-----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, Jhn/KnVvIXfTm17MBC3QevWAqwbADvYsaaL6KZYZjRaH9zDeeGzNcoO4hHdZmvH1 vswOPKrpTuvyE81sLuoDbQ== /in/edgar/work/0001095811-00-004667/0001095811-00-004667.txt : 20001114 0001095811-00-004667.hdr.sgml : 20001114 ACCESSION NUMBER: 0001095811-00-004667 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOBYTEL COM INC CENTRAL INDEX KEY: 0001023364 STANDARD INDUSTRIAL CLASSIFICATION: [5900 ] IRS NUMBER: 330711569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-70621 FILM NUMBER: 760450 BUSINESS ADDRESS: STREET 1: 18872 MACARTHUR BLVD STREET 2: SUITE 200 CITY: IRVINE STATE: CA ZIP: 92612-1400 BUSINESS PHONE: 9492254500 MAIL ADDRESS: STREET 1: AUTO BY TEL CORP STREET 2: 18872 MACARTHUR BLVD 2ND FL CITY: IRVINE STATE: CA ZIP: 92612-1400 FORMER COMPANY: FORMER CONFORMED NAME: AUTO BY TEL CORP DATE OF NAME CHANGE: 19960920 10-Q 1 a67159e10-q.txt FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q ---------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 22239 autobytel.com inc. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0711569 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 18872 MACARTHUR BOULEVARD 92612 IRVINE, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(949) 225-4500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ---------------- Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [] As of October 31, 2000, there were 20,336,083 shares of the Registrant's Common Stock outstanding. 2 INDEX
Page ---- PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements: Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999........... 3 Consolidated Statements of Operations for the three months and nine months ended September 30, 2000 and 1999 (unaudited)................................................ 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 (unaudited)................................................ 5 Notes to Consolidated Financial Statements....................................................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 25 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings................................................................................ 25 ITEM 2. Changes in Securities and Use of Proceeds........................................................ 26 ITEM 6. Exhibits and Reports on Form 8-K................................................................. 26 Signature ................................................................................................. 27
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS autobytel.com inc. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
SEPTEMBER 30, DECEMBER 31, 2000 1999 ---- ---- (UNAUDITED) Current assets: Cash and cash equivalents, includes restricted amounts of $29 and $206, respectively .......................................... $ 90,565 $ 85,457 Accounts receivable, net of allowance for doubtful accounts of $842 and $439, respectively ...................................... 6,459 4,593 Prepaid expenses and other current assets ............................... 2,583 2,819 --------- --------- Total current assets ............................................ 99,607 92,869 Property and equipment, net ................................................. 2,047 1,630 Investments ................................................................. 478 -- Goodwill, net ............................................................... 24,175 10 Notes receivable ............................................................ 887 -- Other assets ................................................................ 86 363 --------- --------- Total assets .................................................... $ 127,280 $ 94,872 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................ $ 10,459 $ 4,277 Accrued expenses ........................................................ 4,937 6,772 Deferred revenues ....................................................... 6,853 6,147 Customer deposits ....................................................... 308 716 Other current liabilities ............................................... 1,470 201 --------- --------- Total current liabilities ....................................... 24,027 18,113 Other liabilities ....................................................... 67 53 --------- --------- Total liabilities .............................................. 24,094 18,166 --------- --------- Commitments and Contingencies Minority interest ........................................................... 8,193 -- Stockholders' equity: Common stock, $0.001 par value; 200,000,000 shares authorized; 20,336,083 and 18,234,613 shares issued and outstanding, respectively ........................................................ 20 18 Warrants ................................................................ 1,332 1,332 Additional paid-in capital .............................................. 186,034 141,957 Cumulative translation adjustment ....................................... (19) (8) Accumulated deficit ..................................................... (92,374) (66,593) --------- --------- Total stockholders' equity ...................................... 94,993 76,706 --------- --------- Total liabilities and stockholders' equity ..................... $ 127,280 $ 94,872 ========= =========
The accompanying notes are an integral part of these consolidated statements. 3 4 autobytel.com inc. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues ................................. $ 17,539 $ 10,625 $ 49,723 $ 27,860 ------------ ------------ ------------ ------------ Operating expenses: Sales and marketing .................. 15,504 11,049 50,371 32,033 Product and technology development ... 6,197 4,216 18,059 9,798 General and administrative ........... 3,578 2,672 9,971 6,541 ------------ ------------ ------------ ------------ Total operating expenses .......... 25,279 17,937 78,401 48,372 ------------ ------------ ------------ ------------ Loss from operations ................. (7,740) (7,312) (28,678) (20,512) Interest income, net ..................... 1,580 1,097 4,698 2,544 Foreign currency exchange loss ........... (1,758) -- (1,759) -- Other expense, net ....................... -- (66) -- (394) ------------ ------------ ------------ ------------ Loss before provision for income taxes (7,918) (6,281) (25,739) (18,362) Provision for income taxes ............... 1 10 42 54 ------------ ------------ ------------ ------------ Net loss ............................. $ (7,919) $ (6,291) $ (25,781) $ (18,416) ============ ============ ============ ============ Basic and diluted net loss per share ..... $ (0.39) $ (0.35) $ (1.41) $ (1.23) ============ ============ ============ ============ Shares used in computing basic and diluted net loss per share ........ 20,331,455 17,878,188 18,296,639 14,959,928 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 4 5 autobytel.com inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ...................................................... $(25,781) $(18,416) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ......................... 2,009 1,013 Provision for bad debt ................................ 824 189 Loss on disposal of property and equipment ............ 51 Compensation expense recorded for fair market value of stock options in excess of exercise price ...... 330 791 Changes in assets and liabilities: Accounts receivable ............................... (2,373) (1,029) Prepaid expenses and other current assets ......... 306 (857) Other assets ...................................... (1,272) (65) Accounts payable .................................. 5,149 4,854 Accrued expenses .................................. (2,006) 1,928 Deferred revenues ................................. 706 1,562 Customer deposits ................................. (408) 226 Other current liabilities ......................... 618 161 Other liabilities ................................. (49) (53) -------- -------- Net cash used in operating activities .......... (21,947) (9,645) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business, net of cash acquired ................. (2,813) Investment in foreign entity .................................. (478) Investment in debt security of foreign entities ............... (680) -- Notes receivable from foreign entity .......................... (207) Purchases of property and equipment ............................... (1,006) (610) -------- -------- Net cash used in investing activities .......... (5,184) (610) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of common stock to minority stockholders 780 72,353 Net proceeds from sale of subsidiary company stock ............ 31,470 -------- -------- Net cash provided by financing activities ..... 32,250 72,353 -------- -------- Effect of exchange rates on cash .................................. (11) 11 -------- -------- Net increase in cash and cash equivalents ......................... 5,108 62,109 Cash and cash equivalents, at beginning of period ................. 85,457 27,984 -------- -------- Cash and cash equivalents, at end of period ....................... $ 90,565 $ 90,093 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes .................. $ 1 $ 54 ======== ======== Cash paid during the period for interest ...................... $ 21 $ 2 ======== ========
Supplemental disclosure of non-cash investing and financing activities (See Note 3): * In February 2000, in conjunction with the acquisition of a business, assets of $950 were acquired, liabilities of $1,966 were assumed and 1,800,000 shares of common stock were issued. The accompanying notes are an integral part of these consolidated statements. 5 6 autobytel.com inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND OPERATIONS OF AUTOBYTEL.COM autobytel.com inc. (Autobytel.com) is an internationally branded online automotive commerce company that connects buyers and sellers together in an information-rich environment throughout the vehicle ownership lifecycle. Through its Web sites (www.autobytel.com and www.carsmart.com), consumers can research pricing, specifications and other information related to new and pre-owned vehicles and can purchase, finance, lease, insure, sell and maintain their vehicles. When consumers are ready to purchase a vehicle, they can be connected to Autobytel.com's or CarSmart.com's network of participating dealers in North America, other sellers through classified ads and Autobytel.com's auction services. Autobytel.com has also established international joint ventures and/or licensing agreements to market new and used vehicles in the United Kingdom, Scandinavia, Japan, Australia and Spain. Since its inception in January 1995, Autobytel.com has invested the majority of its efforts in marketing its brand name and developing infrastructure to support anticipated future operating growth. As a result, Autobytel.com has experienced operating losses and had an accumulated deficit of $92.4 million as of September 30, 2000. Management believes cash and cash equivalents of $90.6 million as of September 30, 2000 are sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Statements The accompanying interim consolidated financial statements as of September 30, 2000, and for the three months and nine months ended September 30, 2000 and 1999, are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of Autobytel.com's management, reflect all adjustments, which are of a normal recurring nature, necessary to present fairly Autobytel.com's consolidated balance sheets, statements of operations and cash flows for the periods presented in accordance with generally accepted accounting principles. Autobytel.com's results for an interim period are not necessarily indicative of the results that may be expected for the year. Although Autobytel.com believes that all adjustments necessary for a fair presentation of the interim periods presented are included and that the disclosures are adequate, these consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1999 included in Autobytel.com's Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC) on March 23, 2000 and the separate audited financial statements and notes thereto of A.I.N. Corporation for the year ended December 31, 1999, included in Autobytel.com's Current Report on Form 8-K/A, filed with the SEC on May 1, 2000. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Computation of Basic and Diluted Net Loss Per Share Net loss per share has been calculated under Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128 requires companies to compute earnings per share under two different methods (basic and diluted). Basic net loss per share is calculated by dividing the net loss by the weighted average shares of 6 7 common stock outstanding during the period. For the three months and nine months ended September 30, 2000 and 1999, diluted net loss per share is equal to basic net loss per share since potential common shares from the conversion of preferred stock, stock options and warrants are antidilutive. Autobytel.com evaluated the requirements of the SEC Staff Accounting Bulletin (SAB) No. 98, and concluded that there are no nominal issuances of common stock or potential common stock which would be required to be shown as outstanding for all periods as outlined in SAB No. 98. 3. ACQUISITION OF A.I.N. CORPORATION On February 15, 2000, Autobytel.com acquired all of the outstanding stock of A.I.N. Corporation, the owner of CarSmart.com, an online buying site for new and used vehicles, for $3.0 million in cash and 1.8 million shares of its common stock. The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the amount of $25.1 million and will be amortized over a 15 year period. Goodwill amortization expense from the date of acquisition through September 30, 2000 was $1.1 million. A.I.N. Corporation's results of operations from the date of acquisition through September 30, 2000 have been included in the accompanying consolidated statements of operations. 4. FORMATION OF AUTOBYTEL.EUROPE LLC In January 2000, Autobytel.com and strategic partners funded Autobytel.Europe LLC (Autobytel.Europe) to expand its operations and business in Europe. Autobytel.com licensed its technology, business processes and trade name to Autobytel.Europe on a royalty free perpetual basis and assigned to Autobytel.Europe its existing license agreements for the United Kingdom and Scandinavia. Total funding for investment in Autobytel.Europe was $36.7 million, including $5.0 million contributed by Autobytel.com. As of September 30, 2000, cash reserved for the operations of Autobytel.Europe was approximately $35.4 million. As of such date, Autobytel.com owned 78% of Autobytel.Europe. 5. 2000 STOCK OPTION PLAN Autobytel.com's 2000 Stock Option Plan (the "Plan") was approved by the Board of Directors in April 2000 and the stockholders at the Annual Meeting held on June 15, 2000. The Plan provides for the granting of stock options to eligible employees, consultants and outside directors of Autobytel.com. Autobytel.com has reserved 3 million shares under the Plan. 6. COMMITMENTS AND CONTINGENCIES Autobytel.com may become subject to legal proceedings from time to time in the normal course of business. Autobytel.com is not currently involved in any litigation that management believes will have a material adverse effect on its financial position or results of operations. A.I.N. Corporation was sued on September 1, 1999 in a lawsuit entitled Robert Martins v. Michael J. Gorun, A.I.N., Inc., et al., in Los Angeles Superior Court. The complaint contains causes of action for breach of written and oral contracts, promissory estoppel, breach of fiduciary duty and fraud, and seeks damages and equitable relief. The plaintiff contends he is entitled to a 49.9% ownership interest in A.I.N. Corporation's CarSmart online business based on a purported agreement for the formation of a company called CarSmart On-Line Services. On December 14, 1999, A.I.N. Corporation filed a complaint for declaratory relief on the subject of Mr. Martins' lawsuit in Contra Costa County Superior Court. The Los Angeles action has been transferred to Contra Costa County and the two cases will be consolidated. Autobytel.com was added as a cross defendant in such action. The lawsuit is and will be vigorously contested on behalf of Autobytel.com, A.I.N. Corporation and individual co-defendant Michael Gorun, President of A.I.N. Corporation. 7 8 The selling shareholders of A.I.N. Corporation are obligated to fully indemnify Autobytel.com for all losses, including attorney's fees, expenses, settlements and judgements, arising out of the lawsuit. The indemnification obligation was initially secured by 450,000 shares of Autobytel.com common stock transferred to the selling shareholders as part of the acquisition of A.I.N. Corporation, as well as $250,000 in cash. As of September 30, 2000, the obligation was secured by the 450,000 shares of common stock and $122,000 in cash after expenses. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our results of operations and financial condition in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those discussed in the section entitled "Risk Factors" below. OVERVIEW We are an internationally branded online automotive commerce company that connects buyers and sellers together in an information-rich environment throughout the vehicle ownership lifecycle, capturing revenue at multiple stages. Through our Web sites, www.autobytel.com, and www.carsmart.com, consumers can research pricing, specifications and other information regarding new and pre-owned vehicles and can purchase, finance, lease, insure, sell and maintain their vehicles. We believe that our services provide benefit for consumers by supplying them with information to make informed and intelligent vehicle decisions throughout the lifecycle of vehicle ownership. Consumers can purchase new vehicles through our dealer referral networks, our AutobytelDIRECT service and our auction services. In addition, consumers can purchase pre-owned vehicles through our Certified Pre-Owned CyberStore, our classified ads and our auction services. We derive the majority of our revenues from program fees paid by subscribing dealers, and we expect to be primarily dependent on our dealer networks for revenues in the foreseeable future. Dealers using our services pay initial subscription fees, as well as ongoing monthly fees based, among other things, on the size of the territory, demographics and the transmittal of purchase requests to them. Dealers using our AutobytelDIRECT service pay a fee per vehicle sold. Our dealer contract terms range from one to five years. The majority of our contracts are for a one year term. We are converting our remaining dealers primarily to new contracts with one year terms. The initial subscription fee from the dealer is recognized as revenue ratably over the term of the dealer's contract. The majority of our program fees consist of monthly fees which are recognized in the period the service is provided. In the third quarter of 2000 and 1999, program fees were $14.2 million and $9.4 million, respectively. We also derive a portion of our revenues from related products and services on a monthly fee and per transaction basis and from international licensing agreements. For the three months ended September 30, 2000 and 1999, revenues from related products and services, including international licensing agreements, were $3.4 million, or 19% of total revenues, and $1.3 million, or 12% of total revenues, respectively. We believe our ability to increase our revenues is directly related to the number of subscribing dealers in our networks and the average monthly fees paid by those dealers, and indirectly related to the volume of purchase requests routed through our Web sites. Vehicle purchase requests routed through our online systems increased from approximately 590,000 in the third quarter of 1999 to approximately 778,000 in the third quarter of 2000, an increase of 32%. Since inception Autobytel.com, excluding CarSmart, has directed approximately 6.3 million purchase requests to dealers. Our revenue growth has been primarily dependent on our ability to: - increase the number of dealers, - increase the average monthly fees paid by each dealer, 8 9 - deliver quality purchase requests to our dealer network and - improve the sales conversion rate of dealer leads. We believe our revenue growth in the foreseeable future will be dependent on the above factors as well as our ability to generate revenues from related products and services, including international licensing agreements. Since inception, our dealer network has generally expanded in each quarter and as of September 30, 2000 there were 5,214 dealers. Of these dealers, 5,164 dealers, or 99%, pay for our service. Our non-paying dealers are generally associated with lower volume vehicle manufacturers such as Jaguar or Suzuki or are located in remote, low volume territories and receive purchase request referrals without paying fees to us. We enter into agreements with non-paying dealers to ensure the broadest geographic coverage for every make of vehicle and to increase consumer satisfaction by offering a complete selection of vehicles. In the third quarter of 2000, 580 dealers were added to our Autobytel.com and CarSmart.com dealer networks and 501 dealers either terminated their affiliation with us or were terminated by us. As of September 30, 2000, our net number of dealers increased by 69% over the same quarter in 1999. The acquisition of CarSmart.com in February 2000 added an additional dealer network of over 1,500 dealers. As of September 30, 2000, approximately 400 dealers subscribed to both the Autobytel.com and CarSmart.com services. Our inability or failure to reduce dealer turnover could have a material adverse effect on our business, results of operations and financial condition. Dealer participation in our programs may terminate for various reasons including: - extinction of the manufacturer brand (i.e. Plymouth), - selling of the dealer franchise, - termination of the franchise by the owner and - termination by us. Because our primary revenue source is from program fees, our business model is significantly different from many other Internet automotive commerce sites. The automobiles requested through our site are sold by dealers; therefore, we derive no direct revenues from the sale of a vehicle (other than through our AutobytelDIRECT service introduced in the first quarter of the year) and have no significant cost of goods sold, no procurement, carrying or shipping costs and no inventory risk. Sales and marketing costs consist primarily of: - Internet marketing and advertising expenses, - fees paid to our Internet affiliate network of purchase request providers, - promotion and advertising expenses to build our brand awareness and encourage potential customers to visit our Web sites and - personnel and other costs associated with sales, marketing, training and support of our dealer network. We use Internet advertising, as well as traditional media, such as television, radio and print. The majority of our Internet advertising is comprised of: - bounty fees paid to our affiliate network, - sponsorship and partnership agreements with Internet portals and - advertising and marketing affiliations with online automotive information providers. 9 10 The Internet portals and online automotive information providers charge a combination of set-up, initial, annual, monthly and variable fees. - Set-up fees are incurred for the development of the link between Autobytel.com and the Internet portal or online information provider and are expensed in the period the link is established. - Initial and annual fees are amortized over the period they relate to. - Monthly fees are expensed in the month they relate to. - Variable fees are fees paid for purchase requests and are expensed in the period the purchase requests are received. Our Internet marketing and advertising costs, including annual, monthly and variable fees, were $5.9 million and $3.7 million in the third quarter of 2000 and 1999, respectively. There were no set-up or initial fees incurred in the third quarter of 2000. Also included in sales and marketing expenses are the costs associated with signing up new dealers and their ongoing training and support. Sales and marketing costs are recorded as an expense in the period the service is provided. Sales and marketing expenses have historically fluctuated quarter-to-quarter due to varied levels of marketing and advertising and we believe this will continue in the future. RESULTS OF OPERATIONS The following table sets forth our results of operations as a percentage of revenues:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Revenues Program fees 81% 88% 81% 90% Related products and services 19 12 19 10 ---- ---- ---- ---- Total revenues 100 100 100 100 Operating expenses: Sales and marketing 88 104 101 115 Product and technology development 35 40 36 35 General and administrative 20 25 20 23 ---- ---- ---- ---- Total operating expenses 144 169 158 174 ---- ---- ---- ---- Loss from operations (44) (69) (58) (74) Other income (expense), net (1) 10 6 8 ---- ---- ---- ---- Loss before provision for (45) (59) (52) (66) income taxes Provision for income taxes -- -- -- -- ---- ---- ---- ---- Net loss (45)% (59)% (52)% (66)% ==== ==== ==== ====
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Revenues. Our revenues increased $6.9 million, or 65%, to $17.5 million in the third quarter of 2000, compared to $10.6 million in the same period in 1999. The growth in revenues was primarily attributable to an increase of $4.8 million, or 51%, in program fees from paying dealers, including program fees of $2.0 million from CarSmart.com dealers. Our number of paying dealers increased by 2,101, or 69%, to 5,164 as of September 30, 2000, compared to 3,063 as of September 30, 1999. The increase in paying dealers includes over 1,500 CarSmart.com dealers added with the acquisition of A.I.N. Corporation in February 2000. In the third quarter of 2000, 79 paying dealers were added to our dealer networks. Our revenues from related products and services accounted for approximately 19% of 10 11 revenues in the third quarter of 2000 and 12% of revenues in the third quarter of 1999. The increase of $2.1 million, or 166%, was primarily due to additional fees from our international license agreements, Website advertising, and aftermarket and finance products. Sales and Marketing. Sales and marketing expenses primarily include advertising and marketing expenses paid to our purchase request providers and for developing our brand equity, as well as personnel and other costs associated with sales, training and support. Sales and marketing expense increased by $4.5 million, or 40%, to $15.5 million in the third quarter of 2000 compared to $11.0 million in the third quarter of 1999. The increase was primarily due to a $2.2 million, or 60%, increase in online advertising for increased purchase requests and agreements with additional Internet affiliates, a $0.6 million, or 93%, increase in other advertising and marketing expenses and a $0.1 million, or 3%, increase in print, television and radio advertising to increase brand awareness. The increase in sales and marketing was further attributable to a $1.6 million, or 55%, increase in sales, dealer support and call center personnel to support the growth of our business. We expect to continue to increase our sales, advertising and marketing expenses in the foreseeable future. Product and Technology Development. Product and technology development expense primarily includes personnel costs relating to enhancing the features, content and functionality of our Web sites and Dealer Real Time system, customizing our software for our international licensees, as well as expenses associated with telecommunications and computer infrastructure. Product and technology development expense increased by $2.0 million, or 47%, to $6.2 million in the third quarter of 2000, compared to $4.2 million in the same period in 1999. The increase was primarily due to a $2.0 million increase in international software development costs. General and Administrative. General and administrative expense was $3.6 million and $2.7 million in the third quarter of 2000 and 1999, respectively. General and administrative expense increased by $0.9 million, or 34%. The increase was primarily due to $0.4 million for goodwill amortization related to our acquisition of CarSmart.com, a $0.3 million, or 27%, increase in recruiting and personnel costs, and a $0.2 million, or 45%, increase in financial consulting, accounting and other public company infrastructure costs. Interest Income, Net. Interest income consists of interest income earned on our cash and cash equivalent balances. Interest income in the third quarter of 2000 increased by $0.5 million, or 44%, compared to the third quarter of 1999. Interest income increased due to higher cash balances resulting primarily from the funding of Autobytel.Europe early in the first quarter of 2000. Foreign Currency Exchange Loss. Autobytel.Europe, a majority-owned subsidiary of autobytel.com, operates its business in Europe. As such, it incurs general operating expenses and enters into transactions, including investments in joint ventures and licensees, which require the use of local currencies. Accordingly, Autobytel.Europe has engaged in foreign currency exchange transactions. Due to foreign exchange rate fluctuations in Europe, a $0.7 million loss on cash held in foreign currency was recognized in the third quarter of 2000. Also, based on the nine month forward exchange rate at September 30, 2000, an unrealized loss of $1.1 million was recognized on foreign exchange forward contracts expiring in June 2001. Foreign exchange transaction gains and losses in Canada were minimal. In the future, we may experience gains or losses attributable to fluctuations in foreign currency exchange rates. NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Revenues. Our revenues increased $21.8 million, or 78%, to $49.7 million for the nine months ended September 30, 2000, compared to $27.9 million in the same period in 1999. The growth in revenues was primarily attributable to a $15.0 million, or 60%, increase in program fees from paying dealers, including program fees of $4.2 million from CarSmart.com dealers. Our revenues from related products and services accounted for approximately 19% of revenues in the nine months ended September 30, 2000 and 10% of revenues in the nine months ended September 30, 1999. The increase was primarily due to additional fees from our international license agreements, Website advertising, database marketing and finance and insurance products. Sales and Marketing. Sales and marketing expense increased by $18.4 million, or 57%, to $50.4 million in the nine months ended September 30, 2000 compared to $32.0 million in the nine months ended September 30, 1999. The increase was primarily due to a $10.2 million, or 91%, increase in print, television and radio advertising to build brand awareness, $3.6 million, or 33%, increase in online advertising for increased purchase requests and 11 12 agreements with additional Internet affiliates, and a $1.1 million, or 71%, increase in other advertising and marketing expenses. The increase in sales and marketing was further attributable to a $3.5 million, or 42%, increase in sales, dealer support and call center personnel to support the growth of our business. We expect to continue to increase our sales, advertising and marketing expenses in the foreseeable future. Product and Technology Development. Product and technology development expense increased by $8.3 million, or 84%, to $18.1 million in the nine months ended September 30, 2000 compared to $9.8 million in the same period in 1999. The increase was primarily due to $6.2 million for international software development costs, and a $2.1 million, or 22%, increase for additional personnel and retention costs, both domestic and international. General and Administrative. General and administrative expense was $10.0 million and $6.5 million for the nine months ended September 30, 2000 and 1999, respectively. General and administrative expense increased by $3.5 million, or 52%. The increase was primarily due to a $1.5 million, or 51%, increase in recruiting and personnel costs, $1.0 million for goodwill amortization related to our acquisition of CarSmart.com, a $0.3 million, or 33%, increase in financial consulting, accounting and other pubic company infrastructure costs and a $0.7 million, or 25%, increase in other general corporate expenses. Interest Income, Net. In the nine months ended September 30, 2000, interest income increased by $2.2 million, or 85%, compared to the same period in 1999. Interest income increased due to higher cash balances resulting from the initial public offering late in the first quarter of 1999 and the funding of Autobytel.Europe early in the first quarter of 2000. Foreign Currency Exchange Loss. Autobytel.Europe, a majority-owned subsidiary of Autobytel.com, operates its business in Europe. As such, it incurs general operating expenses and enters into transactions, including investments in joint ventures and licensees, which require the use of local currencies. Accordingly, Autobytel.Europe has engaged in foreign currency exchange transactions. Due to foreign exchange rate fluctuations in Europe, a $0.7 million loss on cash held in foreign currency was recognized in the third quarter of 2000. Also, based on the nine month forward exchange rate at September 30, 2000, an unrealized loss of $1.1 million was recognized on a foreign exchange forward contract expiring in June 2001. Foreign exchange transaction gains and losses in Canada were minimal. In the future, we may experience gains or losses attributable to fluctuations in foreign currency exchange rates. STOCK-OPTIONS GRANTED IN 2000 From January through September 2000, we granted stock options to purchase 4,255,744 shares of common stock under the 1996 Stock Incentive Plan, 1998 Stock Option Plan, 1999 Stock Option Plan, 1999 Employee and Acquisition Related Stock Option Plan and 2000 Stock Option Plan. The stock options were granted at the fair market value on the date of grant. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $21.9 million for the nine months ended September 30, 2000 and $9.6 million for the nine months ended September 30, 1999. Net cash used in operating activities in the nine months of 2000 resulted primarily from the net loss for the year, increased accounts receivable, acquisition costs for A.I.N. Corporation and decreased accrued expenses partially offset by increased deferred revenues related to growth in the number of our paying dealers and international licensing fees, accounts payable for sales and marketing, product and technology development and general and administrative expenditures, provision for bad debt, depreciation and goodwill amortization related to the acquisition of CarSmart.com. Net cash used in operating activities for the nine months ended September 30, 1999 resulted primarily from the net loss for the year and increased accounts receivable, partially offset by increased accounts payable and accrued expenses related to Internet, print and television advertising, deferred revenues and depreciation and amortization. Net cash used in investing activities was $5.2 million and $0.6 million for the nine months ended September 30, 2000 and 1999, respectively. Cash used for investing activities in 2000 was primarily related to the acquisition of A.I.N. Corporation, the owner of CarSmart.com, the purchase of property and equipment, including computer 12 13 hardware, telecommunications equipment and furniture, and investments in international joint ventures. Cash used for investing activities in 1999 was used for the purchase of property and equipment. Net cash provided by financing activities was $32.3 million for the nine months ended September 30, 2000 and $72.4 million for the nine months ended September 30, 1999. Cash provided by financing activities in 2000 was primarily due to funding received from strategic partners for investment in Autobytel.Europe. In January 2000, we also invested $5 million in Autobytel.Europe which has been eliminated in consolidation. Cash provided by financing activities in 1999 was primarily due to the consummation of our initial public offering in March 1999. We intend to continue to use the balance of the net proceeds from our initial public offering for potential acquisitions, investments in businesses and for general operating expenses. As of October 31, 2000, we had approximately $92.6 million in cash and cash equivalents, including approximately $34.2 million which is reserved for the operations of Autobytel.Europe. We believe our current cash and cash equivalents are sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. With respect to periods beyond September 30, 2001, we may be required to raise additional capital to meet our long term operating requirements. Although our revenues have grown consistently since inception, our expenses have continued to exceed our revenues. We do not expect to be able to fund our operations from internally generated funds until the second half of 2001, when we expect our revenues to exceed our expenses. However, we can not assure that our revenues will exceed our expenses during such period or thereafter. Our cash requirements depend on several factors, including: - the level of expenditures on marketing and advertising, - the level of expenditures on product and technology development, - the ability to increase the volume of purchase requests and transactions related to our Web sites, - the cost of contractual arrangements with Internet portals, online information providers, and other referral sources, - the level of investments in joint ventures and licensees, and - the cash portion of acquisition transactions. We cannot predict the timing and amount of our cash requirements. If capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. We have no commitments for any additional financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional equity financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants with respect to dividends, raising capital and other financial and operational matters which could restrict our operations or finances. If we are unable to obtain additional financing as needed, we may be required to reduce the scope of our operations or our anticipated expansion, which could have a material adverse effect on our business, results of operations and financial condition. YEAR 2000 ISSUE As of the date of this Quarterly Report on Form 10-Q, we are not aware of any material problems resulting from Year 2000 issues, either with our Web sites, the Dealer Real Time system or with our vendors, consumers or dealers. We will continue to monitor our computer applications and those of our vendors, consumers and dealers throughout the year 2000. RISK FACTORS 13 14 In addition to the factors discussed in the "Overview" and "Liquidity and Capital Resources" sections of Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q, the following additional factors may affect our future results. WE HAVE A HISTORY OF NET LOSSES AND CAN NOT ASSURE THAT WE WILL BE PROFITABLE. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY VIABLE. We were formed in January 1995 as Auto-By-Tel LLC, and first received revenues from operations in March 1995. We, therefore, have a limited operating history upon which an investor may evaluate our operations and future prospects. Because of the recent emergence of the Internet-based vehicle information and purchasing industry, none of our senior executives has significant experience in the industry. This limited operating history and management experience means it is difficult for us to predict future operating results. We have incurred losses every quarter since inception and expect to continue to incur losses until the second half of 2001. However, we can not assure that we will be profitable during such period or thereafter. Autobytel.com, including CarSmart.com from the date of acquisition, had an accumulated deficit of $92.4 million and $66.6 million as of September 30, 2000 and December 31, 1999, respectively. CarSmart.com had an accumulated deficit of $3.2 million as of December 31, 1999. Our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets, such as the market for Internet commerce. To achieve profitability, we must, among other things: - generate increased vehicle buyer traffic to our Web sites, - continue to send new and pre-owned vehicle purchase requests to dealers that result in sufficient dealer transactions to justify our fees, - continue to expand the number of dealers in our network and enhance the quality of dealers, - respond to competitive developments, - maintain a high degree of customer satisfaction, - provide secure and easy to use Web sites for customers, - increase our brand name visibility, - successfully introduce new products and services, - continue to attract, retain and motivate qualified personnel, and - continue to upgrade and enhance our technologies to accommodate expanded service offerings and increased consumer traffic. We cannot be certain that we will be successful in achieving these goals. IF OUR DEALER TURNOVER INCREASES, OUR DEALER NETWORKS AND REVENUES DERIVED FROM THESE NETWORKS MAY DECREASE. The majority of our revenues are derived from fees paid by our networks of subscribing dealers. If dealer turnover increases and we are unable to add new dealers to mitigate any turnover, our revenues will decrease as our networks of dealers decreases. If the number of dealers in our networks declines our revenues may decrease and our business, results of operations and financial condition will be materially and adversely affected. A material factor affecting dealer turnover is our ability to provide dealers with high quality purchase requests. High quality purchase requests are those that result in high closing ratios. Closing ratio is the ratio of the number of vehicles purchased at a 14 15 dealer generated from purchase requests to the total number of purchase requests sent to that dealer. All of our subscribing dealers have entered into written marketing agreements with us having a stated term of one year, three years or five years, but the Autobytel.com dealer agreements are cancelable by the dealer upon 30 days notice. A significant number of the agreements are for a one year term. We cannot assure that dealers will not terminate their agreements with us. Subscribing dealers may terminate their relationship with Autobytel.com for any reason, including an unwillingness to accept our subscription terms or as a result of joining alternative marketing programs. Our business is dependent upon our ability to attract and retain qualified new and pre-owned vehicle dealers. In the third quarter of 2000, we added 580 subscribing dealers to our North American dealer network and 501 subscribing dealers terminated their affiliation with us or were terminated by us. In order for us to grow or maintain our dealer networks, we need to reduce dealer turnover. WE MAY LOSE SUBSCRIBING DEALERS IF WE RECONFIGURE DEALER TERRITORIES. IF WE LOSE DEALERS, WE WILL LOSE THE REVENUES ASSOCIATED WITH THOSE DEALERS. If the volume of purchase requests increases, we may reduce or reconfigure the exclusive territories currently assigned to dealers in order to serve consumers more effectively. If a dealer is unwilling to accept a reduction or reconfiguration of its territory, it may terminate its relationship with us. The loss of dealers will cause a subsequent reduction in revenues unless we are able to mitigate this loss by adding new dealers or increasing the fees we receive from other dealers. A dealer also could sue us to prevent such reduction or reconfiguration, or collect damages from us. We have experienced one such lawsuit. A material decrease in the number of dealers subscribing to our network or litigation with dealers could have a material adverse effect on our business, results of operations and financial condition. WE RELY HEAVILY ON OUR PARTICIPATING DEALERS TO PROMOTE OUR BRAND VALUE BY PROVIDING HIGH QUALITY SERVICES TO OUR CONSUMERS. IF DEALERS DO NOT PROVIDE OUR CONSUMERS HIGH QUALITY SERVICES, OUR BRAND VALUE WILL DIMINISH AND THE NUMBER OF CONSUMERS WHO USE OUR SERVICES MAY DECLINE CAUSING A DECREASE IN OUR REVENUES. Promotion of our brand value depends on our ability to provide consumers a high quality experience for purchasing vehicles throughout the purchasing process. If our dealers do not provide consumers with high quality service, the value of our brand could be damaged and the number of consumers using our services may decrease. We devote significant efforts to train participating dealers in practices that are intended to increase consumer satisfaction. Our inability to train dealers effectively, or the failure by participating dealers to adopt recommended practices, respond rapidly and professionally to vehicle inquiries, or sell and lease vehicles in accordance with our marketing strategies, could result in low consumer satisfaction, damage our brand name and could materially and adversely affect our business, results of operations and financial condition. INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE. OUR MARKET IS COMPETITIVE NOT ONLY BECAUSE THE INTERNET HAS MINIMAL BARRIERS TO ENTRY, BUT ALSO BECAUSE WE COMPETE DIRECTLY WITH OTHER COMPANIES IN THE OFFLINE ENVIRONMENT. Our vehicle purchasing services compete against a variety of Internet and traditional vehicle purchasing services, automotive brokers and classifieds. Therefore, we are affected by the competitive factors faced by both Internet commerce companies as well as traditional, offline companies within the automotive and automotive-related industries. The market for Internet-based commercial services is new, and competition among commercial Web sites is expected to increase significantly in the future. With numerous recent entrants into our market, our competition has substantially increased. Many of such recent entrants are substantially better financed than we are. Our business is characterized by minimal barriers to entry, and new competitors can launch a competitive service at relatively low cost. To compete successfully as an Internet-based commercial entity, we must significantly increase awareness of our services and brand name. Failure to achieve these objectives will cause our revenues to decline and would have a material adverse effect on our business, results of operations and financial condition. We compete with other entities which maintain similar commercial Web sites including Autoweb.com, AutoVantage, Microsoft Corporation's Carpoint, CarsDirect.com, Driveoff.com, Greenlight.com and AutoTrader.com. AutoNation, a large consolidator of dealers, has a Web site for marketing vehicles. We also compete indirectly against vehicle brokerage firms and affinity programs offered by several companies, including Costco Wholesale Corporation and Wal-Mart Stores, Inc. In addition, all major vehicle manufacturers have their own Web sites and many have launched online buying services, such as General Motors Corporation's BuyPower 15 16 and Ford Motor Company's FordDirect.com. We also compete with vehicle insurers, lenders and lessors as well as other dealers that are not part of our network. Such companies may already maintain or may introduce Web sites which compete with ours. We believe that the principal competitive factors in the online market are: - brand recognition, - speed and quality of fulfillment, - variety of related products and services, - ease of use, - customer satisfaction, - quality of service, and - technical expertise. We cannot assure that we can compete successfully against current or future competitors, many of which have substantially more capital, existing brand recognition, resources and access to additional financing. In addition, competitive pressures may result in increased marketing costs, decreased Web site traffic or loss of market share or otherwise may materially and adversely affect our business, results of operations and financial condition. OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE. Our quarterly operating results may fluctuate due to many factors. Our expense levels are based in part on our expectations of future revenues which may vary significantly. We plan our business operations based on increased revenues and if our revenues do not increase faster than our expenses, our business, results of operations and financial condition will be materially and adversely affected. Other factors that may adversely affect our quarterly operating results include: - our ability to retain existing dealers, attract new dealers and maintain dealer and customer satisfaction, - the announcement or introduction of new or enhanced sites, services and products by us or our competitors, - our ability to joint venture with business partners in the development of Autobytel branded companies internationally, - general economic conditions and economic conditions specific to the Internet, online commerce or the automobile industry, - a decline in the usage levels of online services and consumer acceptance of the Internet and commercial online services for the purchase of consumer products and services such as those offered by us, - our ability to upgrade and develop our systems and infrastructure and to attract new personnel in a timely and effective manner, - the level of traffic on our Web sites and other sites that refer traffic to our Web sites, - technical difficulties, system downtime or Internet brownouts, - the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure, 16 17 - governmental regulation, and - unforeseen events affecting the industry. SEASONALITY IS LIKELY TO CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS. INVESTORS MAY NOT BE ABLE TO PREDICT OUR ANNUAL OPERATING RESULTS BASED ON A QUARTER TO QUARTER COMPARISON OF OUR OPERATING RESULTS. To date, our quarter to quarter growth in revenues have offset any effects due to seasonality. However, we expect our business to experience seasonality as it matures. If this occurs, investors may not be able to predict our annual operating results based on a quarter to quarter comparison of our operating results. Seasonality in the automotive industry, Internet and commercial online service usage and advertising expenditures is likely to cause fluctuations in our operating results and could have a material adverse effect on our business, operating results and financial condition. We anticipate that purchase requests will typically increase during the first and third quarters when new vehicle models are introduced and will typically decline during the second and fourth quarters. Internet and commercial online service usage and the growth rate of such usage typically declines during the summer. IF ANY OF OUR RELATIONSHIPS WITH INTERNET SEARCH ENGINES OR ONLINE AUTOMOTIVE INFORMATION PROVIDERS TERMINATES, OUR PURCHASE REQUEST VOLUME COULD DECLINE. IF OUR PURCHASE REQUEST VOLUME DECLINES, OUR PARTICIPATING DEALERS MAY NOT BE SATISFIED WITH OUR SERVICES AND MAY TERMINATE THEIR RELATIONSHIP WITH US OR FORCE US TO DECREASE THE FEES WE CHARGE FOR OUR SERVICE. IF THIS OCCURS, OUR REVENUES WOULD DECREASE. We depend on a number of strategic relationships to direct a substantial amount of purchase requests and traffic to our Web sites. The termination of any of these relationships or any significant reduction in traffic to Web sites on which our services are advertised or offered, or the failure to develop additional referral sources, would cause our purchase request volume to decline. Since our dealers would be receiving fewer purchase requests, they may no longer be satisfied with our service and may terminate their relationships with us or force us to decrease the fees we charge for our services. If our dealers terminate their relationship with us or force us to decrease the fees we charge for our services, our revenues will decline which will have a material adverse effect on our business, results of operations and financial condition. We receive a significant number of purchase requests through a limited number of Internet search engines, online automotive information providers, and other auto related Internet sites. We periodically negotiate revisions to existing agreements and these revisions could increase our costs in future periods. During the three months ended September 30, 2000, approximately 27% of Autobytel.com's purchase requests came through StoneAge.com. The agreement with StoneAge Corporation expires on March 1, 2000 and unless terminated by either party, automatically renews for a term of up to 14 months. We may not be able to maintain our relationship with our online service providers or find alternative, comparable marketing partners capable of originating significant numbers of purchase requests on terms satisfactory to us. A number of our agreements with online service providers may be terminated without cause. IF WE CANNOT BUILD STRONG BRAND LOYALTY OUR BUSINESS MAY SUFFER. We believe that the importance of brand recognition will increase as more companies engage in commerce over the Internet. Development and awareness of the Autobytel.com and CarSmart.com brands will depend largely on our ability to obtain a leadership position in Internet commerce. If dealers do not perceive us as an effective channel for increasing vehicle sales, or consumers do not perceive us as offering reliable information concerning new and pre-owned vehicles, as well as referrals to high quality dealers, in a user-friendly manner that reduces the time spent for vehicle purchases, we will be unsuccessful in promoting and maintaining our brands. Our brands may not be able to gain widespread acceptance among consumers or dealers. Our failure to develop our brands sufficiently would have a material adverse effect on our business, results of operations and financial condition. IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN ADDITIONAL HIGHLY QUALIFIED SALES, MARKETING, MANAGERIAL AND TECHNICAL PERSONNEL, OUR BUSINESS MAY SUFFER. Our future success depends on our ability to identify, hire, train and retain highly qualified sales, marketing, managerial and technical personnel. In addition, as we introduce new services we will need to hire a significant number of personnel. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain such personnel in the future. The inability to attract and retain the necessary managerial, technical, sales and 17 18 marketing personnel could have a material adverse effect on our business, results of operations and financial condition. Our business and operations are substantially dependent on the performance of our executive officers and key employees, some of whom are employed on an at-will basis and all of whom have worked together for only a short period of time. We maintain "key person" life insurance in the amount of $3.0 million on the life of Mark W. Lorimer, our Chief Executive Officer and President. The loss of the services of Mr. Lorimer or one or more of our other executive officers or key employees could have a material adverse effect on our business, results of operations and financial condition. WE ARE A NEW BUSINESS IN A NEW INDUSTRY AND NEED TO MANAGE OUR GROWTH AND OUR ENTRY INTO NEW BUSINESS AREAS IN ORDER TO AVOID INCREASED EXPENSES WITHOUT CORRESPONDING REVENUES. We are constantly expanding our operations and introducing new services to consumers and dealers in order to establish ourselves as a leader in the evolving market for Internet-based vehicle purchasing and related services. We also intend to enter into new markets overseas. The growth of our operations requires us to increase expenditures before we generate revenues. For example, we need to hire personnel to oversee the introduction of new services before we generate revenues from these services. Our inability to generate satisfactory revenues from such expanded services to offset costs could have a material adverse effect on our business, financial condition and results of operations. As of October 31, 2000, we had 291 employees. We believe establishing industry leadership also requires us to: - test, introduce and develop new services and products, including enhancing our Web sites, - expand the breadth of products and services offered, - expand our market presence through relationships with third parties, and - acquire new or complementary businesses, products or technologies. We cannot assure that we can successfully manage these tasks. IF FEDERAL OR STATE FRANCHISE LAWS APPLY TO US WE MAY BE REQUIRED TO MODIFY OR ELIMINATE OUR MARKETING PROGRAMS. IF WE ARE UNABLE TO MARKET OUR SERVICES IN THE MANNER WE CURRENTLY DO, OUR REVENUES MAY DECREASE AND OUR BUSINESS MAY SUFFER. We believe that neither our relationship with our dealers nor our dealer subscription agreements constitute "franchises" under federal or state franchise laws and that, other than our AutobytelDIRECT service, we are not subject to the coverage of state and motor vehicle dealer licensing laws. Through a subsidiary, we are licensed as a motor vehicle dealer and broker. However, if any state's regulatory requirements relating to franchises or our method of business impose additional requirements on us or include us within an industry-specific regulatory scheme, we may be required to modify our marketing programs in such states in a manner which undermines the program's attractiveness to consumers or dealers. If we become subject to fines or other penalties or if we determine that the licensing and related requirements are overly burdensome, we may elect to terminate operations in such state. In each case, our revenues may decline and our business, results of operations and financial condition could be materially and adversely affected. A Federal court of appeals in Michigan has ruled that our dealer subscription agreement is not a "franchise" under Michigan law. However, if our relationship or written agreement with our dealers were found to be a "franchise" under federal or state franchise laws, then we could be subject to other regulations, such as franchise disclosure and registration requirements and limitations on our ability to effect changes in our relationships without our dealers. We also believe that, other than our AutobytelDIRECT service, our dealer marketing service does not qualify as an automobile brokerage activity and, therefore, state broker licensing requirements do not apply to us. Through a subsidiary, we are licensed as a motor vehicle dealer and broker. In response to Texas Department of Transportation concerns, we modified our marketing program in that state to include a pricing model under which 18 19 all subscribing dealers in Texas are charged uniform fees based on the population density of their particular geographic area and to make our program open to all dealers who wish to apply. IF FINANCIAL BROKER AND INSURANCE LICENSING REQUIREMENTS APPLY TO US IN STATES WHERE WE ARE NOT CURRENTLY LICENSED, WE WILL BE REQUIRED TO OBTAIN ADDITIONAL LICENSES AND OUR BUSINESS MAY SUFFER. If we are required to be licensed as a financial broker, it may result in an expensive and time-consuming process that could divert the effort of management away from day-to-day operations. In the event states require us to be licensed and we are unable to do so, or are otherwise unable to comply with regulations required by changes in current operations or the introduction of new services, we could be subject to fines or other penalties, and our business, results of operations and financial condition could be materially and adversely affected. We provide a link on the Autobytel.com Web site so consumers can receive real time quotes for insurance coverage from Channelpoint Corporation and submit quote applications online. Participants in the program include MetLife(R) Auto & Home Insurance, The Hartford (Hartford Financial Services Group, Inc.), The GE Auto Insurance Program, eCoverage, Esurance, Ekemper, Electric Insurance, Instant Auto Insurance, Tri-State Insurance, and Avonmark Insurance Company. We receive fees from such participants in connection with this advertising activity. We do not believe that the above activities require us to be licensed under state insurance laws. The use of the Internet in the marketing of insurance products, however, is a relatively new practice. It is not clear whether or to what extent state insurance licensing laws apply to activities similar to ours. Given these uncertainties, we currently hold, through a wholly-owned subsidiary, insurance agent licenses or are otherwise authorized to transact insurance in 47 states and the District of Columbia. We have applied for insurance agent licenses in remaining states that issue corporate licensing and are awaiting approval. In the event other states require us to be licensed and we are unable to do so, or are otherwise unable to comply with regulations required by changes in current operations or the introduction of new services, we could be subject to fines or other penalties, and our business, results of operations and financial condition could be materially and adversely affected. THERE ARE MANY RISKS ASSOCIATED WITH CONSUMMATED AND POTENTIAL ACQUISITIONS. We acquired A.I.N. Corporation in February 2000. Acquisitions involve numerous risks. For example: - It may be difficult to assimilate the operations and personnel of an acquired business into our own business; - Management information and accounting systems of an acquired business must be integrated into our current systems; - We may lose dealers participating in both our network as well as that of the acquired business, if any; - Our management must devote its attention to assimilating the acquired business which diverts attention from other business concerns; - We may enter markets in which we have limited prior experience; and - We may lose key employees of an acquired business. We intend to continue to evaluate potential acquisitions which we believe will complement or enhance our existing business. If we acquire other companies in the future, it may result in the issuance of equity securities that could dilute existing stockholders' ownership. We may also incur debt and amortize expenses related to goodwill and other intangible assets if we acquire another company, and this could negatively impact our results of operations. We currently do not have any agreements to acquire any company or business, and we cannot guarantee that we will be able to identify or complete any acquisition in the future. INTERNET COMMERCE HAS YET TO ATTRACT SIGNIFICANT REGULATION. GOVERNMENT REGULATIONS MAY RESULT IN ADMINISTRATIVE MONETARY FINES, PENALTIES OR TAXES THAT MAY REDUCE OUR FUTURE EARNINGS. 19 20 There are currently few laws or regulations that apply directly to the Internet. Because our business is dependent on the Internet, the adoption of new local, state, national or international laws or regulations may decrease the growth of Internet usage or the acceptance of Internet commerce which could, in turn, decrease the demand for our services and increase our costs or otherwise have a material adverse effect on our business, results of operations and financial condition. Tax authorities in a number of states are currently reviewing the appropriate tax treatment of companies engaged in Internet commerce. New state tax regulations may subject us to additional state sales, use and income taxes. EVOLVING GOVERNMENT REGULATIONS MAY REQUIRE FUTURE LICENSING WHICH COULD INCREASE ADMINISTRATIVE COSTS OR ADVERSELY AFFECT OUR REVENUES. In a regulatory climate that is uncertain, our operations may be subject to direct and indirect adoption, expansion or reinterpretation of various domestic and foreign laws and regulations. Compliance with these future laws and regulations may require us to obtain appropriate licenses at an undeterminable and possibly significant initial monetary and annual expense. These additional monetary expenditures may increase future overhead, thereby potentially reducing our future results of operations. We have identified what we believe are the areas of domestic government regulation, which if changed, would be costly to us. These laws and regulations include franchise laws, motor vehicle brokerage licensing laws, insurance licensing laws, and motor vehicle dealership licensing laws, which are or may be applicable to aspects of our business as applicable. There could be laws and regulations applicable to our business which we have not identified or which, if changed, may be costly to us. The introduction of new services and expansion of our operations to foreign countries may require us to comply with additional, yet undetermined, laws and regulations. Compliance may require obtaining appropriate business licenses, filing of bonds, appointment of foreign agents and periodic business reporting activity. The failure to adequately comply with these future laws and regulations may delay or possibly prevent some of our products or services from being offered in a particular foreign country, thereby having an adverse affect on our results of operations. OUR SUCCESS IS DEPENDENT ON KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP USING OUR SERVICES AND OUR REVENUES WILL DECREASE. The Internet and electronic commerce markets are characterized by rapid technological change, changes in user and customer requirements, frequent new service and product introductions embodying new technologies and the emergence of new industry standards and practices that could render our existing Web sites and technology obsolete. If we are unable to adapt to changing technologies, our business, results of operations and financial condition could be materially and adversely affected. Our performance will depend, in part, on our ability to continue to enhance our existing services, develop new technology that addresses the increasingly sophisticated and varied needs of our prospective customers, license leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our Web sites, Dealer Real Time system and other proprietary technology entails significant technical and business risks. We may not be successful in using new technologies effectively or adapting our Web sites, Dealer Real Time system, or other proprietary technology to customer requirements or to emerging industry standards. WE ARE VULNERABLE TO COMMUNICATIONS SYSTEM INTERRUPTIONS BECAUSE THE MAJORITY OF OUR PRIMARY SERVERS ARE LOCATED IN A SINGLE LOCATION. IF COMMUNICATIONS TO THAT LOCATION WERE INTERRUPTED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED. We host all of Autobytel.com production Web sites including Autobytel.com and Dealer Real Time systems at our corporate headquarters in Irvine, California. Although offsite backup servers are available from outside sources, all of Autobytel.com's primary servers are located at our corporate headquarters and are vulnerable to interruption by damage from fire, earthquake, flood, power loss, telecommunications failure, break-ins and other events beyond our control. In the event that we experience significant system disruptions, our business, results of operations and financial condition would be materially and adversely affected. We have, from time to time, experienced periodic 20 21 systems interruptions and anticipate that such interruptions will occur in the future. We maintain business interruption insurance which pays up to $6 million for the actual loss of business income sustained due to the suspension of operations as a result of direct physical loss of or damage to property at our offices. However, in the event of a prolonged interruption, this business interruption insurance may not be sufficient to fully compensate us for the resulting losses. The CarSmart.com Web site is hosted by a third party service provider. INTERNET COMMERCE IS NEW AND EVOLVING WITH FEW PROFITABLE BUSINESS MODELS. WE CANNOT ASSURE THAT OUR BUSINESS MODEL WILL BE PROFITABLE. The market for Internet-based purchasing services has only recently begun to develop and is rapidly evolving. While many Internet commerce companies have grown in terms of revenues, few are profitable. We can not assure that we will be profitable. As is typical for a new and rapidly evolving industry, demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty and there are few proven services and products. Moreover, since the market for our services is new and evolving, it is difficult to predict the future growth rate, if any, and size of this market. IF CONSUMERS DO NOT ADOPT INTERNET COMMERCE AS A MAINSTREAM MEDIUM OF COMMERCE, OUR REVENUES MAY NOT GROW AND OUR EARNINGS MAY SUFFER. The success of our services will depend upon the adoption of the Internet by consumers and dealers as a mainstream medium for commerce. While we believe that our services offer significant advantages to consumers and dealers, there can be no assurance that widespread acceptance of Internet commerce in general, or of our services in particular, will occur. Our success assumes that consumers and dealers who have historically relied upon traditional means of commerce to purchase or lease vehicles, and to procure vehicle financing and insurance, will accept new methods of conducting business and exchanging information. In addition, dealers must be persuaded to adopt new selling models and be trained to use and invest in developing technologies. Moreover, critical issues concerning the commercial use of the Internet, such as, ease of access, security, reliability, cost, and quality of service, remain unresolved and may impact the growth of Internet use. If the market for Internet-based vehicle marketing services fails to develop, develops slower than expected or becomes saturated with competitors, or if our services do not achieve market acceptance, our business, results of operations and financial condition will be materially and adversely affected. THE PUBLIC MARKET FOR OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE, ESPECIALLY SINCE MARKET PRICES FOR INTERNET-RELATED AND TECHNOLOGY STOCKS HAVE OFTEN BEEN UNRELATED TO OPERATING PERFORMANCE. Prior to the initial public offering of our common stock in March 1999, there was no public market for our common stock. We cannot assure that an active trading market will be sustained or that the market price of the common stock will not decline. Even if an active trading market does develop, the market price of the common stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to factors such as: - actual or anticipated variations in our quarterly operating results, - announcements of new product or service offerings, - technological innovations, - competitive developments, including actions by automotive manufacturers, - changes in financial estimates by securities analysts, - conditions and trends in the Internet and electronic commerce industries, - adoption of new accounting standards affecting the technology or automotive industry, and - general market conditions and other factors. 21 22 Further, the stock markets, and in particular the NASDAQ National Market, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many technology companies and have often been unrelated or disproportionate to the operating performance of such companies. These broad market factors have and may continue to adversely affect the market price of our common stock. In addition, general economic, political and market conditions such as recessions, interest rates or international currency fluctuations, may adversely affect the market price of the common stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against companies with publicly traded securities. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on our business, results of operations and financial condition. WE FACE UNCERTAINTIES WITH CHANGING LEGISLATION IN THE AUTOMOTIVE INDUSTRY WHICH COULD REQUIRE INCREASED REGULATORY AND LOBBYING COSTS AND MAY HARM OUR BUSINESS. Our purchasing services may result in changing the way vehicles are sold which may be viewed as threatening by new and used vehicle dealers who do not subscribe to our programs. Such businesses are often represented by influential lobbying organizations, and such organizations or other persons may propose legislation which could impact the evolving marketing and distribution model which our services promote. Should current laws be changed or new laws passed, our business, results of operations and financial condition could be materially and adversely affected. As we introduce new services, we may need to comply with additional licensing regulations and regulatory requirements. To date, we have not spent significant resources on lobbying or related government affairs issues but we may need to do so in the future. A significant increase in the amount we spend on lobbying or related activities would have a material adverse effect on our results of operations and financial condition. OUR INTERNATIONAL EXPANSION MAY REQUIRE US TO COMPLY WITH BURDENSOME REGULATORY, TARIFF AND LICENSING REQUIREMENTS. OUR NEED TO COMPLY WITH BURDENSOME GOVERNMENTAL REQUIREMENTS MAY ADVERSELY AFFECT OUR ABILITY TO GROW OUR BUSINESS. Our licensees have launched Web sites in the United Kingdom, Sweden, Australia and Japan. We intend to expand our brand into other foreign markets through licensing our technology, business processes and trade names and by establishing relationships with vehicle dealers and strategic partners located in foreign markets. By expanding our operations to various other countries, we may become subject to laws or treaties that regulate the marketing, distribution and sale of motor vehicles. We will need to spend our resources to determine whether the laws of the countries in which we seek to operate require us to modify, or prohibit the use of, our Autobytel.com system. In addition, the laws of other countries may impose licensing, bonding or similar requirements on us as a condition to doing business in these countries. WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR BUSINESS ABROAD WHICH MAY LIMIT OUR FUTURE GROWTH. We have had limited experience in providing our service abroad and we cannot be certain that we will be successful in introducing or marketing our services abroad. In addition, there are risks inherent in conducting business in international markets, such as: - changes in political conditions, - regulatory requirements, - potentially weaker intellectual property protections, - tariffs and other trade barriers, fluctuations in currency exchange rates, or potentially adverse tax consequences, - difficulties in managing or overseeing foreign operations, and 22 23 - educating consumers and dealers who may be unfamiliar with the benefits of online marketing and commerce. One or more of such factors may have a material adverse effect on our current or future international operations and, consequently, on our business, results of operations and financial condition. OUR COMPUTER INFRASTRUCTURE MAY BE VULNERABLE TO SECURITY BREACHES. ANY SUCH PROBLEMS COULD JEOPARDIZE CONFIDENTIAL INFORMATION TRANSMITTED OVER THE INTERNET, CAUSE INTERRUPTIONS IN OUR OPERATIONS OR CAUSE US TO HAVE LIABILITY TO THIRD PERSONS. Our computer infrastructure is potentially vulnerable to physical or electronic computer break-ins, viruses and similar disruptive problems and security breaches. Any such problems or security breach could cause us to have liability to one or more third parties and disrupt all or part of our operations. Any of these events would have a material adverse effect on our business, results of operations and financial condition. A party who is able to circumvent our security measures could misappropriate proprietary information, jeopardize the confidential nature of information transmitted over the Internet or cause interruptions in our operations. Concerns over the security of Internet transactions and the privacy of users could also inhibit the growth of the Internet in general, particularly as a means of conducting commercial transactions. To the extent that our activities or those of third party contractors involve the storage and transmission of proprietary information such as personal financial information, security breaches could expose us to a risk of financial loss, litigation and other liabilities. Our insurance does not currently protect against such losses. WE DEPEND ON CONTINUED TECHNOLOGICAL IMPROVEMENTS IN OUR SYSTEMS AND IN THE INTERNET OVERALL. IF WE ARE UNABLE TO HANDLE AN UNEXPECTEDLY LARGE INCREASE IN VOLUME OF CONSUMERS USING OUR WEB SITES, WE CANNOT ASSURE OUR CONSUMERS OR DEALERS THAT PURCHASE REQUESTS WILL BE EFFICIENTLY PROCESSED AND OUR BUSINESS MAY SUFFER. If the Internet continues to experience significant growth in the number of users and the level of use, then the Internet infrastructure may not be able to continue to support the demands placed on it by such potential growth. The Internet may not prove to be a viable commercial medium because of inadequate development of the necessary infrastructure, timely development of complementary products such as high speed modems, delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity or increased government regulation. An unexpectedly large increase in the volume or pace of traffic on our Web sites or the number of orders placed by customers may require us to expand and further upgrade our technology, transaction-processing systems and network infrastructure. We may not be able to accurately project the rate or timing of increases, if any, in the use of our Web sites or expand and upgrade our systems and infrastructure to accommodate such increases. In addition, we cannot assure that our dealers will efficiently process purchase requests. MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD IMPAIR OUR COMPETITIVE POSITION. Our ability to compete depends upon our proprietary systems and technology. While we rely on trademark, trade secret and copyright law, confidentiality agreements and technical measures to protect our proprietary rights, we believe that the technical and creative skills of our personnel, continued development of our proprietary systems and technology, brand name recognition and reliable Web site maintenance are more essential in establishing and maintaining a leadership position and strengthening our brand. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information that we regard as proprietary. Policing unauthorized use of our proprietary rights is difficult. We cannot assure that the steps taken by us will prevent misappropriation of technology or that the agreements entered into for that purpose will be enforceable. Misappropriation of our intellectual property or potential litigation would have a material adverse effect on our business, results of operations and financial condition. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our products and services are made available online. In addition, litigation may be necessary in the future to enforce or protect our intellectual property rights or to defend against claims or infringement or invalidity. As part of our confidentiality procedures, we generally enter into agreements with our employees and consultants and limit access to our trade secrets and technology. 23 24 OUR FOUNDERS, OFFICERS AND DIRECTORS AND THEIR AFFILIATES HAVE SUBSTANTIAL CONTROL OF OUR VOTING STOCK AND HAVE THE ABILITY TO SIGNIFICANTLY INFLUENCE AND IN ALL LIKELIHOOD MAKE DECISIONS THAT COULD ADVERSELY AFFECT STOCKHOLDERS. SUCH DECISIONS COULD ADVERSELY AFFECT OUR STOCK PRICE. The control of a large amount of our stock by insiders could have an adverse effect on the market price of our common stock. As of October 31, 2000, our executive officers and directors beneficially own or control approximately 5.2 million shares or 23% of the outstanding shares of our common stock. In addition, as of such date, based on information available to us, our founders, Peter Ellis and John Bedrosian beneficially own or control approximately 8.2% and 12.3%, respectively, of the outstanding shares of our common stock. Our officers, directors, founders and their affiliates, assuming they vote together, have the ability to significantly influence and substantially control the election of our board of directors and the outcome of corporate actions requiring stockholder approval, including mergers and other changes of corporate control, going private transactions and other extraordinary transactions. SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. SINCE THE MARKET PRICES FOR INTERNET-RELATED STOCKS ARE LIKELY TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN OTHER COMPANIES BY SUCH FUTURE SALES. Sale of substantial numbers of shares of common stock in the public market could adversely affect the market price of our common stock and make it more difficult for us to raise funds through equity offerings in the future. A substantial number of outstanding shares of common stock and shares of common stock issuable upon exercise of outstanding stock options will become available for resale in the public market at prescribed times. Of the 20,336,083 shares that were outstanding as of October 31, 2000, approximately 15.0 million shares are eligible for sale in the public market without restriction and approximately 5.3 million shares are subject to restrictions on sale in the public market in accordance with the provisions of Rule 144 under the Securities Act of 1933, of which approximately 1.4 million shares are subject to the volume limitations of Rule 144 by virtue of Rule 145. In addition, holders of approximately 8.6 million shares of common stock are entitled to certain registration rights with respect to such shares until such time as the holders of such common stock may sell such shares under Rule 144 of the Securities Act. WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING WE MAY NOT BE ABLE TO CONTINUE TO OPERATE OUR BUSINESS. We currently anticipate that our cash, cash equivalents and short-term investments will be sufficient to meet our anticipated needs for working capital and other cash requirements at least for the next 12 months. We may need to raise additional funds sooner, however, in order to fund more rapid expansion, to develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. There can be no assurance that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of potential acquisition opportunities, develop or enhance services or products or respond to competitive pressures would be significantly limited. Such limitation could have a material adverse effect on our business, results of operations, financial condition and prospects. OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE A THIRD PARTY FROM ACQUIRING US OR LIMIT THE PRICE THIRD PARTIES ARE WILLING TO PAY FOR OUR STOCK. Provisions of our amended and restated certificate of incorporation and bylaws relating to our corporate governance could make it difficult for a third party to acquire us, and could discourage a third party from attempting to acquire control of us. These provisions allow us to issue preferred stock with rights senior to those of the common stock without any further vote or action by the stockholders. These provisions provide that the board of directors is divided into three classes, which may have the effect of delaying or preventing changes in control or change in our management because less than a majority of the board of directors are up for election at each annual meeting. In addition, these provisions impose various procedural and other requirements which could make it more difficult for stockholders to effect corporate actions such as a merger, asset sale or other change of control of us. Such charter provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control. The issuance of preferred stock also 24 25 could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock. We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns or did own 15% or more of the corporation's voting stock. OUR ACTUAL RESULTS COULD DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS REPORT. This report contains forward-looking statements based on current expectations which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risk factors set forth above and elsewhere in this report. The cautionary statements made in this report should be read as being applicable to all forward-looking statements wherever they appear in this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Autobytel.Europe, which operates in Europe, is a majority-owned subsidiary of Autobytel.com. Autobytel.Europe incurs general operating expenses and enters into transactions, including investments in joint ventures and licensees, which require the use of local foreign currencies. As a result of these transactions, Autobytel.com is exposed to gains and losses resulting from changes in foreign currency exchange rates. These fluctuations may adversely affect Autobytel.com's consolidated results of operations and financial position. In certain circumstances, Autobytel.Europe enters into foreign currency forward contracts in an effort to minimize the risks and costs associated with these fluctuations. Neither Autobytel.com nor Autobytel.Europe enters into foreign currency forward contracts or other financial instruments for trading or speculative purposes. In July 2000, Autobytel.Europe entered into foreign currency forward exchange contracts with maturity dates of September 26, 2000 and June 26, 2001. These contracts obligate Autobytel.Europe to exchange U. S. dollars for predetermined amounts of Netherlands guilders at specified exchange rates on specified dates. Included in Autobytel.com's consolidated statements of operations are realized and unrealized losses of $0.7 million and $1.1 million, respectively, resulting from changes in the spot exchange rate, including those from open matured and terminated contracts. A sensitivity analysis indicates that for each 5% increase in exchange rates on foreign currencies utilized by Autobytel.Europe, Autobytel.com would incur additional losses of $0.7 million on foreign currency forward contracts outstanding and $0.6 million on foreign currency cash balances at September 30, 2000. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We may become subject to legal proceedings from time to time in the normal course of business. We are not currently involved in any litigation that management believes will have a material adverse effect on our financial position or results of operations. A.I.N. Corporation was sued on September 1, 1999 in a lawsuit entitled Robert Martins v. Michael J. Gorun, A.I.N., Inc., et al., in Los Angeles Superior Court. The complaint contains causes of action for breach of written and oral contracts, promissory estoppel, breach of fiduciary duty and fraud, and seeks damages and equitable relief. The plaintiff contends he is entitled to a 49.9% ownership interest in A.I.N. Corporation's CarSmart online business based on a purported agreement for the formation of a company called CarSmart On-Line Services. On December 14, 1999, A.I.N. Corporation filed a complaint for declaratory relief on the subject of Mr. Martins' lawsuit in Contra Costa County Superior Court. The Los Angeles action has been transferred to Contra Costa County and the two cases will be consolidated. Autobytel.com was added as a cross defendant in such action. The lawsuit is and will be 25 26 vigorously contested on behalf of Autobytel.com, A.I.N. Corporation and individual co-defendant Michael Gorun, President of A.I.N. Corporation. The selling shareholders of A.I.N. Corporation are obligated to fully indemnify Autobytel.com for all losses, including attorney's fees, expenses, settlements and judgements, arising out of the lawsuit. The indemnification obligation was initially secured by 450,000 shares of Autobytel.com common stock transferred to the selling shareholders as part of the acquisition of A.I.N. Corporation, as well as $250,000 in cash. As of September 30, 2000, the obligation was secured by the 450,000 shares of common stock and $122,000 in cash after expenses. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS We have no specific plans at this time for the use of the balance of the proceeds received from the initial public offering and expect to use such proceeds for working capital and general corporate purposes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 3.1 Amended and Restated Bylaws of autobytel.com inc. 10.1 Letter agreement, dated July 14, 2000, between ABN AMRO Bank N.V. and Autobytel.Europe Holdings B.V. regarding foreign currency forward transaction. 10.2 Letter agreement, dated July 19, 2000, between ABN AMRO Bank N.V. and Autobytel.Europe Holdings B.V. regarding foreign currency forward transaction. 10.3 Letter agreement, dated July 24, 2000, between ABN AMRO Bank N.V. and Autobytel.Europe Holdings B.V. regarding foreign currency forward transaction. 10.4 Contract of Employment, dated September 1, 2000, between Max Rens and Autobytel.Europe Holdings B.V. and addendum thereto. 10.5 Employment Agreement, dated as of May 3, 2000, between Dennis Benner and autobytel.com inc. 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K 1. On July 28, 2000, we filed a Report on Form 8-K, dated July 27, 2000, announcing our financial results for the second quarter of 2000. 2. On September 18, 2000, we filed a Report on Form 8-K, dated September 15, 2000, announcing our expectations regarding year over year revenue growth for the third quarter 2000 and fiscal year 2000 and earnings per share for such periods. 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. autobytel.com inc. Date: November 13, 2000 By: /s/ AMIT KOTHARI ---------------------------------------------------- Amit Kothari Vice President, Controller and Interim Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)
27 28 EXHIBIT INDEX
SEQUENTIALLY NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ---- 3.1 Amended and Restated Bylaws of autobytel.com inc. 10.1 Letter agreement, dated July 14, 2000, between ABN AMRO Bank N.V. and Autobytel.Europe Holdings B.V. regarding foreign currency forward transaction. 10.2 Letter agreement, dated July 19, 2000, between ABN AMRO Bank N.V. and Autobytel.Europe Holdings B.V. regarding foreign currency forward transaction. 10.3 Letter agreement, dated July 24, 2000, between ABN AMRO Bank N.V. and Autobytel.Europe Holdings B.V. regarding foreign currency forward transaction. 10.4 Contract of Employment, dated September 1, 2000, between Max Rens and Autobytel.Europe Holdings B.V. and addendum thereto. 10.5 Employment Agreement, dated as of May 3, 2000, between Dennis Benner and autobytel.com inc. 27.1 Financial Data Schedule (EDGAR version only)
28 EX-3.1 2 a67159ex3-1.txt EXHIBIT 3.1 1 EXHIBIT 3.1 AMENDED AND RESTATED BYLAWS OF AUTOBYTEL.COM INC. A DELAWARE CORPORATION 2 TABLE OF CONTENTS
Page ---- ARTICLE I OFFICES ................................................................................ 2 Section 1.01 REGISTERED OFFICE ................................................................ 2 Section 1.02 PRINCIPAL OFFICE ................................................................. 2 Section 1.03 OTHER OFFICES .................................................................... 2 ARTICLE II MEETINGS OF STOCKHOLDERS .............................................................. 2 Section 2.01 ANNUAL MEETINGS .................................................................. 2 Section 2.02 SPECIAL MEETINGS ................................................................. 2 Section 2.03 PLACE OF MEETINGS ................................................................ 3 Section 2.04 NOTICE OF MEETINGS ............................................................... 3 Section 2.05 QUORUM ........................................................................... 3 Section 2.06 VOTING ........................................................................... 4 Section 2.07 LIST OF STOCKHOLDERS ............................................................. 5 Section 2.08 INSPECTOR OF ELECTION ............................................................ 5 Section 2.09 STOCKHOLDER ACTION WITHOUT MEETINGS .............................................. 5 Section 2.10 ADVANCE NOTICE PROVISION FOR NOMINATION OF DIRECTORS ............................. 6 Section 2.11 ADVANCE NOTICE PROVISION FOR PROPOSING BUSINESS AT A STOCKHOLDERS' MEETING ....... 7 Section 2.12 ADJOURNED MEETING; NOTICE ........................................................ 8 Section 2.13 ORGANIZATION ..................................................................... 8 ARTICLE III BOARD OF DIRECTORS ................................................................... 8 Section 3.01 GENERAL POWERS ................................................................... 8 Section 3.02 NUMBER ........................................................................... 8 Section 3.03 ELECTION OF DIRECTORS ............................................................ 9 Section 3.04 RESIGNATIONS ..................................................................... 9 Section 3.05 VACANCIES ........................................................................ 9 Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING ................................... 10 Section 3.07 FIRST MEETING .................................................................... 10 Section 3.08 REGULAR MEETINGS ................................................................. 10 Section 3.09 SPECIAL MEETINGS ................................................................. 10 Section 3.10 QUORUM AND ACTION ................................................................ 11 Section 3.11 ACTION BY CONSENT ................................................................ 11 Section 3.12 COMPENSATION ..................................................................... 11 Section 3.13 COMMITTEES ....................................................................... 11 Section 3.14 MEETINGS AND ACTIONS OF COMMITTEES ............................................... 12 Section 3.15 CHAIRMAN OF THE BOARD ............................................................ 12
3 ARTICLE IV OFFICERS .............................................................................. 13 Section 4.01 OFFICERS ......................................................................... 13 Section 4.02 ELECTION ......................................................................... 13 Section 4.03 SUBORDINATE OFFICERS ............................................................. 13 Section 4.04 REMOVAL AND RESIGNATION .......................................................... 13 Section 4.05 VACANCIES ........................................................................ 13 Section 4.06 CHIEF EXECUTIVE OFFICER .......................................................... 14 Section 4.07 PRESIDENT ........................................................................ 14 Section 4.08 CHIEF OPERATING OFFICER .......................................................... 14 Section 4.09 CHIEF FINANCIAL OFFICER .......................................................... 14 Section 4.10 VICE PRESIDENT ................................................................... 14 Section 4.11 SECRETARY ........................................................................ 15 Section 4.12 ASSISTANT SECRETARY .............................................................. 15 ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC .......................................... 15 Section 5.01 EXECUTION OF CONTRACTS ........................................................... 15 Section 5.02 CHECKS, DRAFTS, ETC .............................................................. 16 Section 5.03 DEPOSIT .......................................................................... 16 Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS ................................................ 16 ARTICLE VI SHARES AND THEIR TRANSFER ............................................................. 16 Section 6.01 CERTIFICATES FOR STOCK ........................................................... 16 Section 6.02 TRANSFER OF STOCK ................................................................ 17 Section 6.03 REGULATIONS ...................................................................... 17 Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES ............................... 17 Section 6.05 RECORD DATE ...................................................................... 18 Section 6.06 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ................................... 18 Section 6.07 SPECIAL DESIGNATION ON CERTIFICATES .............................................. 18 ARTICLE VII INDEMNIFICATION ...................................................................... 19 Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION ......................... 19 Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION .................................... 19 Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION ........................................ 19 Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY ............................. 20 Section 7.05 ADVANCE OF EXPENSES .............................................................. 20 Section 7.06 OTHER RIGHTS AND REMEDIES ........................................................ 20 Section 7.07 INSURANCE ........................................................................ 20 Section 7.08 CONSTITUENT CORPORATIONS ......................................................... 20 Section 7.09 EMPLOYEE BENEFIT PLANS ........................................................... 21 Section 7.10 BROADEST LAWFUL INDEMNIFICATION .................................................. 21 Section 7.11 TERM ............................................................................. 22 Section 7.12 SEVERABILITY ..................................................................... 22 Section 7.13 AMENDMENTS ....................................................................... 22 ARTICLE VIII RECORDS AND REPORTS ................................................................. 22
-ii- 4 Section 8.01 MAINTENANCE OF RECORDS ........................................................... 22 Section 8.02 INSPECTION BY DIRECTORS .......................................................... 23 ARTICLE IX MISCELLANEOUS ......................................................................... 23 Section 9.01 SEAL ............................................................................. 23 Section 9.02 WAIVER OF NOTICES ................................................................ 23 Section 9.03 LOANS AND GUARANTIES ............................................................. 23 Section 9.04 GENDER ........................................................................... 23 Section 9.05 AMENDMENTS ....................................................................... 23 CERTIFICATE OF SECRETARY .......................................................................... 24
-iii- 5 AMENDED AND RESTATED BYLAWS OF AUTOBYTEL.COM INC. A DELAWARE CORPORATION ARTICLE I OFFICES Section 1.01 REGISTERED OFFICE. The registered office of autobytel.com inc. (hereinafter called the "Corporation") shall be at such place in the State of Delaware as shall be designated by the Board of Directors (hereinafter called the "Board"). Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at such location, within or without the State of Delaware, as shall be designated by the Board. Section 1.03 OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings shall be held each year at such time, date and place as the Board shall determine by resolution. In the absence of such designation, the annual meeting of stockholders shall be held at 3:00 p.m., on the third Thursday in June at the principal office of the Corporation. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. Section 2.02 SPECIAL MEETINGS. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board, or by a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in the Bylaws, include the power to call such meetings, or by the Chairman of the Board, or by the President, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of the Certificate of Incorporation or any amendment thereto or any certificate filed under Section 151(g) of the General Corporation Law of Delaware (or its successor statute as in effect from time to time hereafter), then such special meeting may also be called by the person or persons, in the manner, at the time and for the purposes so specified. -2- 6 Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as designated by the Board of Directors and specified in the respective notices or waivers of notice thereof. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the Corporation. Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail or nationally recognized overnight courier, in a postage prepaid envelope, directed to him at his address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his address as it appears on the registrar of the Corporation, or by transmitting a notice thereof to him at such address by telegraph, facsimile transmission, cable or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting shall also state the purpose or purposes for which the meeting is called (no business other than that specified in the notice may be transacted). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the Board intends to present for election. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the Corporation giving the notice, shall be prima facie evidence of the giving of such notice. Section 2.05 QUORUM. Except as otherwise provided by statute or by the certificate of incorporation, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at or to act as secretary of such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Section 2.06 VOTING. -3- 7 (a) At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation which has voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (A) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (B) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy if there be such -4- 8 proxy, and it shall state the number of shares voted. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present. Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint an inspector or inspectors of election to act with respect to such vote. Each inspector so appointed shall first subscribe an oath faithfully to execute the duties of an inspector at such meeting with strict impartiality and according to the best of his ability. Such inspectors shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. Inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which he shall have a material interest. Section 2.09 STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General Corporation Law of Delaware to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. This Section 2.09 shall no longer be effective once the Corporation shall be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Section 2.10 ADVANCE NOTICE PROVISION FOR NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of -5- 9 persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.10 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2.10. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. -6- 10 No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.10. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Section 2.11 ADVANCE NOTICE PROVISION FOR PROPOSING BUSINESS AT A STOCKHOLDERS' MEETING. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.11 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.11. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) 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, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.11; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.11 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual -7- 11 meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted Section 2.12 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time and place, unless the Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.13 ORGANIZATION. The Chief Executive Officer, or in the absence of the Chief Executive Officer, the Chairman of the Board, shall call the meeting of the stockholders to order, and shall act as chairman of the meeting. In the absence of the Chief Executive Officer, the Chairman of the Board, and all of the Vice Presidents, the stockholders shall appoint a chairman for such meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The Secretary of the corporation shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary at any meeting of the stockholders, the chairman of the meeting may appoint any person to act as secretary of the meeting. ARTICLE III BOARD OF DIRECTORS Section 3.01 GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all of the powers of the Corporation, except such as are by the Certificate of Incorporation, by these Bylaws or by law conferred upon or reserved to the stockholders. Section 3.02 NUMBER. The authorized number of directors of the Corporation shall be eight (8) members until changed by an amendment of this Section 3.02. Directors need not be stockholders in the Corporation. Section 3.03 ELECTION OF DIRECTORS. The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for a classified board. Except as provided in Sections 3.04 and 3.05 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. -8- 12 Section 3.04 RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.05 VACANCIES. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. Each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Upon the resignation of one or more directors from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided hereinabove in the filling of other vacancies. Unless otherwise provided in the Certificate of Incorporation or the Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of -9- 13 conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day which is not a legal holiday. Except as provided by law, notice of regular meetings need not be given. Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called at any time by the Chairman of the Board or the President or by any three (3) directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Notice of the time and place of special meetings shall be given to each director either (i) by mailing or otherwise sending to him a written notice of such meeting, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held, at least seventy-two (72) hours prior to the time of the holding of such meeting; or (ii) by orally communicating the time and place of the special meeting to him at least forty-eight (48) hours prior to the time of the holding of such meeting. Either of the notices as above provided shall be due, legal and personal notice to such director. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. Whenever notice is required to be given, either to a stockholder or a director, under any provision of the General Corporation Law of Delaware, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting, whether in person or by proxy, shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of directors or committee of directors need be specified in any written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.10 QUORUM AND ACTION. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a -10- 14 majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of the time and place of holding an adjourned meeting of the Board need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meetings takes place, in the manner specified in Section 3.09 of these Bylaws, to the directors who were not present at the time of adjournment. The directors shall act only as a Board, and the individual directors shall have no power as such. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the quorum for that meeting. Section 3.11 ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. Such action by written consent shall have the same force and effect as the unanimous vote of such directors. Section 3.12 COMPENSATION. No stated salary need be paid to directors, as such, for their services but, as fixed from time to time by resolution of the Board, the directors may receive directors' fees, compensation (including without limitation cash compensation and/or the grant of stock options or stock) and reimbursement for expenses for attendance at directors' meetings, for serving on committees and for discharging their duties; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.13 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board will establish and maintain an Audit Committee and a Compensation Committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it, but no such committee shall have any power or authority to (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and -11- 15 merger pursuant to Section 253 of the General Corporation Law of Delaware. Any such committee shall keep written minutes of its meetings and report the same to the Board when required. In the absence of any member of any such committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may appoint another member of the Board to act at the meeting in the place of such absent member. A majority of the members, or replacements thereof, of any such committee shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the members, or replacements thereof, of any such committee shall be regarded as the act or decision of the entire committee. Section 3.14 MEETINGS AND ACTIONS OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the following provisions of Article III of these Bylaws: Section 3.06 (place of meetings; meetings by telephone), Section 3.08 (regular meetings), Section 3.09 (special meetings; notice), Section 3.10 (quorum and action), and Section 3.11 (action by consent), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. Section 3.15 CHAIRMAN OF THE BOARD. The Board may elect a Chairman of the Board and may have one or more Vice Chairmen. The Chairman of the Board and the Vice Chairmen shall be appointed from time to time by the Board and shall have such powers and duties as shall be designated by the Board. ARTICLE IV OFFICERS Section 4.01 OFFICERS. The officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Operating Officer, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board, one or more Vice Presidents (who may include a Chief Accounting Officer), one or more Assistant Vice Presidents, one or more Assistant Secretaries, and such other officers as may be appointed in accordance with the provisions of Section 4.03 of these Bylaws. One person may hold two or more offices, except that the Secretary may not also hold the office of President. The salaries of all officers of the Corporation above the rank of Vice President shall be fixed by the Board, unless at the discretion of the Board, the Board elects to fix the salaries of officers at or below the rank of vice president. Section 4.02 ELECTION. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05 of these Bylaws, -12- 16 shall be chosen annually by the Board, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or until his successor shall be elected and qualified. Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may authorize the Chief Executive Officer to appoint, such other officers as the business of the Corporation may require, including without limitation Vice Presidents and Assistant Secretaries, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board or the President from time to time may specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve. Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause (subject to any right such officer may have under an employment contract with the Corporation), by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by the Chief Executive Officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Board, the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective; provided that this provision shall not supercede any powers of the Board or the Chief Executive Officer pursuant to Section 4.04. Section 4.05 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for the regular appointments to such office. -13- 17 Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. He shall preside at all meetings of stockholders and the Board. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, and shall have such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Board or as prescribed by the Bylaws. In the absence or disability of the President, the Chief Executive Officer, in addition to his assigned duties and powers, shall perform all the duties of the President and when so acting shall have all the powers and be subject to all restrictions upon the President. Section 4.07 PRESIDENT. The President shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Chief Executive Officer (unless the President is also the Chief Executive Officer) or by the Board or as is prescribed by the Bylaws. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer. Section 4.08 CHIEF OPERATING OFFICER The Chief Operating Officer shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to him by the Chief Executive Officer or by the Board. In the absence or disability of both the Chief Executive Officer and the President, the Chief Operating Officer shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer. Section 4.09 CHIEF FINANCIAL OFFICER The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director for a purpose reasonably related to his position as director. The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board. He shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the Bylaws. Section 4.10 VICE PRESIDENT. The Vice President(s), if any, shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as from time to time may be assigned to each of them by the President, by the Chief Executive Officer, by the Board or as is prescribed by the Bylaws. A Vice President may also be designated as a "Senior Vice President" or "Executive Vice President." In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board, or if -14- 18 not ranked, the Vice President designated by the Board, shall perform all of the duties of the President and when so acting shall have all of the powers of and be subject to all the restrictions upon the President. A Vice President may be designated the Chief Accounting Officer who may be the Chief Financial Officer, and any person so designated shall have such powers as is customary for a Chief Accounting Officer. Section 4.11 SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office for the transaction of the business of the Corporation, or such other place as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office for the transaction of the business of the Corporation or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in Section 3.09 of these Bylaws, or if he shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2.02 of these Bylaws, then any such person or persons may give notice of any such special meeting. Section 4.12 ASSISTANT SECRETARY The Assistant Secretary, if any, or, if there is more than one, the Assistant Secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws or in the case of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer, within the agency power of such officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee -15- 19 shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require. Section 5.03 DEPOSIT. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, attorney or attorneys, of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, the Chief Executive Officer, the Chief Financial Officer, or any Vice President(or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall be determined by the Board from time to time) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time to time may authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by an officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER Section 6.01 CERTIFICATES FOR STOCK. The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board, or the President or Vice-President, and by the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. -16- 20 Certificates for shares shall be of such form and device as the Board may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a summary statement or reference to the powers, designations, preferences or other special rights of such stock and the qualifications, limitations or restrictions of such preferences and/or rights, if any; a statement or summary of liens, if any; a conspicuous notice of restrictions upon transfer or registration of transfer, if any; a statement as to any applicable voting trust agreement; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04 of these Bylaws. Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 of these Bylaws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 6.03 REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sums as the Board may direct and in the case of mutilation, upon surrender of the mutilated certificate; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. Section 6.05 RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or -17- 21 allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If, in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 6.06 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Vice President and the Secretary or any Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers. Section 6.07 SPECIAL DESIGNATION ON CERTIFICATES If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. -18- 22 ARTICLE VII INDEMNIFICATION Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 7.01 and 7.02 of these Bylaws. -19- 23 Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article VII, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VII shall not be deemed exclusive and are declared expressly to be nonexclusive of any other rights to which those seeking indemnification or advancements of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7.07 INSURANCE. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII. Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article VII, references to "the Corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. -20- 24 Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this Article VII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VII. Section 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the foregoing, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same exists from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of indemnification than is permitted to the Corporation prior to such amendment or change), indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. In addition, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same may exist from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of payment of expenses incurred in advance of the final disposition of an action, suit or proceeding than is permitted to the Corporation prior to such amendment or change), pay to such person any and all expenses (including attorneys' fees) incurred in defending or settling any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined by a final judgment or other final adjudication that he is not entitled to be indemnified by the Corporation as authorized in this Section 7.10. The first sentence of this Section 7.10 to the contrary notwithstanding, the Corporation shall not indemnify any such person with respect to any of the following matters: (i) remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or (ii) any accounting of profits made from the purchase or sale by such person of the Corporation's securities within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or (iii) actions brought about or contributed to by the dishonesty of such person, if a final judgment or other final adjudication adverse to such person establishes that acts of active and deliberate dishonesty were committed or attempted by such person with actual dishonest purpose and intent and were material to the adjudication; or (iv) actions based on or attributable to such person having gained any personal profit or advantage to which he was not entitled, in the event that a final judgment or other final adjudication adverse to such person establishes that such person in fact gained such personal profit or other advantage to which he was not entitled; or (v) any matter in respect of which a final decision by a court with competent jurisdiction shall determine that indemnification is unlawful; provided, however, that the Corporation shall perform its obligations under the second sentence of this Section 7.10 on behalf of such person until such time as it shall be ultimately determined by a final judgment or other -21- 25 final adjudication that he is not entitled to be indemnified by the Corporation as authorized by the first sentence of this Section 7.10 by virtue of any of the preceding clauses (i), (ii), (iii), (iv) or (v). Section 7.11 TERM. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7.12 SEVERABILITY. If any part of this Article VII shall be found, in any action, suit or proceeding or appeal therefrom or in any other circumstances or as to any particular officer, director, employee or agent to be unenforceable, ineffective or invalid for any reason, the enforceability, effect and validity of the remaining parts or of such parts in other circumstances shall not be affected, except as otherwise required by applicable law. Section 7.13 AMENDMENTS. The foregoing provisions of this Article VII shall be deemed to constitute an agreement between the Corporation and each of the persons entitled to indemnification hereunder, for as long as such provisions remain in effect. Any amendment to the foregoing provisions of this Article VII which limits or otherwise adversely affects the scope of indemnification or rights of any such persons hereunder shall, as to such persons, apply only to claims arising, or causes of action based on actions or events occurring, after such amendment and delivery of notice of such amendment is given to the person or persons so affected. Until notice of such amendment is given to the person or persons whose rights hereunder are adversely affected, such amendment shall have no effect on such rights of such persons hereunder. Any person entitled to indemnification under the foregoing provisions of this Article VII shall, as to any act or omission occurring prior to the date of receipt of such notice, be entitled to indemnification to the same extent as had such provisions continued as Bylaws of the Corporation without such amendment. ARTICLE VIII RECORDS AND REPORTS Section 8.01 MAINTENANCE OF RECORDS The Corporation shall, either, at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records of its business and properties. -22- 26 Section 8.02 INSPECTION BY DIRECTORS Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. ARTICLE IX MISCELLANEOUS Section 9.01 SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and showing the year of incorporation. Section 9.02 WAIVER OF NOTICES Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. Section 9.03 LOANS AND GUARANTIES. The Corporation may lend money to, or guarantee any obligation of, and otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer who is a director, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty, or other assistance may be with or without interest, and may be unsecured or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this Section 9.03 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. Section 9.04 GENDER All personal pronouns used in these Bylaws shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate. Section 9.05 AMENDMENTS These Bylaws, or any of them, may be rescinded, altered, amended or repealed, and new Bylaws may be made (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board or (ii) by the stockholders, by the vote of a majority of the outstanding shares of voting stock of the Corporation, at an annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting; provided, however, that Section 2.02 of these Bylaws can only be amended if that Section as amended would not conflict with the Corporation's Certificate of Incorporation. Any Bylaw made or altered by the stockholders may be altered or repealed by the Board or may be altered or repealed by the stockholders. -23- 27 CERTIFICATE OF SECRETARY The undersigned certifies: (1) That the undersigned is duly elected and acting Secretary of autobytel.com inc., a Delaware corporation (the "Corporation"); and (2) That the foregoing Amended and Restated Bylaws constitute the Bylaws of the Corporation as duly adopted by the Board of Directors at a meeting held on September 13, 2000. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the Corporation this 13th day of September 2000. /s/ Ariel Amir ----------------------------- Ariel Amir, Secretary [SEAL] -24- EX-10.1 3 a67159ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 [ABN-AMRO LOGO] ABN AMRO BANK N.V. ("ABN AMRO") Operations Derivatives Market/Forex Options P.O. Box 283/AH 1403 1000 EA Amsterdam Telephone nr. :+31 20 3830724 The Netherlands Fax nr. :+31 20 6284832 Amsterdam, l4 juli 2000 Referentienummer Transactie : X0387002/006 Status Transactie : nieuw AUTOBYTEL EUROPEAN HOLDING B.V. POSTBUS 10230 1301 AE ALMERE Subject Confirmation of a FORWARD EXTRA OPTION Transaction - -------------------------------------------------------------------------------- Dear Sir/Madam, The purpose of this letter agreement, which constitutes a "Confirmation" as referred to in the Agreement specified below, is to confirm the terms and conditions of the transaction entered into between us on the Trade Date as specified below (the "Transaction"). The definitions and provisions contained in the 1991 ISDA Definitions (as amended and supplemented by the 1998 Supplement), as published by the International Swaps and Derivatives Association, Inc. ("ISDA") (the "1991 Definitions") and in the 1998 FX and Currency Option Definitions, as published by ISDA, the Emerging Markets Traders Association and The Foreign Exchange Committee (the "FX and Currency Definitions") as each are amended and supplemented by the 1998 ISDA Euro Definitions (the "Euro Definitions", and together with the 1991 Definitions and the FX and Currency Definitions, the "Definitions") are incorporated into this Confirmation. References herein to the "Transaction" shall be deemed to be references to the "Swap Transaction" for the purposes of the 1991 Definitions. In the event of any inconsistency between the 1991 Definitions and the FX and Currency Definitions, the FX and Currency Definitions will govern. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. This Confirmation evidences and complete binding agreement between you and us as to the terms of the Transaction. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the 1992 version) (the "ISDA Master"), with such completions and modifications as you and we will in good faith agree, including for this purpose any Schedule to the ISDA Master (as so completed and modified and as the same may be amended or supplemented from time to time, the "Agreement"). Each party hereunder represents to the other that it has reviewed and is familiar with the terms of the ISDA Master. Upon the execution by you and us of such an Agreement, this Confirmation will supplement, form a part of, and be subject to the Agreement. All provisions contained or incorporated by reference in the Agreement will govern this Confirmation except as expressly modified below. Until such time as you and we execute the Agreement this Confirmation, and all other written communications between us confirming transactions (each a "Transaction") which are intended to form part of the Agreement (as evidenced by reference to the ISDA Master or otherwise) or which do not refer to or incorporate the terms of any other master agreement or standard terms) shall each constitute a "Confirmation" for the purposes of, supplement, form a part of, and be subject to an agreement in the form of the ISDA Master as if we had executed an agreement in such form on the Trade Date of the first 1 2 [ABN-AMRO LOGO] such Transaction between us, with the selection of English law under Part 4(h) of the Schedule, designation of US Dollars as the Termination Currency, designation of notice particulars as stated above and the selection that Automatic Early Termination will apply to Counterparty but without any other completion of or modification to the Schedule. Until execution and delivery of the Agreement, references herein to the Agreement shall be deemed references to the ISDA Master so completed. This particular Transaction has features that differ from the standard Currency Option, as set forth below. 1. THE TRANSACTION: 1.1 General Terms: Trade Date: 13 JUL 00 Buyer: AUTOBYTEL EUROPEAN HOLDING B.V. Seller: ABN AMRO Bank N.V. Currency Option Style: European Call Currency and Call Currency Amount: NLG 11,475,000.00 Put Currency and Put Currency Amount: USD 5,000,000.00 Strike Price: 2.29500 NLG/USD Expiration Date: 26 JUN 01 Expiration Time: 10:00 AM NEW YORK TIME Settlement Date: 28 JUN 01 Premium: NLG 0.00 Premium Payment Date: 17 JUL 00 Forward Trigger Period: The period from the trade time on the Trade Date to the Expiration Time on the Expiration Date. Forward Trigger Price: 2.4500 NLG/USD Regio Treasury Desk (RTD): RTD AMSTERDAM 1.2 SPECIAL PROVISIONS IN THE FORWARD EXTRA OPTION: Notwithstanding anything in the ISDA Master or in the Agreement or in the Definitions to the contrary, this Forward Extra Option Transaction shall cease to be exercisable after the occurrence of a Forward Trigger Event as hereinafter set forth. 2 3 [ABN-AMRO LOGO] FORWARD TRIGGER EVENT (THE "EVENT"): If the Calculation Agent determines, in good faith and in a commercially reasonably manner, that at any time during the Forward Trigger Period the Spot Rate is at a price EQUAL TO OR ABOVE the Forward Trigger Price, an Event shall thereupon occur. Upon such determination the Calculation Agent shall promptly Give notice to the parties by telephone promptly confirmed in writing, provided that failure so to confirm shall not affect the validity, effectiveness or binding nature of such telephone notice. In case an Event occurs by which this Forward Extra Option ceases to be exercisable the following forward contract will automatically arise between the parties, and they shall be obligated in accordance with the following: ABN AMRO Bank N.V. sells/THE COUNTERPARTY buys: USD 5,000,000.00 ABN AMRO BANK N.V buys/THE COUNTERPARTY sells: NLG 11,475,000.00 SETTLEMENT Date: 28 JUN 01 For the avoidance of doubt, if the Event does occur during the Forward Trigger Period, the Buyer will not be entitled to the return of any Premium paid. SPOT RATE: The spot price in the Spot Market at any time during the Forward Trigger Period for foreign exchange transactions in the relevant Currency Pair in the relevant amount, as determined by the Calculation Agent in good faith and in a commercially reasonable manner either by reference to the rates for the exchange of the relevant Currency pair or to cross-rates. SPOT MARKET: The global spot foreign exchange market, which for the purpose of determining the Spot Rate, shall be treated as being continuously open from 5:00 a.m. Sydney time on Monday in any week to 5:00 p.m. New York time on Friday of that week. 1.3 Accounts: Payments to ABN AMRO Bank N/A N.V. in NLG should be made to: ABN AMRO may but is not required to, and is hereby authorised to debit amounts payable by Counterparty hereunder from Counterparty's account held with ABN AMRO Bank N.V. Such debit to constitute payment by Counterparty of the amount so debited. Payments to Counterparty in N/A NLG should be made to: Counterparty hereby directs ABN AMRO to credit amounts payable by ABN AMRO hereunder to Counterparty's account held with ABN AMRO Bank N.V. Such credit shall constitute payment by ABN AMRO of the amount so credited. 3 4 2. CALCULATION AGENT: ABN AMRO shall be the Calculation Agent with respect to the Transaction. If a party to the Transaction disputes the Calculation Agent's determination of one or more Events described in paragraph 1.2, the Calculation Agent shall provide reasonable evidence of the transaction which has taken place in the foreign exchange market on which its determination is based. If the Calculation Agent is unable to supply such evidence or the disputing party reasonably and in good faith believes that such evidence is not sufficient to determine the occurrence of such Event, the Calculation Agent and the other party shall mutually select a recognised independent leading dealer ("Dispute Resolution Dealer") in the relevant market, who will determine in good faith whether the Event described in paragraph 1.2 has been reached. If the Dispute Resolution Dealer advises the Calculation Agent in writing that the Event described in paragraph 1.2 has occurred, such occurrence shall be conclusively presumed. If the Dispute Resolution Dealer does not advise so, it shall be conclusively presumed that the Event did not occur, without prejudice to any determination by the Calculation Agent with respect to a subsequent Event. 3. OFFICES: ABN AMRO AMSTERDAM Counterparty: ALMERE 4. RELATIONSHIP BETWEEN THE PARTIES: Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction)" (a) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanation related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction; (b) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction; 4 5 (c) STATUS OF PARTIES. The other party is not acting as a fiduciary or an adviser to it in respect of that Transaction; (d) CONSULTATION. Discussions of termination or limitation of risk with respect to the Transaction and/or provision by a party of indicative valuations, financial analyses or other statements of valuation and risk based on market movements (i) are based only on the party's business and experience as a provider of financial services, (ii) are subject only to the duty of each party to act in good faith and to no other duty and (iii) do not constitute guarantees or assurances of financial results or commitments to terminate or otherwise limit exposure under the Transaction, it being understood that each party undertakes duties, liabilities or obligations under the Agreement or in respect of the Transaction only through written documentation expressly so undertaking and signed by its duly authorised officer; and (e) AWARENESS. In so far as Counterparty is not acting as a dealer or a market professional in the relevant market, the transaction is entered in to in accordance with its authorised policies for purposes of hedging or managing its assets, liabilities and/or investments or in connection with a line of business (and not for speculation). Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us. If we do not receive any comments from you in writing within five Business Days, we assume that you agree with the terms and conditions as mentioned in the confirmation above and will act accordingly. In the case of discrepancies, please contact the Regio Treasury Desk, quoting the above reference number. Yours faithfully /s/ WILLEM DE WAARD /s/ CATHERINE H.M. CLERCX - ----------------------------------------- ----------------------------- ABN AMRO BANK N.V. ABN AMRO BANK N.V. Name: Willem De Waard Name: Catherine H.M. Clercx ---------------------------------- ----------------------- Title: Enquiries, Fails & Claims Treasury Title: Head of Transaction ---------------------------------- Processing Treasury ---------------------- Confirmed as of the Trade Date: /s/ JOOP KNOTTENBELT /s/ PH. G.S. SMIT - ----------------------------------------- ----------------------------- AUTOBYTEL EUROPE HOLDING B.V. AUTOBYTEL EUROPE HOLDING B.V. Name: Joop Knottenbelt Name: Ph. G.S. Smit ------------------------------------ ---------------------- Title: Interim C.E.O. Title: Co-Managing Director ----------------------------------- ---------------------- Date: Date: ----------------------------------- ---------------------- 5 EX-10.2 4 a67159ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 [ABN AMRO BANK LETTERHEAD] Amsterdam, 19 juli 2000 Referentienummer Transactie: X0388375/374 Status Transactie : nieuw AUTOBYTEL EUROPEAN HOLDING B.V. POSTBUS 10230 1301 AE ALMERE Subject: Confirmation of a FORWARD EXTRA OPTION Transaction - -------------------------------------------------------------------------------- Dear Sir/Madam, The purpose of this letter agreement, which constitutes a "Confirmation" as referred to in the Agreement specified below, is to confirm the terms and conditions of the transaction entered into between us on the Trade Date as specified below (the "Transaction"). The definitions and provisions contained in the 1991 ISDA Definitions (as amended and supplemented by the 1998 Supplement), as published by the International Swaps and Derivatives Association, Inc. ("ISDA") (the "1991 Definitions") and in the 1998 FX and Currency Option Definitions, as published by ISDA, the Emerging Markets Traders Association and The Foreign Exchange Committee (the "FX and Currency Definitions") as each are amended and supplemented by the 1998 ISDA Euro Definitions (the "Euro Definitions", and together with the 1991 Definitions and the FX and Currency Definitions, the "Definitions") are incorporated into this Confirmation. References herein to the "Transaction" shall be deemed to be references to the "Swap Transaction" for the purposes of the 1991 Definitions. In the event of any inconsistency between the 1991 Definitions and the FX and Currency Definitions, the FX and Currency Definitions will govern. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the 1992 version) (the "ISDA Master"), with such completions and modifications as you and we will in good faith agree, including for this purpose any Schedule to the ISDA Master (as so completed and modified and as the same may be amended or supplemented from time to time, the "Agreement"). Each party hereunder represents to the other that it has reviewed and is familiar with the terms of the ISDA Master. Upon the execution by you and us of such an Agreement, this Confirmation will supplement, form a part of, and be subject to the Agreement. All provisions contained or incorporated by reference in the Agreement will govern this Confirmation except as expressly modified below. Until such time as you and we execute the Agreement this Confirmation, and all other written communications between us confirming transactions (each a "Transaction") which are intended to form part of the Agreement (as evidenced by reference to the ISDA Master or otherwise) or which do not refer to or incorporate the terms of any other master agreement or standard terms) shall each constitute a "Confirmation" for the purposes of, supplement, form a part of, and be subject to an agreement in the form of the ISDA Master as if we had executed an agreement in such form on the Trade Date of the first 1 2 [ABN-AMRO LOGO] such transaction between us, with the selection of English law under Part 4(h) of the Schedule, designation of US Dollars as the Termination Currency, designation of notice particulars as stated above and the selection that Automatic Early Termination will apply to Counterparty but without any other completion of or modification to the Schedule. Until execution and delivery of the Agreement, references herein to the Agreement shall be deemed references to the ISDA Master so completed. This particular Transaction has features that differ from the standard Currency Option, as set forth below. 1. THE TRANSACTION: 1.1 General Terms: Trade Date: 18 JUL 00 Buyer: AUTOBYTEL EUROPEAN HOLDING B.V. Seller: ABN AMRO Bank N.V. Currency Option Style: European Call Currency and Call Currency Amount: NLG 11,475,000.00 Put Currency and Put Currency Amount: USD 5,000,000.00 Strike Price: 2.2950 NLG/USD Expiration Date: 26 JUN 01 Expiration Time: 10:00 AM NEW YORK TIME Settlement Date: 28 JUN 01 Premium: NLG 0.00 Premium Payment Date: 20 JUL 00 Forward Trigger Period: The period from the trade time on the Trade Date to the Expiration Time on the Expiration Date. Forward Trigger Price: 2.4550 NLG/USD Regio Treasury Desk (RTD): RTD AMSTERDAM
1.2 SPECIAL PROVISIONS IN THE FORWARD EXTRA OPTION: Notwithstanding anything in the ISDA Master or in the Agreement or in the Definitions to the contrary, this Forward Extra Option Transaction shall cease to be exercisable after the occurrence of a Forward Trigger Event as hereinafter set forth. 2 3 FORWARD TRIGGER EVENT (THE "EVENT"): If the Calculation Agent determines, in good faith and in a commercially reasonably manner, that at any time during the Forward Trigger Period the Spot Rate is at a price EQUAL TO OR ABOVE the Forward Trigger Price, an Event shall thereupon occur. Upon such determination the Calculation Agent shall promptly give notice to the parties by telephone, promptly confirmed in writing, provided that failure so to confirm shall not affect the validity, effectiveness or binding nature of such telephone notice. In case an Event occurs by which this Forward Extra Option ceases to be exercisable the following forward contract will automatically arise between the parties, and they shall be obligated in accordance with the following: ABN AMRO BANK N.V. sells/THE COUNTERPARTY buys: NLG 11,475,000.00 ABN AMRO BANK N.V. buys/THE COUNTERPARTY sells: USD 5,000,000 Settlement Date: 28 JAN 01 For the avoidance of doubt, if the Event does occur during the Forward Trigger Period, the Buyer will not be entitled to the return of any Premium paid. SPOT RATE: The spot price in the Spot Market at any time during the Forward Trigger Period for foreign exchange transactions in the relevant Currency Pair in the relevant amount, as determined by the Calculation Agent in good faith and in a commercially reasonable manner either by reference to the rates for the exchange of the relevant Currency Pair or to cross-rates. SPOT MARKET: The global spot foreign exchange market, which for the purpose of determining the Spot Rate, shall be treated as being continuously open from 5:00 a.m. Sydney time on Monday in any week to 5:00 p.m. New York time on Friday of that week. 1.3 Accounts: Payments to ABN AMRO Bank N/A N.V. in NLG should be made to: ABN AMRO may be but is not required to, and is hereby authorised to debit amounts payable by Counterparty hereunder from Counterparty's account held with ABN AMRO Bank N.V. Such debit to constitute payment by Counterparty of the amount so debited. Payments to Counterparty in N/A NLG should be made to: Counterparty hereby directs ABN AMRO to credit amounts payable by ABN AMRO hereunder to Counterparty's account held with ABN AMRO Bank N.V. Such credit shall constitute payment by ABN AMRO of the amount so credited. 3 4 [ABN-AMRO LOGO] 2. CALCULATION AGENT: ABN AMRO shall be the Calculation Agent with respect to the Transaction. If a party to the Transaction disputes the Calculation Agent's determination of one or more Events described in paragraph 1.2, the Calculation Agent shall provide reasonable evidence of the transaction which has taken place in the foreign exchange market on which its determination is based. If the Calculation Agent is unable to supply such evidence or the disputing party reasonably and in good faith believes that such evidence is not sufficient to determine the occurrence of such Event, the Calculation Agent and the other party shall mutually select a recognised independent leading dealer ("Dispute Resolution Dealer") in the relevant market, who will determine in good faith whether the Event described in paragraph 1.2 has been reached. If the Dispute Resolution Dealer advises the Calculation Agent in writing that the Event described in paragraph 1.2 has occurred, such occurrence shall be conclusively presumed. If the Dispute Resolution Dealer does not advise so, it shall be conclusively presumed that the Event did not occur, without prejudice to any determination by the Calculation Agent with respect to a subsequent Event. 3. OFFICES: ABN AMRO AMSTERDAM Counterparty: ALMERE 4. RELATIONSHIP BETWEEN THE PARTIES: Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (a) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanation related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction; (b) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction; 4 5 [ABN-AMRO LOGO] (c) STATUS OF PARTIES. The other party is not acting as a fiduciary or an adviser to it in respect of that Transaction; (d) CONSULTATION. Discussions of termination or limitation of risk with respect to the Transaction and/or provision by a party of indicative valuations, financial analyses or other statements of valuation and risk based on market movements (i) are based only on the party's business and experience as a provider of financial services, (ii) are subject only to the duty of each party to act in good faith and to no other duty and (iii) do not constitute guarantees or assurances of financial results or commitments to terminate or otherwise limit exposure under the Transaction, it being understood that each party undertakes duties, liabilities or obligations under the Agreement or in respect of the Transaction only through written documentation expressly so undertaking and signed by its duly authorised officer; and (e) AWARENESS. In so far as Counterparty is not acting as a dealer or a market professional in the relevant market, the transaction is entered in to in accordance with its authorised policies for purposes of hedging or managing its assets, liabilities and/or investments or in connection with a line of business (and not for speculation). Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us. If we do not receive any comments from you in writing within five Business Days, we assume that you agree with the terms and conditions as mentioned in the confirmation above and will act accordingly. In the case of discrepancies, please contact the Regio Treasury Desk, quoting the above reference number. Yours faithfully, /s/ CATHERINE H.M. CLERCX - ---------------------------------- ---------------------------------- ABN AMRO BANK N.V. ABN AMRO BANK N.V. Name: Catherine H.M. Clercx Name: Title: Head of Transaction Title: Processing Treasury Confirmed as of the Trade Date: /s/ JOOP KNOTTENBELT /s/ PH. G.S. SMIT - ---------------------------------- ---------------------------------- AUTOBYTEL EUROPEAN HOLDING B.V. AUTOBYTEL EUROPEAN HOLDING B.V. Name: Joop Knottenbelt Name: Ph. G.S. Smit Title: Interim C.E.O. Title: Co-Managing Director Date: 25-7-2000 Date: 25-7-'00 5 EX-10.3 5 a67159ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 [ABN-AMRO LOGO] ABN AMROBANK N.V. ("ABN AMRO") Operations Amsterdam / Treasury Product Maintenance P.O. Box 283/AH 1304 E3-25 1000 EA Amsterdam Telephone nr. :+31 20 3830724 The Netherlands Fax nr. :+31 20 6284832 Amsterdam, 24 July 2000 Referencenumber Transaction : X0389428/426 Status Transaction : New AUTOBYTEL EUROPE HOLDINGS B.V. POSTBUS 10230 1301 AE ALMERE Subject Confirmation of a FORWARD EXTRA OPTION Transaction - -------------------------------------------------------------------------------- Dear Sir/Madam, The purpose of this letter agreement, which constitutes a "Confirmation" as referred to in the Agreement specified below, is to confirm the terms and conditions of the transaction entered into between us on the Trade Date as specified below (the "Transaction"). The definitions and provisions contained in the 1991 ISDA Definitions (as amended and supplemented by the 1998 Supplement), as published by the International Swaps and Derivatives Association, Inc. ("ISDA") (the "1991 Definitions") and in the 1998 FX and Currency Option Definitions, as published by ISDA, the Emerging Markets Traders Association and The Foreign Exchange Committee (the "FX and Currency Definitions") as each are amended and supplemented by the 1998 ISDA Euro Definitions (the "Euro Definitions", and together with the 1991 Definitions and the FX and Currency Definitions, the "Definitions") are incorporated into this Confirmation. References herein to the "Transaction" shall be deemed to be references to the "Swap Transaction" for the purposes of the 1991 Definitions. In the event of any inconsistency between the 1991 Definitions and the FX and Currency Definitions, the FX and Currency Definitions will govern. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. This Confirmation evidences and complete binding agreement between you and us as to the terms of the Transaction. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the 1992 version) (the "ISDA Master"), with such completions and modifications as you and we will in good faith agree, including for this purpose any Schedule to the ISDA Master (as so completed and modified and as the same may be amended or supplemented from time to time, the "Agreement"). Each party hereunder represents to the other that it has reviewed and is familiar with the terms of the ISDA Master. Upon the execution by you and us of such an Agreement, this Confirmation will supplement, form a part of, and be subject to the Agreement. All provisions contained or incorporated by reference in the Agreement will govern this Confirmation except as expressly modified below. Until such time as you and we execute the Agreement this Confirmation, and all other written communications between us confirming transactions (each a "Transaction") which are intended to form part of the Agreement (as evidenced by reference to the ISDA Master or otherwise) or which do not refer to or incorporate the terms of any other master agreement or standard terms) shall each constitute a "Confirmation" for the purposes of, supplement, form a part of, and be subject to an agreement in the form of the ISDA Master as if we had executed an agreement in such form on the Trade Date of the first 1 2 [ABN-AMRO LOGO] such Transaction between us, with the selection of English law under Part 4(h) of the Schedule, designation of US Dollars as the Termination Currency, designation of notice particulars as stated above and the selection that Automatic Early Termination will apply to Counterparty but without any other completion of or modification to the Schedule. Until execution and delivery of the Agreement, references herein to the Agreement shall be deemed references to the ISDA Master so completed. This particular Transaction has features that differ from the standard Currency Option, as set forth below. 1. THE TRANSACTION: 1.1 General Terms: Trade Date: 20 JUL 00 Buyer: AUTOBYTEL EUROPE HOLDINGS B.V. Seller: ABN AMRO Bank N.V. Currency Option Style European Call Currency and Call Currency Amount: NLG 11,587,500.00 Put Currency and Put Currency Amount: USD 5,000,000.00 Strike Price: 2.3175 NLG/USD Expiration Date: 26 JUN 01 Expiration Time: 10:00 AM NEW YORK TIME Settlement Date: 28 JUN 01 Premium: ZERO COST Premium Payment Date: N/A Forward Trigger Period: The period from the trade time on the Trade Date to the Expiration Time on the Expiration Date. Forward Trigger Price: 2.5040 NLG/USD Regio Treasury Desk (RTD): RTD AMSTERDAM
1.2 SPECIAL PROVISIONS IN THE FORWARD EXTRA OPTION: Notwithstanding anything in the ISDA Master or in the Agreement or in the Definitions to the contrary, this Forward Extra Option Transaction shall cease to be exercisable after the occurrence of a Forward Trigger Event as hereinafter set forth. 2 3 [ABN AMRO LOGO] FORWARD TRIGGER EVENT (THE "EVENT"): If the Calculation Agent determines, in good faith and in a commercially reasonably manner, that at any time during the Forward Trigger Period the Spot Rate is at a price EQUAL TO OR ABOVE the Forward Trigger Price, an Event shall thereupon occur. Upon such determination the Calculation Agent shall promptly give notice to the parties by telephone, promptly confirmed in writing, provided that failure so to confirm shall not affect the validity, effectiveness or binding nature of such telephone notice. In case an Event occurs by which this Forward Extra Option ceases to be exercisable the following forward contract will automatically arise between the parties, and they shall be obligated in accordance with the following: ABN AMRO BANK N.V. sells/THE COUNTERPARTY buys: NLG 11,587,500.00 ABN AMRO BANK N.V. buys/THE COUNTERPARTY sells: USD 5,000,000.00 Settlement Date: 28 JUN 01 For the avoidance of doubt, if the Event does occur during the Forward Trigger Period, the Buyer will not be entitled to the return of any Premium paid. SPOT RATE: The spot price in the Spot Market at any time during the Forward Trigger Period for foreign exchange transactions in the relevant Currency Pair in the relevant amount, as determined by the Calculation Agent in good faith and in a commercially reasonable manner either by reference to the rates for the exchange of the relevant Currency Pair or to cross-rates. SPOT MARKET: The global spot foreign exchange market, which for the purpose of determining the Spot Rate, shall be treated as being continuously open from 5:00 a.m. Sydney time on Monday in any week to 5:00 p.m. New York time on Friday of that week. 1.3 Accounts: Payments to ABN AMRO Bank Over Account N.V. in NLG should be made to: ABN AMRO may but is not required to, and is hereby authorised to debit amounts payable by Counterparty hereunder from Counterparty's account held with ABN AMRO Bank N.V. Such debit to constitute payment by Counterparty of the amount so debited. Payments to Counterparty in Over Account NLG should be made to: Counterparty hereby directs ABN AMRO to credit amounts payable by ABN AMRO hereunder to Counterparty's account held with ABN AMRO Bank N.V. Such credit shall constitute payment by ABN AMRO of the amount so credited. 3 4 [ABN AMRO LOGO] 2. CALCULATION AGENT: ABN AMRO shall be the Calculation Agent with respect to the Transaction. If a party to the Transaction disputes the Calculation Agent's determination of one or more Events described in paragraph 1.2, the Calculation Agent shall provide reasonable evidence of the transaction which has taken place in the foreign exchange market on which its determination is based. If the Calculation Agent is unable to supply such evidence or the disputing party reasonably and in good faith believes that such evidence is not sufficient to determine the occurrence of such Event, the Calculation Agent and the other party shall mutually select a recognised independent leading dealer ("Dispute Resolution Dealer") in the relevant market, who will determine in good faith whether the Event described in paragraph 1.2 has been reached. If the Dispute Resolution Dealer advises the Calculation Agent in writing that the Event described in paragraph 1.2 has occurred, such occurrence shall be conclusively presumed. If the Dispute Resolution Dealer does not advise so, it shall be conclusively presumed that the Event did not occur, without prejudice to any determination by the Calculation Agent with respect to a subsequent Event. 3. OFFICES: ABN AMRO AMSTERDAM Counterparty: ALMERE 4. RELATIONSHIP BETWEEN THE PARTIES: Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (a) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanation related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction; (b) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction; 4 5 (c) STATUS OF PARTIES. The other party is not acting as a fiduciary or an adviser to it in respect of that Transaction; (d) CONSULTATION. Discussions of termination or limitation of risk with respect to the Transaction and/or provision by a party of indicative valuations, financial analyses or other statements of valuation and risk based on market movements (i) are based only on the party's business and experience as a provider of financial services, (ii) are subject only to the duty of each party to act in good faith and to no other duty and (iii) do not constitute guarantees or assurances of financial results or commitments to terminate or otherwise limit exposure under the Transaction, it being understood that each party undertakes duties, liabilities or obligations under the Agreement or in respect of the Transaction only through written documentation expressly so undertaking and signed by its duly authorised officer; and (e) AWARENESS. In so far as Counterparty is not acting as a dealer or a market professional in the relevant market, the transaction is entered in to in accordance with its authorised policies for purposes of hedging or managing its assets, liabilities and/or investments or in connection with a line of business (and not for speculation). Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us. If we do not receive any comments from you in writing within five Business Days, we assume that you agree with the terms and conditions as mentioned in the confirmation above and will act accordingly. In the case of discrepancies, please contact the Regio Treasury Desk, quoting the above reference number. Yours faithfully /s/ WILLEM de WAARD /s/ CATHERINE H.M. CLERCX - ----------------------------- ----------------------------- ABN AMRO BANK N.V. ABN AMRO BANK N.V. Name: Willem de Waard Name: Catherine H.M. Clercx ----------------------- ----------------------- Title: Enquiries, Fails & Title: Head of Transaction Claims Treasury Processing Treasury ----------------------- ----------------------- Confirmed as of the Trade Date: 20 JUL 00 /s/ JOOP KNOTTENBELT /s/ PH. G.S. SMIT - ----------------------------- ----------------------------- AUTOBYTEL EUROPE HOLDING B.V. AUTOBYTEL EUROPE HOLDING B.V. Name: Joop Knottenbelt Name: Ph. G.S. Smit ---------------------- ---------------------- Title: Interim C.E.O. Title: Co-Managing Director ---------------------- ---------------------- 5 EX-10.4 6 a67159ex10-4.txt EXHIBIT 10.4 1 EXHIBIT 10.4 CONTRACT OF EMPLOYMENT THE UNDERSIGNED: 1. Autobytel.Europe Holdings B.V. established and with registered offices in Almere, the Netherlands at Alnovum - Witte Toren, P.J. Oudweg 9-15, 1314 HC, according to the Articles of Association, duly represented by Mr. J. Knottenbelt in his capacity as Interim Chief Executive Officer, hereinafter referred to as "the employer" and 2. Mr. M.J.L.M. Rens, born on February 4th 1947 in Maastricht, currently living in the Netherlands at Van Leijenberghlaan 84, 1082 GM Amsterdam, hereinafter referred to as "the employee", HAVE AGREED THE FOLLOWING: 1. POSITION 1.1. The employee shall be employed in the position of Chief Executive Officer. The employee shall apply his mind and skill to the best of his ability. 1.2. The employee's place of work shall be based in Almere, the Netherlands at Alnovum - Witte Toren, P.J. Oudweg 9-15, 1314 CH. 1.3. The employee agrees to accept another place of work, within a reasonable distance from the address in subsection 1.2. 1.4. The employee shall not fulfil any remunerative ancillary functions for or on behalf of another, nor in any other way conduct any ancillary remunerative activities, without prior written consent of the employer. 1.5. The employee shall not fulfil any ancillary non-remunerative functions, which are business related, for or on behalf of another, nor in any other way conduct any ancillary non-remunerative business related activities, without prior written consent of the employer. 2 Page 2 2. DURATION 2.1. The term of service commences on October 17th, 2000 and shall continue for an indeterminate period. The contract of employment shall terminate in any event by operation of law on the last day of the calendar month in which the employee attains the pensionable age of 65 or the age as stated in the company's pension scheme. 2.2. Both parties are entitled to terminate the contract by means of an interim notice at the end of a calendar month, taking into account, with reference to this section exclusively, a notice period of 1,5 month for the employee and 3 months for the employer in accordance with the Dutch Labour Law. 3. HOURS OF WORK This employment agreement concerns full time employment, the normal hours being a total of 40 hours worked, between 08.00 AM and 17.30 PM Monday to Friday. The salary as stated under subsection 4.1. of this agreement reflects the fact that from time to time the employer may ask the employee to work in excess of these hours. 4. SALARY AND HOLIDAY ALLOWANCE 4.1. Gross salary shall amount to USD 400,000 per year. This salary will be divided in twelve (12) equal monthly installments. Each installment shall be paid on the last day of the month at the latest, net of statutory and voluntary deductions into a bank or giro account to be designated by the employee. 4.2. The salary stated in 4.1 above includes any allowance for overtime and hours worked on Saturdays, Sundays and public holidays. 4.3. The employee is entitled to a yearly bonus based on his professional achievements. The bonus is maximised to 25% of the annual fixed salary at 100% achievement of set goals. The annual fixed salary equals the amount mentioned in section 4.1. The bonus is paid out gross to the employee. The objectives will be determined at the start of the employment. In case duties as mentioned under subsection 1.1. change, new objectives can be applicable to the employee. For the initial period of employment, ending at December 31, 2002, the bonus as mentioned above will not be based on set goals and individual performance. The bonus associated with this period, however, will be fixed at USD 100,000 per annum. The bonus is paid out pro rata in accordance with the actual employment period. 4.4. The employee shall be entitled to a holiday allowance of 8%. The holiday allowance is included in the gross annual salary as mentioned in section 3 Page 3 4.1. If the employment commences or terminates in the course of a year, the holiday allowance shall be calculated proportionately. 4.5. The salary and other allowances mentioned in this article will be reviewed annually in the month of January. The first review will be in January 2002. 5. STOCK OPTIONS The entitlement to stock options will be determined in a separate agreement. 6. EXPENSE ALLOWANCES 6.1. The employer will reimburse the employee all authorised reasonable business expenses incurred in the execution of his job duties against submitted receipts by the employee. 6.2. The employee will be entitled to a fixed net amount of EUR 340 for representation costs and small expenditures. 6.3. The employer will reimburse the employee for all reasonable business telephone costs (telephone, fax, ISDN incurred while using his private phone). In addition, the employer will provide the employee with a mobile phone for business use only. 7. ILLNESS AND DISABLEMENT 7.1. If the employee is unable to attend work due to illness, he or his representative shall notify the employer preferably on the first day of illness. 7.2. The employee shall ensure that he can be contacted by the employer as much as possible during his illness. 7.3. In the event of disability or illness of the employee, the employer shall continue to pay the employee's salary, as set out in subsection 4.1. for 100%, during the first year of his disability or illness. 8. INSURANCES 8.1. In case the employee will no longer be compulsory insured according to the compulsory Health Insurance Act, the employer shall pay 50% of the health insurance premium, but this amount shall never exceed the employer's contribution to the compulsory health insurance premium payable by the employer. The employer's contribution shall be subject to wage tax. The employee's contribution shall be withheld from the monthly salary. 8.2. The employee will be provided with a Business Travel Insurance on a world-wide basis. The premium will be paid by the employer. 4 Page 4 8.3. The employee will be enrolled in the company's WAO-gap insurance. The benefit of the insurance is subject to the terms and conditions of the insurance policy. The premium for this insurance is paid by employer and employee on a 50:50 basis. 8.4. The employer will take out a WAO-excedent insurance on behalf of the employee. The insurance covers for 70% of the last earned salary as stated in section 4.1. in case of serious illness/disability. The benefit of the insurance is subject to the terms and conditions of the insurance policy. 8.5. The employee will be entitled to participate in the company pension scheme. The terms and conditions of the company pension scheme are set out in a separate pension letter. 9. OTHER BENEFITS 9.1. In the event of this agreement ending as a result of long-term disability of the employee due to an accident, the employee will receive a one-time payment up to four times the annual fixed salary as stated under section 4.1. 9.2. In the event of death of the employee due to an accident, the employer will pay a one-time payment up to twice the annual fixed salary as mentioned in section 4.1. 9.3. The level of the benefits mentioned in subsections 9.1. and 9.2. are subject to the terms and conditions of the company provided accident insurance policy. 9.4. The employee will be entitled to a company sponsored lease car. The monthly lease price of the car will be based on the car the employee had in his employment immediately prior to this employment. The monthly lease price will be inclusive of fuel and exclusive of VAT. 10. HOLIDAY YEAR / DAY'S LEAVE 10.1. The holiday year is the period in which the number of days' leave is calculated. The holiday year coincides with the calendar year. 10.2. The employee is entitled to 25 days' leave in each holiday year, such to be established by the employer in consultation with the employee. This is in addition to the employees entitlement to all statutory or public holidays in the country of his employment. 10.3. An employee who has not been employed for the entire holiday year shall be entitled to 1/12 of the annual leave for each full month of employment. 10.4. The employee undertakes to take all days' leave accruing to him before the termination of the contract of employment, unless such is not possible because of the nature of the work or other circumstances. In this case, the employee and the employer shall come to an agreement regarding payment in lieu. 5 Page 5 11. DIRECTORS' & OFFICERS' LIABILITY INSURANCE The employer will supply the employee with a Directors' & Officers' Liability insurance. The benefit of the D&O Liability insurance is subject to the terms and conditions of the insurance policy. 12. CONFIDENTIALITY 12.1. The employee undertakes, both during and after the termination of this contract of employment, not to disclose any information about the employer or its business or one or more affiliated companies or their business which he knows or suspects could be detrimental to the employer and/or those affiliated companies. This obligation also applies to information on clients or other business contacts. The employee is obliged to return all documentation belonging to the employer which he has in his possession together with his own notes and photocopies. 12.2. Any infringement of this clause during the employment shall constitute a pressing reason to terminate the contract of employment with immediate effect, without prejudice to the right of the employer to demand full compensation. 12.3. Any infringement of this clause following termination of the employment shall cause the employee to pay a penalty of EUR 11,345 on demand, without prejudice to the right of the employer to demand full compensation instead of the penalty. 13. INTELLECTUAL PROPERTY RIGHTS The Employee shall transfer to the Employer and/or cooperate in the transfer to the Employer on the first request of the Employer, all (future) inventions made by him and/or any intellectual- and industrial property rights that may come into being by his actions and/or activities, during this agreement or which are made or will come into being after this agreement has terminated but can be considered to follow from the existence of this agreement. Parties agree that any compensation that can follow from such an invention or property rights is deemed to be included in the remuneration for the services rendered in the course of this agreement. 14. PROPERTY OF THE EMPLOYER 14.1. All material made available to the employee by the employer is and shall remain the property of the employer. It is prohibited to use such material for private purposes without the express permission of the employer. 14.2. The employee shall return all property of the employer to the employer without being asked immediately upon the termination of the employment or earlier if requested by the employer. 6 Page 6 14.3. In case of suspension and termination of employment, regardless of the manner in which or the reason why employment is being terminated, the employee will put at the disposal of the employer, upon its first request, all properties of the employer over which he/she has control, as well as all documents and copies of documents that in the broadest possible sense in any way relates to the employer and/or to associated companies, its clients and other business connections. 15. COMPENSATION FOR DAMAGES Contrary to the provisions of section 6:170 subsection 3 and section 7:661 Dutch Civil Code, the employee is, insofar as and to the extent to which he is insured for this risk, liable towards the employer for damages that the employee, in carrying out the agreement, causes to the employer or a third party to whom the employer is liable for such damages, even if such damage was not caused intentionally or due to gross negligence on the part of the employee. 16. RESTRAINT OF TRADE 16.1. The employee is forbidden, without prior written consent of the employer, both during the period of his term of service, and during a period of 2 years after the conclusion of his term of service, either directly or indirectly, for himself or for others, for remuneration or gratuitously, to be employed in any way whatsoever, or to have an interest in any business detrimentally competitive to the employer or legal persons and companies which belong to the group of which the employer is a part. This limitation applies equally to new activities of the employer which have commenced after the period during which this employment agreement is in force, in so far as the employee was involved in such activities. 16.2. If the employee acts contrary to the provisions of subsection 1 of this section, he shall without notice forfeit to the employer, an immediate fine of EUR 11,345 increased by an amount of EUR 113 per day that the transgression endures beyond the first day of the transgression, such liability not infringing upon the right of the employer, to claim damages in full in lieu of the fine. In addition to payment of a fine and/or damages due to a past breach, the employer is also entitled to claim compliance in the future. 16.3. The employee is equally obliged to comply with the provisions of subsection 1 subject to the sanction set out in subsection 2, with respect to a future employer, whether or not this concerns the transfer of a business undertaking in terms of section 7:662 and following Dutch Civil Code. 7 Page 7 17. SEVERANCE PAYMENTS ON TERMINATION 17.1. Subject to the employee agreeing at the time to waive any claims he may have against the employer, the employer agrees to make the following payments in the circumstances described below. 17.2. If the employer terminates this agreement due to other reasons than the malfunctioning of the employee as mentioned in subsection 17.3, the employer will supply the employee with a severance pay equal to one year's salary as stated in subsection 4.1. This amount will be paid out gross to the employee through his final pay slip. During the period of employment the employer will keep the above mentioned severance amount in escrow. 17.3. If the termination of the employment agreement by the employer is the result of the malfunctioning of the employee (being gross negligence or willful misconduct), the employee is not entitled to any severance pay. 17.4. If the employee voluntarily terminates the employment agreement, the employer will not supply the employee with a severance pay. 18. GIFTS 18.1. With regard to the fulfilling of his duties, the employee is forbidden, without the prior consent of the employer, to accept from third parties, directly or indirectly in any way whatsoever, any commission, concession or compensation in any form whatsoever, or to accept or insist on any gifts. 18.2. The provisions of subsection 18.1. do not apply to gifts from clients of a nominal value. 18.3. The employee is obliged, if he has acted contrary to the provisions of the preceding subsections, to pay to the employer the value of the commissions, concessions, compensations and/or gifts referred to in subsection 18.1, such payment not infringing upon the right of the employer to claim damages in full lieu thereof. 19. EMPLOYEE'S OBLIGATIONS 19.1. The employee undertakes to perform all work for the employer to the best of his ability and in line with the objectives set by the employer. 19.2. Objectives can be re-negotiated by the employee and the management subject to the employer's approval. 19.3. The employee undertakes to perform his work in accordance with the instructions given to him by the employer. 8 Page 8 20. EMPLOYER'S OBLIGATIONS The employer shall act as a good employer according to reasonableness and fairness. The employer undertakes to perform reasonable actions within his power in order to avoid damage to the employees. 21. OTHER 21.1. Previous oral and/or written contracts of employment and/or agreements on fringe benefits and expense allowances shall be superseded upon signature of this contract. 21.2. This agreement shall be governed by and interpreted in accordance with the laws of The Netherlands. 21.3. All controversies relating to and arising from this agreement shall exclusively be submitted to the competent court in The Netherlands. Thus drawn up and signed in duplicate in Amsterdam on September 1st 2000 /s/ Max Rens /s/ Joop Knottenbelt - --------------------- ------------------------------- Employee Autobytel.Europe Holdings B.V. Mr. M.J.L.M. Rens by Mr. J. Knottenbelt title Interim Chief Executive Officer 9 ADDENDUM TO THE CONTRACT OF EMPLOYMENT THE UNDERSIGNED: 1. Autobytel.Europe Holdings B.V. established and with registered offices in Almere, the Netherlands at Alnovum -- Witte Toren, P.J. Oudweg 9-15, 1314 HC, according to the Articles of Association, duly represented by Mr. J. Knottenbelt in his capacity as Interim Chief Executive Officer, hereinafter referred to as "the employer" and 2. Mr. M.J.L.M. Rens, born on February 4th 1947 in Maastricht, currently living in the Netherlands at Van Leijenberghlaan 84, 1082 GM Amsterdam, hereinafter referred to as "the employee", HAVE AGREED THE FOLLOWING: 1. EXCHANGE RATE USD TO EUR Considering the fact that the employer will be paying the employee in Euro's, parties have agreed as follows: 1.1. At the commencement of the employment as stated under section 2.1. of the employment agreement, all USD denominated amounts will be converted into Euro's. As of this date, payments will be in Euro's. 1.2. The exchange rate of the USD to the EUR will be fixed at the exchange rate measured at the moment of signature of the contract of employment. 2. OTHER 2.1. This agreement forms an inseparable part of the contract of employment signed on September 1st 2000. 2.2. This agreement shall be governed by and interpreted in accordance with the laws of The Netherlands. 10 Page 2 2.3. All controversies relating to and arising from this agreement shall exclusively be submitted to the competent court in The Netherlands, unless other arbitration rules are agreed upon by the parties in writing. Thus drawn up and signed in duplicate in Amsterdam on September 1st 2000 /s/ Max Rens /s/ Joop Knottenbelt - ----------------------------- ------------------------------------ Employee Autobytel.Europe Holdings B.V. Mr. M.J.L.M. Rens by Mr. J. Knottenbelt title Interim Chief Executive Officer EX-10.5 7 a67159ex10-5.txt EXHIBIT 10.5 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into, at Irvine, California, as of the 3rd day of May, 2000, by and between AUTOBYTEL.COM INC., a corporation duly organized under the laws of the State of Delaware (the "Company"), with offices at 18872 MacArthur Boulevard. Second Floor, Irvine, California, 92612-1400, and DENNIS BENNER (hereinafter referred to as the "Executive"), who resides at 29906 Avenida Magnifica, Rancho Palos Verdes, California 90274. RECITALS WHEREAS: The Company desires to employ the Executive as Executive Vice President, Corporate Development. WHEREAS: The Executive desires to be so employed by the Company, subject to the following terms and conditions. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and with reference to the above recitals, the parties hereby agree as follows: ARTICLE 1 TERM OF EMPLOYMENT The Company hereby employs the Executive as Executive Vice President, Corporate Development of the Company and the Executive hereby accepts such employment by the Company for a period of three (3) years (the "Term") commencing from May 3, 2000 (the "Commencement Date") and expiring on the third anniversary of the Commencement Date (the "Termination Date"), which Term shall automatically renew for one year periods unless either party notifies the other of its election not to renew at least 30 days prior to the Termination Date or any applicable anniversary thereof. Notwithstanding the above, in the event of a Change of Control of the Company prior to March 31, 2001 and while the Executive remains employed by the Company, the Term shall automatically extend for a period of three (3) years commencing from the date of the Change of Control, and in the event of a Change in Control between March 31, 2001 and the Termination Date, the Term shall automatically extend for a period of tw (2) years commencing from the date of the Change of Control. For purposes of this Agreement "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation but not including any initial or secondary public offering) in one or a series of related transactions of all or substantially all of the assets of the Company taken as a whole to any person (a "Person") or group of persons acting together (a "Group") (other than any of the Company's wholly-owned subsidiaries, any Company employee pension or benefits plan, or any person or entity owning at least five (5) percent of the common stock of the Company as of March 31, 1999), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transactions (including any stock or other purchase, sale, acquisition, disposition, merger or consolidation, but not including any initial or secondary public offering) the result of which is that any Person or Group (other than any of the Company's wholly-owned subsidiaries, any Company employee pension or benefits plan, or any person or entity owning at least five (5) percent of the common stock of the Company as of March 31, 1999), becomes the beneficial owners of more than 40 percent of the aggregate voting power of all classes of stock of the Company having the right to elect directors under ordinary circumstances; or (iv) the first day on which a majority of the members of the board of directors of the Company (the "Board") are not individuals who were nominated for election or elected to the Board with the approval of two-thirds of the members of the Board just prior to the time of such nomination or election. 1 2 ARTICLE 2 DUTIES AND OBLIGATIONS 2.1 During the Term of this Agreement, the Executive shall: (i) devote his full business time, attention and energies to the business of the Company; (ii) shall use his best efforts to promote the interests of the Company; (iii) shall perform all functions and services as the Executive Vice President, Corporate Development of the Company; (iv) shall act in accordance with the policies and directives of the Company; and (v) shall report directly to the Chief Executive Officer and President of the Company. 2.2 The Executive covenants and agrees that, while actually employed by the Company, he shall not engage in any other business duties or pursuits whatsoever, or directly or indirectly render any services of a business or commercial nature to any other person or organization, including, but not limited to, providing services to any business that is in competition with or similar in nature to the Company, whether for compensation or otherwise, without the prior written consent of the Chief Executive Officer. However, the expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement, if those activities do not materially interfere with the services required under this Agreement, and shall not require the prior written consent of the Chief Executive Officer. In addition, the Executive's reasonable assistance to Fluor Corporation in connection with the Executive's transition from employment with Fluor Corporation to the Company shall not be deemed a breach of this Agreement, provided that those activities do not materially interfere with the services required under this Agreement and shall not extend beyond the first two (2) months of the Executive's employment with the Company, and shall not require the prior written consent of the Chief Executive Officer Notwithstanding anything herein contained to the contrary, this Agreement shall not be construed to prohibit the Executive from making passive personal investments or conducting personal business, financial or legal affairs or other personal matters if those activities do not materially interfere with the services required hereunder. In addition to the foregoing, notwithstanding anything contained herein to the contrary, this Agreement shall not be construed to prohibit the Executive from serving as a director or board member of any other corporation, company, or other business entity;provided, however, that the Executive shall in no event serve as a director or board member of any competitor of the Company. The Executive shall notify the Chief Executive Officer of any entity of which he is a director or board member. ARTICLE 3 COMPENSATION 3.1 As compensation for the services to be rendered by the Executive pursuant to this Agreement, the Company hereby agrees to pay the Executive a base salary equal to at least Two Hundred Twenty Five Thousand Dollars ($225,000.00) per year during the Term of this Agreement, which rate shall be reviewed by the Board at least annually and may be increased (but not reduced) by the Board and Chief Executive Officer in such amounts as the Board deems appropriate. The base salary shall be paid in substantially equal bimonthly installments, in accordance with the normal payroll practices of the Company. 3.2 The Company shall provide the Executive with the opportunity to earn an annual bonus for each fiscal year of the Company, occurring in whole or in part during the Term. The annual bonus payable to the Executive shall be in such amount and based on such criteria for the award as may be established by the Board from time to time; provided, however, that such annual bonus shall not be less than One Hundred Thousand Dollars ($100,000). Any bonus shall be paid as promptly as practicable following the end of the preceding fiscal year. The provisions of this Section 3.2 shall be subject to the provisions of Section 3.4. 2 3 3.3 The Company shall have the right to deduct or withhold from the compensation due to the Executive hereunder any and all sums required for federal income and employee social security taxes and all state or local income taxes now applicable or that may be enacted and become applicable during the Term. 3.4 The Company may provide for shareholder approval of any performance based compensation provided herein and may provide for the compensation committee to establish any applicable performance goals and determine whether such performance goals have been met. 3.5 The Executive shall receive a sign-on bonus in the amount of Fifty Thousand Dollars ($50,000). 3.6 The Company shall reimburse the Executive for the costs incurred for accommodations at the Irvine Airport Hilton up to a maximum of fifteen (15) days per month during the Term. 3.7 Stock Options. The Executive shall be granted stock options under the Company's 2000 Stock Option Plan ( the "2000 Options") to purchase One Hundred Fifty Thousand (150,000) shares of the Company's common stock at an exercise price equal to the closing price per share on the Commencement Date, the exercise of which shall be subject to stockholder approval of the 2000 Stock Option Plan. a. Vesting. The 2000 Options shall vest based on the continued employment of the Executive as follows: fifty percent (50%) on the first anniversary of the Commencement Date and fifty percent (50%) on the second anniversary of the Commencement Date. The Company and the Executive agree that the terms and conditions set forth on Schedule A hereto are hereby deemed incorporated by reference in and made a part of any stock option agreements between the Company and the Executive and shall govern any stock options to purchase shares of the Company's common stock held by the Executive (the "Options") other than the Performance Options (as defined below) which shall be governed by Schedule B hereto. 3.8 Performance Options. As further consideration for the services rendered by the Executive during the Term, the Executive also shall be granted options to purchase two hundred fifty thousand (250,000) shares of the Company's common stock (the "Performance Options") under the Company's 2000 Stock Option Plan, the exercise of which shall be subject to stockholder approval of the 2000 Stock Option Plan. The Performance Options shall vest in five (5) equal installments of fifty thousand (50,000) as specified below. The Performance Options shall have a ten (10) year term (the "Performance Option Term") of exercise and, except as otherwise provided herein shall remain exercisable following vesting for the full term. The exercise price of an option granted as a Performance Option shall be equal to the closing price per share on the Commencement Date. The Company and the Executive agree that the terms and conditions set forth on Schedule B hereto are hereby deemed incorporated by reference and shall govern the Performance Options. a. Vesting. The Performance Options shall vest on the fifth (5th) anniversary of the Commencement Date, subject to the continued employment of the Executive (without regard to stock price performance); provided however that based on the continued employment of the Executive, the vesting of the Performance Options shall accelerate as follows: (i) the first installment will vest immediately and fully upon the first eight (8) month anniversary of the Commencement Date, or any seven month anniversary of such date thereafter, if the average trading price (as determined by averaging either the closing price or bid-ask midpoint) of the Company's common stock for the ten trading days (the "Average Trading Price") preceding any such anniversary date exceeds Eleven Dollars ($11.00); 3 4 (ii) the second installment will vest immediately and fully upon the fifteen month (15) anniversary of the Commencement Date, or any seven month anniversary of such date thereafter, if the Average Trading Price preceding any such anniversary date exceeds Sixteen Dollars ($16.00); (iii) the third installment will vest immediately and fully upon the twenty two (22) month anniversary of the Commencement Date, or any seven month anniversary of such date thereafter, if the Average Trading Price preceding any such anniversary date exceeds Twenty One Dollars ($21.00); (iv) the fourth installment will vest immediately and fully upon the twenty nine (29) month anniversary of the Commencement Date, or any seven month anniversary of such date thereafter, if the Average Trading Price preceding any such anniversary date exceeds Twenty six Dollars ($26.00); and (v) the fifth installment will vest immediately and fully upon the thirty six (36) month anniversary of the Commencement Date, or any seven month anniversary of such date thereafter, if the Average Trading Price preceding any such anniversary date exceeds Thirty One Dollars ($31.00). ARTICLE 4 EMPLOYEE BENEFITS 4.1 The Company agrees that the Executive shall be entitled to all ordinary and customary perquisites afforded to the employees of the Company, at the Company's sole expense (except to the extent employee contribution may be required under the Company's benefit plans as they may now or hereafter exist), which shall in no event be less than the benefits afforded to the Executive on the date hereof and the other employees of the Company as of the date hereof or from time to time, but in any event shall include any qualified or non-qualified pension, profit sharing and savings plans, any death benefit and disability benefit plans, life insurance coverages, any medical, dental, health and welfare plans or insurance coverages and any stock purchase programs that are approved by the Board on terms and conditions at least as favorable as provided to the Executive on the date hereof and other employee's of the Company as of the date hereof or from time to time. 4.2 The Executive shall be entitled to three (3) weeks of paid vacation for each year of his employment hereunder (including three weeks for 2000), which, to the extent unused in any given year, may be carried over in accordance with the policies of the Company then in effect. Notwithstanding anything to the contrary, however, the Executive shall not be entitled to carry over any unused vacation for a period exceeding two (2) years. ARTICLE 5 BUSINESS EXPENSES 5.1 The Company shall pay or reimburse the Executive for all reasonable and authorized business expenses incurred by the Executive during the Term; such payment or reimbursement shall not be unreasonably withheld so long as said business expenses have been incurred for and promote the business of the Company and are normally and customarily incurred by employees in comparable positions at other comparable businesses in the same or similar market. Notwithstanding the above, the Company shall not pay 4 5 or reimburse the Executive for the costs of any membership fees or dues for private clubs, civic organizations, and similar organizations or entities, unless such organizations and the fees and costs associated therewith have first been approved in writing by the Chief Executive Officer. 5.3 As a condition to reimbursement under this Article 5, the Executive shall furnish to the Company adequate records and other documentary evidence required by federal and state statutes and regulations for the substantiation of each expenditure. The Executive acknowledges and agrees that failure to furnish the required documentation may result in the Company denying all or part of the expense for which reimbursement is sought. ARTICLE 6 TERMINATION OF EMPLOYMENT 6.1 TERMINATION FOR CAUSE. The Company may, during the Term, without notice to the Executive, terminate this Agreement and discharge the Executive for Cause, whereupon the respective rights and obligations of the parties hereunder shall terminate; provided, however, that the Company shall immediately pay the Executive any amount due and owing pursuant to Articles 3, 4, and 5, prorated to the date of termination. As used herein, the term "for Cause" shall refer to the termination of the Executive's employment as a result of any one or more of the following: (i) any arrest of the Executive involving a crime of dishonesty or moral turpitude, or any conviction of the Executive for any crime or felony; (ii) any misconduct of the Executive which has a materially injurious effect on the business or reputation of the Company; (iii) the dishonesty of the Executive; or (iv) failure to consistently discharge his duties under this Agreement which failure continues for thirty (30) days following written notice from the Company detailing the area or areas of such failure. For purposes of this Section 6.1, no act or failure to act, on the part of the Executive, shall be considered "willful" if it is done, or omitted to be done, by the Executive in good faith or with reasonable belief that his action or omission was in the best interest of the Company. The Executive shall have the opportunity to cure any such acts or omissions (other than item (i) above) within fifteen (15) days of the Executive's receipt of a notice from the Company finding that, in the good faith opinion of the Company, the Executive is guilty of acts or omissions constituting "Cause". 6.2 TERMINATION WITHOUT CAUSE. Anything in this Agreement to the contrary notwithstanding, the Company shall have the right, at any time in its sole and subjective discretion, to terminate this Agreement without Cause upon not less than thirty (30) days prior written notice to the Executive. The term "termination without Cause" shall mean the termination of the Executive's employment for any reason other than those expressly set forth in Section 6.1, or no reason at all, and shall also mean the Executive's decision to terminate this Agreement by reason of any act, decision or omission by the Company that: (A) materially modifies, reduces, changes, or restricts the Executive's salary, bonus opportunities, options or other compensation benefits or perquisites, or the Executive's authority, functions, services, duties, rights, and privileges as, or commensurate with the Executive's position as, Executive Vice President, Corporate Development of the Company as described in Section 2.1 hereof; (B) relocates the Executive without his consent from the offices located at 29906 Avenida Magnifica, Rancho Palos Verdes, California 90274 to any other location in excess of fifty (50) miles beyond the geographic limits of Rancho Palos Verdes, California; (C) deprives the Executive of his titles and positions of Executive Vice President, Corporate Development of the Company; or (D) involves or results in any failure by the Company to comply with any provision of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive (each a "Good Reason"). In the event the Company or the Executive shall exercise the termination right granted pursuant to this Section 6.2, the Company shall, within thirty (30) days of notice of termination to or from the Executive (as the case may be), pay to the Executive in a single lump-sum payment the base salary that would have been received by the Executive if he had remained employed by the Company for the remaining balance of the Term but in no event less than twelve (12) months; provided, however, that for 5 6 purposes of calculating the payment pursuant to this sentence, the Executive's base salary per year shall be the highest rate in effect during the Term. The Company also shall (i) continue to provide to the Executive and his beneficiaries, at its sole cost, the insurance coverages referred to in Section 4.1 above, and (ii) pay to the Executive in a single lump-sum payment the aggregate cost of the benefits (other than insurance coverages) under Section 4.1 hereof, in each case to the extent he would have received such insurance coverages and benefits had he remained employed by the Company for the remaining balance of the Term but in no event less than twelve (12) months. 6.3 TERMINATION FOR DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Term. If the Company determines in good faith that the Disability (as defined below) of the Executive has occurred during the Term, it shall give written notice to the Executive of its intention to terminate his employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of his duties. For purposes of this Agreement, "Disability" shall mean the inability of the Executive to perform his duties to the Company on account of physical or mental illness or incapacity for a period of ninety (90) consecutive calendar days, or for a period of one hundred eighty (180) calendar days, whether or not consecutive, during any three hundred sixty-five (365) day period. 6.4 TERMINATION WITHOUT GOOD REASON. Anything in this Agreement to the contrary notwithstanding, the Executive shall have the right, at any time in his sole and subjective discretion, to terminate this Agreement without Good Reason upon not less than thirty (30) days prior written notice to the Company. In the event the Executive voluntarily terminates his employment hereunder other than for Good Reason, the respective rights and obligations of the parties hereunder shall terminate; provided, however, that the Company shall immediately pay the Executive any amount due and owing pursuant to Articles 3, 4, and 5, prorated to the date of termination. 6.5 TERMINATION PRIOR TO OR FOLLOWING A CHANGE OF CONTROL. Notwithstanding the foregoing, in the event the employment of the Executive is terminated during the twelve (12) months following a Change of Control either: (i) by the Executive for Good Reason; or (ii) by the Company other than for Cause, Disability or death, then the provisions of Section 6.2 hereof shall not apply, and the Company shall, within thirty (30) days of notice of termination to the Executive, pay to the Executive in a single lump-sum payment the greater of: (i) the base salary that would have been received by the Executive if he had remained employed by the Company for the remainder of the Term, or (ii) an amount equal to one (1) year of base salary plus an amount equal to the highest annual bonus paid by the Company to the Executive during the Term prior to termination. In addition, the Company shall continue to provide to the Executive and his beneficiaries, at its sole cost, the insurance coverages referred to in Section 4.1 above for one (1) year. For purposes of this Section 6.5, "Term" shall be the period of time of this Agreement as defined by Article 1 hereof, which includes any extension thereof by reason of a Change of Control prior to March 31, 2001. 6.6 Upon the Executive's termination under this Article 6, the Company's obligations with respect to any stock option to purchase shares of the Company's common stock granted to the Executive shall be determined by the terms and conditions of such option as set forth in the Executive's written option agreement regarding such option, including the terms and conditions set forth on Schedules A or B hereto, as applicable, the terms and conditions of which Schedules A or B, as applicable, shall govern such stock option, it being understood that Schedule B only applies to the Performance Options. 6 7 ARTICLE 7 PARACHUTE TAX INDEMNITY 7.1 GROSS-UP PAYMENT. (a) If it shall be determined that any amount paid, distributed or treated as paid or distributed by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Article 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all federal, state and local taxes (including any interest or penalties imposed with respect to such taxes), including without limitation, any income taxes (including any interest or penalties imposed with respect thereto) and Excise Tax imposed on the Gross-up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments, provided, however, that in no event will the amount of the Gross-Up Payment payable pursuant to this Article 7 exceed Two Hundred Fifty Thousand Dollars ($250,000). (b) The determinations of whether and when a Gross-Up Payment is required under this Article 7 shall be made by independent tax counsel (the "Tax Counsel") based on its good faith interpretation of applicable law. The amount of such Gross-Up Payment and the valuation assumptions to be utilized in arriving at such determination shall be made by an independent nationally recognized accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. The Tax Counsel and Accounting Firm shall initially be appointed by the Company after consultation in good faith with the Executive and subject to the approval of the Executive (which approval shall not be unreasonably withheld), provided, however, that if the potential amount of the Gross-Up Payment (but for the limit in Section 7.1(a) above) could exceed Two Hundred Fifty Thousand Dollars ($250,000), the Executive shall have the opportunity to appoint a new Tax Counsel and Accounting Firm after consultation in good faith with the Company. If the Tax Counsel and Accounting Firm selected by the Company determine that the amount of the Gross-Up Payment is less than Two Hundred Fifty Thousand Dollars ($250,000), but Executive provides an opinion of a second independent Tax Counsel that the Gross-Up Payment (but for the limit in Section 7.1(a) above) could be greater than Two Hundred Fifty Thousand Dollars ($250,000) then Executive shall be entitled to appoint the Tax Counsel and the Accounting Firm after consultation in good faith with the Company and subject to the approval of the Company (which approval shall not be unreasonably withheld). All fees and expenses of any Tax Counsels and Accounting Firms referred to above shall be borne by the Company. Any Gross-Up Payment, as determined pursuant to this Article 7, shall be paid by the Company to the Executive within ten (10) days of the receipt of the Accounting Firm's determination. Any determinations by the Tax Counsel and Accounting Firm shall be binding upon the Company and the Executive, provided, however, if it is later determined that there has been an underpayment of Excise Tax and that Executive is required to make an additional Excise Tax payment(s) on any Payment or Gross-Up Payment, the Company shall provide a similar full gross-up on such additional liability, subject to the overall Two Hundred Fifty Thousand Dollars ($250,000) limit set forth in Section 7.1(a) above. 7 8 (c) For purposes of any determinations made by any Tax Counsel and Accounting Firm acting under Section 7.1(b) above: (i) All Payments and Gross-Up Payments with respect to Executive shall be deemed to be "parachute Payments" under Section 280G(b)(2) of the Code and to be "excess parachute payments" under Section 280G(b)(1) of the Code that are fully subject to the Excise Tax under Section 4999 of the Code, except to the extent (if any) that such Tax Counsel determines in writing in good faith that a Payment in whole or in part does not constitute a "parachute payment" or otherwise is not subject to Excise Tax; (ii) The value of any non-cash benefits or deferred or delayed payments or benefits shall be determined in a manner consistent with the principles of Section 280G of the Code; and (iii)Executive shall be deemed to pay federal, state and local income taxes at the actual marginal rate applicable to individuals in the calendar year in which the Gross-Up Payment is made, net of any applicable reduction in federal income taxes for any state and local taxes paid on the amounts in question. 7.2 CLAIMS AND PROCEEDINGS. The Executive shall notify the Company in writing of any Excise Tax claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later then twenty (20) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such Excise Tax claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company after consultation in good faith with Executive and subject to approval by Executive (which approval shall not be unreasonably withheld) under the circumstances set forth in Section 7.1; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceeding relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expense. Without limitation of the foregoing provisions of this Article 7, if the Gross-Up Payment payable hereunder (determined on the basis of the amount being contested), together with any previous Gross-Up Payment made by the Company to the Executive hereunder (collectively the "Aggregate Gross-Up Payment"), would not exceed Two Hundred Fifty Thousand Dollars ($250,000) (determined without regard to the Two Hundred Fifty Thousand Dollars ($250,000) limit in Section 7.1(a)), the Company shall control the Excise Tax portion of any proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such Excise Tax claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the Excise Tax claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine. If the Company directs the Executive to pay such Excise Tax claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest and penalties) imposed with respect to such advance or with respect to any imputed income with respect to such 8 9 advance; and provided, however, that any Company-directed extension of the statute of limitations relating to payment of taxes for the Executive's taxable year with respect to which such contested Excise Tax amount is claimed to be due shall be effective only if it can be and is limited to the contested Excise Tax liability. Notwithstanding anything to the contrary herein, the Executive shall control the settlement or contest, as the case may be, of all non-Excise Tax issues and of any Excise Tax issues with respect to which the Aggregate Gross-Up Payment payable hereunder (but for the limit in Section 7.1(a) above) would exceed Two Hundred Fifty Thousand Dollars ($250,000). The Executive shall be entitled to settle or contest, as the case may be, any non-Excise Tax issue raised by the Internal Revenue Service or any other taxing authority, so long as such action does not have a material adverse effect on an Excise Tax contest being pursued by and under the control of the Company. 7.3 REFUNDS. If, after the Executive's receipt of an amount advanced by the Company pursuant to this Article 7 for payment of Excise Taxes, the Executive files an Excise Tax refund claim and receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of this Article 7) except as provided below, promptly pay to the Company the amount of any such refund of Excise Tax (together with any interest paid or credited thereon, but after any and all taxes applicable thereto), plus the amount (after any and all taxes applicable thereto) of the refund (if any is applied for and received) of any income tax paid by Executive with respect to and as a result of his prior receipt of any previously paid Gross-Up Payment indemnifying Executive with respect to any such Excise Tax later so refunded. In the event Executive files for a refund of the Excise Tax and such request would, if successful, require Executive to refund any amount to the Company pursuant to this provision, then Executive shall be required to seek a refund of the Income Tax portion of any corresponding Gross-Up Payment so long as such refund request would not have a material adverse effect on Executive (which determination shall be made by independent tax counsel selected by Executive after good faith consultation with the Company and subject to approval of the Company, which approval shall not be unreasonably withheld). Notwithstanding the above, Executive shall have no obligation to pay any portion of any such tax refund(s) to the Company if and to the extent that the Excise Tax to which such refund relates was not eligible for a Gross-Up Payment by reason of the Two Hundred Fifty Thousand Dollars ($250,000) limit in Section 7.1(a) above. For this purpose, if the total Excise Tax paid with respect to Executive exceeds the maximum amount eligible for Gross-Up Payment coverage by reason of the Two Hundred Fifty Thousand Dollars ($250,000) limit in Section 7.1 (a) above, any subsequent Excise Tax refunds shall first be applied against the portion of any Excise Tax payments that are not covered by the Gross-Up Payments provided under this Article 7. If, after the Executive's receipt of an amount advanced by the Company pursuant to this Article 7, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. ARTICLE 8 NO MITIGATION OR OFFSET; INSURANCE 8.1 NO MITIGATION OR OFFSET. The Executive shall not be required to seek other employment or to reduce any severance benefit payable to him under Article 6 hereof, and no severance benefit shall be reduced on account of any compensation received by the Executive from other employment. The Company's obligation to pay severance benefits under this Agreement shall not be reduced by any amount owed by the Executive to the Company. 9 10 8.2 INDEMNIFICATION; INSURANCE. (a) If the Executive is a party or is threatened to be made a party to any threatened, pending or completed claim, action, suit or proceeding, or appeal therefrom, whether civil, criminal, administrative, investigative or otherwise, because he is or was an officer of the Company, or at the express request of the Company is or was serving, for purposes reasonably understood by him to be for the Company, as a director, officer, partner, employee, agent or trustee (or in any other capacity of an association, corporation, general or limited partnership, joint venture, trust or other entity), the Company shall indemnify the Executive against any reasonable expenses (including attorneys' fees and disbursements), and any judgments, fines and amounts paid in settlement incurred by him in connection with such claim, action, suit, proceeding or appeal therefrom to the extent such expenses, judgments, fines and amounts paid in settlement were not advanced by the Company on his behalf pursuant to subsection (b) below, to the fullest extent permitted under Delaware law. The Company shall provide Executive with D&O insurance coverage at least as favorable to Executive as what the Company maintains as of the date hereof or such greater coverage as the Company may maintain from time to time. (b) Provided that the Executive shall first have agreed to in writing to repay such amounts advanced if it is determined by an arbitrator or court of competent jurisdiction that the Executive was not entitled to indemnification, upon the written request of the Executive specifying the amount of a requested advance and the intended use thereof, the Company shall indemnify Executive for his expenses (including attorneys' fees and disbursements), judgments, fines and amounts paid in settlement incurred by him in connection with such claim, action, suit, proceeding or appeal whether civil, criminal, administrative, investigative or otherwise, in advance of the final disposition of any such claim, action, suit, proceeding or appeal therefrom to the fullest extent permitted under Delaware law. ARTICLE 9 RESTRICTIVE COVENANTS 9.1 COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. During the Term and following termination of this Agreement, the Executive agrees that, without the Company's prior written consent, he will not use or disclose to any person, firm, association, partnership, entity or corporation, any confidential information concerning: (i) the business operations or internal structure of the Company; (ii) the customers of the Company; (iii) the financial condition of the Company; and (iv) other confidential information pertaining to the Company, including without limitation, trade secrets, technical data, marketing analyses and studies, operating procedures, customer and/or inventor lists, or the existence or nature of any of the Company's agreements (other than this Agreement and any other option or compensation related agreements involving the Executive); provided, however, that the Executive shall be entitled to disclose such information: (i) to the extent the same shall have otherwise become publicly available (unless made publicly available by the Executive); (ii) during the course of or in connection with any actual or potential litigation, arbitration, or other proceeding based upon or in connection with the subject matter of this Agreement; (iii) as may be necessary or appropriate to conduct his duties hereunder, provided the Executive is acting in good faith and in the best interest of the Company; or (iv) as may be required by law or judicial process. 9.2 COVENANT NOT TO COMPETE. The Executive acknowledges that he has established and will continue to establish favorable relations with the customers, clients and accounts of the Company and will have access to trade secrets of the Company. Therefore, in consideration of such relations and to further protect trade secrets, directly or indirectly, of the Company, the Executive agrees that during the Term and for a period of one (1) year from the date of termination of the Executive, the Executive will not, directly or indirectly, without the express written consent of the Board: (i) own or have any interest in or act as an officer, director, partner, principal, employee, agent, representative, consultant or independent contractor of, or in any way assist in, any business which is engaged, directly or indirectly, in any business competitive with 10 11 the Company in those automotive markets and/or automotive products lines in which the Company competes within the United States at any time during the Term, or become associated with or render services to any person, firm, corporation or other entity so engaged ("Competitive Businesses"); provided, however; that the Executive may own without the express written consent of the Company not more than two (2) percent of the issued an outstanding securities of any company or enterprise whose securities are listed on a national securities exchange or actively traded in the over the counter market; (ii) solicit clients, customers or accounts of the Company for, on behalf of or otherwise related to any such Competitive Businesses or any products related thereto; or (iii) solicit any person who is or shall be in the employ or service of the Company to leave such employ or service for employment with the Executive or an affiliate of the Executive. Notwithstanding the foregoing, if any court determines that the covenant not to compete, or any part thereof, is unenforceable because of the duration of such provision or the geographic area or scope covered thereby, such court shall have the power to reduce the duration, area or scope of such provision to the extent necessary to make the provision enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced. 9.3 SPECIFIC PERFORMANCE. Recognizing that irreparable damage will result to the Company in the event of the breach or threatened breach of any of the foregoing covenants and assurances by the Executive contained in Sections 9.1 and 9.2 hereof, and that the Company's remedies at law for any such breach or threatened breach may be inadequate, the Company and its successors and assigns, in addition to such other remedies which may be available to them, shall be entitled to an injunction to be issued by any court of competent jurisdiction ordering compliance with this Agreement or enjoining and restraining the Executive, and each and every person, firm or company acting in concert or participation with him, from the continuation of such breach. The obligations of the Executive and rights of the Company pursuant to this Article 9 shall survive the termination of this Agreement. The covenants and obligations of the Executive set forth in this Article 9 are in addition to and not in lieu of or exclusive of any other obligations and duties the Executive owes to the Company, whether expresses or implied in fact or law. ARTICLE 10 GENERAL PROVISIONS 10.1 This Agreement is intended to be the final, complete and exclusive agreement between the parties relating to the employment of the Executive by the Company with respect to the Term and all prior or contemporaneous understandings, representations and statements, oral or written, are merged herein. No modification waiver, amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against which the enforcement thereof is or may be sought. 10.2 No waiver, by conduct or otherwise, by any party of any term, provision, or condition of this Agreement, shall be deemed or construed as a further or continuing waiver of any such term, provision, or condition nor as a waiver of a similar or dissimilar condition or provision at the same time or at any prior or subsequent time. 10.3 The rights under this Agreement, or by law or equity, shall be cumulative and may be exercised at any time and from time to time. No failure by any party to exercise, and no delay in exercising, any rights shall be construed or deemed to be a waiver thereof, nor shall any single or partial exercise by any party preclude any other or future exercise thereof or the exercise of any other right. 11 12 10.4 Except as otherwise provided in this Agreement, any notice, approval, consent, waiver or other communication required or permitted to be given or to be served upon any person in connection with this Agreement shall be in writing. Such notice shall be personally served, sent by telegram, tested telex, fax or cable, or sent prepaid by either registered or certified mail with return receipt requested or Federal Express and shall be deemed given (i) if personally served or by Federal Express, when delivered to the person to whom such notice is addressed, (ii) if given by telegram, telex, fax or cable, when sent, or (iii) if given by mail, two (2) business days following deposit in the United States mail. Any notice given by telegram, telex, fax or cable shall be confirmed in writing by overnight mail or Federal Express within forty-eight (48) hours after being sent. Such notices shall be addressed to the party to whom such notice is to be given at the party's address set forth below or as such party shall otherwise direct. If to the Company: autobytel.com inc. 18872 MacArthur Boulevard Irvine, California 92612-1400 Facsimile: (949) 862-1323 Attn: General Counsel If to the Executive: Dennis Benner 29906 Avenida Magnifica, Rancho Palos Verde, California 90274. 10.5 The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto. 10.6 This Agreement shall be construed and enforced in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws thereof, except that the indemnification provisions of Section 8.2 shall be governed by Delaware law without regard to conflict of laws principles. 10.7 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one instrument. 10.8 The provisions of this Agreement are agreed to be severable, and if any provision, or application thereof, is held invalid or unenforceable, then such holding shall not affect any other provision or application. 10.9 As used herein, and as the circumstances require, the plural term shall include the singular, the singular shall include the plural, the neuter term shall include the masculine and feminine genders, and the feminine term shall include the neuter and the masculine genders. 10.10 Any controversy or claim arising out of, or related to, this Agreement, or the breach thereof, shall be settled by binding arbitration in the City of Irvine, California, in accordance with the rules then in effect of the American Arbitration Association, and the arbitrator's decision shall be binding and final, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. Each party hereto shall pay its or their own expenses incident to the negotiation, preparation and resolution of any controversy or claim arising out of, or related to, this Agreement, or the breach thereof, provided, however, the Company shall pay and be solely responsible for any attorneys' fees and expenses and court or arbitration costs incurred by the Executive as a result of a claim that the Company has breached or otherwise failed to perform this Agreement or any provision hereof to be performed by the Company if the Executive prevails in the contest in whole or in part. 12 13 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AUTOBYTEL.COM INC. By: /s/ MARK W. LORIMER -------------------------- Mark W. Lorimer Chief Executive Officer and President /s/ DENNIS W. BENNER ------------------------------- Dennis W. Benner 13 14 SCHEDULE A (a) Payment Upon Exercise. Payment for the shares subject to any Option may be tendered in cash or by certified, bank cashier's or teller's check or by shares of the Company's common stock (valued at fair market value (as determined by the Company) as of the date of tender) already owned by the Executive, or some combination of the foregoing or through cashless exercise or such other form of consideration which has been approved by the Board, including a promissory note given by the Executive. (b) Termination for Cause. As of the date of the Executive's termination for Cause (as defined below), any unvested or unexercised portion of any Option shall terminate immediately and shall be of no further force or effect. As used herein, the term "for Cause" shall refer to the termination of the Executive's employment as a result of any one or more of the following: (i) any arrest of the Executive involving a crime of dishonesty or moral turpitude, or any conviction of the Executive for any crime or felony; (ii) any misconduct of the Executive which has a materially injurious effect on the business or reputation of the Company; (iii) the dishonesty of the Executive; or (iv) failure to consistently discharge his duties under this Agreement which failure continues for thirty (30) days following written notice from the Company detailing the area or areas of such failure. For purposes hereof, no act or failure to act, on the part of the Executive, shall be considered "willful" if it is done, or omitted to be done, by the Executive in good faith or with reasonable belief that his action or omission was in the best interest of the Company. The Executive shall have the opportunity to cure any such acts or omissions (other than item (i) above) within fifteen (15) days of the Executive's receipt of notice from the Company finding that, in the good faith opinion of the Company, the Executive is guilty of acts or omissions constituting "Cause". (c) Termination Without Cause or for Good Reason. As of the date of the Executive's termination by the Company without Cause or by the Executive for Good Reason (as defined below), any unvested portion of any Option which would otherwise have vested during the Term but for the termination shall become immediately and fully vested and all Options, including any previously vested but unexercised portions of any Options, shall be exercisable from such termination of employment until the date that is two (2) years following the termination date. The term "termination without Cause" shall mean the termination of the Executive's employment for any reason other than those expressly set forth in the definition "for Cause" above, or no reason at all, and shall also mean the Executive's decision to terminate his employment with the Company by reason of any act, decision or omission by the Company or the Board that: (A) materially modifies, reduces, changes, or restricts the Executive's salary, bonus opportunities, options or other compensation benefits or perquisites, or the Executive's authority, functions, services, duties, rights, and privileges as, or commensurate with the Executive's position as, Executive Vice President, Corporate Development of the Company; (B) relocates the Executive without his consent from the offices located at 29906 Avenida Magnifica, Rancho Palos Verdes, California 90274 to any other location in excess of fifty (50) miles beyond the geographic limits of Rancho Palos Verdes, California; (C) deprives the Executive of his titles and positions of Executive Vice President, Corporate Development of the Company; or (D) involves or results in any failure by the Company to comply with any provision of the Employment Agreement or any Option, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive (each a "Good Reason"). (d) Termination due to Death or Disability. As of the date of the Executive's termination due to death or Disability (as defined below), any unvested portion of any Option shall become immediately and fully vested and all Options, including any previously vested but unexercised portion of any Options, shall be exercisable from the date of such termination of employment until the fifth anniversary of the applicable grant date or, if earlier, the date that is two (2) years following the termination date. If the Company determines in good faith that the Disability of the Executive has occurred, it shall give written notice to the Executive of its intention to terminate his employment. In such event, the Executive's employment with the 14 15 Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of his duties. For purposes hereof, "Disability" shall mean the inability of the Executive to perform his duties to the Company on account of physical or mental illness or incapacity for a period of ninety (90) consecutive calendar days, or for a period of one hundred eighty (180) calendar days, whether or not consecutive, during any three hundred sixty-five (365) day period. (e) Termination Without Good Reason. As of the date of any voluntary termination of employment with the Company by the Executive other than due to death or Disability, and other than for Good Reason, any unvested portion of any Option shall terminate immediately and shall be of no further force or effect. Any previously vested but unexercised portion of any Option shall remain exercisable from the date of such termination of employment until the second anniversary of the termination date. (f) Termination Prior to or Following a Change of Control. In the event of a Change of Control (as defined below) while the Executive is employed by the Company, or the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason within six (6) months prior to a Change of Control, any unvested installment of any Option shall immediately vest and become exercisable from the date of such Change of Control, or if earlier the date of termination, until the date that is two (2) years following: (i) the Change of Control date, or (ii) if earlier the date of termination. For purposes hereof, "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation but not including any initial or secondary public offering) in one or a series of related transactions of all or substantially all of the assets of the Company taken as a whole to any person (a "Person") or group of persons acting together (a "Group") (other than any of the Company's wholly-owned subsidiaries, any Company employee pension or benefits plan, or any person or entity owning at least five (5) percent of the common stock of the Company as of March 31, 1999), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transactions (including any stock or other purchase, sale, acquisition, disposition, merger or consolidation, but not including any initial or secondary public offering) the result of which is that any Person or Group (other than any of the Company's wholly-owned subsidiaries, any Company employee pension or benefits plan, or any person or entity owning at least five (5) percent of the common stock of the Company as of March 31, 1999), becomes the beneficial owners of more than 40 percent of the aggregate voting power of all classes of stock of the Company having the right to elect directors under ordinary circumstances; or (iv) the first day on which a majority of the members of the Board are not individuals who were nominated for election or elected to the Board with the approval of two-thirds of the members of the Board just prior to the time of such nomination or election. 15 16 SCHEDULE B (a) Payment Upon Exercise. Payment for the shares subject to any Performance Option may be tendered in cash or by certified, bank cashier's or teller's check or by shares of the Company's common stock (valued at fair market value (as determined by the Company) as of the date of tender) already owned by the Executive, or some combination of the foregoing or such other form of consideration which has been approved by the Board, including any approved cashless exercise mechanism or a promissory note given by the Executive. (c) Termination for Cause. As of the date of the Executive's termination for Cause under Section 6.1 of this Agreement, any unvested or unexercised portion of the Performance Options shall terminate immediately and shall be of no further force or effect. (d) Termination Without Cause or for Good Reason. As of the date of the Executive's termination by the Company without Cause or by the Executive for Good Reason under Section 6.2 of this Agreement, any unvested portion of the Performance Options shall become immediately and fully vested and exercisable to the extent the stock price targets in Section 3.8(a)(i)-(v) of this Agreement are met on the termination date or as of the immediately preceding eight (8) month anniversary of the date of grant, or as of the eight (8) month anniversary of the grant date immediately following such termination. Any shares subject to the Performance Options that become vested and exercisable in accordance with the foregoing and any previously vested but unexercised Performance Options shall remain exercisable from the date of such termination of employment until the date that is one (1) year following the termination date. (e) Due to Death or Disability. As of the termination date due to death or Disability of the Executive under Section 6.3 of this Agreement, any unvested portion of the Performance Options shall become vested and exercisable to the extent the stock price targets in Section 3.8(a)(i)-(v) of this Agreement are met on the termination date or as of the immediately preceding eight (8) month anniversary of the date of grant, or as of the eight (8) month anniversary of the grant date immediately following such termination. Any shares subject to the Performance Options that become vested and exercisable in accordance with the foregoing and any previously vested but unexercised Performance Options shall remain exercisable from the date of such termination of employment until the date that is one (1) year following the termination date. (f) Termination Without Good Reason. As of the date of any voluntary termination of employment with the Company by the Executive other than due to death or Disability and other than for Good Reason, as of the date of such termination by the Executive any unvested portion of the Performance Options shall terminate immediately and shall be of no further force or effect. Any previously vested but unexercised Performance Options shall remain exercisable from the date of such termination of employment until the date that is one (1) year following the termination date. (g) Change of Control. In the event of a Change of Control while the Executive is employed by the Company, or the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason within six (6) months prior to a Change of Control, any otherwise unvested installment of the Performance Options shall immediately vest and become exercisable to the extent the installment meets the applicable stock price targets in Section 3.8(a)(i)-(v) of this Agreement based on the Average Trading Price at the time of or within six (6) months of the Change of Control but without regard to any anniversary of the installment's grant date. Any shares subject to the Performance Options that become vested and exercisable in accordance with the foregoing and any previously vested but unexercised Performance Options shall be at the Executive's option either cashed out based on a value per share determined in accordance with this clause (g) or remain exercisable from the date of such Change of Control until the date that is one (1) year following the Change of Control date. 16 EX-27.1 8 a67159ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 90,565 0 7,301 842 0 99,607 6,278 4,231 127,280 24,027 0 0 0 20 94,973 127,280 49,723 49,723 0 0 78,401 824 56 (25,739) 42 (25,781) 0 0 0 (25,781) (1.41) (1.41)
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