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Entry Into a Material Definitive

The information set forth in Item 2.01 below is hereby incorporated by reference insofar as such information relates to the entry into or amendment of a material definitive agreement.

Item2.01

Completion of Acquisition or Disposition of Assets.

Merger Agreement

Autobytel

or

Company

) entered into and consummated an Agreement and Plan of Merger (the

Merger Agreement

), by and among Autobytel, New Horizon Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Autobytel (

Merger Sub

), AutoWeb, Inc., a Delaware corporation (

AutoWeb

) and Jos Vargas, in his capacity as Stockholder Representative. Pursuant to the Merger Agreement, Merger Sub merged with and into AutoWeb (the

Merger

), with AutoWeb continuing as the surviving corporation and as a wholly owned subsidiary of Autobytel. AutoWeb was a privately owned company providing an automotive search engine that enables car manufacturers and dealers to fully optimize their advertising campaigns and reach highly targeted, low funnel car buyers through an auction-based click marketplace.

The merger consideration (the

Merger Consideration

) consisted of: (1) 168,007 newly issued shares of Series B Junior Participating Convertible Preferred Stock, par value $0.001 per share, of Autobytel (

Series B Preferred Stock

), (2) warrants to purchase up to 148,240 shares of Series B Preferred Stock (

Warrants

), at an exercise price per share of $184.47 (reflecting 10 times the $16.77 closing price of a share of Autobytels common stock, $0.001 par value (

Common Stock

)) on The Nasdaq Capital Market on September 30, 2015, plus a ten percent (10%) premium and (3) $279,299 in cash to cancel vested, in-the-money options to acquire shares of AutoWeb common stock. The number of Series B Preferred Stock and Warrants issued are subject to a post-closing adjustment based on AutoWebs working capital as of the closing date of the transaction.

The

shares of Series B Preferred Stock are convertible, subject to certain limitations, into ten (10) shares of Common Stock. All shares will be automatically converted if the stockholder approval required by Section 5635 of the Nasdaq listing rules is obtained. The rights, preferences and privileges of the Series B Preferred Stock, including the terms of conversion and voting, are summarized in Item5.03 of this Current Report on Form 8-K, which is hereby incorporated by reference. The Merger Agreement contains a covenant that Autobytel will use all commercially reasonable efforts to secure the approval of Autobytels stockholders necessary to cause the conversion of the Series B Preferred Stock into Common Stock no later than the third annual meeting of the stockholders of Autobytel following October 1,

2015.

The Warrants will become exercisable three (3) years after the closing date, subject to the satisfaction of the following additional 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 Warrants and prior to the expiration date of the Warrants the weighted average closing price of the 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 of the Common Stock occurring after the issuance date) (

Weighted Average Closing Price

) is at or above Thirty Dollars ($30.00); (ii)with respect to the second one-third (1/3) of the warrant shares, if at any time after the issuance date and prior to the expiration date the Weighted Average Closing Price is at or above Thirty-Seven Dollars and Fifty Cents ($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 and prior to the expiration date the Weighted Average Closing Price is at or above Forty-Five Dollars ($45.00). The Warrants expire on the seventh (7

th

) anniversary of their issuance date.

The Merger Agreement contains representations, warranties and covenants that Autobytel believes are customary for a transaction of this size and type, as well as indemnification provisions subject to specified limitations.The assertions embodied in Autobytels representations and warranties were made solely for the purposes of the Merger Agreement and may be subject to important qualifications and limitations.Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, are subject to a contractual standard of materiality different from that generally applicable to investors, or may be used for the purpose of allocating risk between the parties rather than establishing matters of fact.Accordingly, the representations and warranties in the Merger Agreement must not be relied upon as statements of factual information.

The Merger Consideration reflects an approximate $23.8 millionagreed upon valuation of the Merger Consideration to acquire the approximately 85% of AutoWeb not previously owned by Autobytel. The value of the Merger Consideration was established by the Companys Board of Directors (the

Board

based on their evaluation of a variety of factors, including the closing price of the Common Stock on the day before the closing of the Merger, the analysis conducted by the Companys investment banking firm in connection with the issuance of its opinion as to the fairness to the Company, from a financial point of view, of the consideration paid by Autobytel in the transaction, guidance from the Companys valuation firm as to the value of the Series B Preferred Stock and the Warrants and the application of various discounts to value, including discounts for the lack of liquidity and the exercise price and the various vesting conditions and restrictions of the Warrants.

Prior

to the Merger, Autobytel owned approximately 15% of the outstanding shares of AutoWeb on a fully converted and diluted basis, and had an option through mid-September 2016 to purchase 5,000 additional shares at the $500 per share price of its initial investment in AutoWeb. If the option had been exercised, Autobytels ownership position in AutoWeb would have increased to approximately 20% based on AutoWebs outstanding shares as of the closing of the Merger for an aggregate additional investment of $2,500,000. AutoWeb and Autobytel also have advertising and publishing business relationships. In 2014, the Company paid AutoWeb approximately $700,000 in connection with various publisher and website development services performed by AutoWeb on behalf of the Company and AutoWeb paid Autobytel approximately $500,000 in connection with advertising on AutoWebs automotive search engine.

Payments to and from AutoWeb from January 1, 2015 to August 31, 2015 were $575,125 and $1,175,488

,

respectively.

The stockholders of AutoWeb included PF Auto, Inc., a British Virgin Islands business company (

PF Auto

) (which held approximately 68% of AutoWebs outstanding shares immediately prior to the Merger), Manatee Ventures Inc., a British Virgin Islands business company (

Manatee Ventures

), and Galeb3 Inc, a Florida corporation (

Galeb3

), Ceiba International Corp., a British Virgin Islands business company (

Ceiba

), Picua Limited, a British Virgin Islands business company (

Picua

), Robert J. Mylod, Jr., Jeffrey H. Boyd, and William Ferriolo, Autobytels Executive Vice President, Consumer Acquisitions (who held approximately 2% of AutoWebs outstanding shares immediately prior to the Merger).

Based solely on information made available to the Company by AutoWeb, the Company believes that (i) PF Auto is an entity controlled by People F, Inc., a British Virgin Islands business company (

PeopleFund

); (ii) PeopleFund is an investment fund focused on value added investments in the areas of technology, internet and media; (iii) PF Auto is a singlepurpose vehicle created to manage PeopleFunds investment in AutoWeb. and in Auto Holdings, a British Virgin Islands business company (

Auto Holdings

); (iv) Manatee and Galeb3 are wholly-owned by Matias de Tezanos and Jose Vargas, respectively; and (v) Ceiba is a multi-purpose private equity and venture capital investment vehicle controlled by Inversiones y Desarrollos de Centroamrica, a British Virgin Islands business company and investment bank and private equity firm focused on banking, real estate development, energy and socialresponsibility.

As previously reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission (

SEC

) on April 29, 2015, on April 27, 2105, Auto Holdings acquired approximately 14.25% of the Companys then issued and outstanding shares of Common Stock, and that based solely on information made available to the Company by Auto Holdings, the Company believes that the stockholders of Auto Holdings include PF Auto, Ceiba, Picua, Manatee and Galeb3. Prior to the consummation of the Merger, Auto Holdings owned approximately 14.05% of the Companys currently issued and outstanding Common Stock.

Following the consummation of the Merger, Auto Holdings and its affiliates, including former stockholders of AutoWeb, and the stockholders of AutoWeb and their affiliates on a combined basis would own approximately 34% of the issued and outstanding shares of the Common Stock, assuming that, pursuant to their respective terms, the Warrants are exercised in full and all of the shares of the Series B Preferred Stock issued as Merger Consideration and upon exercise of the Warrants are converted into Common Stock.

The forgoing description of the nature of the material relationship between Autobytel and AutoWeb, including its affiliates, does not purport to be complete and is qualified in its entirety by reference to the Current Report on Form 8-K filed with the SEC on September 24, 2013 (SEC File no. 001-34761) and the Current...


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