UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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 1-34761
AutoWeb, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
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33-0711569
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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18872 MacArthur Boulevard, Suite 200
Irvine, California 92612-1400
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number,
including area code (949) 225-4500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.001 per share
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The Nasdaq Capital Market
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the
Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or
Section 15(d) of the
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (section 232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company, or emerging growth company. See the definitions
of “large accelerated filer,” “accelerated
filer” and “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☐
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Accelerated filer ☒
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Non-accelerated filer ☐
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Smaller reporting company ☐
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(Do not check if a smaller reporting company)
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Emerging growth company☐
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
Based
on the closing sale price of $12.61 for our common stock on The
Nasdaq Capital Market on June 30, 2017, the aggregate market
value of outstanding shares of common stock held by non-affiliates
was approximately $140 million.
As
of March 12, 2018, 13,074,558 shares of our common stock were
outstanding.
Documents Incorporated by Reference
Portions of our Definitive Proxy Statement for the 2018 Annual
Meeting, expected to be filed within 120 days of our fiscal year
end, are incorporated by reference into Part III of this Annual
Report on Form 10-K.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
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FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission
(“SEC”) encourages companies to disclose
forward-looking information so that investors can better understand
a company’s future prospects and make informed investment
decisions. This Annual Report on Form 10-K and our proxy statement,
parts of which are incorporated herein by reference, contain such
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as
“anticipates,” “could,”
“may,” “estimates,”
“expects,” “projects,”
“intends,” “pending,” “plans,”
“believes,” “will” and words of similar
substance, or the negative of those words, used in connection with
any discussion of future operations or financial performance
identify forward-looking statements. In particular, statements
regarding expectations and opportunities, new product expectations
and capabilities, and our outlook regarding our performance and
growth are forward-looking statements. This Annual Report on Form
10-K also contains statements regarding plans, goals and
objectives. There is no assurance that we will be able to carry out
our plans or achieve our goals and objectives or that we will be
able to do so successfully on a profitable basis. These
forward-looking statements are just predictions and involve risks
and uncertainties, many of which are beyond our control, and actual
results may differ materially from these statements. Factors that
could cause actual results to differ materially from those
reflected in forward-looking statements include but are not limited
to, those discussed in “Item 1A. Risk Factors,”
and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” Investors are
urged not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date on which they
were made. Except as may be required by law, we do not undertake
any obligation, and expressly disclaim any obligation, to update or
alter any forward-looking statements, whether as a result of new
information, future events or otherwise. All forward-looking
statements contained herein are qualified in their entirety by the
foregoing cautionary statements.
PART I
AutoWeb, Inc. was incorporated in 1996 under the
laws of the State of Delaware. Unless specified otherwise, as used
in this Annual Report on Form 10-K, the terms
“we,” “us,” “our,” the “Company” or “AutoWeb” refer to AutoWeb, Inc. and its
subsidiaries.
On
October 9, 2017, the Company changed its name from Autobytel Inc.
to AutoWeb, Inc., assuming the name of AutoWeb, Inc., which was the
name of the company that was acquired by the Company in October
2015. In connection with this name change, the Company’s
stock ticker symbol was changed from “ABTL” to
“AUTO” on The Nasdaq Capital Market.
Overview
We are
a digital marketing company for the automotive industry that
assists automotive retail dealers (“Dealers”) and automotive
manufacturers (“Manufacturers”) market and sell
new and used vehicles to consumers by utilizing our digital sales
enhancing products and services. Our
consumer-facing automotive websites (“Company
Websites”) provide
consumers with information and tools to aid them with their
automotive purchase decisions and gives in-market consumers the
ability to connect with Dealers regarding purchasing or leasing
vehicles. These consumers are connected to Dealers via our various
programs for online lead referrals (“Leads”). The Company’s AutoWeb®
consumer traffic referral product (“AutoWeb Traffic Product”) engages
with car buyers from AutoWeb’s network of automotive websites
and uses our proprietary technology to present them with highly
relevant offers based on their make and model of interest and their
geographic location. We then direct these in-market consumers to
key areas of a Dealer’s or Manufacturer’s website to
maximize conversion for sales, service or other products or
services.
Available Information
Our corporate website is located at
www.autoweb.com.
Information on our website is not incorporated by reference in this
Annual Report on Form 10-K. At or through the Investor Relations
section of our website we make available free of charge our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to these reports as soon as
practicable after this material is electronically filed with or
furnished to the SEC and The Nasdaq Stock Market. Our Code of
Conduct and Ethics is available at the Corporate Governance link of
the Investor Relations section of our website, and a copy of the
code may also be obtained, free of charge, by writing to the
Corporate Secretary, AutoWeb, Inc., 18872 MacArthur Boulevard,
Suite 200, Irvine, California 92612-1400.
Significant Business Developments
DealerX
On October 5, 2017, the Company and DealerX
Partners, LLC, a Florida limited liability company
(“DealerX”), entered into a Master License and
Services Agreement (“DealerX License
Agreement”). Pursuant to
the terms of the DealerX License Agreement, AutoWeb was granted a
perpetual license to access and use DealerX’s proprietary
platform and technology for targeted, online marketing. DealerX
will operate the platform for AutoWeb and provide enhancements to
and support for the DealerX platform for at least an initial
five-year period (“Platform Support
Obligations”). See Note 5
of the “Notes to Consolidated Financial Statements” in
Part II, Item 8, Financial Statements and Supplementary Data of
this Annual Report on Form 10-K.
Stock Repurchase
On June 7, 2012, the Company announced that its
board of directors had authorized the Company to repurchase up to
$2.0 million of the Company’s common stock, and on September
17, 2014, the Company announced that its board of
directors had approved the repurchase of up to an additional $1.0
million of the Company’s common stock. On
September 6, 2017, the Company announced that its board of
directors authorized the Company to repurchase an additional $3.0
million of the Company’s common stock. Under these
repurchase programs, we may repurchase common stock from time to
time on the open market or in private transactions. These
authorizations do not require us to purchase a specific number of
shares, and the board of directors may suspend, modify or terminate
the programs at any time. We will fund future repurchases through
the use of available cash. During 2017, we repurchased
226,698 shares for an aggregate price of $1.9 million. The average
price paid for all shares repurchased during 2017 was $8.37. The
shares repurchased during 2017 were cancelled and returned to
authorized and unissued shares.
Industry
Background
We believe that
consumers engaged in the vehicle purchasing process have adopted
the internet, primarily because the internet is one of the best
methods to easily find the information necessary to make informed
buying decisions. Additionally, the internet is a primary tool for
consumers to begin communicating with local Dealers regarding
vehicle pricing, availability, options and financing. J.D. Power
and Associates reported in 2017 that 78% of automotive consumer
buyers surveyed use third party websites for vehicle research. In
addition, we believe that many Dealers and all major Manufacturers
that market their vehicles in the U.S. use the internet as an
efficient way to reach consumers through marketing
programs. According
to Automotive News, U.S. light vehicle sales were 17.2 million in
2017, a decrease from 17.5 million vehicles sold in
2016. J.D. Power/LMC Automotive are forecasting 2018
U.S. total light vehicle sales and retail light-vehicle sales at
17.0 million and 13.7 million,
respectively.
Products and
Services
Leads are internally-generated from our Company
Websites (“Internally-Generated
Leads”) or acquired from
third parties (“Non-Internally-Generated
Leads”) that generate
Leads from their websites (“Non-Company
Websites”). We sell
Internally-Generated Leads and Non-Internally-Generated Leads
directly to Dealers and indirectly to Dealers through a wholesale
market consisting of Manufacturers and other third parties in the
automotive Lead distribution industry. The AutoWeb
Traffic Product links consumers to Dealers and Manufacturer
websites when the consumers click on advertisements on Company
Websites as well as websites operated by third parties that have
contracted with the Company as publishers under the AutoWeb Traffic
Product. In addition to our Leads and AutoWeb Traffic Product
programs, we also offer Dealers and Manufacturers other products
and services, including WebLeads+ and Payment
Pro®,
to assist them in capturing online, in-market customers and selling
more vehicles by improving conversion of Leads to sale
transactions.
Lead Programs
We
provide Dealers and Manufacturers with opportunities to market
their vehicles efficiently to potential vehicle
buyers. Dealers participate in our Lead programs, and
Manufacturers participate in our Lead programs, our display
advertising programs and our direct marketing programs, reaching
consumers that are in the market to acquire a
vehicle. For consumers, we provide, at no cost to the
consumer, an easy way to obtain valuable information to assist them
in their vehicle shopping process. Leads may be submitted by
consumers through our Company Websites or through Non-Company
Websites. For consumers using our Company Websites, we provide
research information, including vehicle specification data, safety
data, pricing data, photos, videos, regional rebate and incentive
data, and additional tools, such as the compare and configuration
tools, to assist them in this process. We also provide
additional content on our Company Websites, including our database
of articles, such as consumer and professional reviews, and other
analyses. Additional automotive information is also
available on our Company Websites to assist consumers with specific
vehicle research, such as the trade-in value of their current
vehicle.
New Vehicle Leads Program. Our Leads program for new vehicles allows
consumers to submit requests for pricing and availability of
specific makes and models. A new vehicle Lead provides a
Dealer with information regarding the make and model of a vehicle
in which the consumer is interested, and may also include
additional data regarding the consumer’s needs, including any
vehicle trade-in, whether the consumer wishes to lease or buy, and
other options that are important to the vehicle acquisition
decision. A Lead will usually also include the consumer’s
name, phone number and email address and may include a postal
address.
Dealers participating in our new vehicle Leads
program are provided with iControl by AutoWeb, our proprietary
technology that allows Dealers many options to filter and control
the volume and source of their Leads. iControl by AutoWeb can be controlled at the
dealership (or by a representative of AutoWeb on behalf of the
dealership), at the Dealer group level from a web-based,
easy-to-use console that makes it quick and simple for dealerships
to change their Lead acquisition strategy to adjust for inventory
conditions at their dealerships and broader industry patterns (such
as changes in gas prices or changes in consumer demand). From
the console, dealerships can easily contract or expand territories
and increase, restrict or block specific models and Lead web
sources, making it much easier to target inventory challenges and
focus marketing resources more efficiently.
Our
Leads are subject to quality verification that is designed to
maintain the high-quality of our Leads and increase the Lead buy
rates for our Lead customers. Quality verification includes the
validation of name, phone number, email address and postal address.
Our quality verification also involves proprietary systems as well
as arrangements with third party vendors specializing in customer
validation. After a Lead has been subjected to quality
verification, if we have placement coverage for the Lead within our
own Dealer network, we send the Lead to Dealers that sell the type
of vehicle requested in the consumer’s geographic area. We
also send an email message to the consumer with the Dealer’s
name and phone number, and if the Dealer has a dedicated internet
manager, the name of that manager. Dealers contact the consumer
with a price quote and availability information for the requested
vehicle. In addition to sales of Leads directly to Dealers in our
network, we also sell Leads wholesale to Manufacturers for delivery
to their Dealers and to third parties that have placement coverage
for the Lead with their own customers.
Dealers participate in our retail new vehicle Lead program by
entering into contracts directly with us or through major Dealer
groups. Generally, our Dealer contracts may be terminated by either
party on 30 days’ notice and are non-exclusive. The majority
of our retail new vehicle Lead revenues consists of either a
monthly subscription or a per-Lead fee paid by Dealers in our
network; however, under our pay-per-sale program, we offer a
limited number of Dealers in states where we are permitted to
charge on a per transaction basis the opportunity to pay a flat per
transaction fee for a Lead that results in a vehicle sale. We
reserve the right to adjust our fees to Dealers upon 30 days’
prior notice at any time during the term of the contract.
Manufacturers (directly or through their marketing agencies) and
other third parties participate in our wholesale new vehicle Lead
programs generally by entering into agreements where either party
has the right to terminate upon prior notice, with the length of
time for the notice varying by contract. Revenues from retail new
vehicle Leads accounted for 19%, 22% and 27% of total revenues in
2017, 2016 and 2015, respectively. Revenues from wholesale Leads
accounted for 46%, 46% and 47% of total revenues in 2017, 2016 and
2015, respectively.
We measure Lead quality by the conversion of Leads
to actual vehicle sales, which we refer to as the “buy
rate.” Buy rate is the percentage of the consumers submitting
Leads that we delivered to our customers represented by the number
of these consumers who purchased vehicles within ninety days of the
date of the Lead submission. We rely on detailed feedback
from Manufacturers and wholesale customers to confirm the
performance of our Leads. Our Manufacturer and
wholesale customers match the Leads we deliver to our customers
against vehicle sales to provide us with information about vehicle
purchases by the consumers who submitted Leads that we delivered to
these customers. We also obtain
vehicle registration data from a third party provider. This
information, together with our internal analysis allows us to
estimate the buy rates for the consumers who submitted the
Internally-Generated Leads and Non-Internally Generated Leads that
we delivered to our customers, and based on these estimates, to
estimate an industry average buy rate. Based on the most current
information and our internal analysis, we have estimated that, on
average, consumers who submit Internally-Generated Leads that we
deliver to our customers have an estimated buy rate of
approximately 19%. Buy rates that individual Dealers may
achieve can be impacted by factors such as the strength of
processes and procedures within the dealership to manage
communications and follow up with consumers.
In
addition, we report a number of key metrics to our customers,
allowing them to gain a better understanding of the revenue
opportunities that they may realize by acquiring Leads from
us. We can now optimize the mix of Leads we deliver to
our customers based on multiple sources of quality measurements.
Also, by reporting the buying behavior of potential consumers, the
findings also can help shape improvements to online Lead
management, online advertising and dealership sales process
training. By providing actionable data, we place useful
information in the hands of our
customers.
During
2017, we continued to focus our Dealer acquisition and retention
strategies on dealerships to which we could deliver a higher
percentage of our Internally-Generated Leads. We believe
this will result in increased vehicle sales for our Dealers and
ultimately stronger relationships with us because, based on our
evaluation of the performance data and information
discussed above, we believe our Internally-Generated Leads are
of high-quality.
Used Vehicle Leads Program. Our used vehicle Lead program allows
consumers to search for used vehicles according to specific search
parameters, such as the price, make, model, mileage, year and
location of the vehicle. The consumer is able to locate and display
the description, price and, if available, digital images of
vehicles that satisfy the consumer’s search
parameters. The consumer can then submit a Lead for
additional information regarding a vehicle that we then deliver to
the Dealer offering the vehicle. In addition to sending Leads
directly to Dealers through our Lead delivery system, consumers may
choose to contact the Dealer using a toll free number posted next
to the vehicle search results. We charge each Dealer that
participates in the used Vehicle Leads program a monthly
subscription or per Lead fee. Revenues from used vehicle
Leads accounted for 9%, 10% and 11% of total revenues in 2017, 2016
and 2015, respectively.
Other Dealer Products and Services
In
addition to Leads and AutoWeb Traffic Product programs, we also
offer products and services that assist Dealers in connecting with
in-market consumers and closing vehicle sales.
WebLeads+.
Designed to work in connection with a Dealer’s participation
in our Lead programs, WebLeads+ offers a Dealer multiple coupon
options that display relevant marketing messages to consumers
visiting the Dealer’s website. When a Dealer uses
WebLeads+, consumers visiting the Dealer’s website are
encouraged to take action in two ways. First, while
interacting with the Dealer website, a consumer is presented with a
customized special offer formatted for easy Lead submission. If a
vehicle quote is requested, the Lead goes directly into the
dealership management tool so a salesperson can promptly address
the customer’s questions. Second, if the consumer
leaves the Dealer’s website but remains online, the
WebLeads+ product keeps the coupon active in a new browser,
providing the Dealer a repeat branding opportunity and giving the
consumer an easy way to re-engage with the Dealer’s website
through submission of a Lead. The additional Leads
generated by the coupons are seamlessly integrated into our
Extranet tool.
Payment
Pro®.
Payment Pro®
is a Dealer website conversion tool
based on a third party product that offers consumers real-time
online monthly payment information based on an instant evaluation
process. The payments are based on the consumer’s
credit, the actual vehicle being researched and the Dealer finance
rates without requiring the consumer to provide personal
information, such as date of birth or social security number. The
Lead goes directly into the Dealer’s management tool so that
a salesperson can promptly address the consumer’s
inquiry.
Advertising Programs
Our Company Websites attract an audience of
prospective automotive buyers that advertisers can target through
display advertising. A primary way advertisers use our Company
Websites to reach consumers is through vehicle content
targeting. This allows automotive marketers to reach
consumers while they are researching one of our comprehensive
automotive segments such as mini-vans or SUVs and offer
Manufacturers sponsorship opportunities to assist in their efforts
both in terms of customer retention and conquest strategies. Our
Company Websites also offer Manufacturers the opportunity to
feature their makes and models within highly contextual content.
Through their advertising placements, Manufacturers can direct
consumers to their respective websites for further information. We
believe this transfer of consumers from our Company Websites to
Manufacturer sites is the most significant action measured by
Manufacturers in evaluating our performance and value for the
Manufacturer’s marketing programs. Through our agreement with
Jumpstart Automotive Group (“Jumpstart”), Jumpstart sells our fixed placement
advertising across our Company Websites to automotive advertisers.
Jumpstart has informed us that Jumpstart currently reaches
approximately 44 million unique visitors per month and works with
every major automotive Manufacturer across its portfolio of digital
publishers. We also offer a direct marketing platform
that enables Manufacturers to selectively target in-market
consumers during the often-extended vehicle shopping process.
Designed to keep a specific automotive brand in consideration, our
direct marketing programs allow automotive marketers to deliver
specific communication through either email or direct mail formats
to in-market consumers during their purchase
cycle.
Our
AutoWeb Traffic Product is our pay-per-click advertising program.
The AutoWeb Traffic Product utilizes proprietary technology to
offer consumers who are shopping targeted offers based on make,
model and geographic location. As these consumers are conducting
research on one of AutoWeb’s consumer facing websites or on
the site of one of our network of automotive publishers, they are
presented with relevant offers on a timely basis and, upon the
consumer clicking on the displayed advertisement, are sent to the
appropriate website location of one of our Dealer, Manufacturer or
advertising customers. The AutoWeb network of publisher websites
reaches and engages with millions of potential car buyers each
month, and we believe it provides high-intent, quality traffic that
Dealers and other customers cannot typically reach through their
own marketing efforts. The AutoWeb Traffic Product is flexible
and in addition to driving traffic to a vehicle detail page, it can
also send website traffic to new vehicle sales, service, used
vehicles or to any other department where a customer wants to
engage with in-market consumers. In addition, we believe that the
AutoWeb Traffic Product can be used to conquest competitive
shoppers who are researching another brand more effectively than
can typically be done using other search engines. Advertisers only
pay for the clicks they receive, and are able to structure
campaigns with flexible budgets and no long-term commitments in
order to manage spend versus key performance indicators. Ongoing
feedback from our customers is that this traffic provides excellent
time-on-site, below-average bounce rates, higher-than-average page
views and is a valuable tool to help Dealers sell more
vehicles.
Advertising
revenues, including direct marketing, accounted for 24%, 16% and 8%
of total revenues in 2017, 2016 and 2015,
respectively.
Strategy
Our
goal is to garner a larger share of the billions of dollars spent
annually by Dealers and Manufacturers on automotive marketing
services. We plan to achieve this objective through the
following principal strategies:
Increasing The Supply of High-Quality Leads. High-quality Leads are those Leads that result
in high transaction (i.e., purchase) closing rates for our Dealer
customers. Internally-Generated Leads are generally
higher quality than Non-Internally-Generated Leads and increase the
overall quality of our Lead portfolio. Non-Internally-Generated
Leads are of varying quality depending on the source of these
Leads. We plan to increase the supply of high-quality Leads
generated to sell to our customers primarily
by:
●
Increasing
traffic acquisition activities for our Company
Websites. Traffic to our Company Websites is monetized
primarily though the creation of Leads that are delivered to our
Dealer or Manufacturer customers to help them market and sell new
and used vehicles, and through the sale of advertising space on our
Company Websites. We plan to increase the traffic to our Company
Websites through effective SEO and SEM traffic acquisition
activities and enhancements to our Company
Websites.
o
SEO and SEM
traffic acquisition activities.
Traffic to our Company Websites is obtained through a variety of
sources and methods, including direct navigation to our Company
Websites, natural search (search engine optimization or
“SEO”, which is the practice of optimizing
keywords in website content to drive traffic to a website), paid
search (search engine marketing, or “SEM,” which is the practice of bidding on
keywords on search engines to drive traffic to a website), direct
marketing and partnering with other website publishers that provide
links to our websites. Our goal is that over time, paid
traffic such as SEM will be balanced by greater visitation from
direct navigation and SEO, which we expect to result in increased
Lead volumes and gross profit margins.
o
Continuing
to enhance the quality and user experience of our Company
Websites. We continuously make enhancements to
our Company Websites, including enhancements of the design and
functionality of our Company Websites. These
enhancements are intended to position our Company Websites as
comprehensive best in class destinations for automotive purchase
research by consumers. By doing so, we believe we will increase the
volume of our Internally-Generated Leads.
●
Increasing
the conversion rate of visitors to Leads on our Company
Websites. Through
increased SEO and SEM activities and significant content, tools and
user interface enhancements to our websites, we believe we will be
able to increase the number of website visits and improve website
“engagement,” and thereby increase the conversion of
page views into Leads. We believe that an increased
conversion rate of page views into Leads could result in higher
revenue per visitor.
●
Relationships with Suppliers of High-Quality,
Non-Internally-Generated Leads. We plan to continue to develop
and maintain strong relationships with suppliers of
Non-Internally-Generated Leads that consistently provide
high-quality Leads.
Increasing Leads Sales to our Customers. Our principal source of revenue comes from sales
of Leads to our retail and wholesale Lead customers. Our goal is to
increase sales of Leads to our customers primarily
by:
●
Increasing Lead
Sales to Dealers. Sales
of Leads to our Dealer network constitute a significant source of
our revenues. Our goal is to increase the number of
Leads sold to our retail Dealer customers by:
o
increasing
the quality of the Leads sold to our Dealers,
o
increasing
the number of Dealers in our Dealer network,
o
reducing
Dealer churn in our Dealer network,
o
providing
customizable Lead programs to meet our Dealers’ unique
marketing requirements,
o
providing
additional value added marketing services that help Dealers more
effectively utilize the internet to market and sell new and used
vehicles,
o
increasing
overall Dealer satisfaction by improving all aspects of our
services,
o
increasing
the size of our retail Dealer footprint,
o
focusing
on higher revenue Dealers that are more cost-effective to support;
and
o
enhancing
our internal Lead generation activities by leveraging our expanded
retail lead coverage.
●
Increasing
Lead Sales to Wholesale Customers. We currently have agreements to
sell Leads to 31 Manufacturer Lead programs, including all
mainstream Manufacturers, with the exception of one luxury brand
that has yet to launch a Lead program.
We intend to continue to demonstrate the value of third party leads
to Manufacturers by utilizing close rate and cross sell data that
demonstrates that third party leads result in incremental sales for
the Manufacturers. Our intention is to increase revenue by
having Manufacturers enhance business rules, program
capacity, pricing and coverage so that each Manufacturer can
purchase more of our Internally-Generated
Leads.
Continuing to develop the AutoWeb Traffic Product targeted
pay-per-click program for online automotive advertisers and
publishers. Our
AutoWeb Traffic Product uses proprietary technology and a
pay-per-click business model to analyze web traffic and adjust
advertiser costs accordingly based on traffic
quality. This traffic network is targeted to attract
high-intent, high-volume publishers and is intended to allow them
to monetize traffic that has previously been
under-monetized. In-market car shoppers are presented
with highly relevant display advertisements and benefit from an
online experience that delivers information that consumers use in
making their car buying decisions. Manufacturers benefit
from this high-quality traffic from serious in-market car
buyers. Our AutoWeb Traffic Product enables
Manufacturers and Dealers to optimize their advertising by driving
traffic to appropriate areas of their Tier 1 (Manufacturer national
advertising), Tier 2 (Manufacturer and advertising associations
regional advertising) and Tier 3 (Dealer)
websites.
We
believe that Manufacturers and Dealers will see the measureable
attribution from this click traffic and will reallocate marketing
spend from traditional channels into this emerging medium. We also
plan to grow the size of this addressable marketplace by adding
high-quality and high volume automotive publishers to our network,
by targeting in-market consumers on a variety of social media
platforms and by continuing to optimize this advertising platform
on our consumer facing websites, whose traffic we believe will
continue to scale. In addition, we believe that the flexibility of
our solution combined with high-quality traffic with automotive
purchase intent may allow us to increase the amount charged per
click as the network grows and as the level of attribution from
this product is understood by advertising partners.
Increasing Display Advertising Revenues.
As traffic to, and time spent on, our
Company Websites by consumers increases, we will seek to increase
our advertising revenues. Through our agreement with
Jumpstart we benefit from Jumpstart's relationships with every
major automotive Manufacturer and/or its advertising agencies
by increasing revenue for our traditional display
advertising. It is our belief that if the volume of our
traffic continues to increase, advertisers will recognize this
increased value by agreeing to purchase additional advertising
space available on our Company Websites. Additionally,
we believe that our AutoWeb Traffic Product provides an
opportunity to increase AutoWeb advertising revenue through
additional monetization opportunities for our existing and growing
traffic.
Focus on Mobile Technologies. As
consumers increasingly engage with Internet content using mobile
devices, AutoWeb will continue to focus on advanced mobile
technologies that facilitate communication between Dealers and
consumers on smart phones and tablets at the time, place, and in a
manner preferred by many consumers. This focus on
the mobile platform is a core part of our strategy moving forward
regarding lead generation, automotive research, website advertising
and traffic generation.
Continuing to Expand our Products and Services. We
gather significant amounts of data on consumer intent as it relates
to purchasing vehicles. We intend to use this data to
create products and services, including direct business database
offerings, that we believe will ultimately help Manufacturers and
Dealers market and sell more new and used vehicles. Our
objective is to generate revenues from this asset in the most
effective and efficient ways possible.
Strategic Acquisitions,
Investments and Alliances. Our
goal is to grow and enhance our business. We may do so, in part,
through strategic acquisitions, investments and alliances. We
continue to review strategic opportunities that may provide
opportunities for growth. We believe that strategic acquisitions,
investments and alliances may allow us to increase market share,
benefit from advancements in technology and strengthen our business
operations by enhancing our product and service
offerings.
Our ability to implement the foregoing strategies and plans is
subject to risks and uncertainties, many of which are beyond our
control. Accordingly, there is no assurance that we will
successfully implement our strategies and plans. See
“Item 1A. Risk Factors” of this Annual Report on Form
10-K.
Seasonality
Our
quarterly revenues and operating results have fluctuated in the
past and may fluctuate in the future due to various factors,
including consumer buying trends, changing economic conditions,
Manufacturer incentive programs and actual or threatened severe
weather events. Excluding the effect of acquisitions in
2015, Lead volume is typically highest in summer (third quarter)
and winter (first quarter) months, followed by spring (second
quarter) and fall (fourth quarter) months.
Intellectual Property
Our intellectual property includes patents related
to our innovations, products and services; trademarks related to
our brands, products and services; copyrights in software and
creative content; trade secrets; and other intellectual property
rights and licenses of various kinds. We seek to protect our
intellectual property assets through patent, copyright, trade
secret, trademark and other laws and through contractual
provisions. We enter into confidentiality and invention assignment
agreements with our employees and contractors, and non-disclosure
agreements with third parties with whom we conduct business in
order to secure our proprietary rights and additionally limit
access to, and disclosure of, our proprietary
information. We have registered trademarks with the
United States Patent and Trademark Office, including
AutoWeb®,
AutoWeb.com®,
the global highway logo, Autobytel, Autobytel.com, MyGarage, Your
Lifetime Automotive Advisor®,
iControl by Autobytel®,
TextShield®,
and Payment Pro®.
We have also been issued patents related to methods and systems for
managing a Lead in data center systems and a method and system for
managing Leads and routing them to one or more destinations. We
cannot provide any assurances that any of our intellectual property
rights will be enforceable by us in litigation.
Additional
information regarding certain risks related to our intellectual
property is included in Part I, Item 1A “Risk
Factors” of this Annual Report on
Form 10-K.
Competition
In
the automotive-related digital marketing services marketplace we
compete for Dealer and Manufacturer
customers. Competition with respect to our core Lead
referral programs continued to be impacted by changing industry
conditions in 2017. We continue to compete with several companies
that maintain business models similar to ours, some with greater
resources. In addition, competition has increased from larger
competitors that traditionally have competed only in the used
vehicle market. Dealers continue to invest in their
proprietary websites and traffic acquisition activities, and we
expect this trend to continue as Dealers strive to own and control
more Lead generating assets under their captive
brands. Additionally, all major Manufacturers that
market their vehicles in the U.S. have their own websites that
market their vehicles direct to consumers and generate Leads for
delivery direct to the Manufacturers’ Dealers.
We
believe that third party Leads have been the standard in our
industry for many years. However, we continue to observe new
and emerging business models, including pay-per-sale and consumer
pay models, relating to the generation and delivery of
Leads. From time to time, new products and services are
introduced that take the focus away from third party Lead
generation, which we believe is a profitable way to sell
vehicles to in-market buyers. Dealers and Manufacturers
may decide to pull back on their third party
Lead programs to test these new approaches.
In
the display advertising marketplace, we compete with major internet
portals, transaction based websites, automotive related companies,
numerous lifestyle websites and emerging entrants in the relatively
new automotive click revenue medium. We also compete with
traditional marketing channels such as print, radio and
television.
In
pay-per-click advertising, we compete with established search
engine providers as well as with a growing number of digital
marketing platforms focused on generating dealership website
traffic from inventory listings and social media campaigns. In
addition, some industry providers who have historically specialized
in inventory aggregation or on providing SEM agency services to
Dealers are now expanding into the area of website traffic
generation. Also, many dealership website providers are now
offering traffic solutions as part of their bundle of
services.
In
addition, some traditional data providers are moving to deliver
personalized digital marketing services at scale. These digital
marketing hubs and data management platforms provide marketers with
standardized access to audience data, content, workflow triggers
and operational analytics to automate execution and optimization of
multichannel campaigns. These services could be used as a source of
lead generation and website traffic by Dealers and Manufacturers
and could replace by our existing product offerings.
Customers
We
have a concentration of credit risk with our automotive industry
related accounts receivable balances, particularly with Urban
Science Applications (which represents several Manufacturer
programs), General Motors and Media.net Advertising. During 2017,
approximately 34% of our total revenues were derived from these
three customers, and approximately 43% or $11.6 million of gross
accounts receivable related to these three customers at December
31, 2017. In 2017, Urban Science Applications accounted
for 15% and 20% of total revenues and accounts receivable as of
December 31, 2017, respectively. In 2017, Media.net Advertising
accounted for 11% of both total revenues and accounts receivable as
of December 31, 2017, respectively.
Operations and Technology
We
believe that our future success is significantly dependent upon our
ability to provide high-performance, reliable and comprehensive
websites, advertising systems; enhance consumer and Dealer product
and service offerings; maintain the highest levels of information
privacy; and ensure transactional security. Our Company Websites
and advertising systems are hosted at secure third-party data
center facilities and public cloud providers. These data centers
and public cloud systems utilize redundant power infrastructure,
redundant network connectivity, multiple locations, distributed
services, fire detection and suppression systems and security
systems to prevent unauthorized access and to provide high
availability of their services, upon which our technology is built,
deployed and operated. Our network and computer systems are built
on industry standard technology.
System
enhancements are primarily intended to accommodate increased
traffic across our Company Websites, improve the speed in which
Leads and advertisements are processed and introduce new and
enhanced products and services. System enhancements entail the
implementation of sophisticated new technology and system
processes. We implement industry standard automation and delivery
processes and employ centralized quality assurance to improve the
quality, scalability, security, and availability of our products.
We plan to continue to make investments in technology as we believe
appropriate.
Government Regulation
We
are subject to laws and regulations generally applicable to
providers of digital marketing services, including federal and
state laws and regulations governing data security and privacy;
voice, email and text messaging communications with consumers;
unfair and deceptive acts and practices; advertising; contests,
sweepstakes and promotions; and content regulation. For additional
important information related to government regulation of our
business, including governmental regulations relating to the
marketing and sale of automobiles, see the information set forth in
Part I, Item 1A“Risk Factors” of this Annual
Report on Form 10-K.
Employees
As of March 12, 2018, we had 228
employees. None of our
employees are represented by labor unions.
The risks described below are not the only risks
that we face. The following risks as well as risks and
uncertainties not currently known to us or that we currently deem
to be immaterial may materially and adversely affect our business,
results of operations, financial condition, earnings per share,
cash flow or the trading price of our stock, individually and
collectively referred to in these Risk Factors as our
“financial
performance.” See also the discussion
of “Forward-Looking Statements” immediately preceding
Part I of this Annual Report on Form 10-K.
We may be unable to increase Lead revenues and could suffer a
decline in revenues due to dealer attrition.
We
derive more than 98% of our Lead revenues from Lead fees paid by
Dealers and Manufacturers participating in our Lead programs. Our
Lead fees decreased $23.6 million, or 18%, in 2017 compared to
2016. Our ability to increase revenues from sales of Leads is
dependent on a mix of interrelated factors that include increasing
Lead revenues by attracting and retaining Dealers and Manufacturers
and increasing the number of high-quality Leads we sell to Dealers
and Manufacturers. We are also focused on higher revenue Dealers
that are more cost-effective to support. Our sales strategy is
intended to result in more profitable relationships with our
Dealers both in terms of cost to supply Leads and to support the
Dealers. Dealer churn impacts our revenues, and if our sales
strategy does not mitigate the loss in revenues by maintaining the
overall number of Leads sold by increasing sales to other Dealers
or Manufacturers while maintaining the overall margins we receive
from the Leads sold, our revenues would decrease. We cannot provide
any assurances that we will be able to increase Lead fee revenues,
prevent Dealer attrition or offset the revenues lost due to Dealer
attrition by other means, and our failure to do so could materially
and adversely affect our financial performance.
We may lose customers or quality Lead supplies to our
competitors.
Our
ability to provide increased numbers of high-quality Leads to our
customers is dependent on increasing the number of
Internally-Generated Leads and acquiring high-quality
Non-Internally-Generated Leads from third parties. Originating
Internally-Generated Leads is dependent on our ability to increase
consumer traffic to our Company Websites by providing secure and
easy to use websites with relevant and quality content for
consumers and increasing visibility of our brands to consumers and
by our SEM activities. We compete for Dealer and Manufacturer
customers and for acquisition of Non-Internally-Generated Leads
with companies that maintain automotive Lead referral businesses
that are very similar to ours. Many of these competitors are larger
than us and have greater financial resources than we have. If we
lose customers or quality Lead supply volume to our competitors, or
if our pricing or cost to acquire Leads is impacted, our financial
performance will be materially and adversely impacted.
Our financial performance could be materially and adversely
affected by changes in internet search engine algorithms and
dynamics.
We
use Google to generate a significant portion of the traffic to our
websites, and, to a lesser extent, we use other search engines and
meta-search websites to generate traffic to our websites,
principally through pay-per-click advertising campaigns. The
pricing and operating dynamics on these search engines can
experience rapid change commercially, technically and
competitively. For example, Google frequently updates and changes
the logic that determines the placement and display of results of a
consumer's search, such that the placement of links to our websites
can be negatively affected and our costs to improve or maintain our
placement in search results can increase.
We are affected by general economic and market conditions, and, in
particular, conditions in the automotive industry.
Our
financial performance is affected by general economic and market
factors, conditions in the automotive industry, and the market for
automotive marketing services, including, but not limited to, the
following:
●
Pricing
and purchase incentives for vehicles;
●
The
expectation that consumers will be purchasing fewer vehicles
overall during their lifetime as a result of better quality
vehicles and longer warranties;
●
The
impact of fuel prices on demand for the number and types of
vehicles;
●
Increases
or decreases in the number of retail Dealers or in the number of
Manufacturers and other wholesale customers in our customer
base;
●
Volatility
in spending by Manufacturers and others in their marketing budgets
and allocations;
●
The
competitive impact of consolidation in the online automotive
referral industry;
●
The
effect of changes in transportation policy, including the potential
increase of public transportation options; and
●
The
effect of fewer vehicles being purchased as a result of new
business models and changes in consumer attitudes regarding the
need for vehicle ownership.
Concentration of
credit risk and risks due to significant customers could materially
and adversely affect our financial performance.
Financial
instruments that potentially subject us to concentrations of credit
risk consist primarily of cash and cash equivalents, investments
and accounts receivable. Cash and cash equivalents are primarily
maintained with two financial institutions in the United States.
Deposits held by banks exceed the amount of insurance provided for
such deposits. Generally these deposits may be redeemed upon
demand. Accounts receivable are primarily derived from fees billed
to Dealers and Manufacturers. We have a concentration of credit
risk with our automotive industry related accounts receivable
balances, particularly with Urban Science Applications (which
represents several Manufacturer programs), General Motors and
Media.net Advertising. During 2017 approximately 34% of the
Company’s total revenues were derived from these customers,
and they accounted for approximately 43% or $11.6 million of gross
accounts receivable at December 31, 2017. No collateral is
required to support our accounts receivables, and we maintain an
allowance for bad debts for potential credit losses. If
there is a decline in the general economic environment that
negatively affects the financial condition of our customers or an
increase in the number of customers that are dissatisfied with
their services, additional estimated allowances for bad debts and
customer credits may be required, and the adverse impact on our
financial performance could be material.
We depend on Manufacturers through our third party sales channel
for a significant amount of our advertising revenues, and we may
not be able to maintain or grow these relationships.
We
depend on Manufacturers through our third party sales channel for a
significant amount of our advertising revenues. A decline in the
level of advertising on our websites, reductions in advertising
rates or any significant failure to develop additional sources of
advertising would cause our advertising revenues to decline, which
could have a material adverse effect on our financial performance.
We periodically negotiate revisions to existing agreements and
these revisions could decrease our advertising revenues in future
periods and a number of our advertising agreements with
Manufacturers may be terminated at any time without cause. We may
not be able to maintain our relationship with Manufacturers on
favorable terms or find alternative comparable relationships
capable of replacing advertising revenues on terms satisfactory to
us. If we cannot do so, our advertising revenues would decline,
which could have a material adverse effect on our financial
performance.
Our
ability to maintain and add to our relationships with advertisers
and thereby increase advertising revenues is dependent on our
ability to attract consumers and acquire traffic to our Company
Websites and monetize that traffic at profitable margins with
advertisers. Our consumer facing websites compete with offerings
from the major internet portals, transaction based sites,
automotive-related verticals (websites with content that is
primarily automotive in nature) and numerous lifestyle websites.
Our advertising business is characterized by minimal barriers to
entry, and new competitors may be able to launch competitive
services at relatively low costs. If our Company Websites do not
provide a compelling, differentiated user experience, we may lose
visitors to competing sites, and if our website traffic declines,
we may lose relevance to our major advertisers who may reduce or
eliminate their advertising buys from us, which could have a
material and adverse effect on our financial
performance.
Uncertainty exists in the application of various laws and
regulations to our business. New laws or regulations applicable to
our business, or expansion or interpretation of existing laws and
regulations to apply to our business, could subject us to
licensing, claims, judgments and remedies, including monetary
liabilities and limitations on our business practices, and could
increase administrative costs or materially and adversely affect
our financial performance.
We
operate in a regulatory climate in which there is uncertainty as to
the application of various laws and regulations to our
business. Our business could be significantly affected
by different interpretations or applications of existing laws or
regulations, future laws or regulations, or actions or rulings by
judicial or regulatory authorities. Our operations may
be subjected to adoption, expansion or interpretation of various
laws and regulations, and compliance with these laws and
regulations may require us to obtain licenses at an undeterminable
and possibly significant initial and annual expense. These
additional expenditures may increase future overhead, thereby
potentially reducing our future results of operations. There can be
no assurances that future laws or regulations or interpretations or
expansions of existing laws or regulations will not impose
requirements on internet commerce that could substantially impair
the growth of e-commerce and adversely affect our financial
performance. The adoption of additional laws or regulations may
decrease the popularity or impede the expansion of e-commerce and
internet marketing, restrict our present business practices,
require us to implement costly compliance procedures or expose us
and/or our customers to potential liability.
We
may be deemed to “operate” or “do business”
in states where our customers conduct their business, resulting in
regulatory action. If any state licensing laws were determined to
be applicable to us, and if we are required to be licensed and we
are unable to do so, or we are otherwise unable to comply with laws
or regulations, we could be subject to fines or other penalties or
be compelled to discontinue operations in those
states. In the event any state’s regulatory
requirements impose state specific requirements on us or include us
within an industry-specific regulatory scheme, we may be required
to modify our marketing programs in that state in a manner that may
undermine the program’s attractiveness to consumers or
Dealers. In the alternative, if we determine that the licensing and
related requirements are overly burdensome, we may elect to
terminate operations in that state. In each case, our financial
performance could be materially and adversely
affected. We have identified below areas of government
regulation, which if changed or interpreted to apply to our
business, we believe could be costly for us and could materially
and adversely affect our financial performance.
Automotive
Dealer/ Broker and Vehicle Advertising Laws. All states comprehensively regulate vehicle sales
and lease transactions, including strict licensure requirements for
Dealers (and, in some states, brokers) and vehicle advertising.
Most of these laws and regulations, we believe, specifically
address only traditional vehicle purchase and lease transactions,
not internet-based Lead referral programs such as our programs. If
we determine that the licensing or other regulatory requirements in
a given state are applicable to us or to a particular marketing
services program, we may elect to obtain required licenses and
comply with applicable regulatory requirements. However,
if licensing or other regulatory requirements are overly
burdensome, we may elect to terminate operations or particular
marketing services programs in that state or elect to not operate
or introduce particular marketing services programs in that state.
In some states we have modified our marketing programs or pricing
models to reduce uncertainty regarding our compliance with local
laws. As we introduce new services, we may need to incur additional
costs associated with additional licensing regulations and
regulatory requirements.
Financial
Broker and Consumer Credit Laws. We provide a connection through our websites
that allows consumers to obtain finance information and, through
our display and pay-per-click advertising programs, to be referred
to Dealer, Manufacturer and potential lender websites. All online
applications for quotes are completed on the respective third
party’s websites. We receive marketing fees from financial
institutions and Dealers in connection with this marketing
activity. We do not demand nor do we receive any fees from
consumers for these services. In the event states require us to be
licensed as a financial broker or finder, we may be unable to
comply with a state’s laws or regulations, or we could be
required to incur significant fees and expenses to obtain any
financial broker required license and comply with regulatory
requirements. In addition, the Dodd-Frank Wall Street
Reform and Consumer Protection Act established a new consumer
financial protection bureau with broad regulatory powers, which
could lead to regulation of our advertising business directly or
indirectly through regulation of automotive finance companies and
other financial institutions.
Insurance
Broker Laws. We provide links
on our websites and referrals from call centers enabling consumers
to be referred to third parties to receive quotes for insurance
from such third parties. All online applications for quotes are
completed on the respective insurance carriers’ or other
third party websites, and all applications for quotes obtained
through call center referrals are conducted by the insurance
carrier or other third party. We receive marketing fees from
participants in connection with this marketing activity. We do not
receive any premiums from consumers nor do we charge consumers fees
for our services.
Changes in the taxation of internet commerce may result in
increased costs.
Because
our business is dependent on the internet, the adoption of new
local, state or federal tax laws or regulations or new
interpretations of existing laws or regulations by governmental
authorities may subject us to additional local, state or federal
sales, use or income taxes and could decrease the growth of
internet usage or marketing or the acceptance of internet commerce
which could, in turn, decrease the demand for our services and
increase our costs. As a result, our financial
performance could be materially and adversely affected. State
taxing authorities are reviewing and re-evaluating the tax
treatment of companies engaged in internet commerce, including the
application of sales taxes to internet marketing businesses similar
to ours, as a source of tax revenues. We accrue for tax
contingencies based upon our estimate of the taxes ultimately
expected to be paid, which we update over time as more information
becomes available, new legislation or rules are adopted or taxing
authorities interpret their existing statutes and rules to apply to
internet commerce, including internet marketing businesses similar
to ours. The amounts ultimately paid in resolution of reviews
or audits by taxing authorities could differ materially from the
amounts we have accrued and result in additional tax expense, and
our financial performance could be materially and adversely
affected.
Changes in applicable tax regulations and resolutions of tax
disputes could negatively affect our financial
results.
The Company is subject to taxation in the U.S. On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation commonly referred to as the Tax Cuts and Jobs Act
(“TCJA”). The changes included in the TCJA are
broad and complex and, among other items, reduce the corporate tax
rate. The final transition impacts of the TCJA may differ from the
estimates provided elsewhere in this report, possibly materially,
due to, among other things, changes in interpretations of the TCJA,
any legislative action to address questions that arise because of
the TCJA, and any changes in accounting standards for income taxes
or related interpretations in response to the TCJA. The TCJA, or
future changes in tax laws applicable to us, could materially
increase our future income tax expense.
Data Security and Privacy Risks
Our
business is subject to various laws, rules and regulations relating
to data security and privacy. New data security and privacy laws,
rules and regulations may be adopted regarding the internet or
other online services that could limit our business flexibility or
cause us to incur higher compliance costs. In each case,
our financial performance could be materially and adversely
affected. We have identified below some of these risks
that we believe could materially and adversely affect our financial
performance.
Anti-spam
laws, rules and regulations. Various state and federal laws, rules and
regulations regulate email communications and internet advertising
and restrict or prohibit unsolicited email (commonly known as
“spam”). These laws, rules or regulations may adversely
affect our ability to market our services to consumers in a
cost-effective manner. The federal Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003
(“CAN-SPAM”) imposes complex and often burdensome
requirements in connection with sending commercial emails. In
addition, state laws regulating the sending of commercial emails,
including California’s law regulating the sending of
commercial emails, to the extent found to not be preempted by
CAN-SPAM, may impose requirements or conditions more restrictive
than CAN-SPAM. Violation of these laws, rules or regulations may
result in monetary fines or penalties or damage to our
reputation.
Data
privacy laws, rules and regulations. Various laws, rules and regulations govern the
collection, use, retention, sharing and security of data that we
receive from our users, advertisers and affiliates. In addition, we
have and post on our website our own privacy policies and practices
concerning the collection, use and disclosure of user data and
personal information. Any failure, or perceived failure, by us to
comply with our posted privacy policies, Federal Trade Commission
requirements or orders or other federal or state privacy or
consumer protection-related laws, regulations or industry
self-regulatory principles could result in proceedings or actions
against us by governmental entities or others. Further, failure or
perceived failure by us to comply with our policies, applicable
requirements or industry self-regulatory principles related to the
collection, use, sharing or security of personal information or
other privacy-related matters could result in a loss of user
confidence in us, damage to our brands, and ultimately in a loss of
users, advertisers or Lead referral and advertising affiliates. We
cannot predict whether new legislation or regulations concerning
data privacy and retention issues related to our business will be
adopted, or if adopted, whether they could impose requirements that
may result in a decrease in our user registrations and materially
and adversely affect our financial
performance. Proposals that have or are currently being
considered include restrictions relating to the collection and use
of data and information obtained through the tracking of internet
use, including the possible implementation of a “Do Not
Track” list, that would allow internet users to opt-out of
such tracking. Other proposals include enhanced rights for
consumers to obtain information regarding the sharing or sale of
their personal information and rights to opt-out or prevent the
sharing or sale of their personal information to third
parties.
Security
risks associated with online Leads collection and referral,
advertising and e-commerce risks associated with other online fraud
and scams. A
significant issue for online businesses like ours is the secure
transmission of confidential and personal information over public
networks. Concerns over the security of transactions conducted on
the internet, consumer identity theft and user privacy issues have
been significant barriers to growth in consumer use of the
internet, online advertising and e-commerce. Despite our
implementation of security measures, our computer systems or those
of our vendors may be susceptible to electronic or physical
computer break-ins, viruses and other disruptive harms and security
breaches. Advances in computer capabilities, new discoveries in the
field of cryptography or other developments may specifically
compromise our security measures. Because the techniques used to
obtain unauthorized access, disable or degrade service, or sabotage
systems change frequently and often are not recognized until
launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative measures on a
timely basis. Any perceived or actual unauthorized disclosure of
personally identifiable information that we collect or store,
whether through breach of our network by an unauthorized party,
employee theft or misuse, or otherwise, could harm our reputation
and brands, substantially impair our ability to attract and retain
our audiences, or subject us to claims or litigation arising from
damages suffered by consumers or Lead or traffic suppliers. If
consumers experience identity theft related to personally
identifiable information we collect or store, we may be exposed to
liability, adverse publicity and damage to our reputation. To the
extent that identity theft gives rise to reluctance to use our
websites or to supply us leads or traffic, or a decline in consumer
confidence in financial transactions over the internet, our
business could be adversely affected. Alleged or actual breaches of
the network of one of our business partners or competitors whom
consumers associate with us could also harm our reputation and
brands. In addition, we could incur significant costs in complying
with the multitude of state, federal and foreign laws regarding the
unauthorized disclosure of personal information. For example,
California law requires companies to inform individuals of any
security breaches that result in their personal information being
stolen. Because our success depends on the acceptance of online
services and e-commerce, we may incur significant costs to protect
against the threat of security breaches or to alleviate problems
caused by those breaches. Internet fraud has been increasing over
the past few years, and the Company has experienced fraudulent use
of our name and trademarks on websites in connection with the
purported sale of vehicles offered on third party websites, with
payments to be handled through an online escrow service purported
to be owned and operated by the Company. These
fraudulent online transactions and scams, should they continue to
increase in prevalence, could affect our reputation with consumers
and give rise to claims by consumers for funds transferred to the
fraudulent accounts, which could materially and adversely affect
our financial performance.
We
are insured for some, but not all, of the foregoing
risks. Even for those risks for which we are insured and
have coverage under the terms and conditions of the applicable
policies, there are no assurances given that the coverage limits
would be sufficient to cover all costs, liabilities or losses we
might incur or experience.
Telemarketing
Risks. We are
subject to various federal and state laws, rules, regulations and
orders regarding telemarketing and privacy, including restrictions
on the use of unsolicited emails and restrictions on marketing
activities conducted through the use of telephonic communications
(including text messaging to mobile telephones). Our financial
performance could be adversely affected by newly-adopted or amended
laws, rules, regulations and orders relating to telemarketing and
increased enforcement of such laws, rules, regulations or orders by
governmental agencies or by private litigants. One example of
regulatory changes that may affect our financial performance are
the regulations under the Telephone Consumer Protection Act
(“TCPA”). Regulations adopted by the Federal
Communications Commission under the TCPA require the prior express
written consent of the called party before a caller can initiate
telemarketing calls (i) to wireless numbers (including text
messaging) using an automatic telephone dialing system or an
artificial or prerecorded voice; or (ii) to residential lines using
an artificial or prerecorded voice. Failure to comply with the TCPA
can result in significant penalties, including statutory damages.
We may become subject to lawsuits (including class-action lawsuits)
alleging that our business violated the TCPA. Under the TCPA,
plaintiffs may seek actual monetary loss or statutory damages of
$500 per violation, whichever is greater, and courts may treble the
damage award for willful or knowing violations. Such litigation,
even if not meritorious, could result in substantial costs and
diversion of management attention and an adverse outcome could
materially and adversely affect our financial
performance. Our efforts to comply with these
regulations may negatively affect conversion rates of leads, and
thus, our revenue or profitability.
Technology Risks
Our
business 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. If we are required to invest substantial amounts in
technology, our financial performance will be adversely
impacted. 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, including mobile internet applications, and the
emergence of new industry standards and practices that could render
our existing websites and technology obsolete. These market
characteristics are intensified by the evolving nature of the
market and the fact that many companies are expected to introduce
new internet products and services in the near future. If we are
unable to adapt to changing technologies, our financial performance
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 websites, mobile
applications and other proprietary technology entails significant
technical and business risks. We may not be successful in using new
technologies effectively or adapting our websites or other
proprietary technology to customer requirements or to emerging
industry standards. In addition, if we are required to invest
substantial amounts in technology in order to keep pace with
technological advances, our financial performance could be
materially and adversely affected.
Interruptions
or failures in our information technology platforms, communication
systems or security systems could materially and adversely affect
our financial performance. Our information technology and communications
systems are susceptible to outages and interruptions due to fire,
flood, earthquake, power loss, telecommunications failures, cyber
attacks, terrorist attacks, failure of redundant systems and
disaster recovery plans and similar events. Such outages and
interruptions could damage our reputation and harm our operating
results. Despite our network security measures, our
information technology platforms are vulnerable to computer
viruses, worms, physical and electronic break-ins, sabotage and
similar disruptions from unauthorized tampering, as well as
coordinated denial-of-service attacks. We do not have multiple site
capacity for all of our services. In the event of delays or
disruptions to services we rely on third party providers to perform
disaster recovery planning and services on our behalf. We are
vulnerable to extended failures to the extent that planning and
services are not adequate to meet our continued technology
platform, communication or security systems’
needs. We rely on third party providers for our primary
and secondary internet connections. Our co-location service and
public cloud services that provide infrastructure and platform
services, environmental and power support for our technology
platforms, communication systems and security systems are received
from third party providers. We have little or no control over these
third party providers. Any disruption of the services they provide
us or any failure of these third party providers to effectively
design and implement sufficient security systems or plan for
increases in capacity could, in turn, cause delays or disruptions
in our services. We are insured for some, but not all, of these
events. Even for those events for which we are insured
and have coverage under the terms and conditions of the applicable
policies, there are no assurances given that the coverage limits
would be sufficient to cover all losses we might incur or
experience.
We are dependent upon third
parties for certain support services and should they fail to
perform, our financial performance could be materially and
adversely affected. We rely on various third parties to
provide certain support services. For example, Dealer X operates
the platform for AutoWeb and provides enhancements, and support for
the DealerX platform for an initial five year period. Should a
third party fail to perform or perform adequately, our financial
performance could be materially and adversely
affected.
We are
exposed to risks associated with overseas operations and
outsourcing. We
currently maintain website, software development and operations in
Guatemala and receive software development and maintenance services
for some of our systems from contractors located in
Pakistan. These overseas operations and contractor
arrangements are subject to many inherent risks, including but not
limited to:
●
Political,
social and economic instability;
●
Exposure to
different business practices and legal standards, particularly with
respect to labor and employment laws and intellectual
property;
●
Continuation of
overseas conflicts and the risk of terrorist attacks and resulting
heightened security;
●
The
imposition of governmental controls and restrictions and unexpected
changes in regulatory requirements;
●
Theft and other
crimes;
●
Nationalization
of business and blocking of cash flows;
●
Changes in
taxation and tariffs;
●
Difficulties in
staffing and managing international operations; and
●
Foreign currency
exchange fluctuations.
These
risks can significantly impact our overseas operations and
outsourcing. Increases in the cost, or disruptions, of such
operations and outsourcing, could materially and adversely affect
our financial performance. In addition, we are subject
to certain anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act, in addition to the laws of the foreign countries in
which we operate. If we or any of our employees or agents violates
these laws, we could become subject to sanctions or significant
penalties that could negatively affect our reputation and financial
performance.
We may
acquire other companies, and there are many risks associated with
acquisitions. As part of our
business strategy we evaluate potential acquisitions that we
believe will complement or enhance our existing business. We
currently do not have any definitive agreements to acquire any
company or business, and we may not be able to identify or complete
any acquisition in the future. Acquisitions involve
numerous risks that include the following, any of which could
materially and adversely affect our financial
performance:
●
We
may not fully realize all of the anticipated benefits of an
acquisition or may not realize them in the timeframe expected,
including due to acquisitions where we expand into product and
service offerings or enter or expand into markets in which we are
not experienced.
●
In
order to complete acquisitions, we may issue common stock or
securities convertible into or exercisable for common stock,
potentially creating dilution for existing stockholders. Issuance
of equity securities may also restrict utilization of net operating
loss carryforwards because of an annual limitation due to ownership
change limitations under the Internal Revenue Code.
●
We
may borrow to finance acquisitions, and the amount and terms of any
potential future acquisition-related or other borrowings may not be
favorable to the Company and could affect our liquidity and
financial condition.
●
Acquisitions
may result in significant costs and expenses and charges to
earnings, including those related to severance pay, early
retirement costs, employee benefit costs, goodwill and asset
impairment charges, charges from the elimination of duplicative
facilities and contracts, assumed litigation and other liabilities,
legal, accounting and financial advisory fees, and required
payments to executive officers and key employees under retention
plans.
●
Our
due diligence process may fail to identify significant issues with
an acquired company that may result in unexpected or increased
costs, expenses or liabilities that could make an acquisition less
profitable or unprofitable.
●
The
failure to further our strategic objectives that may require us to
expend additional resources to develop products, services and
technology internally.
●
An
announced business combination and investment transaction may not
close timely or at all, which may cause our financial results to
differ from expectations in a given quarter.
●
Business
combination and investment transactions may lead to litigation that
can be costly to defend or settle, even if no actual liability
exists.
●
Integrations
of acquisitions are often complex, time-consuming and expensive,
and if acquisitions are not successfully integrated they could
materially and adversely affect our financial performance. The
challenges involved with integration of acquisitions
include:
o
Diversion
of management attention to assimilating the acquired business from
other business operations and concerns.
o
Integration
of management information and accounting systems of the acquired
business into our systems, and the failure to fully realize all of
the anticipated benefits of an acquisition.
o
Difficulties
in assimilating the operations and personnel of an acquired
business into our own business.
o
Difficulties
in integrating management information and accounting systems of an
acquired business into our current systems.
o
Convincing
our customers and suppliers and the customers and suppliers of the
acquired business that the transaction will not diminish client
service standards or business focus and that they should not defer
purchasing decisions or switch to other suppliers.
o
Consolidating
and rationalizing corporate IT infrastructure, which may include
multiple legacy systems from various acquisitions and integrating
software code and business processes.
o
Persuading
employees that business cultures are compatible, maintaining
employee morale, retaining key employees and integrating employees
into the Company.
o
Coordinating
and combining administrative, manufacturing, research and
development and other operations, subsidiaries, facilities and
relationships with third parties in accordance with local laws and
other obligations while maintaining adequate standards, controls
and procedures.
o
Managing
integration issues shortly after or pending the completion of other
independent transactions.
Securities Market Risks
The public
market for our common stock may be volatile, especially because
market prices for internet-related and technology stocks have often
been unrelated to operating
performance. Our
common stock is currently listed on The Nasdaq Capital Market under
the symbol “AUTO,” but we cannot assure that an active
trading market will be sustained or that the market price of the
common stock will not decline. The stock market in general
periodically experiences significant price fluctuations. The market
price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in response to factors such
as:
●
Actual
or anticipated variations in our quarterly operating
results;
●
Historical
and anticipated operating metrics such as the number of
participating Dealers, volume of Lead deliveries to Dealers, the
number of visitors to Company Websites and the frequency with which
they interact with Company Websites;
●
Announcements
of new product or service offerings;
●
Technological
innovations;
●
Concentration
of holdings in our common stock resulting in low public float for
our shares;
●
Decisions
by holders of large blocks of our stock to sell their holdings on
accelerated time schedules, including by reason of their decision
to liquidate investment funds that hold our stock;
●
Limited
analyst coverage of the Company;
●
Competitive
developments, including actions by Manufacturers;
●
Changes
in financial estimates by securities analysts or our failure to
meet such estimates;
●
Conditions
and trends in the internet, electronic commerce and automotive
industries;
●
Adoption
of new accounting standards affecting the technology or automotive
industry;
●
Rumors,
whether or not accurate, about us, our industry or possible
transactions or other events;
●
The
impact of open market repurchases of our common stock;
and
●
General
market or economic conditions and other factors.
Further, the stock markets, and
in particular The Nasdaq Capital Market, have experienced 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 those companies. These broad market factors have
affected and may adversely affect the market price of our common
stock. In addition, general economic, political and market
conditions, such as recessions, interest rates, energy prices,
international currency fluctuations, terrorist acts, political
revolutions, military actions or wars, may adversely affect the
market price of our 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.
Following
announcement of our financial results for the year ended December
31, 2017 and the departures of our Chief Executive Officer and
Chief Financial Officer, the market price of our common stock
declined significantly and a law firm announced that it is
investigating investor claims. Should securities related litigation
be filed, we could incur substantial costs and a diversion
of management’s attention and resources, which would have a
material adverse effect on our financial
performance.
Our common
stock could be delisted from The Nasdaq Capital Market if we are
not able to satisfy continued listing requirements, in which case
the price of our common stock and our ability to raise
additional capital and issue equity-based compensation may be
adversely affected, and trading in our stock may be less orderly
and efficient. For our common
stock to continue to be listed on The Nasdaq Capital Market, the
Company must satisfy various continued listing requirements
established by The Nasdaq Stock Market LLC. In the event the
Company were not able to satisfy these continued listing
requirements, we expect that our common stock would be quoted on an
over-the-counter market. These markets are generally
considered to be less efficient and less broad than The Nasdaq
Capital Market. Investors may be reluctant to invest in the common
stock if it is not listed on The Nasdaq Capital Market or another
stock exchange. Delisting of our common stock could have a material
adverse effect on the price of our common stock and would also
eliminate our ability to rely on the preemption of state securities
registration and qualification requirements afforded by Section 18
of the Securities Act of 1933 for “covered securities.”
The loss of this preemption could result in higher costs associated
with raising capital, could limit resale of our stock in some
states, and could adversely impact our ability to issue
equity-based compensation to Company employees.
No
assurances can be given that the Company will continue to be able
to meet the continued listing requirements for listing of our
common stock on The Nasdaq Capital Market.
Risks Associated with Litigation
Misappropriation
or infringement of our intellectual property and proprietary
rights, enforcement actions to protect our intellectual property
and claims from third parties relating to intellectual property
could materially and adversely affect our financial
performance. Litigation
regarding intellectual property rights is common in the internet
and technology industries. We expect that internet technologies and
software products and services may be increasingly subject to third
party infringement claims as the number of competitors in our
industry segment grows and the functionality of products in
different industry segments overlaps. Our
ability to compete depends upon our proprietary systems and
technology. While we rely on trademark, trade secret,
patent 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 website maintenance are more essential in
establishing and maintaining a leadership position and
strengthening our brands. 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 and may be expensive. We have no assurance that
the steps taken by us will prevent misappropriation of technology
or that the agreements entered into for that purpose will be
enforceable. Effective trademark, service mark, patent, copyright
and trade secret protection may not be available when our products
and services are made available online. In addition, if litigation
becomes necessary to enforce or protect our intellectual property
rights or to defend against claims of infringement or invalidity,
this litigation, even if successful, could result in substantial
costs and diversion of resources and management
attention. We also have no assurances that our products
and services do not infringe on the intellectual property rights of
third parties. Claims of infringement, even if unsuccessful, could
result in substantial costs and diversion of resources and
management attention. If we are not successful, we may be subject
to preliminary and permanent injunctive relief and monetary damages
which may be trebled in the case willful
infringements.
Our
financial performance could be adversely affected by actions of
third parties that could subject us to
litigation. We could
face liability for information retrieved or obtained from or
transmitted over the internet by third parties and liability for
products sold over the internet by third parties. We could be
exposed to liability with respect to third party information that
may be accessible through our websites, links or vehicle review
services. These claims might, for example, be made for defamation,
negligence, patent, copyright or trademark infringement, personal
injury, breach of contract, unfair competition, false advertising,
invasion of privacy or other legal theories based on the nature,
content or copying of these materials. These claims might assert,
among other things that, by directly or indirectly providing links
to websites operated by third parties we should be liable for
copyright or trademark infringement or other wrongful actions by
such third parties through those websites. It is also possible
that, if any third party content provided on our websites contains
errors, consumers could make claims against us for losses incurred
in reliance on such information. Any claims could result in costly
litigation, divert management’s attention and resources,
cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing
agreements.
We
also enter into agreements with other companies under which any
revenues that results from the purchase or use of services through
direct links to or from our websites or on our websites is shared.
In addition, we acquire personal information and data in the form
of Leads purchased from third party websites involving consumers
who submitted personally identifiable information and data to the
third parties and not directly to us. These arrangements may expose
us to additional legal risks and uncertainties, including disputes
with these parties regarding revenue sharing, local, state and
federal government regulation and potential liabilities to
consumers of these services, even if we do not provide the services
ourselves or have direct contact with the consumer. These
liabilities can include liability for violations by these third
parties of laws, rules and regulations, including those related to
data security and privacy laws and regulations; unsolicited email,
text messaging, telephone or wireless voice marketing; and
licensing. We have no assurance that any indemnification provided
to us in our agreements with these third parties, if available,
will be adequate.
Our
financial performance could be materially and adversely affected by
other litigation. From time to time, we are involved in
litigation or legal matters not related to intellectual property
rights and arising from the normal course of our business
activities. The actions filed against us and other litigation or
legal matters, even if not meritorious, could result in substantial
costs and diversion of resources and management attention and an
adverse outcome in litigation could materially and adversely affect
our financial performance. Our liability insurance may not cover
all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in
excess of our insurance coverage could have a material adverse
effect on our financial performance.
Our
certificate of incorporation and bylaws, tax benefit preservation
plan 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 restated certificate of
incorporation and bylaws relating to our corporate governance and
provisions in our Tax Benefit Preservation Plan 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 could limit the price that some investors might be
willing to pay in the future for shares of our common stock and may
have the effect of delaying or preventing a change in control. The
issuance of preferred stock also could decrease the amount of
earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers,
including voting rights, of the holders of the common
stock.
Our
restated certificate of incorporation allows us to issue preferred
stock with rights senior to those of the common stock without any
further vote or action by the stockholders. Our restated
certificate of incorporation also provides 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, provisions
in our restated certificate of incorporation and
bylaws:
●
Require
that actions to be taken by our stockholders may be taken only at
an annual or special meeting of our stockholders and not by written
consent;
●
Specify
that special meetings of our stockholders can be called only by our
board of directors, a committee of the board of directors, the
Chairman of our board of directors or our President;
●
Establish
advance notice procedures for stockholders to submit nominations of
candidates for election to our board of directors and other
proposals to be brought before a stockholders meeting;
●
Provide
that our bylaws may be amended by our board of directors without
stockholder approval;
●
Allow
our board of directors to establish the size of our board of
directors;
●
Provide
that vacancies on our board of directors or newly created
directorships resulting from an increase in the number of our
directors may be filled only by a majority of directors then in
office, even though less than a quorum; and
●
Do
not give the holders of our common stock cumulative voting rights
with respect to the election of directors.
These
provisions could make it more difficult for stockholders to effect
corporate actions such as a merger, asset sale or other change in
control of us.
Under our Tax Benefit Preservation Plan, rights to
purchase capital stock of the Company (“Rights”) have been distributed as a dividend at
the rate of five Rights for each share of common
stock. Each Right entitles its holder, upon triggering
of the Rights, to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company at a price of
$73.00 (as such price may be adjusted under the Tax Benefit
Preservation Plan) or, in certain circumstances, to instead acquire
shares of common stock. The Rights will convert into a right to
acquire common stock or other capital stock of the Company in
certain circumstances and subject to certain
exceptions. The Rights will be triggered upon the
acquisition of 4.90% or more of the Company’s outstanding
common stock or future acquisitions by any existing holders of
4.90% or more of the Company’s outstanding common stock. If a
person or group acquires 4.90% or more of our common stock, all
Rights holders, except the acquirer, will be entitled to acquire at
the then exercise price of a Right that number of shares of our
common stock which, at the time, has a market value of two times
the exercise price of the Right. The Tax Benefit
Preservation Plan authorizes our board of directors to exercise
discretionary authority to deem a person acquiring common stock in
excess of 4.90% not to be an “Acquiring Person” under
the Tax Benefit Preservation Plan, and thereby not trigger the
Rights, if the Board finds that the beneficial ownership of the
shares by the person acquiring the shares will not be likely
to directly or indirectly limit the availability to the Company of
the net operating loss carryovers and other tax attributes that the
plan is intended to preserve or is otherwise in the best
interests of the Company.
We
are also subject to 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. Section 203 could discourage a third party from
attempting to acquire control of us.
If our
internal controls and procedures fail, our financial condition,
results of operations and cash flow could be materially and
adversely affected.
Management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our
internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. In making its assessment of the effectiveness of our
internal control over financial reporting as of December 31,
2017, management used the criteria described in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. As a result of the
identification of the material weakness described below, our
management concluded that our internal control over financial
reporting was not effective as of December 31,
2017
On
March 14, 2018, Moss Adams LLP, our independent registered public
accounting firm, advised us that they believed there were control
deficiencies in our internal controls over financial reporting such
that in the aggregate they constituted a material weakness.
Specifically, our independent accounting firm believed we did not
adequately evidence management’s expectations, criteria for
investigation, and the level of precision used in the performance
of the controls. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
See
Part II, Item 9A, “Controls and Procedures” of this
Annual Report on Form 10-K.
Our
management is in the process of evaluating the material weakness
described above and intends to promptly remediate it. We are
committed to continuing to improve our internal control processes
and intend to implement controls to better evidence
management’s expectation; however, we cannot be certain of
the effectiveness of such implementation or that, in the future,
additional material weaknesses or significant deficiencies will not
exist or otherwise be discovered. If we are unable to maintain
proper and effective internal controls, we may not be able to
produce timely and accurate financial statements and prevent fraud.
In addition, if we are unable to successfully remediate the
material weaknesses in our internal controls or if we are unable to
produce accurate and timely financial statements, our stock price
may be adversely affected and we may be unable to maintain
compliance with The Nasdaq Capital Market listing
requirements
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 may need to hire additional personnel. 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 marketing personnel could have a
material adverse effect on our financial
performance.
Our
business and operations are substantially dependent on the
performance of our executive officers and key
employees. Each of these executive officers would be
difficult to replace. There is no guarantee that these or any
of our other executive officers and key employees will remain
employed with us. The loss of the services of one or more of our
executive officers or key employees could have a material adverse
effect on our financial performance.
Item 1B.
Unresolved
Staff Comments
Not
applicable.
Our
headquarters are located in Irvine, California. Our headquarters
consist of approximately 33,000 square feet of leased office space
under a lease that expires in July 2020. Our Tampa, Florida
SEM operations are located in offices consisting of approximately
13,000 square feet under a lease that expires in May 2024. Our
website development operations located in Guatemala City, Guatemala
occupy approximately 10,000 square feet of leased office space
under leases that expire in March 2020. We believe that our
existing facilities are adequate to meet our needs and that
existing needs and future growth can be accommodated by leasing
alternative or additional space.
From time to time, we may be involved in
litigation matters arising from the normal course of our business
activities. Litigation, even if not meritorious, could result in
substantial costs and diversion of resources and management
attention, and an adverse outcome in litigation could materially
adversely affect our business, results of operations, financial
condition, cash flows, earnings per share and stock
price. Following the announcement of our financial results
for the year ended December 31, 2017 and the departures of our
Chief Executive Officer and Chief Financial Officer, the market
price of our common stock declined significantly and a law firm
announced publicly that it is investigating investor claims. See
Risk Factors—“Securities Market
Risks” in Part I, Item 1A
of this Annual Report on Form 10K.
Not
applicable.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our
common stock, par value $0.001 per share, is listed on The Nasdaq
Capital Market and trades under the symbol “AUTO.” The
following table sets forth, for the calendar quarters indicated,
the range of high and low sales prices of our common
stock:
|
|
|
2016
|
|
|
First
Quarter
|
$21.01
|
$14.56
|
Second
Quarter
|
18.74
|
12.34
|
Third
Quarter
|
17.80
|
13.49
|
Fourth
Quarter
|
18.28
|
11.04
|
|
|
|
2017
|
|
|
First
Quarter
|
14.18
|
12.01
|
Second
Quarter
|
14.09
|
11.65
|
Third
Quarter
|
12.92
|
6.89
|
Fourth
Quarter
|
9.62
|
6.70
|
As
of March 12, 2018, there were 228 holders of record of our common
stock. We have never declared or paid any cash dividends on our
common stock and we do not expect to pay any cash dividends in the
foreseeable future. Payment of any future dividends will
depend on our earnings, cash flows and financial condition and will
be subject to legal and contractual restrictions. As of
March 12, 2018, our common stock closing price was $3.97 per
share.
Purchases of Equity Securities by Issuer
The
following table provides information with respect to Company
purchases of the Company’s common stock during the three
months ended December 31, 2017:
Period
|
Total Number of
Shares (or Units) Purchased
|
Average Price Paid
per Share (or Unit)
|
Total Number of
Shares (or Units) Purchased as Part of Publicly Announced Plans or
Programs (1)
|
Maximum Number (or
Approximate Dollar Value) of Shares (or Units) that May Yet Be
Purchased Under the Plans or Programs
|
|
|
|
|
|
October 1, 2017
– October 31, 2017
|
—
|
—
|
—
|
$3,024,751
|
|
|
|
|
|
November 1, 2017
– November 30, 2017
|
66,877
|
$8.70
|
66,877
|
2,442,874
|
|
|
|
|
|
December 1, 2017
– December 31, 2017
|
14,000
|
8.61
|
14,000
|
2,322,352
|
|
|
|
|
|
Total
|
80,877
|
$8.68
|
80,877
|
$2,322,352
|
(1)
On
September 6, 2017, the Company announced that its board of
directors authorized the Company to repurchase up to $3.0 million
of the Company’s common stock. Shares repurchased under this
program have been retired and returned to the status of authorized
and unissued shares. The authorization may be increased
or otherwise modified, renewed, suspended or terminated by the
Company at any time, without prior notice. The Company
may repurchase the Company’s common stock from time to time
on the open market or in private transactions. The Company funded
repurchases and anticipates that it will fund future repurchases,
if any, through the use of available cash.
Performance Graph
The
following graph shows a comparison of cumulative total stockholder
returns for our common stock, the NASDAQ Composite, the S&P
Automobile Manufacturers Index, and the S&P Smallcap 600
Automotive Retail Index. The comparisons reflected in
the graph and table below are not intended to predict the future
performance of our stock and may not be indicative of our future
performance. The data regarding our common stock assume
an investment in our common stock at the closing price of $3.98 per
share of our common stock on December 31, 2012.
|
|
|
|
|
12/14
|
12/15
|
12/16
|
12/17
|
AutoWeb,
Inc.
|
$100.00
|
$380.15
|
$273.87
|
$566.83
|
$337.94
|
$226.38
|
NASDAQ
Composite
|
100.00
|
141.63
|
162.09
|
173.33
|
187.19
|
242.29
|
S&P
Automobile Manufacturers
|
100.00
|
130.10
|
126.21
|
123.53
|
122.70
|
141.93
|
S&P
Smallcap 600 Automotive Retail
|
100.00
|
146.11
|
178.96
|
179.73
|
169.27
|
174.03
|
The
tables below set forth our selected consolidated financial
data. We prepared this information using the
consolidated financial statements of AutoWeb for the five years
ended December 31, 2017. Certain amounts in the selected
consolidated financial data have been reclassified to conform to
the current year presentation. You should read
these selected consolidated financial data together with the
Consolidated Financial Statements and related Notes to the
Consolidated Financial Statements contained in this Annual Report
on Form 10-K and also Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.”
|
|
|
|
|
|
|
|
|
(Amounts in thousands, except per-share data)
|
RESULTS
OF OPERATIONS:
|
|
|
|
|
|
Total
revenues
|
$142,125
|
$156,684
|
$133,226
|
$106,278
|
$78,361
|
Income
(loss) from continuing operations
|
$(64,964)
|
$3,871
|
$4,646
|
$3,411
|
$38,144
|
Net
income (loss)
|
$(64,964)
|
$3,871
|
$4,646
|
$3,411
|
$38,144
|
Basic
earnings (loss) per common share
|
$(5.48)
|
$0.36
|
$0.47
|
$0.38
|
$4.29
|
Diluted
earnings (loss) per common share
|
$(5.48)
|
$0.29
|
$0.37
|
$0.32
|
$3.61
|
Weighted
average diluted shares
|
11,853
|
13,303
|
12,662
|
11,212
|
10,616
|
(1)
Net
income in 2017 included goodwill impairment of $37.7 million and
$16.7 million recording of a valuation allowance.
(2)
Net income in 2013 included a one-time benefit of $35.5
million in connection with the release of a valuation allowance
against deferred tax assets.
|
|
|
|
|
|
|
|
|
|
FINANCIAL
POSITION (1):
|
|
|
|
|
|
Cash
and cash equivalents
|
$24,993
|
$38,512
|
$23,993
|
$20,747
|
$18,930
|
Total
assets
|
$92,913
|
$165,281
|
$153,588
|
$104,749
|
$88,193
|
Non-current
liabilities
|
$9,000
|
$16,500
|
$21,750
|
$11,061
|
$10,450
|
Accumulated
deficit
|
$(288,900)
|
$(230,424)
|
$(234,295)
|
$(238,941)
|
$(242,352)
|
Stockholders’
equity
|
$67,167
|
$119,609
|
$108,201
|
$69,258
|
$64,828
|
(1)
See
Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and
“Notes to the Consolidated Financial Statements” in
Part II, Item 8, of this Annual Report on Form 10-K for information
regarding business combinations and other items that may affect
comparability.
Item 7.
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 the “Risk
Factors” included in Part I, Item 1A and our
Consolidated Financial Statements and related Notes thereto
included in Part II, Item 8 of this Annual Report on
Form 10-K. See also the discussion of
“Forward-Looking Statements” immediately preceding Part
I of this Annual Report on Form 10-K.
For the year ended December 31, 2017, our
business, results of operations and financial condition were
affected and may continue to be affected in the future by the
events that occurred during or subsequent to year end that are
described in Part I, Item 1 “Business –
Significant
Business Developments” of
this Annual report on Form 10-K. Total revenues in
2017 were $142.1 million compared to $156.7 million in 2016. The
decline in revenue was due to unfulfilled demand for our Leads as a
result of higher traffic acquisition costs as well as channel mix
issues resulting from a lower retail dealer count. The lower
revenue was partially offset by continued growth of advertising
click revenues. We believe that a large part of the increase in
traffic acquisition costs were a result of an increased SEM spend
from several of our competitors. We will continue to work with our
traffic partners to optimize our SEM methodologies and rebuild our
high-quality traffic streams. In addition, in order to
mitigate the impact to profitability, we realigned our headcount
and expect it to reduce operating expenses. We cannot provide an
exact timeframe for resolution of these issues, and these trends
may continue into 2018 and beyond.
Results of Operations
The
following table sets forth our results of operations as a
percentage of total revenues:
|
|
|
|
|
|
Revenues:
|
|
|
|
Lead
fees
|
75.3%
|
83.4%
|
90.6%
|
Advertising
|
24.0
|
15.6
|
7.9
|
Other
revenues
|
0.7
|
1.0
|
1.5
|
Total
revenues
|
100.0
|
100.0
|
100.0
|
Cost
of revenues
|
69.9
|
63.0
|
61.2
|
Gross
margin
|
30.1
|
37.0
|
38.8
|
Operating
expenses:
|
|
|
|
Sales
and marketing
|
10.1
|
11.6
|
12.0
|
Technology
support
|
8.8
|
8.9
|
8.8
|
General
and administrative
|
8.5
|
9.4
|
9.9
|
Depreciation
and amortization
|
3.4
|
3.2
|
2.3
|
Litigation
settlements
|
(0.1)
|
—
|
(0.1)
|
Goodwill
impairment
|
26.5
|
—
|
—
|
Total
operating expenses
|
57.2
|
33.1
|
32.9
|
Operating
income (loss)
|
(27.1)
|
3.9
|
5.8
|
Interest
and other income (expense), net
|
(0.7)
|
0.4
|
0.2
|
Income
tax provision
|
17.9
|
1.8
|
2.5
|
Net
income (loss)
|
(45.7%)
|
2.5%
|
3.5%
|
Revenues
by groups of similar services and gross profits are as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
$
|
%
|
|
%
|
Revenues:
|
|
|
|
|
|
|
|
Lead
fees
|
$107,045
|
$130,684
|
$120,678
|
$(23,639)
|
(18%)
|
$10,006
|
8%
|
Advertising
|
34,142
|
24,508
|
10,534
|
9,634
|
39
|
13,974
|
133
|
Other
revenues
|
938
|
1,492
|
2,014
|
(554)
|
(37)
|
(522)
|
(26)
|
Total
revenues
|
142,125
|
156,684
|
133,226
|
(14,559)
|
(9)
|
23,458
|
18
|
Cost
of revenues
|
99,352
|
98,771
|
81,586
|
581
|
1
|
17,185
|
21
|
Gross
profit
|
$42,773
|
$57,913
|
$51,640
|
$(15,140)
|
(26%)
|
$6,273
|
12%
|
2017 Compared to 2016
Lead fees. Lead fees decreased $23.6 million or 18% in 2017
compared to 2016. The decrease in Lead fees was a result of the
elimination of poor quality traffic in the second quarter of 2017,
decreased Lead sales to Dealers combined with increased Dealer
churn and the disposal of our specialty finance leads product in
December 2016.
Advertising. The
$9.6 million or 39% increase in advertising revenues in 2017
compared to 2016 was primarily due to an increase in click revenue
as a result of both increased click volume and
pricing.
Other
revenues. Other
revenues decreased $0.6 million or 37% in 2017 compared to
2016. The decrease in other revenues was primarily due
to lower customer utilization of the mobile offerings and SaleMove
product.
Cost of Revenues.
Cost of revenues consists of Lead and
traffic acquisition costs and other costs. Lead and traffic
acquisition costs consist of payments made to our third party Lead
providers, including internet portals and online automotive
information providers, as well as SEM costs. Other cost of revenues
consists of fees paid to third parties for data and content,
including SEO activity, included on our properties, connectivity
costs, development costs related to our websites, compensation
related expense and technology license fees, server equipment
depreciation and technology amortization directly related to the
Company Websites. SEM, sometimes referred to as paid search
marketing, is the practice of bidding on keywords on search engines
to drive traffic to a website.
The
$0.6 million or 1% increase in cost of revenues in 2017 compared to
2016 was primarily due to the increased costs in traffic
acquisition activity. Cost of revenues increased as a percentage of
total revenues as a result of the $0.6 million increase in cost of
revenues and the $23.6 million, or 18%, decrease in total
revenues.
2016 Compared to 2015
Lead fees. Lead fees increased $10.0 million or 8% in 2016
compared to 2015. The increase in Lead fees was primarily due to
increased lead volume associated with the acquisitions of Dealix
Corporation and Autotegrity, Inc. (collectively,
“Dealix/Autotegrity”)
in May 2015.
Advertising. The
$14.0 million or 133% increase in advertising revenues in 2016
compared to 2015 was primarily due to an increase in click revenue
as a result of both increased click volume and pricing. Increased
click volume was the result of increased investments in traffic
acquisition activity.
Other
revenues. Other
revenues decreased $0.5 million or 26% in 2016 compared to
2015. The decrease in other revenues was primarily due
to the discontinuation of a Manufacturer’s brand using other
non-Lead products.
Cost of Revenues.
The $17.2 million or 21% increase in
cost of revenues in 2016 compared to 2015 was primarily due to
increased lead volume from the Dealix/Autotegrity acquisition in
May 2015 together with increased intangible amortization costs from
both the Dealix/Autotegrity acquisition and the acquisition of
AutoWeb, Inc. in October 2015, and an increased investment in
additional traffic acquisition methodologies.
Operating
expenses were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
%
|
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
Sales
and marketing
|
$14,315
|
$18,118
|
$15,956
|
$(3,803)
|
(21%)
|
$2,162
|
14%
|
Technology
support
|
12,567
|
13,986
|
11,740
|
(1,419)
|
(10)
|
2,246
|
19
|
General
and administrative
|
12,110
|
14,663
|
13,189
|
(2,553)
|
(17)
|
1,474
|
11
|
Depreciation
and amortization
|
4,781
|
5,068
|
3,106
|
(287)
|
(6)
|
1,962
|
63
|
Litigation
settlements
|
(109)
|
(50)
|
(108)
|
(59)
|
118
|
58
|
(54)
|
Goodwill
impairment
|
37,688
|
——
|
—
|
37,688
|
—
|
—
|
—
|
Total
operating expenses
|
$81,352
|
$51,785
|
$43,883
|
$29,567
|
57%
|
$7,902
|
18%
|
2017 Compared to 2016
Sales and Marketing.
Sales and marketing expense includes
costs for developing our brand, personnel costs, and other costs
associated with Dealer sales, website advertising, Dealer support
and bad debt expense.
Sales
and marketing expense for the year ended December 31, 2017
decreased by $3.8 million or 21% compared to the prior year, due to
a decrease in overall headcount related expenses.
Technology
Support. Technology
support includes compensation, benefits, software licenses and
other direct costs incurred by the Company to enhance, manage,
maintain, support, monitor and operate the Company's websites and
related technologies, and to operate the Company's internal
technology infrastructure.
Technology
support expense for the year ended December 31, 2017 decreased by
$1.4 million or 10% compared to the prior year, primarily due to a
decrease in headcount related costs.
General and
Administrative. General and
administrative expense consists of certain executive, financial,
human resources, legal and facilities personnel expenses and costs
related to being a publicly-traded company.
General
and administrative expense for the year ended December 31,
2017 decreased by $2.6 million or 17% compared to the prior year.
The decrease was due to a decrease in headcount related
costs.
Depreciation and
Amortization. Depreciation and amortization expense for the year
ended December 31, 2017 decreased $0.3 million or 6% from the year
ended December 31, 2016 primarily due to some intangible assets
becoming fully amortized during the year.
Litigation
Settlements. Payments
received primarily from 2010 settlements of patent infringement
claims against third parties relating to the third parties’
methods of Lead delivery were $0.1 million in 2017 compared to
$50,000 in 2016. We also paid $41,000 related to settlement of
claims alleged under the Controlling the Assault of
Non-Solicited Pornography And Marketing Act of 2003 inherited in connection with the acquisition of
Dealix/Autotegrity in 2016.
Goodwill impairment.
As discussed below, we evaluate the
carrying value of enterprise goodwill for impairment, at a minimum,
on an annual basis. During 2017 we performed our annual impairment
test by comparing the carrying value of AutoWeb to its fair value
based on market capitalization at that date. As a result of this
testing, a non-cash impairment charge of $37.7 million was recorded
during 2017.
Interest and Other Income
(Expense), net. Interest and
other expense was $0.9 million for the year ended December 31, 2017
compared to interest and other income of $0.6 million for the year
ended December 31, 2016. Interest expense was $0.8
million and $0.9 million for the years ended December 31, 2017 and
2016, respectively. The year ended December 31, 2017
included an impairment charge of $0.6 million related to SaleMove.
The year ended December 31, 2016 also included gain on disposal of
the finance leads product of $2.2 million offset by a $0.8 million
write-off related to our investment in GoMoto, Inc.
(“GoMoto’).
Income tax
provision. Income
tax expense was $25.4 million for the year ended December 31, 2017
compared to income tax expense of $2.8 million for the year ended
December 31, 2016. The Company’s effective tax
rate of (64.4)% for the year ended December 31, 2017 differed from
the federal statutory rate principally as a result of deferred tax
asset adjustments relating to the change in the U.S. federal rate,
goodwill impairment, and establishing additional valuation
allowances on our deferred tax assets. The Company’s
effective tax rate of 42.1% for the year ended December 31, 2016
differed from the federal statutory rate principally as a result of
deferred tax asset adjustments, state income taxes and permanent
non-deductible tax items. The TCJA reduced the U.S. federal corporate rate to 21%,
effective January 1, 2018. In addition, the TCJA limits the
Company’s annual deduction for business interest expense to
an amount equal to 30% of the Company’s “adjusted
taxable income” (as defined in the Internal Revenue Code) for
the taxable year, also effective January 1, 2018. The amount of any
business interest not allowed as a deduction for any taxable year
may be carried forward indefinitely and utilized in future years,
subject to this and other applicable interest deductibility
limitations.
2016 Compared to 2015
Sales and Marketing.
Sales and marketing expense for the
year ended December 31, 2016 increased by $2.2 million or 14%
compared to the prior year, due to increased headcount related
costs associated with the Dealix/Autotegrity and AutoWeb
acquisitions coupled with severance expense of $0.6 million and
accelerated stock compensation expense of $0.3 million associated
with the termination of two executive officers.
Technology
Support. Technology
support expense for the year ended December 31, 2016 increased by
$2.2 million or 19% compared to the prior year, primarily due to
increased headcount related costs associated with the
Dealix/Autotegrity and AutoWeb acquisitions coupled with severance
expense of $0.3 million and accelerated stock compensation expense
of $0.2 million associated with the termination of an executive
officer.
General and
Administrative. General and
administrative expense for the year ended December 31, 2016
increased by $1.5 million or 11% compared to the prior year. The
increase was due to increased headcount costs and facility fees,
offset with a reduction in professional fees all associated with
the Dealix/Autotegrity and AutoWeb acquisitions, together with $0.3
million in severance expense and $0.2 million in accelerated stock
compensation expense for a terminated executive
officer.
Depreciation and
Amortization. Depreciation and amortization expense for the year
ended December 31, 2016 increased $2.0 million or 63% from the year
ended December 31, 2015 primarily due to the addition of intangible
assets associated with the Dealix/Autotegrity and AutoWeb
acquisitions.
Litigation
Settlements. Payments
received primarily from 2010 settlements of patent infringement
claims against third parties relating to the third parties’
methods of Lead delivery were $50,000 in 2016 compared to $108,000
in 2015. We also paid $41,000 related to settlement of claims
alleged under the Controlling the Assault of Non-Solicited
Pornography And Marketing Act of 2003 inherited in connection with the acquisition of
Dealix/Autotegrity in 2016.
Interest and Other Income
(Expense), net. Interest and
other income was $0.6 million for the year ended December 31, 2016
compared to interest and other income of $0.3 million for the year
ended December 31, 2015. Interest expense was $0.9
million and $0.8 million for the years ended December 31, 2016 and
2015, respectively. The year ended December 31, 2016
also included gain on disposal of the finance leads product of $2.2
million offset by a $0.8 million write-off related to our
investment in GoMoto.
Income tax
provision. Income
tax expense was $2.8 million for the year ended December 31, 2016
compared to income tax expense of $3.4 million for the year ended
December 31, 2015. The Company’s effective tax
rate of 42.1% for the year ended December 31, 2016 differed from
the federal statutory rate principally as a result of deferred tax
asset adjustments and state income taxes and permanent
non-deductible tax items. The Company’s effective
tax rate of 42.5% for the year ended December 31, 2015 differed
from the federal statutory rate principally as a result of deferred
tax asset adjustments and state income taxes.
Segment Information
We
conduct our business within one business segment, which is defined
as providing digital marketing services to the automotive
industry. Our operations are aggregated into a single
reportable operating segment based upon similar economic and
operating characteristics as well as similar
markets.
Liquidity and Capital Resources
The
table below sets forth a summary of our cash flow for the years
ended December 31, 2017, 2016 and 2015 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
$11,488
|
$18,242
|
$12,200
|
Net
cash used in investing activities
|
(10,402)
|
(2,774)
|
(28,105)
|
Net
cash (used in) provided by financing activities
|
(14,605)
|
(949)
|
19,151
|
Our
principal sources of liquidity are our cash and cash equivalents
and accounts receivable balances. Our cash and cash equivalents
totaled $25.0 million as of December 31, 2017 compared to
$38.5 million as of December 31, 2016.
On
June 7, 2012, we announced that the board of directors had
authorized us to repurchase up to $2.0 million of our common stock,
and on September 17, 2014 we announced that our board of
directors had approved the repurchase of up to an additional $1.0
million of our common stock. On September 6, 2017, we
announced that our board of directors had authorized us to
repurchase up to $3.0 million of our common stock. We repurchased
226,698 shares of our common stock with an average price of $8.37
per share during 2017. No shares were repurchased during 2016. The
authorization may be increased or otherwise modified, renewed,
suspended or terminated by us at any time, without prior
notice. We may repurchase our common stock from time to
time on the open market or in private transactions. Shares
repurchased under this program have been retired and returned to
the status of authorized and unissued shares. We funded
repurchases and anticipate that we would fund future repurchases
through the use of available cash. The repurchase
authorization does not obligate us to repurchase any particular
number of shares. The timing and actual number of
repurchases of additional shares, if any, under our stock
repurchase program will depend upon a variety of factors, including
price, market conditions, release of quarterly and annual earnings,
and other legal, regulatory, and corporate considerations at our
sole discretion. The impact of repurchases on our Tax
Benefit Preservation Plan, as amended, and on the our use of net
operating loss carryovers and other tax attributes if we were to
experience an “ownership change,” as defined in Section
382 of the Internal Revenue Code, is also a factor that we consider
in connection with share repurchases. As of December 31,
2017, $2.3 million remains available for repurchase under the
program.
The Company and MUFG Union Bank, N.A.
(“Union Bank”), have entered into a Loan Agreement dated
February 26, 2013, as amended on September 10, 2013, January 13,
2014, May 20, 2015, June 1, 2016, June 28, 2017 and December 27,
2017 (the original Loan Agreement, as amended to date, is referred
to collectively as the “Credit Facility
Agreement”). Until December 31, 2017, the
Credit Facility Agreement provided for (i) a $9.0 million term loan
(“Term
Loan 1”); (ii) a $15.0
million term loan (“Term Loan 2”); and (iii) an $8.0 million working
capital revolving line of credit (“Revolving
Loan”). Term Loan 1
and Term Loan 2 were fully paid as of December 31, 2017. The
outstanding balance of the Revolving Loan as of December 31, 2017
was $8.0 million.
Borrowings
under the Revolving Loan bear interest at either (i) the LIBOR plus
2.50% or (ii) the bank’s Reference Rate (prime rate) minus
0.50%, at the option of the Company. Interest under the Revolving
Loan adjusts (i) at the end of each LIBOR rate period (1, 2, 3, 6
or 12 months terms) selected by the Company, if the LIBOR rate is
selected; or (ii) with changes in Union Bank’s Reference
Rate, if the Reference Rate is selected. The Company pays a
commitment fee of 0.10% per year on the unused portion of the
Revolving Loan, payable quarterly in arrears. Borrowings under the
Revolving Loan are secured by a first priority security interest on
all of the Company’s personal property (including, but not
limited to, accounts receivable) and proceeds thereof. The maturity
date of the Revolving Loan is January 5, 2021. Borrowings under the
Revolving Loan may be used as a source to finance working capital,
capital expenditures, acquisitions and stock buybacks and for other
general corporate purposes.
The
Credit Facility Agreement contains certain customary affirmative
and negative covenants and restrictive and financial covenants,
which the Company was in compliance with as of December 31, 2017.
The Company is in negotiations with Union Bank regarding possible
amendments to the Credit Facility Agreement to be effective prior
to March 31, 2018, which amendments could require a partial paydown
of the Revolver Loan. In the event these amendments are not entered
into prior to March 31, 2018, the Company anticipates that it will
pay off the Revolving Loan in full.
We
believe our current cash and cash equivalent balances together with
anticipated cash flows from operations will be sufficient to
satisfy our working capital and capital expenditure requirements
for at least the next 12 months.
Net Cash Provided by Operating
Activities. Net cash
provided by operating activities in 2017 of $11.5 million resulted
primarily from net loss of $65.0 million, adjustments for non-cash
charges to earnings of $75.9 million and an increase in working
capital.
Net
cash provided by operating activities in 2016 of $18.2 million
resulted primarily from net income of $3.9 million, adjustments for
non-cash charges to earnings of $13.4 million and an increase in
working capital.
Net Cash Used in Investing
Activities. Net cash
used in investing activities of $10.4 million in 2017 primarily
consisted of $1.8 million in purchases of property and equipment
and expenditures related to capitalized internal use software and
$8.6 million used to purchase intangible
assets.
Net
cash used in investing activities of $2.8 million in 2016 primarily
consisted of a $0.4 million investment in GoMoto, a $0.3 million in
a short-term investment and $2.1 million in purchases of property
and equipment and expenditures related to capitalized internal use
software.
Net Cash (Used in) Provided by
Financing Activities. Net cash
used in financing activities of $14.6 million in 2017 consisted of
payments on term loan borrowings of $14.1 million and cash used to
repurchase Company common stock of $1.9 million. Stock
options for 248,344 shares of the Company’s common stock were
exercised in the year ended December 31, 2017 resulting in $1.4
million of cash
inflow.
Net
cash used in financing activities of $0.9 million in 2016 consisted
of payments on term loan borrowings of $3.9
million. Stock options for 386,001 shares of the
Company’s common stock were exercised in the year ended
December 31, 2016 resulting in $3.1 million of cash
inflow.
Contractual Obligations
The
following table provides aggregated information about our
outstanding contractual obligations as of December 31, 2017
(in thousands):
|
|
|
|
|
|
Long-term
Debt Obligations (a)
|
$9,000
|
$—
|
$1,000
|
$8,000
|
$—
|
Operating
Lease Obligations (b)
|
5,467
|
1,526
|
2,349
|
920
|
672
|
Total
|
$14,467
|
$1,526
|
$3,349
|
$8,920
|
$672
|
(a)
Long-term
debt obligations as defined by ASC 470, “Debt,” and
disclosed in Note 5 and 6 of the consolidated
financial statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
(b)
Operating
lease obligations as defined by ASC 840, “Leases,” and
disclosed in Note 7 of the consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form
10-K.
Off-Balance Sheet Arrangements
We
do not have any material off-balance sheet
arrangements.
Critical
Accounting Policies and Estimates
We prepare our financial statements in conformity
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”), which require us 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. We believe the
following critical accounting policies, among others, require
significant judgment in determining estimates and assumptions used
in the preparation of our consolidated financial
statements. Accordingly, actual results could differ
materially from our estimates. To the extent that there are
material differences between these estimates and our actual
results, our financial condition or results of operations may be
affected. For a detailed discussion of the application of these and
other accounting policies, see Note 2 of the “Notes to
Consolidated Financial Statements” in Part II, Item 8
“Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K.
Revenue Recognition.
Leads consist of vehicle buying Leads
for new and used vehicles request fees. Fees paid by
Dealers and Manufacturers participating in our Lead programs are
comprised of monthly transaction and/or subscription
fees. Advertising revenues represent fees for display
advertising on our websites and fees from our click
program.
We
recognize revenues when evidence of an arrangement exists, pricing
is fixed and determinable, collection is reasonably assured, and
delivery or performance of service has occurred. Leads are
generally recognized as revenues in the period the service is
provided. Advertising revenues are generally recognized in the
period the advertisements are displayed on our websites and the
period in which clicks have been delivered. Fees billed prior to
providing services are deferred, as they do not satisfy all U.S.
GAAP revenue recognition criteria. Deferred revenues are recognized
as revenue over the periods services are provided.
Investments. We make strategic
investments because we believe that they may allow us to
increase market share, benefit from advancements in technology and
strengthen our business operations by enhancing our product and
service offerings.
Allowances for Bad Debt and
Customer Credits. We
estimate and record allowances for potential bad debts and customer
credits based on factors such as the write-off percentages, the
current business environment and known concerns within our accounts
receivable balances.
The
allowance for bad debts is our estimate of bad debt expense that
could result from the inability or refusal of our customers to pay
for our services. Additions to the estimated allowance for bad
debts are recorded as an increase in sales and marketing expenses
and are based on factors such as historical write-off percentages,
the current business environment and the known concerns within the
current aging of accounts receivable. Reductions in the estimated
allowance for bad debts due to subsequent cash recoveries are
recorded as a decrease in sales and marketing expenses. As specific
bad debts are identified, they are written-off against the
previously established estimated allowance for bad debts and have
no impact on operating expenses.
The
allowance for customer credits is our estimate of adjustments for
services that do not meet our customers’ requirements.
Additions to the estimated allowance for customer credits are
recorded as a reduction in revenues and are based on historical
experience of: (i) the amount of credits issued; (ii) the
length of time after services are rendered that the credits are
issued; (iii) other factors known at the time; and (iv) future
expectations. Reductions in the estimated allowance for customer
credits are recorded as an increase in revenues. As specific
customer credits are identified, they are written-off against the
previously established estimated allowance for customer credits and
have no impact on revenues.
If
there is a decline in the general economic environment that
negatively affects the financial condition of our customers or an
increase in the number of customers that are dissatisfied with our
services, additional estimated allowances for bad debts and
customer credits may be required and the impact on our business,
results of operations or financial condition could be
material. We generally do not require collateral to
support our accounts receivables.
Fair Value of Financial
Instruments. We record our
financial assets and liabilities at fair value, which is defined
under the applicable accounting standards as the exchange price
that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market
participants on the measure date. We use valuation
techniques to measure fair value, maximizing the use of observable
outputs and minimizing the use of unobservable
inputs. The standard describes a fair value hierarchy
based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used
to measure fair value which are the following:
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
Level
2 – Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3 – Inputs include management’s best estimate of what
market participants would use in pricing the asset or liability at
the measurement date. The inputs are unobservable in the
market and significant to the instrument’s
valuation.
Cash
equivalents, accounts receivable, net of allowance, accounts
payable and accrued liabilities, are carried at cost, which
management believes approximates fair value because of the
short-term maturity of these instruments.
Our investments at December 31, 2017 and 2016
consisted primarily of investments in SaleMove, Inc.
(‘SaleMove”) and GoMoto and are accounted for under
the cost method. Although there is no established market for these
investments, we evaluated the investments for impairment by
comparing them to an estimated fair value and determined that there
is no impairment.
The following table presents the Company’s investment
activity for 2017 and 2016 (dollars in thousands):
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
Balance
at December 31, 2015
|
$375
|
$—
|
$680
|
Purchases,
(sales), issuances and (settlements), net
|
(375)
|
750
|
—
|
Balance
at December 31, 2016
|
—
|
750
|
680
|
Reserve
for notes receivable
|
—
|
(750)
|
—
|
Net
balance at December 31, 2016
|
—
|
—
|
680
|
Write-offs
|
—
|
—
|
(580)
|
Net
balance at December 31, 2017
|
$—
|
$—
|
$100
|
The Company recorded an impairment of its
investment in SaleMove as of December 31, 2017 because we do not
believe SaleMove’s cash balance is sufficient to sustain its
cash burn rate as of December 31, 2017. The Company recorded
a reserve against the current notes receivable related to GoMoto as
of December 31, 2016 because the Company believes the amounts may
not be recoverable.
Variable Interest
Entities. We have an
investment in an entity that is considered a variable interest
entity (“VIE”) under U.S. GAAP. We have
concluded that our investment in SaleMove qualifies as a variable
interest and SaleMove is a VIE. VIEs are legal entities in which
the equity investors do not have sufficient equity at risk for the
entity to independently finance its activities or the collective
holders do not have the power through voting or similar rights to
direct the activities of the entity that most significantly impacts
its economic performance, the obligation to absorb the expected
losses of the entity, or the right to receive expected residual
returns of the entity. Consolidation of a VIE is considered
appropriate if a reporting entity is the primary beneficiary, the
party that has both significant influence and control over the VIE.
Management periodically performs a qualitative analysis to
determine if the Company is the primary beneficiary of a VIE. This
analysis includes review of the VIEs’ capital structures,
contractual terms, and primary activities, including the
Company’s ability to direct the activities of the VIEs and
obligations to absorb losses, or the right to receive benefits,
significant to the VIEs. Additionally, changes in our
various equity investments have in the past resulted in a
reconsideration event
Based
on our analysis, AutoWeb is not the primary beneficiary of
SaleMove. Accordingly, SaleMove does not meet the criteria for
consolidation. The SaleMove Advances are classified as an other
long-term asset on the consolidated balance sheet as of December
31, 2017. The carrying value and maximum potential loss
exposure from SaleMove was zero and $0.6 million as of December 31,
2017 and 2016, respectively.
Capitalized Internal Use
Software and Website Development
Costs. We capitalize
costs to develop internal use software in accordance with
Accounting Standards Codification (“ASC”) 350-40, Internal-Use
Software, and ASC 350-50, Website Development Costs, which require
the capitalization of external and internal computer software costs
and website development costs, respectively, incurred during the
application development stage. The application development stage is
characterized by software design and configuration activities,
coding, testing and installation. Training and maintenance costs
are expensed as incurred while upgrades and enhancements are
capitalized if it is probable that such expenditures will result in
additional functionality. Capitalized internal use software
development costs are amortized using the straight-line method over
an estimated useful life of three years. Capitalized website
development costs, once placed in service are amortized using the
straight-line method over the estimated useful lives of the related
websites.
Share-Based Compensation
Expense. We account for
our share-based compensation using the fair value method in
accordance with the Stock Compensation Topic of the
Codification. Under these provisions, we recognize
share-based compensation net of an estimated forfeiture rate and
therefore only recognize compensation cost for those shares
expected to vest over the service period of the award. The
fair value of each stock option award is estimated on the date of
grant using the Black-Scholes option pricing model based on the
underlying common stock closing price as of the date of grant, the
expected term, expected stock price volatility and expected
risk-free interest rates.
Calculating
share-based compensation expense requires the input of highly
subjective assumptions, including the expected term of the
share-based awards, expected stock price volatility and expected
pre-vesting option forfeitures. We estimate the expected life
of options granted based on historical experience, which we believe
is representative of future behavior. We estimate the
volatility of the price of our common stock at the date of grant
based on historical volatility of the price of our common stock for
a period equal to the expected term of the awards. We have
used historical volatility because we have a limited number of
options traded on our common stock to support the use of an implied
volatility or a combination of both historical and implied
volatility. The assumptions used in calculating the fair value of
share-based awards represent our best estimates, but these
estimates involve inherent uncertainties and the application of
management judgment. As a result, if factors change and we use
different assumptions, our share-based compensation expense could
be materially different in the future. In addition, we elected
to estimate the expected forfeiture rate and only recognize expense
for those shares expected to vest. We estimate the forfeiture
rate based on historical experience of our share-based awards that
are granted, exercised or cancelled. If our actual forfeiture
rate is materially different from our estimate, the share-based
compensation expense could be significantly different from what we
have recorded in the current period.
Income Taxes.
We account for income taxes under the
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. We record a valuation allowance, if
necessary, to reduce deferred tax assets to an amount we believe is
more likely than not to be realized.
As
of December 31, 2017, we had $0.5 million of unrecognized tax
benefits. Our policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as a component
of income tax expense. As of December 31, 2017, we did not
accrue interest associated with our unrecognized tax benefits, and
no interest expense was recognized in 2017.
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation known as the TCJA. The TCJA
establishes new tax laws that will take effect in 2018, including,
but not limited to (1) reduction of the U.S. federal corporate tax
rate from a maximum of 35% to 21%; (2) elimination of the corporate
alternative minimum tax (“AMT”); (3) a new limitation on
deductible interest expense; (4) one-time transition tax on certain
deemed repatriated earnings of foreign subsidiaries
(“Transition
Tax”); (5) limitations on the deductibility of certain
executive compensation; (6) changes to the bonus depreciation rules
for fixed asset additions: and (7) limitations on net operating
losses (“NOLs”) generated
after December 31, 2017, to 80% of taxable
income.
ASC 740, Income Taxes, requires the effects of
changes in tax laws to be recognized in the period in which the
legislation is enacted. However, due to the complexity and
significance of the TCJA's provisions, the SEC staff issued Staff
Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the TCJA. SAB 118 provides a measurement
period that should not extend beyond one year from the TCJA
enactment date for companies to complete the accounting under ASC
740. In accordance with SAB 118, a company must reflect the income
tax effects of those aspects of the TCJA for which the accounting
under ASC 740 is complete. To the extent that a company’s
accounting for certain income tax effects of the TCJA is incomplete
but it is able to determine a reasonable estimate, it must record a
provisional estimate in the financial statements. If a company
cannot determine a provisional estimate to be included in the
financial statements, it should continue to apply ASC 740 on the
basis of the provisions of the tax laws that were in effect
immediately before the enactment of the TCJA.
At
December 31, 2017, we have not completed our accounting for the tax
effects of enactment of the TCJA; however, we have made a
reasonable estimate of the effects of the TCJA’s change in
the federal rate and revalued our deferred tax assets based on the
rates at which they are expected to reverse in the future, which is
generally the new 21% federal corporate tax rate plus applicable
state tax rate. We recorded a decrease in deferred tax assets
and deferred tax liabilities of $11.7 million and $0.0 million,
respectively, with a corresponding net adjustment to deferred
income tax expense of $11.7 million for the year ended December 31,
2017. In addition, we recognized a deemed repatriation of $0.6
million of deferred foreign income from our Guatemala subsidiary,
which did not result in any incremental tax cost after application
of foreign tax credits. Our provisional estimates will be
adjusted during the measurement period defined under SAB 118, based
upon ongoing analysis of data and tax positions along with the new
guidance from regulators and interpretations of the
law.
Goodwill. Goodwill
represents the excess of the purchase price for business
acquisitions over the fair value of identifiable assets and
liabilities acquired. We evaluate the carrying value of enterprise
goodwill for impairment by comparing the enterprise’s
carrying value to its fair value. If the fair value is less than
the carrying value, enterprise goodwill is potentially impaired. We
evaluate enterprise goodwill, at a minimum, on an annual basis in
the fourth quarter of each year or whenever events or changes in
circumstances suggest that the carrying amount of goodwill may be
impaired. During 2015 we recognized $22.0 million in
goodwill related to the acquisitions of Dealix/Autotegrity and
AutoWeb. As of December 31, 2016, we adjusted goodwill
by $82,000 as a result of purchase price allocation adjustments and
no goodwill impairment was recorded during the year. As a result of
our annual impairment testing, a non-cash impairment charge of
$37.7 million was recorded during 2017.
Impairment of Long-Lived
Assets and Intangible Assets. We periodically review long-lived assets to
determine if there is any impairment of these assets. We assess the
impairment of these assets, or the need to accelerate amortization,
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Our judgments regarding the
existence of impairment indicators are based on legal factors,
market conditions and operational performance of our long-lived
assets and other intangibles. Future events could cause us to
conclude that impairment indicators exist and that the assets
should be reviewed to determine their fair value. We assess the
assets for impairment based on the estimated future undiscounted
cash flows expected to result from the use of the assets and their
eventual disposition. If the carrying amount of an asset exceeds
its estimated future undiscounted cash flows, an impairment loss is
recorded for the excess of the asset’s carrying amount over
its fair value. Fair value is generally determined based on a
valuation process that provides an estimate of a fair value of
these assets using a discounted cash flow model, which includes
many assumptions and estimates. Once the valuation is determined,
we will write-down these assets to their determined fair value, if
necessary. Any write-downs could have a material adverse effect on
our financial condition and results of operations. We recorded a
$0.6 million impairment in our investment in SaleMove
because we do not believe
SaleMove’s cash balance is sufficient to sustain its cash
burn rate as of December 31, 2017. We did not record any impairment of long-lived
assets in 2016 and 2015.
Indefinite-lived intangible
assets. Indefinite-lived
intangible assets consists of a domain name, which was acquired as
part of the Dealix/Autotegrity acquisition in 2015, which is tested
for impairment annually, or more frequently if an event occurs or
circumstances changes that would indicate that impairment may
exist. When evaluating indefinite-lived intangible assets for
impairment, we may first perform a qualitative analysis to
determine whether it is more likely than not that the
indefinite-lived intangible assets is impaired. If we do not
perform the qualitative assessment, or if we determine that it is
more likely than not that the fair value of the indefinite-lived
intangible asset exceeds its carrying amount, we will calculate the
estimated fair value of the indefinite-lived intangible asset. Fair
value is the price a willing buyer would pay for the
indefinite-lived intangible asset and is typically calculated using
an income approach. If the carrying amount of the indefinite-lived
intangible asset exceeds the estimated fair value, an impairment
charge is recorded to reduce the carrying value to the estimated
fair value. We did not record any impairment of indefinite-lived
intangible assets in 2017 and 2016.
Recent Accounting Pronouncements
See
Note 2 of the “Notes to Consolidated Financial
Statements” in Part II, Item 8, Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for recent
accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
The
Company does not use financial instruments for
trading. Our primary exposure to market risk is interest
rate sensitivity related to our Credit Facility
Agreement. The effect of a hypothetical 10% change in
interest rates would have increased our interest expense by $73,000
in the year ended December 31, 2017.
Item 8.
Financial Statements and
Supplementary Data
Our
Consolidated Balance Sheets as of December 31, 2017 and 2016
and our Consolidated Statements of Operations and Comprehensive
Income (Loss), Stockholders’ Equity and Cash Flows for each
of the years in the three-year period ended December 31, 2017,
together with the report of our independent registered public
accounting firm, begin on page F-1 of this Annual Report on Form
10-K and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls
and Procedures
Disclosure Controls and Procedures
We have established and maintain disclosure
controls and procedures that are designed to ensure that material
information relating to the Company and its subsidiaries required
to be disclosed by us in the reports that are filed under the
Securities Exchange Act of 1934, as amended
(“Exchange Act”), is recorded, processed, summarized and
reported in the time periods specified in the SEC’s rules and
forms, and that this information is accumulated and communicated to
our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated,
can provide only a reasonable assurance of achieving the desired
control objectives, and management was necessarily required to
apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Under
the supervision and with the participation of our management,
including our chief executive officer and chief financial officer,
we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of
December 31, 2017. As a result of the identification of the
material weakness described below under “Management’s
Report on Internal Control Over Financial Reporting,”
management has concluded that the Company’s disclosure
controls and procedures were not effective as of December 31,
2017.
Management’s Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) under the Exchange Act.
Under the supervision and with the participation of management,
including the Company’s chief executive officer and chief
financial officer, management conducted an evaluation of the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2017. Because of its
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements or fraud. In making this
assessment, management used the criteria set forth in the framework
issued by the COSO entitled Internal
Control—Integrated Framework (2013). As a result of the identification of the
material weakness described below, management has concluded that
the Company’s internal control over financial reporting was
not effective as of December 31, 2017.
On
March 14, 2018, Moss Adams LLP, our independent registered public accounting firm,
provided us the following assessment (“Moss Adams
Assessment”) in
connection with their attestation report on our internal control over financial reporting as
of December 31, 2017, which appears in Part IV, Item 15, Exhibits
and Financial Statement Schedules of this Annual Report on Form
10-K:
In
connection with the evaluation and measurement of goodwill for
impairment and valuation of deferred tax assets, we believe the
Company’s management review controls were not effectively
designed to operate at a sufficient level of precision, or there
was not sufficient evidence to demonstrate the controls were
designed to operate at a sufficient level of precision, necessary
to prevent or detect a material misstatement on a timely basis.
Specifically, we believe the Company did not adequately evidence
management’s expectations, criteria for investigation, and
the level of precision used in the performance of the controls. We
also believe the controls did not sufficiently evidence the
completeness and accuracy of key assumptions and other data used by
management in the operation of controls. The aggregation of control
deficiencies in these areas resulted in a material weakness related
to internal control over financial reporting.
Representatives of
Moss Adams discussed their assessment with members of our audit
committee of the board of directors.
A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely
basis. Our management is in the process of evaluating the Moss
Adams Assessment and intends to promptly remediate the material
weakness identified in the Moss Adams Assessment. We note that our
management did in fact perform procedures designed to prevent any
material misstatement of the Company’s annual or interim
financial statements with respect to the evaluation and
measurement of goodwill for impairment and valuation of deferred
tax assets, including the engagement of independent third parties
to assist management in its evaluation and measurement of goodwill
for impairment and valuation of deferred tax assets. We also note
that the material weakness identified in the Moss Adams Assessment
did not result in a material
misstatement of the Company’s consolidated financial
statements for the year ended December 31,
2017.
Any
controls and procedures, no matter how well designed and operated
can only provide reasonable assurance of achieving the desired
control objective and management necessarily applies its judgment
in evaluating the cost-benefit relationship of all possible
controls and procedures.
Changes in Internal Control Over Financial Reporting
There
have been no changes in internal controls over financial reporting
identified in connection with the evaluation required by paragraph
(d) of Rules 13a-15 of the Exchange Act that have occurred during
the fourth quarter of fiscal year 2017 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Beginning
January 1, 2018, we implemented internal controls to ensure we have
adequately evaluated our contracts and properly assessed the impact
of the new accounting standards related to revenue recognition to
facilitate adoption on that date. We do not expect significant
changes to our internal control over financial reporting due to the
adoption of the new standard.
The
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2017 has been audited by
Moss Adams LLP, the Company’s independent registered public
accounting firm, as stated in their attestation report, which is
included below in Part IV, Item 15, Exhibits and Financial
Statement Schedules of this Annual Report on Form
10-K.
Item 9B.
Other
Information
Not
applicable.
PART III
Information called for by the Items included under this Part III is
incorporated by reference to the sections listed below of our
definitive Proxy Statement for our 2018 Annual Meeting of
Stockholders that will be filed not later than 120 days after
December 31, 2017 (“2018 Proxy
Statement”).
Item 10
Directors, Executive Officers and Corporate Governance
The
information called for by this Item 10 is incorporated by reference
to the following sections of the 2018 Proxy Statement:
“Proposal 1-Nomination and Election of Directors;”
“Board of Directors;” “Executive Officers;”
“Section 16(a) Beneficial Ownership Reporting
Compliance;” and the following paragraphs under the section
“Corporate Governance Matters” “--Committees of
the Board of Directors—Audit Committee,” and
“--Code of Conduct and Ethics.”
The
information called for in this Item 11 is incorporated by reference
to the following sections of the 2018 Proxy Statement:
“Executive Compensation,” “Corporate Governance
Matters--Compensation Committee Interlocks and Insider
Participation” and “--Board’s Role in Oversight
of Risk,” and “Executive Compensation--Compensation
Discussion and Analysis” and “--Compensation Committee
Report.”
Item 12
Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
information called for in this Item 12 is incorporated by reference
to the following sections of the 2018 Proxy Statement:
“Security Ownership of Certain Beneficial Owners and
Management” and “Executive Compensation-- Equity
Compensation Plans.”
Item 13
Certain Relationships and Related Transactions, and
Director Independence
The
information called for in this Item 13 is incorporated by reference
to the following sections of the 2018 Proxy Statement:
“Corporate Governance Matters--Certain Relationships and
Related Party Transactions” and “--Director
Independence.”
Item 14
Principal
Accountant Fees and Services
The
information called for in this Item 14 is incorporated by reference
to the following sections of the 2018 Proxy Statement:
“Independent Registered Public Accounting Firm and Audit
Committee Report--Principal Accountant Fees and Services,”
“--Audit Fees,” “--Audit Related Fees,” and
“--Pre-Approval Policy for Services.”
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this Annual
Report on Form 10-K:
(1)
Financial Statements:
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Page
|
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Index
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F-1
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Report of
Independent Registered Public Accounting Firm
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F-2
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Consolidated
Balance Sheets
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F-3
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Consolidated Statements of Operations and
Comprehensive Income (Loss)
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F-4
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Consolidated
Statements of Stockholders’ Equity
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F-5
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Consolidated
Statements of Cash Flows
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F-6
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Notes to
Consolidated Financial Statements
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F-7
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(2)
Financial Statement Schedules:
Schedule II-
Valuation Qualifying Accounts
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F-32
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All other schedules have been omitted since
the required information is presented in the financial statements
and the related notes or is not applicable.
The
exhibits filed or furnished as part of this Annual Report on Form
10-K are those listed in the following Exhibit Index.
Number
|
Description
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|
2.1‡
|
Membership Interest Purchase Agreement dated as of January 13, 2014
by and among Company, AutoNation, Inc., a Delaware corporation, and
AutoNationDirect.com, Inc., a Delaware corporation, incorporated by
reference to
Exhibit 2.1 to the Current Report on Form 8-K filed with the
SEC on January 17, 2014 (SEC File No. 001-34761)
(“January 2014 Form
8-K”)
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2.2 ‡
|
Agreement and Plan of Merger dated as of October 1, 2015 by and
among Company, New Horizon Acquisition Corp., a Delaware
corporation, Autobytel, Inc. (formerly AutoWeb, Inc.), a Delaware
corporation, and José Vargas, incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed with the
SEC on October 6, 2015 (SEC File No. 001-34761)
(“October 2015
Form 8-K”)
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|
|
2.3‡
|
Asset Purchase and Sale Agreement dated as of December 19, 2016 by
and among Company, Car.com, Inc., a Delaware corporation, and
Internet Brands, Inc., a Delaware corporation, incorporated by
reference to
Exhibit 2.1 to the Current Report on Form 8-K filed with the
SEC on December 21, 2016 (SEC
File No. 001-34761)
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3.1
|
Sixth
Restated Certificate of Incorporation of AutoWeb, Inc. (filed with
the Secretary of the State of Delaware on October 9, 2017),
incorporated by reference to
Exhibit 3.4 to the Current Report on Form 8-K filed with the
SEC on October 10, 2017 (SEC File No. 001-34761) (“October 2017 Form
8-K”)
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3.2
|
Seventh Amended and Restated Bylaws of AutoWeb dated October 9,
2017, incorporated by reference to
Exhibit 3.5 to the October 2017 Form 8-K
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4.1
|
Form of Common Stock Certificate of Company, incorporated by reference to
Exhibit 4.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001 filed with the SEC on
November 14, 2001 (SEC File No. 000-22239)
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4.2
|
Tax Benefit Preservation Plan dated as of May 26, 2010 between
Company and Computershare Trust Company, N.A., as rights agent,
together with the following exhibits thereto: Exhibit A –
Form of Right Certificate; and Exhibit B – Summary of Rights
to Purchase Shares of Preferred Stock of Company, incorporated by
reference to
Exhibit 4.1 to the Current Report
on Form 8-K filed with the SEC on June 2, 2010 (SEC File No.
000-22239), Amendment No. 1 to Tax Benefit Preservation Plan dated
as of April 14, 2014, between Company and Computershare Trust
Company, N.A., as rights agent, incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K filed with the
SEC on April 16, 2014 (SEC File No. 001-34761), Amendment No. 2 to
Tax Benefit Preservation Plan dated as of April 13, 2017, between
Company and Computershare Trust Company, N.A., as rights agent,
incorporated by reference to
Exhibit 4.1 to the Current Report
on Form 8-K filed with the SEC on April 14, 2017 (SEC File No.
001-34761)
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|
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4.3
|
Certificate of Adjustment Under Section 11(m) of the Tax Benefit
Preservation Plan, incorporated by reference to
Exhibit 4.3 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2012 filed with the SEC on
November 8, 2012 (SEC File No. 001-34761)
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10.1■
|
Autobytel.com Inc. 1998 Stock Option Plan, incorporated by
reference to Exhibit 10.8 to Amendment No. 1 to S-1 Registration
Statement filed with the SEC on February 9, 1999 (SEC File No.
333-70621), as amended by Amendment No. 1 dated September
22, 1999 to Autobytel.com Inc. 1998
Stock Option Plan, incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999 filed with the SEC on
November 12, 1999 (SEC File No. 000-22239),
and as amended by Amendment No. 2
dated December 5, 2001 to the Autobytel.com Inc. 1998 Stock
Option Plan and Form of Stock Option Agreement under the
Autobytel.com Inc. 1998 Stock Option Plan, incorporated by
reference to
Exhibits (d)(5) and
(d)(14), respectively, to the Schedule TO filed with the SEC on December 14,
2001 (SEC File No. 005-58067) (“Schedule TO”)
|
|
|
10.2■
|
Autobytel.com Inc. 1999 Employee and Acquisition Related Stock
Option Plan, incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form
S-8 filed with the SEC on November 1, 1999 (SEC File No.
333-90045), as amended by Amendment No. 1 dated December 5,
2001 to the Autobytel.com Inc. 1999 Employee and Acquisition
Related Stock Option Plan, and Form of Stock Option Agreement under
the Autobytel.com Inc. 1999 Employee and Acquisition Related Stock
Option Plan, incorporated by reference to Exhibits
(d)(10) and
(d)(16), respectively, to the Schedule TO, and Amendment No. 2 to the Autobytel.com Inc. 1999
Employee and Acquisition Related Stock Option Plan dated May 1,
2009, incorporated by reference to
Exhibit 10.86 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2009 filed with the SEC on July 24,
2009 (SEC File No. 000-22239) (“Second Quarter 2009 Form
10-Q”)
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|
|
|
10.3■
|
Form of Employee Stock Option Agreement under the Autobytel.com
Inc. 1998 Stock Option Plan and the Autobytel.com Inc. 1999
Employee and Acquisition Related Stock Option Plan, incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed with the
SEC on October 3, 2008 (SEC File No. 000-22239)
(“October 2008 Form
8-K”)
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|
|
|
|
10.4■
|
Autobytel.com Inc. 2000 Stock Option Plan, incorporated by
reference to
Exhibit 99.1 to the Registration Statement on Form S-8 filed
with the SEC on June 15, 2000 (SEC File No. 333-39396); as
amended by Amendment No. 1 dated December 5, 2001 to the
Autobytel.com Inc. 2000 Stock Option Plan and Form of Stock Option
Agreement under the Autobytel.com Inc.
2000 Stock Option Plan, incorporated by reference to
Exhibits
(d)(12) and
(d)(17), respectively, to the Schedule TO; Amendment No. 2 to
the Autobytel.com Inc. 2000 Stock Option Plan, incorporated by
reference to
Exhibit 10.46 to the Annual Report on Form 10-K for the Year
Ended December 31, 2001 filed with the SEC on March 22, 2002 (SEC
File No. 000-22239); and as amended by Amendment No. 3 to
the Autobytel.com Inc. 2000 Stock Option Plan dated May 1, 2009,
incorporated by reference to
Exhibit 10.87 to the Second Quarter 2009 Form 10-Q
|
|
|
|
10.5■
|
Autobytel Inc. Amended and Restated 2001 Restricted Stock and
Option Plan, incorporated by reference to
Exhibit 4.7 to the Post-Effective Amendment to Registration
Statement on Form S-8 filed with the SEC on July 31, 2003 (SEC
File No. 333-67692); as amended by Amendment No. 1 to the
Autobytel Inc. Amended and Restated 2001 Restricted Stock and
Option Plan dated May 1, 2009, incorporated by reference to
Exhibit 10.88 to the Second Quarter 2009 Form 10-Q;
and Form of Restricted Stock Award
Agreement under the Autobytel Inc. Amended and Restated 2001
Restricted Stock and Option Plan, incorporated by reference to
Exhibit 10.1 to the October 2008 Form 8-K
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|
|
|
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10.6■
|
Form of Employee Stock Option Agreement under the Autobytel Inc.
Amended and Restated 2001 Restricted Stock and Option Plan,
incorporated by reference to
Exhibit 10.8 to the Annual Report on Form 10-K for the Year
Ended December 31, 2014 filed with the SEC on February 26, 2015
(SEC File No. 001-34761)
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|
|
|
|
10.7■
|
Autobytel Inc. 2004 Restricted Stock and Option Plan and Form of
Employee Stock Option Agreement under the Autobytel Inc. 2004
Restricted Stock and Option Plan, incorporated by reference to
Exhibits 4.8 and
4.9, respectively, to the Registration Statement on Form S-8
filed with the SEC on June 28, 2004 (SEC File
No. 333-116930); as amended by Amendment No. 1 to the
Autobytel Inc. 2004 Restricted Stock and Option Plan dated May 1,
2009, incorporated by reference to
Exhibit 10.89 to the Second Quarter 2009 Form 10-Q; Form of Outside Director Stock Option
Agreement under the Autobytel Inc. 2004 Restricted Stock and Option
Plan, incorporated by reference to
Exhibit 10.2 to the November 2004 Form 8-K; Form of Stock
Option Agreement under the Autobytel Inc. 2004 Restricted Stock and
Option Plan, incorporated by reference to
Exhibit 10.65 to the Annual Report on Form 10-K for the Year
Ended December 31, 2004 filed with the SEC on May 31, 2005 (SEC
File No. 000-22239); and Form of Outside Director Stock Option
Agreement and Form of Letter Agreement (amending certain stock option agreements with
Outside Directors) under the 2004 Restricted Stock and
Option Plan, incorporated by reference to
Exhibits 10.1 and
10.2 to the Current Report on Form 8-K filed with the SEC on
September 14, 2005 (SEC File No. 000-22239)
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|
|
10.8■
|
Autobytel Inc. 2006 Inducement Stock Option Plan and Form of
Employee Inducement Stock Option Agreement, incorporated by reference to
Exhibits 4.9 and
4.10, respectively, to the Registration Statement on Form
S-8 filed with the SEC on June 16, 2006 (SEC File No.
333-135076); and as amended by Amendment No. 1 to the
Autobytel Inc. 2006 Inducement Stock Option Plan dated May 1, 2009,
incorporated by reference to
Exhibit 10.90 to the Second Quarter 2009 Form 10-Q
|
|
|
10.9■
|
Autobytel Inc. 2010 Equity Incentive Plan, incorporated by
reference to
Exhibit 10.2 to the Current Report on Form 8-K filed with the
SEC on June 25, 2010 (SEC File No. 001-34761); Form of Employee
Stock Option Award Agreement, Form of 2012 Performance-Based Stock
Option Award Agreement, Form of Non-Employee Director Stock Option
Award Agreement and Form of (Management) Employee Stock Option
Award Agreement under the Autobytel Inc. 2010 Equity Incentive
Plan, incorporated by reference to Exhibits
10.58,
10.59,
10.60 and
10.61, respectively, to the Annual Report on Form 10-K for the
Year Ended December 31, 2011 filed with the SEC on March 1, 2012
(SEC File No. 001-34761) (“2011 Form
10-K”); and Form of 2013
Performance-Based Stock Option Award Agreement under the Autobytel
Inc. 2010 Equity Incentive Plan, incorporated by reference to
Exhibit 10.79 to the Annual Report on Form 10-K for the Year
Ended December 31, 2012 filed with the SEC on February 28, 2013
(SEC File No. 001-34761) (“2012 Form
10-K”)
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|
|
10.10■
|
AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity Incentive Plan,
incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on June 23, 2014 (SEC File No. 001-34761)
(“June
2014 Form 8-K”)
|
|
|
|
Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan (supersedes and replaces the AutoWeb, Inc.
(formerly Autobytel Inc.) 2014 Equity Incentive Plan filed under
Exhibit 10.1 to the June 2014 Form 8-K)
|
|
Form of Non-Employee Director Stock Option Award Agreement under
the Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.)
2014 Equity Incentive Plan
|
|
|
|
Form of Executive Stock Option Award Agreement under the Amended
and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan
|
|
|
|
Form of Non-Executive Employee Stock Option Award Agreement under
the Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.)
2014 Equity Incentive Plan
|
|
|
|
Form of Subsidiary Employee Stock Option Award Agreement under the
Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan
|
|
|
|
Form of Restricted Stock Award Agreement under the Amended and
Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan
|
|
|
10.17■
|
Letter Agreement dated October 10, 2006 between Company and Glenn
E. Fuller, as amended by Memorandum dated April 18, 2008,
Memorandum dated as of December 8, 2008, and Memorandum dated as of
March 1, 2009, incorporated by reference to
Exhibit 10.77 to the Annual Report on Form 10-K for the Year
Ended December 31, 2008 filed with the SEC on March 13, 2009 (SEC
File No. 000-22239) (“2008 Form
10-K”); and as amended by
Memorandum dated January 31, 2017, incorporated by reference to
Exhibit 10.13 to the Annual Report on Form 10-K for the Year
Ended December 31, 2016 filed with the SEC on March 9, 2017 (SEC
File No. 001-34761) (“2016 Form
10-K”)
|
|
|
10.18■
|
Amended and Restated Severance Agreement dated as of September 29,
2008 between Company and Glenn E. Fuller, incorporated by reference
to
Exhibit 10.4 to the October 2008 Form 8-K; as amended by
Amendment No. 1 dated December 14, 2012, incorporated by reference
to
Exhibit 10.73 to the 2012 Form 10-K
|
|
|
10.19■
|
Letter Agreement dated August 6, 2004 between Company and Wesley
Ozima, as amended by Memorandum dated March 1, 2009, incorporated
by reference to
Exhibit 10.81 to the 2008 Form 10-K; and as amended by
Memorandums dated January 22, 2016 and January 31, 2017,
incorporated by reference to
Exhibit 10.16 to the Annual Report on Form 10-K for the Year
Ended December 31, 2016 filed with the 2016 Form 10-K
|
|
|
10.20■
|
Amended and Restated Severance Agreement dated as of
November 15, 2008 between Company and Wesley Ozima,
incorporated by reference to
Exhibit 10.82 to the 2008 Form 10-K; and as amended by
Amendment No. 1 dated October 16, 2012, incorporated by reference
to
Exhibit 10.74 to the 2012 Form 10-K
|
|
|
10.21■
|
Stock Option Award Agreement under the Autobytel Inc. 2000 Stock
Option Plan, Stock Option Award Agreement under the Autobytel Inc.
Amended and Restated 2001 Restricted Stock and Option Plan, and
Stock Option Award Agreement under the Autobytel Inc. 2004
Restricted Stock and Option Plan each dated effective as of April
3, 2009 between Company and Jeffrey H. Coats, incorporated by
reference to
Exhibits 10.92,
10.93 and
10.94, respectively, to the Second Quarter 2009 Form 10-Q;
Employee Stock Option Award Agreement under the Amended and
Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan and Employee Stock Option Award Agreement under the
Amended and Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014
Equity Incentive Plan, each dated as of January 21, 2016 between
Company and Jeffrey H. Coats, incorporated by reference to
Exhibits 10.2 and
10.3, respectively, to the Current Report on Form 8-K filed
with the SEC January 27, 2016 (SEC File No. 001-34761)
(“January 2016 Form
8-K”)
|
|
|
10.22■
|
Second Amended and Restated Employment Agreement dated as of April
3, 2014 between Company and Jeffrey H. Coats, incorporated by
reference to
Exhibit 99.1 to the Current Report on Form 8-K filed with the
SEC on April 8, 2014 (SEC File No. 001-34761); as amended by
Amendment No. 1 dated January 21, 2016, incorporated by reference
to
Exhibit 10.1 to the January 2016 Form 8-K; and as amended by
Amendment No. 2 dated September 21, 2016, incorporated by reference
to
Exhibit 10.3 to the Form 8-K filed with the SEC on September
26, 2016 (SEC File No. 001-34761) (“September 2016 Form
8-K”)
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|
|
10.23■
|
Form of Amended and Restated Indemnification Agreement between
Company and its directors and officers, incorporated by reference
to
Exhibit 99.1 to the Current Report on Form 8-K filed with the
SEC on July 22, 2010 (SEC File No. 001-34761)
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|
|
|
Form of Indemnification Agreement between the Company and its
directors and officers
|
10.25■
|
Revised Offer of Employment Letter dated March 9, 2010 between
Company and Kimberly Boren, as amended by Memorandum dated December
21, 2010 and Memorandum dated as of December 1, 2011, is
incorporated by reference to
Exhibit 10.73 to the 2011 Form 10-K; and as amended by
Memorandum dated September 21, 2016, incorporated by reference to
Exhibit 10.4 to September 2016 Form 8-K
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|
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10.26■
|
Amended and Restated Severance Benefits Agreement dated as of
February 25, 2011 between Company and Kimberly Boren, incorporated
by reference to
Exhibit 10.74 to the 2011 Form 10-K; as amended by Amendment
No. 1 to Amended and Restated Severance Benefits Agreement dated
November 14, 2012 between Company and Kimberly Boren, incorporated
by reference to
Exhibit 10.70 to the 2012 Form 10-K
|
|
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10.27■
|
Restricted Stock Award Agreement under the AutoWeb, Inc. (formerly
Autobytel Inc.) 2014 Equity Incentive Plan and Amended and Restated
Letter Agreement dated as of April 23, 2015 between Company and
William Ferriolo, incorporated by reference to
Exhibits 10.3 and
10.5, respectively, to the Current Report on Form 8-K filed
with the SEC on April 29, 2015 (SEC File No. 001-34761)
(“April 2015 Form
8-K”)
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|
|
10.28■
|
Amended and Restated Letter Agreement dated as of April 23, 2015
between Company and William Ferriolo, incorporated by reference to
Exhibit 10.5 to the April 2015 Form 8-K; as amended by
Amendment No. 1 dated January 22, 2016, incorporated by reference
to
Exhibit 10.4 to the January 2016 Form 8-K; and as amended by
Amendment No. 2 dated December 15, 2016, incorporated by reference
to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on December 2, 2016 (SEC File No. 001-34761)
(“December 2016 Form
8-K”)
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|
|
10.29■
|
Letter Agreement dated May 21, 2007 between Company and John
Steerman, as amended by Memorandum dated March 20, 2009, Memorandum
dated September 30, 2009, and Memorandum dated December 1, 2011,
incorporated by reference to
Exhibit 10.77 to the 2011 Form 10-K; and as amended by
Memorandum dated January 22, 2016, incorporated by reference to
Exhibit 10.29 to the 2016 Form 10-K
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|
|
10.30■
|
Severance Agreement dated as of October 1, 2009 between Company and
John Steerman, incorporated by reference to
Exhibit 10.78 to the 2011 Form 10-K; and as amended by
Amendment No. 1 dated September 19, 2012 and Amendment No. 2 dated
November 7, 2012, incorporated by reference to
Exhibits 10.75 and
10.76, respectively, to the 2012 Form 10-K
|
|
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10.31■
|
Amended and Restated Employment Agreement dated April 24, 2013
between Company and John Skocilic Jr., as amended by Memorandum
dated January 22, 2016 and Memorandum dated January 31, 2017,
incorporated by reference to
Exhibit 10.51 to the 2016 Form 10-K
|
|
|
10.32■
|
Amended and Restated Severance Benefits Agreement dated May 1, 2013
between Company and John Skocilic Jr., incorporated by reference to
Exhibit 10.49 to the 2015 Form 10-K
|
|
|
10.33■
|
Employment Offer Letter Agreement dated September 17, 2010 between
Company and Ralph Smith, as amended by Memorandum dated January 1,
2013, Memorandum dated July 1, 2013, and Memorandum dated January
28, 2016, incorporated by reference to
Exhibit 10.47 to the 2016 Form 10-K
|
|
|
10.34■
|
Amended and Restated Severance Benefits Agreement dated July 1,
2013 between Company and Ralph Smith, incorporated by reference to
Exhibit 10.48 to the 2016 Form 10-K
|
|
|
|
Memorandum dated July 16, 2016, amending Employment Offer Letter
Agreement dated September 17, 2010 between Company and Ralph
Smith
|
|
|
|
Memorandum dated February 20, 2018, amending Employment Offer
Letter Agreement dated September 17, 2010 between Company and Ralph
Smith
|
|
|
10.37■
|
Employment Offer Letter dated February 14, 2014 between Company and
Taren Peng, as amended by Memorandum dated January 31, 2017,
incorporated by reference to
Exhibit 10.49 to the 2016 Form 10-K
|
|
|
10.38■
|
Severance Benefits Agreement dated August 25, 2014 between Company
and Taren Peng, incorporated by reference to
Exhibit 10.50 to the 2016 Form 10-K
|
|
|
10.39■
|
Employee Stock Option Award Agreement under the Amended and
Restated AutoWeb, Inc. (formerly Autobytel Inc.) 2014 Equity
Incentive Plan dated as of September 21, 2016 between Company and
José Vargas, incorporated by reference to
Exhibit 10.3 to the Current Report on Form 8-K filed with the
SEC on October 21, 2016 (SEC File No. 001-34761)
(“October 2016 Form
8-K”)
|
10.40■
|
Employment Offer Letter dated February 23, 2016 between Company and
José Vargas, incorporated by reference to
Exhibit 10.54 to the 2015 Form 10-K
|
|
|
10.41
|
Amended and Restated Stockholder Agreement dated as of October 1,
2015 by and among Company, Auto Holdings Ltd., a British Virgin
Islands business company, Manatee Ventures Inc., a British Virgin
Islands business company, Galeb3 Inc., a Florida corporation,
Matías de Tezanos, and José Vargas, and the other parties
set forth on the signature pages thereto, incorporated by reference
to
Exhibit 10.2 to the October 2015 Form 8-K; as amended by
Second Amended and Restated Stockholder Agreement dated as of
October 19, 2016, incorporated by reference to
Exhibit 10.1 to the October 2016 Form 8-K; as amended by Third
Amended and Restated Stockholder Agreement dated as of November 30,
2016, incorporated by reference to
Exhibit 10.1 to the December 2016 Form 8-K; as amended by
Fourth Amended and Restated Stockholder Agreement dated as of March
1, 2017, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on March 2, 2017 (SEC File No. 001-34761)
|
|
|
10.42
|
Loan Agreement dated as of February 26, 2013 by and between Company
and Union Bank, N.A., a national banking association
(“Loan
Agreement”); as amended
by First Amendment dated as of September 10, 2013 to Loan
Agreement; as amended by Second Amendment dated as of January 13,
2014 to Loan Agreement, Security Agreement dated January 13, 2014,
Commercial Promissory Note dated January 13, 2014 ($9,000,000 Term
Loan), and Commercial Promissory Note dated January 13, 2014
($8,000,000 Revolving Loan), incorporated by reference to
Exhibit 10.4 to the January 2014 Form 8-K; as amended by Third
Amendment dated as of May 20, 2015 to Loan Agreement, Commercial
Promissory Note dated May 20, 2015 ($15,000,000 Term Loan), and
Commercial Promissory Note dated May 20, 2015 ($8,000,000 Revolving
Loan), incorporated by reference to
Exhibits 10.1,
10.2 and
10.3 to the Current Report on Form 8-K filed with the SEC on
May 27, 2015 (SEC File No. 001-34761); as amended by Fourth
Amendment dated as of June 1, 2016 to Loan Agreement, incorporated
by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2016 filed with the SEC on
August 4, 2016 (SEC File No. 001-34761); as amended by Fifth Amendment dated as of June
28, 2017 to Loan Agreement and Commercial Promissory Note dated on
June 28, 2017 ($8,000,000 Revolving Loan), incorporated by
reference to
Exhibits 10.2 and
10.3 to the Current Report on Form 8-K filed with the SEC on
June 29, 2017 (SEC File No. 001-34761); and as amended by Sixth
Amendment dated as of December 27, 2017 to Loan Agreement,
incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on December 27, 2017 (SEC File No.
001-34761)
|
|
|
10.43
|
Lease Agreement dated April 3, 1997 between The Provider Fund
Partners, The Colton Company (n/k/a: GFE MacArthur Investments,
LLC, as successor-in-interest to The Provider Fund Partners, The
Colton Company) and the Company (“Irvine Lease”), as amended by Amendment No. 12 dated
February 6, 2009 to Irvine Lease, Amendment No. 13 dated February
6, 2009 to Irvine Lease, and Amendment No. 14 to Irvine Lease dated
November 9, 2010, incorporated by reference to
Exhibit 10.79 to the 2011 Form 10-K; as amended by Amendment
No. 15 dated October 31, 2012 to Irvine Lease, incorporated by
reference to
Exhibit 10.69 to the 2012 Form 10-K, and as amended by
Amendment No. 16 to Irvine Lease dated August 7, 2015, incorporated
by reference to
Exhibit 10.32 to the 2015 Form 10-K; and as amended by
Amendment No. 17 dated April 14, 2017 to the Irvine Lease Agreement
dated April 3, 1997 between GFE MacArthur Investments, LLC,
successor-in-interest to TFP Partners, and the Company,
incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with
the SEC on May 4, 2017 (SEC File No. 001-34761)
|
|
|
10.44‡
|
Master License and Services Agreement as of October 5, 2017 by and
between AutoWeb and DealerX Partners, LLC, incorporated by
reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on October 11, 2017 (SEC File No. 001-34761)
(“October 2017 Form
8-K”)
|
|
|
10.45‡
|
Stockholder Agreement dated as of October 5, 2017 by and between
AutoWeb, DealerX Partners, LLC and Jeffrey Tognetti, incorporated
by reference to
Exhibit 10.2 to the October 2017 Form 8-K
|
|
|
10.46
|
Tax Benefit Preservation Plan Exemption Agreement and Irrevocable
Proxy dated November 15, 2017 by and between AutoWeb, Piton Capital
Partners LLC, a Delaware limited liability company
(“Piton
Capital”), and Piton
Capital’s managing members, incorporated by reference to
Exhibits 10.1 and
10.2, respectively, to the Current Report on Form 8-K filed
with the SEC on November 17, 2017 (SEC File No.
001-34761)
|
|
|
10.47‡
|
Transitional
License and Linking Agreement, made as of January 1, 2017, by and
among Internet Brands, Inc., a Delaware corporation, Car.com, Inc.,
a Delaware corporation, and the Company, incorporated by reference
to
Exhibit 10.1 to the Current Report
on Form 8-K filed with the SEC on January 6, 2017 (SEC File No.
001-34761)
|
10.48
|
Convertible
Subordinated Promissory Note dated as of January 13, 2014
(Principal Amount $1,000,000.00) issued by Company to
AutoNationDirect.com, Inc., a Delaware corporation, incorporated by
reference to
Exhibit 10.1 to the January 2014 Form 8-K
|
|
|
10.49
|
Warrant
to Purchase 69,930 Shares of Company Common Stock dated as of
January 13, 2014 issued by Company to AutoNationDirect.com, Inc., a
Delaware corporation, incorporated by reference to
Exhibit 10.2 to the January 2014 Form 8-K
|
|
|
10.50
|
Shareholder
Registration Rights Agreement dated as of January 13, 2014 by and
between Company and AutoNationDirect.com, Inc., a Delaware
corporation, incorporated by reference to
Exhibit 10.3 to the January 2014 Form 8-K
|
|
|
10.51
|
Form
of Warrant to Purchase Common Stock (on an as-converted basis
following the conversion of Series B Junior Preferred Stock) dated
as of October 1, 2015 issued by the Company to the persons listed
on Schedule A thereto, which is incorporated herein by reference to
Exhibit 10.1 to the October 2015 Form 8-K
|
|
|
|
Subsidiaries
of AutoWeb, Inc.
|
|
|
|
Consent
of Independent Registered Public Accounting Firm, Moss Adams
LLP
|
|
|
24.1*
|
Power
of Attorney (included in the signature page hereto)
|
|
|
|
Chief
Executive Officer Section 302 Certification of Periodic Report
dated March 15, 2018
|
|
|
|
Chief
Financial Officer Section 302 Certification of Periodic Report
dated March 15, 2018
|
|
|
|
Chief
Executive Officer and Chief Financial Officer Section 906
Certification of Periodic Report dated March 15, 2018
|
|
|
101.INS††
|
XBRL
Instance Document
|
|
|
101.SCH††
|
XBRL
Taxonomy Extension Schema Document
|
|
|
101.CAL††
|
XBRL
Taxonomy Calculation Linkbase Document
|
|
|
101.DEF††
|
XBRL
Taxonomy Extension Definition Document
|
|
|
101.LAB††
|
XBRL
Taxonomy Label Linkbase Document
|
|
|
|
XBRL
Taxonomy Presentation Linkbase Document
|
■
Management
Contract or Compensatory Plan or Arrangement.
‡
Certain
schedules in this Exhibit have been omitted in accordance with Item
601(b)(2) of Regulation S-K. AutoWeb, Inc. will furnish
supplementally a copy of any omitted schedule or exhibit to the
Securities and Exchange Commission upon request; provided, however,
that AutoWeb, Inc. may request confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for
any schedule or exhibit so furnished.
††
Furnished with this
report. In accordance with Rule 406T of Regulation S-T,
the information in these exhibits shall not be deemed to be
“filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to liability
under that section, and shall not be incorporated by reference into
any registration statement or other document filed under the
Securities Act of 1933, as amended, except as expressly set forth
by specific reference in such filing.
Item
16.
Form 10-K
Summary
None
Pursuant
to the requirements of Section 13 or 15(d) 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, on the 15th day of March, 2018.
|
AUTOWEB, INC.
|
|
|
|
|
|
|
By:
|
/s/ JEFFREY H. COATS
|
|
|
|
Jeffrey H. Coats
|
|
|
|
President, Chief Executive Officer and Director
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of
AutoWeb, Inc., a Delaware corporation (“Company”),
and the undersigned Directors and Officers of AutoWeb, Inc. hereby
constitute and appoint Jeffrey H. Coats, Kimberly Boren or Glenn E.
Fuller as the Company’s or such Director’s or
Officer’s true and lawful attorneys-in-fact and agents, for
the Company or such Director or Officer and in the Company’s
or such Director’s or Officer’s name, place and stead,
in any and all capacities, with full power to act alone, to sign
any and all amendments to this report, and to file each such
amendment to this report, with all exhibits thereto, and any and
all documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in connection therewith, as fully to all intents and purposes
as the Company or such Director or Officer might or could do in
person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them may lawfully do or
cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ MICHAEL J. FUCHS
Michael J. Fuchs
|
Chairman of the Board and Director
|
March 15, 2018
|
|
|
|
|
|
/s/ JEFFREY H. COATS
Jeffrey H. Coats
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
March 15, 2018
|
|
|
|
|
|
/s/ KIMBERLY BOREN
Kimberly Boren
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
March 15, 2018
|
|
|
|
|
|
/s/ WESLEY OZIMA
Wesley Ozima
|
Senior Vice President and Controller (Principal
Accounting Officer)
|
March 15, 2018
|
|
|
|
|
|
/s/ MICHAEL A. CARPENTER
Michael A. Carpenter
|
Director
|
March 15, 2018
|
|
|
|
|
|
/s/ MARK N. KAPLAN
Mark N. Kaplan
|
Director
|
March 15, 2018
|
|
|
|
|
|
/s/ JEFFREY M. STIBEL
Jeffrey M. Stibel
|
Director
|
March 15, 2018
|
|
|
|
|
|
/s/ MATIAS DE TEZANOS
Matias de Tezanos
|
Director
|
March 15, 2018
|
|
|
|
|
|
/s/ JANET M. THOMPSON
Janet M. Thompson
|
Director
|
March 15, 2018
|
|
|
|
|
|
/s/ JOSE VARGAS
Jose Vargas
|
Director
|
March 15, 2018
|
|
AUTOWEB, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and the Board of Directors of
AutoWeb,
Inc.
Opinions on the Financial Statements and Internal Control over
Financial Reporting
We have
audited the accompanying consolidated balance sheets of AutoWeb,
Inc. (the “Company”) as of December 31, 2017 and
2016, the related consolidated statements of statements of
operations and comprehensive income (loss), stockholders’
equity, and cash flows for each of the three years in the period
ended December 31, 2017, and the related notes and schedule
(collectively referred to as the “consolidated financial
statements”). We also have audited the Company’s
internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2017 and
2016, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31,
2017, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, because of
the effect of the material weakness identified below on the
achievement of the objectives of the control criteria, the Company
has not maintained effective internal control over financial
reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated
Framework (2013) issued by COSO.
Change in Accounting Principle
As
discussed in Note 2 to the consolidated financial statements, the
Company prospectively changed the manner in which it accounts for
the balance sheet classification of deferred taxes due to the
adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred
Taxes.
As
discussed in Note 2 to the consolidated financial statements, the
Company prospectively changed the manner in which it accounts for
share-based payment transactions and the related excess tax
benefits and tax deficiencies due to the adoption of Accounting
Standards Update 2016-09, Improvements to Employee Share-Based Payment
Accounting.
Basis for Opinions
The
Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying included in the accompanying
Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express
an opinion on the Company’s consolidated financial statements
and an opinion on the Company’s internal control over
financial reporting based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over
financial reporting was maintained in all material
respects.
Our
audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud,
and performing procedures to respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A
material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the
Company's annual or interim financial statements will not be
prevented or detected on a timely basis. The following material
weakness has been identified:
In
connection with the evaluation and measurement of goodwill for
impairment and valuation of deferred tax assets, we believe the
Company’s management review controls were not effectively
designed to operate at a sufficient level of precision, or there
was not sufficient evidence to demonstrate the controls were
designed to operate at a sufficient level of precision, necessary
to prevent or detect a material misstatement on a timely basis.
Specifically, we believe the Company did not adequately evidence
management’s expectations, criteria for investigation, and
the level of precision used in the performance of the controls. We
also believe the controls did not sufficiently evidence the
completeness and accuracy of key assumptions and other data used by
management in the operation of controls. The aggregation of control
deficiencies in these areas resulted in a material weakness related
to internal control over financial reporting.
We
considered the material weakness in determining the nature, timing,
and extent of the audit tests applied in our audit of the
Company’s consolidated financial statements as of and for the
year ended December 31, 2017, and our opinion on such consolidated
financial statements was not affected.
Definition and Limitations of Internal Control Over Financial
Reporting
A
company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/
Moss Adams LLP
San
Diego, California
March
15, 2018
We have
served as the Company’s auditor since 2012.
AUTOWEB, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share and share data)
|
|
|
Assets
|
|
|
Current
assets:
|
|
|
Cash
and cash equivalents
|
$24,993
|
$38,512
|
Short-term
investment
|
254
|
251
|
Accounts
receivable, net of allowances for bad debts and customer credits of
$892 and $1,015 at December 31, 2017 and 2016,
respectively
|
25,911
|
33,634
|
Deferred
tax asset
|
—
|
4,669
|
Prepaid
expenses and other current assets
|
1,805
|
901
|
Total
current assets
|
52,963
|
77,967
|
Property
and equipment, net
|
4,311
|
4,430
|
Investments
|
100
|
680
|
Intangible
assets, net
|
29,113
|
23,783
|
Goodwill
|
5,133
|
42,821
|
Long-term
deferred tax asset
|
692
|
14,799
|
Other
assets
|
601
|
801
|
Total
assets
|
$92,913
|
$165,281
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$7,083
|
$9,764
|
Accrued
employee-related benefits
|
2,411
|
4,530
|
Other
accrued expenses and other current liabilities
|
7,252
|
8,315
|
Current
portion of term loan payable
|
—
|
6,563
|
Total
current liabilities
|
16,746
|
29,172
|
Convertible
note payable
|
1,000
|
1,000
|
Long-term
portion of term loan payable
|
—
|
7,500
|
Borrowings
under revolving credit facility
|
8,000
|
8,000
|
Total
liabilities
|
25,746
|
45,672
|
Commitments
and contingencies (Note 7)
|
|
|
Stockholders’
equity:
|
|
|
Preferred
stock, $0.001 par value; 11,445,187 shares authorized
|
|
|
Series
A Preferred stock, none issued and outstanding
|
—
|
—
|
Series
B Preferred stock, none and 168,007 shares issued and outstanding
at December 31, 2017 and December 31, 2016,
respectively
|
—
|
—
|
Common
stock, $0.001 par value; 55,000,000 shares authorized; 13,059,341
and 11,012,625 shares issued and outstanding at December 31,
2017 and 2016, respectively
|
13
|
11
|
Additional
paid-in capital
|
356,054
|
350,022
|
Accumulated
deficit
|
(288,900)
|
(230,424)
|
Total
stockholders’ equity
|
67,167
|
119,609
|
Total
liabilities and stockholders’ equity
|
$92,913
|
$165,281
|
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(in thousands, except per-share data)
|
|
|
|
|
|
Revenues:
|
|
|
|
Lead
fees
|
$107,045
|
$130,684
|
$120,678
|
Advertising
|
34,142
|
24,508
|
10,534
|
Other
revenues
|
938
|
1,492
|
2,014
|
Total
revenues
|
142,125
|
156,684
|
133,226
|
Cost
of revenues
|
99,352
|
98,771
|
81,586
|
Gross
profit
|
42,773
|
57,913
|
51,640
|
Operating
expenses:
|
|
|
|
Sales
and marketing
|
14,315
|
18,118
|
15,956
|
Technology
support
|
12,567
|
13,986
|
11,740
|
General
and administrative
|
12,110
|
14,663
|
13,189
|
Depreciation
and amortization
|
4,781
|
5,068
|
3,106
|
Litigation
settlements
|
(109)
|
(50)
|
(108)
|
Goodwill
impairment
|
37,688
|
—
|
—
|
Total
operating expenses
|
81,352
|
51,785
|
43,883
|
Operating
income (loss)
|
(38,579)
|
6,128
|
7,757
|
Interest
and other income (expense), net
|
(946)
|
558
|
322
|
Income
(loss) before income tax provision
|
(39,525)
|
6,686
|
8,079
|
Income
tax provision
|
25,439
|
2,815
|
3,433
|
Net
income (loss) and comprehensive income (loss)
|
$(64,964)
|
$3,871
|
$4,646
|
|
|
|
|
Basic
earnings (loss) per common share
|
$(5.48)
|
$0.36
|
$0.47
|
Diluted
earnings (loss) per common share
|
$(5.48)
|
$0.29
|
$0.37
|
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2015
|
8,880,377
|
$9
|
-
|
$-
|
$308,190
|
$(238,941)
|
$69,258
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
2,563
|
-
|
2,563
|
Issuance
of common stock upon exercise of stock options
|
145,979
|
-
|
-
|
-
|
1,197
|
-
|
1,197
|
Issuance
of AWI warrants
|
-
|
-
|
-
|
-
|
2,542
|
-
|
2,542
|
Issuance
of preferred shares
|
-
|
-
|
168,007
|
-
|
21,133
|
-
|
21,133
|
Issuance
of restricted stock
|
125,000
|
-
|
-
|
-
|
-
|
-
|
-
|
Exercise
of warrants
|
400,000
|
1
|
-
|
-
|
1,860
|
-
|
1,861
|
Conversion
of note payable
|
1,075,268
|
1
|
-
|
-
|
5,000
|
-
|
5,001
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
4,646
|
4,646
|
Balance
at December 31, 2015
|
10,626,624
|
11
|
168,007
|
-
|
342,485
|
(234,295)
|
108,201
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
4,486
|
-
|
4,486
|
Issuance
of common stock upon exercise of stock options
|
386,001
|
-
|
-
|
-
|
3,051
|
-
|
3,051
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
3,871
|
3,871
|
Balance
at December 31, 2016
|
11,012,625
|
11
|
168,007
|
-
|
350,022
|
(230,424)
|
119,609
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
4,106
|
-
|
4,106
|
Issuance
of common stock upon exercise of stock options
|
248,344
|
-
|
-
|
-
|
1,355
|
-
|
1,355
|
Issuance
of restricted stock
|
345,000
|
-
|
-
|
-
|
-
|
-
|
-
|
Conversion
of preferred shares
|
1,680,070
|
2
|
(168,007)
|
-
|
(2)
|
-
|
-
|
DealerX
contingent consideration
|
-
|
-
|
-
|
-
|
2,470
|
-
|
2,470
|
Repurchase
of common stock
|
(226,698)
|
-
|
-
|
-
|
(1,897)
|
-
|
(1,897)
|
Cumulative
effect adjustment
|
-
|
-
|
-
|
-
|
-
|
6,488
|
6,488
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(64,964)
|
(64,964)
|
Balance
at December 31, 2017
|
13,059,341
|
$13
|
-
|
$-
|
$356,054
|
$(288,900)
|
$67,167
|
The accompanying notes are an integral part of these consolidated
financial statements.
AUTOWEB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
Net
income (loss)
|
$(64,964)
|
$3,871
|
$4,646
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
7,653
|
7,303
|
4,021
|
Provision
for bad debt
|
346
|
344
|
379
|
Provision
for customer credits
|
247
|
592
|
803
|
Share-based
compensation
|
4,103
|
4,412
|
2,557
|
Write-down
of assets
|
8
|
115
|
—
|
Gain
on sale of business
|
—
|
(2,183)
|
—
|
(Gain)/loss
on long-term strategic investment
|
580
|
777
|
(636)
|
Change
in deferred tax assets
|
25,264
|
1,994
|
2,996
|
Goodwill
impairment
|
37,688
|
—
|
—
|
Changes
in assets and liabilities:
|
|
|
|
Accounts
receivable
|
7,130
|
(3,229)
|
(381)
|
Prepaid
expenses and other current assets
|
(904)
|
(402)
|
(121)
|
Other
non-current assets
|
200
|
946
|
147
|
Accounts
payable
|
(2,681)
|
2,121
|
(586)
|
Accrued
expenses and other current liabilities
|
(3,182)
|
1,581
|
(1,352)
|
Non-current
liabilities
|
—
|
—
|
(273)
|
Net
cash provided by operating activities
|
11,488
|
18,242
|
12,200
|
Cash
flows from investing activities:
|
|
|
|
Purchase
of Dealix/Autotegrity
|
—
|
—
|
(25,011)
|
Investment
in GoMoto
|
—
|
(375)
|
(375)
|
Change
in short-term investment
|
(3)
|
(251)
|
—
|
Purchase
of intangible assets
|
(8,600)
|
—
|
—
|
Purchases
of property and equipment
|
(1,799)
|
(2,148)
|
(2,719)
|
Net
cash used in investing activities
|
(10,402)
|
(2,774)
|
(28,105)
|
Cash
flows from financing activities:
|
|
|
|
Repurchase
of common stock
|
(1,897)
|
—
|
—
|
Borrowings
under credit facility
|
—
|
—
|
2,750
|
Borrowings
under term loan
|
—
|
—
|
15,000
|
Payments
on term loan borrowings
|
(14,063)
|
(3,937)
|
(3,750)
|
Net
proceeds from stock option exercises
|
1,355
|
3,051
|
1,197
|
Proceeds
from exercise of warrants
|
—
|
—
|
1,860
|
Proceeds
from issuance of preferred shares
|
—
|
—
|
2,132
|
Payment
of contingent fee arrangement
|
—
|
(63)
|
(38)
|
Net
cash (used in) provided by financing activities
|
(14,605)
|
(949)
|
19,151
|
Net
increase (decrease) in cash and cash equivalents
|
(13,519)
|
14,519
|
3,246
|
Cash
and cash equivalents, beginning of period
|
38,512
|
23,993
|
20,747
|
Cash
and cash equivalents, end of period
|
$24,993
|
$38,512
|
$23,993
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Cash
paid for income taxes
|
$650
|
$760
|
$552
|
Cash
paid for interest
|
$948
|
$717
|
$884
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
DealerX
contingent consideration
|
$2,470
|
$—
|
$—
|
Purchase
of AutoWeb
|
$—
|
$—
|
$21,543
|
Conversion
of Cyber Note
|
$—
|
$—
|
$5,000
|
Sale
of specialty finance leads business
|
$—
|
$3,168
|
$—
|
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Operations of AutoWeb
AutoWeb, Inc. (“AutoWeb” or the “Company”) is a digital marketing company for
the automotive industry that assists automotive retail dealers
(“Dealers”) and
automotive manufacturers (“Manufacturers”) market and sell
new and used vehicles to consumers by utilizing the Company’s
digital sales enhancing products and services.
The Company’s consumer-facing automotive
websites (“Company
Websites”) provide
consumers with information and tools to aid them with their
automotive purchase decisions and gives in-market consumers with
information and tools to aid them with their automotive purchase
decisions and gives in-market consumers the ability to connect with
Dealers regarding purchasing or leasing vehicles. These consumers
are connected to Dealers via the Company’s various programs
for online lead referrals (“Leads”). The Company’s AutoWeb®
consumer traffic referral product engages with car buyers from
AutoWeb’s network of automotive websites and uses our
proprietary technology to present them with highly relevant offers
based on their make and model of interest and their geographic
location. The Company then directs these in-market consumers to key
areas of a Dealer’s or Manufacturer’s website to
maximize conversion for sales, service or other products or
services.
The
Company was incorporated in Delaware on May 17, 1996. Its
principal corporate offices are located in Irvine, California. The
Company’s common stock is listed on The Nasdaq Capital Market
under the symbol AUTO.
On
October 9, 2017, the Company changed its name from Autobytel Inc.
to AutoWeb, Inc., assuming the name of AutoWeb, Inc., which was the
name of the company that was acquired by the Company in October
2015. In connection with this name change, the Company’s
stock ticker symbol was changed from “ABTL” to
“AUTO” on The Nasdaq Capital
Market.
On October 5, 2017, the Company and DealerX
Partners, LLC, a Florida limited liability company
(“DealerX”), entered into a Master License and
Services Agreement (“DealerX License
Agreement”). Pursuant to
the terms of the DealerX License Agreement, AutoWeb was granted a
perpetual license to access and use DealerX’s proprietary
platform and technology for targeted, online marketing. DealerX
will operate the platform for AutoWeb and provide enhancements to
and support for the DealerX platform for at least an initial five
year period (“Platform Support
Obligations”). See Note
5.
On December 19, 2016, AutoWeb and Car.com, Inc., a
wholly owned subsidiary of AutoWeb (“Car.com”), entered into an Asset Purchase and Sale
Agreement, by and among AutoWeb, Car.com, and Internet Brands,
Inc., a Delaware corporation (“Internet
Brands”), in which
Internet Brands acquired substantially all of the assets of the
automotive specialty finance leads group of Car.com. The
transaction was completed effective as of December 31, 2016. The
transaction consideration consisted of $3.2 million in cash and
$1.6 million to be paid over a five year period pursuant to a
Transitional License and Linking Agreement. The Company recorded a
gain on sale of approximately $2.2 million in connection with the
transaction in the fourth quarter of 2016. See Note 3.
On October 1, 2015 (“AWI Merger
Date”), AutoWeb entered
into and consummated an Agreement and Plan of Merger by and among
AutoWeb, New Horizon Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of AutoWeb (“Merger Sub”), Autobytel, Inc. (formerly AutoWeb,
Inc.), a Delaware corporation (“AWI”), and Jose Vargas, in his capacity as
Stockholder Representative. On the AWI Merger Date,
Merger Sub merged with and into AWI, with AWI continuing as the
surviving corporation and as a wholly owned subsidiary of
AutoWeb. AWI was a privately-owned company providing an
automotive search engine that enables Manufacturers and Dealers to
optimize advertising campaigns and reach highly-targeted car buyers
through an auction-based click marketplace. Prior to the
acquisition, the Company previously owned approximately 15% of the
outstanding shares of AWI, on a fully converted and diluted basis,
and accounted for the investment on the cost basis. See
Note 3.
On May 21, 2015 (“Dealix/Autotegrity Acquisition
Date”), AutoWeb and CDK
Global, LLC, a Delaware limited liability company
(“CDK”), entered into and consummated a Stock
Purchase Agreement in which AutoWeb acquired all of the issued and
outstanding shares of common stock in Dealix Corporation, a
California corporation and subsidiary of CDK, and Autotegrity,
Inc., a Delaware corporation and subsidiary of CDK (collectively,
“Dealix/Autotegrity”). Dealix
Corporation provides new and used car Leads to automotive
dealerships, Dealer groups and Manufacturers, and Autotegrity, Inc.
is a consumer Leads acquisition and analytics
business. See Note 3.
On April 27, 2015, Auto Holdings Ltd.
(“Auto
Holdings”) acquired from
Cyber Ventures, Inc. and Autotropolis, Inc. the $5.0 million
convertible subordinated promissory note and the warrant to
purchase 400,000 shares of AutoWeb common stock issued by the
Company to Cyber Ventures and Autotropolis in September 2010 in
connection with AutoWeb’s acquisition of substantially all of
the assets of Cyber Ventures and Autotropolis (collectively
referred to as “Cyber”). Concurrent with the
acquisition of the Cyber convertible note
(“Cyber Note”) and warrant (“Cyber
Warrant”), Auto Holdings
converted the Cyber Note and fully exercised the Cyber Warrant at
its conversion price of $4.65 per share. As required
under the terms of the conversion for the Cyber Note, AutoWeb
issued 1,075,268 shares of its common stock and under the terms of
exercise for the Cyber Warrant, it issued an additional 400,000
shares of its common stock.
2.
Summary of Significant Accounting Policies
Basis of
Presentation. The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in
consolidation. Certain prior year amounts have been
reclassified for consistency with the current period
presentation. These reclassifications had no effect on
the reported results of operations.
Use of Estimates in the
Preparation of Financial Statements. The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires the Company 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. Significant
estimates include, but are not limited to, allowances for bad debts
and customer credits, useful lives of depreciable assets and
capitalized software costs, long-lived asset impairments, goodwill
and purchased intangible asset valuations, accrued liabilities,
contingent payment provisions, debt valuation and valuation
allowance for deferred tax assets, warrant valuation and
stock-based compensation expense. Actual results could differ from
those estimates.
Cash and Cash
Equivalents. For
purposes of the Consolidated Balance Sheets and the Consolidated
Statements of Cash Flows, the Company considers all highly liquid
investments with an original maturity of 90 days or less at the
date of purchase to be cash equivalents. Cash and cash equivalents
represent amounts held by the Company for use by the Company
and are recorded at cost, which approximates fair
value.
Investments. The Company makes strategic
investments because they believe that investments may allow
the Company to increase market share, benefit from advancements in
technology and strengthen its business operations by enhancing
their product and service offerings.
Accounts
Receivable. Credit
is extended to customers based on an evaluation of the
customer’s financial condition, and when credit is extended,
collateral is generally not required. Interest is not normally
charged on receivables.
Allowances for Bad Debts and
Customer Credits. The allowance for bad debts is an estimate of bad
debt expense that could result from the inability or refusal of
customers to pay for services. Additions to the estimated allowance
for bad debts are recorded to sales and marketing expenses and are
based on factors such as historical write-off percentages, the
current business environment and known concerns within the current
aging of accounts receivable. Reductions in the estimated allowance
for bad debts due to subsequent cash recoveries are recorded as a
decrease in sales and marketing expenses. As specific bad debts are
identified, they are written-off against the previously established
estimated allowance for bad debts with no impact on operating
expenses.
The
allowance for customer credits is an estimate of adjustments for
services that do not meet the customer requirements. Additions to
the estimated allowance for customer credits are recorded as a
reduction of revenues and are based on the Company’s
historical experience of: (i) the amount of credits issued;
(ii) the length of time after services are rendered that the
credits are issued; (iii) other factors known at the time; and
(iv) future expectations. Reductions in the estimated allowance for
customer credits are recorded as an increase in revenues. As
specific customer credits are identified, they are written-off
against the previously established estimated allowance for customer
credits with no impact on revenues.
If
there is a decline in the general economic environment that
negatively affects the financial condition of the Company’s
customers or an increase in the number of customers that are
dissatisfied with their services, additional estimated allowances
for bad debts and customer credits may be required, and the impact
on the Company’s business, results of operations, financial
condition, earnings per share, cash flow or the trading price of
our stock could be material.
Contingencies. From
time to time the Company may be subject to proceedings, lawsuits
and other claims. The Company assesses the likelihood of
any adverse judgments or outcomes of these matters as well as
potential ranges of probable losses. The Company records a loss
contingency when an unfavorable outcome is probable and the amount
of the loss can be reasonably estimated. The amount of allowances
required, if any, for these contingencies is determined after
analysis of each individual case. The amount of allowances may
change in the future if there are new material developments in each
matter. Gain contingencies are not recorded until all
elements necessary to realize the revenue are present. Any legal
fees incurred in connection with a contingency are expensed as
incurred.
Fair Value of Financial
Instruments. The
Company records its financial assets and liabilities at fair value,
which is defined under the applicable accounting standards as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measure
date. The Company uses valuation techniques to measure
fair value, maximizing the use of observable outputs and minimizing
the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that
may be used to measure fair value which are the
following:
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
Level
2 – Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3 – Inputs include management’s best estimate of what
market participants would use in pricing the asset or liability at
the measurement date. The inputs are unobservable in the
market and significant to the instrument’s
valuation.
Cash
equivalents, accounts receivable, net of allowance, accounts
payable and accrued liabilities, are carried at cost, which
management believes approximates fair value because of the
short-term maturity of these instruments.
The
Company’s investments at December 31, 2017 and 2016 consist
primarily of investments in SaleMove and GoMoto and are accounted
for under the cost method. During the years ended December 31, 2017
and 2016, the Company recorded a write-off related to it its
investments in SaleMove of $0.6 million and GoMoto of $0.7 million
in SaleMove, respectively.
Variable Interest
Entities. The
Company has an investment in an entity that is considered a
variable interest entity (“VIE”) under U.S. GAAP. The Company
has concluded that its investment in SaleMove qualifies as a
variable interest and SaleMove is a VIE. VIEs are legal entities in
which the equity investors do not have sufficient equity at risk
for the entity to independently finance its activities or the
collective holders do not have the power through voting or similar
rights to direct the activities of the entity that most
significantly impacts its economic performance, the obligation to
absorb the expected losses of the entity, or the right to receive
expected residual returns of the entity. Consolidation of a VIE is
considered appropriate if a reporting entity is the primary
beneficiary, the party that has both significant influence and
control over the VIE. Management periodically performs a
qualitative analysis to determine if the Company is the primary
beneficiary of a VIE. This analysis includes review of the
VIEs’ capital structure, contractual terms, and primary
activities, including the Company’s ability to direct the
activities of the VIEs and obligations to absorb losses, or the
right to receive benefits, significant to the
VIE.
Based
on AutoWeb’s analysis for the periods presented in this
report, it is not the primary beneficiary of SaleMove. Accordingly,
SaleMove does not meet the criteria for consolidation.
The SaleMove advances are classified as an other long-term asset on
the consolidated balance sheet as of December 31, 2017 and December
31, 2016. The carrying value and maximum potential loss
exposure from SaleMove was zero and $0.6 million as of December 31,
2017 and 2016, respectively.
Concentration of Credit Risk
and Risks Due to Significant
Customers. Financial
instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents,
investments and accounts receivable. Cash and cash equivalents are
primarily maintained with two financial institutions in the United
States. Deposits held by banks exceed the amount of insurance
provided for such deposits. Generally these deposits may be
redeemed upon demand. Accounts receivable are primarily derived
from fees billed to automotive Dealers and automotive
Manufacturers.
The
Company has a concentration of credit risk with its automotive
industry related accounts receivable balances, particularly with
Urban Science Applications (which represents several Manufacturer
programs), General Motors and Media.net
Advertising. During 2017, approximately 34% of the
Company’s total revenues were derived from these three
customers, and approximately 43% or $11.6 million of gross accounts
receivable related to these three customers at December 31,
2017. In 2017, Urban Science Applications accounted for
15% and 20% of total revenues and total accounts receivable as of
December 31, 2017, respectively. In 2017, Media.net Advertising
accounted for 11% of both total revenues and accounts receivable as
of December 31, 2017, respectively.
.
During
2016, approximately 28% of the Company’s total revenues were
derived from Urban Science Applications, General Motors and Ford
Direct, and approximately 36% or $12.6 million of gross accounts
receivable related to these three customers at December 31,
2016. In 2016, Urban Science Applications accounted for
16% and 19% of total revenues and total accounts receivable as of
December 31, 2016, respectively.
Property and
Equipment. Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets,
generally three years. Amortization of leasehold improvements is
provided using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the
improvements. Repair and maintenance costs are charged to operating
expenses as incurred. Gains or losses resulting from the retirement
or sale of property and equipment are recorded as operating income
or expenses, respectively.
Operating
Leases. The Company
leases office space and certain office equipment under operating
lease agreements which expire on various dates through 2024, with
options to renew on expiration of the original lease
terms.
Reimbursed
tenant improvements are considered in determining straight-line
rent expense and are amortized over the shorter of their estimated
useful lives or the lease term. The lease term begins on the date
of initial possession of the leased property for purposes of
recognizing rent expense on a straight-line basis over the term of
the lease. Lease renewal periods are considered on a lease-by-lease
basis and are generally not included in the initial lease
term.
Capitalized Internal Use
Software and Website Development
Costs. The Company
capitalizes costs to develop internal use software in accordance
with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software, and ASC
350-50, Website Development Costs, which require the capitalization
of external and internal computer software costs and website
development costs, respectively, incurred during the application
development stage. The application development stage is
characterized by software design and configuration activities,
coding, testing and installation. Training and maintenance costs
are expensed as incurred while upgrades and enhancements are
capitalized if it is probable that such expenditures will result in
additional functionality. Capitalized internal use software
development costs are amortized using the straight-line method over
an estimated useful life of three to five years. Capitalized
website development costs, once placed in service, are amortized
using the straight-line method over the estimated useful life of
the related websites. The Company capitalized $0.5
million, $1.7 million and $1.5 million of such costs for the years
ended December 31, 2017, 2016 and 2015,
respectively.
Impairment of Long-Lived
Assets and Intangible Assets. The Company periodically reviews long-lived
amortizing assets to determine if there is any impairment of these
assets. The Company assesses the impairment of these assets, or the
need to accelerate amortization, whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Judgments regarding the existence of impairment
indicators are based on legal factors, market conditions and
operational performance of the long-lived assets and other
intangibles. Future events could cause the Company to conclude that
impairment indicators exist and that the assets should be reviewed
to determine their fair value. The Company assesses the assets for
impairment based on the estimated future undiscounted cash flows
expected to result from the use of the assets and their eventual
disposition. If the carrying amount of an asset exceeds its
estimated future undiscounted cash flows, an impairment loss is
recorded for the excess of the asset’s carrying amount over
its fair value. Fair value is generally determined based on a
valuation process that provides an estimate of a fair value of
these assets using a discounted cash flow model, which includes
many assumptions and estimates. Once the valuation is determined,
the Company would write-down these assets to their determined fair
value, if necessary. Any write-down could have a material adverse
effect on the Company’s financial condition and results of
operations. The Company recorded impairment of $0.6 million related
to its investment in SaleMove in 2017. The Company did not record
any impairment of long-lived assets in 2016 and
2015.
Indefinite-lived intangible
assets. Indefinite-lived
intangible assets consists of a domain name, which was acquired as
part of the Dealix/Autotegrity acquisition in 2015, which is tested
for impairment annually, or more frequently if an event occurs or
circumstances changes that would indicate that impairment may
exist. When evaluating indefinite-lived intangible assets for
impairment, the Company may first perform a qualitative analysis to
determine whether it is more likely than not that the
indefinite-lived intangible assets is impaired. If the Company does
not perform the qualitative assessment, or if the Company
determines that it is more likely than not that the fair value of
the indefinite-lived intangible asset exceeds its carrying amount,
the Company will calculate the estimated fair value of the
indefinite-lived intangible asset. Fair value is the price a
willing buyer would pay for the indefinite-lived intangible asset
and is typically calculated using an income approach. If the
carrying amount of the indefinite-lived intangible asset exceeds
the estimated fair value, an impairment charge is recorded to
reduce the carrying value to the estimated fair value. The Company
did not record any impairment of indefinite-lived intangible assets
in 2017, 2016 and 2015.
Goodwill. Goodwill
represents the excess of the purchase price for business
acquisitions over the fair value of identifiable assets and
liabilities acquired. The Company evaluates the carrying value of
enterprise goodwill for impairment by comparing the
enterprise’s carrying value to its fair value. If the fair
value is less than the carrying value, enterprise goodwill is
potentially impaired. The Company evaluates enterprise goodwill, at
a minimum, on an annual basis in the fourth quarter of each year or
whenever events or changes in circumstances suggest that the
carrying amount of goodwill may be impaired. The Company recorded
goodwill impairment of $37.7 million in
2017.
Revenue
Recognition. Lead
fees consist of fees from the sale of Leads for new and used
vehicles and Leads for vehicle financing. Fees paid by
customers participating in the Company’s Lead programs are
comprised of monthly transaction and/or subscription
fees. Advertising revenues represent fees for display
advertising on Company’s Websites and fees from the
Company’s click programs.
The
Company recognizes revenues when evidence of an arrangement exists,
pricing is fixed and determinable, collection is reasonably assured
and delivery or performance of service has occurred. Lead fees are
generally recognized as revenues in the period the service is
provided. Advertising revenues are generally recognized in the
period the advertisements are displayed on Company Websites and the
period in which clicks have been delivered. Fees billed prior to
providing services are deferred, as they do not satisfy all U.S.
GAAP revenue recognition criteria. Deferred revenues are recognized
as revenue over the periods services are provided.
Cost of Revenues.
Cost of revenues consists of Lead and
traffic acquisition costs and other cost of revenues. Lead and
traffic acquisition costs consist of payments made to the
Company’s Lead providers, including internet portals and
on-line automotive information providers. Other cost of revenues
consists of search engine marketing (“SEM”) and fees paid to third parties for data
and content, including search engine optimization
(“SEO”) activity, included on the Company’s
properties, connectivity costs and development costs related to the
Company Websites, compensation related expense and technology
license fees, server equipment depreciation and technology
amortization directly related to Company Websites. SEM,
sometimes referred to as paid search marketing, is the practice of
bidding on keywords on search engines to drive traffic to a
website.
Income
Taxes. The Company
accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
records a valuation allowance, if necessary, to reduce deferred tax
assets to an amount it believes is more likely than not to be
realized.
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation known as the Tax Cuts and Jobs Act
(“TCJA”). The TCJA establishes new tax laws that
will take effect in 2018, including, but not limited to (1)
reduction of the U.S. federal corporate tax rate from a maximum of
35% to 21%; (2) elimination of the corporate alternative minimum
tax (“AMT”); (3)
a new limitation on deductible interest expense; (4) one-time
transition tax on certain deemed repatriated earnings of foreign
subsidiaries (“Transition
Tax”); (5) limitations on the deductibility of certain
executive compensation; (6) changes to the bonus depreciation rules
for fixed asset additions: and (7) limitations on net operating
losses (“NOLs”)
generated after December 31, 2017, to 80% of taxable
income.
ASC 740, Income Taxes, requires the effects of
changes in tax laws to be recognized in the period in which the
legislation is enacted. However, due to the complexity and
significance of the TCJA's provisions, the SEC staff issued Staff
Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the TCJA. SAB 118 provides a measurement
period that should not extend beyond one year from the TCJA
enactment date for companies to complete the accounting under ASC
740. In accordance with SAB 118, a company must reflect the income
tax effects of those aspects of the TCJA for which the accounting
under ASC 740 is complete. To the extent that a company’s
accounting for certain income tax effects of the TCJA is incomplete
but it is able to determine a reasonable estimate, it must record a
provisional estimate in the financial statements. If a company
cannot determine a provisional estimate to be included in the
financial statements, it should continue to apply ASC 740 on the
basis of the provisions of the tax laws that were in effect
immediately before the enactment of the TCJA.
At
December 31, 2017, the Company has not completed its accounting for
the tax effects of enactment of the TCJA; however, the Company has
made a reasonable estimate of the effects of the TCJA’s
change in the federal rate and revalued its deferred tax assets
based on the rates at which they are expected to reverse in the
future, which is generally the new 21% federal corporate tax rate
plus applicable state tax rate. The Company recorded a
decrease in deferred tax assets and deferred tax liabilities of
$11.7 million and $0.0 million, respectively, with a corresponding
net adjustment to deferred income tax expense of $11.7 million for
the year ended December 31, 2017. In addition, the Company
recognized a deemed repatriation of $0.6 million of deferred
foreign income from its Guatemala subsidiary, which did not result
in any incremental tax cost after application of foreign tax
credits. The Company’s provisional estimates will be
adjusted during the measurement period defined under SAB 118, based
upon ongoing analysis of data and tax positions along with the new
guidance from regulators and interpretations of the
law.
Computation of Basic and
Diluted Net Earnings (Loss) per
Share. Basic net
earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the
period. Diluted net earnings (loss) per share is
computed using the weighted average number of common shares, and if
dilutive, potential common shares outstanding, as determined under
the treasury stock and if-converted method, during the period.
Potential common shares consist of common shares issuable upon the
exercise of stock options, common shares issuable upon the exercise
of warrants described below and common shares issuable upon
conversion of the shares described in Note 3.
The
following are the share amounts utilized to compute the basic and
diluted net earnings (loss) per share for the years ended
December 31:
|
|
|
|
Basic
Shares:
|
|
|
|
Weighted
average common shares outstanding
|
11,910,906
|
10,673,015
|
9,907,066
|
Weighted
average common shares repurchased
|
(58,367)
|
—
|
—
|
Basic
Shares
|
11,852,539
|
10,673,015
|
9,907,066
|
|
|
|
|
Diluted
Shares:
|
|
|
|
Basic
Shares
|
11,852,539
|
10,673,015
|
9,907,066
|
Weighted
average dilutive securities
|
—
|
2,630,194
|
2,755,258
|
Dilutive
Shares
|
11,852,539
|
13,303,209
|
12,662,324
|
For
the year ended December 31, 2017, weighted average dilutive
securities were not included since the company had a net loss for
the year. For the years ended December 31, 2016 and 2015, weighted
average dilutive securities included dilutive options, warrants and
convertible preferred shares.
Potentially
dilutive securities representing approximately 3.7 million,
1.9 million and 1.4 million shares of common stock for the
years ended December 31, 2017, 2016 and 2015, respectively,
were excluded from the computation of diluted income per share for
these periods because their effect would have been
anti-dilutive.
Share-Based
Compensation. The
Company grants restricted stock and stock option awards (the
“Awards”) under several of its share-based
compensation Plans (the “Plans”), that are more fully described in Note
9. The Company recognizes share-based compensation based
on the Awards’ fair value, net of estimated forfeitures on a
straight line basis over the requisite service periods, which is
generally over the awards’ respective vesting period, or on
an accelerated basis over the estimated performance periods for
options with performance conditions.
Restricted
stock fair value is measured on the grant date based on the quoted
market price of the Company’s common stock, and the stock
option fair value is estimated on the grant date using the
Black-Scholes option pricing model based on the underlying common
stock closing price as of the date of grant, the expected term,
stock price volatility and risk-free interest rates.
Business Segment.
The Company conducts its business
within the United States and within one business segment which is
defined as providing automotive and marketing
services. The Company’s operations are aggregated
into a single reportable operating segment based upon similar
economic and operating characteristics as well as similar
markets.
Advertising
Expense. Advertising
costs are expensed in the period incurred and the majority of
advertising expense is recorded in sales and marketing expense.
Advertising expense in the years ended December 31, 2017, 2016 and
2015 was $1.7 million, $1.4 million and $2.0 million,
respectively.
Recent Accounting Pronouncements
Issued but not yet adopted by the Company
Accounting Standards
Codification 842
“Leases.” In February 2016, Accounting Standards Update
(“ASU”) No. 2016-02, “Leases (Topic
842)” was issued. This ASU will require lessees to
recognize on the balance sheet the assets and liabilities for the
rights and obligations created by those leases of terms more than
12 months. The ASU will require both capital and
operating leases to be recognized on the balance
sheet. Qualitative and quantitative disclosures will
also be required to help investors and other financial statement
users better understand the amount, timing and uncertainty of cash
flows arising from leases. In January 2018, ASU No.
2018-01, “Land Easement Practical Expedient for Transition to
Topic842” was issued. This ASU permits an entity to elect an
optional transition practical expedient to not evaluate under Topic
842 land easements that exist or expired before the entity’s
adoption of Topic 842 and that were not previously accounted for as
leases under Topic 840. The ASU will take effect for public
companies for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. The Company expects this
standard will have a material effect on its consolidated financial
statements due to the recognition of new right-of-use assets and
lease liabilities on its balance sheet for real estate and
equipment operating leases. The Company is continuing to evaluate
the effect this guidance will have on the consolidated financial
statements and related disclosures.
Accounting Standards
Codification 805 “Business
Combinations.” In January 2017, ASU No. 2017-01,
“Clarifying the Definition of a Business” was
issued. This ASU provides a more robust framework to use
in determining when a set of assets and activities is a
business. The amendments in this ASU are effective for
annual periods beginning after December 15, 2017, and interim
periods within those periods. The Company does not
believe this ASU will have a material effect on the consolidated
financial statements and related disclosures.
Accounting Standards
Codification 718 “Compensation – Stock
Compensation.” In May 2017, ASU No. 2017-09, “Scope of
Modification Accounting” was issued. The
amendments in this update provide guidance about which changes to
the terms or conditions of a share-based payment award require an
entity to apply modification accounting in Topic 718. An entity
should apply this ASU on a prospective basis for an award modified
on or after the adoption date for annual periods, and interim
periods within those annual periods, beginning after December 15,
2017. Early adoption is permitted. The Company does not believe
this ASU will have a material effect on the consolidated financial
statements and related disclosures.
Accounting Standards
Codification 606 “Revenue from Contracts with
Customers.” In
May 2014, ASU 2014-09, “Revenue from Contracts with Customers
(Topic 606)” was issued. This ASU requires the use
of a five-step methodology to depict the transfer of promised goods
and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. In addition, the ASU requires
enhanced disclosure regarding revenue
recognition.
The
standard permits the use of either the retrospective or cumulative
effect transition method (modified retrospective method). The
Company adopted the ASU on a modified retrospective transition
method on January 1, 2018 and will apply the guidance to the most
current period presented in the financial statements issued
subsequent to the adoption date. The Company did not record a
cumulative adjustment to retained earnings as of January 1, 2018
since the Company was recognizing revenue consistent with the
provisions of ASC 606 and any adjustment would have been deemed
immaterial. In preparation for adoption of the standard, the
Company has implemented internal controls to enable the preparation
of financial information and have reached conclusions on key
accounting assessments related to the standard, including that
accounting for variable consideration is immaterial.
Under
ASU 2014-09, revenue is recognized upon transfer of control of
promised products or services to customers. The Company has three
main revenue streams: lead fees, advertising and other revenues.
Lead fees are paid by Dealers and Manufacturers participating in
the Company’s Lead programs and are comprised of monthly
transaction and/or subscription fees. Lead fees are recognized in
the period when service is provided. Advertising revenue represents
fees for display advertising on our website and fees from our click
program. Advertising revenue is recognized in the period the
advertisements are displayed on our websites and the period in
which clicks have been delivered.
The
Company adopted the standard through the application of the
portfolio approach and selected a sample of customer contracts to
assess under the guidance of the new standard that are
characteristically representative of each revenue stream. The
Company has completed its review of the sample contracts, and the
Company does not anticipate a significant change to the pattern or
timing of revenue recognition as a result of adopting the new
standard.
Recently adopted by the Company
Accounting Standards
Codification 350 “Intangibles – Goodwill and
Other.” In
January 2017, ASU No. 2017-04, “Simplifying the Test for
Goodwill Impairment” was issued. Under the
amendments in this ASU, an entity should perform its annual, or
interim, goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. An entity
should recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value;
however, the loss should not exceed the total amount of goodwill
allocated to that reporting unit. The ASU also eliminated the
requirements for any reporting unit with a zero or negative
carrying amount to perform a qualitative assessment and, if it
fails that qualitative test, to perform Step 2 of the goodwill
impairment test. The Company early adopted the provisions of ASU
No. 2017-04 and recorded impairment of goodwill for the year ended
December 31, 2017 of $37.7 million.
Accounting Standards
Codification 740 “Income
Taxes.” In November
2015, ASU No. 2015-17, “Balance Sheet Classification of
Deferred Taxes” was issued. This ASU requires that
deferred tax liabilities and assets be classified as noncurrent in
a classified statement of financial position. The
amendments in this update apply to all entities that present a
classified statement of financial position. The Company
adopted this ASU prospectively on January 1, 2017 and
reclassified $4.7 million of current deferred tax assets to
long-term deferred tax assets. Prior periods were not
retrospectively adjusted.
Accounting Standards
Codification 323 “Investments-Equity Method and Joint
Ventures.” In
March 2016, ASU No. 2016-07, “Simplifying the Transition to
the Equity Method of Accounting” was issued. This
ASU eliminates the requirement that when an investment qualifies
for use of the equity method as a result of an increase in the
level of ownership interest or degree of influence, an investor
must adjust the investment, results of operations, and retained
earnings retroactively on a step-by-step basis as if the equity
method had been in effect during all previous periods that the
investment was held. The amendments require that the
equity method investor add the cost of acquiring the additional
interest in the investee to the current basis of the
investor’s previously held interest and adopt the equity
method of accounting as of the date the investment becomes
qualified for equity method accounting. Thus, upon
qualifying for the equity method of accounting, no retroactive
adjustment of the investment is required. The Company
adopted this ASU on January 1, 2017 and it did not have a material
effect on the consolidated financial
statements.
Accounting Standards
Codification 718 “Compensation-Stock
Compensation.” In March
2016, ASU No. 2016-09, “Improvements to Employee Share-Based
Payment Accounting” was issued. This ASU provides
for areas of simplification for several aspects of the accounting
for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash
flows.
The changes in the new standard eliminate
the accounting for excess tax benefits to be recognized in
additional paid-in capital and tax deficiencies recognized either
in the income tax provision or in additional paid-in capital. ASU
2016-09 requires recognition of excess tax benefits and tax
deficiencies in the income statement on a prospective basis. The
Company adopted the amendments on January 1, 2017 related to the
timing of when excess tax benefits are recognized on a modified
retrospective transition method. The Company recognized $6.5
million of deferred tax assets relating to unrealized stock option
benefits, resulting in a cumulative $6.5 million adjustment to
retained earnings.
For the twelve months ended December 31, 2017, the Company
recognized all excess tax benefits and tax deficiencies as income
tax expense or benefit as a discrete event. Income tax benefit of
approximately $32,000 was recognized in the twelve months
ended December 31, 2017 as a result of the adoption of ASU
2016-09.
The
treatment of forfeitures has not changed as the Company is electing
to continue its current process of estimating the number of
forfeitures. As such, this has no cumulative effect on retained
earnings. The Company has elected to present the cash flow
statement on a prospective transition method and no prior periods
have been adjusted.
The
Company calculates diluted earnings per share using the treasury
stock method for share-based payment awards. ASU 2016-09 eliminates
excess tax benefits and deficiencies from the calculation of
assumed proceeds under the treasury stock method, which the Company
adopted on a prospective transition method.
Accounting
Standards Codification 230 “Statement of Cash
Flows.” In
August 2016, ASU No. 2016-15, “Classification of Certain Cash
Receipts and Cash Payments” was issued. This ASU
provides guidance on eight specific cash flow issues with the
objective of reducing the existing diversity in practice for those
issues. The amendments in this ASU are effective for
annual periods beginning after December 15, 2017, and interim
periods within those annual periods. The Company early adopted this
ASU on January 1, 2017 and it did not have a material effect on the
consolidated financial statements.
Accounting Standards
Codification 810
“Consolidation.” In October 2016, ASU No. 2016-17, “Interests
Held through Related Parties That Are Under Common Control”
was issued. This ASU amends the consolidation guidance
on how a reporting entity that is the single decision maker of a
variable interest entity (“VIE”) should treat indirect interests in the
entity held through related parties that are under common control
with the reporting entity when determining whether it is the
primary beneficiary of that VIE. The amendments in this
ASU are effective for annual periods beginning after December 15,
2016, and interim periods within those annual
periods. The Company adopted this ASU on January 1, 2017
and it did not have a material effect on the consolidated financial
statements.
3.
Acquisitions and Disposals
Acquisition of AWI
On
the AWI Merger Date, Merger Sub merged with and into AWI, with AWI
continuing as the surviving corporation and as a wholly owned
subsidiary of AutoWeb.
The AWI Merger Date fair value of the
consideration transferred totaled $23.8 million consisting of (i)
168,007 newly issued shares of Series B Junior Participating
Convertible Preferred Stock, par value $0.001 per share, of AutoWeb
(“Series B Preferred
Stock”); (ii) warrants to
purchase up to 148,240 shares of Series B Preferred Stock
“AWI
Warrant”), at an exercise
price of $184.47 (reflecting 10 times the $16.77 closing price of a
share of the Company’s common stock, $0.001 par value per
share (“Common Stock”), plus a ten percent (10%) premium); and
(iii) $0.3 million in cash to cancel vested, in-the-money options
to acquire shares of AWI common stock. As a result of
accounting for the transaction as a business combination achieved
in stages, the Company also recorded $0.6 million as a gain to the
pre-merger investment in AWI. The results of operations
of AWI have been included in the Company’s results of
operations since the AWI Merger Date.
|
|
Series
B Preferred Stock
|
$20,989
|
Series
B Preferred warrants to purchase 148,240 shares of Series B
Preferred Stock
|
2,542
|
Cash
|
279
|
Fair
value of prior ownership in AWI
|
4,016
|
|
$27,826
|
The
shares of Series B Preferred Stock were converted into ten (10)
shares of Common Stock upon stockholder approval on June 22,
2017.
The AWI Warrant was valued at $1.72 per share
underlying the warrant for a total value of $2.5
million. The Company used a Monte Carlo simulation model
to determine the value of the AWI Warrant. Key
assumptions used in valuing the AutoWeb Warrant are as follows:
risk-free rate of 1.9%, stock price volatility of 74.0% and a term
of 7.0 years. On June 22, 2017, the Company received
stockholder approval which resulted in the automatic conversion of
the AWI Warrant into warrants to acquire up to 1,482,400 shares of
the Company’s common stock at an exercise price of $18.45 per
share of common stock. The AWI Warrant becomes exercisable on
October 1, 2018, subject to the following vesting conditions: (i)
with respect to the first one-third (1/3) of the warrant shares, if
at any time after the issuance date of the AWI Warrant and prior to
the expiration date of the AWI Warrant the weighted average closing
price of the Common Stock for the preceding 30 trading days
(adjusted for any stock splits, stock dividends, reverse stock
splits or combinations of the Common Stock occurring after the
issuance date) (“Weighted Average Closing
Price”) is at or above
$30.00; (ii) with respect to the second one-third (1/3) of the
warrant shares, if at any time after the issuance date of the AWI
Warrant and prior to the expiration date the Weighted Average
Closing Price is at or above $37.50; and (iii) with respect to the
last one-third (1/3) of the warrant shares, if at any time after
the issuance date of the AWI Warrant and prior to the expiration
date the Weighted Average Closing Price is at or above
$45.00. The AWI Warrant expires on October 1,
2022.
The
following table summarizes the fair values of the assets acquired
and liabilities assumed as of the AWI Merger
Date.
|
|
Net
identifiable assets acquired:
|
|
Total
tangible assets acquired
|
$4,456
|
Total
liabilities assumed
|
543
|
Net
identifiable assets acquired
|
3,913
|
|
|
Definite-lived
intangible assets acquired
|
17,690
|
Goodwill
|
5,954
|
|
$27,557
|
The
fair value of the acquired intangible assets was determined using
the below valuation approaches. In estimating the fair value of the
acquired intangible assets, the Company utilized the valuation
methodology determined to be most appropriate for the individual
intangible asset being valued as described below. The intangible
assets related to the AWI acquisition include the
following:
|
|
|
Estimated
Useful Life (1)
|
|
|
|
|
|
|
|
|
Customer
relationships
|
Excess
of earnings (2)
|
$7,470
|
4
|
Trademark/trade
names
|
Relief
from Royalty (3)
|
2,600
|
6
|
Developed
technology
|
Excess
of earnings (4)
|
7,620
|
7
|
Total
purchased intangible assets
|
|
$17,690
|
|
(1)
|
Determination of the estimated useful lives of the individual
categories of purchased intangible assets was based on the nature
of the applicable intangible asset and the expected future cash
flows to be derived from such intangible asset. Amortization of
intangible assets with definite lives is recognized over the
shorter of the respective life of the agreement or the period of
time the assets are expected to contribute to future cash
flows.
|
|
(2)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The value
attributed to these intangibles was based on projected net cash
inflows from existing contracts or relationships.
|
|
(3)
|
The relief from royalty method is an earnings approach which
assesses the royalty savings an entity realizes since it owns the
asset and isn’t required to pay a third party a license fee
for its use.
|
|
(4)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The method
takes into account technological and economic obsolescence of the
technology.
|
|
Additionally,
in connection with the acquisition of AWI, the Company entered into
non-compete agreements with key executives of AWI. The
fair value of the AWI non-compete agreements was $270,000 and was
derived by calculating the difference between the present value of
the Company’s forecasted cash flows with the agreements in
place and without the agreements in place. The Company
amortized the value of the AWI non-compete agreement over two
years.
Some
of the more significant estimates and assumptions inherent in the
estimate of the fair value of the identifiable purchased intangible
assets include all assumptions associated with forecasting cash
flows and profitability. The primary assumptions used for the
determination of the preliminary fair value of the purchased
intangible assets were generally based upon the discounted present
value of anticipated cash flows. Estimated years of projected
earnings generally follow the range of estimated remaining useful
lives for each intangible asset class.
The
goodwill recognized of $6.0 million was attributable primarily to
expected synergies and the assembled workforce of
AWI. The Company incurred approximately $1.1 million of
acquisition-related costs related to the AWI
acquisition.
Acquisition of Dealix/Autotegrity
On
the Dealix/Autotegrity Acquisition Date, AutoWeb acquired all of
the issued and outstanding shares of common stock of Dealix and
Autotegrity. Dealix provides new and used car leads to
automotive dealerships, Dealer groups and Manufacturers, and
Autotegrity is a consumer leads acquisition and analytics
business. The Company acquired Dealix/Autotegrity to
further expand its reach and influence in the industry by
increasing its Dealer network.
The
Dealix/Autotegrity Acquisition Date fair value of the consideration
transferred totaled $25.0 million in cash (plus a working capital
adjustment of $11,000). The results of operations of
Dealix/Autotegrity have been included in the Company’s
results of operations since the Dealix/Autotegrity Acquisition
Date.
The
following table summarizes the estimated fair values of the assets
acquired and liabilities assumed as of the Dealix/Autotegrity
Acquisition Date. During the year ended December 31,
2016, the Company made adjustments to the purchase price allocation
due to changes in accounts receivable and sales tax payable
acquired.
|
|
Net
identifiable assets acquired:
|
|
Total
tangible assets acquired
|
$9,778
|
Total
liabilities assumed
|
2,520
|
Net
identifiable assets acquired
|
7,258
|
|
|
Definite-lived
intangible assets acquired
|
7,655
|
Indefinite-lived
intangible assets acquired
|
2,200
|
Goodwill
|
7,358
|
|
$24,471
|
The
fair value of the acquired intangible assets was determined using
the below valuation approaches. In estimating the fair value of the
acquired intangible assets, the Company utilized the valuation
methodology determined to be most appropriate for the individual
intangible asset being valued as described below. The intangible
assets related to the Dealix/Autotegrity acquisition include the
following:
|
|
|
Estimated
Useful Life (1)
|
|
|
|
|
|
|
|
|
Customer
relationships
|
Excess
of earnings (2)
|
$7,020
|
10
|
Trademark/trade
names – Autotegrity
|
Relief
from Royalty (3)
|
120
|
3
|
Trademark/trade
names – UsedCars.com
|
Relief
from Royalty (3)
|
2,200
|
|
Developed
technology
|
Cost
Approach (4)
|
515
|
3
|
Total
purchased intangible assets
|
|
$9,855
|
|
(1)
|
Determination of the estimated useful lives of the individual
categories of purchased intangible assets was based on the nature
of the applicable intangible asset and the expected future cash
flows to be derived from such intangible asset. Amortization of
intangible assets with definite lives is recognized over the
shorter of the respective life of the agreement or the period of
time the assets are expected to contribute to future cash
flows.
|
|
(2)
|
The excess of earnings method estimates a purchased intangible
asset's value based on the present value of the prospective net
cash flows (or excess earnings) attributable to it. The value
attributed to these intangibles was based on projected net cash
inflows from existing contracts or relationships.
|
|
(3)
|
The relief from royalty method is an earnings approach which
assesses the royalty savings an entity realizes since it owns the
asset and isn’t required to pay a third party a license fee
for its use.
|
|
(4)
|
The cost approach estimates the cost required to repurchase or
reproduce the intangible assets. The method takes into account
technological and economic obsolescence of the
technology.
|
|
Additionally,
in connection with the acquisition of Dealix/Autotegrity, the
Company entered into non-compete agreements with CDK and a key
executive of Dealix/Autotegrity. The fair value of the
non-compete agreements with CDK and the key executive from
Dealix/Autotegrity was $0.5 million and $40,000,
respectively, and was derived by calculating the difference between
the present value of the Company’s forecasted cash flows with
the agreements in place and without the agreements in
place. The Company amortized the value of the
non-compete agreement with CDK and the key executive from
Dealix/Autotegrity over two and one year(s),
respectively.
Some
of the more significant estimates and assumptions inherent in the
estimate of the fair value of the identifiable purchased intangible
assets include all assumptions associated with forecasting cash
flows and profitability. The primary assumptions used for the
determination of the preliminary fair value of the purchased
intangible assets were generally based upon the discounted present
value of anticipated cash flows. Estimated years of projected
earnings generally follow the range of estimated remaining useful
lives for each intangible asset class.
The
goodwill recognized of $7.3 million was attributable primarily to
expected synergies and the assembled workforce of
Dealix/Autotegrity. The Company incurred approximately
$1.7 million of acquisition-related costs related to the
Dealix/Autotegrity acquisition.
Disposal of Specialty Finance Leads Product
On December 19, 2016, AutoWeb and Car.com, Inc., a
wholly owned subsidiary of AutoWeb (“Car.com”), entered into an Asset Purchase and Sale
Agreement, by and among AutoWeb, Car.com, and Internet Brands,
Inc., a Delaware corporation (“Internet
Brands”), pursuant to
which Internet Brands acquired substantially all of the assets of
the automotive specialty finance leads group of Car.com
(“Acquired
Group”). The transaction
was completed effective as of December 31, 2016. The transaction
consideration consisted of $3.2 million in cash paid at closing and
$1.6 million to be paid over a five-year period pursuant to a
Transitional License and Linking Agreement
(“Specialty Finance
Leads License
Agreement”). The Company
recorded a gain on sale of approximately $2.2 million in connection
with the transaction in December 2016.
In
connection with the transaction, Internet Brands, Car.com and
AutoWeb entered into the Specialty Finance Leads License Agreement
pursuant to which Car.com and AutoWeb will provide to Internet
Brands certain transition services and arrangements. Pursuant to
the Specialty Finance Leads License Agreement, (i) Internet Brands
will pay AutoWeb $1.6 million in fees over the five-year term of
the Specialty Finance Leads License Agreement, and (ii) Car.com (1)
granted Internet Brands a limited, non-exclusive, non-transferable
license to use the Car.com logo and name solely for sales and
marketing purposes in Internet Brand’s automotive specialty
finance leads business; and (2) provided certain redirect linking
of consumer traffic from the Acquired Group’s current
specialty finance leads application forms to a landing page
designated by Internet Brands. The Company received $0.4 million
during the twelve months ended December 31, 2017 related to the
Specialty Finance Leads License Agreement.
The
disposal of the automotive specialty finance leads product did not
qualify for presentation and disclosure as a discontinued operation
because it did not represent a strategic shift that had or will
have a major effect on the Company’s operations.
4.
Investments
Investments. The
Company’s investments at December 31, 2017 and 2016 consist
primarily of investments in SaleMove and GoMoto and are recorded at
cost.
The
following table presents the Company’s investment activity
for 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
Balance
at December 31, 2015
|
$375
|
$—
|
$680
|
Purchases,
(sales), issuances and (settlements), net
|
(375)
|
750
|
—
|
Balance
at December 31, 2016
|
—
|
750
|
680
|
Reserve
for notes receivable
|
—
|
(750)
|
—
|
Net
balance at December 31, 2016
|
—
|
—
|
680
|
Write-offs
|
—
|
—
|
(580)
|
Net
balance at December 31, 2017
|
$—
|
$—
|
$100
|
In
September 2013, the Company entered into a Convertible Note
Purchase Agreement with SaleMove in which AutoWeb invested $150,000
in SaleMove in the form of an interest bearing, convertible
promissory note. In November 2014, the Company invested an
additional $400,000 in SaleMove in the form of an interest bearing,
convertible promissory note. Upon closing of a preferred
stock financing by SaleMove in July 2015, these two notes were
converted in accordance with their terms into an aggregate of
190,997 Series A Preferred Stock, which shares are classified as a
long-term investment on the consolidated balance sheet as of
December 31, 2016. The Company recorded an impairment charge of
$0.6 million in SaleMove in 2017.
In
October 2013, the Company entered into a Reseller Agreement with
SaleMove to become a reseller of SaleMove’s technology for
enhancing communications with
consumers. SaleMove’s technology allows Dealers
and Manufacturers to enhance the online shopping experience by
interacting with consumers in real-time, including live video,
audio and text-based chat or by phone. The Company and SaleMove
equally share in revenues from automotive-related sales of the
SaleMove products and services. In connection with this reseller
arrangement, the Company advanced to SaleMove $1.0
million to fund SaleMove’s 50% share of various product
development, marketing and sales costs and expenses, with the
advanced funds to be recovered by the Company from SaleMove’s
share of sales revenue. SaleMove advances are repaid to
the Company from SaleMove’s share of net revenues from the
Reseller Agreement. As of December 31, 2017, the net
advances due from SaleMove totaled $424,000.
In December 2014, the Company entered
into a Series Seed Preferred Stock Purchase Agreement with GoMoto
in which the Company paid $100,000 for 317,460 shares of Series
Seed Preferred Stock, $0.001 par value per share. The
$100,000 investment in GoMoto was recorded at cost because the
Company does not have significant influence over
GoMoto. In October 2015 and May 2016, the Company
invested an additional $375,000 and $375,000 for each period in
GoMoto in the form of convertible promissory notes
(“GoMoto Notes”). The GoMoto Notes accrued
interest at an annual rate of 4.0% and are due and payable in full
upon demand or at GoMoto’s option ten days’ written
notice unless converted prior to the maturity date. As
of December 31, 2017, the Company has recorded a reserve of $0.8
million related to the GoMoto Notes and related interest receivable
because the GoMoto Notes are past due and the Company believes the
amounts may not be recoverable.
5.
Selected Balance Sheet Accounts
Property and Equipment
Property
and equipment consists of the following:
|
|
|
|
|
|
|
Computer
software and hardware
|
$11,065
|
$12,027
|
Capitalized
internal use software
|
5,774
|
5,359
|
Furniture
and equipment
|
1,703
|
1,332
|
Leasehold
improvements
|
1,539
|
1,139
|
|
20,081
|
19,857
|
Less—Accumulated
depreciation and amortization
|
(15,770)
|
(15,427)
|
Property
and Equipment, net
|
$4,311
|
$4,430
|
As
of December 31, 2017 and 2016, capitalized internal use
software, net of amortization, was $2.0 million and $2.7 million,
respectively. Depreciation and amortization expense
related to property and equipment was $1.9 million for the year
ended December 31, 2017. Of this amount, $1.1
million was recorded in cost of revenues and $0.8 million was
recorded in operating expenses for the year ended December 31,
2017. Depreciation and amortization expense related to property and
equipment was $1.6 million for the year ended December 31,
2016. Of this amount, $0.7 million was recorded in cost
of revenues and $0.8 million was recorded in operating expenses for
the year ended December 31, 2016.
Intangible Assets.
The
Company amortizes specifically identified definite-lived intangible
assets using the straight-line method over the estimated useful
lives of the assets.
On
October 5, 2017, the Company and DealerX entered into the DealerX
License Agreement. Pursuant to the terms of the DealerX License
Agreement, AutoWeb was granted a perpetual license to access and
use DealerX’s proprietary platform and technology for
targeted, online marketing.
The transaction consideration consisted of: (i)
$8.0 million in cash paid to DealerX upon execution of the DealerX
License Agreement and (ii) the right to 710,856 shares of the
Company’s common stock, par value $0.001 per share,
representing approximately five percent of the Company’s
outstanding Common Stock as of the date the parties entered into
the DealerX License Agreement (“Market Capitalization
Shares”) if on or before
October 5, 2022: (i) AutoWeb’s market capitalization averages
at least $225.0 million over a consecutive 90 day period or (ii)
there is a change in control of AutoWeb that reflects a market
capitalization of at least $225.0 million. If the Market
Capitalization Shares are issued to DealerX, DealerX’s
Platform Support Obligations will continue in perpetuity.
Alternatively, upon the occurrence of certain events prior to the
issuance of the Market Capitalization Shares, AutoWeb may elect to
make an additional lump-sum payment of $12.5 million
(Alternative
Cash Payment”) in order
to extend DealerX’s Platform Support Obligations in
perpetuity. If the Alternative Cash payment is made,
DealerX’s contingent right to receive the Market
Capitalization Shares will be terminated. The fair value of the
Market Capitalization Shares was calculated at $2.5 million. The
DealerX perpetual license and related Market Capitalization Shares
is being amortized over seven years.
The
Company’s intangible assets will be amortized over the
following estimated useful lives (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks/trade
names/licenses/domains
|
3
– 7 years
|
$16,589
|
$(4,037)
|
$12,552
|
$9,294
|
$(6,756)
|
$2,538
|
Software
and publications
|
3
years
|
1,300
|
(1,300)
|
—
|
1,300
|
(1,300)
|
—
|
Customer
relationships
|
2 -
10 years
|
19,563
|
(10,555)
|
9,008
|
19,563
|
(7,454)
|
12,109
|
Employment/non-compete
agreements
|
1-5
years
|
1,510
|
(1,493)
|
17
|
1,510
|
(1,273)
|
237
|
Developed
technology
|
5-7
years
|
8,955
|
(3,619)
|
5,336
|
8,955
|
(2,256)
|
6,699
|
|
$47,917
|
$(21,004)
|
$26,913
|
$40,622
|
$(19,039)
|
$21,583
|
|
|
|
|
Indefinite-lived
Intangible
Asset
|
|
|
|
|
|
|
|
Domain
|
Indefinite
|
$2,200
|
$—
|
$2,200
|
$2,200
|
$—
|
$2,200
|
Amortization
expense is included in “Cost of Revenues” and
“Depreciation and amortization” in the Statements of
Operations. Amortization expense was $5.7 million, $5.7
million and $3.0 million in 2017, 2016 and 2015, respectively.
Amortization expense for intangible assets for the next five years
is as follows:
Year
|
|
|
|
|
|
2018
|
$6,610
|
2019
|
5,236
|
2020
|
3,805
|
2021
|
3,697
|
2022
|
3,100
|
Thereafter
|
4,465
|
|
$26,913
|
Goodwill.
Goodwill
represents the excess of the purchase price over the fair value of
net assets acquired. Goodwill is not amortized and is
assessed annually for impairment or whenever events or
circumstances indicate that the carrying value of such assets may
not be recoverable. The Company did not record any
impairment related to goodwill as of December 31, 2016. The Company
impaired goodwill by $37.7 million as of December 31,
2017. As of December 31, 2017 and 2016, goodwill
consisted of the following:
|
|
Goodwill
as of December 31, 2015
|
$42,903
|
Purchase
price allocation adjustments from Dealix/Autotegrity
acquisition
|
(82)
|
Goodwill
as December 31, 2016
|
42,821
|
Impairment
charge
|
(37,688)
|
Goodwill
as of December 31, 2017
|
$5,133
|
During the year ended December
31, 2016, the Company made adjustments to the Dealix/Autotegrity
purchase price allocation due to changes in accounts receivable and
sales tax payable acquired, and adjusted goodwill
accordingly.
Accrued Expenses and Other Current Liabilities
As
of December 31, 2017 and 2016, accrued expenses and other
current liabilities consisted of the following:
|
|
|
|
|
|
|
Accrued
employee-related benefits
|
$2,411
|
$4,530
|
Other
accrued expenses and other current liabilities:
|
|
|
Other
accrued expenses
|
6,307
|
7,278
|
Amounts
due to customers
|
438
|
466
|
Other
current liabilities
|
507
|
571
|
Total
other accrued expenses and other current liabilities
|
7,252
|
8,315
|
|
|
|
Total
accrued expenses and other current liabilities
|
$9,663
|
$12,845
|
Convertible Notes
Payable.
In
connection with the acquisition of Cyber, the Company issued the
Cyber Note to the sellers. The fair value of the Cyber
Note as of the Cyber Acquisition Date was $5.9
million. This valuation was estimated using a binomial
option pricing method. Key assumptions used by the
Company's outside valuation consultants in valuing the Cyber Note
included a market yield of 15.0% and stock price volatility of
77.5%. As the Cyber Note was issued with a substantial
premium, the Company recorded the premium as additional paid-in
capital. Interest is payable at an annual interest rate
of 6% in quarterly installments. The Cyber Note was
acquired by Auto Holdings and was converted into 1,075,268 shares
of Company common stock on April 27, 2015, as discussed in Note
1. Upon conversion of the Cyber Note, the Company
removed the liability from the Consolidated Balance
Sheet.
In connection with the acquisition of AutoUSA, LLC
(“AutoUSA”) on January 13, 2014, the Company issued a
convertible subordinated promissory note for $1.0 million
(“AutoUSA Note”)
to AutoNationDirect.com, Inc. The fair value of the AutoUSA
Note as of the AutoUSA Acquisition Date was $1.3 million.
This valuation was estimated using a binomial option pricing
method. Key assumptions used by the Company’s
outside valuation consultants in valuing the AutoUSA Note
included a market yield of 1.6% and stock price volatility of
65.0%. As the AutoUSA Note was issued with a substantial
premium, the Company recorded the premium as additional paid-in
capital. Interest is payable at an annual interest rate of 6%
in quarterly installments. The entire outstanding balance of
the AutoUSA Note is to be paid in full on January 31, 2019.
The holder of the AutoUSA Note may at any time convert all or any
part, but at least 30,600 shares, of the then outstanding and
unpaid principal of the AutoUSA Note into fully paid shares of the
Company's common stock at a conversion price of $16.34 per share
(as adjusted for stock splits, stock dividends, combinations and
other similar events). In the event of default, the
entire unpaid balance of the AutoUSA Note will become immediately
due and payable and will bear interest at the lower of 8% per year
and the highest legal rate permissible under applicable
law.
6.
Credit Facility
The Company and MUFG Union Bank, N.A.
(“Union Bank”), have entered into a Loan Agreement dated
February 26, 2013, as amended on September 10, 2013, January 13,
2014, May 20, 2015, June 1, 2016, June 28, 2017 and December 27,
2017 (the original Loan Agreement, as amended to date, is referred
to collectively as the “Credit Facility
Agreement”). Until December 31, 2017, the
Credit Facility Agreement provided for (i) a $9.0 million term loan
(“Term
Loan 1”); (ii) a $15.0
million term loan (“Term Loan 2”); and (iii) an $8.0 million working
capital revolving line of credit (“Revolving
Loan”). Term Loan 1
and Term Loan 2 were fully paid as of December 31, 2017. The
outstanding balance of the Revolving Loan as of December 31, 2017
was $8.0 million.
Borrowings
under the Revolving Loan bear interest at either (i) the LIBOR plus
2.50% or (ii) the bank’s Reference Rate (prime rate) minus
0.50%, at the option of the Company. Interest under the Revolving
Loan adjusts (i) at the end of each LIBOR rate period (1, 2, 3, 6
or 12 months terms) selected by the Company, if the LIBOR rate is
selected; or (ii) with changes in Union Bank’s Reference
Rate, if the Reference Rate is selected. The Company pays a
commitment fee of 0.10% per year on the unused portion of the
Revolving Loan, payable quarterly in arrears. Borrowings under the
Revolving Loan are secured by a first priority security interest on
all of the Company’s personal property (including, but not
limited to, accounts receivable) and proceeds thereof. The maturity
date of the Revolving Loan was extended from March 31, 2017 to
April 30, 2018. Borrowings under the Revolving Loan may be used as
a source to finance working capital, capital expenditures,
acquisitions and stock buybacks and for other general corporate
purposes.
Term Loan 1 was amortized over a period of four
years, with fixed quarterly principal payments of $562,500.
Borrowings under Term Loan 1 bore interest at either (i) the
bank’s Reference Rate (prime rate) minus 0.50% or (ii) the
London Interbank Offering Rate (“LIBOR”) plus 2.50%, at the option of the Company.
Interest under Term Loan 1 adjusted (i) at the end of each LIBOR
rate period (1, 2, 3, 6 or 12 months terms) selected by the
Company, if the LIBOR rate was selected; or (ii) with changes in
Union Bank’s Reference Rate, if the Reference Rate was
selected. Borrowings under Term Loan 1 were secured by a
first priority security interest on all of the Company’s
personal property (including, but not limited to, accounts
receivable) and proceeds thereof. Borrowing under Term Loan 1 was
limited to use for the acquisition of AutoUSA, and the Company drew
down the entire $9.0 million of Term Loan 1, together with $1.0
million under the Revolving Loan, in financing this
acquisition.
Term
Loan 2 was amortized over a period of five years, with fixed
quarterly principal payments of $750,000. Borrowings under Term
Loan 2 bore interest at either (i) LIBOR plus 3.00% or (ii) the
bank’s Reference Rate (prime rate), at the option of the
Company. Interest under Term Loan 2 adjusted (i) at the end of each
LIBOR rate period (1, 2, 3, 6 or 12 months terms) selected by the
Company, if the LIBOR rate was selected; or (ii) with changes in
Union Bank’s Reference Rate, if the Reference Rate was
selected. The Company paid an upfront fee of 0.10% of the Term Loan
2 principal amount upon drawing upon Term Loan 2. Borrowings under
Term Loan 2 were secured by a first priority security interest on
all of the Company’s personal property (including, but not
limited to, accounts receivable) and proceeds thereof. Borrowing
under Term Loan 2 was limited to use for the acquisition of
Dealix/Autotegrity, and the Company drew down the entire $15.0
million of Term Loan 2, together with $2.75 million under the
Revolving Loan and $6.76 million from available cash on hand, in
financing this acquisition.
The
Credit Facility Agreement contains certain customary affirmative
and negative covenants and restrictive and financial covenants,
which the Company was in compliance with as of December 31,
2017.
7.
Commitments and Contingencies
Operating Leases
The
Company leases its facilities and certain office equipment under
operating leases which expire on various dates through
2024. The Company’s future minimum lease payments
on leases with non-cancelable terms in excess of one year were as
follows (in thousands):
Years Ending December 31,
|
|
2018
|
$1,526
|
2019
|
1,385
|
2020
|
964
|
2021
|
461
|
2022
|
459
|
Thereafter
|
672
|
|
$5,467
|
Rent
expense included in operating expenses was $2.0 million, $2.0
million and $1.2 million for the years ended December 31,
2017, 2016 and 2015, respectively.
Employment Agreements
The
Company has employment agreements and retention agreements with
certain key employees. A number of these agreements require
severance payments, continuation of certain insurance benefits and
acceleration of vesting of stock options in the event of a
termination of employment without cause or for good
reason.
Litigation
From
time to time, the Company may be involved in litigation matters
arising from the normal course of its business
activities. Such litigation, even if not meritorious,
could result in substantial costs and diversion of resources and
management attention, and an adverse outcome in litigation could
materially adversely affect its business, results of operations,
financial condition and cash flows.
8.
Retirement Savings Plan
The Company has a retirement savings plan which
qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code of 1986, as
amended (“IRC”) (the “401(k) Plan”). The 401(k) Plan covers all
employees of the Company who are over 21 years of age and is
effective on the first day of the month following date of hire.
Under the 401(k) Plan, participating employees are allowed to defer
up to 100% of their pretax salaries not to exceed the maximum IRC
deferral amount. The Company contributions to the 401(k) Plan are
discretionary. The Company contribution in the years ended December
31, 2017, 2016 and 2015 was $0.3 million, $0.4 million and $0.4
million, respectively.
9.
Stockholders’ Equity
Stock-Based Incentive Plans
The Company has established several plans that
provide for stock-based awards (“Awards”) primarily in the form of stock options
and restricted stock awards (“RSAs”). Certain of these plans provide for
awards to employees, the Company’s Board of Directors and
independent consultants. The Awards were granted under the 1998
Stock Option Plan, the 1999 Employee and Acquisition Related Stock
Option Plan, the 2000 Stock Option Plan, the Amended and Restated
2001 Restricted Stock and Option Plan, the 2004 Restricted Stock
and Option Plan, the 2006 Inducement Stock Option Plan, 2010 Equity
Incentive Plan and the Amended and Restated 2014 Equity Incentive
Plan. As of June 19, 2014, awards may only be granted
under the Amended and Restated 2014 Equity Incentive
Plan. An aggregate of 0.6 million shares of Company
common stock are reserved for future issuance under the Amended and
Restated 2014 Equity Incentive Plan at December 31,
2017.
Share-based
compensation expense is included in costs and expenses in the
Consolidated Statements of Operations and Comprehensive
Income(Loss) as follows:
|
|
|
|
|
|
|
|
Share-based
compensation expense:
|
|
|
|
Cost
of revenues
|
$78
|
$67
|
$150
|
Sales
and marketing
|
1,703
|
1,777
|
713
|
Technology
support
|
586
|
601
|
518
|
General
and administrative
|
1,739
|
1,982
|
1,185
|
Share-based
compensation expense
|
4,106
|
4,427
|
2,566
|
|
|
|
|
Amount
capitalized to internal use software
|
3
|
15
|
9
|
|
|
|
|
Total
share-based compensation expense
|
$4,103
|
$4,412
|
$2,557
|
As
of December 31, 2017, December 31, 2016 and December 31, 2015,
there was approximately $3.9 million, $4.9 million and $2.9
million, respectively, of unrecognized compensation expense related
to unvested stock options. This expense is expected to be
recognized over a weighted average period of approximately 3.9
years.
Stock Options
The
fair value of stock options is estimated on the grant date using
the Black-Scholes option pricing model based on the underlying
common stock closing price as of the date of grant, the expected
term, stock price volatility and risk-free interest rates. The
expected risk-free interest rate is based on United States treasury
yield for a term consistent with the expected life of the stock
option in effect at the time of grant. Expected volatility is based
on the Company’s historical experience for a period equal to
the expected life. The Company has used historical volatility
because it has limited or no options traded on its common stock to
support the use of an implied volatility or a combination of both
historical and implied volatility. The Company estimates the
expected life of options granted based on historical experience,
which it believes is representative of future
behavior. The dividend yield is not considered in the
option-pricing formula since the Company has not paid dividends in
the past and has no current plans to do so in the future. The
Company elected to estimate a forfeiture rate and is based on
historical experience and is adjusted based on actual
experience.
The
Company grants its options at exercise prices that are not less
than the fair market value of the Company’s common stock on
the date of grant. Stock options generally have a seven or ten year
maximum contractual term and generally vest one-third on the first
anniversary of the grant date and ratably over twenty-four months,
thereafter. The vesting of certain stock options is accelerated
under certain conditions, including upon a change in control of the
Company, termination without cause of an employee and voluntary
termination by an employee with good reason.
Awards
granted under the Company’s stock option plans were estimated
to have a weighted average grant date fair value per share of
$6.23, $7.04 and $5.73 for the years ended December 31, 2017,
2016 and 2015, respectively, based on the Black-Scholes
option-pricing model on the date of grant using the following
weighted average assumptions:
|
|
|
|
|
|
Expected
volatility
|
62%
|
58%
|
56%
|
Expected
risk-free interest rate
|
1.8%
|
1.2%
|
1.3%
|
Expected
life (years)
|
4.4
|
4.4
|
4.4
|
A
summary of the Company’s outstanding stock options as of
December 31, 2017, and changes during the year then ended is
presented below:
|
|
Weighted
Average
Exercise Price
per Share
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
Outstanding
at December 31, 2016
|
2,742,531
|
$11.15
|
4.3
|
|
Granted
|
466,600
|
12.41
|
|
|
Exercised
|
(248,344)
|
5.46
|
|
|
Forfeited
or expired
|
(215,503)
|
15.93
|
|
|
Outstanding
at December 31, 2017
|
2,745,284
|
$11.50
|
3.9
|
$4,089
|
Vested
and expected to vest at December 31, 2017
|
2,677,867
|
$11.45
|
3.9
|
$4,066
|
Exercisable
at December 31, 2017
|
1,909,298
|
$10.32
|
3.1
|
$3,920
|
Service-Based
Options. During the
years ended December 31, 2017, 2016 and 2015, the Company granted
466,600, 833,900 and 606,750 service-based stock options, which had
weighted average grant date fair values of $6.23, $7.71 and $5.73,
respectively.
Stock option
exercises. During 2017, 248,344
options were exercised, with an aggregate weighted average exercise
price of $5.46. During 2016, 386,001 options were exercised, with
an aggregate weighted average exercise price of $7.91. During 2015,
145,979 options were exercised, with an aggregate weighted average
exercise price of $8.19. The total intrinsic
value of options exercised during 2017, 2016 and 2015 was $1.6
million, $3.2 million and $1.9 million,
respectively.
Market Condition
Options. On January 21, 2016,
the Company granted 100,000 stock options to its chief executive
officer with an exercise price of $17.09 and grant date fair value
of $1.47 per option, using a Monte Carlo simulation model
(“CEO
Market Condition Options”). The CEO Market Condition
Options were previously valued at $2.94 per option but were
revalued when the requisite stockholder approval for the
Company’s Amended and Restated 2014 Equity Incentive Plan was
obtained in June 2016. The CEO Market Condition Options are subject
to both stock price-based and service-based vesting requirements
that must be satisfied for the CEO Market Condition Options to vest
and become exercisable. The CEO Market Condition Options provide
that the stock price-based vesting condition will be met (i) with
respect to the first one-third (1/3) of the CEO Market Condition
Options, if at any time after the grant date and prior to the
expiration date of the CEO Market Condition Options the weighted
average closing price of the Company’s common stock on The
Nasdaq Capital Market for the preceding thirty (30) trading days
(adjusted for any stock splits, stock dividends, reverse stock
splits or combinations occurring after the issuance date)
(“Weighted Average Closing
Price”) is at or above
$30.00; (ii) with respect to the second one-third (1/3) of the CEO
Market Condition Options, if at any time after the grant date and
prior to the expiration date the Weighted Average Closing Price is
at or above $37.50; and (iii) with respect to the last one-third
(1/3) of the CEO Market Condition Options, if at any time after the
grant date and prior to the expiration date the Weighted Average
Closing Price is at or above $45.00. With respect to any of the CEO
Market Condition Options for which the stock price-based
requirements are met, these options are also subject to the
following service-based vesting schedule: (i) thirty-three and
one-third percent (33 1/3%) of these options will vest and become
exercisable on January 21, 2017 and (ii) one thirty-sixth (1/36th)
of these options will vest and become exercisable on each
successive monthly anniversary thereafter for the following
twenty-four months ending on January 21, 2019. None of the
stock-price based vesting requirements have been met as of December
31, 2017. The CEO Market Condition Options expire on January 21,
2023.
Restricted Stock
Awards. The Company
granted an aggregate of 125,000 RSAs on April 23, 2015 in
connection with the promotion of one of its executive
officers. Of the 125,000 RSAs, 25,000 were service-based
(“Service-Based RSA
Award”) and the
forfeiture restrictions lapse with respect to one-third of the
restricted stock on each of the first, second and third
anniversaries of the date of the award. The
Service-Based RSA Award had a fair market value of $15.37 per
share. This executive officer was also awarded
100,000 shares of the Company’s common stock in the form of
performance-based restricted stock (“Performance-Based RSA
Award”). The
Performance-Based RSA Award had a fair market value of $5.23 per
share. The shares are subject to forfeiture upon the
earlier of (such earliest date being referred to as the
“Termination
Date”) (i) a termination
of the executive officer’s employment with the Company; (ii)
March 31, 2018; and (iii) other events of forfeiture set forth in
the award agreement, subject to the following: (i) the forfeiture
restrictions with respect to 50,000 of the restricted shares will
lapse if any time prior to the Termination Date the weighted
average closing price of the Company’s common stock for the
preceding 30 trading days is at or above $30.00 per share, and (ii)
the forfeiture restrictions with respect to any of the restricted
shares that remain subject to forfeiture restrictions will lapse if
any time prior to the Termination Date the weighted average closing
price of the Company’s common stock for the preceding 30
trading days is at or above $45.00 per share. None of
the forfeiture restrictions had lapsed on the Performance-Based RSA
Awards during 2017.
The
Company granted an aggregate of 345,000 RSAs on September 27, 2017
to executive officers of the Company. The RSAs are
service-based and the forfeiture restrictions lapse with respect to
one-third of the restricted stock on each of the first, second and
third anniversaries of the date of the award. Lapsing of
the forfeiture restrictions may be accelerated in the event of a
change in control of the Company and will accelerate upon the death
or disability of the holder of the RSAs.
Tax Benefit Preservation Plan
The Company’s Tax Benefit Preservation Plan
dated as of May 26, 2010 between AutoWeb and Computershare Trust
Company, N.A., as rights agent, as amended by Amendment No. 1 to
Tax Benefit Preservation Plan dated as of April 14, 2014
(collectively, the “Tax Benefit Preservation
Plan”) was adopted by the
Company’s Board of Directors to protect stockholder value by
preserving the Company’s net operating loss carryovers and
other tax attributes that the Tax Benefit Preservation Plan is
intended to preserve (“Tax Benefits”). Under the Tax Benefit
Preservation Plan, rights to purchase capital stock of the Company
(“Rights”) have been distributed as a dividend at
the rate of five Rights for each share of common
stock. Each Right entitles its holder, upon triggering
of the Rights, to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company at a price of
$75.00 (as such price may be adjusted under the Tax Benefit
Preservation Plan) or, in certain circumstances, to instead acquire
shares of common stock. The Rights will convert into a right to
acquire common stock or other capital stock of the Company in
certain circumstances and subject to certain
exceptions. The Rights will be triggered upon the
acquisition of 4.9% or more of the Company’s outstanding
common stock or future acquisitions by any existing holder of 4.9%
or more of the Company’s outstanding common stock. If a
person or group acquires 4.9% or more of the Company’s common
stock, all rights holders, except the acquirer, will be entitled to
acquire, at the then exercise price of a Right, that number of
shares of the Company common stock which, at the time, has a market
value of two times the exercise price of the Right. The Rights will
expire upon the earliest of: (i) the close of business on May
26, 2017 unless that date is advanced or extended, (ii) the
time at which the Rights are redeemed or exchanged under the Tax
Benefit Preservation Plan, (iii) the repeal of
Section 382 or any successor statute if the Board determines
that the Tax Benefit Preservation Plan is no longer necessary for
the preservation of the Company’s Tax Benefits, (iv) the
beginning of a taxable year of the Company to which the Board
determines that no Tax Benefits may be carried forward, or (v) such
time as the Board determines that a limitation on the use of the
Tax Benefits under Section 382 would no longer be material to the
Company. The Tax Benefit Preservation Plan was reapproved by the
Company’s stockholders at the Company’s 2014 Annual
Meeting of Stockholders.
Series B Preferred Stock
On
the AWI Merger Date, the Company issued the Series B Preferred
Stock. The shares of Series B Preferred Stock were
convertible, subject to certain limitations, into 10 shares of
Common Stock (with such conversion ratio subject to adjustment as
set forth in the certificate of designations for the Series B
Preferred Stock). On June 22, 2017, the Company obtained
stockholder approval for conversion of the then outstanding Series
B Preferred Stock. Upon obtaining stockholder approval for the
conversion, each share of Series B Preferred Stock outstanding was
automatically converted into 10 shares of the Company’s
common stock, which resulted in the outstanding shares of Series B
Preferred Stock being converted into 1,680,070 shares of the
Company’s common stock.
Warrant
On September 17, 2010 (“Cyber Acquisition
Date”), the Company
acquired substantially all of the assets of
Cyber. In connection with the acquisition of
Cyber, the Company issued to the sellers the Cyber Warrant. The
Cyber Warrant was valued at $3.15 per share on the Cyber
Acquisition Date using an option pricing model with the following
key assumptions: risk-free rate of 2.3%, stock price volatility of
77.5% and a term of 8.04 years. The Cyber Warrant was
valued based on historical stock price volatilities of the Company
and comparable public companies as of the Cyber Acquisition
Date. The exercise price of the Cyber Warrant was $4.65
per share (as adjusted for stock splits, stock dividends,
combinations and other similar events). The Cyber
Warrant was acquired by Auto Holdings and exercised on April 27,
2015, as discussed in Note 1. Based upon the terms of
exercise of the Cyber Warrant, the Company issued 400,000 shares of
Company Common stock and received approximately $1.9 million in
cash.
The warrant to purchase 69,930 shares of the
Company’s common stock issued in connection with the
acquisition of AutoUSA was valued at $7.35 per share for a total
value of $0.5 million (“AutoUSA
Warrant”). The
Company used an option pricing model to determine the value of the
AutoUSA Warrant. Key assumptions used in valuing the
AutoUSA Warrant are as follows: risk-free rate of 1.6%, stock price
volatility of 65.0% and a term of 5.0 years. The AutoUSA
Warrant was valued based on long-term stock price volatilities of
the Company. The exercise price of the AutoUSA Warrant
is $14.30 per share (as may be adjusted for stock splits, stock
dividends, combinations and other similar events). The
AutoUSA Warrant became exercisable on January 13, 2017 and expires
on January 13, 2019.
The warrant to purchase up to 148,240 shares of
Series B Preferred Stock issued in connection with the acquisition
of AWI (“AWI Warrant”) was valued at $1.72 per share for a total
value of $2.5 million. The Company used an option
pricing model to determine the value of the AWI
Warrant. Key assumptions used in valuing the AWI Warrant
are as follows: risk-free rate of 1.9%, stock price volatility of
74.0% and a term of 7.0 years. The AWI Warrant was
valued based on long-term stock price volatilities of the
Company’s common stock. On June 22, 2017, the
Company received stockholder approval which resulted in the
automatic conversion of the AWI Warrant into warrants to acquire up
to 1,482,400 shares of the Company’s common stock at an
exercise price of $18.45 per share of common stock. The AWI Warrant
becomes exercisable on October 1, 2018, subject to the following
vesting conditions: (i) with respect to the first one-third (1/3)
of the warrant shares, if at any time after the issuance date of
the AWI Warrant and prior to the expiration date of the AWI Warrant
the Weighted Average Closing Price of the Company’s common
stock is at or above $30.00; (ii) with respect to the second
one-third (1/3) of the warrant shares, if at any time after the
issuance date of the AWI Warrant and prior to the expiration date
the Weighted Average Closing Price is at or above $37.50; and (iii)
with respect to the last one-third (1/3) of the warrant shares, if
at any time after the issuance date of the AWI Warrant and prior to
the expiration date the Weighted Average Closing Price is at or
above $45.00. The AWI Warrant expires on October 1,
2022.
Stock
Repurchase
On June 7, 2012, the Company announced that its
board of directors had authorized the Company to repurchase up to
$2.0 million of the Company’s common stock, and on September
17, 2014, the Company announced that its board of
directors had approved the repurchase of up to an additional $1.0
million of the Company’s common stock. On
September 6, 2017, the Company announced that its board of
directors authorized the Company to repurchase an additional $3.0
million of the Company’s common stock. Under these
repurchase programs, the Company may repurchase common stock from
time to time on the open market or in private transactions. These
authorizations do not require us to purchase a specific number of
shares, and the board of directors may suspend, modify or terminate
the programs at any time. The Company will fund future repurchases
through the use of available cash. During 2017, the Company
repurchased 226,698 shares for an aggregate price of $1.9 million.
The average price paid for all shares repurchased during 2017 was
$8.37. The shares repurchased during 2017 were cancelled and
returned to authorized and unissued shares. No shares were
repurchased in 2016.
Shares Reserved for Future Issuance
The
Company had the following shares of common stock reserved for
future issuance upon the exercise or issuance of equity instruments
as of December 31, 2017:
|
|
Stock
options outstanding
|
2,745,284
|
Authorized
for future grants under stock-based incentive plans
|
603,758
|
Reserved
for exercise of warrants
|
1,552,330
|
Reserved
for conversion of AUSA Note
|
61,200
|
Total
|
4,962,572
|
11.
Income Taxes
The
components of income (loss) before income tax provision are as
follows for the years ended December 31:
|
|
|
|
|
(in
thousands)
|
|
|
|
|
United
States
|
$(40,090)
|
$6,448
|
$8,079
|
International
|
565
|
238
|
—
|
Total
income (loss) before income tax provision
|
$(39,525)
|
$6,686
|
$8,079
|
Income
tax expense from continuing operations consists of the following
for the years ended December 31:
|
|
|
|
|
(in
thousands)
|
Current:
|
|
|
|
Federal
|
$—
|
$244
|
$212
|
State
|
36
|
508
|
226
|
Foreign
|
139
|
69
|
—
|
|
175
|
821
|
438
|
Deferred:
|
|
|
|
Federal
|
(2,916)
|
1,726
|
2,997
|
State
|
(175)
|
1,040
|
586
|
Foreign
|
—
|
—
|
—
|
|
(3,091)
|
2,766
|
3,583
|
|
|
|
|
Change
in federal tax rate
|
11,693
|
—
|
—
|
|
|
|
|
Valuation
allowance
|
16,662
|
(772)
|
(588)
|
|
|
|
|
Total
income tax expense
|
$25,439
|
$2,815
|
$3,433
|
The
reconciliations of the U.S. federal statutory rate to the effective
income tax rate for the years ended December 31, 2017, 2016
and 2015 are as follows:
|
|
|
|
Tax
provision at U.S. federal statutory rates
|
34.0%
|
34.0%
|
34.0%
|
State
income taxes net of federal benefit
|
2.7
|
3.1
|
2.3
|
Deferred
tax asset adjustments – NOL related
|
(12.1)
|
16.1
|
6.8
|
Non-deductible
permanent items
|
(0.1)
|
—
|
0.7
|
Stock
options
|
(0.1)
|
—
|
—
|
Acquisition
costs
|
—
|
—
|
7.0
|
Goodwill
impairment
|
(17.5)
|
—
|
—
|
Other
|
0.3
|
0.4
|
(1.0)
|
Transition
tax adjustment
|
0.2
|
—
|
—
|
Change
in rate
|
(29.6)
|
—
|
—
|
Change
in valuation allowance
|
(42.2)
|
(11.5)
|
(7.3)
|
Effective
income tax rate
|
(64.4%)
|
42.1%
|
42.5%
|
Deferred
income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company’s deferred
taxes as of December 31, 2017 and 2016 are as
follows:
|
|
|
|
|
Deferred
tax assets:
|
|
|
Allowance
for doubtful accounts
|
$225
|
$381
|
Accrued
liabilities
|
574
|
1,596
|
Net
operating loss carry-forwards
|
17,286
|
25,563
|
Intangible
assets
|
161
|
—
|
Share-based
compensation expense
|
2,727
|
3,225
|
Other
|
1,062
|
1,191
|
Total
gross deferred tax assets
|
22,035
|
31,956
|
Valuation
allowance
|
(21,318)
|
(4,656)
|
|
717
|
27,300
|
|
|
|
Deferred
tax liabilities:
|
|
|
Fixed
assets
|
(25)
|
(114)
|
Intangible
assets
|
—
|
(7,698)
|
Unremitted
foreign earnings
|
—
|
(20)
|
Total
gross deferred tax liabilities
|
(25)
|
(7,832)
|
Net
deferred tax assets
|
$692
|
$19,468
|
On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation known as the TCJA. The TCJA establishes new tax laws
that will take effect in 2018, including, but not limited to (1)
reduction of the U.S. federal corporate tax rate from a maximum of
35% to 21%; (2) elimination of the corporate AMT; (3) a new
limitation on deductible interest expense; (4) the Transition Tax;
(5) limitations on the deductibility of certain executive
compensation; (6) changes to the bonus depreciation rules for fixed
asset additions: and (7) limitations on NOLs generated after
December 31, 2017, to 80% of taxable income.
ASC 740, Income Taxes, requires the effects of
changes in tax laws to be recognized in the period in which the
legislation is enacted. However, due to the complexity and
significance of the TCJA's provisions, the SEC staff issued Staff
Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the TCJA. SAB 118 provides a measurement
period that should not extend beyond one year from the TCJA
enactment date for companies to complete the accounting under ASC
740. In accordance with SAB 118, a company must reflect the income
tax effects of those aspects of the TCJA for which the accounting
under ASC 740 is complete. To the extent that a company’s
accounting for certain income tax effects of the TCJA is incomplete
but it is able to determine a reasonable estimate, it must record a
provisional estimate in the financial statements. If a company
cannot determine a provisional estimate to be included in the
financial statements, it should continue to apply ASC 740 on the
basis of the provisions of the tax laws that were in effect
immediately before the enactment of the TCJA.
At
December 31, 2017, the Company has not completed its accounting for
the tax effects of enactment of the TCJA; however, the Company has
made a reasonable estimate of the effects of the TCJA’s
change in the federal rate and revalued its deferred tax assets
based on the rates at which they are expected to reverse in the
future, which is generally the new 21% federal corporate tax rate
plus applicable state tax rate. The Company recorded a
decrease in deferred tax assets and deferred tax liabilities of
$11.7 million and $0.0 million, respectively, with a corresponding
net adjustment to deferred income tax expense of $11.7 million for
the year ended December 31, 2017. In addition, the Company
recognized a deemed repatriation of $0.6 million of deferred
foreign income from its Guatemala subsidiary, which did not result
in any incremental tax cost after application of foreign tax
credits. The Company’s provisional estimates will be
adjusted during the measurement period defined under SAB 118, based
upon ongoing analysis of data and tax positions along with the new
guidance from regulators and interpretations of the
law.
The
Company adopted the provisions of ASU 2016-09 as of January 1,
2017, which requires recognition through opening retained earnings
of any pre-adoption date NOL carryforwards from nonqualified stock
options and other employee share-based payments (e.g., restricted
shares and share appreciation rights), as well as recognition of
all income tax effects from share-based payments arising on or
after January 1, 2017 in income tax expense. As a result, the
Company has recognized $18.4 million of pre-adoption date NOL
carryforwards with remaining carryforward periods of at least seven
years. The Company recognized excess tax benefits of $6.5 million
as an increase to deferred tax assets and a cumulative-effect
adjustment to retained earnings of $6.5 million. Based on the
weight of available evidence, the Company believes that it is more
likely than not that these NOLs will not be realized and has placed
a valuation allowance against the deferred tax asset.
During
2017, management assessed the available positive and negative
evidence to estimate if sufficient future taxable income will be
generated to utilize the existing deferred tax assets. A
significant piece of objective negative evidence evaluated was the
cumulative losses incurred over the three-year period ended
December 31, 2017. The Company was projecting pre-tax income for
2017 until the three months ended December 31, 2017, in which the
Company incurred a significant pre-tax loss due to goodwill
impairment. The Company experienced increased costs in servicing
its customers and started to see a decrease in market share as a
result of more competition. The Company also projects that 2018
pre-tax profits may not offset the cumulative three-year pre-tax
loss as of December 31, 2017. Based on this evaluation, the Company
recorded an additional valuation allowance of $16.7 million against
its deferred tax assets during the year. At December 31, 2017, the
Company has recorded a valuation allowance of $21.3 million against
its deferred tax assets.
At December 31, 2017, the Company had federal
and state NOLs of approximately
$74.0 million and $26.2 million, respectively. The
federal NOLs expire through 2035 as follows (in
millions):
2025
|
$4.1
|
2026
|
25.5
|
2027
|
15.5
|
2028
|
5.2
|
2029
|
7.7
|
2030
|
10.6
|
2031
|
1.3
|
2032
|
—
|
2033
|
0.1
|
2034
|
2.5
|
2035
|
1.5
|
|
$74.0
|
The
state NOLs expire through 2035 as follows (in
millions):
2028
|
$2.7
|
2029
|
5.8
|
2030
|
11.0
|
2034
|
1.5
|
2035
|
0.8
|
California
NOLs
|
21.8
|
Other
State NOLs
|
4.4
|
Total
State NOLs
|
$26.2
|
Utilization
of the net operating loss and tax credit carry-forwards may be
subject to a substantial annual limitation due to ownership change
limitations that may have occurred or that could occur in the
future, as required by Section 382 of the IRC, as well as similar
state provisions. These ownership changes may limit the amount of
NOLs and research and development credit carry-forwards that can be
utilized annually to offset future taxable income and tax,
respectively. A Section 382 ownership change occurred in
2006 and any changes have been reflected in the NOLs presented
above as of December 31, 2017. As a result of an
acquisition in 2001, approximately $9.9 million of the NOLs are
subject to an annual limitation of approximately $0.5 million per
year.
The
federal and state NOLs begin to expire in 2025 and 2028,
respectively. Approximately $10.8 million and $5.0 million,
respectively, of the federal and state NOLs were incurred by
subsidiaries prior to the date of the Company’s acquisition
of such subsidiaries. The Company established a valuation allowance
of $4.1 million at the date of acquisitions related to these
subsidiaries. The tax benefits associated with the realization of
such NOLs was credited to the provision for income
taxes.
At
December 31, 2017, the Company has federal and state research and
development tax credit carry-forwards of $0.3 million and $0.2
million, respectively. The federal credits begin to
expire in 2021. The state credits do not
expire.
As
of December 31, 2017 and 2016, the Company had unrecognized tax
benefits of approximately $0.5 million and $0.5 million,
respectively, all of which, if subsequently recognized, would have
affected the Company’s tax rate. A reconciliation
of the beginning and ending amount of unrecognized tax benefits is
as follows:
|
|
|
|
|
Balance
at January 1,
|
$464
|
$527
|
Reductions
based on tax positions related to prior years and
settlements
|
—
|
(63)
|
Balance
at December 31,
|
$464
|
$464
|
The
Company is subject to taxation in the United States and various
foreign and state jurisdictions. In general, the Company is no
longer subject to U.S. federal and state income tax examinations
for years prior to 2013 (except for the use of tax losses generated
prior to 2013 that may be used to offset taxable income in
subsequent years). The Company does not anticipate a significant
change to the total amount of unrecognized tax benefits within the
next twelve months.
The
Company’s policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income
tax expense. The Company has not accrued any interest associated
with its unrecognized tax benefits in the years ended December 31,
2017 and 2016.
12. Quarterly Financial Data
(Unaudited)
Below
is a summary table of the Company’s quarterly data for the
years ended December 31, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share amounts)
|
Total
net revenues
|
$33,321
|
$36,872
|
$34,591
|
$37,341
|
$40,378
|
$43,911
|
$36,148
|
$36,247
|
Gross
profit
|
$8,139
|
$11,086
|
$10,636
|
$12,911
|
$14,601
|
$15,755
|
$13,921
|
$13,635
|
Net
income (loss)
|
$(65,840)
|
$69
|
$322
|
$484
|
$1,378
|
$2,738
|
$430
|
$(676)
|
Basic
earnings (loss) per share
|
$(5.22)
|
$0.01
|
$0.03
|
$0.04
|
$0.13
|
$0.26
|
$0.04
|
$(0.06)
|
Diluted
earnings (loss) per share
|
$(5.22)
|
$0.01
|
$0.02
|
$0.04
|
$0.10
|
$0.21
|
$0.03
|
$(0.06)
|
(1)
Net income in the
quarter ended
December 31, 2017 included goodwill impairment of $37.7 million,
tax provision related to valuation allowance of $16.7 million, tax
provision of $11.7 million due to TCJA and a $0.6 million write-off
related to SaleMove.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
Allowance
for bad debts:
|
|
|
|
Beginning
balance
|
$643
|
$605
|
$490
|
Additions
|
346
|
344
|
379
|
Write-offs
|
(311)
|
(306)
|
(264)
|
Ending
balance
|
$678
|
$643
|
$605
|
Allowance
for customer credits:
|
|
|
|
Beginning
balance
|
$371
|
$439
|
$280
|
Additions
|
247
|
592
|
803
|
Write-offs
|
(405)
|
(660)
|
(644)
|
Ending
balance
|
$213
|
$371
|
$439
|
Tax
valuation allowance:
|
|
|
|
Beginning
balance
|
$4,656
|
$5,427
|
$6,015
|
Charged
(credited) to tax expense
|
21,247
|
(771)
|
(588)
|
Charged
(credited) to retained earnings
|
(4,585)
|
—
|
—
|
Ending
balance
|
$21,318
|
$4,656
|
$5,427
|
Exhibit
10.11
AUTOWEB, INC.
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
AutoWeb, Inc. (“Company”), a Delaware corporation, hereby
establishes and adopts the following AutoWeb, Inc. Amended and
Restated 2014 Equity Incentive Plan (“Plan”).
The
purpose of the Plan is to assist the Company and its Subsidiaries
in attracting and retaining selected individuals to serve as
employees, directors, officers, consultants and/or advisors who are
expected to contribute to the Company’s success and to
achieve long-term objectives that will benefit stockholders of the
Company through the additional incentives inherent in the Awards
hereunder.
2. DEFINITIONS
“Award” means any Option, Stock Appreciation
Right, Restricted Stock Award, Restricted Stock Unit Award, Other
Share-Based Award, Performance Award or any other right, interest
or option relating to Shares or other property (including cash)
granted pursuant to the provisions of the Plan.
“Award
Agreement” means any
agreement, contract or other instrument or document evidencing any
Award hereunder, whether in writing or through an electronic
medium.
“Board” means the board of directors of the
Company.
“Board Approval
Date” means April 14,
2016, the date the Board approved this Plan.
“Business
Combination” has the
meaning set forth in Section 11.3(c).
“Change in Control”
has the meaning set forth in Section
11.3.
“Code” means the Internal Revenue Code of 1986,
as amended from time to time.
“Committee” means the Compensation Committee of the
Board or a subcommittee thereof formed by the Compensation
Committee to act as the Committee hereunder. The Committee
must consist of no fewer than two Directors, each of whom is (i) a
“Non-Employee Director” within the meaning of Rule
16b-3 of the Exchange Act, (ii) an “outside director”
within the meaning of Section 162(m) of the Code, and (iii) an
“independent director" for purpose of the rules of the
principal U.S. national securities exchange on which the Shares are
traded, to the extent required by such rules.
“Company Voting
Securities” has the
meaning set forth in Section 11.3(b).
“Consultant” means any consultant or advisor who is a
natural person and who provides services to the Company or any
Subsidiary, so long as such person (i) renders bona fide services
that are not in connection with the offer and sale of the Company's
securities in a capital raising transaction, (ii) does not directly
or indirectly promote or maintain a market for the Company’s
securities, and (iii) otherwise qualifies as a consultant under the
applicable rules of the Securities and Exchange Commission for
registration of shares of stock on a Form S-8 registration
statement.
“Covered
Employee” means an
employee of the Company or its Subsidiaries who is a “covered
employee" within the meaning of Section 162(m) of the
Code.
“Director” means a non-employee member of the
Board.
“Dividend
Equivalents” has the
meaning set forth in Section 12.5.
“Effective
Date” has the meaning set
forth in Section 13.13.
“Employee” means any employee of the Company or any
Subsidiary and any prospective employee conditioned upon, and
effective not earlier than, such person becoming an employee of the
Company or any Subsidiary.
“Exchange Act” means the Securities Exchange Act of 1934,
as amended.
“Existing
Plan” means the AutoWeb,
Inc. 2014 Equity Incentive Plan in effect prior to this amendment
and restatement.
“Fair Market
Value” means, with
respect to Shares as of any date, (i) the closing price of the
Shares as reported on the principal U.S. national securities
exchange on which the Shares are listed and traded on that date,
or, if there is no closing price on that date, then on the last
preceding date on which a closing price was reported; (ii) if the
Shares are not listed on any U.S. national securities exchange but
are quoted in an inter-dealer quotation system on a last sale
basis, the final ask price of the Shares reported on the
inter-dealer quotation system for such date, or, if there is no
sale on that date, then on the last preceding date on which a sale
was reported; or (iii) if the Shares are neither listed on a U.S.
national securities exchange nor quoted on an inter-dealer
quotation system on a last sale basis, the amount determined by the
Committee to be the fair market value of the Shares as determined
by the Committee in its sole discretion. The Fair Market Value of
any property other than Shares means the market value of that
property determined by such methods or procedures as may be
established from time to time by the Committee.
“Fungible Share
Ratio” means the
rate at which Full-Value Awards are counted against Plan limits as
set forth in Sections 3.1(a) and 3.1(d).
“Full-Value
Awards” means Awards
other than Option and Stock Appreciation
Rights.
“Incumbent
Directors” has the
meaning set forth in Section 11.3(a).
“Incentive Stock
Option” means an Option
that when granted is intended to qualify as an incentive stock
option for purposes of Section 422 of the Code.
“Limitations” has the meaning set forth in Section
10.5.
“Non-Qualifying
Transaction” has the
meaning set forth in Section 11.3(c).
“Officer” means any officer of the Company or any
Subsidiary.
“Option” means any right granted to a Participant
under the Plan allowing that Participant to purchase Shares at such
price or prices and during such period or periods as the Committee
may determine.
“Other Share-Based
Awards” has the meaning
set forth in Section 8.1.
“Parent
Corporation” has the
meaning set forth in Section 11.3(c).
“Participant” means an Employee, Officer, Director or
Consultant who is selected by the Committee to receive an Award
under the Plan.
“Payee” has the meaning set forth in Section
13.2.
“Performance
Award” means any Award of
Performance Cash, Performance Shares or Performance Units granted
pursuant to Article 9.
“Performance
Cash” means any cash
incentives granted pursuant to Article 9 payable to the Participant
upon the achievement of such performance goals as the Committee may
establish.
“Performance
Period” means the period
established by the Committee during which any performance goals
specified by the Committee with respect to a Performance Award are
to be measured.
“Performance
Share” means any grant
pursuant to Article 9 of a unit valued by reference to a designated
number of Shares, which value may be paid to the Participant upon
achievement of such performance goals as the Committee may
establish.
“Performance
Unit” means any grant
pursuant to Article 9 of a unit valued by reference to a designated
amount of cash or property other than Shares, which value may be
paid to the Participant upon achievement of such performance goals
during the Performance Period as the Committee may
establish.
“Permitted
Assignee” has the meaning
set forth in Section 12.3.
“Plan Expiration
Date” means June 19,
2024.
“Prior Plans” means, collectively, the Company’s
1998 Stock Option Plan, 1999 Stock Option Plan, 2000 Stock Option
Plan, Amended and Restated 2001 Restricted Stock and Option Plan,
2004 Restricted Stock and Option Plan, and 2010 Equity Incentive
Plan.
“Restricted
Stock” means any Share
issued with the restriction that the holder may not sell, transfer,
pledge or assign such Share and with such other restrictions as the
Committee, in its sole discretion, may impose, which restrictions
may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem
appropriate.
“Restricted Stock
Award” has the meaning
set forth in Section 7.1.
“Restricted Stock
Unit” means an Award that
is valued by reference to a Share, which value may be paid to the
Participant in Shares or cash as determined by the Committee in its
sole discretion upon the satisfaction of vesting restrictions as
the Committee may establish, which
restrictions may lapse separately or in combination at such time or
times, in installments or otherwise, as the Committee may deem
appropriate.
“Restricted Stock Unit
Award” has the meaning
set forth in Section 7.1
“SEC” has the meaning set forth in Section
13.6.
“Shares” means the shares of common stock of the
Company, par value $0.001 per share.
“Stock Appreciation
Right” means the right
granted to a Participant pursuant to Article 6.
“Subsidiary”
means any corporation, limited liability company,
partnership, joint venture or similar entity in which the Company
owns, directly or indirectly, an equity interest possessing more
than 50% of the combined voting power of the total outstanding
equity interests of such entity. Provided, however, in the case of an
Incentive Stock Option, “Subsidiary” means any
corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the relevant time
each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in the chain. For purposes of the preceding
sentence, the term “corporation” has the meaning
prescribed in Section 7701(a)(3) of the Code and the regulations
thereunder.
“Substitute
Awards” means Awards
granted or Shares issued by the Company in assumption of, or in
substitution or exchange for, awards previously granted, or the
right or obligation to make future awards, in each case by a
company acquired by the Company or any Subsidiary or with which the
Company or any Subsidiary combines.
“Surviving
Corporation” has the
meaning set forth in Section 11.3(c).
“Vesting
Period” means the period
of time specified by the Committee during which vesting
restrictions for an Award are applicable.
3.
SHARES SUBJECT TO THE PLAN
3.1 Number
of Shares.
(a) Subject
to adjustment as provided in Section 12.2, as of the Effective
Date, a maximum total of 2,315,273 Shares are authorized for grant
under the Plan, less one (1) Share for every one (1) Share that was
subject to an Option or Stock Appreciation Right granted under the
Plan after December 31, 2015 and prior to the Effective Date, and
one and six-tenths (1.6) Shares for every one (1) Share that was
subject to a Full-Value Award granted under the Plan after December
31, 2015 and prior to the Effective Date. Any Shares
that are subject to Options or Stock Appreciation Rights must be
counted against this limit as one (1) Share for every one (1) Share
granted, and any Shares that are subject to Full-Value Awards must
be counted against this limit as one and six-tenths (1.6) Shares
for every one (1) Share granted. After June 19, 2014, no
awards may be granted under any Prior Plan.
(b) If
(i) any Shares subject to an Award are forfeited, an Award expires
or an Award is settled for cash (in whole or in part), or (ii)
after December 31, 2013 any Shares subject to an award under the
Prior Plans are forfeited, or an award under the Prior Plans
expires or is settled for cash (in whole or in part), the Shares
subject to such Award or award under the Prior Plans will, to the
extent of such forfeiture, expiration or cash settlement, again be
available for Awards under the Plan, in accordance with Section
3.1(d) below. In the event that withholding tax liabilities
arising from an Award other than an Option or Stock Appreciation
Right or, after December 31, 2013, an award other than an option or stock appreciation
right under any Prior Plan are satisfied by the tendering of Shares
(either actually or by attestation) or by the withholding of Shares
by the Company, the Shares so tendered or withheld shall be added
to the Shares available for Awards under the Plan in accordance
with Section 3.1(d). Notwithstanding anything to the contrary
contained herein, the following Shares may not be added to the
Shares authorized for grant under paragraph (a) of this Section
3.1: (i) Shares tendered by the Participant or withheld by the
Company in payment of the exercise price of an Option or after
December 31, 2013, an option granted under the Prior Plans, or to
satisfy any tax withholding obligation with respect to Options or
Stock Appreciation Rights or, after December 31,
2013, options or stock appreciation rights under the
Prior Plans, (ii) Shares subject to a Stock Appreciation Right, or
after December 31, 2013, a stock appreciation right granted under
the Prior Plans that are not issued in connection with its stock
settlement on exercise thereof, and (iii) Shares reacquired by the
Company on the open market or otherwise using cash proceeds from
the exercise of Options or after December 31, 2013, options granted
under the Prior Plans.
(c) Substitute
Awards will not reduce the Shares authorized for grant under the
Plan or the Limitations applicable to a Participant under Section
10.5, nor will Shares subject to a Substitute Award again be
available for Awards under the Plan to the extent of any
forfeiture, expiration or cash settlement as provided in paragraph
(b) above. Additionally, in the event that a company acquired
by the Company or any Subsidiary or with which the Company or any
Subsidiary combines has shares available under a pre-existing plan
approved by stockholders and not adopted in contemplation of such
acquisition or combination, the shares available for grant pursuant
to the terms of such pre-existing plan (as adjusted, to the extent
appropriate, using the exchange ratio or other adjustment or
valuation ratio or formula used in such acquisition or combination
to determine the consideration payable to the holders of common
stock of the entities party to such acquisition or combination) may
be used for Awards under the Plan and will not reduce the Shares
authorized for grant under the Plan; provided that Awards using such available shares may not be
made after the date awards or grants could have been made under the
terms of the pre-existing plan, absent the acquisition or
combination, and will only be made to individuals who were not
Employees or Directors prior to such acquisition or
combination.
(d) Any
Shares that again become available for grant pursuant to this
Section must be added back as (i) one (1) Share if such Shares were
subject to Options or Stock Appreciation Rights granted under the
Plan or options or stock appreciation rights granted under the
Prior Plans, and (ii) as one and six-tenths (1.6) Shares if such
Shares were subject to Full-Value Awards granted under the Plan or
under the Prior Plans.
3.2 Character
of Shares. Any
Shares issued hereunder may consist, in whole or in part, of
authorized and unissued shares, treasury shares or shares purchased
in the open market or otherwise.
3.3 Limit
on Awards to Non-Employee Directors.
Notwithstanding any other provision of the Plan to the contrary,
the aggregate of the following during any single calendar year
shall not exceed $750,000: (i) the aggregate grant date fair value
(as calculated by the Company for financial accounting purposes) of
all Awards granted to any non-employee Director during such
calendar year and (ii) the sum of all cash payments to any
non-employee Director made during such calendar
year.
4.
ELIGIBILITY AND ADMINISTRATION
4.1 Eligibility. Any
Employee, Officer, Director or Consultant is eligible to be
selected as a Participant.
4.2 Administration.
(a) The
Plan must be administered by the Committee. The Committee has
full power and authority, subject to the provisions of the Plan and
subject to such orders or resolutions not inconsistent with the
provisions of the Plan as may from time to time be adopted by the
Board, to: (i) select the Employees, Officers, Directors and
Consultants to whom Awards may from time to time be granted
hereunder; (ii) determine the type or types of Awards to be granted
to each Participant hereunder; (iii) determine the number of Shares
(or dollar value) to be covered by each Award granted hereunder;
(iv) determine the terms and conditions, not inconsistent with the
provisions of the Plan, of any Award granted hereunder; (v)
determine whether, to what extent and under what circumstances
Awards may be settled in cash, Shares or other property; (vi)
determine whether, to what extent, and under what circumstances
cash, Shares, other property and other amounts payable with respect
to an Award made under the Plan will be deferred either
automatically or at the election of the Participant; (vii)
determine whether, to what extent and under what circumstances any
Award will be canceled or suspended; (viii) interpret and
administer the Plan and any instrument or agreement entered into
under or in connection with the Plan, including any Award
Agreement; (ix) correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner
and to the extent that the Committee deems desirable to carry it
into effect; (x) establish such rules and regulations and appoint
such agents as it deems appropriate for the proper administration
of the Plan; (xi) determine whether any Award, other than an Option
or Stock Appreciation Right, will have Dividend Equivalents; and
(xii) make any other determination and take any other action that
the Committee deems necessary or desirable for the administration
of the Plan.
(b) Decisions
of the Committee are final, conclusive and binding on all persons
or entities, including the Company, any Participant, and any
Subsidiary. Meetings and actions of the Committee are
governed by, and must be held and taken in accordance with the
Company’s Bylaws and any rules adopted by the Board not
inconsistent with the Company’s Bylaws.
(c) To
the extent not inconsistent with applicable law, including Section
162(m) of the Code, or the rules and regulations of the principal
U.S. national securities exchange on which the Shares are traded,
the Committee may: (i) delegate to a committee of one or more
directors of the Company any of the authority of the Committee
under the Plan, including the right to grant, cancel or suspend
Awards, and (ii) authorize one or more executive officers to
do one or both of the following: (A) designate officers (other than
officers subject to Section 16 of the Exchange Act) and employees
of the Company or any Subsidiary to be recipients of Options, and
(B) determine the number of such Options to be received by those
officers and employees; provided that any resolution of the Committee authorizing
such officer(s) must specify the total number of Options such
officer(s) may so award and the Committee may not authorize an
officer to designate himself or herself as a recipient of an
Option.
5.1 Grant
of Options. Options
may be granted hereunder to Participants either alone or in
addition to other Awards granted under the Plan. Any Option
is subject to the terms and conditions of this Article and to such
additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee deems
desirable.
5.2 Award
Agreements. All
Options must be evidenced by a written Award Agreement in such form
and containing such terms and conditions as the Committee
determines which are not inconsistent with the provisions of the
Plan. The terms and conditions of Options need not be the
same with respect to each Participant. Granting an
Option pursuant to the Plan does not impose any obligation on the
recipient to exercise that Option. Any Participant who is
granted an Option pursuant to this Article may hold more than one
Option granted pursuant to the Plan at the same
time.
5.3 Option
Price. Other than in
connection with Substitute Awards, the option price per each Share
purchasable under any Option granted pursuant to this Article must
not be less than 100% of the Fair Market Value of one Share on the
date of grant of that Option; provided, however, that in the case of an Incentive Stock Option
granted to a Participant who, at the time of the grant, owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock
representing more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary, the option
price per share must be no less than 110% of the Fair Market Value
of one Share on the date of grant. Other than pursuant to
Section 12.2, the Committee may not without the approval of the
Company's stockholders (i) lower the option price per Share of an
Option after it is granted, (ii) cancel an Option when the option
price per Share exceeds the Fair Market Value of one Share in
exchange for cash or another Award (other than in connection with a
Change in Control as defined in Section 11.3), or (iii) take any
other action with respect to an Option that would be treated as a
repricing under the rules and regulations of the principal U.S.
national securities exchange on which the Shares are
traded.
5.4 Option
Term. The term of
each Option must be fixed by the Committee in its sole discretion;
provided that no Option may be exercisable after the expiration of
seven (7) years from the date the Option is granted, except in the
event of death or disability of the Participant;
provided,
however, that the term of the
Option must not exceed five (5) years from the date the Option is
granted in the case of an Incentive Stock Option granted to a
Participant who, at the time of the grant, owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock representing more
than 10% of the total combined voting power of all classes of stock
of the Company or any Subsidiary.
5.5 Exercise
of Options.
(a) Vested
Options granted under the Plan may be exercised by the Participant
or by a Permitted Assignee thereof (or by the Participant's
executors, administrators, guardian or legal representative, as may
be provided in an Award Agreement) as to all or part of the Shares
covered thereby, by giving notice of exercise to the Company or its
designated agent, specifying the number of Shares to be
purchased. The notice of exercise must be in such form, made
in such manner, and must comply with such other requirements
consistent with the provisions of the Plan as the Committee may
prescribe from time to time.
(b) Unless
otherwise provided in an Award Agreement, full payment of the
purchase price must be made at the time of exercise and must be
made (i) in cash or cash equivalents (including certified check or
bank check or wire transfer of immediately available funds), (ii)
by tendering previously acquired Shares (either actually or by
attestation) valued at their then Fair Market Value, (iii) with the
consent of the Committee, by delivery of other
consideration having a Fair Market Value on the exercise
date equal to the total purchase price, (iv) with the consent of
the Committee, by withholding Shares otherwise issuable in
connection with the exercise of the Option, (v) through any other
method specified in an Award Agreement (including same-day sales
through a broker) or as authorized by the Committee, including
through any third party option administrator authorized by the
Committee, or (vi) any combination of any of the foregoing.
The notice of exercise, accompanied by such payment, must be
delivered to the Company at its principal business office or such
other office or location as the Committee may from time to time
direct, including to a third party option administrator authorized
by the Committee, and must be in such form, containing such further
provisions consistent with the provisions of the Plan, as the
Committee may from time to time prescribe. In no event
may any Option granted hereunder be exercised for a fraction of a
Share.
(c) Notwithstanding
the foregoing, an Award Agreement may provide that if on the last
day of the term of an Option the Fair Market Value of one Share
exceeds the option price per Share, the Participant has not
exercised the Option (or a tandem Stock Appreciation Right, if
applicable) and the Option has not expired, the Option may be
deemed to have been exercised by the Participant on that day with
payment made by withholding Shares otherwise issuable in connection
with the exercise of the Option. In such event, the Company
must deliver to the Participant the number of Shares for which the
Option was deemed exercised, less the number of Shares required to
be withheld for the payment of the total purchase price and
required withholding taxes; provided,
however, any fractional Share
must be settled in cash.
5.6 Form
of Settlement. In
its sole discretion, the Committee may provide that the Shares to
be issued upon an Option's exercise will be in the form of
Restricted Stock or other similar securities.
5.7 Incentive
Stock Options. The
Committee may grant Incentive Stock Options to any Employee of the
Company or any Subsidiary, subject to the requirements of Section
422 of the Code and the regulations thereunder. Solely for
purposes of determining whether Shares are available for the grant
of Incentive Stock Options under the Plan, the maximum aggregate
number of Shares that may be issued pursuant to Incentive Stock
Options granted under the Plan is 2,000,000 Shares, subject to
adjustment as provided in Sections 3.1(a) and
12.2.
6.
STOCK APPRECIATION RIGHTS
6.1 Grant
and Exercise. The
Committee may provide Stock Appreciation Rights (i) in tandem
with all or part of any Option granted under the Plan or at any
subsequent time during the term of such Option, (ii) in tandem with
all or part of any Award (other than an Option) granted under the
Plan or at any subsequent time during the term of such Award, or
(iii) without regard to any Option or other Award in each case
upon such terms and conditions as the Committee may establish in
its sole discretion.
6.2 Terms
and Conditions. Stock Appreciation Rights are subject
to such terms and conditions, not inconsistent with the provisions
of the Plan, as are determined from time to time by the Committee,
including the following:
(a) Upon
the exercise of a Stock Appreciation Right, the holder has the
right to receive, for each Share for which the Stock Appreciation
Right is exercised, the excess of (i) the Fair Market Value of one
Share on the date of exercise (or such amount less than such Fair
Market Value as the Committee so determines at any time during a
specified period before the date of exercise) over (ii) the grant
price of the Stock Appreciation Right.
(b) The
Committee may determine in its sole discretion whether payment on
exercise of a Stock Appreciation Right must be made in cash, in
whole Shares or other property, or any combination
thereof.
(c) The
terms and conditions of Stock Appreciation Rights need not be the
same with respect to each Participant.
(d) The
Committee may impose such other terms and conditions on the
exercise of any Stock Appreciation Right, as it deems
appropriate. A Stock Appreciation Right must: (i) have a
grant price per Share of not less than the Fair Market Value of one
Share on the date of grant or, if applicable, on the date of grant
of an Option with respect to a Stock Appreciation Right granted in
exchange for or in tandem with, but subsequent to, the Option
(subject to the requirements of Section 409A of the Code) except in
the case of Substitute Awards or in connection with an adjustment
provided in Section 12.2, and (ii) have a term not greater than
seven (7) years.
(e) An
Award Agreement may provide that if on the last day of the term of
a Stock Appreciation Right the Fair Market Value of one Share
exceeds the grant price per Share of the Stock Appreciation Right,
the Participant has not exercised the Stock Appreciation Right or
the tandem Option (if applicable), and the Stock Appreciation Right
has not expired, the Stock Appreciation Right will be deemed to
have been exercised by the Participant on that day. In that
event, the Company must make payment to the Participant in
accordance with this Section, reduced by the number of Shares (or
cash) required for withholding taxes; any fractional Share must be
settled in cash.
(f) Without
the approval of the Company's stockholders, other than pursuant to
Section 12.2, the Committee may not (i) reduce the grant price of
any Stock Appreciation Right after the date of grant (ii) cancel
any Stock Appreciation Right when the grant price per Share exceeds
the Fair Market Value of one Share in exchange for cash or another
Award (other than in connection with a Change in Control as defined
in Section 11.3), or (iii) take any other action with respect to a
Stock Appreciation Right that would be treated as a repricing under
the rules and regulations of the principal U.S. national securities
exchange on which the Shares are traded.
7.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
7.1 Grants. Awards
of Restricted Stock and of Restricted Stock Units may be issued
hereunder to Participants either alone or in addition to other
Awards granted under the Plan (a “Restricted Stock
Award” or
“Restricted Stock Unit
Award” respectively), and
such Restricted Stock Awards and Restricted Stock Unit Awards may
also be available as a form of payment of Performance Awards and
other earned cash-based incentive compensation. A Restricted
Stock Award or Restricted Stock Unit Award may be subject to
vesting restrictions during the Vesting Period as specified by the
Committee. The Committee has absolute discretion to determine
whether any consideration (other than services) is to be received
by the Company or any Subsidiary as a condition precedent to the
issuance of Restricted Stock or Restricted Stock
Units
7.2 Award
Agreements. The
terms of any Restricted Stock Award or Restricted Stock Unit Award
granted under the Plan must be set forth in an Award Agreement
which must contain provisions determined by the Committee and not
inconsistent with the Plan. The terms of Restricted Stock
Awards and Restricted Stock Unit Awards need not be the same with
respect to each Participant.
7.3 Rights
of Holders of Restricted Stock and Restricted Stock
Units. Unless
otherwise provided in the Award Agreement, beginning on the date of
grant of the Restricted Stock Award and subject to execution of the
Award Agreement, the Participant will become a stockholder of the
Company with respect to all Shares subject to the Award Agreement
and will have all of the rights of a stockholder, including the
right to vote those Shares and the right to receive distributions
made with respect to those Shares. A Participant receiving a
Restricted Stock Unit Award has only those rights specifically
provided for in the Award Agreements; provided,
however, in no event will the
Participant possess voting rights with respect to that Award.
Except as otherwise provided in an Award Agreement, any Shares or
any other property (other than cash) distributed as a dividend or
otherwise with respect to any Restricted Stock Award or the number
of Shares covered by a Restricted Stock Unit Award as to which the
restrictions have not yet lapsed are subject to the same
restrictions as such Restricted Stock Award or Restricted Stock
Unit Award. Notwithstanding the provisions of this Section,
cash dividends with respect to any Restricted Stock Award and any
other property (other than cash) distributed as a dividend or
otherwise with respect to any Restricted Stock Award or the number
of Shares covered by a Restricted Stock Unit Award that vests based
on achievement of performance goals will be accumulated, will be
subject to restrictions and risk of forfeiture to the same extent
as the Restricted Stock or Restricted Stock Units with respect to
which that cash, Shares or other property has been distributed and
must be paid at the time such restrictions and risk of forfeiture
lapse.
7.4 Issuance
of Shares. Any
Restricted Stock granted under the Plan may be evidenced in such
manner as the Board may deem appropriate, including book-entry
registration or issuance of a stock certificate or certificates,
which certificate or certificates will be held by the
Company. Certificate or certificates, if any, evidencing
Restricted Stock must be registered in the name of the Participant
and must bear an appropriate legend referring to the restrictions
applicable to such Restricted Stock.
8.
OTHER SHARE-BASED AWARDS
8.1 Grants. Other
Awards of Shares and other Awards that are valued in whole or in
part by reference to, or are otherwise based on, Shares or other
property (“Other Share-Based
Awards”), including
deferred stock units, may be granted hereunder to Participants
either alone or in addition to other Awards granted under the
Plan. Other Share-Based Awards may also be available as a
form of payment of other Awards granted under the Plan and other
earned cash-based compensation.
8.2 Award
Agreements. The
terms of Other Share-Based Award granted under the Plan must be set
forth in an Award Agreement which must contain provisions
determined by the Committee and not inconsistent with the
Plan. The terms of such Awards need not be the same with
respect to each Participant. Notwithstanding the provisions
of this Section, dividend equivalents and any property (other than
cash) distributed as a dividend or otherwise with respect to the
number of Shares covered by a Other Share-Based Award that vests
based on achievement of performance goals will be subject to
restrictions and risk of forfeiture to the same extent as the
Shares covered by a Other Share-Based Award with respect to which
such cash, Shares or other property has been distributed. Other
Share-Based Awards may be subject to vesting restrictions during
the Vesting Period as specified by the
Committee.
8.3 Payment. Except
as may be provided in an Award Agreement, Other Share-Based
Awards may be paid in cash, Shares, other property, or any
combination thereof, in the sole discretion of the Committee.
Other Share-Based Awards may be paid in a lump sum or in
installments or, in accordance with procedures established by the
Committee, on a deferred basis subject to the requirements of
Section 409A of the Code and the regulations
thereunder.
8.4 Deferral
of Director Fees. Subject to the limits set forth in
Section 3.3, Directors must, if determined by the Board, receive
Other Share-Based Awards in the form of deferred stock units in
lieu of all or a portion of their annual retainer. In
addition, Directors may elect to receive Other Share-Based Awards
in the form of deferred stock units in lieu of all or a portion of
their annual and committee retainers and annual meeting fees,
provided that such election is made in accordance with the
requirements of Section 409A of the Code and the regulations
thereunder and subject to the limits set forth in Section
3.3. The Committee may, in its absolute discretion, establish
such rules and procedures as it deems appropriate for such
elections and for the payment in deferred stock
units.
9.1 Grants. Performance
Awards in the form of Performance Cash, Performance Shares or
Performance Units, as determined by the Committee in its sole
discretion, may be granted hereunder to Participants, for no
consideration or for such minimum consideration as may be required
by applicable law, either alone or in addition to other Awards
granted under the Plan. The performance goals to be achieved
for each Performance Period will be conclusively determined by the
Committee and may be based upon the criteria set forth in Section
10.2.
9.2 Award
Agreements. The
terms of any Performance Award granted under the Plan must be set
forth in an Award Agreement (or, if applicable, in a resolution
duly adopted by the Committee) which must contain provisions
determined by the Committee and not inconsistent with the Plan,
including whether such Awards will have Dividend Equivalents.
The terms of Performance Awards need not be the same with respect
to each Participant.
9.3 Terms
and Conditions. The
performance criteria to be achieved during any Performance Period
and the length of the Performance Period must be determined by the
Committee upon the grant of each Performance Award; provided,
however, that a Performance Period may not be longer than five
years. The amount of the Award to be distributed will be
conclusively determined by the Committee.
9.4 Payment. Except
as provided in Article 11 or as may be provided in an Award
Agreement, Performance Awards will be distributed only after the
end of the relevant Performance Period. Performance Awards
may be paid in cash, Shares, other property, or any combination
thereof, in the sole discretion of the Committee. Performance
Awards may be paid in a lump sum or in installments following the
close of the Performance Period or, in accordance with procedures
established by the Committee, on a deferred basis subject to the
requirements of Section 409A of the Code and the regulations
thereunder.
10.
CODE SECTION 162(m) PROVISIONS
10.1 Covered
Employees. Notwithstanding any other provision
of the Plan, if the Committee determines at the time a Restricted
Stock Award, a Restricted Stock Unit Award, a Performance Award or
an Other Share-Based Award is granted to a Participant who is, or
is likely to be, as of the end of the tax year in which the Company
would claim a tax deduction in connection with such Award, a
Covered Employee, then the Committee may provide that this Article
10 is applicable to that Award.
10.2 Performance
Criteria. If the
Committee determines that a Restricted Stock Award, a Restricted
Stock Unit, a Performance Award or an Other Share-Based Award is
intended to be subject to this Article 10, the lapsing of
restrictions thereon and the distribution of cash, Shares or other
property pursuant thereto, as applicable, will be subject to the
achievement of one or more objective performance goals established
by the Committee, which must be based on the attainment of
specified levels of one or any combination of the following: net
sales; revenue; revenue growth or product revenue growth; operating
income (before or after taxes); pre- or after-tax income or loss
(before or after allocation of corporate overhead and bonus);
earnings or loss per share; net income or loss (before or after
taxes); return on equity; total stockholder return; return on
assets or net assets; appreciation in and/or maintenance of the
price of the Shares or any other publicly-traded securities of the
Company; market share; gross profits; earnings or losses (including
earnings or losses before taxes, before interest and taxes, or
before interest, taxes, depreciation and amortization); economic
value-added models or equivalent metrics; comparisons with various
stock market indices; reductions in costs; cash flow or cash flow
per share (before or after dividends); return on capital (including
return on total capital or return on invested capital); cash flow
return on investment; improvement in or attainment of expense
levels or working capital levels, including cash, inventory and
accounts receivable; operating margin; gross margin; year-end cash;
cash margin; debt reduction; stockholders equity; operating
efficiencies; market share; customer satisfaction; customer growth;
employee satisfaction; regulatory achievements (including
submitting or filing applications or other documents with
regulatory authorities or receiving approval of any such
applications or other documents and passing pre-approval
inspections); strategic partnerships or transactions (including
in-licensing and out-licensing of intellectual property);
establishing relationships with commercial entities with respect to
the marketing, distribution and sale of the Company’s
products (including with group purchasing organizations,
distributors and other vendors); lead supply or other supply chain
achievements); co-development, co-marketing, profit sharing, joint
venture or other similar arrangements; financial ratios (including
those measuring liquidity, activity, profitability or leverage);
cost of capital or assets under management; financing and other
capital raising transactions (including sales of the
Company’s equity or debt securities); factoring transactions;
sales or licenses of the Company’s assets (including its
intellectual property, whether in a particular jurisdiction or
territory or globally; or through partnering transactions);
implementation, completion or attainment of measurable objectives
with respect to research, development, manufacturing,
commercialization, products or projects, production volume levels,
acquisitions and divestitures; factoring transactions; and
recruiting and maintaining personnel. These performance
goals also may be based solely by reference to the Company’s
performance or the performance of a Subsidiary, division, business
segment or business unit of the Company, or based upon the relative
performance of other companies or upon comparisons of any of the
indicators of performance relative to other companies. Any
performance goals that are financial metrics, may be determined in
accordance with U.S. Generally Accepted Accounting Principles
(“GAAP”), in
accordance with accounting principles established by the
International Accounting Standards Board (“IASB Principles”), or may be
adjusted when established to include or exclude any items otherwise
includable or excludable under GAAP or under IASB
Principles The Committee may
also exclude the impact of an event or occurrence which the
Committee determines should appropriately be excluded, including
(i) restructurings, discontinued operations, items of an unusual
nature or infrequency of occurrence or non-recurring items;
(ii) an event either not directly related to the operations
of the Company, Subsidiary, division, business segment or business
unit or not within the reasonable control of management; (iii) the cumulative effects of tax or
accounting changes in accordance with U.S. generally accepted
accounting principles; (iv) asset write-downs, (v)
litigation or claim judgments or settlements; (vi) acquisitions or
divestitures; (vii) reorganization or change in the corporate
structure or capital structure of the Company; (ix) foreign
exchange gains and losses; (x) a change in the fiscal year of the
Company; (xi) the refinancing or repurchase of bank loans or debt
securities; (xii), unbudgeted capital expenditures; (xiii) the
issuance or repurchase of equity securities and other changes in
the number of outstanding shares; (xiv) conversion of some or all
of convertible securities to common stock; (xv) any business
interruption event; or (xvi) the effect of changes in other laws or
regulatory rules affecting reported results. The Committee must set these performance goals
(and any exclusions) within the time period prescribed by, and must
otherwise comply with the requirements of, Section 162(m) of the
Code and the regulations thereunder.
10.3 Adjustments. Notwithstanding
any provision of the Plan (other than Article 11), with respect to
any Restricted Stock Award, Restricted Stock Unit Award,
Performance Award or Other Share-Based Award that is subject to
this Section 10, the Committee may adjust downwards, but not
upwards, the amount payable pursuant to such Award, and the
Committee may not waive the achievement of the applicable
performance goals except in the case of the death or disability of
the Participant or a Change in Control of the
Company.
10.4 Restrictions. The
Committee has the power to impose such other restrictions on Awards
subject to this Article as it may deem necessary or appropriate to
ensure that the Awards satisfy all requirements for
“qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations
thereunder.
10.5 Limitations
on Grants to Individual Participants. Subject to adjustment as provided in
Section 12.2, no Participant may (i) be granted Options or Stock
Appreciation Rights during any calendar year with respect to more
than 400,000 Shares and (ii) be granted Restricted Stock Awards,
Restricted Stock Unit Awards, Performance Awards and/or Other
Share-Based Awards in any calendar year that are intended to comply
with the qualified performance-based exception under Code Section
162(m) and are denominated in Shares and under which more
than 400,000 Shares may be earned for each 12 months in the
Performance Period. In
addition to the foregoing, during any calendar year no
Participant may be granted Performance Awards that are intended to
comply with the performance-based exception under Code Section
162(m) and are denominated in cash under which more than
$2,500,000 may be earned for each 12 months in
the Performance Period (together,
collectively with the limitations in the preceding sentence, the
“Limitations”). If an Award is cancelled, the
cancelled Award will continue to be counted toward the applicable
Limitation (or, if denominated in cash, toward the dollar amount in
the preceding sentence).
11.
CHANGE IN CONTROL PROVISIONS
11.1 Impact
on Certain Awards. Award Agreements may provide that in
the event of a Change in Control of the Company (as defined in
Section 11.3): (i) Options and Stock Appreciation Rights
outstanding as of the date of the Change in Control will be
cancelled and terminated without payment therefor if the Fair
Market Value of one Share as of the date of the Change in Control
is less than the per Share Option exercise price or Stock
Appreciation Right grant price, and (ii) all Performance Awards
will be considered to be earned and payable (either in full or pro
rata based on the portion of the Performance Period completed as of
the date of the Change in Control), and any limitations or other
restrictions will lapse and such Performance Awards will be
immediately settled or distributed.
11.2 Assumption
or Substitution of Certain Awards.
(a) Unless
otherwise provided in an Award Agreement, in the event of a Change
in Control of the Company in which the successor company assumes or
substitutes for an Option, Stock Appreciation Right, Restricted
Stock Award, Restricted Stock Unit Award or Other Share-Based Award
(or in which the Company is the ultimate parent corporation and
continues the Award), if a Participant’s employment with such
successor company (or the Company) or a subsidiary thereof
terminates within 24 months following such Change in Control (or
such other period set forth in the Award Agreement, including prior
thereto if applicable) and under the circumstances specified in the
Award Agreement: (i) Options and Stock Appreciation
Rights outstanding as of the date of such termination of employment
will immediately vest, become fully exercisable, and may thereafter
be exercised for 24 months (or the period of time set forth in the
Award Agreement), but in no event later than the earlier of (A) the
latest date on which the Option or Stock Appreciation Right would
have expired by its original terms or (B) the date that is seven
(7) years after the original date of grant of the Option or Stock
Appreciation Right, (ii) the restrictions, limitations and other
conditions applicable to Restricted Stock and Restricted Stock
Units outstanding as of the date of such termination of employment
will lapse and the Restricted Stock and Restricted Stock Units will
become free of all restrictions, limitations and conditions and
become fully vested, and (iii) the restrictions, limitations and
other conditions applicable to any Other Share-Based Awards or any
other Awards will lapse, and such Other Share-Based Awards or such
other Awards will become free of all restrictions, limitations and
conditions and become fully vested and transferable to the full
extent of the original grant. For the purposes of this
Section 11.2, an Option, Stock Appreciation Right, Restricted Stock
Award, Restricted Stock Unit Award or Other Share-Based Award will
be considered assumed or substituted for if following the Change in
Control the Award confers the right to purchase or receive, for
each Share subject to the Option, Stock Appreciation Right,
Restricted Stock Award, Restricted Stock Unit Award or Other
Share-Based Award immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property)
received in the transaction constituting a Change in Control by
holders of Shares for each Share held on the effective date of such
transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such
consideration received in the transaction constituting a Change in
Control is not solely common stock of the successor company, the
Committee may, with the consent of the successor company, provide
that the consideration to be received upon the exercise or vesting
of an Option, Stock Appreciation Right, Restricted Stock Award,
Restricted Stock Unit Award or Other Share-Based Award, for each
Share subject thereto, will be solely common stock of the successor
company substantially equal in fair market value to the per Share
consideration received by holders of Shares in the transaction
constituting a Change in Control. The determination of
such substantial equality of value of consideration may be made by
the Committee in its sole discretion and its determination is
conclusive and binding.
(b) Unless
otherwise provided in an Award Agreement, in the event of a Change
in Control of the Company to the extent the successor company does
not assume or substitute for an Option, Stock Appreciation Right,
Restricted Stock Award, Restricted Stock Unit Award or Other
Share-Based Award (or in which the Company is the ultimate parent
corporation and does not continue the Award), then immediately
prior to the Change in Control: (i) those Options and Stock
Appreciation Rights outstanding as of the date of the Change in
Control that are not assumed or substituted for (or continued) will
immediately vest and become fully exercisable, (ii) restrictions,
limitations and other conditions applicable to Restricted Stock and
Restricted Stock Units that are not assumed or substituted for (or
continued) will lapse and the Restricted Stock and Restricted Stock
Units will become free of all restrictions, limitations and
conditions and become fully vested, and (iii) the restrictions,
other limitations and other conditions applicable to any Other
Share-Based Awards or any other Awards that are not assumed or
substituted for (or continued) will lapse, and such Other
Share-Based Awards or such other Awards will become free of all
restrictions, limitations and conditions and become fully vested
and transferable to the full extent of the original
grant.
(c) The
Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Option and
Stock Appreciation Right outstanding will terminate within a
specified number of days after notice to the Participant, and/or
that each Participant will receive, with respect to each Share
subject to such Option or Stock Appreciation Right, an amount equal
to the excess of the Fair Market Value of such Share immediately
prior to the occurrence of such Change in Control over the exercise
price per Share of such Option and/or Stock Appreciation Right;
such amount to be payable in cash, in one or more kinds of stock or
property (including the stock or property, if any, payable in the
transaction) or in a combination thereof, as the Committee, in its
discretion, may determine.
11.3 Change
in Control. For
purposes of the Plan, unless otherwise provided in an Award
Agreement, “Change in
Control” means the
occurrence of any one of the following events:
(a) During
any twenty-four (24) month period, individuals who, as of the
beginning of such period, constitute the Board
(“Incumbent
Directors”) cease for any
reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the beginning of
such period whose election or nomination for election was approved
by a vote of at least a majority of the Incumbent Directors then on
the Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee
for director, without written objection to such nomination) will be
an Incumbent Director; provided,
however, that no individual
initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to
directors or as a result of any other actual or threatened
solicitation of proxies by or on behalf of any person other than
the Board will be deemed to be an Incumbent
Director;
(b) Any
“person” (as such term is defined in the Exchange
Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) is or becomes a “beneficial
owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined
voting power of the Company's then outstanding securities eligible
to vote for the election of the Board (“Company Voting
Securities”);
provided,
however, that the event
described in this paragraph (b) will not be deemed to be a Change
in Control by virtue of any of the following
acquisitions: (i) by the Company or any Subsidiary, (ii)
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (iii) by any
underwriter temporarily holding securities pursuant to an offering
of such securities, (iv) pursuant to a Non-Qualifying Transaction,
as defined in paragraph (c), or (v) by any person of Voting
Securities from the Company, if a majority of the Incumbent Board
approves in advance the acquisition of beneficial ownership of 50%
or more of Company Voting Securities by that
person;
(c) The
consummation of a merger, consolidation, statutory share exchange
or similar form of corporate transaction involving the Company or
any of its Subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of
securities in the transaction (a “Business
Combination”), unless
immediately following such Business Combination: (i)
more than 50% of the total voting power of (A) the corporation
resulting from such Business Combination
(“Surviving
Corporation”), or (B) if
applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation
(“Parent
Corporation”), is
represented by Company Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable,
is represented by shares into which such Company Voting Securities
were converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities
among the holders thereof immediately prior to the Business
Combination, (ii) no person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the
beneficial owner, directly or indirectly, of 50% or more of the
total voting power of the outstanding voting securities eligible to
elect directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) and (iii) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination
were Incumbent Directors at the time of the Board's approval of the
execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the
criteria specified in (i), (ii) and (iii) above is deemed to be a
“Non-Qualifying
Transaction”);
or
(d) The
stockholders of the Company approve a plan of complete liquidation
or dissolution of the Company or the consummation of a sale of all
or substantially all of the Company’s assets.
Notwithstanding the foregoing, a Change in Control
will not be deemed to occur solely because any person acquires
beneficial ownership of more than 50% of the Company Voting
Securities as a result of the acquisition of Company Voting
Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the Company
such person becomes the beneficial owner of additional Company
Voting Securities that increases the percentage of outstanding
Company Voting Securities beneficially owned by such person, a
Change in Control of the Company will then
occur.
12.
GENERALLY APPLICABLE PROVISIONS
12.1 Amendment
and Termination of the Plan. The Board may, from time to time,
alter, amend, suspend or terminate the Plan as it may deem
advisable, subject to any requirement for stockholder approval
imposed by applicable law, including the rules and regulations of
the principal U.S. national securities exchange on which the Shares
are traded; provided that the Board may not amend the Plan in any
manner that would result in noncompliance with Rule 16b-3 of the
Exchange Act; and further provided that the Board may not, without the approval of
the Company's stockholders, amend the Plan to (i) increase the
number of Shares that may be the subject of Awards under the Plan
(except for adjustments pursuant to Section 12.2), (ii) expand the
types of awards available under the Plan, (iii) change the
class of persons eligible to receive grants of Incentive Stock
Options or materially expand the class of persons eligible to
participate in the Plan, (iv) amend Section 5.3 or Section 6.2(f)
to eliminate the requirements relating to minimum exercise price,
minimum grant price and stockholder approval, (v) increase the
maximum permissible term of any Option specified by Section 5.4 or
the maximum permissible term of a Stock Appreciation Right
specified by Section 6.2(d), or (vi) increase the limits specified
in Section 3.3 or the Limitations (except for adjustments pursuant
to Section 12.2). Except pursuant to Section 12.2, the
Board may not, without the approval of the Company's stockholders,
cancel an Option or Stock Appreciation Right in exchange for cash
when the exercise or grant price per share exceeds the Fair Market
Value of one Share or take any action with respect to an Option or
Stock Appreciation Right that would be treated as a repricing under
the rules and regulations of the principal U.S. securities exchange
on which the Shares are traded, including a reduction of the
exercise price of an Option or the grant price of a Stock
Appreciation Right or the exchange of an Option or Stock
Appreciation Right for cash or another Award. In addition, no
amendments to, or termination of, the Plan will impair the rights
of a Participant in any material respect under any Award previously
granted without such Participant's consent.
12.2 Adjustments. In
the event of any merger, reorganization, consolidation,
recapitalization, dividend or distribution (whether in cash, shares
or other property, other than a regular cash dividend), stock
split, reverse stock split, spin-off or similar transaction or
other change in corporate structure affecting the Shares or the
value thereof, such adjustments and other substitutions must be
made to the Plan and to Awards as the Committee deems equitable or
appropriate taking into consideration the accounting and tax
consequences, including such adjustments in the aggregate number,
class and kind of securities that may be delivered under the Plan,
the number of Shares set forth in the Limitations contained in the
first sentence of Section 10.5 (but not the dollar amount set
forth in the second sentence of Section 10.5), the maximum number
of Shares that may be issued pursuant to Incentive Stock Options
and, in the aggregate or to any Participant, in the number, class,
kind and option or exercise price of securities subject to
outstanding Awards granted under the Plan (including, if the
Committee deems appropriate, the substitution of similar options to
purchase the shares of, or other awards denominated in the shares
of, another company) as the Committee may determine to be
appropriate; provided,
however, that the number of
Shares subject to any Award must always be a whole
number.
12.3 Transferability
of Awards. Except as
provided below, no Award and no Shares that have not been issued or
as to which any applicable restriction, performance or deferral
period has not lapsed, may be sold, assigned, transferred, pledged
or otherwise encumbered, other than by will or the laws of descent
and distribution, and such Award may be exercised during the life
of the Participant only by the Participant or the Participant's
guardian, members of a committee for incompetent former employees,
or similar persons duly authorized by law to administer the estate
or assets of former employees. To the extent and under such
terms and conditions as determined by the Committee and except for
Incentive Stock Options, Options may be exercised and the Shares
acquired on exercise may be resold by a Participant's family member
who has acquired the Options from the Participant through a gift or
a domestic relations order (a “Permitted
Assignee”). For
purposes of this Section, “family member” includes any
child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing
the Participant's household (other than a tenant or employee), a
trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons (or the
Participant) control the management of assets, and any other entity
in which these persons (or the Participant) own more than fifty
percent of the voting interests; provided that such Permitted Assignee will be bound by and
subject to all of the terms and conditions of the Plan and the
Award Agreement relating to the transferred Award and must execute
an agreement satisfactory to the Company evidencing such
obligations; and provided further that such Participant remains bound by the
terms and conditions of the Plan. The Company must cooperate
with any Permitted Assignee and the Company’s transfer agent
in effectuating any transfer permitted under this Section.
Options transferred for value may not be exercised. A
transfer for value does not include: (i) a transfer under a
domestic relations order in settlement of marital property rights;
or (ii) a transfer to an entity in which more than fifty percent of
the voting interests are owned by the family members (or the
Participant) in exchange for an interest in that
entity. An Incentive Stock Option is not transferable
(other than by will or by the laws of descent and distribution) by
the Participant and is exercisable, during the lifetime of the
Participant, only by the Participant.
12.4 Termination
of Employment or Services. The Committee must determine and set
forth in each Award Agreement whether any Awards granted in such
Award Agreement will continue to be exercisable, continue to vest
or be earned and the terms of such exercise, vesting or earning, on
and after the date that a Participant ceases to be employed by or
to provide services to the Company or any Subsidiary (including as
a Director), whether by reason of death, disability, voluntary or
involuntary termination of employment or services, or
otherwise. The date of termination of a Participant's
employment or services will be determined by the Committee, which
determination will be final.
12.5 Deferral;
Dividend Equivalents. The Committee is authorized to
establish procedures pursuant to which the payment of any Award may
be deferred. Subject to the provisions of the Plan and any
Award Agreement, the recipient of an Award other than an Option or
Stock Appreciation Right may, if so determined by the Committee, be
entitled to receive, currently or on a deferred basis, amounts
equivalent to cash, stock or other property dividends on Shares
(“Dividend
Equivalents”) with
respect to the number of Shares covered by the Award, as determined
by the Committee, in its sole discretion. The Committee may
provide that the Dividend Equivalents (if any) will be deemed to
have been reinvested in additional Shares or otherwise reinvested
and may provide that the Dividend Equivalents are subject to the
same vesting or performance conditions as the underlying
Award. Notwithstanding the foregoing, Dividend Equivalents
distributed in connection with an Award that vests based on the
achievement of performance goals will be subject to restrictions
and risk of forfeiture to the same extent as the Award with respect
to which such cash, stock or other property has been
distributed.
13.1 Award
Agreements.
(a) Each
Award Agreement must either be (i) in writing in a form approved by
the Committee and executed by the Company by an officer duly
authorized to act on its behalf, or (ii) an electronic notice in a
form approved by the Committee and recorded by the Company (or its
designee) in an electronic recordkeeping system used for the
purpose of tracking one or more types of Awards as the Committee
may provide; in each case and if required by the Committee, the
Award Agreement must be executed or otherwise electronically
accepted by the recipient of the Award in such form and manner as
the Committee may require. The Committee may authorize any
officer of the Company to execute any or all Award Agreements on
behalf of the Company. The Award Agreement must set forth the
material terms and conditions of the Award as established by the
Committee consistent with the provisions of the Plan.
(b) No
Full Value Award granted on or after the Effective Date may vest in
less than one year from its date of grant. Notwithstanding
the foregoing, up to five percent (5%) of the available Shares
authorized for issuance under the Plan as of the Effective Date
(adjusted to reflect the Fungible Share Ratio as it applies to Full
Value Awards) may vest (in full or in part) in less than one year
from their date of grant (“Full Value Award 5%
Basket”). Any Full
Value Award granted under the Plan may vest in full or in part upon
death or disability of the Participant, or upon a Change in Control
of the Company, and such vesting shall not count against the Full
Value Award 5% Basket.
13.2 Tax
Withholding. The
Company has the right to make all payments or distributions
pursuant to the Plan to a Participant (or a Permitted Assignee
thereof) (any such person, a “Payee”) net of any
applicable federal, state and local taxes required to be paid or
withheld (including any taxes, penalties and interest under Section
409A of the Code) as a result of (i) the grant of any Award, (ii)
the exercise of an Option or Stock Appreciation Right, (iii) the
delivery of Shares or cash, (iv) the lapse of any restrictions in
connection with any Award, (v) the vesting of any Award, or (vi)
any other event occurring pursuant to the Plan. The Company
or any Subsidiary has the right to withhold from wages or other
amounts otherwise payable to such Payee such withholding taxes as
may be required by law, or to otherwise require the Payee to pay
such taxes, penalties and interest required to be withheld or paid
by the Participant. If the Payee fails to make such tax
payments as are required, the Company or its Subsidiaries will, to
the extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to such Payee or
to take such other action as may be necessary to satisfy such
withholding obligations. The Committee is authorized to
establish procedures for election by Participants to satisfy such
obligation for the payment of such taxes by tendering previously
acquired Shares (either actually or by attestation, valued at their
then Fair Market Value), or by directing the Company to retain
Shares (up to the Participant's minimum required tax withholding
rate or such other rate that will not cause an adverse accounting
consequence or cost) otherwise deliverable in connection with the
Award.
13.3 Right
of Discharge Reserved; Claims to Awards. Nothing in the Plan nor the grant of
an Award hereunder confers upon any Employee, Director, officer or
Consultant the right to continue in the employment or service of
the Company or any Subsidiary or affect any right that the Company
or any Subsidiary may have to terminate the employment or service
of (or to demote or to exclude from future Awards under the Plan)
any such Employee, Director, officer or Consultant at any time for
any reason. Except as specifically provided by the
Committee, the Company will not be liable for the loss of existing
or potential profit from an Award granted in the event of
termination of an employment or other relationship. No
Employee, Director, officer or Consultant will have any claim to be
granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Employees, Directors, officers or
Consultants under the Plan.
13.4 Substitute
Awards. Notwithstanding any other provision
of the Plan, the terms of Substitute Awards may vary from the terms
set forth in the Plan to the extent the Committee deems appropriate
to conform, in whole or in part, to the provisions of the awards in
substitution for which they are granted.
13.5 Cancellation
of Award; Forfeiture of Gain. Notwithstanding anything to the
contrary contained herein, an Award Agreement may provide that the
Award will be canceled if the Participant, without the consent of
the Company, while employed by or providing services to the Company
or any Subsidiary or after termination of such employment or
service, violates a non-competition, non-solicitation or
non-disclosure covenant or agreement or otherwise engages in
activity that is in conflict with or adverse to the interest of the
Company or any Subsidiary (including conduct contributing to any
financial restatements or financial irregularities), as determined
by the Committee in its sole discretion. The Committee may
provide in an Award Agreement that if within the time period
specified in the Agreement the Participant establishes a
relationship with a competitor or engages in an activity referred
to in the preceding sentence, the Participant will forfeit any gain
realized on the vesting or exercise of the Award and must repay
such gain to the Company.
13.6 Stop
Transfer Orders. All
certificates or book-entries for Shares delivered under the Plan
pursuant to any Award will be subject to such stop-transfer orders
and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the Securities and
Exchange Commission (“SEC”), any stock exchange upon which the Shares
are then listed, and any applicable federal or state securities
law, and the Committee may cause a legend or legends to be put on
any such certificates or noted in the book entries to make
appropriate reference to such restrictions.
13.7 Nature
of Payments. All
Awards made pursuant to the Plan are in consideration of services
performed or to be performed for the Company or any Subsidiary,
division or business unit of the Company. Any income or gain
realized pursuant to Awards under the Plan constitutes a special
incentive payment to the Participant and must not be taken into
account, to the extent permissible under applicable law, as
compensation for purposes of any of the employee benefit plans of
the Company or any Subsidiary except as may be determined by the
Committee or by the Board or board of directors of the applicable
Subsidiary.
13.8 Other
Plans. Nothing
contained in the Plan prevents the Board from adopting other or
additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific
cases.
13.9 Severability. The
provisions of the Plan are severable. If any provision of the
Plan is held unlawful or otherwise invalid or unenforceable in
whole or in part by a court of competent jurisdiction or by reason
of change in a law or regulation, such provision will (i) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited will
remain in full force and effect, and (ii) not affect any other
provision of the Plan or part thereof, each of which will remain in
full force and effect. If the making of any payment or the
provision of any other benefit required under the Plan is held
unlawful or otherwise invalid or unenforceable by a court of
competent jurisdiction, such unlawfulness, invalidity or
unenforceability will not prevent any other payment or benefit from
being made or provided under the Plan, and if the making of any
payment in full or the provision of any other benefit required
under the Plan in full would be unlawful or otherwise invalid or
unenforceable, then such unlawfulness, invalidity or
unenforceability will not prevent such payment or benefit from
being made or provided in part, to the extent that it would not be
unlawful, invalid or unenforceable, and the maximum payment or
benefit that would not be unlawful, invalid or unenforceable will
be made or provided under the Plan.
13.10 Construction. As
used in the Plan, the words “include” and
“including,” and variations thereof, are not terms of
limitation, but rather must be deemed to be followed by the words
“without limitation.”
13.11 Unfunded
Status of the Plan. The Plan is intended to constitute an
“unfunded” plan for incentive compensation. With
respect to any payments not yet made to a Participant by the
Company, nothing contained herein gives any such Participant any
rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver the Shares or
payments in lieu of or with respect to Awards hereunder;
provided,
however, that the existence of
such trusts or other arrangements is consistent with the unfunded
status of the Plan. No deferral of compensation within the
meaning of the Employee Retirement Income Security Act of 1974 is
permitted under this Plan or any Award Agreement for any
Participant that is not an executive officer or director of the
Company or a Subsidiary.
13.12 Governing
Law. The Plan and all determinations made
and actions taken thereunder, to the extent not otherwise governed
by the Code or the laws of the United States, is governed by the
laws of the State of Delaware, without reference to principles of
conflict of laws, and construed accordingly.
13.13 Effective
Date of Plan; Termination of Plan. The Existing Plan will remain in full
force and effect in accordance with its terms until the date on
which the stockholders approve the Plan in accordance with the
Company’s certificate of incorporation and bylaws and the
rules of the principal U.S. national securities exchange on which
the Shares are traded (“Effective
Date”). For the
avoidance of doubt, the Effective Date is the date the
Company’s stockholders approve the Plan at the 2016 Annual
Meeting of Stockholders. The Plan will become effective on the
Effective Date and will be null and void and of no effect if the
foregoing approval is not obtained. No Incentive Stock Option
may be granted under the Plan if the Plan is not approved by the
Company's stockholders within 12 months of the Board Approval
Date. Awards may be granted under the Plan at any time after
the Effective Date (or prior to the Effective Date, as long as any
such prior grants are subject to and conditioned upon the approval
of the Plan by the Company’s stockholders) and from time to
time on, or prior to, the Plan Expiration Date, on which date the
Plan will expire except as to Awards then outstanding under the
Plan or the Existing Plan. Such outstanding Awards will remain
in effect until they have been exercised or terminated, or have
expired.
13.14 Foreign
Employees and Consultants. Awards may be granted to Participants
who are foreign nationals or employed or providing services outside
the United States, or both, on such terms and conditions different
from those applicable to Awards to Employees or Consultants
providing services in the United States as may, in the judgment of
the Committee, be necessary or desirable in order to recognize
differences in local law or tax policy. The Committee
also may impose conditions on the exercise or vesting of Awards in
order to minimize the Company's obligation with respect to tax
equalization for Employees or Consultants on assignments outside
their home country.
13.15 Compliance
with Section 409A of the Code. This Plan is intended to comply and
must be administered in a manner that is intended to comply with
Section 409A of the Code and the regulations thereunder and must be
construed and interpreted in accordance with that
intent.
(a) To
the extent that an Award or the payment, settlement or deferral
thereof is subject to Section 409A of the Code, the Award must be
granted, paid, settled or deferred in a manner that will comply
with Section 409A of the Code, including regulations or other
guidance issued with respect thereto, except as otherwise
determined by the Committee. Any provision of this Plan that
would cause the grant of an Award or the payment, settlement or
deferral thereof to fail to satisfy Section 409A of the Code must
be amended to comply with Section 409A of the Code on a timely
basis, which may be made on a retroactive basis, in accordance with
regulations and other guidance issued under Section 409A of the
Code and the regulations thereunder.
(b) Notwithstanding
any other provision of this Plan or any Award
Agreement:
(i) if
this Plan or any Award Agreement provides that a payment,
distribution or benefit constituting deferred compensation under
Code Section 409A and the regulations thereunder will be made or
provided to a Participant as a result of an event constituting a
Change in Control, such payment, distribution or benefit will not
be payable to such Participant as a result of such event unless
such event also constitutes a “change in control event”
as defined in Treasury Regulation Section 1.409A-3(i)(5)(i), and
any such payment, distribution or benefit payable as a result of
such a change in control event must be made or provided to such
Participant no later than five (5) days following the occurrence of
the change in control event.
(ii) With
respect to a Participant who is a “specified employee”
within the meaning of Code Section 409A(a)(2)(B)(i) and the
regulations thereunder, no payment, distribution or benefit that
constitutes deferred compensation under Code Section 409A and the
regulations thereunder may be made or provided to such Participant
during the 6-month period following such Participant’s
“separation from service” (within the meaning of Code
Section 409A(a)(2)(A)(i) and the regulations thereunder), to
the extent necessary in order to avoid the imposition of excise
taxes. However, if any payment, distribution or benefit is
delayed as a result of the previous sentence, then such payment,
distribution or benefit must be made or provided to the
Participant, without interest, on the first business day following
the end of such 6-month period (or such earlier date upon which
such amount can be paid without resulting in a prohibited
distribution under Code Section 409A(a)(2)(B)(i) and the
regulations thereunder, including as a result of the
Participant’s death).
13.16 No
Registration Rights; No Right to Settle in Cash. The Company has no obligation to
register with any governmental body or organization (including,
without limitation, the SEC) any of (i) the offer or issuance of
any Award, (ii) any Shares issuable upon the exercise of any Award,
or (iii) the sale of any Shares issued upon exercise of any Award,
regardless of whether the Company in fact undertakes to register
any of the foregoing. In particular, in the event that any of
(x) any offer or issuance of any Award, (y) any Shares issuable
upon exercise of any Award, or (z) the sale of any Shares issued
upon exercise of any Award are not registered with any governmental
body or organization (including, without limitation, the SEC), the
Company will not under any circumstance be required to settle its
obligations, if any, under this Plan in cash.
13.17 Captions. The
captions in the Plan are for convenience of reference only, and are
not intended to narrow, limit or affect the substance or
interpretation of the provisions contained
herein.
13.18 Indemnification. To
the maximum extent permitted by applicable law, each member of the
Committee and the Board must be indemnified and held harmless by
the Company from and against: (i) any loss, cost, liability, or
expense (including attorneys' fees and costs) that may be imposed
upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding (whether
civil, administrative, investigative or criminal) to which he or
she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under the Plan or any Award
Agreement, and (ii) from any and all amounts paid by him or her in
settlement thereof, with the Company’s approval, or paid by
him or her in satisfaction of any such claim, action, suit, or
proceeding against him or her. The foregoing right to
indemnification is not exclusive of any other rights to
indemnification to which a member of the Committee or the Board may
be entitled under the Company’s Certificate of Incorporation,
Bylaws, or agreement or as a matter of law, or otherwise, or under
any power that the Company may have to indemnify the member or hold
them harmless.
Exhibit
10.12
AUTOWEB, INC.
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
Non-Employee Director Stock Option Award Agreement
(Non-Qualified Stock Option)
This
Non-Employee Director Stock Option Award Agreement
(“Agreement”) is
entered into effective as of the Grant Date set forth on the
signature page to this Agreement (“Grant Date”), by and between
AutoWeb, Inc., a Delaware corporation (“Company”), and the member of
Company’s Board set forth as Participant on the signature
page hereto (“Participant”).
This
Agreement and the stock options granted hereby are subject to the
provisions of the AutoWeb, Inc. Amended and Restated 2014 Equity
Incentive Plan (“Plan”). In the event of a conflict
between the provisions of the Plan and this Agreement, the Plan
shall control. Capitalized terms used but not defined in this
Agreement shall have the meanings assigned to such terms in the
Plan.
1. Grant of Options. Company
hereby grants to Participant non-qualified stock options
(“Options”) to
purchase the number of shares of common stock of Company, par value
$0.001 per share, set forth on the signature page to this Agreement
(“Shares”), at
the exercise price per Share set forth on the signature page to
this Agreement (“Exercise
Price”). The Options are not intended to qualify as
incentive stock options under Section 422 of the Code.
2. Term of Options. Unless the
Options terminate earlier pursuant to the provisions of this
Agreement or the Plan, the Options shall expire on the
seventh (7th) anniversary of the
Grant Date (“Option
Expiration Date”).
3. Vesting. The Options shall vest
in twelve monthly installments of one-twelfth (1/12) each on the
[XX] day of each
month commencing [XXX].
4. Exercise of
Options.
(a) Manner
of Exercise. To the extent vested, the Options may be
exercised, in whole or in part, by delivering written notice to
Company in accordance with Section 6(f) of this Agreement in such
form as Company may require from time to time, or at the direction
of Company, through the procedures established with Company’s
third party option administration service. Such notice shall
specify the number of Shares, subject to the Options that are being
exercised, and shall be accompanied by full payment of the Exercise
Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan (including same-day sales through a
broker), except that payment in whole or in part in a manner set
forth in clauses (ii), (iii) or (iv) of Section 5.5(b) of the
Plan may only be made with the consent of the Committee. The
Options may be exercised only in multiples of whole Shares, and no
fractional Shares shall be issued.
(b) Issuance
of Shares. Upon exercise of the Options and payment of the
Exercise Price for the Shares as to which the Options are exercised
and satisfaction of all applicable tax withholding requirements, if
any, the Company shall issue to Participant the applicable number
of Shares in the form of fully paid and nonassessable
Shares.
(c) Withholding.
No Shares will be issued on exercise of the Options unless and
until Participant pays to Company, or makes satisfactory
arrangements with Company for payment of, any federal, state, local
or foreign taxes required by law to be withheld in respect of the
exercise of the Options. Participant hereby agrees that Company may
withhold from Participant’s wages or other remuneration the
applicable taxes. At the discretion of Company, the applicable
taxes may be withheld in kind from the Shares otherwise deliverable
to Participant on exercise of the Options, up to
Participant’s minimum required withholding rate or such other
rate determined by the Committee that will not trigger a negative
accounting impact.
5.
Termination of
Options.
(a) Termination Upon Expiration of Option
Term. The Options shall terminate and expire in their
entirety on the Option Expiration Date. In no event may Participant
exercise the Options after the Option Expiration Date, even if the
application of another provision of this Section 5 may result in an
extension of the exercise period for the Options beyond the Option
Expiration Date.
(b) Termination
of Service as a Director.
(i) Termination
of Service as a Director Other Than Due to Death, Disability or
Cause. Participant may exercise the vested portion of the
Options for a period of twelve (12) months (but in no event later
than the Option Expiration Date) following any termination of
Participant’s service as a Director of Company (including
termination of service by reason of Participant’s
resignation, failure to be re-elected or failure to be nominated
for re-election), other than in the event of a termination of
Participant’s service as a Director due to Removal for Cause
(as defined below) or by reason of Participant’s death or
Disability (as defined below). To the extent Participant is not
entitled to exercise the Options at the date of termination of
service as a Director, or if Participant does not exercise the
Options within the time specified in the Plan or this Agreement for
post-termination of service exercises of the Options, the Options
shall terminate.
(ii) Termination
of Service Due to Removal for Cause. Upon the termination of
Participant’s service as a Director due to Removal for Cause,
unless the Options have earlier terminated, the Options (whether
vested or not) shall immediately terminate in their entirety and
shall thereafter not be exercisable to any extent whatsoever;
provided that Company, in its discretion, may, by written notice to
Participant given as of the date of Removal for Cause, authorize
Participant to exercise any vested portion of the Options for a
period of up to thirty (30) days following Participant’s
termination of service due to Removal for Cause, provided that in
no event may Participant exercise the Options after the Option
Expiration Date. For purposes of this Agreement,
“Removal for
Cause” shall mean a removal of Participant as a member
of the Board by Company’s stockholders pursuant to applicable
corporate laws governing the removal of Directors.
(iii) Termination
of Participant’s Service as a Director By Reason of
Participant’s Death. In the event Participant’s
service as a Director is terminated by reason of
Participant’s death, unless the Options have earlier
terminated, any unvested portion of the Options shall become
immediately and fully vested as of the date of termination. Vested
Options may be exercised at any time within twelve (12) months
following the date of termination (but in no event later than the
Option Expiration Date) by Participant’s executor or personal
representative or the person to whom the Options shall have been
transferred by will or the laws of descent and distribution, but
only to the extent Participant could exercise the Options at the
date of termination.
(iv) Termination
of Participant’s Service as a Director By Reason of
Participant’s Disability. In the event that
Participant ceases to be a Director by reason of
Participant’s Disability, unless the Options have earlier
terminated, any unvested portion of the Options shall become
immediately and fully vested as of the date of termination.
Participant (or Participant’s attorney in fact, conservator
or other representative on behalf of Participant) may, but only
within twelve (12) months from the date of such termination of
service as a Director (and in no event later than the Option
Expiration Date), exercise the Options to the extent Participant
was otherwise entitled to exercise the Options at the date of such
termination of service. For purposes of this Agreement,
“Disability”
shall mean Participant’s becoming “permanently and
totally disabled” within the meaning of Section 22(e)(3) of
the Code or as otherwise determined by the Committee in its
discretion. The Committee may require such proof of Disability as
the Committee in its sole and absolute discretion deems
appropriate, and the Committee’s determination as to whether
Participant has incurred a Disability shall be final and binding on
all parties concerned.
(c) Change
in Control. In the event of a Change in Control, the effect
of the Change in Control on the Options shall be determined by the
applicable provisions of the Plan (including, without limitation,
Article 11 of the Plan), provided that (i) to the extent the
Options are assumed or substituted by the successor company in
connection with the Change in Control (or the Options are continued
by Company if it is the ultimate parent entity after the Change in
Control), the Options will vest and become fully exercisable in
accordance with clause (i) of Section 11.2(a) of the Plan if within
twenty-four (24) months following the date of the Change in Control
Participant’s service as a Director of the Company is
terminated for any reason other than by reason of removal for
Cause, and any vested Options (either vested prior to the Change in
Control or accelerated by reason of this Section 5(c)) may be
exercised for a period of twenty-four (24) months after the date of
such termination of service (but in no event later than the Option
Expiration Date); and (ii) any portion of the Options which vests
and becomes exercisable pursuant to Section 11.2(b) of the Plan as
a result of such Change in Control will (1) vest and become
exercisable on the day prior to the date of the Change in Control
if Participant is then a member of the Company’s Board and
(2) terminate on the date of the Change in Control. For purposes of
Section 11.2 (a) of the Plan, the Options shall not be deemed
assumed or substituted by a successor company (or continued by
Company if it is the ultimate parent entity after the Change in
Control) if the Options are not assumed, substituted or continued
with equity securities of the successor company or Company, as
applicable, that are publicly-traded and listed on an exchange in
the United States and that have voting, dividend and other rights,
preferences and privileges substantially equivalent to the Shares.
If the Options are not deemed assumed, substituted or continued for
purposes of Section 11.2(a) of the Plan, the Options shall be
deemed not assumed, substituted or continued and governed by
Section 11.2(b) of the Plan. Notwithstanding the foregoing, if on
the date of the Change in Control the Fair Market Value of one
Share is less than the Exercise Price per Share, then the Options
shall terminate as of the date of the Change in Control except as
otherwise determined by the Committee.
(d) Extension
of Post-Termination Exercise Period. Notwithstanding any provisions of this
Section 5 to the contrary, if following termination of service on
the Board, the exercise of the Options or, if in conjunction with
the exercise of the Options, the sale of the Shares acquired on
exercise of the Options during the post-termination of service time
period set forth in the paragraph of this Section 5
applicable to the reason for termination of service would, in the
determination of the Company, violate any applicable federal
or state securities laws, rules, regulations or orders (or any
Company policy related thereto, including its securities
trading policy), the running of the applicable period to exercise
the Options shall be tolled for the number of days during the
period that the exercise of the Options or sale of the Shares
acquired on exercise would in the Company's determination
constitute such a violation; provided, however, that in no event
shall the exercisability of the Options be extended beyond the
Option Expiration Date.
(e) Forfeiture
upon Engaging in Detrimental Activities. If, at any
time within the twelve (12) months after (i) Participant exercises
any portion of the Options; or (ii) the effective date of any
termination of Participant’s service as a Director of Company
for any reason, Participant engages in, or is determined by the
Committee in its sole discretion to have engaged in, any (i)
material breach of any non-competition, non-solicitation,
non-disclosure or settlement or release covenant or agreement with
Company or any Subsidiary, or (ii) activities during the course of
Participant’s service as a Director with Company or any
Subsidiary constituting fraud, embezzlement, theft or dishonesty;
or (iii) activity that is otherwise in conflict with, or adverse or
detrimental to the interests of Company or any Subsidiary, then (x)
the Options shall terminate effective as of the date on which
Participant engaged in or engages in that activity or conduct,
unless terminated sooner pursuant to the provisions of this
Agreement, and (y) the amount of any gain realized by Participant
from exercising all or a portion of the Options at any time
following the date that Participant engaged in any such activity or
conduct, as determined as of the time of exercise, shall be
forfeited by Participant and shall be paid by Participant to
Company, and recoverable by Company, within sixty (60) days
following such termination date of the Options. For purposes of the
foregoing, the following will be deemed to be activities in
conflict with or adverse or detrimental to the interests of Company
or any Subsidiary: (i) Participant’s conviction of, or
pleading guilty or nolo contendere to any misdemeanor involving
moral turpitude or any felony, the underlying events of which
related to Participant’s service as a Director of Company;
(ii) knowingly engaged or aided in any act or transaction by
Company or a Subsidiary that results in the imposition of criminal,
civil or administrative penalties against Company or any
Subsidiary; or (iii) misconduct during the course of
Participant’s service as a Director of Company or any
Subsidiary that results in an accounting restatement by Company due
to material noncompliance with any financial reporting requirement
under applicable securities laws, whether such restatement occurs
during or after Participant’s service as a Director of
Company or any Subsidiary.
(f) Reservation
of Committee Discretion to Accelerate Option Vesting and Extend
Option Exercise Window. The Committee reserves the right, in
its sole and absolute discretion, to accelerate the vesting of the
Options and to extend the exercise window for Options that have
vested (either in accordance with the terms of this Agreement or by
discretionary acceleration by the Committee) under circumstances
not otherwise covered by the foregoing provisions of this Section
5; provided that in no event may the Committee extend the exercise
window for Options beyond the Option Expiration Date. The Committee
is under no obligation to exercise any such discretion and may or
may not exercise such discretion on a case-by-case
basis.
(g) Reversion
of Expired, Cancelled and Forfeited Options to Plan. Any
Options that do not vest or that are cancelled, terminated or
expire unexercised are forfeited and revert to the Plan and shall
again be available for Awards under the Plan.
(a) No
Rights of Stockholder. Participant shall not have any of the
rights of a stockholder with respect to the Shares subject to this
Agreement until such Shares have been issued upon the due exercise
of the Options.
(b) Nontransferability
of Options. The Options shall be nontransferable or
assignable except to the extent expressly provided in the Plan.
Notwithstanding the foregoing, Participant may by delivering
written notice to Company in a form provided by or otherwise
satisfactory to Company, designate a third party who, in the event
of Participant’s death, shall thereafter be entitled to
exercise the Options. This Agreement
is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
(c) Severability.
If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (i) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited shall
remain in full force and effect, and (ii) not affect any other
provision of this Agreement or part thereof, each of which shall
remain in full force and effect.
(d) Governing
Law, Jurisdiction and Venue. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Delaware other than its conflict of laws principles. The
parties agree that in the event that any suit or proceeding is
brought in connection with this Agreement, such suit or proceeding
shall be brought in the state or federal courts located in New
Castle County, Delaware, and the parties shall submit to the
exclusive jurisdiction of such courts and waive any and all
jurisdictional, venue and inconvenient forum objections to such
courts.
(e) Headings.
The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this
Agreement.
(f) Notices.
All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered
or mailed by registered or certified mail, postage prepaid. Notice
by mail shall be deemed delivered on the date on which it is
postmarked.
Notices
to Company should be addressed to:
AutoWeb,
Inc.
18872
MacArthur Blvd., Suite 200
Irvine,
CA 92612-1400
Attention: Chief
Legal Officer
Notice
to Participant should be addressed to Participant at
Participant’s address as it appears on Company’s
records.
Company
or Participant may by writing to the other party designate a
different address for notices. If the receiving party consents in
advance, notice may be transmitted and received via telecopy or via
such other electronic transmission mechanism as may be available to
the parties. Such notices shall be deemed delivered when
received.
(g) Agreement
Not a Service Contract. This Agreement is not an employment
or service contract, and nothing in this Agreement or in the
granting of the Options shall be deemed to create in any way
whatsoever any obligation on Participant’s part to continue
as a Director or on Company’s part to continue
Participant’s service as a Director.
(h) Counterparts.
This Agreement may be executed in multiple counterparts each of
which shall be deemed an original Agreement but all of which, taken
together, shall constitute one and the same Agreement binding on
the parties hereto. The signature of any party hereto to any
counterpart hereof shall be deemed a signature to, and may be
appended to, any other counterpart hereof.
(i) Administration.
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and this Agreement as
are consistent with the Plan and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations
made by the Committee (including determinations as to the
calculation, satisfaction or achievement of performance-based
vesting requirements, if any, to which the Options are subject)
shall be final and binding upon Participant, Company and all other
interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan or this Agreement.
(j) Policies
and Procedures. Participant agrees that Company may impose,
and Participant agrees to be bound by, Company policies and
procedures with respect to the ownership, timing and manner of
resales of shares of Company’s securities, including without
limitation, (i) restrictions on insider trading; (ii) restrictions
designed to delay and/or coordinate the timing and manner of sales
by officers, directors and affiliates of Company following a public
offering of Company’s securities; (iii) stock ownership or
holding requirements applicable to officers and/or directors of
Company; and (iv) the required use of a specified brokerage firm
for such resales.
(k) Entire
Agreement; Modification. This Agreement and the Plan contain
the entire agreement between the parties with respect to the
subject matter contained herein and may not be modified except as
provided in the Plan or in a written document signed by each of the
parties hereto and may be rescinded only by a written agreement
signed by both parties.
Remainder of Page Intentionally Left Blank; Signature Page
Follows
IN
WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Grant Date.
Grant
Date:
Total
Options
Awarded:
Exercise Price Per
Share:
“Company” AutoWeb,
Inc., a Delaware corporation
Glenn E.
Fuller
Executive Vice
President, Chief Legal
and
Administrative Officer and Secretary
“Participant”
[Printed Name of
Participant]
Exhibit
10.13
AUTOWEB, INC.
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
Employee Stock Option Award Agreement
(Non-Qualified Stock Option)
(Executive)
This
Employee Stock Option Award Agreement (“Agreement”) is entered into
effective as of the Grant Date set forth on the signature page to
this Agreement (“Grant
Date”), by and between AutoWeb, Inc., a Delaware
corporation (“Company”), and the person set
forth as Participant on the signature page hereto
(“Participant”).
This
Agreement and the stock options granted hereby are subject to the
provisions of the AutoWeb, Inc. Amended and Restated 2014 Equity
Incentive Plan (“Plan”). In the event of a conflict
between the provisions of the Plan and this Agreement, the Plan
shall control. Capitalized terms used but not defined in this
Agreement shall have the meanings assigned to such terms in the
Plan.
1. Grant of Options. Company
hereby grants to Participant non-qualified stock options
(“Options”) to
purchase the number of shares of common stock of Company, par value
$0.001 per share, set forth on the signature page to this Agreement
(“Shares”), at
the exercise price per Share set forth on the signature page to
this Agreement (“Exercise
Price”). The Options are not intended to qualify as
incentive stock options under Section 422 of the Code.
2. Term of Options. Unless the
Options terminate earlier pursuant to the provisions of this
Agreement or the Plan, the Options shall expire on the seventh
(7th)
anniversary of the Grant Date (“Option Expiration
Date”).
3. Vesting. The Options shall
become vested and exercisable in accordance with the following
vesting schedule: (i) thirty-three and one-third percent (33 1/3%)
shall vest and become exercisable on the first anniversary after
the Grant Date; and (ii) one thirty-sixth (1/36th) shall vest and
become exercisable on each successive monthly anniversary
thereafter for the following twenty-four (24) months ending on the
third anniversary of such vesting commencement date. No
installments of the Options shall vest after Participant’s
termination of employment for any reason.
4. Exercise of
Options.
(a) Manner
of Exercise. To the extent vested, the Options may be
exercised, in whole or in part, by delivering written notice to
Company in accordance with Section 6(f) of this Agreement in such
form as Company may require from time to time, or at the direction
of Company, through the procedures established with Company’s
third party option administration service. Such notice shall
specify the number of Shares, subject to the Options that are being
exercised and shall be accompanied by full payment of the Exercise
Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan (including same-day sales through a
broker), except that payment in whole or in part in a manner set
forth in clauses (ii), (iii) or (iv) of Section 5.5(b) of the Plan
may only be made with the consent of the Committee. The Options may
be exercised only in multiples of whole Shares, and no fractional
Shares shall be issued.
(b) Issuance
of Shares. Upon exercise of the Options and payment of the
Exercise Price for the Shares as to which the Options are exercised
and satisfaction of all applicable tax withholding requirements, if
any, the Company shall issue to Participant the applicable number
of Shares in the form of fully paid and nonassessable
Shares.
(c)
Withholding. No Shares will be
issued on exercise of the Options unless and until Participant pays
to Company, or makes satisfactory arrangements with Company for
payment of, any federal, state, local or foreign taxes required by
law to be withheld in respect of the exercise of the Options.
Participant hereby agrees that Company may withhold from
Participant’s wages or other remuneration the applicable
taxes. At the discretion of Company, the applicable taxes may be
withheld in kind from the Shares otherwise deliverable to
Participant on exercise of the Options, up to Participant’s
minimum required withholding rate or such other rate determined by
the Committee that will not trigger a negative accounting
impact.
5. Termination of
Options.
(a) Termination
Upon Expiration of Option Term. The Options shall terminate
and expire in their entirety on the Option Expiration Date. In no
event may Participant exercise the Options after the Option
Expiration Date, even if the application of another provision of
this Section 5 may result in an extension of the exercise period
for the Options beyond the Option Expiration Date.
(b) Termination
of Employment.
(i) Termination
of Employment Other Than Due to Death, Disability or
Cause.
(1) Participant
may exercise the vested portion of the Options for a period of
ninety (90) days (but in no event later than the Option Expiration
Date) following any termination of Participant’s employment
with Company, either by Participant or Company, other than in the
event of a termination of Participant’s employment by Company
for Cause (as defined below), voluntary termination by Participant
without Good Reason (as defined below) or by reason of
Participant’s death or Disability (as defined below). In the
event the termination of Participant’s employment is by
Company without Cause or by Participant for Good Reason, any
unvested portion of the Options shall become immediately and fully
vested as of the date of such termination.
(2) In
the event of a voluntary termination of employment with the Company
by Participant without Good Reason, (i) unvested Options as of the
date of termination shall immediately terminate in their entirety
and shall thereafter not be exercisable to any extent whatsoever;
and (ii) Participant may exercise any portion of the Options that
are vested as of the date of termination for a period of ninety
(90) days (but in no event later than the Option Expiration Date)
following the date of termination.
(3) For
purposes of this Agreement, the terms “Cause” and “Good Reason” shall have the meanings ascribed
to them in that certain Severance Benefits Agreement listed on the
signature page to this Agreement by and between Company and
Participant (“Severance
Agreement”). To the extent Participant is not entitled
to exercise the Options at the date of termination of employment,
or if Participant does not exercise the Options within the time
specified in the Plan or this Agreement for post-termination of
employment exercises of the Options, the Options shall
terminate.
(ii) Termination
of Employment for Cause. Upon the termination of
Participant’s employment by Company for Cause, unless the
Options have earlier terminated, the Options (whether vested or
not) shall immediately terminate in their entirety and shall
thereafter not be exercisable to any extent whatsoever; provided
that Company, in its discretion, may, by written notice to
Participant given as of the date of termination, authorize
Participant to exercise any vested portion of the Options for a
period of up to thirty (30) days following Participant’s
termination of employment for Cause, provided that in no event may
Participant exercise the Options beyond the Option Expiration
Date.
(iii) Termination
of Participant’s Employment By Reason of Participant’s
Death. In the event Participant’s employment is
terminated by reason of Participant’s death, the Options, to
the extent vested as of the date of termination, may be exercised
at any time within twelve (12) months following the date of
termination (but in no event later than the Option Expiration Date)
by Participant’s executor or personal representative or the
person to whom the Options shall have been transferred by will or
the laws of descent and distribution, but only to the extent
Participant could exercise the Options at the date of
termination.
(iv) Termination
of Participant’s Employment By Reason of Participant’s
Disability. In the event that Participant ceases to be an
Employee by reason of Participant’s Disability, unless the
Options have earlier terminated, Participant (or
Participant’s attorney-in-fact, conservator or other
representative on behalf of Participant) may, but only within
twelve (12) months from the date of such termination of employment
(and in no event later than the Option Expiration Date), exercise
the Options to the extent Participant was otherwise entitled to
exercise the Options at the date of such termination of employment.
For purposes of this Agreement, “Disability” shall mean
Participant’s becoming “permanently and totally
disabled” within the meaning of Section 22(e)(3) of the Code
or as otherwise determined by the Committee in its discretion. The
Committee may require such proof of Disability as the Committee in
its sole and absolute discretion deems appropriate, and the
Committee’s determination as to whether Participant has
incurred a Disability shall be final and binding on all parties
concerned.
(c) Change
in Control. In the event of a Change in Control, the effect
of the Change in Control on the Options shall be determined by the
applicable provisions of the Plan (including, without limitation,
Article 11 of the Plan), provided that (i) to the extent the
Options are assumed or substituted by the successor company in
connection with the Change in Control (or the Options are continued
by Company if it is the ultimate parent entity after the Change in
Control), the Options will vest and become fully exercisable in
accordance with clause (i) of Section 11.2(a) of the Plan if within
twenty-four (24) months following the date of the Change in Control
Participant’s employment is terminated by Company or a
Subsidiary (or the successor company or a subsidiary or parent
thereof) without Cause or by Participant for Good Reason, and any
vested Options (either vested prior to the Change in Control or
accelerated by reason of this Section 5(c)) may be exercised for a
period of twenty-four (24) months after the date of such
termination of employment (but in no event later than the Option
Expiration Date); and (ii) any portion of the Options which vests
and becomes exercisable pursuant to Section 11.2(b) of the Plan as
a result of such Change in Control will (1) vest and become
exercisable on the day prior to the date of the Change in Control
if Participant is then employed by Company or a Subsidiary and (2)
terminate on the date of the Change in Control. For purposes of
Section 11.2(a) of the Plan, the Options shall not be deemed
assumed or substituted by a successor company (or continued by
Company if it is the ultimate parent entity after the Change in
Control) if the Options are not assumed, substituted or continued
with equity securities of the successor company or Company, as
applicable, that are publicly-traded and listed on an exchange in
the United States and that have voting, dividend and other rights,
preferences and privileges substantially equivalent to the Shares.
If the Options are not deemed assumed, substituted or continued for
purposes of Section 11.2(a) of the Plan, the Options shall be
deemed not assumed, substituted or continued and governed by
Section 11.2(b) of the Plan. Notwithstanding the foregoing, if on
the date of the Change in Control the Fair Market Value of one
Share is less than the Exercise Price per Share, then the Options
shall terminate as of the date of the Change in Control except as
otherwise determined by the Committee.
(d) Extension
of Post-Termination Exercise Period. Notwithstanding any
provisions of this Section 5 to the contrary, if following
termination of employment or service the exercise of the Options
or, if in conjunction with the exercise of the Options, the sale of
the Shares acquired on exercise of the Options, during the
post-termination of service time period set forth in the paragraph
of this Section 5 applicable to the reason for termination of
service would, in the determination of the Company, violate any
applicable federal or state securities laws, rules, regulations or
orders (or any Company policy related thereto), including its
securities trading policy), the running of the applicable period to
exercise the Options shall be tolled for the number of days during
the period that the exercise of the Options or sale of the Shares
acquired on exercise would in the Company’s determination
constitute such a violation; provided, however, that in no event
shall the exercisability of the Options be extended beyond the
Option Expiration Date.
(e) Other
Governing Agreements or Plans. To the extent not prohibited
by the Plan, the provisions of this Section 5 regarding the
acceleration of vesting of Options and the extension of the
exercise period for Options following a Change in Control or a
termination of Participant’s employment with Company shall be
superseded and governed by the provisions, if any, of a written
employment or severance agreement between Participant and Company
or a severance plan of Company covering Participant, including a
change in control severance agreement or plan, to the extent such a
provision (i) is specifically applicable to option awards or grants
made to Participant and (ii) provides for the acceleration of
Options vesting or for a longer extension period for the exercise
of the Options in the case of a Change in Control or a particular
event of termination of Participant’s employment with Company
(e.g., an event of termination governed by Section 5(b)(i)) to this
Agreement than is provided in the provision of this Section 5
applicable to a Change in Control or to the same event of
employment termination; provided,
however, that in no event shall the exercisability of the
Options be extended beyond the Option Expiration Date.
(f) Forfeiture
upon Engaging in Detrimental Activities. If, at any
time within the twelve (12) months after (i) Participant exercises
any portion of the Options; or (ii) the effective date of any
termination of Participant’s employment by Company or by
Participant for any reason, Participant engages in, or is
determined by the Committee in its sole discretion to have engaged
in, any (i) material breach of any non-competition,
non-solicitation, non-disclosure or settlement or release covenant
or agreement with Company or any Subsidiary; (ii) activities during
the course of Participant’s employment with Company or any
Subsidiary constituting fraud, embezzlement, theft or dishonesty;
or (iii) activity that is otherwise in conflict with, or adverse or
detrimental to the interests of Company or any Subsidiary, then (x)
the Options shall terminate effective as of the date on which
Participant engaged in or engages in that activity or conduct,
unless terminated sooner pursuant to the provisions of this
Agreement, and (y) the amount of any gain realized by Participant
from exercising all or a portion of the Options at any time
following the date that Participant engaged in any such activity or
conduct, as determined as of the time of exercise, shall be
forfeited by Participant and shall be paid by Participant to
Company, and recoverable by Company, within sixty (60) days
following such termination date of the Options. For purposes
of the foregoing, the following will be deemed to be activities in
conflict with or adverse or detrimental to the interests of Company
or any Subsidiary: (i) Participant’s conviction of, or
pleading guilty or nolo contendere to any misdemeanor involving
moral turpitude or any felony, the underlying events of which
related to Participant’s employment with Company; (ii)
knowingly engaged or aided in any act or transaction by Company or
a Subsidiary that results in the imposition of criminal, civil or
administrative penalties against Company or any Subsidiary; or
(iii) misconduct during the course of Participant’s
employment by Company or any Subsidiary that results in an
accounting restatement by Company due to material noncompliance
with any financial reporting requirement under applicable
securities laws, whether such restatement occurs during or after
Participant’s employment by Company or any
Subsidiary.
(g) Reservation
of Committee Discretion to Accelerate Option Vesting and Extend
Option Exercise Window. The Committee reserves the right, in
its sole and absolute discretion, to accelerate the vesting of the
Options and to extend the exercise window for Options that have
vested (either in accordance with the terms of this Agreement or by
discretionary acceleration by the Committee) under circumstances
not otherwise covered by the foregoing provisions of this Section
5; provided that in no event may the Committee extend the exercise
window for Options beyond the Option Expiration Date. The Committee
is under no obligation to exercise any such discretion and may or
may not exercise such discretion on a case-by-case
basis.
(h) Reversion
of Expired, Cancelled and Forfeited Options to Plan. Any
Options that do not vest or that are cancelled, terminated or
expire unexercised are forfeited and revert to the Plan and shall
again be available for Awards under the Plan.
6. Miscellaneous.
(a) No
Rights of Stockholder. Participant shall not have any of the
rights of a stockholder with respect to the Shares subject to this
Agreement until such Shares have been issued upon the due exercise
of the Options.
(b) Nontransferability
of Options. The Options shall be nontransferable or
assignable except to the extent expressly provided in the Plan.
Notwithstanding the foregoing, Participant may by delivering
written notice to Company in a form provided by or otherwise
satisfactory to Company, designate a third party who, in the event
of Participant’s death, shall thereafter be entitled to
exercise the Options. This Agreement
is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
(c) Severability.
If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (i) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited shall
remain in full force and effect, and (ii) not affect any other
provision of this Agreement or part thereof, each of which shall
remain in full force and effect.
(d) Governing
Law, Jurisdiction and Venue. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Delaware other than its conflict of laws principles. The
parties agree that in the event that any suit or proceeding is
brought in connection with this Agreement, such suit or proceeding
shall be brought in the state or federal courts located in New
Castle County, Delaware, and the parties shall submit to the
exclusive jurisdiction of such courts and waive any and all
jurisdictional, venue and inconvenient forum objections to such
courts.
(e) Headings.
The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this
Agreement.
(f) Notices.
All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered
or mailed by registered or certified mail, postage prepaid. Notice
by mail shall be deemed delivered on the date on which it is
postmarked.
Notices
to Company should be addressed to:
AutoWeb,
Inc.
18872
MacArthur Blvd., Suite 200
Irvine,
CA 92612-1400
Attention: Chief
Legal Officer
Notice
to Participant should be addressed to Participant at
Participant’s address as it appears on Company’s
records.
Company
or Participant may by writing to the other party designate a
different address for notices. If the receiving party consents in
advance, notice may be transmitted and received via telecopy or via
such other electronic transmission mechanism as may be available to
the parties. Such notices shall be deemed delivered when
received.
(g) Agreement
Not an Employment Contract. This Agreement is not an
employment or service contract, and nothing in this Agreement or in
the granting of the Options shall be deemed to create in any way
whatsoever any obligation on Participant’s part to continue
as an Employee of Company or any Subsidiary or on the part of
Company or any Subsidiary to continue Participant’s
employment or service as an Employee.
(h) Counterparts.
This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original Agreement but all of which, taken
together, shall constitute one and the same Agreement binding on
the parties hereto. The signature of any party hereto to any
counterpart hereof shall be deemed a signature to, and may be
appended to, any other counterpart hereof.
(i) Administration.
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and this Agreement as
are consistent with the Plan and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations
made by the Committee (including determinations as to the
calculation, satisfaction or achievement of performance-based
vesting requirements, if any, to which the Options are subject)
shall be final and binding upon Participant, Company and all other
interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan or this Agreement.
(j) Policies
and Procedures. Participant agrees that Company may impose,
and Participant agrees to be bound by, Company policies and
procedures with respect to the ownership, timing and manner of
resales of shares of Company's securities, including without
limitation, (i) restrictions on insider trading; (ii) restrictions
designed to delay and/or coordinate the timing and manner of sales
by officers, directors and affiliates of the Company following a
public offering of the Company's securities; (iii) stock ownership
or holding requirements applicable to officers and/or directors of
Company; and (iv) the required use of a specified brokerage firm
for such resales.
(k) Entire
Agreement; Modification. This Agreement and the Plan contain
the entire agreement between the parties with respect to the
subject matter contained herein and may not be modified except as
provided in the Plan or in a written document signed by each of the
parties hereto and may be rescinded only by a written agreement
signed by both parties.
Remainder of Page Intentionally Left Blank; Signature Page
Follows
IN
WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Grant Date.
Total Options
Awarded:
Exercise Price Per
Share:
Severance Benefits
Agreement:
“Company”
AutoWeb, Inc., a Delaware corporation
Glenn
E. Fuller
Executive Vice
President, Chief Legal and
Administrative
Officer and Secretary
“Participant”
[Printed Name of
Participant]
Exhibit
10.14
AUTOWEB, INC.
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
Employee Stock Option Award Agreement
(Non-Qualified Stock Option)
(Non-Executive)
This
Employee Stock Option Award Agreement (“Agreement”) is entered into
effective as of the Grant Date set forth on the signature page to
this Agreement (“Grant
Date”), by and between AutoWeb, Inc., a Delaware
corporation (“Company”), and the person set
forth as Participant on the signature page hereto
(“Participant”).
This
Agreement and the stock options granted hereby are subject to the
provisions of the AutoWeb, Inc. Amended and Restated 2014 Equity
Incentive Plan (“Plan”). In the event of a conflict
between the provisions of the Plan and this Agreement, the Plan
shall control. Capitalized terms used but not defined in this
Agreement shall have the meanings assigned to such terms in the
Plan.
1. Grant of Options. Company
hereby grants to Participant non-qualified stock options
(“Options”) to
purchase the number of shares of common stock of Company, par value
$0.001 per share, set forth on the signature page to this Agreement
(“Shares”), at
the exercise price per Share set forth on the signature page to
this Agreement (“Exercise
Price”). The Options are not intended to qualify as
incentive stock options under Section 422 of the Code.
2. Term of Options. Unless the
Options terminate earlier pursuant to the provisions of this
Agreement or the Plan, the Options shall expire on the seventh
(7th)
anniversary of the Grant Date (“Option Expiration
Date”).
3. Vesting. The Options shall
become vested and exercisable in accordance with the following
vesting schedule: (i) thirty-three and one-third percent (33 1/3%)
shall vest and become exercisable on the first anniversary after
the Grant Date; and (ii) one thirty-sixth (1/36th) shall vest and
become exercisable on each successive monthly anniversary
thereafter for the following twenty-four (24) months ending on the
third anniversary of such vesting commencement date. No
installments of the Options shall vest after Participant’s
termination of employment for any reason.
4. Exercise of
Options.
(a) Manner
of Exercise. To the extent vested, the Options may be
exercised, in whole or in part, by delivering written notice to
Company in accordance with Section 6(f) of this Agreement in such
form as Company may require from time to time, or at the direction
of Company, through the procedures established with Company’s
third party option administration service. Such notice shall
specify the number of Shares, subject to the Options that are being
exercised, and shall be accompanied by full payment of the Exercise
Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan (including same-day sales through a
broker), except that payment in whole or in part in a manner set
forth in clauses (ii), (iii) or (iv) of Section 5.5(b) of the Plan
may only be made with the consent of the Committee. The Options may
be exercised only in multiples of whole Shares, and no fractional
Shares shall be issued.
(b) Issuance
of Shares. Upon exercise of the Options and payment of the
Exercise Price for the Shares as to which the Options are exercised
and satisfaction of all applicable tax withholding requirements, if
any, the Company shall issue to Participant the applicable number
of Shares in the form of fully paid and nonassessable
Shares.
(c) Withholding.
No Shares will be issued on exercise of the Options unless and
until Participant pays to Company, or makes satisfactory
arrangements with Company for payment of, any federal, state, local
or foreign taxes required by law to be withheld in respect of the
exercise of the Options. Participant hereby agrees that Company may
withhold from Participant’s wages or other remuneration the
applicable taxes. At the discretion of Company, the applicable
taxes may be withheld in kind from the Shares otherwise deliverable
to Participant on exercise of the Options, up to
Participant’s minimum required withholding rate or such other
rate determined by the Committee that will not trigger a negative
accounting impact.
5. Termination of
Options.
(a) Termination
Upon Expiration of Option Term. The Options shall terminate
and expire in their entirety on the Option Expiration Date. In no
event may Participant exercise the Options after the Option
Expiration Date, even if the application of another provision of
this Section 5 may result in an extension of the exercise period
for the Options beyond the Option Expiration Date.
(b) Termination
of Employment.
(i) Termination
of Employment Other Than Due to Death, Disability or Cause.
Participant may exercise the vested portion of the Options for a
period of ninety (90) days (but in no event later than the Option
Expiration Date) following any termination of Participant’s
employment with Company, either by Participant or Company, other
than in the event of a termination of Participant’s
employment by Company for Cause (as defined below) or by reason of
Participant’s death or Disability (as defined below). To the
extent Participant is not entitled to exercise the Options at the
date of termination of employment, or if Participant does not
exercise the Options within the time specified in the Plan or this
Agreement for post-termination of employment exercises of the
Options, the Options shall terminate.
(ii) Termination
of Employment for Cause. Upon the termination of
Participant’s employment by Company for Cause, unless the
Options have earlier terminated, the Options (whether vested or
not) shall immediately terminate in their entirety and shall
thereafter not be exercisable to any extent whatsoever; provided
that Company, in its discretion, may, by written notice to
Participant given as of the date of termination, authorize
Participant to exercise any vested portion of the Options for a
period of up to thirty (30) days following Participant’s
termination of employment for Cause, provided that in no event may
Participant exercise the Options after the Option Expiration Date.
For purposes of this Agreement, “Cause” shall mean (1) if a
definition of Cause made specifically applicable to option awards
held by Participant is provided in a written employment or
severance agreement between Participant and Company or a severance
plan of Company covering Participant (including a change in control
severance agreement or plan) and any such agreement or plan is in
effect at the time of the termination of employment, Cause shall be
as defined in such other agreement or plan; or (2) if no such other
definition of Cause is in effect at the time of termination of
employment, “Cause” shall mean a determination
by Company in its sole discretion, that Participant (i) has
breached Participant’s terms of employment with Company; (ii)
has failed to comply with Company policies and procedures in a
material manner; (iii) has engaged in disloyalty to Company,
including, without limitation, fraud, embezzlement, theft or
dishonesty in the course of Participant’s employment; (iv)
has disclosed trade secrets or confidential information of Company
to persons not entitled to receive such information; (v) has
breached any agreement between Participant and Company; (vi) has
engaged in such other behavior detrimental to the interests of
Company; (vii) has been convicted of, or pled guilty or nolo
contendere to any misdemeanor involving moral turpitude or any
felony; (viii) has failed in any material manner to consistently
discharge Participant’s employment duties to the Company,
which failure continues for thirty (30) days following written
notice from Company detailing the area or areas of such failure,
other than such failure resulting from Participant’s
Disability; (ix) has knowingly engaged in or aided any act or
transaction by Company or a Subsidiary that results in the
imposition of criminal, civil or administrative penalties against
Company or any Subsidiary; or (x) has engaged in misconduct during
the course of Participant’s employment by Company or any
Subsidiary that results in an accounting restatement by Company due
to material noncompliance with any financial reporting requirement
under applicable securities laws, whether such restatement occurs
during or after Participant’s employment by Company or any
Subsidiary.
(iii) Termination
of Participant’s Employment By Reason of Participant’s
Death. In the event Participant’s employment is
terminated by reason of Participant’s death, the Options, to
the extent vested as of the date of termination, may be exercised
at any time within twelve (12) months following the date of
termination (but in no event later than the Option Expiration Date)
by Participant’s executor or personal representative or the
person to whom the Options shall have been transferred by will or
the laws of descent and distribution, but only to the extent
Participant could exercise the Options at the date of
termination.
(iv) Termination
of Participant’s Employment By Reason of Participant’s
Disability. In the event that Participant ceases to be an
Employee by reason of Participant’s Disability, unless the
Options have earlier terminated, Participant (or
Participant’s attorney in fact, conservator or other
representative on behalf of Participant) may, but only within
twelve (12) months from the date of such termination of employment
(and in no event later than the Option Expiration Date), exercise
the Options to the extent Participant was otherwise entitled to
exercise the Options at the date of such termination of employment.
For purposes of this Agreement, “Disability” shall mean
Participant’s becoming “permanently and totally
disabled” within the meaning of Section 22(e)(3) of the Code
or as otherwise determined by the Committee in its discretion. The
Committee may require such proof of Disability as the Committee in
its sole and absolute discretion deems appropriate, and the
Committee’s determination as to whether Participant has
incurred a Disability shall be final and binding on all parties
concerned.
(c) Change
in Control. In the event of a Change in Control, the effect
of the Change in Control on the Options shall be determined by the
applicable provisions of the Plan (including, without limitation,
Article 11 of the Plan), provided that (i) to the extent the
Options are assumed or substituted by the successor company in
connection with the Change in Control (or the Options are continued
by Company if it is the ultimate parent entity after the Change in
Control), the Options will vest and become fully exercisable in
accordance with clause (i) of Section 11.2(a) of the Plan if within
twenty-four (24) months following the date of the Change in Control
Participant’s employment is terminated by Company or a
Subsidiary (or the successor company or a subsidiary or parent
thereof) without Cause, and any vested Options (either vested prior
to the Change in Control or accelerated by reason of this Section
5(c)) may be exercised for a period of twenty-four (24) months
after the date of such termination of employment (but in no event
later than the Option Expiration Date); and (ii) any portion of the
Options which vests and becomes exercisable pursuant to Section
11.2(b) of the Plan as a result of such Change in Control will (1)
vest and become exercisable on the day prior to the date of the
Change in Control if Participant is then employed by Company or a
Subsidiary and (2) terminate on the date of the Change in Control.
For purposes of Section 11.2(a) of the Plan, the Options shall not
be deemed assumed or substituted by a successor company (or
continued by Company if it is the ultimate parent entity after the
Change in Control) if the Options are not assumed, substituted or
continued with equity securities of the successor company or
Company, as applicable, that are publicly-traded and listed on an
exchange in the United States and that have voting, dividend and
other rights, preferences and privileges substantially equivalent
to the Shares. If the Options are not deemed assumed, substituted
or continued for purposes of Section 11.2(a) of the Plan, the
Options shall be deemed not assumed, substituted or continued and
governed by Section 11.2(b) of the Plan. Notwithstanding the
foregoing, if on the date of the Change in Control the Fair Market
Value of one Share is less than the Exercise Price per Share, then
the Options shall terminate as of the date of the Change in Control
except as otherwise determined by the Committee.
(d)
Extension
of Post-Termination Exercise Period. Notwithstanding any provisions of this
Section 5 to the contrary, if following termination of employment
or service the exercise of the Options or, if in conjunction with
the exercise of the Options, the sale of the Shares acquired on
exercise of the Options, during the post-termination of employment
or service time period set forth in the paragraph of this
Section 5 applicable to the reason for termination of employment or
service would, in the determination of the Company, violate
any applicable federal or state securities laws, rules, regulations
or orders (or any Company policy related thereto, including
its securities trading policy), the running of the applicable
period to exercise the Options shall be tolled for the number
of days during the period that the exercise of the Options or
sale of the Shares acquired on exercise would in the Company's
determination constitute such a violation; provided, however, that in no event
shall the exercisability of the Options be extended beyond the
Option Expiration Date.
(e) Other
Governing Agreements or Plans. To the extent not prohibited
by the Plan, the provisions of this Section 5 regarding the
acceleration of vesting of Options and the extension of the
exercise period for Options following a Change in Control or a
termination of Participant’s employment with Company shall be
superseded and governed by the provisions, if any, of a written
employment or severance agreement between Participant and Company
or a severance plan of Company covering Participant, including a
change in control severance agreement or plan, to the extent such a
provision (i) is specifically applicable to option awards or grants
made to Participant and (ii) provides for the acceleration of
Options vesting or for a longer extension period for the exercise
of the Options in the case of a Change in Control or a particular
event of termination of Participant’s employment with Company
(e.g., an event of termination governed by Section 5(b)(i)) to this
Agreement than is provided in the provision of this Section 5
applicable to a Change in Control or to the same event of
employment termination; provided,
however, that in no event shall the exercisability of the
Options be extended beyond the Option Expiration Date.
(f) Forfeiture
upon Engaging in Detrimental Activities. If, at any
time within the twelve (12) months after (i) Participant exercises
any portion of the Options; or (ii) the effective date of any
termination of Participant’s employment by Company or by
Participant for any reason, Participant engages in, or is
determined by the Committee in its sole discretion to have engaged
in, any (i) material breach of any non-competition,
non-solicitation, non-disclosure or settlement or release covenant
or agreement with Company or any Subsidiary; (ii) activities during
the course of Participant’s employment with Company or any
Subsidiary constituting fraud, embezzlement, theft or dishonesty;
or (iii) activity that is otherwise in conflict with, or adverse or
detrimental to the interests of Company or any Subsidiary, then (x)
the Options shall terminate effective as of the date on which
Participant engaged in or engages in that activity or conduct,
unless terminated sooner pursuant to the provisions of this
Agreement, and (y) the amount of any gain realized by Participant
from exercising all or a portion of the Options at any time
following the date that Participant engaged in any such activity or
conduct, as determined as of the time of exercise, shall be
forfeited by Participant and shall be paid by Participant to
Company, and recoverable by Company, within sixty (60) days
following such termination date of the Options. For purposes
of the foregoing, the following will be deemed to be activities in
conflict with or adverse or detrimental to the interests of Company
or any Subsidiary: (i) Participant’s conviction of, or
pleading guilty or nolo contendere to any misdemeanor involving
moral turpitude or any felony, the underlying events of which
related to Participant’s employment with Company; (ii)
knowingly engaged or aided in any act or transaction by Company or
a Subsidiary that results in the imposition of criminal, civil or
administrative penalties against Company or any Subsidiary; or
(iii) misconduct during the course of Participant’s
employment by Company or any Subsidiary that results in an
accounting restatement by Company due to material noncompliance
with any financial reporting requirement under applicable
securities laws, whether such restatement occurs during or after
Participant’s employment by Company or any
Subsidiary.
(g) Reservation
of Committee Discretion to Accelerate Option Vesting and Extend
Option Exercise Window. The Committee reserves the right, in
its sole and absolute discretion, to accelerate the vesting of the
Options and to extend the exercise window for Options that have
vested (either in accordance with the terms of this Agreement or by
discretionary acceleration by the Committee) under circumstances
not otherwise covered by the foregoing provisions of this Section
5; provided that in no event may the Committee extend the exercise
window for Options beyond the Option Expiration Date. The Committee
is under no obligation to exercise any such discretion and may or
may not exercise such discretion on a case-by-case
basis.
(h) Reversion
of Expired, Cancelled and Forfeited Options to Plan. Any
Options that do not vest or that are cancelled, terminated or
expire unexercised are forfeited and revert to the Plan and shall
again be available for Awards under the Plan.
6. Miscellaneous.
(a) No
Rights of Stockholder. Participant shall not have any of the
rights of a stockholder with respect to the Shares subject to this
Agreement until such Shares have been issued upon the due exercise
of the Options.
(b) Nontransferability
of Options. The Options shall be nontransferable or
assignable except to the extent expressly provided in the Plan.
Notwithstanding the foregoing, Participant may by delivering
written notice to Company in a form provided by or otherwise
satisfactory to Company, designate a third party who, in the event
of Participant’s death, shall thereafter be entitled to
exercise the Options. This Agreement
is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
(c) Severability.
If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (i) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited shall
remain in full force and effect, and (ii) not affect any other
provision of this Agreement or part thereof, each of which shall
remain in full force and effect.
(d) Governing
Law, Jurisdiction and Venue. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Delaware other than its conflict of laws principles. The
parties agree that in the event that any suit or proceeding is
brought in connection with this Agreement, such suit or proceeding
shall be brought in the state or federal courts located in New
Castle County, Delaware, and the parties shall submit to the
exclusive jurisdiction of such courts and waive any and all
jurisdictional, venue and inconvenient forum objections to such
courts.
(e) Headings.
The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this
Agreement.
(f) Notices.
All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered
or mailed by registered or certified mail, postage prepaid. Notice
by mail shall be deemed delivered on the date on which it is
postmarked.
Notices
to Company should be addressed to:
AutoWeb,
Inc.
18872
MacArthur Blvd., Suite 200
Irvine,
CA 92612-1400
Attention: Chief
Legal Officer
Notice
to Participant should be addressed to Participant at
Participant’s address as it appears on Company’s
records.
Company
or Participant, may by writing to the other party, designate a
different address for notices. If the receiving party consents in
advance, notice may be transmitted and received via telecopy or via
such other electronic transmission mechanism as may be available to
the parties. Such notices shall be deemed delivered when
received.
(g) Agreement
Not an Employment Contract. This Agreement is not an
employment or service contract, and nothing in this Agreement or in
the granting of the Options shall be deemed to create in any way
whatsoever any obligation on Participant’s part to continue
as an Employee of Company or any Subsidiary or on the part of
Company or any Subsidiary to continue Participant’s
employment or service as an Employee.
(h) Counterparts.
This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original Agreement but all of which, taken
together, shall constitute one and the same Agreement binding on
the parties hereto. The signature of any party hereto to any
counterpart hereof shall be deemed a signature to, and may be
appended to, any other counterpart hereof.
(i) Administration.
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and this Agreement as
are consistent with the Plan and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations
made by the Committee (including determinations as to the
calculation, satisfaction or achievement of performance-based
vesting requirements, if any, to which the Options are subject)
shall be final and binding upon Participant, Company and all other
interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan or this Agreement.
(j) Policies
and Procedures. Participant agrees that Company may impose,
and Participant agrees to be bound by, Company policies and
procedures with respect to the ownership, timing and manner of
resales of shares of Company’s securities, including without
limitation, (i) restrictions on insider trading; (ii) restrictions
designed to delay and/or coordinate the timing and manner of sales
by officers, directors and affiliates of the Company following a
public offering of the Company’s securities; (iii) stock
ownership or holding requirements applicable to officers and/or
directors of Company; and (iv) the required use of a specified
brokerage firm for such resales.
(k) Entire
Agreement; Modification. This Agreement and the Plan contain
the entire agreement between the parties with respect to the
subject matter contained herein and may not be modified except as
provided in the Plan or in a written document signed by each of the
parties hereto and may be rescinded only by a written agreement
signed by both parties.
Remainder of Page Intentionally Left Blank; Signature Page
Follows
IN
WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Grant Date.
Grant
Date:
Exercise Price
Per Share:
“Company”
AutoWeb, Inc., a Delaware corporation
Glenn
E. Fuller
Executive Vice
President, Chief Legal and
Administrative
Officer and Secretary
“Participant”
[Printed Name of
Participant]
Exhibit
10.15
AUTOWEB, INC.
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
Subsidiary Employee Stock Option Award Agreement
(Non-Qualified Stock Option)
(Subsidiary)
This
Subsidiary Employee Stock Option Award Agreement
(“Agreement”) is
entered into effective as of the Grant Date set forth on the
signature page to this Agreement (“Grant Date”), by and between
AutoWeb, Inc., a Delaware corporation (“Company”), and the person set
forth as Participant on the signature page hereto
(“Participant”).
This
Agreement and the stock options granted hereby are subject to the
provisions of the AutoWeb, Inc. Amended and Restated 2014 Equity
Incentive Plan (“Plan”). In the event of a conflict
between the provisions of the Plan and this Agreement, the Plan
shall control. Capitalized terms used but not defined in this
Agreement shall have the meanings assigned to such terms in the
Plan.
1. Grant of Options. Company
hereby grants to Participant non-qualified stock options
(“Options”) to
purchase the number of shares of common stock of Company, par value
$0.001 per share, set forth on the signature page to this Agreement
(“Shares”), at
the exercise price per Share set forth on the signature page to
this Agreement (“Exercise
Price”). The Options are not intended to qualify as
incentive stock options under Section 422 of the Code.
2. Term of Options. Unless the
Options terminate earlier pursuant to the provisions of this
Agreement or the Plan, the Options shall expire on the seventh
(7th)
anniversary of the Grant Date (“Option Expiration
Date”).
3. Vesting. The Options shall
become vested and exercisable in accordance with the following
vesting schedule: (i) thirty-three and one-third percent (33 1/3%)
shall vest and become exercisable on the first anniversary after
the Grant Date; and (ii) one thirty-sixth (1/36th) shall vest and
become exercisable on each successive monthly anniversary
thereafter for the following twenty-four (24) months ending on the
third anniversary of such vesting commencement date. No
installments of the Options shall vest after Participant’s
termination of employment with Company or any Subsidiary for any
reason.
4. Exercise of
Options.
(a) Manner
of Exercise. To the extent vested, the Options may be
exercised, in whole or in part, by delivering written notice to
Company in accordance with Section 6(f) of this Agreement in such
form as Company may require from time to time, or at the direction
of Company, through the procedures established with Company’s
third party option administration service. Such notice shall
specify the number of Shares, subject to the Options that are being
exercised, and shall be accompanied by full payment of the Exercise
Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan (including same-day sales through a
broker), except that payment in whole or in part in a manner set
forth in clauses (ii), (iii) or (iv) of Section 5.5(b) of the Plan
may only be made with the consent of the Committee. The Options may
be exercised only in multiples of whole Shares, and no fractional
Shares shall be issued.
(b) Issuance
of Shares. Upon exercise of the Options and payment of the
Exercise Price for the Shares as to which the Options are exercised
and satisfaction of all applicable tax withholding requirements, if
any, the Company shall issue to Participant the applicable number
of Shares in the form of fully paid and nonassessable
Shares.
(c) Withholding.
No Shares will be issued on exercise of the Options unless and
until Participant pays to Company, or makes satisfactory
arrangements with Company for payment of, any federal, state, local
or foreign taxes required by law to be withheld in respect of the
exercise of the Options. Participant hereby agrees that Company may
withhold from Participant’s wages or other remuneration the
applicable taxes. At the discretion of Company, the applicable
taxes may be withheld in kind from the Shares otherwise deliverable
to Participant on exercise of the Options, up to
Participant’s minimum required withholding rate or such other
rate determined by the Committee that will not trigger a negative
accounting impact.
5. Termination of
Options.
(a) Termination
Upon Expiration of Option Term. The Options shall terminate
and expire in their entirety on the Option Expiration Date. In no
event may Participant exercise the Options after the Option
Expiration Date, even if the application of another provision of
this Section 5 may result in an extension of the exercise period
for the Options beyond the Option Expiration Date.
(b) Termination
of Employment.
(i) Termination
of Employment Other Than Due to Death, Disability or Cause.
Participant may exercise the vested portion of the Options for a
period of ninety (90) days (but in no event later than the Option
Expiration Date) following any termination of Participant’s
employment with Company or any Subsidiary either by Participant or
Company or any Subsidiary other than in the event of a termination
of Participant’s employment by Company or any Subsidiary for
Cause (as defined below) or by reason of Participant’s death
or Disability (as defined below). To the extent Participant is not
entitled to exercise the Options at the date of termination of
employment, or if Participant does not exercise the Options within
the time specified in the Plan or this Agreement for
post-termination of employment exercises of the Options, the
Options shall terminate.
(ii) Termination
of Employment for Cause. Upon the termination of
Participant’s employment by Company or any Subsidiary for
Cause, unless the Options have earlier terminated, the Options
(whether vested or not) shall immediately terminate in their
entirety and shall thereafter not be exercisable to any extent
whatsoever; provided that Company, in its discretion, may, by
written notice to Participant given as of the date of termination,
authorize Participant to exercise any vested portion of the Options
for a period of up to thirty (30) days following
Participant’s termination of employment for Cause, provided
that in no event may Participant exercise the Options after the
Option Expiration Date. For purposes of this Agreement,
“Cause” shall
mean (1) if a definition of Cause made specifically applicable to
option awards held by Participant is provided in a written
employment or severance agreement between Participant and Company
or any Subsidiary or a severance plan of Company or any Subsidiary
covering Participant (including a change in control severance
agreement or plan) and any such agreement or plan is in effect at
the time of the termination of employment, Cause shall be as
defined in such other agreement or plan; or (2) if no such other
definition of Cause is in effect at the time of termination of
employment, “Cause” shall mean a determination
by Company in its sole discretion, that Participant (i) has
breached Participant’s terms of employment with Company or
any Subsidiary; (ii) has failed to comply with Company or any
Subsidiary policies and procedures in a material manner; (iii) has
engaged in disloyalty to Company or any Subsidiary, including,
without limitation, fraud, embezzlement, theft or dishonesty in the
course of Participant’s employment; (iv) has disclosed trade
secrets or confidential information of Company or any Subsidiary to
persons not entitled to receive such information; (v) has breached
any agreement between Participant and Company or any Subsidiary;
(vi) has engaged in such other behavior detrimental to the
interests of Company or any Subsidiary; (vii) has been convicted
of, or pled guilty or nolo contendere to any misdemeanor involving
moral turpitude or any felony; (viii) has failed in any material
manner to consistently discharge Participant’s employment
duties to the Company or any Subsidiary, which failure continues
for thirty (30) days following written notice from Company or any
Subsidiary detailing the area or areas of such failure, other than
such failure resulting from Participant’s Disability; (ix)
has knowingly engaged in or aided any act or transaction by Company
or any Subsidiary that results in the imposition of criminal, civil
or administrative penalties against Company or any Subsidiary; or
(x) has engaged in misconduct during the course of
Participant’s employment by Company or any Subsidiary that
results in an accounting restatement by Company due to material
noncompliance with any financial reporting requirement under
applicable securities laws, whether such restatement occurs during
or after Participant’s employment by Company or any
Subsidiary.
(iii) Termination
of Participant’s Employment By Reason of Participant’s
Death. In the event Participant’s employment is
terminated by reason of Participant’s death, the Options, to
the extent vested as of the date of termination, may be exercised
at any time within twelve (12) months following the date of
termination (but in no event later than the Option Expiration Date)
by Participant’s executor or personal representative or the
person to whom the Options shall have been transferred by will or
the laws of descent and distribution, but only to the extent
Participant could exercise the Options at the date of
termination.
(iv) Termination
of Participant’s Employment By Reason of Participant’s
Disability. In the event that Participant ceases to be an
employee of the Company or any Subsidiary by reason of
Participant’s Disability, unless the Options have earlier
terminated, Participant (or Participant’s attorney in fact,
conservator or other representative on behalf of Participant) may,
but only within twelve (12) months from the date of such
termination of employment (and in no event later than the Option
Expiration Date), exercise the Options to the extent Participant
was otherwise entitled to exercise the Options at the date of such
termination of employment. For purposes of this Agreement,
“Disability”
shall mean Participant’s becoming “permanently and
totally disabled” within the meaning of Section 22(e)(3) of
the Code or as otherwise determined by the Committee in its
discretion. The Committee may require such proof of Disability as
the Committee in its sole and absolute discretion deems
appropriate, and the Committee’s determination as to whether
Participant has incurred a Disability shall be final and binding on
all parties concerned.
(c) Change
in Control. In the event of a Change in Control, the effect
of the Change in Control on the Options shall be determined by the
applicable provisions of the Plan (including, without limitation,
Article 11 of the Plan), provided that (i) to the extent the
Options are assumed or substituted by the successor company in
connection with the Change in Control (or the Options are continued
by Company if it is the ultimate parent entity after the Change in
Control), the Options will vest and become fully exercisable in
accordance with clause (i) of Section 11.2(a) of the Plan if within
twenty-four (24) months following the date of the Change in Control
Participant’s employment is terminated by Company or any
Subsidiary (or the successor company or any subsidiary or parent
thereof) without Cause, and any vested Options (either vested prior
to the Change in Control or accelerated by reason of this Section
5(c)) may be exercised for a period of twenty-four (24) months
after the date of such termination of employment (but in no event
later than the Option Expiration Date); and (ii) any portion of the
Options which vests and becomes exercisable pursuant to Section
11.2(b) of the Plan as a result of such Change in Control will (1)
vest and become exercisable on the day prior to the date of the
Change in Control if Participant is then employed by Company or any
Subsidiary and (2) terminate on the date of the Change in Control.
For purposes of Section 11.2(a) of the Plan, the Options shall not
be deemed assumed or substituted by a successor company (or
continued by Company if it is the ultimate parent entity after the
Change in Control) if the Options are not assumed, substituted or
continued with equity securities of the successor company or
Company, as applicable, that are publicly-traded and listed on an
exchange in the United States and that have voting, dividend and
other rights, preferences and privileges substantially equivalent
to the Shares. If the Options are not deemed assumed, substituted
or continued for purposes of Section 11.2(a) of the Plan, the
Options shall be deemed not assumed, substituted or continued and
governed by Section 11.2(b) of the Plan. Notwithstanding the
foregoing, if on the date of the Change in Control the Fair Market
Value of one Share is less than the Exercise Price per Share, then
the Options shall terminate as of the date of the Change in Control
except as otherwise determined by the Committee.
(d)
Extension
of Post-Termination Exercise Period. Notwithstanding any provisions of this
Section 5 to the contrary, if following termination of employment
or service the exercise of the Options or, if in conjunction with
the exercise of the Options, the sale of the Shares acquired on
exercise of the Options, during the post-termination of employment
or service time period set forth in the paragraph of this
Section 5 applicable to the reason for termination of employment or
service would, in the determination of the Company, violate
any applicable federal or state securities laws, rules, regulations
or orders (or any Company policy related thereto, including
its securities trading policy), the running of the applicable
period to exercise the Options shall be tolled for the number
of days during the period that the exercise of the Options or
sale of the Shares acquired on exercise would in the
Company’s determination constitute such a violation;
provided, however, that in
no event shall the exercisability of the Options be extended beyond
the Option Expiration Date.
(e) Other
Governing Agreements or Plans. To the extent not prohibited
by the Plan, the provisions of this Section 5 regarding the
acceleration of vesting of Options and the extension of the
exercise period for Options following a Change in Control or a
termination of Participant’s employment with Company or any
Subsidiary shall be superseded and governed by the provisions, if
any, of a written employment or severance agreement between
Participant and Company or any Subsidiary or a severance plan of
Company covering Participant, including a change in control
severance agreement or plan, to the extent such a provision (i) is
specifically applicable to option awards or grants made to
Participant and (ii) provides for the acceleration of Options
vesting or for a longer extension period for the exercise of the
Options in the case of a Change in Control or a particular event of
termination of Participant’s employment with Company or any
Subsidiary (e.g., an event of termination governed by Section
5(b)(i)) to this Agreement than is provided in the provision of
this Section 5 applicable to a Change in Control or to the same
event of employment termination; provided, however, that in no event
shall the exercisability of the Options be extended beyond the
Option Expiration Date.
(f) Forfeiture
upon Engaging in Detrimental Activities. If, at any
time within the twelve (12) months after (i) Participant exercises
any portion of the Options; or (ii) the effective date of any
termination of Participant’s employment by Company or any
Subsidiary or by Participant for any reason, Participant engages
in, or is determined by the Committee in its sole discretion to
have engaged in, any (i) material breach of any non-competition,
non-solicitation, non-disclosure or settlement or release covenant
or agreement with Company or any Subsidiary; (ii) activities during
the course of Participant’s employment with Company or any
Subsidiary constituting fraud, embezzlement, theft or dishonesty;
or (iii) activity that is otherwise in conflict with, or adverse or
detrimental to the interests of Company or any Subsidiary, then (x)
the Options shall terminate effective as of the date on which
Participant engaged in or engages in that activity or conduct,
unless terminated sooner pursuant to the provisions of this
Agreement, and (y) the amount of any gain realized by Participant
from exercising all or a portion of the Options at any time
following the date that Participant engaged in any such activity or
conduct, as determined as of the time of exercise, shall be
forfeited by Participant and shall be paid by Participant to
Company, and recoverable by Company, within sixty (60) days
following such termination date of the Options. For purposes
of the foregoing, the following will be deemed to be activities in
conflict with or adverse or detrimental to the interests of Company
or any Subsidiary: (i) Participant’s conviction of, or
pleading guilty or nolo contendere to any misdemeanor involving
moral turpitude or any felony, the underlying events of which
related to Participant’s employment with Company or any
Subsidiary; (ii) knowingly engaged or aided in any act or
transaction by Company or any Subsidiary that results in the
imposition of criminal, civil or administrative penalties against
Company or any Subsidiary; or (iii) misconduct during the course of
Participant’s employment by Company or any Subsidiary that
results in an accounting restatement by Company due to material
noncompliance with any financial reporting requirement under
applicable securities laws, whether such restatement occurs during
or after Participant’s employment by Company or any
Subsidiary.
(g) Reservation
of Committee Discretion to Accelerate Option Vesting and Extend
Option Exercise Window. The Committee reserves the right, in
its sole and absolute discretion, to accelerate the vesting of the
Options and to extend the exercise window for Options that have
vested (either in accordance with the terms of this Agreement or by
discretionary acceleration by the Committee) under circumstances
not otherwise covered by the foregoing provisions of this Section
5; provided that in no event may the Committee extend the exercise
window for Options beyond the Option Expiration Date. The Committee
is under no obligation to exercise any such discretion and may or
may not exercise such discretion on a case-by-case
basis.
(h) Reversion
of Expired, Cancelled and Forfeited Options to Plan. Any
Options that do not vest or that are cancelled, terminated or
expire unexercised are forfeited and revert to the Plan and shall
again be available for Awards under the Plan.
6. Miscellaneous.
(a) No
Rights of Stockholder. Participant shall not have any of the
rights of a stockholder with respect to the Shares subject to this
Agreement until such Shares have been issued upon the due exercise
of the Options.
(b) Nontransferability
of Options. The Options shall be nontransferable or
assignable except to the extent expressly provided in the Plan.
Notwithstanding the foregoing, Participant may by delivering
written notice to Company in a form provided by or otherwise
satisfactory to Company, designate a third party who, in the event
of Participant’s death, shall thereafter be entitled to
exercise the Options. This Agreement
is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
(c) Severability.
If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (i) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited shall
remain in full force and effect, and (ii) not affect any other
provision of this Agreement or part thereof, each of which shall
remain in full force and effect.
(d) Governing
Law, Jurisdiction and Venue. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Delaware other than its conflict of laws principles. The
parties agree that in the event that any suit or proceeding is
brought in connection with this Agreement, such suit or proceeding
shall be brought in the state or federal courts located in New
Castle County, Delaware, and the parties shall submit to the
exclusive jurisdiction of such courts and waive any and all
jurisdictional, venue and inconvenient forum objections to such
courts.
(e) Headings.
The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this
Agreement.
(f) Notices.
All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered
or mailed by registered or certified mail, postage prepaid. Notice
by mail shall be deemed delivered on the date on which it is
postmarked.
Notices
to Company should be addressed to:
AutoWeb,
Inc.
18872
MacArthur Blvd., Suite 200
Irvine,
CA 92612-1400
Attention: Chief
Legal Officer
Notice
to Participant should be addressed to Participant at
Participant’s address as it appears on Company’s or any
Subsidiary’s records.
Company
or Participant, may by writing to the other party, designate a
different address for notices. If the receiving party consents in
advance, notice may be transmitted and received via telecopy or via
such other electronic transmission mechanism as may be available to
the parties. Such notices shall be deemed delivered when
received.
(g) Agreement
Not an Employment Contract. This Agreement is not an
employment or service contract, and nothing in this Agreement or in
the granting of the Options shall be deemed to create in any way
whatsoever any obligation on Participant’s part to continue
as an employee of Company or any Subsidiary or on the part of
Company or any Subsidiary to continue Participant’s
employment or service as an employee.
(h) Counterparts.
This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original Agreement but all of which, taken
together, shall constitute one and the same Agreement binding on
the parties hereto. The signature of any party hereto to any
counterpart hereof shall be deemed a signature to, and may be
appended to, any other counterpart hereof.
(i) Administration.
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and this Agreement as
are consistent with the Plan and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations
made by the Committee (including determinations as to the
calculation, satisfaction or achievement of performance-based
vesting requirements, if any, to which the Options are subject)
shall be final and binding upon Participant, Company and all other
interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan or this Agreement.
(j) Policies
and Procedures. Participant agrees that Company may impose,
and Participant agrees to be bound by, Company policies and
procedures with respect to the ownership, timing and manner of
resales of shares of Company’s securities, including without
limitation, (i) restrictions on insider trading; (ii) restrictions
designed to delay and/or coordinate the timing and manner of sales
by officers, directors and affiliates of the Company following a
public offering of the Company’s securities; (iii) stock
ownership or holding requirements applicable to officers and/or
directors of Company; and (iv) the required use of a specified
brokerage firm for such resales.
(k) Entire
Agreement; Modification. This Agreement and the Plan contain
the entire agreement between the parties with respect to the
subject matter contained herein and may not be modified except as
provided in the Plan or in a written document signed by each of the
parties hereto and may be rescinded only by a written agreement
signed by both parties.
Remainder of Page
Intentionally Left Blank; Signature Page
Follows
IN
WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Grant Date.
Grant
Date:
Exercise
Price Per
Share:
“Company”
AutoWeb, Inc., a Delaware corporation
Glenn
E. Fuller
Executive
Vice President, Chief Legal and
Administrative
Officer and Secretary
“Participant”
[Printed Name of
Participant]
Exhibit
10.16
AUTOWEB, INC.
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
Restricted Stock Award Agreement
This
Restricted Stock Award Agreement (“Agreement”) is entered into
effective as of the Award Date set forth on the signature page to
this Agreement (“Award
Date”) by and between AutoWeb, Inc., a Delaware
corporation (“Company”), and the person set
forth as Participant on the signature page hereto
(“Participant”).
This
Agreement and the shares of restricted stock granted hereby are
subject to the provisions of the AutoWeb, Inc. Amended and Restated
2014 Equity Incentive Plan (“Plan”). In the event of a conflict
between the provisions of the Plan and this Agreement, the Plan
shall control. Capitalized terms used but not defined in this
Agreement shall have the meanings assigned to such terms in the
Plan.
1. Award of Restricted
Stock. Company hereby awards to Participant the number of
shares of common stock of Company, par value $0.001 per share, set
forth on the signature page to this Agreement (“Restricted Shares”), subject to
the Forfeiture Restrictions set forth herein.
2. Forfeiture
Restrictions Lapse Schedule. All Restricted Shares awarded
pursuant to this Agreement are subject to forfeiture back to
Company as may be provided in Section 3 (“Forfeiture Restrictions”) subject
to the Forfeiture Restrictions lapsing in accordance with the
vesting schedule set forth on the signature page to this agreement
(“Vesting
Schedule”).
3. Effect of Certain
Events on Forfeiture Restrictions.
(a) Termination
of Employment.
(i) Termination
of Employment By Company Without Cause or By Participant With Good
Reason. In the event Participant’s employment with
Company is terminated by Company without Cause or by Participant
for Good Reason, the Forfeiture Restrictions on the Restricted
Shares that have not lapsed prior to such termination of employment
shall lapse. For purposes of this Agreement, the terms
“Cause” and
“Good
Reason” shall have the meanings ascribed
to them in the Severance Benefits Agreement by and between Company
and Participant and referenced on the signature page to this
Agreement, as such agreement may be amended from time to time
(“Severance Benefits
Agreement”).
(ii) Termination
of Employment By Company For Cause or By Participant Without Good
Reason. Upon the termination of Participant’s
employment by Company for Cause or by Participant without Good
Reason, any Restricted Shares that remain subject to the Forfeiture
Restrictions at the time of termination of employment shall be
immediately forfeited and cancelled.
[Alternative
Section 3(a)(ii) for Jeffrey H. Coats]
(ii) Termination
of Employment By Company For Cause or By Participant Without Good
Reason. Upon the termination of Participant’s
employment by Company for Cause or by Participant without Good
Reason, any Restricted Shares that remain subject to the Forfeiture
Restrictions at the time of termination of employment shall be
immediately forfeited and cancelled; provided, however, that in the
case of a termination of Participant’s employment by
Participant without Good Reason, if Participant was a member of the
Company’s board of directors at the time of voluntary
termination by the Participant without Good Reason and Participant
continues to serve as a member of the Company’s board of
directors after the termination of employment, then any Restricted
Shares that remain subject to the Forfeiture Restrictions at the
time of termination of employment shall not be immediately
forfeited and cancelled, and the Forfeiture Restrictions shall
remain in effect and continue to lapse in accordance with the
Vesting Schedule during the time that Participant continues to
serve as a member of the Company’s board of directors. Upon
ceasing to be a member of the Company’s board of directors,
any Restricted Shares that remain subject to the Forfeiture
Restrictions at the time of Participant ceasing to be a member of
the board of directors shall be immediately forfeited and
cancelled.
(iii) Termination
of Employment By Reason of Participant’s Death. Upon
the termination of Participant’s employment by Company by
reason of Participant’s death, the Forfeiture Restrictions on
the Restricted Shares that have not lapsed prior to such
termination of employment shall lapse.
(iv) Termination
of Employment By Company By Reason of Participant’s
Disability. Upon the termination of Participant’s
employment by Company by reason of Participant’s Disability,
the Forfeiture Restrictions on the Restricted Shares that have not
lapsed prior to such termination of employment shall lapse. For
purposes of this Agreement, “Disability” shall mean Participant
becoming “permanently and totally disabled” within the
meaning of Section 22(e)(3) of the Code or as otherwise determined
by the Committee in its discretion. The Committee may require such
proof of Disability as the Committee in its sole and absolute
discretion deems appropriate, and the Committee’s
determination as to whether Participant has incurred a Disability
shall be final and binding on all parties concerned.
(b) Change
in Control. In the event of a Change in Control, the effect
of the Change in Control on the Restricted Shares shall be
determined by the applicable provisions of the Plan (including,
without limitation, Article 11 of the Plan), provided that (i) to
the extent the Restricted Shares are assumed or substituted by the
successor company in connection with the Change in Control (or the
Restricted Shares are continued by Company if it is the ultimate
parent entity after the Change in Control), the Forfeiture
Restrictions shall lapse in accordance with clause (i) of Section
11.2(a) of the Plan only if Participant’s employment is
terminated within twenty-four (24) months following the date of the
Change in Control by Company or a Subsidiary (or the successor
company or a subsidiary or parent thereof) without Cause or by
Participant for Good Reason; and (ii) the Restricted Shares shall
not be deemed assumed or substituted by a successor company (or
continued by Company if it is the ultimate parent entity after the
Change in Control) for purposes of Section 11.2(a) of the Plan if
the Restricted Shares are not assumed, substituted or continued
with equity securities of the successor company or Company, as
applicable, that are publicly-traded and listed on an exchange in
the United States and that have voting, dividend and other rights,
preferences and privileges substantially equivalent to the
Restricted Shares. If the Restricted Shares are not deemed assumed,
substituted or continued for purposes of Section 11.2(a) of the
Plan, the Restricted Shares shall be deemed not assumed,
substituted or continued and shall be governed by Section 11.2(b)
of the Plan.
(c) Forfeiture
upon Engaging in Detrimental Activities. If, at any time
while any Restricted Shares remain subject to the Forfeiture
Restrictions or within the twelve (12) months after (i) the
Forfeiture Restrictions lapse as to any Restricted Shares; or (ii)
the effective date of any termination of Participant’s
employment by Company or by Participant for any reason, Participant
engages in, or is determined by the Committee in its sole
discretion to have engaged in, any (i) material breach of any
non-competition, non-solicitation, non-disclosure or settlement or
release covenant or agreement with Company or any Subsidiary; (ii)
activities during the course of Participant’s employment with
Company or any Subsidiary constituting fraud, embezzlement, theft
or dishonesty; or (iii) activity that is otherwise in conflict
with, or adverse or detrimental to the interests of Company or any
Subsidiary, then (x) Restricted Shares still subject to Forfeiture
Restrictions shall be forfeited effective as of the date on which
Participant engaged in or engages in that activity or conduct,
unless terminated sooner pursuant to the provisions of this
Agreement; (y) Restricted Shares for which the Forfeiture
Restrictions have lapsed but that are still in the possession of or
control of Participant shall be forfeited and returned to Company
effective as of the date on which Participant engaged in or engages
in that activity or conduct, unless terminated sooner pursuant to
the provisions of this Agreement; and (z) the amount of any
proceeds realized by Participant from any sale or other transfer of
Restricted Shares as to which the Forfeiture Restrictions had
lapsed shall be forfeited by Participant and shall be paid by
Participant to Company, and recoverable by Company, within sixty
(60) days following such termination date of the Options. For
purposes of the foregoing, the following will be deemed to be
activities in conflict with or adverse or detrimental to the
interests of Company or any Subsidiary: (i) Participant’s
conviction of, or pleading guilty or nolo contendere to any
misdemeanor involving moral turpitude or any felony, the underlying
events of which related to Participant’s employment with
Company; (ii) knowingly engaged or aided in any act or transaction
by Company or a Subsidiary that results in the imposition of
criminal, civil or administrative penalties against Company or any
Subsidiary; or (iii) misconduct during the course of
Participant’s employment by Company or any Subsidiary that
results in an accounting restatement by Company due to material
noncompliance with any financial reporting requirement under
applicable securities laws, whether such restatement occurs during
or after Participant’s employment by Company or any
Subsidiary.
(d) Reversion
of Forfeited Shares to Plan. Any Restricted Shares that are
forfeited shall be cancelled and revert to the Plan and shall again
be available for Awards under the Plan.
(e)
Reservation of Committee
Discretion to Accelerate Lapse of Forfeiture
Restrictions. The Committee reserves the right, in its
sole and absolute discretion, to accelerate the lapsing of the
Forfeiture Restrictions under circumstances not otherwise covered
by the foregoing provisions of this Section 3. The Committee
is under no obligation to exercise any such discretion and may or
may not exercise such discretion on a case-by-case
basis.
4. Restrictive Legend. Until
Forfeiture Restrictions lapse, all book entry accounts (or if
applicable, certificates) representing the Restricted Shares shall
bear the following legend in addition to all other legends
applicable to shares of Company’s common stock:
The
shares represented by this Advice [or Certificate, if applicable]
are subject to forfeiture to and recoupment by AutoWeb, Inc. and
may not be sold or otherwise transferred except pursuant to the
provisions of the Amended and Restated 2014 Equity Incentive Plan
Restricted Stock Award Agreement by and between AutoWeb, Inc. and
[Participant] dated as of [Award Date].
As
Forfeiture Restrictions lapse and Participant has made arrangements
satisfactory to Company to satisfy applicable tax-withholding
obligations, Company shall cause the foregoing restrictive legend
to be removed with respect to Restricted Shares that are no longer
subject to the Forfeiture Restrictions. Notwithstanding the
foregoing, Participant agrees that Company may impose, and
Participant agrees to be bound by, Company policies and procedures
with respect to the ownership, timing and manner of resales of
shares of Company's securities, including without limitation, (i)
restrictions on insider trading; (ii) restrictions designed to
delay and/or coordinate the timing and manner of sales by officers,
directors and affiliates of Company following a public offering of
Company's securities; (iii) stock ownership or holding requirements
applicable to officers and/or directors of Company; and (iv) the
required use of a specified brokerage firm for such
resales.
5. Section 83(b) Election
Notice. If
Participant elects
under Section 83(b) of the Code to be taxed immediately on the
Restricted Shares rather than as the Forfeiture Restrictions lapse,
Participant must notify Company of the election within ten (10)
days of filing that election with the Internal Revenue
Service.
6. Miscellaneous.
(a) Nontransferability
of Restricted Shares. The Restricted Shares shall be
nontransferable or assignable except to the extent expressly
provided in the Plan. This Agreement
is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
(b) Severability.
If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (i) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited shall
remain in full force and effect, and (ii) not affect any other
provision of this Agreement or part thereof, each of which shall
remain in full force and effect.
(c) Governing
Law, Jurisdiction and Venue. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Delaware other than its conflict of laws principles. The
parties agree that in the event that any suit or proceeding is
brought in connection with this Agreement, such suit or proceeding
shall be brought in the state or federal courts located in New
Castle County, Delaware, and the parties shall submit to the
exclusive jurisdiction of such courts and waive any and all
jurisdictional, venue and inconvenient forum objections to such
courts.
(d) Headings.
The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this
Agreement.
(e) Notices.
All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered
or mailed by registered or certified mail, postage prepaid. Notice
by mail shall be deemed delivered on the date on which it is
postmarked.
Notices
to Company should be addressed to:
AutoWeb,
Inc.
18872
MacArthur Blvd., Suite 200
Irvine,
CA 92612-1400
Attention: Chief
Legal Officer
Notice
to Participant should be addressed to Participant at
Participant’s address as it appears on Company’s
records.
Company
or Participant may by writing to the other party designate a
different address for notices. If the receiving party consents in
advance, notice may be transmitted and received via telecopy or via
such other electronic transmission mechanism as may be available to
the parties. Such notices shall be deemed delivered when
received.
(f) Agreement
Not an Employment Contract. This Agreement is not an
employment or service contract, and nothing in this Agreement or in
the granting of the Restricted Shares shall be deemed to create in
any way whatsoever any obligation on Participant’s part to
continue as an employee of Company or any Subsidiary or on the part
of Company or any Subsidiary to continue Participant’s
employment or service as an Employee.
(g) Counterparts.
This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original Agreement but all of which, taken
together, shall constitute one and the same Agreement binding on
the parties hereto. The signature of any party hereto to any
counterpart hereof shall be deemed a signature to, and may be
appended to, any other counterpart hereof.
(h) Administration.
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration,
interpretation and application of the Plan and this Agreement as
are consistent with the Plan and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations
made by the Committee (including determinations as to the
calculation, satisfaction or achievement of performance-based
vesting requirements, if any, to which the Restricted Shares are
subject) shall be final and binding upon Participant, Company and
all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation
made in good faith with respect to the Plan or this
Agreement.
(i) Entire
Agreement; Modification. This Agreement and the Plan contain
the entire agreement between the parties with respect to the
subject matter contained herein and may not be modified except as
provided in the Plan or in a written document signed by each of the
parties hereto and may be rescinded only by a written agreement
signed by both parties.
Remainder of Page Intentionally Left Blank; Signature Page
Follows
IN
WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Award Date.
Number of
Restricted
Shares:
Severance Benefits
Agreement:
Vesting
Schedule:
The
Forfeiture Restrictions with respect to thirty-three and one-third
percent (33-1/3%) of the Restricted Shares shall lapse on each
anniversary of the Award Date, commencing with the first
anniversary of the Award Date and ending on the third anniversary
of the Award Date.
“Company”
AutoWeb, Inc., a Delaware corporation
Glenn
E. Fuller, Executive Vice President, Chief Legal and
Administrative
Officer and Secretary
[Participant’s
Name]
Exhibit
10.24
AUTOWEB, INC.
INDEMNIFICATION AGREEMENT
This
Indemnification Agreement (“Agreement”) is
made and entered into as of [DATE] by and between AutoWeb, Inc., a
Delaware corporation (“Company”), and
[NAME] (“Indemnitee”).
Background
In
order to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve the Company and, in part,
to induce Indemnitee to continue to provide services to the
Company, the Company wishes to provide for indemnification and
advancement of expenses to Indemnitee to the maximum extent
permitted by law.
The
Company’s Seventh Amended and Restated Bylaws, as amended
(“Bylaws”), and
the Company’s Sixth Restated Certificate of Incorporation, as
amended (“Certificate”),
require that the Company indemnify the directors, officers,
employees and other agents of the Company, including persons
serving at the request of the Company in those capacities with
other corporations or enterprises, as authorized by the General
Corporation Law of the State of Delaware, as amended
(“DGCL”), and
the Bylaws and the Certificate each expressly provide that the
indemnification provided therein is not exclusive and contemplates
that the Company may enter into separate agreements with its
directors, officers, employees and other agents of the
Company.
Indemnitee does not
believe that the protection currently provided by applicable law,
the Bylaws, the Certificate and available insurance may be adequate
under the circumstances, and the Company has determined that
Indemnitee and other directors, officers, employees and agents of
the Company may not be willing to serve or continue to serve in
such capacities without additional protections. The Company desires
and has requested Indemnitee to serve or continue to serve as a
director, officer, employee or agent of the Company, as the case
may be, and has proffered this Agreement to Indemnitee as an
additional inducement to serve in such capacity. Indemnitee is
willing to serve, or to continue to serve, as a director, officer,
employee or agent of the Company, as the case may be, if Indemnitee
is furnished the indemnity provided herein by the
Company.
This
Agreement is a supplement to, and in furtherance of, the Bylaws,
the Certificate and any resolutions adopted pursuant thereto, and
must not be deemed a substitute therefor, nor to diminish or
abrogate any rights of Indemnitee thereunder.
In
consideration of Indemnitee’s agreement to serve and the
mutual agreements set forth herein, the sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
Agreement
1. Services to the Company. Indemnitee will
serve, at the will of the Company (or its stockholders, as
applicable) or under separate contract if any such contract exists,
as [POSITION/TITLE] or as a director, officer, agent or other
fiduciary of an affiliate of the Company, including any subsidiary
or employee benefit plan of the Company (each, an
“Affiliate”),
to the best of Indemnitee’s ability so long as Indemnitee
remains in such position(s); provided, however, that (i) Indemnitee may at any time and
for any reason resign from such position(s) (subject to any
contractual obligation that Indemnitee may have assumed apart from
this Agreement or any obligation imposed by operation of law), and
(ii) neither the Company nor any Affiliate have any obligation
under this Agreement to continue Indemnitee in any such
position(s). This Agreement is not an employment contract between
the Company (or any of its Affiliates) and Indemnitee. Nothing in
this Agreement may be construed or interpreted as giving Indemnitee
any right to be retained in the employ of the Company (or any of
its Affiliates). Indemnitee specifically acknowledges and agrees
that except as may be provided in a written employment contract
between Indemnitee and the Company or an Affiliate: (i)
Indemnitee’s employment with the Company or any of its
Affiliates is at-will, and (ii) Indemnitee may be discharged at any
time for any reason. The foregoing notwithstanding, this Agreement
will continue in force after Indemnitee has ceased to serve as
[POSITION/TITLE] of the Company.
2. Indemnity of Indemnitee. The Company
hereby agrees to hold harmless and indemnify Indemnitee to the
fullest extent authorized or permitted by the provisions of the
Bylaws, the Certificate, the DGCL or other applicable law. The
phrase “to the fullest extent authorized or permitted”
includes to the fullest extent authorized or permitted by any
amendments or replacements of the Bylaws, the Certificate, or the
DGCL (or other applicable law) adopted or enacted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its directors, officers, employees or
agents.
3. Additional Indemnity. In addition to,
and not in limitation of, the indemnification otherwise provided
for herein, and subject only to the exclusions set forth in
Section 4 hereof, the Company hereby further agrees to hold
harmless and indemnify Indemnitee against any and all Expenses (as
defined below) that Indemnitee becomes legally obligated to pay
because of any claim or claims made against or by Indemnitee in
connection with any threatened, pending or completed action, suit
or proceeding whether by or in the right of the Company or
otherwise and whether civil, criminal, legislative, arbitrational,
administrative or investigative, and whether formal or informal
including any appeal therefrom, to which Indemnitee is, was or at
any time becomes a party, potential party, or a participant,
including as a non-party witness or otherwise, or is threatened to
be made a party, by reason of the fact that Indemnitee is, was or
at any time becomes a director, officer, employee or other agent of
the Company, or is or was serving, or at any time serves at the
request of, the Company or any Affiliate as a director, officer,
employee or other agent (including a trustee, partner or manager)
of another corporation, limited liability company, partnership,
joint venture, trust, employee benefit plan or other enterprise,
including an Affiliate (collectively, a “Proceeding”),
in each case whether or not Indemnitee was serving in that capacity
at the time any liability or Expense is incurred. The definition of
“Proceeding” must be considered met if Indemnitee in
good faith believes the situation might lead to or culminate in the
institution of a Proceeding. “Expenses” mean
all expenses, including attorneys’ fees, witness fees, fees
of experts, forensic consultants and other professionals,
retainers, court costs, travel expenses, photocopying, printing and
binding costs, telephone charges, and any other cost, disbursement
or expense customarily incurred in connection with defending,
prosecuting, preparing to prosecute or defend, investigating, being
prepared to be a witness in, responding to a subpoena or other
discovery request, or otherwise participating in, a Proceeding,
damages, penalties, interest charges thereon, judgments, fines, and
amounts paid in settlement, any federal, state, local or foreign
taxes imposed on Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement, ERISA excise taxes
and penalties imposed on Indemnitee, costs associated with any
appeals, including without limitation the premium, security for,
and other costs relating to any costs bond, supersedeas bond, or
other appeal bond or its equivalent, and any other amounts for time
spent by Indemnitee for which Indemnitee is not compensated by the
Company or any Affiliate or third party for any period during which
Indemnitee is not an agent, in the employment of, or providing
services for compensation to, the Company or any Affiliate. Without
limiting the generality of the foregoing, references to
“serving at the request of the Company as a director,
officer, employee or agent” includes:
(i) Indemnitee’s performance of services for, on behalf
of, or for the benefit of the Company or any Affiliate while
Indemnitee is serving as a director, officer, employee or other
agent of the Company or an Affiliate regardless of whether
Indemnitee is at the time a director, officer or employee of the
Company or the Affiliate for, on behalf of, or for the benefit of
which Indemnitee performed services; or (ii) any service by
Indemnitee that imposes duties on, involves services by, Indemnitee
with respect to an employment benefit plan, its participants or
beneficiaries, including as a deemed fiduciary
thereto.
4. Limitations on Additional Indemnity. No
indemnity pursuant to Sections 2 or 3 hereof must be paid by
the Company:
(a) On
account of any claim against Indemnitee solely for an accounting of
profits made from the purchase or sale by Indemnitee of securities
of the Company pursuant to the provisions of Section 16(b)
(“Section 16(b)”)
of the Securities Exchange Act of 1934, as amended
(“Exchange
Act”), or similar provisions of any federal, state or
local statutory law; provided, that with respect to a claim against
Indemnitee solely for
an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Company pursuant to the provisions
of Section 16(b) or similar provisions of any federal, state
or local law, Indemnitee is entitled to the advancement of legal expenses
unless the Company reasonably determines that Indemnitee clearly
violated Section 16(b) and must disgorge profits to the
Company pursuant to the terms thereof. Notwithstanding anything to
the contrary stated or implied in this Section 4(a),
indemnification pursuant to this Agreement relating to any
Proceeding against Indemnitee for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) or similar
provisions of any federal, state or local laws is not prohibited if
Indemnitee ultimately establishes in any Proceeding that no recovery of
such profits from Indemnitee is permitted under Section 16(b)
or similar provisions of any federal, state or local
laws;
(b) On account of any
reimbursement of the Company by the Indemnitee of any bonus or
other incentive-based or equity-based compensation or of any
profits realized by the Indemnitee from the sale of securities of
the Company, as required in each case under the Exchange Act
(including any such reimbursements that arise from an accounting
restatement of the Company pursuant to Section 304 of the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley
Act”), or the payment to the Company of profits
arising from the purchase and sale by Indemnitee of securities in
violation of Section 306 of the Sarbanes-Oxley Act), provided, Indemnitee is entitled to
advancement of Expenses related to, arising out of, or resulting
from a Proceeding to recover such compensation or profits prior to
the final adjudication of that Proceeding;
(c) on account of
Indemnitee’s conduct that is established by a final judgment,
not subject to appeal, as knowingly fraudulent or deliberately
dishonest or that constituted willful misconduct;
(d) on account of
Indemnitee’s conduct that is established by a final judgment,
not subject to appeal, as constituting a breach of
Indemnitee’s duty of loyalty to the Company or resulting in
any personal profit or advantage to which Indemnitee was not
legally entitled;
(e) for which payment
is actually made to Indemnitee under a valid and collectible
insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment
under such insurance, clause, bylaw or agreement and such payment
fully compensates Indemnitee against all expenses. Notwithstanding
anything to the contrary stated or implied in this
Section 4(e), (i) Indemnitee has no obligation to reduce,
offset, allocate, pursue or apportion any indemnification, hold
harmless, exoneration, advancement, contribution or insurance
coverage among multiple persons possessing those obligations to
Indemnitee prior to the Company’s satisfaction and
performance of its obligations under this Agreement; and (ii) the
Company must perform fully its obligations under this Agreement
regardless of whether Indemnitee holds, may pursue or has pursued
any indemnification, advancement, hold harmless, exoneration,
contribution or insurance coverage rights against any person or
entity other than the Company;
(f) if indemnification
is not lawful, as established by the Company by a final judgment on
such issue not subject to appeal; or
(g) in connection with
any Proceeding (or part thereof) initiated by Indemnitee, or any
Proceeding by Indemnitee against the Company or an Affiliate or the
directors, officers, employees or other agents of the Company or an
Affiliate, unless (i) such indemnification is expressly
required to be made by law, (ii) the Proceeding was authorized
by the Company’s Board of Directors (“Board”),
(iii) such indemnification is provided by the Company, in its
sole discretion, pursuant to the powers vested in the Company under
the DGCL or any other applicable law, (iv) the Proceeding is
initiated pursuant to Section 10 hereof, or (v) the
Proceeding initiated by Indemnitee is a cross-claim or counter-claim.
5. Continuation of Indemnity. All
agreements and obligations of the Company contained herein continue
during the period Indemnitee is a director, officer, employee or
other agent of the Company (or is or was serving at the request of
the Company as a director, officer, employee or other agent
(including trustee, partner or manager) of another corporation,
limited liability company, partnership, joint venture, trust,
employee benefit plan or other enterprise) and will continue
thereafter so long as Indemnitee is subject to any Proceeding by
reason of the fact that Indemnitee was serving in the capacity
referred to herein.
6. Partial Indemnification. The Company
will indemnify Indemnitee for a portion of the Expenses that
Indemnitee becomes legally obligated to pay in connection with any
Proceeding even if not entitled hereunder to indemnification for
the total amount thereof, and the Company must indemnify Indemnitee
for the portion thereof to which Indemnitee is entitled and the
acceptance of such partial payment will not be an admission by
Indemnitee that he or she is not entitled to all of his or her
Expenses or a bar against Indemnitee seeking recovery of the full
amount of Expenses.
7. Notice
and Other Indemnification Procedures.
(a) Notification of Proceeding. Indemnitee
agrees to notify the Company in writing promptly upon being served
with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding. The
failure of Indemnitee to so notify the Company does not relieve the
Company of any obligation that it may have to Indemnitee under this
Agreement or otherwise and any delay in giving notice will not
constitute a waiver by Indemnitee of any rights under this
Agreement.
(b) Request for Indemnification and Indemnification
Payments. Upon written request by Indemnitee for
indemnification, a determination, if required by applicable law,
with respect to Indemnitee’s entitlement thereto must be made
in the specific case: (i) if a Change in Control (as defined
in Section 8(b)) shall have occurred, by Independent Counsel (as
defined below) in a written opinion to the Board, a copy of which
must be delivered to Indemnitee; or (ii) if a Change in Control
shall not have occurred, (A) by a majority vote of the
Disinterested Directors (as defined below), even though less than a
quorum of the Board, (B) by a committee of Disinterested Directors
designated by a majority vote of the Disinterested Directors, even
though less than a quorum of the Board, (C) if there are no such
Disinterested Directors or, if such Disinterested Directors so
direct, by Independent Counsel in a written opinion to the Board, a
copy of which must be delivered to Indemnitee or (D) if so directed
by the Board, by the stockholders of the Company; and, if it is so
determined that Indemnitee is entitled to indemnification, payment
to Indemnitee must be made promptly, but in no event more than ten
(10) days after such determination. Indemnitee agrees to
cooperate with the person, persons or entity making such
determination with respect to Indemnitee’s entitlement to
indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or
information that is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any costs or Expenses
(including attorneys’ fees and disbursements) incurred by or
on behalf of Indemnitee in so cooperating with the person, persons
or entity making such determination must be borne by the Company
(irrespective of the determination as to Indemnitee’s
entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom. The Company must
advise Indemnitee promptly in writing with respect to any
determination that Indemnitee is or is not entitled to
indemnification, including a description of any reason or basis for
which indemnification has been denied. Claims for advancement of
Expenses must be made under the provisions of Section 9 of
this Agreement.
In the
event the determination of entitlement to indemnification is to be
made by Independent Counsel, the Independent Counsel must be
selected as provided in this Section 7(b). If a Change in
Control shall not have occurred, the Board must select the
Independent Counsel, and the Company must give prompt, written
notice to Indemnitee advising him of the identity of the
Independent Counsel so selected. If a Change in Control shall have
occurred, Indemnitee must select the Independent Counsel (unless
Indemnitee requests that the selection be made by the Board, in
which event the preceding sentence applies), and Indemnitee must
give written notice to the Company advising it of the identity of
the Independent Counsel so selected. In either event, Indemnitee or
the Company, as the case may be, may, within ten (10) days after
such written notice of selection has been given, deliver to the
Company or to Indemnitee, as the case may be, a written objection
to the selection; provided,
however, that the objection may be asserted only on the
basis that the Independent Counsel so selected does not meet the
requirements of “Independent Counsel” as defined below,
and the objection must set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the
person so selected will act as Independent Counsel. If a written
objection is so made and substantiated, the Independent Counsel so
selected may not serve as Independent Counsel unless and until the
objection is withdrawn or the Delaware Court of Chancery has
determined that such objection is without merit. If, within twenty
(20) days after the later of submission by Indemnitee of a written
request for indemnification and the final disposition of the
Proceeding, no Independent Counsel has been selected and not
objected to, either the Company or Indemnitee may petition the
Delaware Court of Chancery for resolution of any objection which
shall have been made by the Company or Indemnitee to the
other’s selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by that
court or by such other person as that court may designate, and the
person with respect to whom all objections are so resolved or the
person so appointed will act as Independent Counsel. The Company
agrees to pay the reasonable fees and expenses, including any
retainer or advance, of the Independent Counsel referred to above
and to indemnify such counsel fully against any and all Expenses,
claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. “Disinterested Director” means a
director of the Company who is not, and was not, a party to the
Proceeding in respect of which indemnification is sought by
Indemnitee. “Independent
Counsel” means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to
represent: (i) the Company, any Affiliate or Indemnitee in any
matter material to any such person (other than with respect to
matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
“Independent Counsel” does not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine
Indemnitee’s rights under this Agreement.
(c) Notice to Insurers. If, at the time of
the receipt by the Company of a notice pursuant to
Section 7(a) hereof, the Company has liability insurance in
effect which may cover that Proceeding, the Company must give
prompt notice of the commencement of that Proceeding to the
insurers in accordance with the procedures set forth in the
respective policies. The Company must thereafter take all necessary
or desirable action to cause those insurers to pay, on behalf of
Indemnitee, all Expenses payable to Indemnitee in respect of such
Proceeding in accordance with the terms of their policies, but any
such action by the Company will not relieve it of its obligations
hereunder.
(d) Notwithstanding
anything in this Agreement to the contrary, no determination as to
entitlement to indemnification under this Agreement may be required
to be made prior to the final disposition of the Proceeding as to
Indemnitee.
8. Assumption
of Defense.
(a) In the event the
Company is requested by Indemnitee to pay the Expenses of any
Proceeding, the Company, if appropriate, will be entitled to assume
the defense of that Proceeding, or to participate to the extent
permissible in that Proceeding, with counsel approved by
Indemnitee, which approval may not be unreasonably withheld or
delayed. Upon assumption of the defense by the Company and the
retention of such counsel by the Company, the Company will not be
liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same
Proceeding; provided, that
Indemnitee will have the right to employ separate counsel in that
Proceeding at Indemnitee’s sole cost and expense. After the
Company has assumed the defense of a Proceeding, Indemnitee will be
entitled to, at Indemnitee’s own expense, engage counsel for
the purpose of monitoring the defense being provided by counsel
retained by the Company, and the Company must direct that counsel
to cooperate with and provide requested information to
Indemnitee’s monitoring counsel. Notwithstanding the
foregoing, if (i) Indemnitee’s counsel delivers a
written notice to the Company stating that such counsel has
reasonably concluded that there may be a conflict of interest
between the Company and Indemnitee in the conduct of any defense in
the Proceeding, (ii) the Company has not, in fact, employed
counsel or otherwise actively pursued the defense of the Proceeding
within a reasonable time, or thereafter reasonably maintained the
defense of the Proceeding, (iii) there has been a Change in
Control (as defined below), or (iv) Indemnitee reasonably
concludes that counsel engaged by the Company on behalf of
Indemnitee may not adequately represent Indemnitee, then in any
such event the fees and expenses of Indemnitee’s counsel to
defend the Proceeding must be at the expense of the Company and
subject to the indemnification and advancement of expenses
provisions of this Agreement. Provided, however, that in the event
there are other defendants in a Proceeding who are entitled to
counsel other than counsel engaged by the Company, the Company will
only be obligated to pay the fees and expenses of one (1) counsel
for all those defendants, including Indemnitee, unless
Indemnitee’s counsel delivers a written notice to the Company
stating that such counsel has reasonably concluded that there may
be a conflict of interest that would prevent one (1) counsel from
representing all such defendants, including
Indemnitee.
(b) For purposes of
this Agreement, a “Change in
Control” is deemed to have occurred if (i) any
“person” (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company, (A) who is or
becomes the beneficial owner, directly or indirectly, of securities
of the Company representing ten percent (10%) or more of the
combined voting power of the Company’s then outstanding
Voting Securities (as defined below), increases his, her or its
beneficial ownership of such securities by five percent (5%) or
more over the percentage so owned by such person, or
(B) becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than twenty percent
(20%) of the total voting power represented by the Company’s
then outstanding Voting Securities, (ii) during any period of
two (2) consecutive years, individuals who at the beginning of that
period constitute the Board and any new director whose election by
the Board or nomination for election by the Company’s
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the Company merges or
consolidates with any other corporation other than a merger or
consolidation that would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity, or its ultimate
parent) at least sixty percent (60%) of the total voting power
represented by the Voting Securities, as defined below, of the
Company or such surviving entity, or its ultimate parent,
outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of (in one (1) transaction or a series of transactions) all
or substantially all of the Company’s assets, (iv) the
Company commences any case, action or proceeding before any court
or governmental body (or a third party commences any such
proceeding that remains undismissed by or consented to within sixty
(60) days) relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of
debtors, or (v) the Company commences any general assignment
for the benefit of creditors, composition, marshaling of assets for
creditors, or other similar arrangement in respect of its creditors
generally or any substantial portion of its creditors.
(c) For
purposes of this Agreement, “Voting
Securities” means any securities of the Company that
vote generally in the election of directors.
(d) Notwithstanding
any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without
prejudice, in defense of any Proceeding or in the defense of any
claim, issue or matter therein, the Company must indemnify
Indemnitee against all Expenses incurred by Indemnitee in
connection therewith.
9. Advances
of Expenses.
(a) The Company will
advance to Indemnitee, prior to the final adjudication of any
Proceeding of this Agreement, any and all Expenses relating to,
arising out of or resulting from any Proceeding (other than a
Proceeding for which indemnification is excluded pursuant to
Section 4(g)) paid or incurred by Indemnitee or which Indemnitee
determines are reasonably likely to be paid or incurred by
Indemnitee. The right to advances under this Section 9 in all
events continues until final disposition of any Proceeding,
including all possible appeals therefrom. Advances must be made
without regard to Indemnitee’s ability to repay the Expenses
and without regard to Indemnitee’s ultimate entitlement to
indemnification under the other provisions of this Agreement.
Advances must be unsecured and interest free. Advances include any
and all reasonable Expenses incurred in pursuing an action to
enforce this right of advancement, including Expenses incurred in
preparing and forwarding statements to the Company or its insurance
carrier(s) to support the advances claimed.
(b) Indemnitee’s
right to such advancement is not subject to the satisfaction of any
standard of conduct. Without limiting the generality or effect of
the foregoing, within fifteen (15) business days after any request
by Indemnitee, the Company must, in accordance with such request
(but without duplication), (i) pay such Expenses on behalf of
Indemnitee, (ii) advance to Indemnitee funds in an amount
sufficient to pay such Expenses, or (iii) reimburse Indemnitee
for such Expenses.
(c) Indemnitee
undertakes to the fullest extent permitted by law to repay the
amounts advanced pursuant to this Agreement (without interest) if
and to the extent that it is ultimately determined by a court of
competent jurisdiction in a final judgment, not subject to appeal,
that Indemnitee is not entitled to be indemnified therefor by the
Company. No other form of undertaking may be required other than
the execution of this Agreement.
(d) Indemnitee must use
commercially reasonable efforts to provide documentation to the
Company relating to Expenses as incurred in order to permit the
Company to properly deduct the advancement of Expenses pursuant to
this Section 9; provided,
however, that Indemnitee will only be required to provide
such documentation to the extent that such provision will not
constitute a waiver of the attorney-client privilege or the work
product doctrine.
10. Enforcement;
Presumption of Entitlement.
(a) Any right to
indemnification or advances granted by this Agreement to Indemnitee
is enforceable by or on behalf of Indemnitee in any court of
competent jurisdiction if (i) the claim for indemnification is
denied, in whole or in part; (ii) no disposition of such claim
is made within seventy (70) days of request therefor; (iii) payment
of indemnification is not made to Indemnitee within ten (10) days
of a determination that Indemnitee is entitled to indemnification;
(iv) advancement of Expenses is not timely made; or (v) the Company
or any other person takes or threatens to take action to declare
this Agreement unenforceable or institutes litigation or other
action or proceeding to deny or recover from Indemnitee the
benefits provided by, or intended to be provided by, this
Agreement. Indemnitee, in such enforcement action, if successful in
whole or in part, must be entitled to be paid also the Expenses of
prosecuting Indemnitee’s claim. The Company must pay interest
at the legal rate under Delaware law on all amounts that the
Company is obligated to advance or indemnify pursuant to this
Agreement, commencing on the date on which the Company must advance
Expenses or the earlier of the date of determination of
indemnification or seventy (70) days of a request therefor and
ending on the date on which payment is made.
(b) It is a defense to
any action for which a claim for indemnification is made under
Sections 2 and 3 hereof (other than an action brought to
enforce a claim for Expenses pursuant to Section 8 hereof)
that Indemnitee is not entitled to indemnification because of the
limitations set forth in Section 4 hereof.
(c) In any such
Proceeding instituted by Indemnitee pursuant to this
Section 10, the Company must be precluded, to the fullest
extent permitted by law, from asserting that the procedures and
presumptions of this Agreement are not valid, binding and
enforceable and must stipulate in any such court that the Company
is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary.
(d) In making any
determination concerning Indemnitee’s right to
indemnification, it must be presumed that Indemnitee has satisfied
the applicable standard of conduct, and to the fullest extent not
prohibited by law, the Company has the burden of proof to overcome
that presumption by its adducing clear and convincing evidence to
the contrary. Neither the failure of the Company (including the
Disinterested Directors, the Company’s stockholders, or
Independent Counsel) to have made a determination prior to the
commencement of such enforcement action that indemnification of
Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including the Disinterested
Directors, the Company’s stockholders, or Independent
Counsel) that such indemnification is improper is a defense to the
action or creates a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise. Any judicial
proceeding must be conducted in all respects as a trial
de novo on the merits and
Indemnitee must not be prejudiced by any actual determination by
the Company any assertion to the contrary.
(e) For purposes of any
determination of good faith, Indemnitee must be deemed to have
acted in good faith if Indemnitee’s action is based on the
records or books of account of the Company or any Affiliate,
including financial statements, or on information supplied to
Indemnitee by the directors or officers of the Company or any
Affiliate in the course of their duties, or on the advice of legal
counsel for the Company or an Affiliate or on information or
records given or reports made to the Company or an Affiliate by an
independent certified public accountant or by an appraiser or other
expert selected with the reasonable care by the Enterprise. The
provisions of this Section 10(e) must not be deemed to be exclusive
or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of
conduct set forth in this Agreement. Whether or not the foregoing
provisions of this Section 10(e) are satisfied, it must in any
event be presumed that Indemnitee has at all times acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company.
(f) Subject to Section
7(d), if a determination of whether Indemnitee is entitled to
indemnification is not made within forty (40) days after receipt by
the Company of the request therefor, the requisite determination of
entitlement to indemnification must, to the fullest extent not
prohibited by law, be deemed to have been made and Indemnitee must
be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee’s statement not materially
misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law;
provided, however, that
such 40-day period may be extended for a reasonable time, not to
exceed an additional thirty (30) days, if the person, persons or
entity making the determination with respect to entitlement to
indemnification in good faith requires such additional time for the
obtaining or evaluating of documentation and/or information
relating thereto; and provided, further, that the foregoing provisions
of this Section 10(f) do not apply (i) if the determination of
entitlement to indemnification is to be made by the and if (A)
within ten (10) days after receipt by the Company of the request
for such determination the Board has resolved to submit such
determination to the stockholders for their consideration at an
annual meeting thereof to be held within sixty (60) days after such
receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within ten (10) days after such
receipt for the purpose of making such determination, such meeting
is held for such purpose within sixty (60) days after having been
so called and such determination is made thereat, or (ii) if the
determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 7(a) of this
Agreement.
(g) The remedies
provided for in this Section 10 are in addition to any other
remedies available to Indemnitee at law or in equity or pursuant to
the Certificate, the Bylaws or other written agreement between the
Company and Indemnitee.
11. Unauthorized Settlements. Any provision
herein to the contrary notwithstanding, the Company is not
obligated pursuant to the terms of this Agreement to indemnify
Indemnitee under this Agreement for any amounts paid in settlement
of a Proceeding effected by Indemnitee without the Company’s
written consent. Further, the Company must not, without the prior
written consent of Indemnitee, effect any settlement of:
(a) any Proceeding if Indemnitee is or could have been a
party, or (b) any Proceeding in which the Company is, or could
be, jointly liable with Indemnitee (or would be if joined in such
Proceeding) unless such settlement solely involves the payment of
money and includes a complete and unconditional release of
Indemnitee from all liability on any claims that are the subject
matter of such Proceeding. Neither the Company nor Indemnitee may
unreasonably withhold, delay or condition consent to any proposed
settlement; provided,
however, that: (i) the Company may in any event decline
to consent to (or to otherwise admit or agree to any liability for
indemnification hereunder in respect of) any proposed settlement if
the Company is also a party in such Proceeding and determines in
good faith that such settlement is not in the best interests of the
Company and its stockholders, and (ii) Indemnitee may withhold
consent to any settlement that does not provide a complete and
unconditional release of Indemnitee requires Indemnitee to take any
action other than executing a release of parties providing a
release of Indemnitee, or imposes any penalty or other limitation
or disqualification on Indemnitee. The Company must notify
Indemnitee promptly of the receipt of any settlement offer or if it
intends to submit a settlement offer and must provide Indemnitee a
reasonable time to consider the offer.
12. Mutual Acknowledgment. Both the Company
and Indemnitee acknowledge that in certain instances, Federal or
state law or applicable public policy may prohibit the Company from
indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a
court in certain circumstances for a determination of the
Company’s right under public policy to indemnify
Indemnitee.
13. Period of Limitations. No legal action
may be brought and no cause of action may be asserted by or in the
right of the Company against Indemnitee, Indemnitee’s estate,
spouse, heirs, executors or personal or legal representatives after
the expiration of two (2) years from the date of accrual of such
cause of action, and any claim or cause of action of the Company
will be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two (2)-year period;
provided, however, that if
any shorter period of limitations is otherwise applicable to any
such cause of action, such shorter period must govern.
14. Subrogation. In the event of payment
under this Agreement and after Indemnitee has no more Expenses in
respect of a Proceeding, the Company will be subrogated to the
extent of such payment to all of the rights of recovery of
Indemnitee, who must execute all documents required and must do all
acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such
rights.
15. Non-Exclusivity of Rights. The rights
conferred on Indemnitee by this Agreement are not exclusive of any
other right which Indemnitee may have or hereafter acquire under
any statute, provision of the Certificate or the Bylaws, each as
may be amended from time to time, agreement, vote of stockholders
or directors, or otherwise.
16. Survival
of Rights; Change in Control.
(a) The rights
conferred on Indemnitee by this Agreement continue after Indemnitee
has ceased to be a director, officer, employee or other agent of
the Company or to serve at the request of the Company as a
director, officer, trustee, fiduciary, partner, manager, employee
or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise and will inure to
the benefit of Indemnitee’s heirs, executors and
administrators.
(b) The Company must
require and cause any successor thereto (whether direct or
indirect) in connection with a Change in Control, by written
agreement, expressly to assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be
required to perform if no such Change in Control
occurred.
17. Contribution.
(a) If the
indemnification provided for by this Agreement is unavailable in
whole or in part and may not be paid to Indemnitee for any reason
other than those set forth in Section 4 hereof, then in
respect to any Proceeding in which the Company is jointly liable
with Indemnitee (or would be if joined in such Proceeding), to the
fullest extent permissible under applicable law, the Company, in
lieu of indemnifying and holding harmless Indemnitee, must pay, in
the first instance, the entire amount of Expenses incurred by
Indemnitee in connection with any Proceeding without requiring
Indemnitee to contribute to such payment, and the Company hereby
waives and relinquishes any right of contribution it may have at
any time against Indemnitee.
(b) The Company hereby
agrees to indemnify and hold harmless fully to the extent
permissible under applicable law Indemnitee from any claims for
contribution that may be brought by officers, directors or
employees of the Company (other than Indemnitee) who may be jointly
liable with Indemnitee.
18. Liability
Insurance.
(a) For the duration of
Indemnitee’s service as a director and/or officer of the
Company, and thereafter for so long as Indemnitee may be subject to
any pending or possible indemnifiable claim, the Company must use
best efforts (taking into account the scope and amount of coverage
available relative to the cost thereof) to cause to be maintained
in effect policies of directors’ and officers’
liability insurance, errors and omissions insurance and employment
practices insurance providing coverages for directors and/or
officers of the Company that are at least substantially comparable
in scope and amount to that provided by the Company’s current
policies covering directors and officers. The minimum AM Best
rating for the insurance carriers of such insurance must be not
less than A-VI.
(b) In the event of a
Change in Control, the Company must (i) maintain in force any
and all insurance policies then maintained by the Company providing
liability insurance in respect of Indemnitee, or (ii) require
and cause any successor thereto (whether direct or indirect) to
obtain and maintain a directors’ and officers’
liability insurance policy (and any other liability insurance
policies, including errors and omissions and employment practices,
to the extent such liability policies were claims-made policies
immediately prior to the Change in Control) that provides coverage
for Indemnitee that is at least substantially comparable in scope
and amount to that provided to Indemnitee by the Company as of
immediately prior to the Change in Control, in each case for the
six-year period immediately following the Change in Control. This
“tail coverage” must be placed by the Company’s
insurance broker and be placed with a carrier or carriers having an
AM Best rating that is not less than A-VI.
(c) In the event that
any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to
enforce or interpret any of the terms hereof or thereof, Indemnitee
is entitled to be paid all Expenses incurred by Indemnitee with
respect to that action, regardless of whether Indemnitee is
ultimately successful in that action, and is entitled to the
advancement of Expenses with respect to that action, unless as a
part of that action a court of competent jurisdiction over that
action determines that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or
was frivolous.
(d) The Company must
make available to Indemnitee a copy of all applications, binders,
policies, declarations, endorsements and other related materials in
respect of policies required to be obtained or maintained pursuant
to this Agreement. The Company must not discontinue or
significantly reduce the scope or amount of coverage from one (1)
policy period to the next without the prior approval thereof by a
majority vote of the incumbent directors of the Company, even if
less than a quorum. The Company must provide Indemnitee with at
least thirty (30) days’ notice of the non-renewal of,
cancellation of or failure to pay any premium due in respect of
such insurance policies.
19. Optional Trust. The Company may, but is
not required to, create a trust fund, grant a security interest or
use other means, including without limitation a letter of credit,
to ensure the payment of such amounts as may be necessary to
satisfy its obligations to indemnify and advance Expenses pursuant
to this Agreement.
20. No Imputation. The knowledge and/or
actions, or failure to act, of any director, officer, agent or
employee of the Company or the Company itself must not be imputed
to Indemnitee for purposes of determining any rights under this
Agreement.
21. Severability. The provisions of this
Agreement are severable in the event that any of the provisions
hereof (including any provision within a single section, paragraph
or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining
provisions, including without limitation in the same section,
paragraph or sentence, must remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent
possible, the provisions of this Agreement (including, without
limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that
is not itself invalid, void or unenforceable) must be construed so
as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
22. Coverage. This Agreement applies with
respect to Indemnitee’s service as [POSITION/TITLE] of the
Company prior to the date of this Agreement.
23. Governing Law. This Agreement and the
relationship of the parties hereto with respect to the subject
matter hereof are governed by and construed and enforced in
accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to
the conflict of laws principles thereof.
24. Amendment and Termination. No amendment,
modification, termination or cancellation of this Agreement is
effective unless it is in writing signed by both the parties
hereto. No waiver of any of the provisions of this Agreement may be
deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor may such waiver constitute a
continuing waiver.
25. Identical Counterparts; Facsimile. This
Agreement may be executed in one (1) or more counterparts,
including counterparts transmitted by facsimile or other electronic
communication, each of which shall for all purposes be deemed to be
an original but all of which together constitute but one (1) and
the same Agreement. Only one (1) such counterpart need be produced
to evidence the existence of this Agreement. Facsimile signatures,
or signatures delivered by other electronic transmission, are as
effective as original signatures.
26. Headings. The headings of the sections
of this Agreement are inserted for convenience only and must not be
deemed to constitute part of this Agreement or to affect the
construction hereof.
27. Construction
of Certain Phrases.
(a) For purposes of
this Agreement, references to the “Company” includes,
in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or
fiduciary of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise,
Indemnitee will stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had
continued.
(b) For purposes of
this Agreement, references to “other enterprise”
includes employee benefit plans; references to “fines”
includes any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to “serving at the
request of the Company” includes any service as a director,
officer, employee, agent or fiduciary of the Company that imposes
duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed
to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee must be deemed to have acted in a
manner “not opposed to the best interests of the
Company” as referred to in this Agreement.
28. Notices. All notices and other
communications required or permitted hereunder must be in writing,
shall be effective when given, and must in any event be deemed to
be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first
class mail, postage prepaid, (b) upon delivery, if delivered
by hand or by electronic transmission, (c) one (1) business
day after the business day of deposit with overnight courier,
freight prepaid, or (d) one (1) day after the business day of
delivery by facsimile transmission with answer-back received, if
delivered by facsimile transmission, with copy by first class mail,
postage prepaid, and must be addressed if to Indemnitee, at
Indemnitee’s address as set forth beneath Indemnitee’s
signature to this Agreement and if to the Company at the address of
its principal corporate offices (attention: secretary) or at such
other address as such party may designate by ten (10) days’
advance written notice to the other party hereto.
29. Consent to Jurisdiction. The Company and
Indemnitee each hereby irrevocably consent to the jurisdiction of
the Courts of Chancery of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted
under this Agreement must be commenced, prosecuted and continued
only in that Court, which is the exclusive and only proper forum
for adjudicating such a claim
30. Equitable Relief. The Company and
Indemnitee agree that a monetary remedy for breach of this
Agreement may be inadequate, impracticable and difficult of proof,
and further agree that such breach may cause Indemnitee irreparable
harm. Accordingly, the Company and Indemnitee agree that Indemnitee
may enforce this Agreement by seeking equitable remedies, including
injunctive relief and/or specific performance, without any showing
of actual damage or irreparable harm and that by seeking equitable
remedies, Indemnitee will not be precluded from seeking or
obtaining any other relief to which Indemnitee may be entitled. The
Company and Indemnitee further agree that Indemnitee is entitled to
such equitable remedies without the necessity of posting bonds or
other undertaking in connection therewith. The Company hereby
waives any requirement of a bond or other undertaking.
31. Integration and Entire Agreement. This
Agreement sets forth the entire understanding between the parties
hereto and supersedes and merges all previous written and oral
negotiations, commitments, understandings and agreements relating
to the subject matter hereof between the parties hereto;
provided, however, that
this Agreement is a supplement to and in furtherance of the
Certificate, the Bylaws, the DGCL and any other applicable law, and
must not be deemed a substitute therefor, and does not diminish or
abrogate any rights of Indemnitee thereunder, and this Agreement
does not release the Company from its obligations to the extent
such obligations have been incurred under the Prior Indemnification
Agreement.
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement on and as of the day and year first
above written.
AUTOWEB, INC.
By:
Glenn
E. Fuller
Executive Vice
President, Chief Legal and Administrative Officer and
Secretary
Indemnitee
Signature
Print
Name:
Address: AutoWeb,
Inc.
18872
MacArthur Blvd.
Suite
200
Exhibit 10.35
|
Autobytel Inc.
Human
Resources Department
18872
MacArthur Blvd, Suite 200
Irvine,
CA 92612-1400
Voice:
(949) 225-4572
|
Effective July 16, 2016
FROM:
Glenn
Fuller – EVP, Chief Legal and Administrative Officer and
Secretary
It is a
pleasure to inform you of your promotion. Following is a summary of
your promotion.
NewPosition:
SVP, Digital
Marketing
New
Semi-monthlyRate:
$9,166.67 ($220,000
Approximate Annually)
Effective
Date:
July 16,
2016
Annual
Incentive Compensation:
You
shall be eligible to participate in annual incentive compensation
plans, if any, that may be adopted by the Company from time to time
and that are afforded generally to persons employed by the Company
at your employment level and position, geographic location and
applicable department or operations within the Company (subject to
the terms and conditions of any such annual incentive compensation
plans). Should such an annual incentive compensation plan be
adopted for any annual period, your target annual incentive
compensation opportunity will be as established by the Company for
each annual period, which may be up to 50% of your annualized rate
(i.e., 24 X Semi-monthly Rate) based on achievement of objectives
specified by the Company each annual incentive compensation period
(which may include Company-wide performance objectives; divisional,
department or operations performance objectives and/or individual
performance objectives, allocated between and among such
performance objectives as the Company may determine) and subject to
adjustment by the Company based on the Company’s evaluation
and review of your overall individual job performance in the sole
discretion of the Company. Specific annual incentive compensation
plan details, target incentive compensation opportunity and
objectives for each annual compensation plan period will be
established each year. Awards under annual incentive plans may be
prorated by the Company in its discretion for a variety of factors,
including time employed by the Company during the year, adjustments
in base compensation or target award percentage changes during the
year, and unpaid time off. You understand that the Company’s
annual incentive compensation plans, their structure and
components, specific target incentive compensation opportunities
and objectives, the achievement of objectives and the determination
of actual awards and payouts, if any, thereunder are subject to the
sole discretion of the Company. Awards, if any, under any annual
incentive compensation plan shall only be earned by you, an payable
to you, if you remain actively employed by the Company through the
date on which award payouts are made by the Company under the
applicable annual incentive compensation plan. You will not earn
any such award if your employment ends for any reason prior to that
date.
Your
promotion is conditioned upon your acceptance of the foregoing
modifications to the terms and conditions of your employment with
Autobytel Inc. If you accept these modifications to the terms of
your employment, please acknowledge your acceptance in the space
provided below.
Please
feel free to call if you have any questions.
Autobytel Inc.
By:/s/Glenn
E. Fuller______________________________
Glenn
Fuller
EVP,
Chief Legal and Administrative Officer and Secretary
Accepted
and Agreed:
/s/Ralph Smith_______
Ralph
Smith
Exhibit 10.36
|
AutoWeb, Inc.
Human
Resources Department
18872
MacArthur Blvd, Suite 200
Irvine,
CA 92612-1400
Voice:
(949) 225-4572
|
February
20, 2018
FROM:
Glenn
Fuller – EVP, Chief Legal and Administrative Officer and
Secretary
It is a
pleasure to inform you of your salary increase. Following is a
summary of your salary increase.
Position:
Senior Vice
President, Digital Marketing
New
Semi-monthly Rate:
$10,625 ($255,000
Approximate Annually)
Effective
Date:
February 16,
2018
Your
salary increase is conditioned upon your acceptance of the
foregoing modifications to the terms and conditions of your
employment with AutoWeb, Inc. If you accept these modifications to
the terms of your employment, please acknowledge your acceptance in
the space provided below.
As a
reminder, your employment is at will, not for a specified term and
may be terminated by the Company or you at any time, with or
without cause or good reason and with or without prior, advance
notice. This “at-will” employment status will remain in
effect throughout the term of your employment by the Company and
cannot be modified except by a written amendment to this promotion
letter that is executed by both parties (which in the case of the
Company, must be executed by the Company’s Chief Legal
Officer) and that expressly negates the “at-will”
employment status.
Please
feel free to call if you have any questions.
AutoWeb, Inc.
By:
/s/ Glenn Fuller______________________________
Glenn
Fuller
EVP,
Chief Legal and Administrative Officer and Secretary
Accepted
and Agreed:
/s/ Ralph Smith_____________________________
Ralph
Smith
Exhibit 21.1
SUBSIDIARIES OF AUTOWEB, INC.
Subsidiary Name
|
Jurisdiction of Incorporation
|
Autobytel, Inc. (formerly AutoWeb, Inc.)
|
Delaware
|
Autobytel Dealer Services, Inc.
|
Delaware
|
Autotegrity, Inc.
|
Delaware
|
AW GUA USA, Inc.
|
Delaware
|
Car.com, Inc.
|
Delaware
|
Dealix Corporation
|
California
|
AW GUA, Sociedad de Responsabilidad Limitada
|
Guatemala
|
Exhibit 23.1
Consent of Independent Registered Public Accounting
Firm
We
consent to the incorporation by reference in the Registration
Statements Form S-8 No’s. 333-197325, 333-168834, 333-135076,
333-116930, 333-90045, 333-77943, 333-39396, 333-67692, and
333-212910 of our report dated March 15, 2018 which expresses an
unqualified opinion and includes an explanatory paragraphs relating
to the adoption of Accounting Standards Update 2015-17, Balance
Sheet Classification of Deferred Taxes and 2016-09, Improvements to
Employee Share-Based Payment Accounting, relating to the
consolidated financial statements and schedule and the
effectiveness of internal control over financial reporting (which
report expresses an adverse opinion), of AutoWeb, Inc. (formerly
Autobytel Inc.), appearing in this Annual Report on Form 10-K for
the year ended December 31, 2017.
/s/
Moss Adams LLP
San
Diego, CA
March
15, 2018
Exhibit 31.1
CERTIFICATION
I, Jeffrey H. Coats, certify that:
1.
I
have reviewed this annual report on Form 10-K of AutoWeb,
Inc.;
2.
Based
on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
b)
Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c)
Evaluated
the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
d)
Disclosed
in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
5.
The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b)
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 15, 2018
|
/s/ Jeffrey H. Coats
|
|
|
Jeffrey H. Coats
|
|
|
President and Chief Executive Officer
|
|
Exhibit 31.2
CERTIFICATION
I, Kimberly S. Boren, certify that:
1.
I
have reviewed this annual report on Form 10-K of AutoWeb,
Inc.;
2.
Based
on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
b)
Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c)
Evaluated
the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
d)
Disclosed
in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over
financial reporting; and
5.
The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b)
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 15, 2018
|
/s/
Kimberly S. Boren
|
|
|
Kimberly S. Boren,
|
|
|
Executive Vice President and
Chief Financial Officer
|
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AutoWeb,
Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2017 (the “Report”), we, Jeffrey H. Coats, President and
Chief Executive Officer of the Company, and Kimberly S. Boren,
Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1.
The
Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2.
The
information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
|
/s/
Jeffrey H. Coats
|
|
|
Jeffrey H. Coats
|
|
|
President and Chief Executive Officer
|
|
|
March 15, 2018
|
|
|
/s/
Kimberly S. Boren
|
|
|
Kimberly S. Boren
|
|
|
Executive Vice President and
|
|
|
Chief Financial Officer
|
|
|
March 15, 2018
|
|
A
signed original of this written statement required by
Section 906, or other document authenticating, acknowledging,
or otherwise adopting the signatures that appear in typed form
within the electronic version of this written statement required by
Section 906, has been provided to AutoWeb, Inc. and will be
retained by AutoWeb, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.