards shall be measured on a monthly basis. If CAF fails to comply with [*] Confidential Treatment Requested 4 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 [*] 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 [*] 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. [*] Confidential Treatment Requested 5 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 [*] 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 [*] 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 [*] then CAF shall reimburse ABTAC for the full cost of the audit. SECTION 7. REPORTS (a) [*] 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 [*] 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 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, [*] Confidential Treatment Requested 6 the report shall identify each Application by name of applicant. CAF 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) [*] [*] Confidential Treatment Requested 7 [*] (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) [*] (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 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 [*] Confidential Treatment Requested 8 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 [*] from the date hereof unless terminated by either party upon [*] 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 [*] after written notice thereof from the other party (or, if such breach is curable and requires more than [*] to cure, if such cure is not commenced within [*] 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 [*] 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 [*] written notice if, on the first business day of any calendar month, the Exclusivity Conditions have not been met during the most recently completed [*], 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. [*] Confidential Treatment Requested 9 (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 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/ JAMES B. BREW ---------------------------------------------- Title: AUTO-BY-TEL ACCEPTANCE CORPORATION By: /S/ W. RANDOLPH ELLSPERMANN ----------------------------------------- Title: CHIEF OPERATING OFFICER -------------------------------- AUTO BY-TEL, INC., as Guarantor By: /S/ PETER R. ELLIS ----------------------------------------------- Title: /S/ PRESIDENT --------------------------------------------- 11 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 [*] to the Agreement: [*] [*] Confidential Treatment Requested 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 2 of 1 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 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 Schedule 2 - Page 1 of 3 relating to creditors' rights generally, and the execution, delivery and 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 been duly authorized by all necessary and appropriate and corporate action on the part of CAF. Schedule 2 - Page 2 of 3 (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 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 order Schedule 3 - Page 1 of 3 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 it, obligations hereunder in accordance with all applicable laws, rules and regulations now or hereafter in effect. (g) Arbitration. The parties acknowledge that the Agreement evidences ----------- a transaction involving interstate commerce. Any controversy or claim arising out of or Schedule 3 - Page 2 of 3 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-11.1 22 COMPUTATION OF EARNINGS PER SHARE AUTO-BY-TEL CORPORATION AND SUBSIDIARIES EXHIBIT 11.1--STATEMENT RE: COMPUTATION OF LOSS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCEPTION (JANUARY 31, 1995) TO YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ Net loss............................................. $(1,030,000) $(6,035,000) =========== =========== Shares used in computing loss per share: Weighted average common shares outstanding......... 12,406,816 12,406,816 Net effect of Convertible Preferred Stock--using the as-converted method........................... 1,063,396 1,593,426 Net effect of stock options issued at less than the IPO price within twelve months, based on the treasury stock method............................. 1,799,942 1,799,942 ----------- ----------- 15,270,154 15,800,184 =========== =========== Net loss per common and equivalent share............. $ (0.07) $ (0.38) =========== ===========
EX-21.1 23 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 AUTO-BY-TEL CORPORATION Subsidiaries of the Company Auto-By-Tel Canada, Inc Auto-By-Tel Marketing Corporation Auto-By-Tel Acceptance Corporation Auto-By-Tel Insurance Services, Inc. EX-27.1 24 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 11-MOS 12-MOS DEC-31-1995 DEC-31-1996 JAN-31-1995 JAN-01-1996 DEC-31-1995 DEC-31-1996 48,000 9,062,000 0 0 34,000 460,000 20,000 162,000 0 0 176,000 10,262,000 127,000 1,614,000 25,000 189,000 285,000 12,298,000 1,275,000 4,302,000 0 0 0 0 0 2,000 0 12,000 990,000 7,982,000 285,000 12,298,000 274,000 5,025,000 274,000 5,025,000 0 0 1,304,000 11,184,000 0 0 0 0 0 24,000 1,030,000 6,035,000 0 0 0 0 0 0 0 0 0 0 1,030,000 6,035,000 0 0 (.07) (.38) COMMON STOCK, $0.001 PAR VALUE; 16,666,667 SHARES AUTHORIZED; NONE ISSUED AND OUTSTANDING AT DECEMBER 31, 1995; 12,427,221 SHARES ISSUED AND OUTSTANDING AT DECEMBER 31, 1996 (50,000,000 SHARES AUTHORIZED, 15,895,136 SHARES ISSUED AND OUTSTANDING, PRO FORMA) CONVERTIBLE PREFERRED STOCK, SERIES A, $0.001 PAR VALUE, 1,500,000 SHARES AUTHORIZED; NONE ISSUED AND OUTSTANDING AT DECEMBER 31, 1995; 1,500,000 SHARES ISSUED AND OUTSTANDING AT DECEMBER 31, 1996, AGGREGATE LIQUIDATION PREFERENCE OF $15,000,000 (5,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING, PRO FORMA) INCLUDES MEMBERS' INTERESTS/ADDITIONAL PAID-IN CAPITAL, DEFERRED COMPENSATION, AND ACCUMULATED DEFICIT.
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