<PAGE>
As filed with the Securities and Exchange Commission on May 27, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE COBALT GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Washington 7375 91-1674947
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
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2030 First Avenue, Suite 300
Seattle, WA 98121
(206) 269-6363
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
Geoffrey T. Barker
Co-Chief Executive Officer
The Cobalt Group, Inc.
2030 First Avenue, Suite 300
Seattle, WA 98121
Telephone: (206) 269-6363
Fax: (206) 269-6350
(Name, address, including zip code, and telephone and facsimile numbers,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Ronald J. Lone Alan K. Austin
Christopher J. Voss Mark L. Reinstra
Ivan A. Gaviria John L. Whittle
Marc S. Marchiel Daniel K. Yuen
Stoel Rives LLP Wilson Sonsini Goodrich & Rosati
3600 One Union Square Professional Corporation
600 University Street 650 Page Mill Road
Seattle, WA 98101 Palo Alto, CA 94304-1050
Tel: (206) 624-0900 Tel: (650) 493-9300
Fax: (206) 386-7500 Fax: (650) 493-6811
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective. If any of the
securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, check the
following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities Registered Price(1) Registration Fee
<S> <C> <C>
Common stock, $0.01 par value........................................................... $86,250,000 $23,978
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
------------------------------
THE REGISTRANT AGREES THAT THE SECURITIES AND EXCHANGE COMMISSION MAY
CONSIDER IT TO HAVE FILED AN AMENDMENT TO THIS REGISTRATION STATEMENT ON THE
DATE NECESSARY TO DELAY THIS REGISTRATION STATEMENT'S EFFECTIVE DATE UNTIL
EITHER (1) THE REGISTRANT FILES AN AMENDMENT SPECIFICALLY STATING THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE UNDER SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED; OR (2) UNTIL THE DATE THAT THE SECURITIES
AND EXCHANGE COMMISSION DECLARES THIS REGISTRATION STATEMENT TO BE EFFECTIVE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 27, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND
WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
<PAGE>
THE COBALT GROUP, INC. [LOGO]
SHARES
COMMON STOCK
The Cobalt Group, Inc. is offering shares of its common stock.
This is Cobalt's initial public offering. We have applied for the common stock
to be quoted on the Nasdaq National Market under the symbol "CBLT."
------------------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 4.
---------------------
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<CAPTION>
Per Share Total
------------- -------------
<S> <C> <C>
Public Offering Price.............................................................. $ $
Underwriting Discounts............................................................. $ $
Proceeds to Cobalt................................................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters the right to purchase up to an additional
shares of common stock to cover over-allotments. BancBoston
Robertson Stephens expects to deliver the shares of common stock to purchasers
on , 1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
SG COWEN
WIT CAPITAL CORPORATION
The date of this prospectus is .
<PAGE>
Graphic of Cobalt Group Solution depicting information sources, systems and
service offerings
<PAGE>
We are offering to sell, and seeking offers to buy, shares of common stock
only in jurisdictions where offers and sales are permitted. You should rely only
on the information contained in this prospectus. We have not authorized anyone
to provide you with information different from that contained in this
prospectus. Information contained on the Cobalt Group, DealerNet and YachtWorld
Web sites are not part of this prospectus. The information in this document is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock. Except as the
context otherwise requires, the terms "Cobalt," "we," "us," and "our" as used in
this prospectus refer to The Cobalt Group, Inc. and its subsidiary PartsVoice,
LLC.
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
------------------------
TABLE OF CONTENTS
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Page
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Prospectus Summary.......................................................................................... 1
Risk Factors................................................................................................ 4
Use of Proceeds............................................................................................. 12
Dividend Policy............................................................................................. 12
Capitalization.............................................................................................. 13
Dilution.................................................................................................... 14
Selected Financial Data..................................................................................... 15
Unaudited Pro Forma Combined Financial Information.......................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 21
Business.................................................................................................... 31
Management.................................................................................................. 45
Recent Acquisition.......................................................................................... 53
Certain Transactions........................................................................................ 53
Principal Shareholders...................................................................................... 54
Description of Capital Stock................................................................................ 56
Shares Eligible for Future Sale............................................................................. 58
Underwriting................................................................................................ 60
Legal Matters............................................................................................... 62
Experts..................................................................................................... 62
Additional Information...................................................................................... 62
Index to Financial Statements............................................................................... F-1
</TABLE>
------------------------
DEALERNET-REGISTERED TRADEMARK-, PARTSVOICE-Registered Trademark- and
YACHTWORLD-Registered Trademark- are our registered trademarks. Additionally,
COBALT-TM-, COBALT GROUP-TM-, WEBEDGE-TM-, ADWIZARD-TM-, DEALER'S CHOICE-TM- and
INSTANT INCENTIVES-TM- are our trademarks. This prospectus contains other
product names and trade names and trademarks of Cobalt and of other
organizations.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD CAREFULLY READ THIS ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND
THE FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION.
Our Company
We are a leading provider of Internet marketing and data aggregation
services to individual franchised automobile dealerships, multi-franchise dealer
groups and automobile manufacturers in the United States. We enable our clients
to develop and implement effective e-business strategies and to position
themselves to capitalize on the increasing use of the Internet by consumers to
research, evaluate and initiate purchases of new and pre-owned vehicles, parts
and accessories, and automotive-related services such as financing and
insurance. We currently offer our clients:
- comprehensive Web site design, development and maintenance services;
- data extraction, aggregation and management services;
- Internet advertising and promotional services; and
- Internet marketing, training and support.
We currently manage and maintain more than 3,300 Web sites for clients
holding more than 4,700 new vehicle franchises. Our clients include more than 50
of the 100 largest dealer groups in the United States, as ranked by AUTOMOTIVE
NEWS, and we are the manufacturer-endorsed provider of Web site solutions for
the U.S. dealership networks of Acura, Hyundai, Infiniti, Jaguar, Lexus,
Mercedes-Benz, Mitsubishi, Nissan, Saab, Subaru and Toyota. Our vehicle parts
data services are used by clients holding more than 9,000 new vehicle
franchises. We also provide vehicle parts data services to DaimlerChrysler,
Hyundai, Mazda, Mitsubishi, Subaru and Toyota. In total, we provide our services
to clients holding more than 12,000 new vehicle franchises.
Automotive retailing is one of the largest retail trade sectors in the
United States with revenues totaling more than $1 trillion annually. The
industry is highly competitive with more than 22,000 automotive dealerships
representing more than 49,000 new vehicle franchises in the United States.
Manufacturers and dealerships spend heavily on traditional marketing and
advertising. According to the National Automobile Dealers Association, or NADA,
dealerships spent more than $5.0 billion on advertising in 1998. The emergence
of the Internet as a commercial medium has created an opportunity for automobile
manufacturers and dealerships to market cost-effectively to and communicate with
a large and growing pool of online consumers. Forrester Research projects that
automobile dealerships alone will increase their annual spending on Internet
marketing to more than $600 million by 2002.
We believe our suite of services enables our clients to capitalize on the
multiple marketing opportunities that the Internet creates by allowing them to:
- rapidly deploy a comprehensive Internet presence;
- create an online identity and leverage existing brand assets;
- increase the return on investment in traditional advertising media;
- improve customer acquisition and retention; and
- enhance internal efficiencies.
In April 1999, we acquired PartsVoice, LLC, a provider of automobile parts
inventory and service record data aggregation services. The addition of
PartsVoice expands our service offerings and substantially increases our client
base of automobile manufacturers and dealerships. We believe Cobalt's
acquisition of PartsVoice provides us with significant opportunities to
cross-sell within our existing client base, increases the attractiveness of our
services to potential clients and enhances our ability to develop additional
value-added services.
1
<PAGE>
The Offering
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Common stock offered............................ shares
Common stock to be outstanding after this
offering...................................... shares
Use of proceeds................................. For repayment of indebtedness, payment of
accrued dividends on preferred stock and
for working capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol.......... CBLT
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding as of March 31, 1999. This number does not include:
- 2,090,206 shares issuable upon exercise of stock options outstanding under
our 1995 Stock Option Plan as of March 31, 1999, at a weighted average
exercise price per share of $0.62,
- 61,500 shares issuable upon exercise of warrants outstanding as of March
31, 1999, at a weighted average exercise price per share of $0.45 and
- 1,323,338 shares available for future grant or issuance under our 1995
Stock Option Plan.
See "Management--Employee Benefit Plans," "Description of Capital Stock" and
Note 10 of Notes to The Cobalt Group, Inc. Financial Statements, or Cobalt
Financial Statements, beginning on page F-2.
------------------------
Our headquarters are located at 2030 First Avenue, Suite 300, Seattle,
Washington, 98121 and our telephone number is (206) 269-6363. Our Web site
address is www.cobaltgroup.com.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND
REFLECTS THE CONVERSION OF ALL OUTSTANDING PREFERRED STOCK INTO COMMON STOCK
UPON THE CLOSING OF THIS OFFERING.
2
<PAGE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Actual
---------------------------------------------------------
Since
Inception Three Months Pro Forma
(March 17, Year Ended Ended ------------------------------
1995) to December 31, March 31, Year Ended Three Months
December 31, ------------------------ --------------- December 31, Ended March 31,
1995 1996 1997 1998 1998 1999 1998 1999
------------- ------ ------- ------- ------ ------- ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............................ $ 70 $ 312 $ 1,711 $ 6,245 $1,079 $ 2,453 $ 15,773 $ 5,009
Gross profit............................ 54 261 1,426 5,046 928 1,913 12,430 3,886
Loss from operations.................... (415) (826) (2,428) (4,590) (422) (2,008) (5,129) (2,121)
Net (loss) income....................... $ (415) $ (828) $(2,398) $(8,117) $1,203 $(2,000) $(10,604) $(2,612)
Basic net (loss) income per share....... $(0.24) $(0.24) $ (0.69) $ (2.95) $ 0.35 $ (1.74) $ (3.88) $ (2.19)
Diluted net (loss) income per share..... $(0.24) $(0.24) $ (0.69) $ (2.95) $ 0.13 $ (1.74) $ (3.88) $ (2.19)
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- ----------- -----------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................................................... $ 3,876 $ 876 $
Working capital................................................................ 3,129 (23,088)
Total assets................................................................... 10,665 38,141
Long-term obligations, net of current portion.................................. 1,376 1,376
Mandatorily redeemable convertible preferred stock............................. 31,753 --
Total shareholders' (deficit) equity........................................... (26,767) 9,367
</TABLE>
The pro forma columns in the Statement of Operations Data present
information as if Cobalt's acquisition of PartsVoice had occurred on January 1,
1998. The pro forma column in the Balance Sheet Data presents information as if
Cobalt's acquisition of PartsVoice had occurred on March 31, 1999 and also gives
effect to the conversion of all outstanding shares of preferred stock into
common stock upon the closing of this offering. The pro forma as adjusted column
in the Balance Sheet Data gives effect to the receipt and application of the
estimated net proceeds from the sale by us of the shares of common stock
that we are offering at an assumed initial public offering price of $ per
share and after deducting underwriting discounts and estimated offering
expenses. See "Use of Proceeds," and "Capitalization," and "Unaudited Pro Forma
Combined Financial Information."
See Note 1 of Notes to Cobalt Financial Statements for an explanation of the
methods used to compute basic and diluted net (loss) income per share data.
3
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MAY LOSE PART OR ALL OF
YOUR INVESTMENT.
We face risks because we are an early stage company in a new and rapidly
changing market.
We began operations in March 1995. Accordingly, we have only a limited
operating history and our business is in an early stage of development. Before
investing, you should evaluate the risks and challenges that an early stage
company like ours will face in the rapidly changing and competitive environment
of the Internet. We may not successfully meet the challenges of growing our
company.
We have a limited sales history and an unproven, evolving business model.
We began offering our services to automobile dealers in November 1995. We
must achieve broad market acceptance of our services and continue to expand our
service offerings for our business to succeed. Our client base represents only a
small percentage of the total new automobile dealer community in the United
States, and many of our dealer clients have been clients for only a short time.
We cannot assure you that our new and planned future offerings will be
successful or that our broader business model, as it evolves, will succeed.
We may never achieve or maintain profitability.
We have incurred net losses each year since we began operations and we
expect that we will not be profitable at least through 2000. We cannot guarantee
that our business strategy will be successful or that we will ever achieve or
maintain significant revenues or profitability. After giving pro forma effect to
Cobalt's acquisition of PartsVoice, we had a net loss of $10.6 million for the
year ended December 31, 1998. As of March 31, 1999, on a pro forma basis we had
an accumulated deficit of $26.6 million. We have not had operating profits on a
quarterly or annual basis. We expect to continue to incur significant operating
expenses and, as a result, we will need to generate significant quarterly
revenue increases to achieve and maintain profitability.
We face challenges in integrating the PartsVoice acquisition and will encounter
similar challenges if we make future acquisitions.
To execute our business plan, we must integrate the operations and services
of PartsVoice and Cobalt into a cohesive, combined operation. Cobalt's
acquisition of PartsVoice has significantly increased the size of our workforce
and has expanded our physical facilities and the geographic dispersion of our
employees and operations. Integrating any newly-acquired businesses or
technologies, including PartsVoice, may be expensive and time-consuming. We may
fail to manage these integration efforts successfully. In addition, we may
pursue additional acquisitions of businesses, products and technologies that
complement or expand our business. The negotiation of potential acquisitions or
strategic relationships as well as the integration of future acquired
businesses, products or technologies could divert our management's time and
resources. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms that are not favorable to us
and, in the case of equity offerings, may result in dilution to our
shareholders. We may not be able to operate any acquired businesses profitably
or otherwise implement our growth strategy successfully. If we are unable to
integrate any newly acquired entities or technologies effectively, our business
and results of operations could suffer. Acquisitions may cause us to incur
contingent liabilities and to amortize expenses related to goodwill and other
intangible assets, which could adversely affect our results of operations.
4
<PAGE>
Our future success depends on building strong relationships with current and
prospective automobile dealership, multi-franchise dealer group and automobile
manufacturer clients.
For our business model to succeed, we must continue to develop relationships
with multi-franchise dealer groups and franchised dealerships. We derive a
substantial portion of our revenues from fees paid by our automobile dealership
clients. Our service agreements with dealerships generally are short-term and
cancelable on 30 days' notice. To be successful, we also will need to maintain
low dealership client turnover. During 1998, 262 Web sites, or approximately
8.0% of our total Web sites as of year end, were terminated. A material decrease
in the number of dealerships purchasing our services, or slower than expected
growth in the number of our dealership clients, could have a material adverse
effect on our business, results of operations and financial condition.
In addition to our relationships with individual dealers and dealer groups,
it is critical to our success that we maintain close working relationships with
manufacturers. While we have established relationships with a number of
manufacturers, these relationships are relatively new and we have little
experience in maintaining them. In addition, manufacturers may elect to
implement their own Internet strategies, which could reduce our potential client
base.
Sales cycles can be longer than expected.
The time, expense and effort of securing dealership engagements may exceed
our expectations. The length of the sales cycle varies by dealership and dealer
group, but can range from four to eight months. Because the decision to purchase
Web site development and Internet marketing services often involves adoption by
a dealership of a new way of thinking about the automobile sales process, we
often devote significant time and resources to a prospective dealership client,
including costs associated with multiple site visits and demonstrations, without
any assurance that the prospective client will decide to purchase our services.
Larger engagements and efforts to secure manufacturer endorsements have a longer
sales cycle.
We will face intense competition and, if we are unable to compete successfully,
our business will be seriously harmed.
The market for Internet marketing and data aggregation services is very
competitive. We face competition from Internet development firms, automobile
sales lead generation services and data aggregation businesses. Our parts
inventory data services, for example, face competition from data aggregation
service providers such as The Reynolds and Reynolds Company and Automatic Data
Processing, Inc., or ADP. Similarly, our Web site design, development and
maintenance services face competition from local and national Internet
development firms. In addition, we compete indirectly with automobile sales lead
generation service companies, such as autobytel.com, AutoVantage, CarPoint and
Autoweb.com, and advertising agencies because their service offerings compete
with ours for a share of the automobile dealership's Internet marketing budget.
It is possible that in the future some or all automobile manufacturers may
attempt to provide services comparable to those that we provide to our clients.
If this were to occur, our ability to retain our client base and revenues would
be impaired. In 1997, DaimlerChrysler Corporation announced an internal
initiative to bring elements of our parts locator service in-house. If
implemented, this initiative could significantly reduce our contract revenues
from parts data services that we currently provide to DaimlerChrysler dealers.
In 1998, DaimlerChrysler elected to host the parts locator data internally,
although we continue to extract and aggregate parts inventory from its dealers.
In 1998, revenues from parts data services provided to the MOPAR division of
DaimlerChrysler represented approximately 25% of PartsVoice's total revenues.
We anticipate that competition in the market for automotive industry
Internet services will increase significantly over time. Barriers to entry on
the Internet are relatively low, and we expect to face competitive pressures
from numerous companies, particularly those with existing data aggregation
capabilities that may be readily integrated with Internet services. Furthermore,
our existing and potential competitors may develop offerings that equal or
exceed the quality of our offerings or achieve greater market acceptance than
ours.
5
<PAGE>
Many of our current and future competitors have and will continue to have
substantially greater capital, resources and access to additional financing than
we do or will. We cannot assure you that we will be able to compete successfully
against our current and future competitors or that competition will not have a
material adverse effect on our business, results of operations or financial
condition.
Any failure to manage our growth effectively will adversely affect our business
and results of operations.
We are experiencing rapid growth that, if it continues, will place
significant strain upon our management and operational systems and resources.
Failure to manage our growth effectively would have a material adverse effect
upon our business, results of operations and financial condition. Our ability to
compete effectively as a provider of Internet marketing services to the
automobile industry and to manage future growth will require us to continue to
improve our operational systems, software development organization and our
financial and management controls, reporting systems and procedures. We may fail
to make these improvements effectively. Additionally, our efforts to make these
improvements may divert the focus of our personnel. For example, our conversion
to a new database system in late 1998 through early 1999 diverted the focus of
our sales personnel from selling our services to maintaining current client
relationships. We believe that this diversion contributed to the lower revenue
growth rate that we experienced during the first quarter of fiscal 1999, as
compared to the fourth quarter of fiscal 1998.
We recently have hired a significant number of new employees, including key
executives, and we will continue to add personnel to maintain our ability to
grow in the future. For example, our Chief Financial Officer and Vice President
of Operations, as well as our Vice Presidents of Development, Business
Development and Marketing, each have been with us for less than one year. We
must integrate our key executives into a cohesive management team and at the
same time increase the total number of employees and train and manage our
employee work force in a timely and effective manner to expand our business. We
cannot guarantee that we will be able to do so successfully.
Our quarterly results likely will fluctuate, which may subject the market price
of our common stock to rapid and unpredictable change.
Our quarterly operating results likely will fluctuate due to many factors,
including:
- the level of demand in the automotive industry for Internet marketing and
data aggregation services;
- the rate and volume of additions to our client base;
- the amount and timing of expenditures by clients for our services;
- the introduction of new products or services by us or our competitors;
- our ability to attract and retain personnel with the necessary technical,
sales, marketing and creative skills required to develop our services and
to service our clients effectively;
- technical difficulties with respect to the Internet or infrastructure; and
- economic conditions generally and those specific to the automotive
industry.
We expect our business to experience seasonality, reflecting seasonal
fluctuations in the automotive industry, Internet and commercial online service
usage and advertising expenditures. Our expenses are relatively fixed in the
short term and are based in part on our expectations of future revenues, which
may vary significantly. If we do not achieve expected revenue targets, we may be
unable to adjust our spending quickly enough to offset any revenue shortfall. If
this were to occur, our results of operations could be significantly affected.
6
<PAGE>
We may fail to retain our key executives and to attract and retain technical
personnel, which would adversely affect our business and prospects.
The loss of the services of one or more of our executive officers could have
a material adverse effect on the development of our business and, accordingly,
on our operating results and financial condition. We generally do not enter into
employment agreements with our key executive officers and cannot guarantee that
we will be able to retain them.
Qualified technical personnel are in great demand throughout the Internet
industry. Our future growth will depend in large part upon our ability to
attract and retain highly skilled technical and engineering personnel. Our
failure to attract and retain the technical personnel that are integral to our
expanding service development needs may limit the rate at which we can develop
new services, which could have a material adverse effect on our business,
results of operations and financial condition.
Our success depends on our ability to expand our sales and marketing
infrastructure.
Our business, results of operations and financial condition will be
materially adversely affected if we fail to expand our sales and marketing
infrastructure and resources. We recently reorganized our sales force to include
a distributed field sales organization covering a large number of geographic
territories and regions. We have very limited experience operating and managing
a distributed sales organization. In addition, we expect to continue expanding
our headquarters-based sales and customer support organization. Our future
revenue growth will depend in large part on our ability to recruit, train and
manage sales and marketing personnel and expand those organizations. We have
experienced and may continue to experience difficulty in recruiting qualified
sales and marketing personnel. We may not be able to successfully expand and
manage our direct sales force and distribution channels and this expansion, if
it occurs, may not result in increased revenues.
If the use of the Internet as a commercial medium does not grow as we
anticipate, our business will be seriously harmed.
We depend heavily on the growth and use of the Internet. Automobile
manufacturers and dealerships will not widely accept and adopt an Internet
strategy if the Internet fails to provide consumers with a satisfactory
experience. For example, transmission of graphical and other complex information
may lead to delays. If data transmission speeds do not increase in step with the
complexity of the information available, consumers may become frustrated with
their Internet experiences, which could lead users to seek alternatives to
Internet-based information retrieval.
Furthermore, the recent growth in Internet traffic generally has caused
periods of decreased performance. If Internet usage continues to increase
rapidly, the Internet infrastructure may not be able to support the demands
placed on it by this growth and its performance and reliability may decline. If
Internet delays occur frequently, overall Internet usage or usage of our
clients' Web sites could increase more slowly or not at all. Our future success
and revenue growth will depend substantially upon continued growth in the use of
the Internet in the sales and service process. The Internet may prove not to be
a viable commercial marketing medium for vehicles and related products and
services. If use of the Internet does not continue to increase, our business,
results of operations and financial condition would be materially and adversely
affected.
If we become unable to extract data from our clients' internal management
systems, the value of our services would decrease dramatically.
A significant component of our business and revenues depends on our ability
to extract various data types from our clients' internal management systems.
Most dealership information management systems have been developed and sold by
The Reynolds and Reynolds Company and ADP and our ability to interface with
these systems is essential to the success of our data aggregation service
offerings. It is possible that new
7
<PAGE>
products, services or information management systems installed by dealerships
could limit or otherwise impair our ability to collect data from dealerships.
This could have a material adverse effect on our business, results of operations
and financial condition.
We must continue to improve our systems and infrastructure to manage our growth
and business expansion.
We depend on the continued performance of our systems and network
infrastructure. Any system or network failure that causes interruption or slower
response time for our services could result in less traffic to our clients' Web
sites and, if sustained or repeated, could reduce the attractiveness of our
services to clients. An increase in the volume of Internet traffic to sites
hosted by us could strain the capacity of our technical infrastructure, which
could lead to slower response times or system failures. Any failure of our
servers and networking systems to handle current or future volumes of traffic
would have a material adverse effect on our business and reputation.
In addition, our operations depend upon our ability to maintain and protect
our computer systems, which are located at our facilities in Seattle,
Washington; Portland, Oregon; and Austin, Texas. Our systems are vulnerable to
damage from fire, floods, earthquakes, power loss, telecommunications failures
and similar events. Although we maintain secondary back-up systems and
capabilities and also maintain insurance against fires, floods, earthquakes and
general business interruptions, our secondary systems and our insurance
coverages may not be adequate in any particular case. The occurrence of a
catastrophic event could have a material adverse effect on our business, results
of operations and financial condition.
Unknown software defects may adversely affect our services.
Our service offerings depend on complex software, both internally developed
and licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are created. Although we
conduct extensive testing, we may not discover software defects that affect our
new or current services or enhancements until after they are deployed. These
defects could cause service interruptions, which could damage our reputation or
increase our service costs. They also could cause us to lose revenue and divert
our development resources.
We may be unable to keep pace with the rapid technological change of the
Internet.
The market for Internet services is characterized by rapid technological
developments, evolving industry standards and customer demands and frequent new
service introductions and enhancements. Our future success will significantly
depend on our ability to continually improve the quality of our data aggregation
and management, product development, Web site maintenance, management and
related services as well as content on our client's Web sites. In addition, the
widespread adoption of developing multimedia-enabling technologies could require
fundamental and costly changes in our technology and could fundamentally affect
the nature of Internet-based content, which could adversely affect our business,
results of operations and financial condition.
Our business may be adversely affected by economic conditions that affect the
automotive retailing industry.
Economic trends that negatively affect the automotive retailing industry may
result in a decrease in the number of automobile dealers purchasing our
services, a decrease in the amount our clients spend on our services, or both.
Purchases of new vehicles are typically discretionary for consumers and may be
particularly affected by negative trends in the economy. The success of our
business will depend upon a number of factors influencing the spending patterns
of automobile dealerships and manufacturers for marketing and advertising
services. These patterns are in part influenced by factors relating to
discretionary consumer spending for automobile and automobile-related purchases,
including economic conditions affecting disposable consumer income, such as
employment, wages and salaries, business conditions, interest rates and
availability
8
<PAGE>
of credit for the economy as a whole and in regional and local markets. Because
the purchase of a vehicle is often a significant investment, any reduction in
disposable income and the impact such reduction may have on our clients may
affect us more significantly than businesses serving other industries or
segments of the economy.
We will face risks related to international expansion as our business grows.
Part of our growth strategy includes entering international markets, which
will require significant management attention and financial resources. We have
no experience operating internationally and cannot be certain that our business
model is transferable to foreign markets. If we pursue international expansion,
the proportion of our revenues denominated in foreign currencies will increase.
We could also be subject to difficulties in staffing and managing international
operations and general economic and currency exchange rate conditions in foreign
countries.
Protection of our intellectual property and proprietary rights may be
inadequate.
Our success depends in part on our ability to protect our proprietary
rights. To protect our proprietary rights, we rely primarily on a combination of
trademark, service mark, copyright, and trade secret laws, and contractual
restrictions on their use by licensees and others. Although from time to time we
may apply for registration of our trademarks, service marks, and copyrights with
the appropriate U.S. agencies, we do not rely on such registrations for the
protection of these intellectual property rights. We often enter into
confidentiality agreements with our employees and consultants and with third
parties in connection with our business operations and service offerings. These
confidentiality agreements generally seek to control access to, and distribution
of, our technology, documentation, and other confidential information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use or disclose to others our confidential information without
authorization or to develop similar technology independently.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we cannot predict the future viability or
value of any of our proprietary rights. We also cannot assure you that the steps
that we have taken will prevent misappropriation or infringement of our
intellectual property rights and confidential information.
Our business activities may infringe upon the intellectual property rights
of others and other parties may assert infringement claims against us.
Litigation may be necessary in the future to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Any litigation might result in substantial costs and diversion of
resources and management attention. In addition, if we infringe upon the rights
of others, we may be required to pay substantial amounts and may be required to
either license the infringed intellectual property or to develop alternative
technologies independently. We may not be able to obtain suitable substitutes
for the infringed technology on acceptable terms or in a timely manner, which
could adversely affect our business, results of operations and financial
condition.
We have filed for federal trademark protection for our trademark "Cobalt,"
which we use in both word and logo form. Other organizations within the computer
and software industries also have filed trademark registration applications for
"Cobalt." We have filed an opposition proceeding before the Trademark Trial and
Appeal Board of the United States Patent and Trademark Office with respect to
two of these competing registration applications. That opposition is pending and
we are in discussions with a third party applicant regarding a potential
trademark use consent agreement. We may be unsuccessful in these proceedings or
negotiations and may be required to limit the use of the tradenames or marks
around which we have attempted to build brand identities.
We could face liability for information retrieved from or transmitted over the
Internet and liability for products sold over the Internet.
We could be exposed to liability with respect to third-party information
that is accessible through Web sites we create. These claims might assert that,
by directly or indirectly providing links to Web sites operated
9
<PAGE>
by third parties, we should be liable for copyright or trademark infringement or
other wrongful actions by third parties through these sites. It is also possible
that if any information provided on our clients' Web sites contains errors,
consumers and our clients could make claims against us for losses incurred in
relying on this information. We access the systems and databases of our clients
and, despite precautions, we may adversely affect these systems. Even if these
claims do not result in liability to us, we could incur significant costs in
investigating and defending against these claims and our reputation could suffer
dramatically. While we believe our insurance is adequate, our general liability
insurance and contractual indemnity and disclaimer provisions 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 insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
Increasing government regulation could limit the market for Internet services,
which could seriously harm our business.
Due to concerns arising from the increasing use of the Internet, a number of
laws and regulations have been and may be adopted covering issues such as user
privacy, pricing, acceptable content, taxation and quality of products and
services. This legislation could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium. Further, due to the global nature of the Internet, it is
possible that multiple federal, state or foreign jurisdictions might attempt to
regulate Internet transmissions or levy sales or other taxes relating to
Internet-based activities. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, libel and personal
privacy is uncertain. We cannot assess the impact of any future regulation of
the Internet on our business.
Year 2000 problems may adversely affect us.
We may not accurately identify all potential Year 2000 problems that could
affect our business, and the corrective measures that we implement may be
ineffective or incomplete. Any Year 2000-related problems could interrupt our
ability to provide services to our clients, process orders or accurately report
operating and financial data. Similar problems and consequences could result if
any of our key suppliers and clients experience Year 2000 problems. To the
extent that our clients rely on hardware or software that may not be Year 2000
compliant, our ability to provide our services, in particular our data
extraction, aggregation and management services, could be materially and
adversely affected. Our failure or the failure of our significant suppliers and
clients to adequately address the Year 2000 issue could adversely affect our
business, operating results and financial condition. For more information about
our Year 2000 compliance efforts, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of Year 2000."
A substantial number of shares of our common stock will be eligible for future
sale in the market.
Future sales of substantial amounts of our common stock in the public market
could adversely affect the market prices for our common stock. Of the
shares of our common stock outstanding after this offering, all of the
shares sold in this offering will be freely tradable. Substantially all of the
remaining shares of common stock outstanding after this offering are subject to
lock-up agreements that prohibit the sale of these shares for 180 days after
this offering. Immediately after this 180 day period, shares will become
available for sale. The remaining shares of common stock will become available
for sale at various times thereafter upon the expiration of one-year holding
periods.
Investors in this offering will suffer substantial dilution.
The assumed public offering price is substantially higher than the net
tangible book value per share of our outstanding common stock. As a result,
purchasers of the common stock in this offering will incur immediate,
substantial dilution in the amount of $ per share. To the extent that
outstanding options or warrants to purchase our common stock are exercised,
there will be further dilution. We have in
10
<PAGE>
the past granted a substantial number of options to purchase common stock to
employees as part of compensation packages at exercise prices per share lower
than the price per share in this offering, and we expect that we will continue
to grant options in the future. We also may issue shares of common stock in
connection with strategic acquisitions or alliances. Any of the foregoing could
also result in additional dilution to shareholders.
Certain of our shareholders will continue to own a large percentage of our
voting stock after the offering.
Prior to this offering, E.M. Warburg, Pincus & Co., LLC beneficially owned
approximately 66% of our outstanding common stock. After this offering, Warburg
will beneficially own approximately % of our common stock and will be able
to exercise significant influence over us, including on matters submitted to our
shareholders for a vote, such as:
- the election of our board of directors;
- the removal of any of our directors;
- the amendment of our articles of incorporation or bylaws; and
- the adoption of measures that could delay or prevent a change in control
or impede a merger, takeover or other business combination involving us.
Actions taken by Warburg could conflict with interests of other
shareholders. As a result of Warburg's significant shareholdings, a potential
acquirer could be discouraged from attempting to obtain control of us, which
could have a material adverse effect on the market price of our common stock.
See "Management" and "Principal Shareholders."
Our articles of incorporation and bylaws and Washington law contain provisions
that could discourage a takeover.
Certain provisions of Washington law and our articles of incorporation and
bylaws could have the effect of delaying or preventing a change in control. For
a description of these provisions, see "Description of Capital
Stock--Antitakeover Effects of Certain Provisions of Our Articles of
Incorporation and Bylaws and under Washington Law" on page 57.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile
following this offering and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of new services by us
or our competitors, market conditions in the automobile industry, changes in
financial estimates by securities analysts or other events or factors, many of
which are beyond our control. In addition, the stock market has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many technology and services companies and
that often have been unrelated to the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of our
common stock.
We have not designated a specific use for all of the net proceeds.
Our management will have significant discretion in applying a substantial
part of the net proceeds of this offering. In addition to repayment of
indebtedness and payment of accrued dividends on our outstanding preferred
stock, we currently expect to use the net proceeds for general corporate
purposes, including capital expenditures and working capital. We also may use a
portion of the net proceeds for the acquisition of companies, technology or
services that complement our business or for strategic alliances with, or
investments in, companies that provide complementary products and services.
11
<PAGE>
USE OF PROCEEDS
We estimate our net proceeds from the sale of the shares of common
stock in this offering, after deducting underwriting discounts and estimated
offering expenses, will be approximately $ . If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ . The principal purposes of this offering are
to repay indebtedness to obtain additional working capital, to create a public
market for our common stock and to facilitate future access to public equity
markets.
We expect to use the net proceeds of this offering as follows:
- $23.0 million to repay indebtedness incurred in connection with Cobalt's
acquisition of PartsVoice. This indebtedness bears interest at an annual
rate of 8.75%, and is due and payable on the earlier of completion of this
offering or July 30, 1999 (with respect to $8.0 million of this
indebtedness) or January 25, 2000 (with respect to $15.0 million of this
indebtedness). See "Recent Acquisition" and Note 14 of Notes to Cobalt
Financial Statements;
- up to $5.0 million to repay principal and interest under our secured line
of credit, which bears interest at prime plus 2.0%, currently 9.75%, and
is due on the earlier of completion of this offering or December 31, 1999;
and
- approximately $2.0 million to pay accrued and unpaid dividends on our
outstanding preferred stock.
The remaining balance of approximately $ will be used for general
corporate purposes, including continued investment in services development,
expansion of sales and marketing activities and working capital. We may, when
the opportunity arises, use an unspecified portion of the net proceeds to
acquire or invest in complementary businesses, services and technologies. The
amounts and timing of our actual expenditures will depend upon numerous factors,
including the status of product development efforts, marketing and sales
activities, the amount of cash generated by operations and competition.
Pending use of the net proceeds for the above purposes, we intend to invest
the net proceeds from this offering in short-term, interest bearing, investment
grade securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and, except with
respect to the payment of accrued dividends on the outstanding shares of our
preferred stock as described above, do not intend to pay any cash dividends in
the foreseeable future.
12
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 (a)
on an actual basis, (b) on a pro forma basis to reflect Cobalt's acquisition of
PartsVoice as if it had occurred on March 31, 1999 and the conversion of all
outstanding shares of preferred stock into shares of common stock upon the
closing of this offering, and (c) on a pro forma as adjusted basis to reflect
the receipt and application of the estimated net proceeds from the sale by us of
shares of common stock pursuant to this offering at an initial offering
price of $ per share after deducting underwriting discounts and estimated
offering expenses and after repayment of the notes payable issued in conjunction
with Cobalt's acquisition of PartsVoice.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt:
Software financing contract, non-current portion.............................. $ 405 $ 405
Capital lease obligations, non-current portion................................ 971 971
-------- --------- -----------
Total long-term debt............................................................ 1,376 1,376
-------- --------- -----------
Mandatorily redeemable convertible preferred stock(1)........................... 31,753 --
-------- --------- -----------
Shareholders' (deficit) equity:
Preferred stock, $0.01 par value per share; 100,000,000 shares authorized,
9,153,902 issued and outstanding as mandatorily redeemable convertible
preferred stock; no shares issued and outstanding, pro forma and pro forma as
adjusted..................................................................... -- --
Common stock, $0.01 par value per share; 200,000,000 shares authorized,
1,821,979 issued and outstanding; 11,475,881 and shares issued
and outstanding pro forma and pro forma as adjusted, respectively(2)......... 18 115
Additional paid-in capital.................................................... -- 36,037
Notes receivable from shareholders............................................ (144) (144)
Accumulated deficit........................................................... (26,641) (26,641)
-------- --------- -----------
Total shareholders' (deficit) equity........................................ (26,767) 9,367
-------- --------- -----------
Total capitalization...................................................... $ 6,362 $ 10,743 $
-------- --------- -----------
-------- --------- -----------
</TABLE>
- ---------
(1) See Note 9 of Notes to Cobalt Financial Statements.
(2) This number does not include (a) 2,090,206 shares issuable upon exercise of
stock options outstanding under our Option Plan as of March 31, 1999, at a
weighted average exercise price per share of $0.62, (b) 61,500 shares
issuable upon exercise of warrants outstanding as of March 31, 1999, at a
weighted average exercise price per share of $0.45, and (c) 1,323,338 shares
available for future grant or issuance under our Option Plan. See
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Note 10 of Notes to Cobalt Financial Statements.
13
<PAGE>
DILUTION
The pro forma net tangible book value of Cobalt at March 31, 1999 was
$ , or $ per share of common stock, assuming the conversion of all
outstanding shares of preferred stock into shares of common stock. Pro forma net
tangible book value per share represents the amount of our shareholders' equity,
less intangible assets, divided by the total number of shares of common stock
outstanding for the period immediately prior to this offering. After giving
effect to the sale of the shares of common stock offered in this
prospectus at an assumed offering price of $ per share and after deducting
estimated underwriting discounts and offering expenses, the pro forma net
tangible book value of Cobalt as of , 1999 would have been $ , or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing shareholders and an immediate
dilution of $ per share to new investors purchasing shares in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.......................................... $
Pro forma net tangible book value per share as of , 1999.............
Increase per share attributable to new investors.................................
---
Pro forma net tangible book value per share after this offering..................
---
Net tangible book value dilution per share to new investors...................... $
-----------
-----------
</TABLE>
The following table summarizes as of , 1999, on the pro forma
basis described above, the number of shares of common stock purchased from
Cobalt, the total consideration paid to Cobalt and the average price per share
paid by existing shareholders and by investors purchasing shares of common stock
in this offering (before deducting underwriting discounts and estimated offering
expenses):
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Average
---------------- ---------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......................................
New shareholders............................................
------ ------- ------ ------- ---------
Total................................................... 100% 100%
------- -------
------- -------
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
or warrants after March 31, 1999. As of March 31, 1999, there were options and
warrants outstanding to purchase a total of 2,151,706 shares of common stock. To
the extent that any of these options or warrants are exercised, there will be
further dilution to new public investors. See "Capitalization,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and Note 10
of Notes to Cobalt Financial Statements.
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of Cobalt should be read together with
the financial statements and related notes, "Unaudited Pro Forma Combined
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this prospectus. The
statement of operations data for each of the years in the three year period
ended December 31, 1998, and the balance sheet data as of December 31, 1997 and
1998, are derived from the audited financial statements of Cobalt included
elsewhere in the prospectus. The balance sheet data as of December 31, 1996 is
derived from audited financial statements of Cobalt, which are not included in
the prospectus. The statement of operations data for the period from inception
(March 17, 1995) to December 31, 1995 and for the three months ended March 31,
1998 and 1999, and the balance sheet data as of December 31, 1995 and March 31,
1999 are derived from our unaudited financial statements. The unaudited
financial statements have been prepared on substantially the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of the financial position and results of operations as of and for the respective
periods. Our pro forma results of operations in the table below assume that
Cobalt's acquisition of PartsVoice had occurred on January 1, 1998. The pro
forma balance sheet data reflects adjustments for transactions related to
Cobalt's acquisition of PartsVoice assuming the transaction had occurred on that
date and also gives effect to the conversion of all outstanding shares of
preferred stock into common stock upon closing of this offering.
<TABLE>
<CAPTION>
Actual
------------------------------------------------------------------------ Pro Forma
Since ------------------------
Inception Three
(March 17, 1995) Three Months Ended Months
to Year Ended December 31, March 31, Year Ended Ended
December 31, ------------------------------- -------------------- December 31, March 31,
1995 1996 1997 1998 1998 1999 1998 1999
---------------- --------- --------- --------- --------- --------- ------------ ---------
(in thousands, except per share data)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................. $ 70 $ 312 $ 1,711 $ 6,245 $ 1,079 $ 2,453 $ 15,773 $ 5,009
Cost of revenues.............. 16 51 285 1,199 151 540 3,343 1,123
---------------- --------- --------- --------- --------- --------- ------------ ---------
Gross profit.............. 54 261 1,426 5,046 928 1,913 12,430 3,886
Operating expenses
Sales and marketing......... 55 286 1,740 4,048 564 1,650 5,710 2,170
Product development......... 39 125 361 961 157 401 961 401
General and
administrative............. 375 676 1,753 4,627 629 1,870 10,888 3,436
---------------- --------- --------- --------- --------- --------- ------------ ---------
Total operating
expenses................. 469 1,087 3,854 9,636 1,350 3,921 17,559 6,007
---------------- --------- --------- --------- --------- --------- ------------ ---------
Loss from operations.......... (415) (826) (2,428) (4,590) (422) (2,008) (5,129) (2,121)
Gain on sale of HomeScout..... -- -- -- 1,626 1,626 -- 1,626 --
Common stock repurchase
premium..................... -- -- -- (5,202) -- -- (5,202) --
Interest expense.............. -- (2) (17) (93) (7) (49) (2,107) (552)
Other income, net............. -- -- 47 142 6 57 208 61
---------------- --------- --------- --------- --------- --------- ------------ ---------
Net (loss) income............. $ (415) $ (828) $ (2,398) $ (8,117) $ 1,203 $ (2,000) $ (10,604) $ (2,612)
---------------- --------- --------- --------- --------- --------- ------------ ---------
---------------- --------- --------- --------- --------- --------- ------------ ---------
Basic net (loss) income per
share....................... $ (0.24) $ (0.24) $ (0.69) $ (2.95) $ 0.35 $ (1.74) $ (3.88) $ (2.19)
Diluted net (loss) income per
share....................... $ (0.24) $ (0.24) $ (0.69) $ (2.95) $ 0.13 $ (1.74) $ (3.88) $ (2.19)
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
-------------------------------------- ---------------------
1995 1996 1997 1998 Actual Pro Forma
----------- ----- ------- -------- -------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................................... $ 2 $ 4 $ 241 $ 5,756 $ 3,876 $ 876
Working capital..................................................... (235) (712) (1,264) 5,534 3,129 (23,088)
Total assets........................................................ 22 168 1,951 10,062 10,665 38,141
Long-term obligations, net of current portion....................... -- 51 424 557 1,376 1,376
Mandatorily redeemable convertible preferred stock.................. -- -- 2,439 31,162 31,753 --
Total shareholders' (deficit) equity................................ (219) (651) (2,897) (24,242) (26,767) 9,367
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information set forth below gives
effect to Cobalt's acquisition of PartsVoice as if it had occurred on January 1,
1998. The historical financial information set forth below has been derived from
the financial statements of Cobalt and PartsVoice, and should be read in
conjunction with those financial statements and the notes thereto included
elsewhere in this prospectus.
We acquired all of the equity interests in PartsVoice on April 30, 1999.
Immediately prior to the closing, PartsVoice distributed to its owners certain
assets and liabilities. At closing, we paid aggregate purchase consideration for
PartsVoice of:
- $3.0 million in cash;
- promissory notes in the principal amount of (a) $8.0 million, due on the
earlier of completion of this offering or July 30, 1999 and (b) $15.0
million, due on the earlier of completion of this offering or January 25,
2000;
- 500,000 shares of Series C Convertible Preferred Stock at $8.00 per share;
and
- warrants to purchase 160,000 shares of Cobalt common stock at $6.00 per
share, which have a fair market value of $381,000.
Our obligations under the promissory notes are secured by a pledge of the
PartsVoice equity interests. We incurred transaction expenses of approximately
$217,000. See "Recent Acquisition" and "Management-- Executive Agreements."
We have accounted for the PartsVoice acquisition using the purchase method
of accounting. These pro forma financial statements have been prepared on the
basis of assumptions described herein.
We expect to incur integration expenses to merge administrative functions
and to combine marketing efforts. The Pro Forma Combined Statement of Operations
does not include the costs of integration, as these costs will affect future
operations and do not qualify as liabilities in connection with a purchase
business combination under EITF 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination."
The unaudited pro forma combined financial information set forth below
combines Cobalt's balance sheet as of March 31, 1999, and statements of
operations for the year ended December 31, 1998 and for the three months ended
March 31, 1999 with the balance sheet and statements of operations of PartsVoice
as of and for the same periods. These pro forma financial statements reflect
certain adjustments, including adjustments to reflect the amortization of
intangible assets and goodwill acquired, interest expense related to acquisition
indebtedness and the impact of certain related agreements that become effective
with the acquisition. These adjustments are preliminary and are based on our
best estimates. A third party valuation of the assets acquired will be used to
finalize these adjustments. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes to the
financial statements of Cobalt and PartsVoice which are included elsewhere in
this prospectus.
The unaudited pro forma combined financial information set forth below does
not purport to represent what the consolidated results of operations or
financial condition of Cobalt would actually have been if the PartsVoice
acquisition and related transactions had in fact occurred on such date or to
project the future consolidated results of operations or financial condition of
Cobalt.
16
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Cobalt PartsVoice Combined Adjustments Total
-------- ---------- -------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents........................................... $ 3,876 $ 461 $ 4,337 $ (461)(1) $ 876
(3,000)(2)
Short term investments.............................................. 983 398 1,381 (398)(1) 983
Accounts receivable, net............................................ 1,401 1,081 2,482 (1,081)(1) 1,401
Other current assets................................................ 1,172 8 1,180 (8)(1) 1,050
(122)(6)
-------- ---------- -------- ----------- --------
7,432 1,948 9,380 (5,070) 4,310
Capital assets, net................................................... 2,806 106 2,912 9(1) 2,921
Intangible assets, net................................................ 416 -- 416 217(6) 30,899
30,266(7)
Other assets.......................................................... 11 213 224 (213)(1) 11
-------- ---------- -------- ----------- --------
$ 10,665 $2,267 $ 12,932 $25,209 $ 38,141
-------- ---------- -------- ----------- --------
-------- ---------- -------- ----------- --------
Liabilities and Shareholders' Deficit
Current Liabilities
Accounts payable.................................................... $ 665 $ 211 $ 876 $ (211)(1) $ 665
Accrued liabilities................................................. 1,316 -- 1,316 95(6) 1,411
Deferred revenues................................................... 1,505 -- 1,505 -- 1,505
Software financing contract, current portion........................ 257 -- 257 -- 257
Capital lease obligations, current portion.......................... 560 -- 560 -- 560
Distribution payable to owners...................................... -- 825 825 (825)(1) --
Payable to owners................................................... -- 80 80 (80)(1) --
Notes payable....................................................... -- -- -- 23,000(4) 23,000
-------- ---------- -------- ----------- --------
4,303 1,116 5,419 21,979 27,398
-------- ---------- -------- ----------- --------
Noncurrent liabilities................................................ 1,376 7 1,383 (7)(1) 1,376
-------- ---------- -------- ----------- --------
Mandatorily redeemable convertible preferred stock.................... 31,753 -- 31,753 4,000(3) 35,753
-------- ---------- -------- ----------- --------
Shareholders' deficit
Common stock........................................................ 18 -- 18 -- 18
Additional paid-in capital.......................................... -- -- -- 381(5) 381
Notes receivable from shareholders.................................. (144) -- (144) -- (144)
Owners' equity...................................................... -- 1,259 1,259 (1,029)(1) --
(230)(12)
Accumulated deficit................................................. (26,641) (115) (26,756) 115(12) (26,641)
-------- ---------- -------- ----------- --------
(26,767) 1,144 (25,623) (763) (26,386)
-------- ---------- -------- ----------- --------
Total liabilities and shareholders' deficit........................... $ 10,665 $2,267 $ 12,932 $25,209 $ 38,141
-------- ---------- -------- ----------- --------
-------- ---------- -------- ----------- --------
</TABLE>
17
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Cobalt PartsVoice Combined Adjustments Total
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands, except share and per share data)
Net revenues...................................... $ 6,245 $ 9,528 $ 15,773 $ 15,773
Cost of revenues.................................. 1,199 2,144 3,343 3,343
---------- ----------- ----------- ----------
Gross profit.................................. 5,046 7,384 12,430 12,430
---------- ----------- ----------- ----------
Operating expenses
Sales and marketing............................. 4,048 1,662 5,710 5,710
Product development............................. 961 961 961
General and administrative...................... 4,627 1,180 5,807 5,081(8) 10,888
---------- ----------- ----------- ----------- ----------
Total operating expenses...................... 9,636 2,842 12,478 5,081 17,559
---------- ----------- ----------- ----------- ----------
(Loss) income from operations..................... (4,590) 4,542 (48) (5,081) (5,129)
Gain on sale of HomeScout......................... 1,626 1,626 1,626
Common stock repurchase premium................... (5,202) (5,202) (5,202)
Interest expense.................................. (93) (1) (94) (2,013)(9) (2,107)
Other income, net................................. 142 66 208 208
---------- ----------- ----------- ----------- ----------
Net (loss) income................................. $ (8,117) $ 4,607 $ (3,510) $ (7,094) $ (10,604)
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Net (loss) income available to common
shareholders.................................... $ (8,680) $ 4,607 $ (4,073) $ (7,334) 10) (11,407)
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Basic and diluted net loss per share.............. $ (2.95) $ (3.88)(11)
---------- ----------
---------- ----------
Weighted average shares of common stock
outstanding used in computing basic and diluted
net loss per share.............................. 2,938,460 2,938,460
---------- ----------
---------- ----------
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Cobalt PartsVoice Combined Adjustments Total
---------- ----------- ----------- ----------- ----------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 2,453 $ 2,556 $ 5,009 $ 5,009
Cost of revenues............................... 540 583 1,123 1,123
---------- ----------- ----------- ----------
Gross profit............................... 1,913 1,973 3,886 3,886
---------- ----------- ----------- ----------
Operating expenses
Sales and marketing.......................... 1,650 520 2,170 2,170
Product development.......................... 401 401 401
General and administrative................... 1,870 296 2,166 1,270(8) 3,436
---------- ----------- ----------- ----------- ----------
Total operating expenses................... 3,921 816 4,737 1,270 6,007
---------- ----------- ----------- ----------- ----------
(Loss) income from operations.................. (2,008) 1,157 (851) (1,270) (2,121)
Interest expense............................... (49) (49) (503)(9) (552)
Other income, net.............................. 57 4 61 61
---------- ----------- ----------- ----------- ----------
Net (loss) income.............................. $ (2,000) $ 1,161 $ (839) $ (1,773) $ (2,612)
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Net (loss) income available to common
shareholders................................. $ (2,591) $ 1,161 $ (1,430) $ (1,833) 10) $ (3,263)
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
Basic and diluted net loss per share........... $ (1.74) $ (2.19)(11)
---------- ----------
---------- ----------
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share................... 1,488,681 1,488,681
---------- ----------
---------- ----------
</TABLE>
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Pro forma adjustments for the unaudited pro forma combined balance sheet as
of March 31, 1999 and statements of operations for the year ended December 31,
1998 and the three months ended March 31, 1999 are as follows:
(1) Represents the distribution of assets and liabilities of PartsVoice to its
owners immediately prior to the acquisition. Substantially all of the
tangible assets and liabilities were distributed.
(2) Represents the payment of $3.0 million in cash at closing of the
acquisition.
(3) Represents the issuance of 500,000 shares of Series C Convertible Preferred
Stock at a per share value of $8.00.
(4) Represents the issuance of the short-term notes at closing. For purposes of
this pro forma presentation, we have not assumed repayment of the
indebtedness due to the lack of existing capital in these historical periods
to fund repayment.
(5) Represents the fair value of the warrants issued at closing.
(6) Represents estimated acquisition costs incurred in connection with the
acquisition.
(7) Reflects the allocation of the purchase price to goodwill and other
intangible assets. The intangible assets acquired are believed to include
client base, marketing agreements, assembled workforce, technology,
covenants not to compete and goodwill. For purposes of these pro forma
financial statements, we have estimated the overall amortization period to
be six years. We are in the process of obtaining a third party valuation to
determine the allocation of intangible assets. Once we have made a final
allocation, changes may be appropriate. The impact of the changes could be
material.
(8) Reflects the amortization of the intangible assets referred to in Note 7.
(9) Reflects the interest expense of the acquisition indebtedness at the rate of
8.75% outstanding for the period presented.
(10) Reflects the pro forma adjustments described in Notes 8 and 9, as well as
cumulative, unpaid dividends relating to the Series C Convertible Preferred
Stock at $0.48 per share per annum.
(11) Pro forma basic and diluted net loss per share reflects the impact of the
adjustments above. The convertible preferred stock and warrants issued in
connection with the acquisition are excluded from the computation, as their
effect is antidilutive.
(12) Reflects elimination of PartsVoice owners' equity.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, THE ACCURACY OF WHICH
INVOLVES RISKS AND UNCERTAINTIES. WE USE WORDS SUCH AS "ANTICIPATES,"
"BELIEVES," "PLANS," "EXPECTS," "FUTURE," "INTENDS" AND SIMILAR EXPRESSIONS TO
IDENTIFY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS
PROSPECTUS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
OUR FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING THE RISKS DESCRIBED
IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
Overview
We are a leading provider of Internet marketing and data aggregation
services to individual franchised automobile dealerships, multi-franchise dealer
groups and automobile manufacturers in the United States. We enable our clients
to develop and implement effective e-business strategies and to position
themselves to capitalize on the increasing use of the Internet by consumers to
research, evaluate and initiate purchases of new and pre-owned vehicles, parts
and accessories and automotive-related services such as financing and insurance.
We derive our revenues principally from fees charged to our clients for Web
site design, development and maintenance services, data extraction, aggregation
and management services and Internet marketing training and support. We
recognize revenues for ongoing services over the related service period and
recognize revenues for initial setup fees and custom projects upon activation of
the related service. The majority of our services are sold to clients on a
monthly fee basis under short-term service contracts. Revenues are recognized
net of promotional discounts.
Our cost of revenues consists of the costs associated with production,
maintenance and delivery of our services. These costs include the costs of
production, processing and design personnel, communication expenses related to
data transfer, fees payable to third parties for distribution of vehicle
inventory data to other Web sites and for banner advertising, site content
licensing fees and costs of Web servers used to host client data.
In April 1999, we acquired PartsVoice, LLC, an Oregon limited liability
company, whose principal business is vehicle parts data acquisition and
management services. The purchase price, including transaction expenses, was
$30.6 million, of which $3.0 million was paid in cash and $4.4 million was paid
by issuance of preferred stock and warrants at closing. The balance of the
purchase price was paid by issuance of short-term notes. The notes are secured
by a pledge of the PartsVoice equity interests and a security agreement. See
"--Liquidity and Capital Resources," "Recent Acquisition" and Note 14 of Notes
to Cobalt Financial Statements. The PartsVoice acquisition is being accounted
for as a purchase transaction, and we plan to allocate substantially all of the
purchase price to intangible assets.
We may in the future pursue additional acquisitions of businesses, products
or technologies that could complement or expand our business. Integrating newly
acquired businesses or technologies may be expensive and time-consuming. The
negotiation of potential acquisitions or strategic relationships as well as the
integration of future acquired businesses, products or technologies could divert
our management's time and resources and could result in the issuance of dilutive
equity securities, the incurrence of debt or contingent liabilities and
amortization expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on our business, results of
operations and financial condition. See "Risk Factors-- We face challenges in
integrating the PartsVoice acquisition and will encounter similar challenges if
we make future acquisitions."
Since inception, but increasingly during the past year, we have made
substantial investments in infrastructure and in staffing and management to
accommodate current and anticipated future growth. Since May 1, 1998, we have
hired more than 100 employees and invested more than $2.9 million in capital
assets.
21
<PAGE>
A large portion of these assets is intended to improve our service to clients,
including backup computer systems and more stable and scalable database systems.
Our planned growth will require additional staff and facilities.
Our continued growth and the PartsVoice acquisition have placed and will
continue to place a significant strain on our managerial, operational and
financial resources. To manage our anticipated growth, we must continue to
implement and improve our operational and financial systems and must expand,
train and manage our employee base. We may not be able to manage the expansion
of our operations effectively, and our systems, procedures or controls may not
be adequate to support our operations. Any inability to manage growth
effectively could have a material adverse effect on our business, results of
operations and financial condition. See "Risk Factors--The failure to manage our
growth effectively will adversely affect our business and results of
operations."
In October 1998, in conjunction with a preferred stock investment by
Warburg, Pincus Equity Partners, L.P., we repurchased shares of common stock
from certain of our investors, founders and employees. We recorded an expense of
$5.2 million representing the premium paid to redeem sufficient shares to
provide Warburg with a 62% equity ownership position, on a fully diluted basis,
as of the investment date. See Note 10 of Notes to Cobalt Financial Statements.
We have incurred net losses each year since we began operations. After
giving pro forma effect to Cobalt's acquisition of PartsVoice, we had a net loss
of $10.6 million for the year ended December 31, 1998, which includes $5.1
million of pro forma amortization of intangibles and $2.0 million in interest
expense. We intend to increase our spending on technology infrastructure
development, marketing and promotion, services development and strategic
relationships. As a result, we expect to continue to incur net losses and
negative cash flows from operations at least through 2000. Our limited operating
history makes it difficult to forecast further operating results. Although our
net revenues have grown in recent quarters, we cannot be certain that net
revenues will continue to increase or that they will increase at a rate
sufficient to achieve and maintain profitability. Even if we were to achieve
profitability in any period, we might fail to sustain or increase that
profitability on a quarterly or annual basis. See "Risk Factors--We may never
achieve or maintain profitability."
22
<PAGE>
Results of Operations--Cobalt
The following table sets forth for the periods indicated certain statements
of operations data expressed as a percentage of net revenues. The quarterly
financial statements have been prepared on substantially the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of the results of operations for each quarter.
<TABLE>
<CAPTION>
Year Ended December Three Months Ended
31, March 31,
---------------------- -------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------ ------ ------ ----------- -----
<CAPTION>
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................................................... 16.3 16.7 19.2 14.0 22.0
------ ------ ------ ----- -----
Gross profit...................................................... 83.7 83.3 80.8 86.0 78.0
------ ------ ------ ----- -----
Operating expenses:
Sales and marketing................................................. 91.7 101.7 64.8 52.3 67.3
Product development................................................. 40.1 21.1 15.4 14.6 16.3
General and administrative.......................................... 216.6 102.4 74.1 58.2 76.3
------ ------ ------ ----- -----
Total operating expenses.......................................... 348.4 225.2 154.3 125.1 159.9
------ ------ ------ ----- -----
Loss from operations.................................................. (264.7) (141.9) (73.5) (39.1) (81.9)
Gain on sale of HomeScout division.................................... 26.0 150.7
Common stock repurchase premium....................................... (83.3)
Interest expense.................................................... (0.7) (1.0) (1.5) (0.7) (1.9)
Other income........................................................ 2.7 2.3 0.6 2.3
------ ------ ------ ----- -----
Net (loss) income..................................................... (265.4)% (140.2)% (130.0)% 111.5% (81.5)%
------ ------ ------ ----- -----
------ ------ ------ ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET REVENUES. Net revenues increased from $1.1 million for the three months
ended March 31, 1998 to $2.5 million for the same period in 1999, an increase of
$1.4 million, or 127%. This increase in net revenues was primarily due to a
significant increase in the number of paying clients and, to a lesser extent, to
increases in the levels of Internet marketing services provided to manufacturer
clients.
COST OF REVENUES. Cost of revenues increased from $151,000 for the three
months ended March 31, 1998 to $540,000 for the same period in 1999, an increase
of $389,000, or 258%. This increase was primarily attributable to an increase in
costs related to increased staffing and facilities required to accommodate our
increased client base and, to a lesser extent, an increase in costs associated
with new service offerings for distribution of vehicle inventory data to third
party Web sites. Cost of revenues, as a percentage of net revenues, increased
from 14.0% for the three months ended March 31, 1998 to 22.0% for the same
period in 1999 due primarily to the increase in production and design staffing
and computer equipment required to accommodate the increased size of our client
base. There was also a shift in our mix of services to higher cost Internet
advertising services from 6% to 10% of net revenues for the three months ended
March 31, 1998 and 1999. We anticipate the investments that we have made in
production and design staff and operating equipment will support further growth
in our client base, which will decrease our cost of revenues as a percentage of
net revenues as we add new customers. Such decrease may be offset if our
services mix continues to shift to lower margin Internet advertising services.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salary compensation, sales commissions and travel expenses for sales and
marketing personnel and expenses for promotional advertising and marketing.
Sales and marketing expenses increased from $564,000 for the three months ended
March 31,
23
<PAGE>
1998 to $1.7 million for the same period in 1999, an increase of $1.1 million,
or 193%. This cost increase was primarily due to the increase in the number of
our sales and marketing personnel and, to a lesser extent, increased expenses
for corporate brand advertising and travel.
PRODUCT DEVELOPMENT. Our product development expenses consist primarily of
compensation for product development personnel and costs of related computer
equipment. We expense product development costs as they are incurred. We
increased our product development costs from $157,000 for the three months ended
March 31, 1998 to $401,000 for the same period in 1999, an increase of $244,000,
or 155%. This increase was due to the increase in the number of our product
development personnel.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist
primarily of compensation for administrative personnel, facilities and
communications expenses and fees for outside professional advisors. General and
administrative expenses increased from $629,000 for the three months ended March
31, 1998 to $1.9 million for the same period in 1999, an increase of $1.2
million, or 197%. This increase was primarily due to the increase in the number
of administrative personnel and the related increase in facilities costs and, to
a lesser extent, increased professional, consulting, legal and accounting fees.
NET LOSS. During the quarter ended March 31, 1998 we sold the assets of our
HomeScout division and realized a gain of $1.6 million. HomeScout was a real
estate search service that we developed to give users access to homes for sale
on the Internet. See Note 2 of Notes to Cobalt Financial Statements. Excluding
the gain on sale of HomeScout, our net loss for the three months ended March 31,
1998 was $423,000 compared to a net loss of $2.0 million for the same period in
1999, an increase of $1.6 million. Increased operating expenses described above
offset the increase in net revenues.
YEAR ENDED DECEMBER 31, 1996, 1997 AND 1998
NET REVENUES. Our net revenues increased from $312,000 in 1996 to $1.7
million in 1997 and to $6.2 million in 1998. These increases in net revenues
were attributable to substantial growth in our client base and to a lesser
extent to increased sales to existing clients. Also, in December 1997 we
acquired the assets of the DealerNet division of The Reynolds and Reynolds
Company for a purchase price of $800,000. This acquisition also contributed to
the growth in our client base as we transitioned automobile dealership clients
of DealerNet to Cobalt services. See Note 3 of Notes to Cobalt Financial
Statements.
COST OF REVENUES. Cost of revenues increased from $51,000 in 1996 to
$285,000 in 1997 and to $1.2 million in 1998. These increases were directly
related to the substantial increase in our client base. These increases
primarily consisted of increases in the costs of production and design personnel
and, to a lesser extent, to equipment depreciation and costs associated with new
service offerings for distribution of vehicle data to third party Web sites.
Cost of revenues, as a percentage of net revenues, increased from 16.3% in 1996
to 16.7% in 1997 and to 19.2% in 1998 due primarily to the increase in
production and design staffing and computer equipment required to accommodate
our increased client base. There was also a shift in our services mix to higher
cost Internet advertising services from 1% of net revenue in 1997 to 11% in
1998. We did not provide Internet advertising services in 1996.
SALES AND MARKETING. Sales and marketing expenses increased from $286,000
in 1996 to $1.7 million in 1997 and to $4.0 million in 1998. Our marketing
department, initially established in 1997 with two designated employees, had
increased to 40 employees by December 31, 1998. We also expanded our sales force
to address the substantial increase in our client base and to position us to
reach new clients more effectively. These increases also resulted from
expenditures for a program of nationwide corporate branding and advertising. We
expect sales and marketing expenses to continue to increase as we seek to
continue to expand our sales and marketing organization and our presence in the
marketplace. Sales and marketing expense as a percentage of net revenues
decreased from 101.7% in 1997 to 64.8% in 1998 due primarily to the significant
increase in net revenues during the same period.
24
<PAGE>
PRODUCT DEVELOPMENT. Product development expenses increased from $125,000
in 1996 to $361,000 in 1997 and to $961,000 in 1998. These increases resulted
from additional product development personnel and related equipment. We expect
that product development expenses will continue to increase in the future as we
hire additional personnel in this area.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $676,000 in 1996 to $1.8 million in 1997 and to $4.6 million in 1998. The
increases were due primarily to additional personnel and related facilities
expenses and, to a lesser extent, to increased professional consulting, legal
and accounting fees, increased depreciation of capital assets and amortization
of intangible assets related to the DealerNet acquisition.
NET LOSS. Our net loss increased from $828,000 in 1996 to $2.4 million in
1997 and to $8.1 million in 1998. Excluding the common stock repurchase premium
of $5.2 million and the gain on the sale of our HomeScout division of $1.6
million, our net loss in 1998 would have been $4.5 million. See Notes 2 and 10
of Notes to Cobalt Financial Statements.
Quarterly Results
The following table sets forth unaudited statements of operations data
expressed in dollars (in thousands) and as a percentage of net revenues for each
quarter of 1998 and the first quarter of 1999. These financial statements have
been prepared on substantially the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of the results
of operations for each quarter. The results for any quarter are not necessarily
indicative of the results we expect in any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Mar. June Dec. Mar.
31, 30, Sept. 31, 31,
1998 1998 30, 1998 1998 1999
------- ------- -------- ------- -------
Net revenues.......................................................... $1,079 $1,258 $ 1,647 $ 2,261 $ 2,453
Cost of revenues...................................................... 151 262 333 453 540
------- ------- -------- ------- -------
Gross profit...................................................... 928 996 1,314 1,808 1,913
------- ------- -------- ------- -------
Operating expenses:
Sales and marketing................................................. 564 784 1,218 1,482 1,650
Product development................................................. 157 191 261 352 401
General and administrative.......................................... 629 959 1,349 1,690 1,870
------- ------- -------- ------- -------
Total operating expenses.......................................... 1,350 1,934 2,828 3,524 3,921
------- ------- -------- ------- -------
Loss from operations.................................................. (422) (938) (1,514) (1,716) (2,008)
Gain on sale of HomeScout division.................................... 1,626
Common stock repurchase premium....................................... (5,202)
Interest expense...................................................... (7) (8) (43) (35) (49)
Other income, net..................................................... 6 29 13 94 57
------- ------- -------- ------- -------
Net income (loss)..................................................... $1,203 $ (917) $ (1,544) $(6,859) $(2,000)
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mar. June Dec. Mar.
31, 30, Sept. 31, 31,
1998 1998 30, 1998 1998 1999
------- ------- -------- ------- -------
Net revenues.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................................................... 14.0 20.8 20.2 20.0 22.0
------- ------- -------- ------- -------
Gross profit...................................................... 86.0 79.2 79.8 80.0 78.0
------- ------- -------- ------- -------
Operating expenses:
Sales and marketing................................................. 52.3 62.3 74.0 65.5 67.3
Product development................................................. 14.6 15.2 15.8 15.6 16.3
General and administrative.......................................... 58.2 76.3 81.9 74.8 76.3
------- ------- -------- ------- -------
Total operating expenses.......................................... 125.1 153.8 171.7 155.9 159.9
------- ------- -------- ------- -------
Loss from operations.................................................. (39.1) (74.6) (91.9) (75.9) (81.9)
Gain on sale of HomeScout division.................................... 150.7
Common stock repurchase premium....................................... (230.1)
Interest expense...................................................... (0.7) (0.6) (2.6) (1.6) (1.9)
Other income, net..................................................... 0.6 2.3 0.8 4.2 2.3
------- ------- -------- ------- -------
Net income (loss)..................................................... 111.5% (72.9)% (93.7)% (303.4)% (81.5)%
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>
Net revenues increased in 1998 due to increases in the size of our client
base. The rate of growth slowed in the first quarter of 1999, due to a decline
in the rate of new client acquisition we experienced in the fourth quarter of
1998 and the first quarter of 1999. This decline was due principally to our
conversion to a new database system which resulted in a reallocation of sales
and marketing resources to maintaining client relationships. Our cost of
revenues has increased each quarter, although generally at the same rate as the
growth in net revenues.
We expect our quarterly operating results to fluctuate due to a variety of
factors, many of which are beyond our control. These factors include:
- the level of demand in the automotive industry for Internet marketing and
data aggregation services;
- the rate and volume of additions to our client base;
- the amount and timing of expenditures by clients for Internet-based
services;
- the introduction of new products or services by us or our competitors;
- our ability to attract and retain personnel with the necessary technical,
sales, marketing and creative skills required to develop our services and
to service our clients effectively;
- technical difficulties with respect to the Internet or infrastructure; and
- economic conditions generally and specific to the automotive industry.
As a strategic initiative or as a response to the competitive environment,
we may from time to time make pricing, service, technology or marketing
decisions or business or technology acquisitions that could have a material
adverse effect on our short-term operating results. We also may experience
seasonality in our business in the future resulting in diminished revenues as a
result of diminished demand for our services during seasonal periods that
correspond to seasonal fluctuations in the automotive industry or to
fluctuations in industry spending for Internet marketing services. Due to all or
any of the foregoing factors, in some future quarter our operating results may
fall below the expectations of securities analysts and investors. In such event,
the trading price of our common stock would likely be materially and adversely
affected.
26
<PAGE>
Results of Operations--PartsVoice
The following table sets forth for the periods indicated certain historical
statements of operations data of PartsVoice expressed in dollars (in thousands)
and as a percentage of net revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net revenues......................................................................... $ 6,679 $ 7,715 $ 9,528
Cost of revenues..................................................................... 1,714 1,965 2,144
--------- --------- ---------
Gross profit......................................................................... 4,965 5,750 7,384
Sales and marketing expense........................................................ 1,339 1,419 1,662
General and administrative expense................................................. 1,012 1,054 1,180
--------- --------- ---------
Income from operations............................................................... 2,614 3,277 4,542
Other income (expense)............................................................... (1) 28 65
--------- --------- ---------
Net income........................................................................... $ 2,613 $ 3,305 $ 4,607
--------- --------- ---------
--------- --------- ---------
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net revenues......................................................................... 100.0% 100.0% 100.0%
Cost of revenues..................................................................... 25.7 25.5 22.5
--------- --------- ---------
Gross profit......................................................................... 74.3 74.5 77.5
Sales and marketing expense........................................................ 20.0 18.4 17.4
General and administrative expense................................................. 15.2 13.6 12.4
--------- --------- ---------
Income from operations............................................................... 39.1 42.5 47.7
Other income (expense)............................................................... -- 0.3 0.7
--------- --------- ---------
Net income........................................................................... 39.1% 42.8% 48.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1996, 1997 AND 1998
NET REVENUES. Net revenues increased from $6.7 million in 1996 to $7.7
million in 1997 and to $9.5 million in 1998. The increase from 1996 to 1997 was
primarily due to increased services provided to existing manufacturer clients
and, to a lesser extent, services provided to three new manufacturer clients.
Revenues from individual dealership clients did not change significantly. The
increase in net revenues from 1997 to 1998 was primarily due to increased
services provided to existing manufacturer clients and, to a lesser extent, an
increase in the number of individual dealership clients. Net revenues also
improved due to the impact of a full year of service provided to the
manufacturer clients that were new clients in 1997.
COST OF REVENUES. Cost of revenues increased from $1.7 million in 1996 to
$2.0 million in 1997 and to $2.1 million in 1998. This increase was due to
increased personnel and phone charges required to support increased levels of
net revenues. However, cost of revenues as a percentage of net revenues
decreased from 25.7% of net revenues in 1996 to 22.5% of net revenues in 1998 as
PartsVoice was able to leverage existing personnel and facilities to generate
additional revenues during those periods.
SALES AND MARKETING. Sales and marketing expenses increased from $1.3
million in 1996 to $1.4 million in 1997 and to $1.7 million in 1998. This
increase was primarily due to increased personnel costs for sales and sales
support personnel required to service the increased client base and, to a lesser
extent, to increased advertising expenditures. Other marketing activities, such
as trade shows and other manufacturer meetings, did not change significantly
over the three year period. Sales and marketing expenses, as a percentage of net
revenues, decreased from 20.0% in 1996 to 17.4% in 1998.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses were
approximately $1.0 million for each year in the three year period. Accordingly,
general and administrative costs, as a percentage of net revenues, declined from
15.2% in 1996 to 12.4% in 1998.
NET INCOME. Net income increased from $2.6 million in 1996 to $3.3 million
in 1997 and to $4.6 million in 1998 due to the increase in net revenues at a
rate in excess of the growth in expenses. Net income increased from 39.1% of net
revenues in 1996 to 48.4% in 1998.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from sales of
preferred stock, cash flow from operations and, to a lesser extent, borrowings
under short-term debt facilities.
Net cash used in operating activities was $374,000 in 1996, $1.8 million in
1997 and $3.8 million in 1998. In each case net cash used was primarily
attributable to our net loss before non-operating and noncash items. Net cash
used in operations was $99,000 for the three months ended March 31, 1998 and
$1.6 million for the same period in 1999.
In 1996, our net loss was partially offset by an increase in deferred
revenues and accrued liabilities. In 1997, cash used in operating activities
primarily consisted of the net loss after noncash items, the increase in
accounts receivable and the decrease in accrued liabilities, offset by the
increase in deferred revenues. In 1998, cash used in operating activities
primarily consisted of the net loss after noncash items and increases in
accounts receivable and other assets, offset by increases in accrued liabilities
and deferred revenues. For the three months ended March 31, 1998, our net loss
after non-operating items approximated our net cash used in operations. For the
same period in 1999, net cash used was primarily attributable to our net loss
and, to a lesser extent, the increase in other assets, partially offset by
current liabilities.
Net cash used in investing activities was $101,000 in 1996 and $348,000 in
1997, substantially all of which was used to acquire capital assets consisting
primarily of computer equipment and software. In 1998, we used cash of $472,000
to acquire capital assets. Our other significant investing activities in 1998
were the sale of the assets of our former HomeScout division for $1.6 million
and a use of $983,000 to purchase short-term investments. Beginning in 1997 and
in addition to cash purchases of capital assets, we have leased capital assets
under financing leases. The value of the assets acquired under terms of these
leases were $21,000 in 1997 and $959,000 in 1998. In March 1998, we sold the
assets of our HomeScout division, which generated cash proceeds of $1.0 million
for the three months ended March 31, 1998. During the three months ended March
31, 1999 we used cash of $172,000 for investment in capital assets.
Net cash provided by financing activities was $477,000 in 1996, $2.4 million
in 1997 and $9.2 million in 1998. In 1996, net cash provided by financing
activities consisted primarily of proceeds from the issuance of common stock,
proceeds from lease financing transactions and officer advances. In 1997 and
1998, net cash provided by financing activities was primarily the result of
proceeds from the issuance of preferred stock (net of repurchases), net of
repayment of various short-term credit facilities and the $500,000 portion of
the DealerNet purchase price that was payable in cash. Net cash used for
financing activities was not significant for the three month periods ended March
31, 1998 and 1999.
At April 30, 1999, we had cash and cash equivalents of $1.0 million. In May
1999, we secured a line of credit from an institutional lender under which we
may borrow up to $5.0 million, for a fee of 2.0%. Borrowings under this line of
credit will bear interest at prime plus 2.0%, or 9.75%, and will be due on the
earlier of completion of this offering or December 31, 1999. The line of credit
is secured by Cobalt's assets. We also have short-term indebtedness in the
principal amount of $23.0 million owed to the former owners of PartsVoice, which
we incurred on April 30, 1999. We are required to repay the PartsVoice
acquisition indebtedness and any borrowings outstanding under the line of credit
with net proceeds from this offering. In addition, we will use approximately
$2.0 million of the net proceeds to pay accrued and unpaid dividends on our
outstanding preferred stock. See "Use of Proceeds."
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We had no material commitments for capital expenditures at April 30, 1999.
As of that date, we had total minimum lease obligations of $735,000 under
certain noncancellable operating leases. We also are contractually obligated to
make aggregate payments of $558,000 through December 31, 1999 for purchases of
third-party advertising services that we are re-selling to clients.
We believe that the net proceeds from this offering, together with cash flow
from operations and funds available under our line of credit, will be sufficient
to meet our cash requirements for the next twelve months. Depending on our rate
of growth and cash requirements, we may require additional equity or debt
financing to meet future working capital needs. We cannot assure you that such
additional financing will be available or, if available, that such financing can
be obtained on satisfactory terms.
Impact of Year 2000
Many existing computer programs and hardware use only two digits to identify
a year. These computer programs and hardware were designed and developed without
addressing the impact of the upcoming change in the century. If not corrected,
many computer programs and hardware could fail or create erroneous results by,
at or beyond the year 2000. We have evaluated our internal and third party
hardware and software systems and, based on this evaluation and statements
published by our hardware and software suppliers, which we have not verified, we
have determined that substantially all of our systems are Year 2000 compliant.
All of our non-compliant purchased software is used for internal processes only
and we intend to upgrade or replace and to test such software prior to December
31, 1999. We intend to replace all of our non-compliant hardware prior to
December 31, 1999. We are in the process of assessing our internally developed
software for Year 2000 compliance and intend to have all such software fully
compliant by September 30, 1999. We also intend to execute a series of test
scenarios during the remainder of 1999 to simulate the date change for all
critical systems.
The products and services used by our clients in connection with our
services may not be Year 2000 compliant and as a result may lead to claims
against us, the impact of which cannot be currently estimated. The aggregate
cost of defending and resolving these claims, if any, could be significant. Year
2000 issues also could affect the purchasing patterns of our clients and
potential clients as many automobile dealers, dealer groups and manufacturers
are expending significant resources to replace or remedy their current hardware
and software systems in order to resolve Year 2000 issues. In addition, our
clients may experience interruptions to their businesses as a result of their
failure to timely correct their Year 2000 issues. As a result, our clients may
postpone or cancel purchases of our services, potentially causing interruptions
to our revenue that could have a material adverse effect on our business,
operating results and financial condition.
In addition, we utilize other services developed and provided by third party
vendors that may fail due to Year 2000 issues. We are currently assessing the
Year 2000 readiness of our third party supplied services. Based upon the results
of this assessment we will develop and implement, if necessary, a remediation
plan with respect to third party services that may fail to be Year 2000
compliant.
To date, we have expended internal resources associated with assessment and
remediation of Year 2000 issues. Total expenses associated with our entire
review and assessment are not presently determinable but are expected to be less
than $25,000. The failure of our software and computing systems and of our third
party vendors to be Year 2000 compliant could have a material adverse effect on
our business, results of operations and financial condition.
We currently have no contingency plans to address the risks associated with
unremediated Year 2000 problems.
Quantitative and Qualitative Disclosures about Market Risk
Substantially all of our cash equivalents and marketable securities are at
fixed interest rates, and, as such, the fair value of these instruments is
affected by changes in market interest rates. However, all of our cash
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equivalents and marketable securities mature within one year. As a result, we
believe that the market risk arising from our holding of these financial
instruments is minimal. In addition, all of our current clients pay in U.S.
dollars and, consequently, our foreign currency exchange rate risk is
immaterial. We do not have any derivative instruments and do not engage in
hedging transactions.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement became
effective on January 1, 1999 and establishes accounting standards for costs
incurred in the acquisition or development and implementation of computer
software. These new standards will require capitalization of certain software
implementation costs relating to software acquired or developed and implemented
for our use. This statement does not have a significant effect on our financial
position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This statement became effective on January 1, 1999 and
requires costs of start-up activities and organization costs to be expensed as
incurred. This statement does not have a significant effect on our financial
position or results of operations.
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. We adopted SFAS 130 on January 1, 1998.
To date, we have not had any significant transactions that are required to be
reported as other comprehensive income other than our net (loss) income.
The FASB recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management approach." The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of our
reportable segments. SFAS 131 also requires disclosures about products and
services, geographic areas and major customers. We adopted SFAS 131 on January
1, 1998. We have determined that we do not have any separately reportable
business or geographic segments.
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BUSINESS
Overview
We are a leading provider of Internet marketing and data aggregation
services to individual franchised automobile dealerships, multi-franchise dealer
groups and automobile manufacturers in the United States. We enable our clients
to develop and implement effective e-business strategies and to position
themselves to capitalize on the increasing use of the Internet by consumers to
research, evaluate and initiate purchases of new and pre-owned vehicles, parts
and accessories, and automotive-related services such as financing and
insurance. We currently offer our clients:
- comprehensive Web site design, development and maintenance services;
- data extraction, aggregation and management services;
- Internet advertising and promotional services; and
- Internet marketing, training and support.
We are developing additional services to help our clients realize the potential
of the Internet to attract and retain customers, increase the efficiency of
their operations, and improve the productivity of their sales and service
departments.
We currently manage and maintain more than 3,300 Web sites for clients
holding more than 4,700 new vehicle franchises. Our clients include more than 50
of the 100 largest dealer groups in the United States, as ranked by AUTOMOTIVE
NEWS, and we are the manufacturer-endorsed provider of Web site solutions for
the U.S. dealership networks of Acura, Hyundai, Infiniti, Jaguar, Lexus,
Mercedes-Benz, Mitsubishi, Nissan, Saab, Subaru and Toyota. Our vehicle parts
data services are used by clients holding more than 9,000 new vehicle
franchises. We also provide vehicle parts data services to DaimlerChrysler,
Hyundai, Mazda, Mitsubishi, Subaru and Toyota. In total, we provide our services
to clients holding more than 12,000 new vehicle franchises.
Industry Background
THE U.S. AUTOMOBILE RETAIL INDUSTRY
The automotive retailing industry is one of the largest retail trade sectors
in the United States. New vehicle franchised dealerships generated more than
$500 billion in new and pre-owned vehicle sales in 1998. In addition, franchised
dealerships generate substantial additional revenues in vehicle service and
parts sales and financing. While the automotive retailing industry is large, it
remains highly fragmented and is characterized by relatively small, independent
dealerships. In 1998, there were more than 22,000 automobile dealerships in the
United States representing more than 49,000 franchises. According to AUTOMOTIVE
NEWS, the top ten U.S. dealer groups sold only 4.1% of the total new and
pre-owned vehicles in 1998.
The automotive retailing industry is highly competitive and characterized by
relatively low margins. In many markets, there are numerous dealerships offering
consumers identical, or very similar, products and services. Furthermore, the
relatively high cost of a new car makes consumers price-sensitive and encourages
comparison shopping among dealerships. These market dynamics result in low
dealership pre-tax margins and require dealerships to maintain multiple sources
of profitability. According to the National Automobile Dealers Association, or
NADA, sales of new automobiles in 1998 represented 59% of the industry's
revenues, although profits generated by new car sales comprised only 29% of
total dealership profitability. In contrast, parts and service revenues and
profits were approximately 12% and 47%, respectively.
In 1998, dealerships spent more than $5.0 billion and manufacturers spent
more than $7.0 billion in marketing and advertising to differentiate themselves
in this highly competitive industry. According to NADA, U.S. automobile
dealerships spent on average more than $225,000 in advertising in 1997,
representing more than $440 per new vehicle sale.
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GROWTH OF THE INTERNET
The Internet has emerged as a significant global medium for communication,
content delivery and commerce. International Data Corporation, or IDC, estimates
that there were over 38 million Internet users in the United States at the end
of 1997. IDC projects these numbers to increase to over 135 million Internet
users in the United States by the end of 2002. Increasing Internet usage has
facilitated the rapid growth of e-business. As the Internet has gained
acceptance as a commercial medium, the dollar volume of online commerce
transactions has risen dramatically. IDC estimates that the volume of goods and
services purchased over the Internet will increase from $32 billion in 1998 to
$425 billion in 2002.
In addition to facilitating business transactions, the Internet enables
businesses to target and manage a broad customer base and establish and maintain
ongoing, direct customer relationships. As the number of businesses and
information providers marketing on the Internet has grown, the Internet has
become a primary source from which consumers can access a large amount of
information regarding products and services, such as pricing, quality and
specifications. Jupiter Communications, Inc. estimates that the amount spent on
online advertising will increase from $1.9 billion in 1998 to $7.7 billion in
2002.
GROWING IMPORTANCE OF THE INTERNET TO THE AUTOMOTIVE RETAILING INDUSTRY
The emergence of the Internet as a commercial medium has created an
opportunity for automobile manufacturers and dealerships to market
cost-effectively to and communicate with a large and growing pool of online
consumers. J.D. Power and Associates estimates that 25% of new vehicle
purchasers used the Internet to search for information on automobiles or
otherwise assist them with their purchases in 1998 and that this figure will
increase to approximately 37% by the end of 2000. J.D. Power and Associates
estimates that 76% of these prospective customers who use the Internet during
the shopping process visit manufacturers' sites to conduct research on vehicles.
AutoNation, Inc., the largest multi-franchise dealer group in the United States,
has emphasized the Internet in its brand marketing campaign in the Denver,
Colorado market. AutoNation estimates that 51% of its customers would not have
visited a Denver area AutoNation dealership if it did not have an Internet
presence and 35% of its Denver area customers would not have made purchases from
AutoNation if it did not have a Web site. Forrester Research projects that
dealerships will increase spending on Internet marketing to $600 million
annually by 2002.
We believe that the increasing demand for Internet marketing solutions in
the automotive retailing industry provides a significant market opportunity for
a business that:
- understands the unique marketing requirements of automobile manufacturers
and dealers;
- creates compelling Internet content that targets the online automotive
consumer; and
- delivers a broad suite of services that can improve the productivity and
efficiency of traditional automobile dealerships.
The Cobalt Group Solution
We provide Internet marketing and data aggregation services that enable our
clients to use the Internet effectively to attract and retain customers,
increase the efficiency of their operations, and improve the productivity and
effectiveness of their sales and service departments. We believe that our
solution provides the following benefits:
RAPID DEPLOYMENT OF A COMPREHENSIVE INTERNET PRESENCE
We can rapidly deploy sophisticated Web sites for individual dealerships as
well as complex networks of dealership Web sites for a manufacturer's entire
dealer network. Clients are able to modify the design of their
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Web sites by selecting from a broad range of features that include
dealer-specific content pages, a searchable vehicle database, and interactive
communications tools. We offer our clients a professional, scalable solution
with features appropriate to each client's marketing budget and strategy.
We enable our clients to remain focused on their own competencies and
implement an e-business strategy and professional Internet presence by
outsourcing a large portion of their Internet marketing needs to us.
CREATION OF AN ONLINE IDENTITY AND LEVERAGE OF BRAND ASSETS
We enable our clients to build a distinct presence on the Internet that
contributes to the development of their independent online brand image and
reinforces their existing brand identity. Our manufacturer and dealer group
clients can achieve a consistent Internet presence across their dealership
networks by employing network-wide style and graphics templates that support a
cohesive brand-building strategy. In addition, our individual dealership clients
can use their Internet presence to build their own local or regional brand
identities while leveraging the brand assets of the manufacturers they
represent.
INCREASED RETURN ON INVESTMENT IN TRADITIONAL ADVERTISING MEDIA
Our services enable dealerships to maximize their investments in traditional
advertising media. Prospective dealership customers who learn about a
dealership's Web site through traditional advertising can access the Web site
for information about the dealership, its vehicle inventories and services, and
special "Internet-only" promotional offers in an easy to use and interactive
manner. We believe that dealerships that pursue an Internet marketing strategy
and prominently feature their Web site address in their traditional advertising
can expect a greater return on their investment in traditional media.
IMPROVED CUSTOMER ACQUISITION AND RETENTION
Our services allow dealerships to communicate efficiently and effectively
with their prospective and current customers. Our clients can obtain information
about consumers and their preferences that enables dealers to present desired
information in a targeted manner, thereby enhancing the relevancy of the
response to the customer's inquiry. We design our services to help our clients
to pursue, enrich and maintain customer relationships, which we believe increase
the likelihood that the dealership will complete an initial sale and follow-on
sales of vehicles and automotive-related products and services.
ENHANCED INTERNAL EFFICIENCIES
Our services empower our clients to sell their products and services more
efficiently. Our data aggregation and management capabilities enable our clients
to present consolidated, system-wide vehicle and parts inventory information,
collected from disparate sources and systems, and make this aggregated inventory
searchable on a centralized Web site as well as on individual dealership Web
sites. By providing an inexpensive mechanism to market vehicle and parts
inventories to a broad audience, our clients are able to increase the frequency
of inventory turns, thus reducing obsolescence and financing costs. Our
dealership clients also can manage their inventory to meet customer needs more
effectively and increase the likelihood of closing a sale. In addition, we
believe that effective use of the Internet as a communication medium can
increase the efficiency and productivity of, and reduce turnover among, a
dealership's sales staff.
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Growth Strategy
Our objective is to be the premier provider of Internet marketing and
e-business solutions to the automotive retailing industry. We intend to
implement the following strategies to achieve this objective:
EXPAND OUR CLIENT BASE
We intend to increase our market penetration by educating prospective
clients about the benefits of deploying our comprehensive Internet marketing and
data aggregation solution. We believe that we are perceived by the automotive
retailing industry as understanding the needs and attributes of the "online
shopper," and can leverage our reputation to continue building key relationships
with manufacturers, dealer groups and individual dealerships. To take advantage
of our position within the industry, we have adopted a consultative approach in
our sales and marketing efforts and seek to be viewed by both current and
prospective clients as their e-business partner of choice.
SELL ADDITIONAL SERVICES TO OUR EXISTING CLIENTS
We seek to enhance our clients' understanding and appreciation of Internet
and e-business strategies and encourage them to upgrade their Web sites with
additional services and new features. We believe that our best informed clients
are the most likely to purchase additional services from us. Consequently, our
account management activities include recommending service upgrades that are
consistent with a client's e-business strategy, Internet management
capabilities, and marketing budget. In addition, we estimate that less than 10%
of our client base purchases both Internet marketing and data aggregation
services from us. We believe that we have an opportunity to cross-sell our
entire service offerings to clients that currently purchase only one service
from us.
INCREASE OUR SERVICE OFFERINGS
We are committed to expanding our suite of Internet services to address the
evolving needs of our clients. We have identified a number of opportunities that
we believe leverage our large network of dealership clients, our core
competencies in data acquisition and integration, and our technical and online
marketing expertise. For example, in late 1999 we expect to introduce a service
to assist our dealership clients to integrate data captured from their Web sites
with data extracted from their existing dealer management systems to track leads
and manage existing customers.
PURSUE GROWTH BY ACQUISITIONS
We are continually assessing strategic investments and acquisitions that are
aligned with our goals of increasing our client base and expanding our service
offerings. For example, our recent acquisition of PartsVoice provided us with
access to clients representing an additional 8,000 franchises as well as a new
suite of services. As a result, we are now positioned to cross-sell our
comprehensive Internet marketing and data aggregation services to our combined
client base.
CAPITALIZE ON INTERNATIONAL MARKET OPPORTUNITIES
We expect to offer our Internet solution in foreign markets to address the
global e-business needs of our manufacturer clients and to leverage our
technical expertise and existing service offerings for dealerships in countries
with rapidly increasing Internet usage.
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Service Offerings
We currently offer comprehensive Web site design, development and
maintenance services; data extraction, aggregation and management services; and
Internet advertising and promotional services. We offer other services such as
Internet training and support services.
<TABLE>
<CAPTION>
Web Site Design, Development Data Extraction, Aggregation Internet Advertising and
and Maintenance Services and Management Services Promotional Services
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
- - Basic content pages - Vehicle inventory data extraction - Internet classified advertising
- - E-mail forms and database management - Banner advertising
- - Dealer-managed pages - Parts inventory data extraction - Interactive promotion development
- - Web traffic reporter and database management and management
- - Multimedia enhancement - Service record data extraction and - DEALERNET Web site
- - Creative and development services decoding - Creative and development services
- - Client training and support - Additional data extraction - PARTSVOICE parts marketing service
services
</TABLE>
WEB SITE DESIGN, DEVELOPMENT AND MAINTENANCE SERVICES
The foundation of our service offerings is a powerful, cost-effective Web
site. We offer a wide range of features and options that enable our clients to
have a robust e-business platform. Our core Web site solution has more than 40
features, each of which is available for incremental monthly fees. These
features include:
BASIC CONTENT PAGES. We believe that effective dealer Web sites provide
substantial information about the dealership. Consequently, we offer our clients
a range of content templates and format styles that enable them to customize the
dealer-specific content of their online presence and highlight the specific
benefits and attributes associated with their dealerships. Our available content
templates include, among others:
- a welcome letter;
- a map and directions to the dealership location;
- dealership history;
- customer testimonials;
- financing information;
- management and staff profiles;
- dealership news and events; and
- vehicle maintenance schedules.
E-MAIL FORMS. We offer a variety of tailored e-mail forms on the Web site
to address specific customer needs and interests, including requests for
financing pre-qualification, service appointments, and price quotes on specific
vehicles. These forms include dynamically generated content, such as information
about a vehicle listing and a photograph of the vehicle about which the customer
has inquired. The forms also solicit context-specific information from the
customer to enhance the shopping experience and ensure that the dealership
receives the information necessary to respond fully and promptly to the inquiry.
DEALER-MANAGED PAGES AND CONTENT LIBRARY. Our WEBEDGE Power Marketing Tools
include features that allow our clients to build special promotional pages on
their sites quickly and easily using a simple step-by-step program and a wide
array of stylistic templates, vehicle images and logos. Using our ADWIZARD tool,
dealers can create and post custom, new vehicle display advertisements on their
Web site. Dealers can use our DEALER'S CHOICE tools to create advertisements for
pre-owned vehicles. Similarly, our INSTANT INCENTIVES feature allows our clients
to create coupons for services and highlight special offerings. These tools
allow users to schedule the start and stop dates for the special offerings,
which is particularly important in advertising manufacturer incentive programs.
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WEB TRAFFIC REPORTER. Our Web site user traffic reporting feature allows
dealerships to review activity on their Web sites. Available data include total
page views, addresses of referral sites, and parameters of vehicle searches
conducted by site visitors. This information enables dealerships to make
informed decisions about management of their Internet marketing programs and to
allocate their marketing resources more effectively.
MULTIMEDIA ENHANCEMENT OPTIONS. We also offer other features, such as
streamed audio and video, animated graphics and scrolling "ticker tape"
messages, that dealerships may add to enrich their sites.
DATA EXTRACTION, AGGREGATION AND MANAGEMENT SERVICES
An important component of our services to our clients is our ability to
extract data from their dealership management information systems, process this
data into standard record structures, and integrate it with data from other
sources into our databases.
VEHICLE INVENTORY DATA EXTRACTION AND DATABASE MANAGEMENT. Our vehicle
inventory data extraction and management service allows dealerships to include a
searchable database of their new and pre-owned vehicle inventory on their Web
sites. In most cases, we can extract basic inventory data from a dealership's
information system, populate the database with this information, and then permit
the dealership to make real time enhancements to their listings by adding
photos, descriptive text or other information.
PARTS INVENTORY DATA EXTRACTION AND DATABASE MANAGEMENT. We currently
extract parts inventory data on behalf of our clients from dealerships
representing more than 9,000 dealer franchises, and our database contains
information on more than 38 million parts. Manufacturer clients and dealership
parts managers can access this database over the Internet or through an
interactive voice response telephone system to check parts inventories and to
locate parts needed in their service departments. For the year ended December
31, 1998, our parts inventory database received more than nine million queries.
SERVICE RECORD EXTRACTION AND DECODING. We recently introduced a service
record extraction and decoding service. This service extracts individual vehicle
service records from dealership information systems and converts disparate
dealership labor operations codes into a standard set of codes, making it
possible to review service record information across a network of dealer
databases. This process enables automobile manufacturers to aggregate vehicle
service records across their entire dealership network. We currently provide
this service to DaimlerChrysler.
ADDITIONAL DATA EXTRACTION SERVICES. We also perform customized data
extraction and aggregation tasks for our manufacturer clients, such as
dealership sales and financial performance and parts sales history reporting.
CREATIVE AND DEVELOPMENT SERVICES
Many of our clients request custom solutions or service upgrades to enhance
our standard dealership Web site system. For example, dealer group Web sites
generally require significant custom design and development work to enable
prospective customers to access information about multiple franchises and
dealerships as well as search the aggregated inventory of all dealerships in the
group on one central site. We provide these custom development services on a
per-project basis and typically charge fees based on the anticipated staff time
required to complete the project.
INTERNET ADVERTISING AND PROMOTIONAL SERVICES
We provide a range of Internet advertising and promotion services for
clients that seek to allocate a portion of their marketing budgets to driving
increased traffic to their Web sites and generating additional customer leads.
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INTERNET ADVERTISING PROGRAMS. We provide our dealer group and individual
dealership clients with a complete range of advertising services, including
creating necessary graphics such as advertising banners, developing interactive
media plans, and purchasing interactive media. In addition, we sell
participation in and upload our clients' pre-owned vehicle listings to, a
variety of national and regional Internet classified advertising services,
including TraderOnline.com, Classifieds2000, Yahoo! Classifieds, and others. We
provide a complete service to both our clients and the Internet advertising
partners by selling the service, collecting, modifying, and enhancing the
required data, transmitting the data to the advertising partner, addressing
client service issues, and remitting advertising fees to the advertising
partner.
On behalf of our clients, we have purchased advertising from Internet media
companies such as Yahoo!, Big Yellow, MapQuest, and 24/7 Media. We also have
purchased blocks of advertising space on high traffic Web sites and are
reselling that inventory to our clients for banner and tile advertisements.
INTERACTIVE PROMOTION DEVELOPMENT AND MANAGEMENT. We assist our clients in
creating and managing Internet promotional events, such as car and other product
giveaways, to generate traffic to their Web sites and to promote specific
products. Online promotions generate leads for our clients from promotion
registrants who request additional information about the dealership, its
products and future promotions.
DEALERNET WEB SITE. Our DEALERNET Web site is an automotive research
destination site that generates visibility for our dealership clients'
inventories of new and pre-owned vehicles and increases traffic to our
dealership clients' Web sites. Unlike other automotive sites, the names of
participating dealership clients and links to their Web sites are prevalent
throughout the site. The DEALERNET Web site users may browse model
specifications and prices for new cars from every major automobile manufacturer.
In addition, users may specify vehicle features and submit new vehicle purchase
requests, and search for more than 330,000 new and pre-owned vehicles linked to
more than 1,800 Web sites.
TRAINING AND SUPPORT
We offer both fee-based and complimentary training programs for our clients
to educate dealership and dealer group owners, managers, and sales staff,
manufacturer marketing personnel, and other client personnel about implementing
an effective Internet marketing program. In addition, our direct sales
consultants meet with clients to provide one-on-one training and our customer
service staff provides unlimited telephone support to our clients to address
technical questions about our services that may arise from time to time. See
"--Sales and Marketing."
YACHTWORLD MARKETING SERVICE
When we commenced operations in 1995 we offered Internet solutions to the
automotive retailing, residential real estate and yachting industries. In 1997,
we began focusing our efforts on the automotive retailing industry. We sold our
HomeScout real estate business in 1998 and continue to operate our YACHTWORLD
Web site as a distinct line of business. The YACHTWORLD Web site provides
prospective yacht buyers with access to thousands of yacht listings from
hundreds of yacht brokers. As of May 24, 1999, our YACHTWORLD Web site listed
more than 16,000 yachts for sale or charter by more than 500 brokers located in
16 countries. The site also contains a directory of nearly 18,000 marine-related
businesses, editorial content from several leading boating publications, and
other marine-related content. On average, more than 5,000 users search the
YachtWorld database every day. Yacht brokers pay a monthly subscription fee to
list their boats on our YACHTWORLD Web site.
Clients
INDIVIDUAL DEALERSHIPS
We have designed, developed and currently maintain more than 3,300 Web sites
for clients holding more than 4,700 new vehicle franchises. Our vehicle parts
data services are used by clients holding more than
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9,000 new vehicle franchises. Fewer than 10% of our clients purchase both
services, and we believe that we have the opportunity to strengthen our
relationships with our dealership clients by cross-selling our other services to
clients that currently purchase only one category of service from us. The chart
below illustrates the approximate number of franchises for which, as of April
30, 1999, we provided Internet marketing services and for which we provided data
aggregation and parts locator services:
<TABLE>
<CAPTION>
Internet Data Aggregation and
Franchise Marketing Services Parts Locator Services
- -------------------------------------------- ----------------------------- -----------------------
<S> <C> <C>
Acura....................................... 185 --
Audi........................................ 32 --
BMW......................................... 52 25
Chrysler.................................... 485 3,742
Ford........................................ 355 1,327
General Motors.............................. 733 1,314
Honda....................................... 232 68
Hyundai..................................... 101 44
Infiniti.................................... 79 --
Isuzu....................................... 62 225
Jaguar...................................... 21 --
Kia......................................... 47 --
Lexus....................................... 196 --
Mazda....................................... 66 551
Mercedes-Benz............................... 350 14
Mitsubishi.................................. 153 191
Nissan...................................... 383 84
Porsche..................................... 34 --
Saab........................................ 92 17
Saturn...................................... 43 *
Subaru...................................... 54 271
Suzuki...................................... 22 --
Toyota...................................... 776 23
Volkswagen.................................. 60 70
Volvo....................................... 40 39
</TABLE>
- ---------
* Included in the 1,314 General Motors franchises listed above.
MULTI-FRANCHISE DEALER GROUPS
Dealer groups are networks of franchised dealerships under common ownership
and management. In general, marketing strategies for dealer groups are designed
and implemented on a centralized basis. Our Internet solutions are particularly
applicable to the needs of both large dealership consolidation companies and
smaller, regional dealership groups that recognize the need to aggressively
establish their companies' online brand identities and implement Internet
marketing programs across their dealership networks. We provide services to more
than 50 of the 100 largest multi-franchise dealer groups in the United States
including five of the ten largest multi-franchise dealer groups as ranked by
AUTOMOTIVE NEWS: AutoNation, Inc., Group 1 Automotive Inc., Hendrick Automotive
Group, Sonic Automotive Inc., and United Auto Group Inc.
MANUFACTURERS
We are the manufacturer-endorsed provider of Web site solutions for the U.S.
dealership networks of Acura, Hyundai, Infiniti, Jaguar, Lexus, Mercedes-Benz,
Mitsubishi, Nissan, Saab, Subaru and Toyota. In
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addition, we are a provider of vehicle parts data services to DaimlerChrysler,
Hyundai, Mazda, Mitsubishi, Subaru and Toyota. We intend to cross-sell our
services offerings to our current manufacturer clients, and continue to pursue
relationships with other manufacturers to expand our client base.
OTHER CLIENTS
We have leveraged our experience in the automotive retailing industry, our
technical expertise, and our sales and marketing capabilities to create a Web
site program for Case Corporation heavy equipment dealerships and Case/IH farm
equipment dealers. In April 1999, we launched default Web sites for
approximately 1,500 Case and Case/IH dealerships in North America and recently
have begun marketing enhanced services to this dealer group. We believe that
there are a number of other dealer-based industries with attributes similar to
the automotive retailing industry that would benefit from our Internet solution.
We also provide Internet marketing services to multi-franchise regional
dealership associations. Regional dealership marketing associations such as the
Western Washington Toyota Dealers Association, Infiniti West Region, and the Bay
Area Nissan Retailers have established online presences to promote their
members' individual sales and marketing programs.
Client Case Study
The following case study describes what we believe to be an effective
implementation of our Internet solution by a dealership.
HUEY'S HONDA
In 1997 we were retained by Huey's Honda of Frontenac, Missouri to design
and build its dealer Web site. The initial Web site consisted of basic content
pages, customer e-mail forms, and Web site traffic reports, as well as premium
services that allowed Huey's Honda to customize its Web site with advertisements
and dealer specials. Since the Huey's Honda site was launched, the dealership
has added features such as the ability to search new vehicle inventory, a
customer support page, and additional design and graphics elements. In addition,
we have assisted Huey's Honda in increasing traffic to its site through
inventory listings with Classifieds2000 and TraderOnline, and in coordinating
banner advertising purchases from Yahoo! and the St. Louis Post-Dispatch. A
prospective customer can view new and pre-owned vehicle inventory, vehicle
service and maintenance schedules, dealership hours and directions, new model
specials and Internet-only coupons and specials. As the commitment of Huey's
Honda to maintaining an online presence has grown, our average monthly billings
to Huey's Honda have increased from an average of approximately $900 per month
in 1997 to more than $2,000 per month as of May 1999. Traffic to the Huey's
Honda Web site in March 1999 reached 1,764 visits and 14,403 page views, and the
dealership attributes approximately 25% of its new customer business to its
Internet presence.
Sales and Marketing
SALES AND MARKETING ORGANIZATION. Our sales and marketing staff is
responsible for sales to and support of our individual dealership, dealer group
and manufacturer clients. Our marketing staff consists of 29 professionals who
are principally responsible for initiating and managing our relationships with
automobile manufacturers and large dealer groups, as well as for product
management and creative services, marketing communications, and online media
activities. Our 29 field sales consultants are organized into 21 geographic
territories within six regions, and are principally responsible for initiating
and maintaining direct contact with our individual dealership and smaller dealer
group clients. In addition to our field sales force, our headquarters-based
sales team is dedicated to supporting our field sales consultants and providing
customer service to our dealership clients.
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ACCOUNT ACQUISITION AND MANAGEMENT. Our sales and marketing efforts are
focused on account acquisition and management. Account acquisition consists of
identifying prospective clients, arranging initial meetings to explain the
general capabilities and benefits of our solution, identifying the specific
needs and interests of prospective clients, and helping prospective clients
create an integrated Internet marketing strategy.
Once we have launched a client's initial Internet marketing solution, we
work to ensure that the client receives the maximum benefit from our services.
Finally, we provide a range of support and training to help increase our
clients' Internet marketing and e-business expertise and improve their internal
processes. In addition, as a client's Internet marketing expertise increases, we
suggest additional services that are appropriate for that client's strategy,
Internet management capabilities, and budget. We believe that well-informed
clients are the most likely to purchase additional services from us.
MANUFACTURERS
We provide manufacturers with an Internet solution that gives each dealer in
the manufacturer's dealer network a unique Web site and allows the dealers to
extensively customize their sites while maintaining the manufacturer's graphic
look and feel across the dealership network. Our Internet marketing solution
allows manufacturers to leverage their considerable investments in brand image
and the graphic assets supporting that brand, while enabling each dealership to
distinguish itself from others holding the same franchise.
Our manufacturer relationships typically begin with meetings between our
senior executives and members of the manufacturer's marketing or dealer
relations staff. During these initial meetings, we present our capabilities and
explain the benefits of our services to both the manufacturer and its dealership
network. Once we have been retained, we will work with the manufacturer's
advertising agency or other vendors to develop a design template for the dealer
Web sites. We then create standard Web sites containing name and contact
information for every dealership in the network and follow-up by contacting each
dealership to obtain additional information, sell additional enhancements to the
manufacturer-provided solution and provide training.
Following the launch of Web sites for the dealership network, our ongoing
relationship with a manufacturer is assigned to a specific account executive who
is responsible for that relationship. The account executive consults with the
manufacturer's marketing managers in developing an Internet marketing plan, and
helps the client understand the value of our Internet marketing and data
aggregation and management capabilities.
MULTI-FRANCHISE DEALER GROUPS
Our dealer group relationships often result from introductions to the parent
organization following our development of a manufacturer-endorsed Web site for a
dealership member of the group. Our approach to acquiring and supporting dealer
groups is similar to the strategy that we employ with manufacturer prospects and
clients. We seek to build a relationship with the dealer group at the corporate
level and dedicate a specific account executive to serve the client's needs. The
account executive is responsible for selling services such as a central Web site
for the group, individual dealership Web sites that present a consistent brand
image across the group, searchable inventory listings of vehicles for all
dealerships in the group and our online advertising services. In recognition of
the importance of this client category to our business strategy, we recently
established a sales and marketing team dedicated to identifying and developing
relationships with multi-franchise dealer groups.
INDIVIDUAL DEALERSHIPS
Our field sales consultants generally begin their dialogue with individual
dealerships either through a manufacturer or dealer group relationship or
through traditional sales calls upon the dealer principal, general manager or
other dealership management staff. We also obtain sales leads through our
participation at trade shows and similar industry events, direct mail
solicitations and telemarketing efforts. When the dialogue is in
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the context of a manufacturer- or dealer group-endorsed Internet marketing
program, our sales consultants and headquarters-based sales associates will
introduce the details and benefits of the program, conduct training, collect
information about the dealership, and coordinate the launch of the dealer's Web
site. Once the Web site is active, the designated sales consultant will make
periodic calls upon the dealership to introduce new services, conduct further
training, and assess the client's needs for additional services. In addition,
our headquarters-based sales team assists dealership clients with changes to
their Web sites, inventory data acquisition and management issues, and provides
ongoing support services.
Technology Infrastructure
Our technology infrastructure consists of our proprietary Web site
production and publishing system, our data extraction, aggregation and
management tools, our software development capabilities and our Web server and
database management infrastructure.
WEB SITE PRODUCTION AND PUBLISHING
We have developed a hardware and software system and a body of software
tools that enable us to generate large numbers of Web sites with a consistent
look and feel while simultaneously preserving the flexibility to enhance each
site with custom content and features. Our Web site production and publishing
system has enabled us to launch and maintain thousands of individual dealership
Web sites in connection with automobile manufacturer Internet marketing
initiatives.
DATA EXTRACTION, AGGREGATION AND MANAGEMENT
We also have developed tools to collect, aggregate and manipulate
efficiently large quantities of data from disparate sources. We currently
extract data from a variety of dealership information systems, and we also
collect data from our manufacturer and dealer group clients. In addition, we
provide our dealer clients with tools to modify and enhance their inventory data
when it resides in our database. We then integrate data from these disparate
sources to provide access to and searchability of our dealer clients' vehicle
and parts inventory, both on an aggregated basis across our entire dealer
network, for defined groups of our dealer clients, or individual dealers.
SOFTWARE DEVELOPMENT
We believe that strong software development capabilities are essential to
implementing our strategy of expanding our customer base successfully, selling
more of our services to our existing customers and expanding our service
offerings. We spend a substantial amount of time and resources on the
development of new services. In an effort to increase our ability to develop and
bring new services to market rapidly, we recently augmented our development
organization with an Austin, Texas office dedicated to new services development.
In addition, we work to enhance our existing suite of services. We believe that
our future success will depend in significant part on our ability to improve the
performance, functionality and reliability of our Internet marketing and data
aggregation and management services.
WEB SERVER AND DATABASE MANAGEMENT
The demands on our Web site publishing system have increased rapidly with
the increase in the number of Web sites maintained on our system, the traffic
loads on our Web servers, and the volume of queries to our database servers. Our
Web site production and publishing system resides on a range of Web and database
servers. We currently have database servers running the Oracle database on Sun
hardware. We also operate Digital Equipment VAX servers. This hardware and
software support the system that maintains all the Web sites we create, as well
as manage the vehicle inventory, parts inventory and other data employed in our
data aggregation services. We have invested significantly in hardware and
software to support the rapid growth in demands on our hardware and software
infrastructure and we continually strive to improve the capacity,
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efficiency, and performance of our systems. We believe that we have established
a scalable technology platform, and we anticipate that continued growth in
demands on our system will require substantial additional investments.
Internet connectivity from our Seattle headquarters is established through a
dual peer-to-peer (direct link) to our bandwidth provider, which has multiple
redundant links to the Internet backbone. Our system hardware is housed in
locked, climate controlled, dedicated server rooms at our facilities in Seattle,
Washington and Portland, Oregon. Security is provided through features inherent
in our operating systems. We are in the process of co-locating our Web servers
offsite to improve system redundancy.
Competition
Our Internet marketing services compete directly with services offered by
local and regional Web site development firms and indirectly with advertising
agencies. We believe, however, that we currently do not have a direct competitor
in our Internet marketing services business that has market penetration,
geographic coverage, service offerings, technical expertise or infrastructure
comparable to ours. We may be perceived by some dealerships to compete with
automobile sales lead generation services such as autobytel.com, AutoVantage,
CarPoint and Autoweb.com, if these dealerships maintain a distinct Internet
marketing budget. Our data aggregation and management services compete with data
aggregation service providers such as The Reynolds and Reynolds Company and ADP.
It is possible that, in the future, some or all automobile manufacturers
could attempt to provide services comparable to those that we provide to our
dealership clients. In such an event, our ability to retain our dealership
clients could be impaired. In 1997, DaimlerChrysler announced an internal
initiative to bring elements of our parts locator service in-house. If
implemented, this initiative could significantly reduce our contract revenues
for parts locator services to DaimlerChrysler. While we believe that we will be
able to leverage our expertise and dealership network to provide better quality
services at lower cost than dealerships likely would receive from their
franchisor, we cannot be certain that we will be successful in doing so, or that
our manufacturer clients may not attempt to bring such services in-house for
other reasons beyond our control.
While the market for Internet-related services is competitive, we believe
the following factors will contribute to our future success in providing such
services to the automotive industry:
- our ability to offer an integrated, comprehensive Internet solution;
- our cooperative relationships with a significant number of dealerships,
dealer groups, and manufacturers;
- the depth and breadth of our industry expertise;
- our proprietary technology and technical expertise; and
- our commitment to customer service and reputation for responsiveness.
The market for providing Internet marketing services is relatively new and
rapidly evolving. We anticipate competition in the market for automotive
retailing industry Internet services will increase over time. Barriers to entry
on the Internet are relatively low, and we may face competitive pressures from
numerous companies, particularly those with existing data aggregation
capabilities that may be easily integrated with Internet services. Furthermore,
our existing and potential competitors may develop offerings that are perceived
as better than our services or otherwise achieve greater market acceptance.
Intellectual Property
We regard substantial elements of our service offerings as proprietary and
believe that they are protected by intellectual property rights including
trademark, service mark, copyright, and trade secret laws, and contractual
restrictions on their use by licensees and others. Although from time to time we
may apply for registration of our trademarks, service marks, and copyrights with
the appropriate U.S. agencies, we do not
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rely on such registrations for the protection of these intellectual property
rights. We often enter into confidentiality agreements with our employees and
consultants and with third parties in connection with our business operations
and services offerings. These confidentiality agreements generally seek to
control access to, and distribution of, our technology, documentation, and other
confidential information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use or disclose to others our
confidential information without authorization or to develop similar technology
independently.
Legal standards relating to the validity, enforceability, and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we cannot be certain about the future
viability or value of any of our proprietary rights. We also cannot assure you
that the steps that we have taken will prevent misappropriation or infringement
of our intellectual property rights and confidential information, which could
have a material adverse effect on our business, results of operations and
financial condition. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or trademarks or to
determine the validity and scope of the intellectual property rights of others.
This litigation could result in substantial costs and diversion of resources and
management attention. Furthermore, our business activities may infringe upon the
proprietary rights of others and other parties may assert infringement claims
against us, including claims that arise from directly or indirectly providing
hyper-text links to Web sites operated by third parties. Moreover, from time to
time, we may be subject to claims of alleged infringement by us or our clients
of the trademarks, service marks and other intellectual property rights of third
parties. These claims and any resultant litigation, should it occur, might
subject us to significant liability for damages, might result in invalidation of
our intellectual property rights and, even if not meritorious, could result in
substantial costs and diversion of resources and management attention and have a
material adverse effect on our business, results of operations and financial
condition.
We have filed for federal trademark protection for our trademark "Cobalt,"
which we use in both word and logo form. Other organizations within the computer
and software industries have also filed trademark registration applications for
"Cobalt." We have filed an opposition proceeding before the Trademark Trial and
Appeal Board of the United States Patent and Trademark Office with respect to
two of these competing registration applications. That opposition is pending and
we are in discussions with the third-party applicant regarding a potential
trademark use consent agreement. We may be unsuccessful in these proceedings or
negotiations and may be required to limit the use of the tradenames or marks
around which we have attempted to build brand identities.
We currently license from third parties technologies and information
incorporated into our products and services. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others. We cannot assure
you that these third party technology and information licenses will continue to
be available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement or invalidity. If any of these
technology and information licenses are not available to us in the future, we
may be delayed in introducing, or fail to introduce, new features, functions or
services. It could also adversely affect the performance of our existing
services until equivalent technology or information can be identified, obtained
and integrated.
Employees
As of April 30, 1999, we had 264 employees. We engage independent
contractors for database management and programming activities. We consider our
relations with our employees to be good. We have never had a work stoppage, and
no employees are represented under collective bargaining agreements.
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Facilities
Our headquarters are located in a single office building in Seattle,
Washington. We occupy approximately 23,500 square feet on two floors, which are
leased through October 2000. We have an option to renew the lease for an
additional five year term. Our PartsVoice subsidiary operates from approximately
8,800 square feet of office space in Portland, Oregon, that is leased through
November 1999. We currently are negotiating an extension of this lease. We also
lease approximately 1,200 square feet of office space in Austin, Texas, for our
new services development team. We believe that this space is adequate to meet
our needs for the present, and that additional space will be required in the
near future to accommodate our planned growth and that additional or substitute
space will be available as needed to accommodate any expansion of our
operations.
Legal Proceedings
There are no claims or actions pending or threatened against us, the
ultimate disposition of which would have a material adverse effect on our
business, results of operations and financial condition.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information as of April 30, 1999 regarding
our executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Geoffrey T. Barker................................... 37 Co-Chief Executive Officer and Director
John W. P. Holt...................................... 42 Co-Chief Executive Officer and Director
Brian G. Allen....................................... 52 Vice President, Parts Services
Jackie L. Davidson................................... 38 Vice President, Finance
David M. Douglass.................................... 43 Chief Financial Officer/Vice President, Operations
and Secretary
Rajan Krishnamurty................................... 42 Vice President, Development
Jeffrey B. Lissack................................... 38 Vice President, Business Integration
Kenneth D. Pfau...................................... 38 Vice President, Sales
David L. Potts....................................... 38 Vice President, Business Development
Diane R. Wetherington................................ 39 Vice President, Marketing
Mark T. Koulogeorge(1)............................... 35 Director
Joseph P. Landy(2)................................... 37 Director
Ernest H. Pomerantz(1)............................... 57 Director
J. D. Power, III..................................... 67 Director
Howard A. Tullman(1)(2).............................. 53 Chairman of the Board of Directors
</TABLE>
- ---------
(1) Member of audit committee
(2) Member of compensation committee
MR. BARKER co-founded Cobalt in March 1995 and has served as its Co-Chief
Executive Officer and as a Director since inception. From March 1994 to February
1995, Mr. Barker was Vice President of New Business at IVI Publishing, Inc., a
publicly-held multimedia developer and publisher. From 1989 to 1994, Mr. Barker
was a Vice President at Piper Jaffray, Inc., specializing in corporate finance
for new media technology companies. Prior to 1989, Mr. Barker held positions in
investment banking at Salomon Brothers Inc and securities trading at Kidder,
Peabody & Co., Inc. Mr. Barker is a director of GreatFood.com, Inc. Mr. Barker
holds an M.B.A. degree from Columbia University and a B.A. degree in Economics
from Tufts University.
MR. HOLT co-founded Cobalt in March 1995 and has served as its Co-Chief
Executive Officer and as a Director since inception. From March 1994 to February
1995, Mr. Holt was Director of Affiliate Label Publishing for IVI Publishing,
Inc. where he developed and directed IVI's affiliate label publishing program.
From 1989 to 1993, Mr. Holt served as Vice President of Growth and Development
at Oceantrawl Inc., a seafood processing company. Mr. Holt holds an M.P.P.M.
degree from The Yale School of Organization and Management and a B.A. degree in
English from Bowdoin College.
MR. ALLEN has served as a Vice President of Cobalt since April 1999, and
upon completion of this offering will become the President of PartsVoice, LLC.
From 1981 to 1999, Mr. Allen was President of Compu-Time, Inc., a computer
services bureau that was one of three owners of PartsVoice LLC, a vehicle parts
data acquisition and management company. Mr. Allen holds an M.B.A. degree from
the University of Oregon and a B.S. degree in Accounting from the University of
Oregon.
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MS. DAVIDSON has served as Cobalt's Vice President of Finance since December
1996. From 1990 to 1996, Ms. Davidson was Chief Financial Officer of Oceantrawl
Inc., a seafood processing company where Ms. Davidson was responsible for
operational accounting, financial reporting and management of debt facilities.
Ms. Davidson holds a B.A. degree in Business Administration from Washington
State University.
MR. DOUGLASS has served as Cobalt's Chief Financial Officer and Vice
President of Operations since July 1998 and as Secretary since May 1999. From
1977 to 1998, Mr. Douglass was employed by PACCAR Inc, a heavy-duty truck
manufacturer encompassing the Kenworth, Peterbilt, Foden and DAF nameplates. His
positions included Managing Director of Foden Trucks, Director of Internal
Audit--PACCAR, and National Dealer Development Manager--Peterbilt Motors. Mr.
Douglass holds an M.B.A. degree from the University of Washington and a B.A.
degree in Economics and Finance from the University of Puget Sound.
MR. KRISHNAMURTY has served as Cobalt's Vice President of Development since
December 1998. From 1997 to 1998, Mr. Krishnamurty was a Manager of Test
Execution for Perot Systems, a software services and consulting company. Before
joining Perot Systems Corporation, from December 1976 to July 1997, Mr.
Krishnamurty held various management positions at International Business
Machines Corporation, including General Manager of Professional Services, India,
and Program Director of Power Personal Systems in Austin, Texas, where he was
responsible for key software solutions to differentiate Power PC-based systems.
Mr. Krishnamurty holds an M.S. degree in Electrical Engineering from the
University of Texas and a B.S. degree in Electrical Engineering from the
University of Houston.
MR. LISSACK has served as Cobalt's Vice President of Business Integration
since May 1999. From July 1998 to May 1999, Mr. Lissack was Cobalt's Vice
President of Business Development. From January 1998 to June 1998, Mr. Lissack
was Cobalt's Director of Product Management. From June 1997 to December 1997,
Mr. Lissack served as an independent consultant to Cobalt. From July 1990 to May
1997, Mr. Lissack was Director of Market Development for the Massachusetts
Department of Environmental Protection's recycling division. Mr. Lissack holds
an M.P.P.M. degree from The Yale School of Organization and Management and a
B.A. degree in Political Science from Williams College.
MR. PFAU has served as Cobalt's Vice President of Sales since October 1997.
Since joining the Company in 1995, Mr. Pfau held a variety of sales positions
including Sales Manager and Director of Sales. From 1994 to 1995, Mr. Pfau
served as Assistant Sales Manager for New Wilson Ford in Seattle, Washington.
Prior to joining New Wilson Ford, from 1986 to 1994, Mr. Pfau was with Harris
Ford in Seattle, Washington, where he was responsible for Commercial Truck and
Fleet Sales and acted as Finance and Insurance Manager. Mr. Pfau holds a B.A.
degree in Asian Studies from the University of Puget Sound.
MR. POTTS has served as Cobalt's Vice President of Business Development
since April 1999. From 1996 to 1999, Mr. Potts was a Managing Director for
2Bridge Software where he was responsible for sales, product management and
professional services development. From 1995 to 1996, Mr. Potts was Vice
President of Multimedia Business Development for Dataware Technologies, Inc. In
1992, Mr. Potts co-founded Ledge Multimedia, a CD-Rom production company where
he served as Executive Vice President until 1995. Mr. Potts holds an M.A. degree
in Law & Diplomacy from The Fletcher School at Tufts University and a B.A.
degree in History from the University of Virginia.
MS. WETHERINGTON has served as Cobalt's Vice President of Marketing since
June 1998. Prior to joining Cobalt, Ms. Wetherington was a self-employed
consultant from December 1996 to June 1998. From June 1994 to May 1996, Ms.
Wetherington was a Senior Vice President with MasterCard International
Incorporated. From May 1983 to May 1994, Ms. Wetherington was with AT&T Corp.
where she held management positions including President of SmartCard Business.
Ms. Wetherington holds an M.A. degree in Economics and a B.A. degree in
Economics and German from the University of Pennsylvania.
MR. KOULOGEORGE joined the board of directors in March 1997. Since 1994, Mr.
Koulogeorge has served as a Managing Director of First Analysis Corporation, a
venture capital investment firm where he leads the firm's Internet and
e-commerce investment practice. Prior to joining First Analysis in 1994, Mr.
Koulogeorge
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was an executive officer and Vice President of Eagle Industries, Inc., a
diversified manufacturer from 1991 through 1994. Mr. Koulogeorge is a director
of GreatFood.com, Inc. Mr. Koulogeorge holds an M.B.A. degree from Stanford
University and a B.A. degree in Economics from Dartmouth College.
MR. LANDY joined the board of directors in October 1998. Since 1985, Mr.
Landy has served with E.M. Warburg, Pincus & Co., LLC, a private equity
investment firm, and has been a Managing Director since 1994. Throughout his
career at E.M. Warburg, Pincus & Co., LLC, Mr. Landy has focused primarily on
investments in information technology and specialty semiconductors. Mr. Landy
also serves as a director of Covad Communications Group, Inc., Indus
International, Inc. and Level One Communications, Inc. and of several privately
held companies. Mr. Landy holds an M.B.A. degree from The Stern School of
Business at New York University and a B.S. degree in Economics from The Wharton
School of Business.
MR. POMERANTZ joined the board of directors in October 1998. Since 1978, Mr.
Pomerantz has served with E.M. Warburg, Pincus & Co., LLC, a private equity
investment firm, and has been a Managing Director since 1982. Mr. Pomerantz also
serves as a director of Axxess Technologies, Inc., a manufacturer of key
duplication equipment and identification systems, Select Automotive, Inc., an
owner of automobile dealerships, and Imark Communications, Inc., a global event
management business. Mr. Pomerantz holds an M.B.A. degree from The Stern School
of Business at New York University, an M.A. degree from the University of
Southern California and London School of Economics and a B.S. degree from
Rensselaer Polytechnic Institute.
MR. POWER joined the board of directors in April 1999. Mr. Power founded
J.D. Power and Associates, a marketing information company. Mr. Power has served
as Chief Executive Officer since J.D. Power's inception in 1968, and as Chairman
of the Board since 1996. Mr. Power holds an M.B.A. degree from The Wharton
School of Business and a B.A. degree from the College of the Holy Cross.
MR. TULLMAN joined the board of directors in November 1997. Since June 1997,
Mr. Tullman has served as Chief Executive Officer of Tunes.com Inc., which
operates an Internet music site specializing in webcasting live music events.
From October 1996 to May 1997, Mr. Tullman was one of the co-managers of Digital
Entertainment Networks LLC. From October 1993 to September 1996, Mr. Tullman
served as President and Chief Executive Officer of Imagination Pilots, Inc., a
multimedia software developer which he also founded. Immediately prior to
founding Imagination Pilots, Inc., Mr. Tullman served as Chief Executive Officer
of Eager Enterprises, Inc., an information industry venture capital firm which
he founded in 1990. Mr. Tullman is a director of uBid, Inc. an online auction
company. Mr. Tullman holds a B.A. degree from Northwestern University and a J.D.
degree from the Northwestern University School of Law.
Board Committees
The board of directors has a compensation committee and an audit committee.
AUDIT COMMITTEE. The audit committee consists of Messrs. Koulogeorge,
Pomerantz and Tullman. The audit committee makes recommendations to the board of
directors regarding the selection of independent public accountants, reviews the
results and scope of the audit and other services provided by Cobalt's
independent public accountants and reviews and evaluates Cobalt's financial
control functions.
COMPENSATION COMMITTEE. The compensation committee consists of Messrs.
Tullman and Landy. The compensation committee administers the issuance of stock
options under Cobalt's 1995 Stock Option Plan, makes recommendations regarding
Cobalt's various incentive compensation and benefit plans and determines
salaries for the executive officers and incentive compensation for employees and
consultants.
Director Compensation
Directors do not receive any cash compensation for their services as members
of the board of directors although they are reimbursed for certain expenses
incurred in connection with attendance at board and committee meetings. Cobalt's
bylaws authorize the board of directors to fix director compensation, and Cobalt
may compensate non-employee directors in the future for their attendance at
board and committee meetings.
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<PAGE>
Non-employee directors receive an initial grant of non-qualified options to
acquire 12,000 shares of common stock vesting at a rate of 1,000 shares per
month. Thereafter, non-employee directors will receive additional grants of
2,000 options on the anniversary date of commencement of board service.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee of the board of directors
has at any time been an officer or employee of Cobalt. No executive officer of
Cobalt serves as a member of the board of directors or compensation committee of
any entity that has one or more executive officers serving on Cobalt's board or
compensation committee. Mr. Tullman, Chairman of the Board of Directors and a
member of the compensation committee, purchased shares of Cobalt's Series C
Preferred Stock in April 1999. See "Certain Transactions."
Executive Compensation
The following table sets forth the compensation we paid to our Co-Chief
Executive Officers and all other executive officers of Cobalt receiving
compensation in excess of $100,000 for the fiscal year ended December 31, 1998
(the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
-------------
Annual Compensation Securities
Name and ---------------------- Underlying All Other
Principal Positions Salary Bonus Options Compensation
- --------------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Geoffrey T. Barker................................. 1998 $ 127,083 $ -- -- $ --
Co-Chief Executive Officer
John W. P. Holt.................................... 1998 $ 127,083 -- -- --
Co-Chief Executive Officer
Kenneth D. Pfau.................................... 1998 $ 43,333 $ 2,000 40,000 $ 62,374
Vice President, Sales
</TABLE>
- ---------
The other compensation represents sales commissions for Mr. Pfau.
48
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1998.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------ Value at Assumed
Percentage Annual Rates of
Number of of Total Stock Price
Securities Options Appreciation for
Underlying Granted Exercise Option Term ($)
Options in Fiscal Price Expiration --------------------
Name Granted 1998 ($/Sh) Date 5% ($) 10% ($)
- ------------------------------------------------------ ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey T. Barker.................................... -- -- -- -- -- --
John W. P. Holt....................................... -- -- -- -- -- --
Kenneth D. Pfau....................................... 40,000 6.1% $ 0.75 8/01/08 $ 18,867 $ 47,812
</TABLE>
- ---------
- - The options become exercisable at a rate of 25% beginning in the 13th month
after the option grant date with monthly vesting of the remaining 75% in 36
equal increments, and expire ten years from the date of the grant or earlier
upon termination of employment.
- - Based on an aggregate of 655,100 shares subject to options granted to
employees and directors of and consultants to Cobalt in the fiscal year
ended December 31, 1998.
- - Options were granted at an exercise price equal to the fair market value of
the common stock as determined by the board of directors on the date of the
grant.
- - The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. There
can be no assurance that the actual stock price appreciation over the option
term will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the common stock appreciates over the ten year
option term, no value will be realized from the option grants made to the
executive officers. The potential realizable value is calculated by
multiplying the per share fair market value of the common stock on the date
of grant by the stated annual appreciation rate compounded annually for the
option term, subtracting the exercise price per share from the product, and
multiplying the remainder by the number of shares underlying the option
granted.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
The following table sets forth information regarding the aggregate number of
options exercised during fiscal 1998 by each of the Named Executive Officers and
the number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying In-the-
Acquired Unexercised Options at Money Options at
on Value December 31, 1998 (#) December 31, 1998 ($)
Exercise Realized -------------------------- --------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey T. Barker.......................... -- -- 477,360 -- 823,380 --
John W. P. Holt............................. 403,060 -- 703,855 --
Kenneth D. Pfau............................. 10,000 39,000 22,104 71,896 34,303 93,447
</TABLE>
- ---------
Value of unexercised in-the-money options is based on the difference between
the fair market value of the shares of common stock underlying the options
at December 31, 1998 as determined by the board of directors and the
exercise price of such options.
49
<PAGE>
Executive Agreements
In February 1997, Cobalt entered into confidentiality and noncompetition
agreements with Mr. Barker and Mr. Holt. These provide that during and after the
term of their employment, Mr. Barker and Mr. Holt will keep confidential all
proprietary information of Cobalt and that any inventions, designs or otherwise
copyrightable work produced by Mr. Barker or Mr. Holt during their employment
shall be the exclusive property of Cobalt. In addition, Mr. Barker and Mr. Holt
agree that for a period of three years following the termination of their
employment, they will not participate in any business that sells competing
services or products to clients which have purchased similar services or
products from Cobalt within the preceding three years and will not solicit
employees, customers or other business relations of Cobalt.
In April 1999, Cobalt, in connection with its acquisition of PartsVoice,
entered into an employment agreement with Brian Allen to serve as Vice President
of Cobalt for a three year term. Mr. Allen receives an annual salary of $125,000
and options to acquire 100,000 shares of Cobalt common stock at an exercise
price of $1.85 per share. Mr. Allen will also receive a bonus of $25,000 on June
30, 1999. Mr. Allen's options vest over a four-year period. If Mr. Allen is
terminated without cause or Mr. Allen terminates his employment for good reason
he will be entitled to receive his $125,000 salary for the full term of the
agreement and his options will immediately vest.
Employee Benefit Plans
STOCK OPTION PLAN. Our 1995 Stock Option Plan (the "Option Plan") was
adopted by the board of directors and approved by the shareholders in May 1995.
We currently have an aggregate of 2,862,033 shares of common stock reserved for
issuance under the Option Plan.
The Option Plan provides for the grant of incentive stock options, as
defined under the Internal Revenue Code of 1986, as amended (the "Code"), to our
employees (including officers and employee-directors) or employees of our
subsidiaries. The Option Plan also provides for the grant of non-statutory stock
options to officers, employees, consultants and non-employee directors.
The board administers the Option Plan and determines both the recipients of
options and the type of options to be granted, including the exercise price,
number of shares subject to the option and the exercisability thereof. The terms
of options granted under the Option Plan generally may not exceed 10 years.
While the board determines the exercise price of options, the exercise price for
an incentive stock option may not be less than 100% of the fair market value of
the common stock on the date of the option grant. Options vest at the rate
specified in the option agreement.
No incentive stock option may be granted to any person who, at the time of
the grant, owns stock possessing more than 10% of the total combined voting
power of Cobalt unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of common stock with respect to which incentive stock options are
exercisable for the first time by a person holding an option during any calendar
year (under the Option Plan or any other incentive stock option plan of Cobalt)
may not exceed $100,000.
If Cobalt effects a sale of all or substantially all of its assets, or any
merger or consolidation, the board of directors may select one of three
alternatives for treating outstanding options under the Option Plan: (1) the
outstanding options may remain in effect in accordance with their terms; (2)
outstanding options may be converted into options to purchase stock in the
surviving or acquiring corporation in the transaction with the amount, type of
securities and exercise price of converted options to be determined by the board
of directors; or (3) the board of directors may provide a 30-day period prior to
the consummation of the transaction during which outstanding options may be
exercised to the extent vested, and the board of directors may accelerate the
exercisability of any options so they are exercisable in full during the 30-day
period. After the 30-day period, all unexercised options shall immediately
terminate.
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<PAGE>
Generally, a person holding an option may not transfer the option other than
by will or the laws of descent or distribution. A person whose service to Cobalt
and its affiliates ceases for any reason (other than for cause, resignation in
lieu of termination, retirement, disability or death) may exercise an option, as
to vested shares, in the three-month period following such cessation (unless the
option expires sooner or later by its terms). A person, or his heirs, may
exercise an option, as to vested shares, for up to one year after the person's
service to Cobalt ceases due to death or disability (unless such option expires
sooner or later by its terms). Shares subject to options that have expired or
otherwise terminated without having been exercised in full again become
available for the grant of options under the Option Plan.
As of April 30, 1999, options to purchase 2,021,654 shares of common stock
were outstanding and 840,379 shares remained available for future grant. The
Option Plan may be suspended, amended or terminated at any time by the Board
provided that shareholder approval is granted within 12 months of the adoption
of any amendment to increase the number of shares of common stock reserved for
issuance under the Option Plan or any other amendment that requires shareholder
approval under applicable law.
401(K) PLAN.
Cobalt participates in a tax-qualified employee savings and retirement plan
(the "401(k) Plan") which covers all of Cobalt's full-time employees who are at
least 18 years of age and have completed at least three months of employment.
Pursuant to the 401(k) Plan, eligible employees may defer up to 15% of their
pre-tax earnings, subject to the Internal Revenue Service's annual contribution
limit. The 401(k) Plan permits additional discretionary matching contributions
by Cobalt on behalf of all participants in the 401(k) Plan in an amount up to
10% of the employees' compensation. To date, Cobalt has made no such matching
contributions. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, as amended, so that contributions by employees or
by Cobalt to the 401(k) Plan, and income earned on plan contributions, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by Cobalt, if any, will be deductible by Cobalt when made. The
trustee under the 401(k) Plan, at the direction of each participant, invests the
assets of the 401(k) Plan in any of a number of investment options.
Indemnification and Limitation of Director and Officer Liability
Our articles of incorporation limit the liability of our directors to the
maximum extent permitted by Washington law. Washington law provides that the
articles of incorporation may contain provisions that eliminate or limit the
personal liability of a director to the corporation or its shareholders provided
that such provisions do not eliminate or limit the liability of a director for
(1) acts or omissions involving intentional misconduct or a knowing violation of
law, (2) unlawful payments or distributions, or (3) any transaction from which
the director will personally receive an improper benefit in money, property, or
services. Our articles of incorporation contain such provisions.
Our bylaws also provide that we shall indemnify our directors and officers
and may indemnify our employees and other agents to the fullest extent permitted
by law. Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification.
We intend to obtain directors' and officers' insurance providing
indemnification for certain of our directors, officers, affiliates and employees
for certain liabilities. We also intend to enter into agreements to indemnify
our directors and executive officers, in addition to the indemnification
provided for in our articles of incorporation and bylaws. These agreements,
among other things, will indemnify our directors and executive officers for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by or in the right of Cobalt, arising out of such person's services as a
director or executive officer of Cobalt, any subsidiary of Cobalt or
51
<PAGE>
any other company or enterprise to which the person provides services at the
request of Cobalt. We believe that these provisions and agreements are necessary
to attract and retain qualified directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of ours where indemnification is expected
to be required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
52
<PAGE>
RECENT ACQUISITION
On April 30, 1999, Cobalt acquired all of the equity of PartsVoice, LLC, an
Oregon limited liability company, from three owners, Compu-Time, Inc., an Oregon
corporation, Locators, Inc., an Oregon corporation, and Parts Finder Locating
Systems, Inc., an Oregon corporation. At closing, Cobalt paid aggregate purchase
consideration for the PartsVoice equity of (1) $3.0 million in cash; (2)
promissory notes in the principal amount of (a) $8.0 million, due on the earlier
of completion of this offering or July 30, 1999 and (b) $15.0 million, due on
the earlier of completion of this offering or January 25, 2000; (3) 500,000
shares of Series C Convertible Preferred Stock convertible at $8.00 per share;
and (4) warrants to purchase 160,000 shares of Cobalt common stock at $6.00 per
share. The promissory notes bear interest at the rate of 8.75% per annum.
Cobalt's obligations under the promissory notes are secured by a pledge of the
PartsVoice equity and a security agreement. In connection with the acquisition,
Brian Allen, former Vice President of PartsVoice, entered into a three-year
employment agreement with Cobalt. See "Management--Executive Agreements."
CERTAIN TRANSACTIONS
On April 30, 1999, Howard Tullman, Chairman of the Board of Directors of
Cobalt, purchased 12,500 shares of Cobalt Series C Preferred Stock at a purchase
price of $8.00 per share. The terms of Mr. Tullman's purchase were no more
favorable than those offered to the PartsVoice purchasers.
In October 1998, Warburg, Pincus Equity Partners, L.P. purchased 1,858,100
shares of Series B Preferred Stock and 5,118,091 shares of Series B-1 Preferred
Stock at a purchase price of $4.20 per share, for an aggregate purchase price of
$29.3 million. Cobalt used $19.2 million of the net proceeds from this Series B
Preferred Stock financing to redeem, at a price of $4.20 per share, shares of
common stock and shares of Series A Preferred Stock from certain shareholders of
Cobalt. As part of this redemption, Cobalt redeemed, at $4.20 per share, 738,768
shares from Mr. Barker, 688,285 shares from Mr. Holt, 5,000 shares from Mr.
Lissack, 22,255 shares from Ms. Davidson, 10,000 shares from Mr. Pfau, 6,500
shares from Mr. Tullman and 112,773 shares from Mr. Koulogeorge. See Note 10 of
Notes to Cobalt Financial Statements.
First Analysis Corporation and Cobalt entered into a Management Services
Agreement in February 1997. The Management Services Agreement entitles First
Analysis to receive a fee of $150,000 for financial and consulting services.
This fee is payable upon the completion of this offering. Mr. Koulogeorge is
Managing Director of First Analysis Corporation.
On February 28, 1997, Mr. Barker and Mr. Holt entered into an agreement to
settle amounts due for deferred compensation. The terms of the agreement
required a 50% cash payment of $81,287 to Mr. Barker and $64,584 to Mr. Holt
which was paid on February 28, 1997. The remainder was forgiven by Mr. Barker
and Mr. Holt.
In August 1996, Cobalt issued 120,000 shares of common stock to each of Mr.
Barker and Mr. Holt at a purchase price of $0.60 per share. In satisfaction of
the purchase price, Messrs. Barker and Holt each executed promissory notes to
Cobalt due in August 2006 in the principal amount of $72,000. The promissory
notes bear interest at a rate of 8% per annum. In March 1997, following the sale
of Cobalt's Series A Preferred Stock at a per share price of $0.55, Cobalt
issued additional shares of common stock to all shareholders who had purchased
at a per share price greater than that paid by the Series A Preferred Stock
investors. As a result, Mr. Barker and Mr. Holt each received 9,915 additional
shares of common stock to implement this dilution protection. Each promissory
note is secured by a pledge of the 129,915 total shares of common stock issued
in the purchase transaction.
Cobalt has entered into an employment agreement with Mr. Allen dated as of
April 30, 1999, and Noncompete Agreements with each of Mr. Barker and Mr. Holt
dated as of February 28, 1997. See "Management--Executive Agreements."
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of April 30, 1999, and as adjusted
to reflect the sale of the shares of common stock offered in this Prospectus by
each of Cobalt's Named Executive Officers, its directors, each beneficial holder
of more than 5% of Cobalt's common stock and all current directors and executive
officers as a group.
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Shares Beneficially
Owned (1) Owned (1)
------------ ------------------------
Prior to Prior to After
Beneficial Owners Offering Offering Offering
- -------------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Warburg, Pincus Equity Partners, L.P.(2)........................................ 7,764,195 65.9%
466 Lexington Avenue
New York, NY 10017
Entities affiliated with First Analysis Corporation(3).......................... 1,205,504 10.2%
The Sears Tower, Suite 9500
233 South Wacker Drive
Chicago, IL 60606
Mark T. Koulogeorge(3)(4)....................................................... 1,328,278 11.3%
Geoffrey T. Barker(5)........................................................... 738,767 6.2%
John W.P. Holt(6)............................................................... 701,616 5.9%
Howard A. Tullman(7)............................................................ 40,000 *
Ernest H. Pomerantz(2)(8)....................................................... 7,774,195 65.9%
Joseph P. Landy(2)(9)........................................................... 7,774,195 65.9%
J.D. Power, III(10)............................................................. 5,000 *
Kenneth D. Pfau(11)............................................................. 45,750 *
All directors and executive officers as a group(12) (15 people)................. 10,761,342 88.8%
</TABLE>
- ---------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Cobalt's Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options currently exercisable or exercisable within sixty days of the
date of this prospectus are deemed to be outstanding and to be beneficially
owned by the person holding these options for the purpose of computing the
number of shares beneficially owned and the percentage of this person or
entity holding these securities but are not outstanding for the purpose of
computing the percentage of any other person or entity. Percentage of
beneficial ownership is based on 11,789,267 shares of common stock
outstanding as of April 30, 1999 and shares of common stock
outstanding after completion of this offering.
(2) The sole general partner of Warburg, Pincus Equity Partners, L.P., or
Warburg, is Warburg, Pincus & Co., a New York general partnership. E.M.
Warburg, Pincus & Co., L.L.C., or EMWP, manages Warburg. Mr. Landy and Mr.
Pomerantz are both Managing Directors of EMWP and may be deemed to control
Warburg, and thus may be deemed to have an indirect pecuniary interest in an
indeterminate portion of the shares beneficially owned by Warburg. Mr. Landy
and Mr. Pomerantz disclaim beneficial ownership of such shares except to the
extent of their pecuniary interest therein. The terms of the shares owned by
Warburg preclude Warburg from exercising voting control over a majority of
the outstanding voting shares.
(3) Includes 507,580 shares held by The Productivity Fund III, L.P. and 697,924
shares held by Environmental Private Equity Fund II, L.P. Mr. Koulogeorge is
a member of the limited liability company which is the general partner of
The Productivity Fund III, L.P. and an executive officer of First Analysis
Corporation, a general partner of the limited partnership that controls
Environmental Private
54
<PAGE>
Equity Fund II, L.P. Accordingly, Mr. Koulogeorge may be deemed to have an
indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by The Productivity Fund III, L.P. and Environmental
Private Equity Fund II, L.P. Mr. Koulogeorge disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
(4) Includes 5,000 shares Mr. Koulogeorge has the right to acquire pursuant to
options exercisable within 60 days of August 1, 1999.
(5) Includes 102,360 shares Mr. Barker has the right to acquire pursuant to
options exercisable within 60 days of August 1, 1999.
(6) Includes 32,932 shares held in trust for Mr. Holt's heirs and 75,000 shares
Mr. Holt has the right to acquire pursuant to options exercisable within 60
days of August 1, 1999.
(7) Includes 13,000 shares Mr. Tullman has the right to acquire pursuant to
options exercisable within 60 days of August 1, 1999.
(8) Includes 10,000 shares Mr. Pomerantz has the right to acquire pursuant to
options exercisable within 60 days of August 1, 1999.
(9) Includes 10,000 shares Mr. Landy the right to acquire pursuant to options
exercisable within 60 days of August 1, 1999.
(10) Includes 5,000 shares Mr. Power has the right to acquire pursuant to
options exercisable within 60 days of August 1, 1999.
(11) Includes 22,188 shares Mr. Pfau has the right to acquire pursuant to
options exercisable within 60 days of August 1, 1999.
(12) Includes an aggregate of 242,548 shares that the directors and officers as
a group have a right to acquire pursuant to options exercisable within 60
days of August 1, 1999.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 200,000,000 shares of common stock, par value $0.01 per share, and
100,000,000 shares of preferred stock, par value $0.01 per share.
Common Stock
As of April 30, 1999 there were 11,789,267 shares of common stock
outstanding held by 56 shareholders of record, including shares of preferred
stock that will be converted into common stock upon completion of this offering.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. There are no
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, the holders of the common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of Cobalt, holders of the common stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of common stock have no preemptive rights and no right to
convert their common stock into any other securities. There are no redemption
provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon the completion
of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See Note 1 of Notes to Cobalt
Financial Statements. Following the offering, the board of directors will have
the authority, without further action by the shareholders, to issue up to
100,000,000 shares of preferred stock in one or more series and to fix the
designations, powers, preferences, privileges and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. The board of directors, without shareholder
approval, can issue preferred stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
common stock. Preferred stock could thus be issued with terms calculated to
delay or prevent a change in control of Cobalt or make removal of management
more difficult. Additionally, the issuance of preferred stock may have the
effect of decreasing the market price of the common stock, and may adversely
affect the voting and other rights of the holders of common stock. We have no
current plans to issue any of the preferred stock.
Warrants
As of April 30, 1999, Cobalt had outstanding warrants to purchase an
aggregate of 221,500 shares of common stock at exercise prices ranging from
$0.30 to $6.00 per share. The warrants expire at various dates from October 31,
2003 to April 30, 2004. Generally, each warrant contains provisions for the
adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations, reclassifications and consolidations.
All warrants are currently exercisable.
Registration Rights
Pursuant to agreements between Cobalt and the holders of approximately
9,850,402 shares of common stock (assuming the conversion of all outstanding
preferred stock upon the completion of this offering) and warrants to purchase
184,000 shares of common stock, the holders of the shares and warrants are
entitled to have shares of Cobalt's stock held by them registered under the
Securities Act. If Cobalt proposes to register
56
<PAGE>
its common stock under the Securities Act, subject to certain exceptions, the
holders of these shares are entitled to notice of the registration and are
entitled, at Cobalt's expense, to include their shares in the registration,
provided that the managing underwriters have the right to limit the number of
such shares included in the registration. In addition, holders of at least 70%
of these shares may require Cobalt, at its expense and on certain terms, to file
a registration statement under the Securities Act with respect to their shares
of common stock. Further, the holders of these shares may require Cobalt, at
Cobalt's expense, to register the shares on Form S-3 when Cobalt can use this
form, subject to certain conditions and limitations.
Antitakeover Effects of Certain Provisions of Our Articles of Incorporation and
Bylaws and Under Washington Law
As noted above, our board of directors, without shareholder approval, has
the authority under our articles of incorporation to issue preferred stock with
rights superior to the rights of the holders of common stock. As a result,
preferred stock could be issued quickly and easily, could adversely affect the
rights of holders of common stock and could be issued with terms calculated to
delay or prevent a change in control of Cobalt or make removal of management
more difficult.
Our articles of incorporation provide for the division of our board of
directors into three classes, as nearly equal in number as possible, with the
directors in each class serving for a three-year term, and one class being
elected each year by our shareholders. Directors may be removed only for cause.
Because this system of electing and removing directors generally makes it more
difficult for shareholders to replace a majority of the board of directors, it
may tend to discourage a third party from making a tender offer or otherwise
attempting to gain control of Cobalt.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a corporation, with certain
exceptions, from engaging in certain significant business transactions with an
"acquiring person," which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the corporation, for a
period of five years after such acquisition, unless the transaction or
acquisition of shares is approved by a majority of the members of the
corporation's board of directors prior to the time of acquisition. These
prohibited transactions include, among other things,
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the corporation as a result
of the acquiring person's acquisition of 10% or more of the shares;
- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.
After the five-year period, a significant business transaction may occur, as
long as it complies with certain fair price provisions of the statute. A
corporation may not opt out of this statute. This provision may have the effect
of delaying, deterring or preventing a change in control of Cobalt.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock (including shares issued upon exercise of outstanding options)
in the public market after this offering could adversely affect market prices
prevailing from time to time and could impair our ability to raise capital
through sale of equity securities. As described below, no shares currently
outstanding will be available for sale immediately after this offering due to
certain contractual restrictions on resale. Sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, Cobalt will have outstanding
shares of common stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of these shares, the
shares sold in this offering will be freely tradable without restriction under
the Securities Act unless purchased by "affiliates" of Cobalt as that term is
defined in Rule 144 under the Securities Act. Of the remaining shares,
shares will be eligible for sale in the public market beginning 91
days after the date of this offering and shares are subject (1) to
lock-up agreements providing that, with certain limited exceptions, the
shareholder will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of common stock of Cobalt or any
securities convertible into or exchangeable or exercisable for shares of common
stock for a period of 180 days following the date of the final prospectus for
this offering or (2) to holding period requirements under Rule 144 under the
Securities Act. Beginning 181 days after the date of the final prospectus,
of these shares will be eligible for sale in the public market,
although shares will be subject to certain volume limitations. The
majority of the remaining shares will become eligible for sale,
subject to certain volume limitations, on October , 1999.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares that were purchased from us (or any affiliate)
at least one year previously, is entitled to sell within any three-month period
a number of shares that does not exceed the greater of (1) 1% of the number of
shares of common stock then outstanding (which will equal approximately
shares immediately after this offering) or (2) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
filing of a Form 144 with respect to the proposed sale. Sales under Rule 144 are
also subject to certain manner of sale provisions and notice requirements and to
the availability of current public information about Cobalt. Under Rule 144(k),
a person who is not deemed to have been an affiliate of Cobalt at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner except an affiliate), is entitled to sell its shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant to Cobalt who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares are required to wait
until 90 days after the date of this prospectus before selling such shares.
However, all shares issued pursuant to Rule 701 are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of BancBoston Robertson
Stephens.
Immediately after this offering, Cobalt intends to file a registration
statement under the Securities Act covering shares of common stock subject to
options outstanding and reserved for issuance under the Option
58
<PAGE>
Plan. Based on the number of shares subject to outstanding options at
, 1999 and currently reserved for issuance under the Plan, the
registration statement would cover approximately - shares. The
registration statement will automatically become effective upon filing.
Accordingly, shares registered under the registration statement will, subject to
Rule 144 volume limitations applicable to affiliates of Cobalt, be available for
sale in the open market immediately after the 180-day lock-up agreement expires.
Also beginning 180 days after the date of this offering, certain holders of
shares of common stock will be entitled to certain rights with respect to
registration of their shares of common stock for offer and sale to the public.
See "Description of Capital Stock--Registration Rights."
59
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., SG Cowen and Wit
Capital Corporation, have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their respective names
below. The underwriters are committed to purchase and pay for all such shares if
any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
BancBoston Robertson Stephens Inc. ...................................................................
-----------
Bear, Stearns & Co. Inc. .............................................................................
-----------
SG Cowen Securities Corporation.......................................................................
-----------
Wit Capital Corporation...............................................................................
-----------
TOTAL.............................................................................................
-----------
-----------
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at this price less a
concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives.
However, no reduction will change the amount of proceeds to be received by us as
set forth on the cover page of this prospectus. The common stock is offered by
the underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, pursuant to an e-Dealer Agreement,
all dealers purchasing shares from Wit Capital in the offering similarly have
agreed to make a prospectus in electronic format available on Web sites
maintained by each of the e-Dealers.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of these additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the shares offered hereby. If purchased,
these additional shares will be sold by the underwriters on the same terms as
those on which the shares are being sold. We will be obligated, pursuant
to the option, to sell shares to the extent the option is exercised. The
underwriters may exercise these option only to cover over-allotments made in
connection with the sale of the shares of common stock offered hereby. If the
option is exercised in full, the total public offering price of the shares
we sell to the underwriters, underwriting discounts and commissions on such
shares will be $ and total proceeds to us from the sale of these shares
will be $ .
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of representation
and warranties contained in the underwriting agreement.
60
<PAGE>
LOCK-UP AGREEMENTS. Under the terms of lock-up agreements, each of our
officers and directors and certain of our shareholders have agreed with the
representatives, for a period of 180 days after the date of this prospectus,
subject to certain exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to,
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock, now owned or hereafter acquired directly by these
holders or with respect to which they have the power of disposition, without the
prior written consent of BancBoston Robertson Stephens. However, BancBoston
Robertson Stephens may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the lock-up agreements.
There are no agreements between the representatives and any of our shareholders
providing consent by the representatives to the sale of shares prior to the
expiration of the period 180 days after this prospectus.
FUTURE SALES. In addition, we have agreed that during the 180 days after
the date of this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens:
- Consent to the disposition of any shares held by shareholders prior to the
expiration of the period of 180 days after the date of this prospectus; or
- Issue, sell, contract to sell or otherwise dispose of any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock, other than the sale of shares in this
offering, the issuance of common stock upon the exercise of outstanding
options or warrants or our issuance of options or shares under our stock
option plan.
LISTING. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "CBLT."
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for our common stock. Consequently, the public offering price for the
common stock offered by this prospectus will be determined through negotiations
between Cobalt and the representatives of the underwriters. Among the factors to
be considered in these negotiations are prevailing market conditions, financial
information of Cobalt, market valuations of other companies that Cobalt and the
representatives believe to be comparable to Cobalt, estimates of the business
potential of Cobalt, the present state of Cobalt's development and other factors
deemed relevant.
STABILIZATION. The representatives of the underwriters have advised us
that, pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids, that
may have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with this
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by such underwriter or syndicate
member. The representatives have advised us that these types of transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
NEW UNDERWRITERS. Wit Capital, a member of the National Association of
Securities Dealers, Inc., will participate in this offering as one of the
underwriters. The National Association of Securities Dealers, Inc. approved the
membership of Wit Capital on September 4, 1997. Since that time, Wit Capital has
acted as an underwriter, co-manager or selected dealer in approximately 70
public offerings.
COSTS OF OFFERING. We estimate that total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$750,000.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Cobalt by Stoel Rives LLP, Seattle, Washington. Certain legal matters related to
the offering will be passed upon for the underwriters by Wilson Sonsini Goodrich
& Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of The Cobalt Group, Inc. and PartsVoice as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998 included in this Prospectus have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Cobalt and the common
stock, reference is made to the registration statement and to the related
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of the applicable
contract or other document filed as an exhibit to the registration statement,
each of these statements being qualified in all respects by this reference. A
copy of the registration statement may be inspected by anyone without charge at
the commission's principal office in Washington, D.C., and copies of all or any
part of the registration statement may be obtained from the Public Reference
Section of the Commission, 450 Fifth street, N.W., Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, such as Cobalt, that file
electronically with the Commission. The address of the Web site is
http://www.sec.gov.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
The Cobalt Group, Inc.
Report of Independent Accountants.......................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Changes in Shareholders' Deficit............................................................. F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
PartsVoice, The Combined Financial Statements of PartsVoice, a General Partnership, and Compu-Time, Inc.
Report of Independent Accountants.......................................................................... F-22
Combined Balance Sheets.................................................................................... F-23
Combined Statements of Operations.......................................................................... F-24
Combined Statements of Changes in Owners' Equity........................................................... F-25
Combined Statements of Comprehensive Income................................................................ F-26
Combined Statements of Cash Flows.......................................................................... F-27
Notes to Combined Financial Statements..................................................................... F-28
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of The Cobalt Group, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in shareholders' deficit and of cash flows present
fairly, in all material respects, the financial position of The Cobalt Group,
Inc. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Seattle, Washington
March 29, 1999 except as to Note 14, which is as of May 27, 1999
F-2
<PAGE>
The Cobalt Group, Inc.
Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
shareholders'
December 31, equity at
-------------------- March 31, March 31,
1997 1998 1999 1999
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents......................................... $ 241 $ 5,756 $ 3,876
Short-term investments............................................ 983 983
Accounts receivable, net of allowance for doubtful accounts of
$40, $85 and $68 (unaudited).................................... 459 1,250 1,401
Other current assets.............................................. 21 130 1,172
--------- --------- -----------
721 8,119 7,432
Capital assets, net................................................. 351 1,453 2,806
Intangible assets, net of accumulated amortization of $22, $321, and
$384 (unaudited), respectively.................................... 868 479 416
Other assets........................................................ 11 11 11
--------- --------- -----------
Total assets.................................................... $ 1,951 $ 10,062 $ 10,665
--------- --------- -----------
--------- --------- -----------
Liabilities, Mandatorily Redeemable Convertible Preferred Stock and
Shareholders' Deficit
Current liabilities
Accounts payable.................................................. $ 197 $ 191 $ 665
Accrued liabilities............................................... 158 776 1,316
Deferred revenue.................................................. 897 1,290 1,505
DealerNet acquisition liability, current portion.................. 500
Note payable to bank.............................................. 200
Software financing contract, current portion...................... 257
Capital lease obligations, current portion........................ 33 328 560
--------- --------- -----------
1,985 2,585 4,303
--------- --------- -----------
Non-current liabilities
Capital lease obligations, non-current portion.................... 34 557 971
Software financing contract, non-current portion.................. 405
DealerNet acquisition liability, non-current portion.............. 390
--------- --------- -----------
424 557 1,376
--------- --------- -----------
Commitments and contingencies (Notes 6, 12 and 14)
Mandatorily redeemable convertible preferred stock
Series A; $0.01 par value per share; redemption and liquidation
value of $2,481, $1,158 and $1,158 (unaudited), respectively.... 2,439 1,116 1,118
Series B; $0.01 par value per share; redemption and liquidation
value of $29,600 plus unpaid dividends.......................... 30,046 30,635
--------- --------- -----------
2,439 31,162 31,753 $ --
--------- --------- ----------- -------------
Shareholders' deficit
Preferred stock, $0.01 par value per share; 20,000,000 shares
authorized in 1997, 100,000,000 shares authorized thereafter;
4,510,934, 9,153,902 and 9,153,902 (unaudited) issued and
outstanding as mandatorily redeemable convertible preferred
stock; no shares issued and outstanding, pro forma
(unaudited).....................................................
Common stock, $0.01 par value per share; 30,000,000 shares
authorized in 1997, 200,000,000 shares authorized thereafter;
3,406,597, 1,343,898 and 1,821,979 (unaudited) issued and
outstanding, respectively; 10,975,881 (unaudited) shares issued
and outstanding pro forma....................................... 34 13 18 110
Additional paid-in capital........................................ 854 31,661
Notes receivable from shareholders................................ (144) (144) (144) (144)
Accumulated deficit............................................... (3,641) (24,111) (26,641) (26,641)
--------- --------- ----------- -------------
(2,897) (24,242) (26,767) $ 4,986
--------- --------- ----------- -------------
-------------
Total liabilities, mandatorily redeemable convertible preferred
stock and shareholders' deficit................................... $ 1,951 $ 10,062 $ 10,665
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
The Cobalt Group, Inc.
Statements of Operations
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
---------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ------------
<CAPTION>
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues.................................... $ 312 $ 1,711 $ 6,245 $ 1,079 $ 2,453
Cost of revenues................................ 51 285 1,199 151 540
---------- ---------- ---------- ---------- ------------
Gross profit................................ 261 1,426 5,046 928 1,913
---------- ---------- ---------- ---------- ------------
Operating expenses
Sales and marketing........................... 286 1,740 4,048 564 1,650
Product development........................... 125 361 961 157 401
General and administrative.................... 676 1,753 4,627 629 1,870
---------- ---------- ---------- ---------- ------------
Total operating expenses.................... 1,087 3,854 9,636 1,350 3,921
---------- ---------- ---------- ---------- ------------
Loss from operations............................ (826) (2,428) (4,590) (422) (2,008)
Gain on sale of HomeScout....................... 1,626 1,626
Common stock repurchase premium................. (5,202)
Interest expense................................ (2) (17) (93) (7) (49)
Other income, net............................... 47 142 6 57
---------- ---------- ---------- ---------- ------------
Net (loss) income............................... $ (828) $ (2,398) $ (8,117) $ 1,203 $ (2,000)
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Net (loss) income available to common
shareholders.................................. $ (828) $ (2,406) $ (8,680) $ 1,201 $ (2,591)
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Basic net (loss) income per share............... $ (0.24) $ (0.69) $ (2.95) $ 0.35 $ (1.74)
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Diluted net (loss) income per share............. $ (0.24) $ (0.69) $ (2.95) $ 0.13 $ (1.74)
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Weighted-average shares outstanding............. 3,491,536 3,485,563 2,938,460 3,406,597 1,488,681
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Weighted-averge shares outstanding, assuming
dilution...................................... 3,491,536 3,485,563 2,938,460 9,093,629 1,488,681
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Pro forma net loss available to common
shareholders (unaudited)...................... $ 8,117 $ (2,000)
---------- ------------
---------- ------------
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.95) $ (0.19)
---------- ------------
---------- ------------
Pro forma weighted-average shares outstanding
(unaudited)................................... 8,530,634 10,642,583
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
The Cobalt Group, Inc.
Statements of Changes in Shareholders' Deficit
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common stock Additional Notes
-------------------------- paid-in receivable from Accumulated
Shares Par value capital shareholders deficit Total
----------- ------------- ------------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996................. 3,017,777 $ 30 $ 166 $ -- $ (415) $ (219)
Net loss.................................... (828) (828)
Issuance of stock options and warrants to
non-employees............................. 36 36
Proceeds from issuance of stock............. 627,197 6 354 360
Proceeds from exercise of stock options..... 3,250 --
Issuance of stock in exchange for notes
receivable................................ 240,000 3 141 (144) --
----------- --- ----- ----- ------------ ---------
Balances at December 31, 1996............... 3,888,224 39 697 (144) (1,243) (651)
Net loss.................................... (2,398) (2,398)
Issuance of stock options and warrants to
employees and non-employees............... 188 188
Proceeds from issuance of stock............. 6,750 7 7
Contribution of shareholder services........ 146 146
Issuance of parity shares................... 119,867 1 9 10
Proceeds from exercise of stock options..... 4,771 1 1
Accretion of mandatorily redeemable
convertible preferred stock............... (8) (8)
Repurchase of common stock.................. (613,015) (6) (186) (192)
----------- --- ----- ----- ------------ ---------
Balances at December 31, 1997............... 3,406,597 34 854 (144) (3,641) (2,897)
Net loss.................................... (8,117) (8,117)
Proceeds from exercise of stock options..... 110,507 1 26 27
Accretion of mandatorily redeemable
convertible preferred stock............... (14) (14)
Repurchase of mandatorily redeemable
convertible preferred stock............... (8,767) (8,767)
Repurchase of common stock.................. (2,173,206) (22) (367) (3,536) (3,925)
Dividends on mandatorily redeemable
convertible preferred stock............... (499) (50) (549)
----------- --- ----- ----- ------------ ---------
Balances at December 31, 1998............... 1,343,898 13 -- (144) (24,111) (24,242)
Net loss (unaudited)........................ (2,000) (2,000)
Proceeds from exercise of stock options
(unaudited)............................... 478,081 5 61 66
Accretion of mandatorily redeemable
convertible preferred stock (unaudited)... (7) (7)
Dividends on mandatorily redeemable
convertible preferred stock (unaudited)... (54) (530) (584)
----------- --- ----- ----- ------------ ---------
Balances at March 31, 1999 (unaudited)...... 1,821,979 $ 18 $ -- $ (144) $ (26,641) $ (26,767)
----------- --- ----- ----- ------------ ---------
----------- --- ----- ----- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
The Cobalt Group, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operations
Net (loss) income............................................. $ (828) $ (2,398) $ (8,117) $ 1,203 $ (2,000)
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Common stock repurchase premium............................. 5,202
Issuance of stock options and warrants...................... 36 188
Issuance of parity shares................................... 10
Depreciation and amortization............................... 12 120 614 117 250
Net (gain) loss on sale of assets........................... (1,617) (1,623) 4
Changes in:
Accounts receivable....................................... (43) (411) (791) 53 (151)
Other assets.............................................. (12) (16) (109) (35) (977)
Accounts payable.......................................... 65 121 (6) (14) 474
Deferred revenue.......................................... 197 699 393 169 215
Accrued liabilities....................................... 199 (125) 618 31 540
--------- --------- --------- --------- ---------
Total adjustments............................................. 454 586 4,304 (1,302) 355
--------- --------- --------- --------- ---------
Net cash used in operating activities..................... (374) (1,812) (3,813) (99) (1,645)
--------- --------- --------- --------- ---------
Cash flows from investing activities
Acquisition of capital assets................................. (101) (349) (472) (66) (172)
Purchase of short-term investments............................ (983)
Proceeds from sale of HomeScout, net of costs................. 1,626 1,016
Proceeds from disposal of capital assets...................... 1 5
--------- --------- --------- --------- ---------
Net cash (used in) provided by investing activities....... (101) (348) 176 950 (172)
--------- --------- --------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of common stock, net of costs.......... 360 7
Proceeds from issuance of mandatorily redeemable convertible
preferred stock, net of costs............................... 2,431 29,193
Repurchase of common stock.................................... (192) (9,127)
Repurchase of mandatorily redeemable convertible preferred
stock....................................................... (10,100)
Proceeds from issuance of notes payable....................... 200 1,000
Payments of notes payable..................................... (1,200)
Payment of DealerNet acquisition liability.................... (500) (84)
Proceeds from exercise of stock options....................... 1 27 66
Proceeds from officer advances................................ 45
Repayment of officer advances................................. (45)
Proceeds from lease financing transactions.................... 76 25
Payment of capital lease obligations.......................... (4) (30) (141) (8) (129)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities....... 477 2,397 9,152 (92) (63)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ 2 237 5,515 759 (1,880)
Cash and cash equivalents, beginning of period.................. 2 4 241 241 5,756
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period........................ $ 4 $ 241 $ 5,756 $ 1,000 $ 3,876
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements
1. Nature of the Business and Summary of Significant Accounting Policies
Nature of the business
The Cobalt Group, Inc. (the Company) is a provider of Internet marketing and
data aggregation services to individual franchised dealerships, multi-franchise
dealer groups and automobile manufacturers in the United States. The Company
enables its clients to develop and implement electronic business strategies and
to position themselves to capitalize on the increasing use of the Internet by
consumers to research, evaluate and buy new and pre-owned vehicles, parts and
accessories and automotive-related services such as financing and insurance. The
Company currently offers to its clients services including comprehensive Web
site design, development and maintenance; data extraction, aggregation and
maintenance; Internet advertising and promotion; and Internet marketing,
training and support.
The Company also maintains YachtWorld, a marine Web site, which contains
photo listings of yachts for sale on the Web, as well as other marine-related
information. HomeScout, a real estate search service which gives users access to
homes for sale on the Internet, was sold in 1998.
Cash and cash equivalents
The Company considers all short-term highly liquid instruments purchased
within three months of their maturity date to be cash equivalents. The Company
maintains its cash accounts with two financial institutions that are insured by
the Federal Deposit Insurance Corporation up to $100,000.
Short-term investments
Short-term investments consist of highly rated commercial paper with
original maturities of between three and six months. These investments are
classified as available-for-sale and are carried at fair value. The fair value
of these securities approximates cost, and there were no material unrealized
gains or losses at December 31, 1998 or March 31, 1999 (unaudited).
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, accrued
liabilities, deferred revenue, capital lease obligations and mandatorily
redeemable convertible preferred stock. Except for capital lease obligations and
mandatorily redeemable convertible preferred stock, the carrying amounts of
financial instruments approximate fair value due to their short maturities. The
fair value of capital lease obligations at December 31, 1997 and 1998 is not
materially different from the carrying amount, based on interest rates available
to the Company for similar types of arrangements. The Company considers the fair
value of the mandatorily redeemable convertible preferred stock to be
liquidation value, plus unpaid dividends.
Capital assets
Capital assets consist of computer equipment, furniture and other equipment,
purchased software and leasehold improvements, all of which are stated at
historical cost. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the assets or the term
of the lease, whichever is shorter. The useful lives of capital assets range
from three to five years. Maintenance and repairs, which neither materially add
to the value of the asset nor prolong its life, are charged to expense as
incurred. Gains or losses on dispositions of capital assets are included in
income.
F-7
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
1. Nature of the Business and Summary of Significant Accounting Policies
(Continued)
Intangible assets
Intangible assets consist of purchased customer contracts and a consumer
Internet site. These assets are amortized over their estimated useful lives of
36 months.
Impairment of long-lived assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including but not limited to, capital assets and intangible
assets, when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when the anticipated undiscounted
cash flow from such asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair value of the long-lived asset. Fair value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be disposed
of are determined in a similar manner, except that fair values are reduced for
the cost to dispose. No losses from impairment have been recognized in the
financial statements.
Pro forma shareholders' equity (unaudited)
Effective upon the closing of this offering, the outstanding shares of
Series A and Series B mandatorily redeemable convertible preferred stock will
automatically convert into 2,106,282 and 7,047,620 shares, respectively, of
common stock. The pro forma effects of these transactions are unaudited and have
been reflected in the accompanying pro forma shareholders' equity at March 31,
1999.
Revenue recognition
The Company derives its revenues principally from monthly fees charged to
its automobile dealership, dealer group and manufacturer clients for its
services. The Company recognizes revenue for ongoing services ratably over the
related service period and recognizes revenues for initial setup fees and custom
projects upon activation of the related service. The majority of the Company's
services are sold to clients under short-term service agreements with an initial
term of six months and month-to-month thereafter. Revenues are recognized net of
promotional discounts. Prepayments received for sites not yet activated and
services not yet provided are reported as deferred revenue.
Cost of revenues
The Company's cost of revenues consists of the costs associated with
production, maintenance and delivery of the Company's services. These costs
include the costs of production and design personnel, fees payable to third
parties for distribution of vehicle inventory data to other Web sites and for
banner advertising, site content licensing fees and costs of Web servers used to
host client data.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable, cash
equivalents and short-term investments. The Company does not require collateral
from its customers. Individual customer balances are small and customers are
required to pay for Web site service in advance. Due to the nature of the
business, no individual customer accounted for more than 10% of accounts
receivable or net revenues as of and for the years ended December 31, 1996, 1997
and 1998 and the three months ended March 31, 1998 and 1999 (unaudited). The
Company maintains an
F-8
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
1. Nature of the Business and Summary of Significant Accounting Policies
(Continued)
allowance for doubtful accounts receivable based upon its historical experience
and the expected collectibility of all accounts receivable. Credit losses to
date have been within the Company's estimates. The Company has a cash investment
policy which restricts investments to ensure preservation of principal and
maintenance of liquidity.
Advertising costs
The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1997 and 1998 were $156,000 and $276,000,
respectively. Advertising costs for the three months ended March 31, 1998 and
1999 were $4,000 and $220,000 (unaudited), respectively. There were no
advertising costs in 1996.
Income taxes
The Company provides for income taxes using the liability method. This
method requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. If it is more likely than
not that some portion of a deferred tax asset will not be realized, a valuation
allowance is recorded.
Net (loss) income per share and pro forma net loss per share
Basic net (loss) income per share represents net (loss) income available to
common shareholders divided by the weighted-average number of shares outstanding
during the period. Diluted net (loss) income per share represents net (loss)
income available to common shareholders divided by the weighted-average number
of shares outstanding including the potentially dilutive impact of common stock
options and warrants and Series A and B mandatorily redeemable convertible
preferred stock. Common stock options and warrants are converted using the
treasury stock method. Mandatorily redeemable convertible preferred stock is
converted using the if-converted method. Basic and diluted net (loss) income per
share are equal for the periods presented, except for the three months ended
March 31, 1998, because the impact of common stock equivalents is anti-dilutive.
Potentially dilutive securities totaling 433,884, 6,220,188 and 11,259,342
shares for the years ended December 31, 1996, 1997 and 1998, respectively, and
11,055,696 (unaudited) for the three months ended March 31, 1999, were excluded
from diluted net loss per share due to their anti-dilutive effect.
Pro forma net loss per share is computed using the weighted-average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's mandatorily redeemable convertible preferred stock
into shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on the date the
shares were originally issued.
F-9
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
1. Nature of the Business and Summary of Significant Accounting Policies
(Continued)
The following table sets forth the computation of the numerators and
denominators in the basic, diluted and pro forma net (loss) income per share
calculations for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(in thousands, except share and per share amounts)
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net (loss) income.................... $ (828) $ (2,398) $ (8,117) $ 1,203 $ (2,000)
Dividends on mandatorily redeemable
Convertible preferred stock.......... (549) (584)
Accretion of mandatorily redeemable
Convertible preferred stock........ (8) (14) (2) (7)
--------- --------- --------- --------- ---------
Net (loss) income available to common
shareholders....................... $ (828) $ (2,406) $ (8,680) $ 1,201 $ (2,591)
--------- --------- ---------
--------- --------- ---------
Effect of pro forma conversion of
securities:
Dividends on mandatorily redeemable
convertible preferred stock........ 549 584
Accretion of mandatorily redeemable
convertible preferred stock........ 14 7
--------- ---------
Pro forma net loss available to
common shareholders (unaudited).... $ (8,117) $ (2,000)
--------- ---------
--------- ---------
Denominator:
Weighted-average shares
outstanding........................ 3,491,536 3,485,563 2,938,460 3,406,597 1,488,681
Dilutive effect of potential
additional common shares:
Stock options and warrants......... 1,176,098
Series A mandatorily redeemable
convertible preferred stock....... 4,510,934
--------- --------- --------- --------- ---------
Weighted-average shares outstanding,
assuming dilution.................. 3,491,536 3,485,563 2,938,460 9,093,629 1,488,681
--------- --------- ---------
--------- --------- ---------
Weighted-average effect of pro forma
securities:
Series A mandatorily redeemable
convertible preferred stock....... 3,950,947 2,106,282
Series B mandatorily redeemable
convertible preferred stock....... 1,641,227 7,047,620
--------- ---------
Pro forma weighted average shares
outstanding (unaudited)............ 8,530,634 10,642,583
--------- ---------
--------- ---------
</TABLE>
Stock options
The Company's stock option plan is subject to the provisions of the
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). Under the provisions of this statement,
employee stock-based compensation expense is measured using either the intrinsic
value
F-10
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
1. Nature of the Business and Summary of Significant Accounting Policies
(Continued)
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (ABP 25), or the fair value method. The Company
has elected to account for its employee stock-based compensation under the
provisions of APB 25 and to disclose the pro forma impact of the fair value
method on net (loss) income and net (loss) income per share. The Company
accounts for stock-based awards issued to non-employees in accordance with the
fair value method of SFAS 123.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement is effective
beginning January 1, 1999 and establishes accounting standards for costs
incurred in the acquisition or development and implementation of computer
software. These new standards will require capitalization of certain software
implementation costs relating to software acquired or developed and implemented
for the Company's use. This statement is not expected to have a significant
effect on the Company's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This statement is effective beginning January 1, 1999 and
requires costs of start-up activities and organization costs to be expensed as
incurred. This statement is not expected to have a significant effect on the
Company's financial position or results of operations.
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity during a period
from non-owner sources. The Company adopted SFAS 130 on January 1, 1998. To
date, the Company has not had any significant transactions that are required to
be reported as other comprehensive income other than its net (loss) income.
The FASB recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management approach." The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas and major customers. The Company adopted SFAS 131
on January 1, 1998. The Company has determined that it does not have any
separately reportable business or geographic segments.
Unaudited interim financial statements
The interim financial data as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited; however, in the opinion of
management, the interim data includes all adjustments,
F-11
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
1. Nature of the Business and Summary of Significant Accounting Policies
(Continued)
consisting only of normal recurring adjustments necessary to present fairly the
Company's financial position as of March 31, 1999 and the results of its
operations and cash flows for the three months ended March 31, 1998 and 1999.
Reclassifications
Certain items in the 1996 and 1997 financial statements have been
reclassified to conform to the 1998 presentation.
2. Sale of HomeScout
On March 4, 1998 the Company sold substantially all of the assets related to
its HomeScout operations to Homeshark, Inc. for $1,982,000. Cash proceeds of
$500,000 were received by the Company upon closing of the sale. The remaining
sale price was received in cash during 1998. The Company recorded a gain of
$1,626,000. Revenues for HomeScout were $22,000, $61,000 and $19,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
3. Acquisition of DealerNet Assets
On December 1, 1997, the Company purchased certain assets of DealerNet,
which provides Internet marketing services to auto dealers. DealerNet was
previously operated as a division of The Reynolds and Reynolds Company
("Reynolds"). The purchase price was $800,000, of which $500,000 was paid in
cash over the twelve months following acquisition and $300,000 was paid by
issuance of Series B mandatorily redeemable convertible preferred stock.
There was additional consideration due depending on the level of revenues
attributable to DealerNet clients for the twelve month period following the
acquisition. At December 31, 1997, based on revenue projections, the Company
expected to pay $90,000 in additional consideration. Based on actual revenues
realized, no additional consideration was due to Reynolds. The purchase price
and resulting intangible asset was reduced by $90,000 in 1998, and the adjusted
basis will be amortized over the remaining life of the related assets.
The results of operations of DealerNet are included in the financial
statements from the date of acquisition. Unaudited pro forma results as if
DealerNet had been included in the financial results during 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
Years ended December
31,
--------------------
1996 1997
--------- ---------
(in thousands,
except per share
amounts)
(unaudited)
<S> <C> <C>
Net revenues............................................................... $ 2,041 $ 3,360
Net loss................................................................... (1,272) (2,437)
Basic and diluted net loss per share....................................... $ (0.36) $ (0.70)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results of operations that would have been reported had the acquisition occurred
prior to the beginning of the periods presented. In addition, they are not
intended to be indicative of future results.
F-12
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
4. Capital Assets
A summary of capital assets follows:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(in thousands)
(unaudited)
Computer equipment.................................................................. $ 361 $ 1,190 $ 1,887
Furniture and other equipment....................................................... 59 378 403
Software............................................................................ 37 161 925
Leasehold improvements.............................................................. -- 134 173
--------- --------- -----------
457 1,863 3,388
Less: Accumulated depreciation and amortization..................................... (106) (410) (582)
--------- --------- -----------
$ 351 $ 1,453 $ 2,806
--------- --------- -----------
--------- --------- -----------
</TABLE>
Equipment held under capital leases is included in capital assets. The cost
of the leased equipment is $101,000 $1,060,000 and $1,770,000 (unaudited) at
December 31, 1997 and 1998 and March 31, 1999, respectively. The accumulated
amortization for these items is $36,000 $173,000 and $279,000 (unaudited) at
December 31, 1997 and 1998 and March 31, 1999, respectively.
5. Accrued Liabilities
A summary of accrued liabilities follows:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(in thousands)
(unaudited)
Accrued payroll and related benefits................................................. $ 113 $ 324 $ 442
Accrued professional fees............................................................ -- 166 170
Accrued advertising costs............................................................ -- -- 420
Other................................................................................ 45 286 284
--------- --------- -----------
$ 158 $ 776 $ 1,316
--------- --------- -----------
--------- --------- -----------
</TABLE>
6. Capital Leases
The Company leases various equipment under master lease agreements with one
of its shareholders. The leases expire at various dates between October 1999 and
December 2001.
F-13
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
6. Capital Leases (Continued)
Future minimum lease payments for these capital leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31, (in thousands)
- -------------------------------------------------------------------------------------------------
<S> <C>
1999........................................................................................... $ 402
2000........................................................................................... 387
2001........................................................................................... 259
------
Total minimum lease payments..................................................................... 1,048
Less: Portion representing interest.............................................................. (163)
------
Present value of capital lease obligations....................................................... 885
Less: Current portion............................................................................ (328)
------
Capital lease obligations, non-current portion................................................... $ 557
------
------
</TABLE>
7. Note Payable to Bank
Note payable to bank at December 31, 1997 represents the balance due on a
line of credit, which bears interest at prime plus 2% (10.5% at December 31,
1997), payable monthly. The line of credit expired November 15, 1998 and was not
renewed.
8. Income Taxes
From inception through February 28, 1997 the Company was organized as a S
corporation for income tax reporting purposes and, as such, the tax effects were
passed directly to the shareholders. Effective February 28, 1997, the Company
became a C corporation. A current provision for income taxes has not been
recorded for the year ended December 31, 1998 or for the period from March 1,
1997 to December 31, 1997, due to taxable losses incurred during the periods. A
valuation allowance has been recorded for deferred tax assets because
realization is primarily dependent on generating sufficient taxable income prior
to expiration of net operating loss carry-forwards.
Temporary differences that give rise to the Company's deferred tax assets
and liabilities comprise the following:
<TABLE>
<CAPTION>
December 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
(in thousands)
Net operating loss carry-forwards................................................................ $ 724 $ 1,672
Depreciation and amortization.................................................................... (5) 77
Compensation expense related to stock options.................................................... 68 64
Allowance for doubtful accounts.................................................................. 14 29
Accrued liabilities.............................................................................. 11 37
Valuation allowance.............................................................................. (812) (1,879)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
8. Income Taxes (Continued)
For the periods in which the Company was a C corporation, a reconciliation
of taxes on income at the
federal statutory rate to actual tax expense is as follows:
<TABLE>
<CAPTION>
Years ended December
31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
(in thousands)
Tax at statutory rate.......................................................................... $ (815) $ (2,760)
Nondeductible items............................................................................ 6 1,780
Loss attributed to S corporation............................................................... 66 --
Change in valuation allowance.................................................................. 812 1,067
Other.......................................................................................... (69) (87)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998, the Company had net operating loss carry-forwards of
approximately $4.9 million, which will expire beginning in the year 2012, if not
previously utilized. Should certain changes in the Company's ownership occur,
there could be a limitation on the utilization of its net operating losses. The
Company has determined that such a change occurred in October 1998 and the
utilization of loss carryforwards generated through that period will be limited.
9. Mandatorily Redeemable Convertible Preferred Stock
The Company's Series A and Series B mandatorily redeemable convertible
preferred stock each include a provision whereby, at any time after September
30, 2003, a shareholder majority has the right to require the Company to
repurchase the shares at the stated redemption price plus any declared and
unpaid dividends. The redemption price is $0.55 per share and $4.20 per share
plus unpaid dividends for the Series A preferred stock and the Series B
preferred stock, respectively. The redemption value of the mandatorily
redeemable convertible preferred stock is being accreted over the period from
issuance to the earliest redemption date using the effective interest method.
The Series A and Series B preferred shares have preferential liquidation and
conversion rights, as well as voting and registration rights. The Series A
preferred shareholders are entitled to one of the six authorized representatives
on the Company's Board of Directors and the Series B preferred shareholders are
entitled to two of the six. The purchase agreements also contain restrictive
covenants, among which are limitations as to dividends, asset sales,
indebtedness, capital asset acquisitions and lease agreements. The Series A and
Series B mandatorily redeemable preferred stock are both convertible, on a
one-for-one basis, into common stock at any time at the option of the holders.
These shares automatically convert upon an initial public offering, and the
entitlement to Board representatives and restrictive covenant provisions
terminate.
The Series B preferred shareholders are entitled to receive cumulative
dividends in the amount of $0.336 per share per annum. No dividends were
declared by the Company during the year ended December 31, 1998. Accumulated
unpaid dividends of $549,000 and $1,133,000 (unaudited) at December 31, 1998 and
March 31, 1999, respectively, do not bear interest. These unpaid dividends have
been recorded as an increase to Series B mandatorily redeemable convertible
preferred stock.
F-15
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
10. Shareholders' Deficit
Stock repurchase
On October 7, 1998, the Company used a portion of the proceeds from the
issuance of the Series B preferred stock to repurchase and retire 2,173,206
shares of common stock and 2,404,652 shares of Series A preferred stock at $4.20
per share. The repurchase price of the Series A preferred stock was equal to the
estimated fair market value. The repurchase price of the common stock was in
excess of the $1.85 per share fair value as determined by the Company's Board of
Directors. In accordance with FASB Technical Bulletin 85-6, the Company
recognized expense of $4,928,000 which represents the excess of the repurchase
price over the fair value of all common shares repurchased, with the exception
of repurchased shares which resulted from employee stock option exercises
immediately preceding the repurchase. For these shares, $274,000 in expense was
recognized for the excess of the repurchase price over the employees' cost basis
in the shares.
Other common stock transactions
On February 28, 1997, two of the Company's officers, who are also
shareholders, entered into an agreement to settle the Company's liability for
deferred compensation. The terms of the agreement required a cash payment of
half the amount due and the remainder was forgiven by the officers. Such amount
is included in shareholders' equity as a contribution of services.
As of February 28, 1997, certain of the Company's shareholders had purchased
shares of common stock at prices in excess of the share price paid by the Series
A Preferred shareholders. To retain their basis in parity with the Series A
Preferred share price, these shareholders received a total of 119,867 additional
shares of common stock, which the Company accounted for as a stock dividend to
non-employee shareholders and as compensation expense to employee shareholders.
On February 28, 1997, the company repurchased 613,015 shares of common stock
from a former officer and a former employee at the fair market value as
determined by the Company's Board of Directors.
On August 20, 1996, the Company issued 120,000 shares of common stock each
to two shareholders that are also officers of the Company. Two non-recourse
notes were accepted in exchange, each in the amount of $72,000 with interest at
the rate of 8% per annum, due on August 20, 2006. The notes are collateralized
by stock pledge agreements for 129,915 shares each, which include the 120,000
shares and 9,915 additional shares issued to each shareholder on February 28,
1997. The notes are included in shareholders' deficit on the balance sheet.
Stock warrants
During October 1996, the Company issued warrants to purchase 24,000 shares
of common stock with an exercise price of $0.30 per share. These warrants were
issued to a third party in consideration for professional services performed.
The warrants became vested ratably over 24 months and expire in October 2003.
These warrants were recorded at their fair value of $2,000, which was recognized
as general and administrative expense.
During February 1997, the Company issued warrants to purchase 37,500 shares
of common stock with an exercise price of $0.55 per share. These warrants were
issued to a third party in consideration for professional services performed.
These warrants were fully vested upon issuance and expire in February 2004.
These warrants were recorded at their fair value of $15,000, which was
recognized as general and administrative expense.
F-16
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
10. Shareholders' Deficit (Continued)
Stock option plan
The Company has a stock option plan (the Plan) for employees, directors,
consultants or independent contractors under which is reserved 2,750,000 shares
of common stock. In April 1999, the number of shares reserved under the plan was
increased to 3,641,000. Pursuant to the Plan, the Board of Directors has granted
nonqualified stock options and incentive stock options. The vesting period,
exercise price and expiration period of options are established at the
discretion of the Board of Directors. While some options were vested when
granted, options generally vest over a four-year period and expire ten years
from the date of grant.
In 1996 and 1997, compensation expense of $34,000 and $12,000 was recognized
under the Plan for certain options granted to third parties. The fair value of
each option grant was estimated on the date of grant using the Black Scholes
option-pricing model. There was no compensation expense relating to options
granted to third parties in 1998.
In 1997, compensation expense of $161,000 was recognized under the Plan for
certain options that were granted to executives with exercise prices below the
fair value determined by the Board of Directors. The compensation expense
represents the differential between the exercise price and the fair value. There
was no compensation expense relating to option grants with exercise prices below
fair value in 1996 or 1998.
On March 24, 1997, the Board of Directors approved an option repricing to
reflect the then current fair value of the shares of $0.30 per share. All
options issued and outstanding at that date with exercise prices in excess of
$0.30 were repriced at $0.30.
Had the Company determined compensation expense based on the fair value of
the option at the grant date for its stock options issued to employees, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
(in thousands, except per share
amounts)
Net loss
As reported....................................................................... $ (828) $ (2,398) $ (8,117)
Pro forma......................................................................... $ (855) $ (2,452) $ (8,216)
Basic and diluted net loss per share
As reported....................................................................... $ (0.24) $ (0.69) $ (2.95)
Pro forma......................................................................... $ (0.24) $ (0.71) $ (2.99)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option-pricing model. The following weighted average
assumptions were used for employee stock option grants in 1996, 1997 and 1998:
risk free interest rate at grant date of 6.22%, 6.26% and 5.11%, respectively,
no dividends or volatility and expected lives of five years in all three years.
The March 24, 1997 option-repricing event is considered a modification of an
existing option. For determination of the pro forma amounts, this modification
is treated as if a new option had been issued and any additional incremental
value recorded in the year of repricing is immediately recognized for vested
options and amortized over the remaining vesting period for nonvested options.
F-17
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
10. Shareholders' Deficit (Continued)
Pro forma net loss amounts reported above reflect only options granted in
1995 through 1998. The full impact of calculating compensation expense for stock
options based on fair value at the grant date is not reflected in the pro forma
net loss amounts because compensation expense is reflected over the options'
vesting period of four years. In addition, because the determination of the fair
value of all options granted after such time as the Company becomes a public
entity will include an expected volatility factor in addition to the factors
described in the preceding paragraph, the above results may not be
representative of future periods.
The following summarizes the activity under the Plan:
<TABLE>
<CAPTION>
Weighted-
Number of Weighted- average
shares under average fair value
option exercise of options
agreements price granted
------------ ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1996................................................... 102,000 $ 0.20
Options granted.............................................................. 504,384 0.39 $ 0.14
Options exercised............................................................ (3,250) 0.10
Options canceled............................................................. (193,250) 0.39
------------
Balance at December 31, 1996................................................. 409,884 0.34
Options granted:
Exercise price equal to fair value......................................... 538,250 0.33 0.13
Exercise price less than fair value........................................ 812,920 0.10 0.20
Options exercised............................................................ (4,771) 0.28
Options canceled............................................................. (108,529) 0.48
------------
Balance at December 31, 1997................................................. 1,647,754 0.20
Options granted.............................................................. 655,100 0.80 0.26
Options exercised............................................................ (110,507) 0.27
Options canceled............................................................. (148,407) 0.37
------------
Balance at December 31, 1998................................................. 2,043,940 0.39
------------
------------
Options exercisable at:
December 31, 1996.......................................................... 133,729 $ 0.34
December 31, 1997.......................................................... 1,015,597 $ 0.14
December 31, 1998.......................................................... 1,115,651 $ 0.16
</TABLE>
At December 31, 1998, 564,060 shares remained reserved and available for
grant under the Plan.
F-18
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
10. Shareholders' Deficit (Continued)
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
average Weighted- Weighted-
remaining average average
Exercise Number contractual exercise Number exercise
price outstanding life price exercisable price
- ----------- ----------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.10 812,920 8.2 $ 0.10 812,920 $ 0.10
$ 0.30 522,920 8.0 $ 0.30 275,970 $ 0.30
$ 0.60 10,000 7.7 $ 0.60 10,000 $ 0.60
$ 0.75 670,100 9.4 $ 0.75 16,761 $ 0.75
$ 1.85 28,000 9.8 $ 1.85
----------- ----------
2,043,940 1,115,651
----------- ----------
</TABLE>
11. Retirement Savings Plan
On August 1, 1997, the Company established a retirement savings plan that
qualifies under Internal Revenue Code Section 401(k). The plan covers all
qualified employees. Contributions to this plan by the Company are made at the
discretion of the Board of Directors. The Company did not contribute to the plan
in 1997 and 1998 or during the three months ended March 31, 1998 and 1999
(unaudited).
12. Operating Lease Commitments
The Company leases office space in Seattle, Washington, under a lease that
expires in October 2000. The lease includes one option to extend the lease term
for five years. The Company also leases certain office equipment under various
operating leases. Future minimum lease payments for the leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31, (in thousands)
- ---------------------------------------------------------------------------------------------------
<S> <C>
1999........................................................................................ $ 442
2000........................................................................................ 342
2001........................................................................................ 7
2002........................................................................................ 4
2003........................................................................................ 1
-----
$ 796
-----
-----
</TABLE>
Operating lease expense was $31,000 $140,000 and $349,000 for the years
ended December 31, 1996, 1997 and 1998, respectively, and $55,000 and $112,000
(unaudited) for the three months ended March 31, 1998 and 1999, respectively. In
1997, the building in which the Company leases its office space was purchased by
one of its shareholders.
F-19
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
13. Supplemental Disclosures of Cash Flow Information
Cash paid for interest during 1996, 1997 and 1998 was $2,000, $17,000 and
$90,000, respectively. Cash paid for interest during the three months ended
March 31, 1998 and 1999 was $7,000 and $49,000 (unaudited), respectively.
In 1997 and 1998 the Company purchased capital assets under capital leases
of $21,000 and $959,000, respectively. The Company did not purchase capital
assets under capital leases during 1996. During the three months ended March 31,
1999, the Company purchased capital and other assets under the capital leases
and a software financing contract of $1,437,000 (unaudited). The Company did not
purchase capital assets under capital leases during the three months ended March
31, 1998.
14. Subsequent Events
Advertising commitment
In February 1999, the Company entered into an agreement to purchase online
advertising, which the Company intends to resell to clients. Under this
agreement, the Company is contractually obligated to make aggregate payments of
$697,000 through December 31, 1999.
Financing commitment and line of credit
In April 1999, the Company received a commitment from one of its current
investors to provide any financing necessary for the Company to meet its current
operating and growth objectives through December 31, 1999 if alternative sources
of financing are not obtained.
In May 1999, the Company secured a $5.0 million line of credit from an
institutional lender. This line of credit bears interest at prime plus 2% and is
due on the earlier of completion of this offering or December 31, 1999. The line
of credit is secured by the Company's assets.
Acquisition
On April 1, 1999, the Company acquired all of the equity interests in
PartsVoice, LLC (PartsVoice), whose principal business is vehicle parts data
acquisition and management services. Immediately prior to the closing,
PartsVoice distributed to its owners certain assets and liabilities. At closing,
the Company paid aggregate purchase consideration for the PartsVoice equity of
(i) $3.0 million in cash; (ii) promissory notes in the principal amount of (a)
$8.0 million due on the earlier of completion of an initial public offering or
July 30, 1999 and (b) $15.0 million due on the earlier of the completion of an
initial public offering or January 25, 2000; (iii) 500,000 shares of Series C
convertible preferred stock at $8.00 per share; and (iv) warrants to purchase
160,000 shares of the Company's common stock at $6.00 per share. The Company's
obligations under the promissory notes are secured by a pledge of the PartsVoice
equity interests and an agreement with respect to the management of the
PartsVoice equity interests, pending payment in full of the promissory notes.
The Company will account for the PartsVoice acquisition using the purchase
method of accounting. The aggregate purchase price will be allocated to the net
assets acquired, based upon their respective fair market values. The excess of
the purchase price, including estimated acquisition costs, over the fair market
value of the assets acquired will be allocated to intangible assets.
F-20
<PAGE>
The Cobalt Group, Inc.
Notes to Financial Statements (Continued)
14. Subsequent Events (Continued)
The following summarizes the unaudited pro forma results of operations, on a
combined basis, as if the Company's acquisition of PartsVoice occurred as of the
beginning of each of the periods presented, after including the impact of
certain adjustments such as amortization of cost in excess of net assets
acquired:
<TABLE>
<CAPTION>
Three months
Year ended Ended
December 31, March 31,
1998 1999
------------ -------------
<S> <C> <C>
(in thousands, except
per share amounts)
Net revenues......................................................................... $ 15,773 $ 5,009
Net loss............................................................................. (10,604) (2,612)
Basic and diluted net loss per share................................................. $ (3.88) $ (2.19)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results of operations that would have been reported had the acquisition occurred
prior to the beginning of the periods presented. In addition, they are not
intended to be indicative of future results.
Initial public offering
On April 30, 1999, the Company's Board of Directors authorized the Company
to initiate a potential initial public offering of its common stock.
F-21
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Cobalt Group, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, changes in owners' equity, of comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of PartsVoice (the Company), consisting of the operations of
PartsVoice, a general partnership, and Compu-Time, Inc., at December 31, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
May 12, 1999
F-22
<PAGE>
PartsVoice
Combined Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $ 216 $ 497
Accounts receivable, net of allowance for doubtful accounts of $46 and $41 in 1997 and 1998,
respectively................................................................................ 833 1,032
Other current assets......................................................................... 26 3
--------- ---------
1,075 1,532
Marketable securities.......................................................................... 144 405
Capital assets, net............................................................................ 164 123
Other noncurrent assets........................................................................ 136 200
--------- ---------
Total assets............................................................................... $ 1,519 $ 2,260
--------- ---------
--------- ---------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................................................... $ 81 $ 203
Distribution payable to owners............................................................... 865 1,087
--------- ---------
946 1,290
--------- ---------
Noncurrent portion of notes payable............................................................ 12 8
--------- ---------
Commitments and contingencies (Note 7)
Owners' equity:
Common stock and partners' capital........................................................... 702 1,070
Accumulated other comprehensive loss......................................................... (141) (108)
--------- ---------
561 962
--------- ---------
Total liabilities and owners' equity....................................................... $ 1,519 $ 2,260
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-23
<PAGE>
PartsVoice
Combined Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Net revenues......................................................................... $ 6,679 $ 7,715 $ 9,528
Cost of revenues..................................................................... 1,714 1,965 2,144
--------- --------- ---------
Gross profit..................................................................... 4,965 5,750 7,384
Sales and marketing expense.......................................................... 1,339 1,419 1,662
General and administrative expenses.................................................. 1,012 1,054 1,180
--------- --------- ---------
Income from operations........................................................... 2,614 3,277 4,542
Other (expense) income............................................................... (1) 28 65
--------- --------- ---------
Net income....................................................................... $ 2,613 $ 3,305 $ 4,607
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-24
<PAGE>
PartsVoice
Combined Statements of Changes in Owners' Equity
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock and Other Total
Partners' Comprehensive Owners'
Capital Loss Equity
---------------- --------------- ---------
<S> <C> <C> <C>
Balance, December 31, 1995............................................ $ 288 $ (39) $ 249
Net income............................................................ 2,613 -- 2,613
Distributions......................................................... (2,438) -- (2,438)
------- ----- ---------
Balances, December 31, 1996........................................... 463 (39) 424
Net income............................................................ 3,305 -- 3,305
Distributions......................................................... (3,066) -- (3,066)
Unrealized loss on securities......................................... -- (102) (102)
------- ----- ---------
Balances, December 31, 1997........................................... 702 (141) 561
Net income............................................................ 4,607 -- 4,607
Distributions......................................................... (4,239) -- (4,239)
Unrealized gain on securities......................................... -- 33 33
------- ----- ---------
Balances, December 31, 1998........................................... $ 1,070 $ (108) $ 962
------- ----- ---------
------- ----- ---------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-25
<PAGE>
PartsVoice
Combined Statements of Comprehensive Income
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Net income........................................................................... $ 2,613 $ 3,305 $ 4,607
Unrealized (loss) gain on securities................................................. -- (102) 33
--------- --------- ---------
Comprehensive income................................................................. $ 2,613 $ 3,203 $ 4,640
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-26
<PAGE>
PartsVoice
Combined Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Cash flows from operating activities:
Net income...................................................................... $ 2,613 $ 3,305 $ 4,607
Depreciation.................................................................... 50 50 80
Net changes in:
Accounts receivable........................................................... (228) (105) (199)
Other current assets.......................................................... (13) 19 23
Other noncurrent assets....................................................... (17) (52) (64)
Accounts payable and accrued liabilities...................................... 52 (36) 122
--------- --------- ---------
Net cash provided by operating activities..................................... 2,457 3,181 4,569
--------- --------- ---------
Cash flows used by investing activities:
Purchases of equipment and furniture............................................ (58) (108) (39)
Purchase of marketable securities............................................... (22) (146) (228)
--------- --------- ---------
Net cash used by investing activities......................................... (80) (254) (267)
--------- --------- ---------
Cash flows used by financing activities:
Net change in notes payable..................................................... (61) 12 (4)
Distributions to owners......................................................... (2,456) (2,947) (4,017)
--------- --------- ---------
Net cash used by financing activities......................................... (2,517) (2,935) (4,021)
--------- --------- ---------
Net (decrease) increase in cash............................................... (140) (8) 281
Cash and cash equivalents at beginning of year................................ 364 224 216
--------- --------- ---------
Cash and cash equivalents at end of year...................................... $ 224 $ 216 $ 497
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE>
PartsVoice
Notes to Combined Financial Statements
1. Nature of the Business and Summary of Significant Accounting Policies:
Nature of the Business and Basis of Presentation
The combined business of PartsVoice, a general partnership, and Compu-Time,
Inc. (CTI) (the Company) provides parts data acquisition and management services
to auto manufacturers and dealers. The Partnership was founded in 1988. CTI was
founded in 1978.
Principles of Combination
The accompanying combined financial statements include the accounts of the
Company. All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable Securities
Marketable securities consist of certificates of deposit and equity
securities. All marketable securities are classified as available-for-sale as
defined by Statement of Financial Accounting Standards (SFAS) No. 115,
"Investments in Certain Debt and Equity Securities" and are recorded at fair
market value determined by the most recently traded price of securities held at
each balance sheet date. Unrealized gains or losses on available-for-sale
securities are recorded as a component of accumulated other comprehensive income
in owners' equity. Realized gains and losses on sales of investments, as
determined on a specific identification basis, are included in the combined
statement of operations.
Capital Assets
Capital assets consist of computer equipment, furniture and other equipment,
purchased software and leasehold improvements, all of which are stated at cost.
Depreciation and amortization are provided in amounts sufficient to relate the
cost of depreciable assets to operations over either their estimated service
lives or the life of the related lease on a straight-line basis. The useful
lives of the property, equipment and software range from three to five years.
Maintenance and repairs, which neither materially add to the value of the
property nor prolong its life, are charged to expense as incurred. Gains or
losses on dispositions of capital assets are included in income.
Capital Structure
Given the Company's historical capital structure, historical shares
outstanding and earnings per share amounts for Compu-Time, Inc. are not
presented as they are not considered meaningful.
Revenue Recognition
The Company's revenues consist principally of subscription fees charged to
auto manufacturers and dealers periodically throughout each year. Revenue is
recognized when services are rendered.
F-28
<PAGE>
PartsVoice
Notes to Combined Financial Statements (Continued)
1. Nature of the Business and Summary of Significant Accounting Policies:
(Continued)
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily accounts receivable, cash
equivalents and certificates of deposit. The Company does not require collateral
from its customers. One automobile manufacturer and its related entities
accounted for 31%, 35% and 41% of the Company's revenues during the years ended
December 31, 1996, 1997 and 1998, respectively. At December 31, 1997 and 1998,
these entities comprised 58% and 70%, respectively of the accounts receivable
balance. The Company has a cash investment policy which restricts investments to
ensure preservation of principal and maintenance of liquidity.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1996, 1997 and 1998 were $42,000, $68,000 and
$123,000, respectively.
Income Taxes
CTI was a C corporation under the Internal Revenue Code (IRC) until May 31,
1997, at which time it elected to be taxed as a S corporation under the IRC.
Income taxes on earnings through May 31, 1997 were immaterial and have not been
separately presented. Subsequent to May 31, 1997 for CTI, and for all periods
presented with respect to the Partnership, the combined operations have not been
subject to federal and state income taxes. Accordingly, no recognition has been
given to income taxes in the accompanying combined financial statements because
the income or loss of CTI and the Partnership for those periods is included in
the tax returns of the individual owners. The tax returns of CTI and the
Partnership are subject to examination by federal and state taxing authorities.
If such examinations result in adjustments to distributive shares of taxable
income or loss, the tax liabilities of the owners could be adjusted accordingly.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income", which
became effective in 1998. This statement establishes rules for the reporting of
comprehensive income. Other comprehensive income or loss is shown in the
combined statements of comprehensive income and is solely comprised of
unrealized losses on available-for-sale securities.
2. Marketable Securities:
Marketable securities consist of certificates of deposit maturing on March
17, 2003 and June 3, 2003 and available-for-sale equity securities.
F-29
<PAGE>
PartsVoice
Notes to Combined Financial Statements (Continued)
2. Marketable Securities: (Continued)
Marketable securities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1998
------------------------ ------------------------
Cost Fair Value Cost Fair Value
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
(in thousands)
Equity Securities............................................... $ 285 $ 144 $ 494 $ 386
Certificates of Deposit......................................... -- -- 19 19
--------- ----- --------- -----
Total marketable securities................................... $ 285 $ 144 $ 513 $ 405
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
3. Capital Assets:
Capital assets were as follows at:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(in thousands)
Furniture and fixtures................................................................. $ 33 $ 33
Equipment.............................................................................. 285 318
Trucks and automobiles................................................................. 118 118
Office equipment....................................................................... 12 18
--------- ---------
448 487
Less accumulated depreciation and amortization......................................... (284) (364)
--------- ---------
$ 164 $ 123
--------- ---------
--------- ---------
</TABLE>
4. Note Payable:
The note payable bears interest at a rate of 6.4%, requires payments of
$4,000 per year and is due December 15, 2001. The note payable is secured by one
vehicle owned by the Company. Payments are due as follows at December 31, 1998:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999........................................................................... $ 4
2000........................................................................... 4
2001........................................................................... 4
---
$ 12
---
---
Noncurrent portion............................................................. $ 8
---
---
</TABLE>
5. Related Parties:
The Company has a profit sharing arrangement with its owners. As of December
31, 1997 and 1998, the net payables to partners as a result of this arrangement
were $865,000 and $1,087,000, respectively. Distributions to the partners in
connection with the arrangement were $2,438,000, $3,066,000 and $4,239,000 in
1996, 1997 and 1998, respectively.
F-30
<PAGE>
PartsVoice
Notes to Combined Financial Statements (Continued)
6. Employee Benefit Plans:
The Company maintains retirement savings plans that qualify under Internal
Revenue Code Section 401(k). The plans cover all qualified employees.
Contributions to these plans may be made at the discretion of the Company. No
contributions were made for the years ended December 31, 1996, 1997 and 1998.
CTI also maintains an Aged Weighted Profit Sharing Plan for which all
qualified CTI employees are eligible. Contributions to the Profit Sharing Plan
are made at the discretion of the Company. Contributions related to this plan
were $37,000 and $85,000 for the years ended December 31, 1997 and 1998. No
contributions were made for the year ended December 31, 1996.
7. Operating Lease Commitments:
The Company leases office space in Portland, Oregon under a lease that
expires in November 1999. The Company also leases certain office equipment and
vehicles under various operating leases. Future minimum lease payments for the
leases are as follows:
<TABLE>
<CAPTION>
Years ending
December 31, (in thousands)
- -------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 137
2000........................................................................... 17
2001........................................................................... 9
-----
$ 163
-----
-----
</TABLE>
Operating lease expense was $156,000, $158,000 and $168,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
8. Subsequent Event:
On April 30, 1999 all assets and liabilities of the Partnership and CTI were
contributed to a new Oregon limited liability company, PartsVoice, LLC. On April
30, 1999, all of the equity interests of PartsVoice, LLC were purchased by The
Cobalt Group, Inc. ("Cobalt"). Immediately prior to the purchase, there was a
distribution of certain assets and all liabilities to the former owners. Cobalt
paid an aggregate purchase consideration of: (i) $3.0 million in cash; (ii)
promissory notes in the principal amount of (a) $8.0 million due on the earlier
of completion of an initial public offering or July 30, 1999 and (b) $15.0
million due on the earlier of the completion of an initial public offering or
January 25, 2000; (iii) 500,000 shares of Series C convertible preferred stock
at $8.00 per share; and (iv) warrants to purchase 160,000 shares of the
Company's common stock at $6.00 per share. The promissory notes bear interest at
the rate of 8.75% per annum and are secured by a pledge of the PartsVoice, LLC
equity interests.
F-31
<PAGE>
The Cobalt Group, Inc. Logo
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
Registrant. All amounts are estimates except the SEC registration, NASD and
Nasdaq filing fees.
<TABLE>
<S> <C>
SEC Registration fee...................................................... 23,978
NASD filing fee........................................................... 9,125
Nasdaq National Market listing fee........................................ 95,000
Blue Sky fees and expenses................................................ 5,000
Accounting fees and expenses.............................................. 200,000
Legal fees and expenses................................................... 300,000
Transfer agent and registrar fees......................................... 10,000
Printing and engraving expenses........................................... 100,000
Miscellaneous expenses.................................................... 6,897
Total..................................................................... 750,000
</TABLE>
ITEM 14. Indemnification of Directors and Officers
Cobalt's articles of incorporation limit the liability of directors to the
maximum extent permitted by Washington law. Washington law provides that the
articles of incorporation may contain provisions that eliminate or limit the
personal liability of a directors to the corporation or its shareholders
provided that such provisions do not eliminate or limit the liability of a
director for (1) acts or omissions involving intentional misconduct or a knowing
violation of law, (2) unlawful payments of distributions, or (3) any transaction
from which the director will personally receive an improper benefit in money,
property, or services.
Cobalt's bylaws provide that Cobalt shall indemnify its directors and
officers and may indemnify its employees and other agents to the fullest extent
permitted by law. Cobalt's bylaws also permit it to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
Cobalt will maintain officers' and directors' liability insurance which will
insure against liabilities that officers and directors of Cobalt may incur in
such capacities. Cobalt also intends to enter into indemnification agreements
with its directors and officers.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of Cobalt and its
officers and directors for certain liabilities arising under the Securities Act,
or otherwise.
ITEM 15. Recent Sales of Unregistered Securities
(a) Within the past three years, Cobalt has made the following sales of
securities that were not registered under the Securities Act:
1. In August 1996, Cobalt issued 120,000 shares of common stock to each
of Mr. Barker and Mr. Holt at a purchase price of $0.60 per share. In
satisfaction of the purchase price, Messrs. Barker and Holt each executed
promissory notes to Cobalt due in August 2006 in the principal amount of
$72,000.
II-1
<PAGE>
The promissory notes bear interest at a rate of 8% per annum. Each
promissory note is secured by a pledge of the common stock issued in the
purchase transaction. The shares were issued in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act.
2. On October 23, 1996, Cobalt issued to The Madrona Investment Group,
LLC a warrant to purchase 24,000 shares of common stock at an exercise price
of $1.25 per share. The Madrona warrant was later repriced at $0.30 per
share. The Madrona warrant expires on October 31, 2003. The warrant was
issued in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
3. On February 27, 1997, Cobalt issued to GH Investments a warrant to
purchase 37,500 shares of common stock at an exercise price of $0.55 per
share. The GH Investments warrant expires on February 28, 2004. The warrant
was issued in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.
4. During the period from May 27, 1996 through May 27, 1999, Cobalt
granted options to purchase an aggregate of 4,057,612 shares of common stock
pursuant to its Option Plan. 897,495 shares of common stock have been issued
on exercise of such options in reliance on Rule 701 under the Securities
Act.
5. On February 28, 1997, Cobalt issued and sold 4,510,934 shares of
Series A Preferred Stock to investment funds affiliated with First Analysis
Corporation for an aggregate consideration of $2.5 million in cash. The sale
of the Series A Preferred Stock was made in reliance on the exemption from
registration provided by Rule 506 of Regulation D under the Securities Act.
Following this sale of Series A Preferred Stock, Cobalt also issued 119,867
shares of common stock to nine existing shareholders who had purchased
common stock at a per share price greater than that paid by First Analysis
Corporation. These dilution protection shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
6. On October 7, 1998 and November 6, 1998, Cobalt issued and sold
7,047,620 shares of Series B and Series B-1 Preferred Stock to Warburg,
Pincus Equity Partners, L.P. and The Reynolds and Reynolds Company for an
aggregate consideration of $29.3 million in cash and as partial
consideration for an asset purchase. Sales of the Series B and Series B-1
Preferred Stock were made in reliance on the exemption from registration
provided by Rule 506 of Regulation D under the Securities Act.
7. On April 30, 1999, Cobalt issued and sold 12,500 shares of Series C
Preferred Stock to Howard Tullman, a Director of Cobalt. Also on April 30,
1999, Cobalt issued and sold 500,000 shares of Series C Preferred Stock to
two entities that previously held equity in PartsVoice, LLC and warrants to
purchase an additional 160,000 shares of Series C Preferred Stock at an
exercise price of $6.00 per share to those same two entities and a third
entity that previously held equity in PartsVoice LLC for an aggregate
consideration of $4.1 million. Sales of the Series C Preferred Stock were
made in reliance on the exemption from registration provided by Rule 506 of
Regulation D under the Securities Act.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of The Cobalt Group, Inc.
3.2* Bylaws of The Cobalt Group, Inc.
4.1* Form of specimen certificate for Common Stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Description
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
5.1* Opinion of Stoel Rives LLP
10.1 The Cobalt Group, Inc. 1995 Stock Option Plan, as amended.
10.2 Promissory Note, dated August 20, 1996, between The Cobalt Group, Inc. and John W.P. Holt (and schedule
of similar Note between The Cobalt Group, Inc. and Geoffrey T. Barker).
10.3 Lease Agreement, dated September 14, 1996, between The Cobalt Group, Inc. and David and Nancy Jo
Edelstein.
10.3.1 Amendment No. 1 to Lease Agreement, dated April 21, 1998, between First and Lenora, LLC and The Cobalt
Group, Inc.
10.3.2 Amendment No. 2 to Lease Agreement, dated December 16, 1998, between First and Lenora, LLC and The
Cobalt Group, Inc.
10.4 Purchase Warrant, dated October 23, 1996, from The Cobalt Group, Inc. to Madrona Investment Group, LLC.
10.5 Confidentiality and Noncompetition Agreement, dated February 28, 1997, between The Cobalt Group, Inc.
and John W.P. Holt (and schedule of similar Agreement with Geoffrey T. Barker).
10.6 Purchase Warrant, dated February 27, 1997 from The Cobalt Group, Inc. to GH Investments.
10.7 Registration Agreement, dated February 28, 1997, between The Cobalt Group, Inc., The Productivity Fund
III, L.P., Environmental Private Equity Fund II, L.P. and Mark T. Koulogeorge.
10.7.1 First Amendment to Registration Agreement, dated October 7, 1998, between The Cobalt Group, Inc., the
Productivity Fund III, L.P., Environmental Private Equity Fund II, L.P. and Mark T. Koulogeorge.
10.7.2 Second Amendment to Registration Agreement, dated July 7, 1998, between The Cobalt Group, Inc., the
Productivity Fund III, L.P., Environmental Private Equity Fund II, L.P. and Mark T. Koulogeorge.
10.8 Management Services Agreement, dated February 28, 1997, between The Cobalt Group, Inc. and First
Analysis Securities Corporation.
10.8.1 First Amendment to Management Services Agreement, dated October 7, 1998, between The Cobalt Group, Inc.
and First Analysis Securities Corporation.
10.9 Lease Agreement, dated October 20, 1997, between Compu-Time, Inc. and CTL Management, Inc.
10.10* Acquisition and Investment Agreement, dated November 25, 1997, between The Cobalt Group, Inc. and The
Reynolds and Reynolds Company.
10.11 Asset Purchase Agreement, dated March 3, 1998, between The Cobalt Group, Inc. and Home Shark, Inc.
10.12 Lease Agreement, dated December 1, 1997, between Parts Voice and CTL Management, Inc.
10.13 Series B Stock Purchase Agreement, dated October 7, 1998, between The Cobalt Group, Inc. and E.M.
Warburg, Pincus, L.P.
10.14 Information Rights Agreement, dated October 7, 1998, between The Cobalt Group, Inc. and the holders of
Series A Preferred Stock.
10.15 Purchase Agreement, dated April 19, 1999, between The Cobalt Group, Inc., Locators, Inc., Parts Finder
Locating Systems, Inc., Compu-Time, Inc., Brian Allen and Shirley Atherton.
10.16 Agreement for Management of Security, dated April 30, 1999, between The Cobalt Group, Inc., Compu-Time,
Inc, Parts Finder Locating Systems, Inc. and Locators, Inc.
10.17 Pledge and Security Agreement, dated April 30, 1999, between The Cobalt Group, Inc., Compu-Time, Inc.,
Parts Finder Locating Systems, Inc. and Locators, Inc.
10.18 Warrant Shares and Series C Preferred Shares Registration Agreement, dated April 30, 1999, between The
Cobalt Group, Inc., Compu-Time, Inc., Parts Finder Locating Systems, Inc. and Locators, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.19 90-Day Promissory Note, dated April 30, 1999, between The Cobalt Group, Inc. and Compu-Time, Inc. (and
schedule of similar Notes).
10.20 270-Day Promissory Note, dated April 30, 1999, between The Cobalt Group, Inc. and Compu-Time, Inc. (and
schedule of similar Notes).
10.21 Purchase Warrant, dated April 30, 1999, from The Cobalt Group, Inc. to Parts Finder Locating Systems,
Inc. (and schedule of similar Warrants).
10.22* Loan and Security Agreement, dated May 27, 1999, between The Cobalt Group, Inc. and Greyrock Capital.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Stoel Rives LLP (reference is made to Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Public Accountants.
23.3 Consent of PricewaterhouseCoopers LLP, Independent Public Accountants.
24.1 Power of Attorney (reference is made to the signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by Amendment
(b) Financial Statement Schedules
<TABLE>
<S> <C>
16.1 Report of Independent Accountants on Financial Statement Schedule.
16.2 Schedule II: Valuation and Qualifying Accounts.
</TABLE>
ITEM 17. Undertakings
(a) The undersigned Registrant hereby undertakes to provide the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus as filed as part of the
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective,
II-4
<PAGE>
(2) for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be an initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, hereunto duly authorized, in the City of Seattle, State of
Washington, on the 27th day of May 1999.
<TABLE>
<S> <C> <C>
THE COBALT GROUP, INC.
By: /s/ GEOFFREY T. BARKER
-----------------------------------------
Name: Geoffrey T. Barker
Title: CO-CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Geoffrey
T. Barker and John W.P. Holt as his true and lawful attorney-in-fact and agent,
each acting alone, with full power of substitution and resubstitution, for each
person and in such person's name, place and stead, in any and all capacities, to
sign any or all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. Pursuant to the requirements
of the Securities Act of 1933, as amended, this Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Name Title Date
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GEOFFREY T. BARKER Co-Chief Executive Officer
- ------------------------------ and Director (principal May 27, 1999
Geoffrey T. Barker executive officer)
/s/ JOHN W.P. HOLT Co-Chief Executive Officer
- ------------------------------ and Director (principal May 27, 1999
John W.P. Holt executive officer)
/s/ DAVID M. DOUGLASS Chief Financial Officer,
- ------------------------------ Vice President, May 27, 1999
David M. Douglass Operations and Secretary
/s/ HOWARD A. TULLMAN
- ------------------------------ Chairman of the Board of May 27, 1999
Howard A. Tullman Directors
/s/ MARK T. KOULOGEORGE
- ------------------------------ Director May 27, 1999
Mark T. Koulogeorge
/s/ JOSEPH P. LANDY
- ------------------------------ Director May 27, 1999
Joseph P. Landy
/s/ ERNEST H. POMERANTZ
- ------------------------------ Director May 27, 1999
Ernest H. Pomerantz
/s/ J. D. POWER, III
- ------------------------------ Director May 27, 1999
J. D. Power, III
</TABLE>
II-6
<PAGE>
Exhibit 10.1
THE COBALT GROUP, INC.
1995 STOCK OPTION PLAN
1. PURPOSE.
The purpose of the 1995 Stock Option Plan (the "Plan") is to provide a
means by which The Cobalt Group, Inc. (the "Company") may attract, reward and
retain the services or advice of former, current or future employees, officers,
directors, agents and consultants, including members of technical advisory
boards and independent contractors of the Company and to provide added
incentives to them by encouraging stock ownership in the Company.
2. ADMINISTRATION.
This Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board of Directors may suspend, amend or terminate
this Plan as provided in Section 8. The administrator of this Plan is referred
to as the "Plan Administrator."
2.1 PROCEDURES. The Board of Directors shall designate one of the members
of the Plan Administrator as chairman. The Plan Administrator may hold meetings
at such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts approved in writing by all Plan Administrator members, shall constitute
valid acts of the Plan Administrator.
2.2 POWERS. Subject to the specific provisions of this Plan, the Plan
Administrator shall have the authority, in its discretion: (a) to grant the
stock options described in Section 5, including Incentive Stock Options and
Non-Qualified Stock Options, and to designate each option granted as an
Incentive Stock Option or a Non-Qualified Stock Option; (b) to determine, in
accordance with Section 5.1(f) of this Plan, the fair market value of the shares
of Common Stock subject to options; (c) to determine the exercise price per
share of options; (d) to determine the Optionees to whom, and the time or times
at which, options shall be granted and the number of shares of Common Stock to
be represented by each option; (e) to interpret this Plan; (f) to prescribe,
amend and rescind rules and regulations relating to this Plan; (g) to determine
the terms and provisions of each option granted (which need not be identical)
and, with the consent of the holder thereof, modify or amend each option; (h) to
reduce the exercise price per share of outstanding and unexercised options; (i)
to defer, with the consent of the Optionee, or to accelerate the exercise date
of any option; (j) to waive or modify any term or provision contained in any
option applicable to the underlying shares of Common Stock; (k) to authorize any
person to execute on behalf of the Company any instrument required to
<PAGE>
effectuate the grant of an option previously granted by the Plan Administrator;
and (l) to make all other determinations deemed necessary or advisable for the
administration of this Plan. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan, any option issued
hereunder or of any rule or regulation promulgated in connection herewith and
all actions taken by the Plan Administrator shall be conclusive and binding on
all interested parties. The Plan Administrator may delegate administrative
functions to individuals who are officers or employees of the Company.
2.3 LIMITED LIABILITY. No member of the Board of Directors or the Plan
Administrator, or officer of the Company shall be liable for any action or
inaction of the entity or body, or another person or, except in circumstances
involving bad faith, of himself or herself. Subject only to compliance with the
explicit provisions hereof, the Board of Directors and Plan Administrator may
act in their absolute discretion in all matters related to this Plan.
2.4 SECURITIES EXCHANGE ACT OF 1934. At any time that the Company has a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), this Plan shall be administered by
the Plan Administrator in accordance with Rule 16b-3 adopted under the Exchange
Act, as such rule may be amended from time to time.
3. STOCK SUBJECT TO THIS PLAN.
Subject to adjustment as provided below and in Section 6 hereof, the
stock subject to this Plan shall be the Company's common stock (the "Common
Stock"), and the total number of shares of Common Stock to be delivered upon the
exercise of all options granted under this Plan shall not exceed 3,641,000
shares, as such Common Stock was constituted on the effective date of this Plan.
If any option granted under this Plan shall expire, be surrendered, exchanged
for another option, cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of this Plan, including for replacement options which
may be granted in exchange for such surrendered, cancelled or terminated
options. Shares issued upon exercise of options granted under this Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as may be determined by the Plan Administrator.
4. ELIGIBILITY. The Plan Administrator may award options to any former,
current or future employee, officer, director, agent or consultant, including
any member of technical advisory boards and any independent contractor, of the
Company. Any party to whom an option is granted under this Plan is referred to
as an "Optionee."
5. AWARDS.
<PAGE>
The Plan Administrator, from time to time, may take the following
actions, separately or in combination, under this Plan: (a) grant Incentive
Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to any employee of the Company or its subsidiaries, as
provided in Section 5.1 of this Plan; (b) grant options other than Incentive
Stock Options ("Non-Qualified Stock Options"), as provided in Section 5.2 of
this Plan; (c) grant options to officers, employees and others in foreign
jurisdictions, as provided in Section 5.7 of this Plan; and (d) grant options
in certain acquisition transactions, as provided in Section 5.8 of this Plan.
5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject to
the following terms and conditions:
(a) Incentive Stock Options may be granted under this Plan only
to employees of the Company or its subsidiaries, including employees who are
directors.
(b) No employee may be granted Incentive Stock Options under
this Plan to the extent that the aggregate fair market value, on the date of
grant, of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by that employee during any calendar year, under
this Plan and under any other incentive stock option plan (within the meaning of
Section 422 of the Code) of the Company or any subsidiary, exceeds $100,000. To
the extent that any option designated as an Incentive Stock Option exceeds the
$100,000 limit, such option shall be treated as a Non-Qualified Stock Option.
In making this determination, options shall be taken into account in the order
in which they were granted, and the fair market value of the shares of Common
Stock shall be determined as of the time that the option with respect to such
shares was granted.
(c) An Incentive Stock Option may be granted under this Plan to
an employee possessing more than 10% of the total combined voting power of all
classes of stock of the Company (as determined pursuant to the attribution rules
contained in Section 424(d) of the Code) only if the exercise price is at least
110% of the fair market value of the Common Stock subject to the option on the
date the option is granted, as described in Section 5.1(f) of this Plan, and
only if the option by its terms is not exercisable after the expiration of five
years from the date it is granted.
(d) Except as provided in Section 5.5 of this Plan, no Incentive
Stock Option granted under this Plan may be exercised unless at the time of such
exercise the Optionee is employed by the Company or any subsidiary of the
Company and the Optionee has been so employed continuously since the date such
option was granted.
(e) Subject to Sections 5.1(c) and 5.1(d) of this Plan,
Incentive Stock Options granted under this Plan shall continue in effect for the
period fixed by the Plan Administrator, except that no Incentive Stock Option
shall be exercisable after the expiration of 10 years from the date it is
granted.
<PAGE>
(f) The exercise price shall not be less than 100% of the fair
market value of the shares of Common Stock covered by the Incentive Stock Option
at the date the option is granted. The fair market value of shares shall be the
closing price per share of the Common Stock on the date of grant as reported on
a securities quotation system or stock exchange. If such shares are not so
reported or listed, the Plan Administrator shall determine the fair market value
of the shares of Common Stock in its discretion.
(g) The provisions of clauses (b) and (c) of this Section shall
not apply if either the applicable sections of the Code or the regulations
thereunder are amended so as to change or eliminate such limitations or to
permit appropriate modifications of those requirements by the Plan
Administrator.
5.2 NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options shall be
subject to the following terms and conditions:
(a) The exercise price may be more or less than or equal to the
fair market value of the shares of Common Stock covered by the Non-Qualified
Stock Option on the date the option is granted, and the exercise price may
fluctuate based on criteria determined by the Plan Administrator. The fair
market value of shares of Common Stock covered by a Non-Qualified Stock Option
shall be determined by the Plan Administrator, as described in Section 5.1(f).
(b) Unless otherwise established by the Plan Administrator, any
Non-Qualified Stock Option shall terminate 10 years after the date it is
granted.
5.3 VESTING. To ensure that the Company will achieve the purposes of and
receive the benefits contemplated in this Plan, any option granted to any
Optionee hereunder shall be exercisable according to the following vesting
schedule, except that the Plan Administrator may waive this vesting schedule,
establish a different vesting schedule or provide for no vesting schedule for
such options as it determines:
<TABLE>
<CAPTION>
Period From the Date Portion of Total
the Option is Granted Which is Exercisable
------------------------------------------------------------------
<S> <C>
Less than 12 months None
12th month 25%
13th month through 48th month Monthly vesting of remaining
75% in 36 equal increments
</TABLE>
5.4 NONTRANSFERABILITY. Each option granted under this Plan and the
rights and privileges conferred hereby may not be transferred, assigned, pledged
or hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution, shall not be
subject to execution, attachment or similar process and shall be exercisable
during the Optionee's lifetime only by the
<PAGE>
Optionee. Any purported transfer or assignment in violation of this provision
shall be void.
5.5 TERMINATION OF OPTIONS.
5.5.1 GENERALLY. Unless otherwise determined by the Plan
Administrator or specified in the Optionee's Option Agreement, if the Optionee's
employment or service with the Company terminates for any reason other than for
cause, resignation, retirement, disability or death, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a
three-month period, that portion of the Optionee's option which was exercisable
at the time of such termination of employment or service (provided the
conditions of Section 5.6.4 and any other conditions specified in the Option
Agreement shall have been met by the date of exercise of such option).
5.5.2 FOR CAUSE; RESIGNATION.
(a) If an Optionee is terminated for cause or resigns in lieu of
dismissal, any option granted hereunder shall be deemed to have terminated as of
the time of the first act which led or would have led to the termination for
cause or resignation in lieu of dismissal, and such Optionee shall thereupon
have no right to purchase any shares of Common Stock pursuant to the exercise of
such option, and any such exercise shall be null and void. Termination for
"cause" shall include (i) the violation by the Optionee of any reasonable rule
or policy of the Board of Directors or the Optionee's superiors or the chief
executive officer or the President of the Company that results in damage to the
Company or which, after notice to do so, the Optionee fails to correct within a
reasonable time; (ii) any willful misconduct or gross negligence by the Optionee
in the responsibilities assigned to him or her; (iii) any willful failure to
perform his or her job as required to meet the objectives of the Company; (iv)
any wrongful conduct of an Optionee which has an adverse impact on the Company
or which constitutes a misappropriation of the assets of the Company; (v)
unauthorized disclosure of confidential information; or (vi) the Optionee's
performing services for any other company or person which competes with the
Company while he or she is employed by or provides services to the Company,
without the prior written approval of the chief executive officer of the
Company. "Resignation in lieu of dismissal" shall mean a resignation by an
Optionee of employment with or service to the Company if (i) the Company has
given prior notice to such Optionee of its intent to dismiss the Optionee for
circumstances that constitute cause, or (ii) within two months of the Optionee's
resignation, the chief operating officer or the chief executive officer of the
Company or the Board of Directors determines, which determination shall be final
and binding, that such resignation was related to an act which would have led to
a termination for cause.
(b) If an Optionee resigns from the Company, the right of the
Optionee to exercise his or her option shall be suspended for a period of two
months from the date of resignation, unless the President or chief executive
officer of the Company or the Board of Directors determines otherwise in
writing. Thereafter, unless there is a
<PAGE>
determination that the Optionee resigned in lieu of dismissal, the option may be
exercised at any time prior to the earlier of (i) the expiration date of the
option (which shall have been similarly suspended) or (ii) the expiration of
three months after the date of resignation, for that portion of the Optionee's
option which was exercisable at the time of such resignation (provided the
conditions of Section 5.6.4 and any other conditions specified in the Option
Agreement shall have been met at the date of exercise of such option).
5.5.3 RETIREMENT. Unless otherwise determined by the Plan
Administrator, if an Optionee's employment or service with the Company is
terminated with the Company's approval for reasons of age, the Option may be
exercised at any time prior to the earlier of (a) the expiration date of the
option or (b) the expiration of three months after the date of such termination
of employment or service, for that portion of the Optionee's option which was
exercisable at the time of such termination of employment or service (provided
the conditions of Section 5.6.4 and any other conditions specified in the Option
Agreement shall have been met at the date of exercise of such option).
5.5.4 DISABILITY. Unless otherwise determined by the Plan
Administrator, if an Optionee's employment or relationship with the Company
terminates because of a permanent and total disability (as defined in Section
22(e)(3) of the Code), the option may be exercised at any time prior to the
earlier of (a) expiration date of the option or (b) the expiration of 12 months
after the date of such termination, for up to the full number of shares of
Common Stock covered thereby, including any portion not yet vested (provided the
conditions of Section 5.6.4 and any other conditions specified in the Option
Agreement shall have been met by the date of exercise of such option).
5.5.5 DEATH. Unless otherwise determined by the Plan Administrator,
in the event of the death of an Optionee while employed by or providing service
to the Company, the option may be exercised at any time prior to the earlier of
(a) the expiration date of the option or (b) the expiration of 12 months after
the date of death by the person or persons to whom such Optionee's rights under
the option shall pass by the Optionee's will or by the applicable laws of
descent and distribution, for up to the full number of shares of Common Stock
covered thereby, including any portion not yet vested (provided the conditions
of Section 5.6.4. and any other conditions specified in the Option Agreement
shall have been met by the date of exercise of such option).
5.5.6 EXTENSION OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The
Plan Administrator, at the time of grant or at any time thereafter, may extend
the three-month and 12-month exercise periods to any length of time not longer
than the original expiration date of the option, and may increase the portion of
an option that is exercisable, subject to such terms and conditions as the Plan
Administrator may determine; provided, that any extension of the exercise period
or other modification of an Incentive Stock Option shall be subject to the
written agreement and acknowledgement by the Optionee that the extension or
modification disqualifies the option as an Incentive Stock Option.
<PAGE>
5.5.7 FAILURE TO EXERCISE OPTION. To the extent that the option of
any deceased Optionee or of any Optionee whose employment or service terminates
is not exercised within the applicable period, all rights to purchase shares of
Common Stock pursuant to such options shall cease and terminate.
5.5.8 LEAVES. For purposes of this Section 5.5, with respect to
Incentive Stock Options, employment shall be deemed to continue while the
Optionee is on military leave, sick leave or other bona fide leave of absence
(as determined by the Plan Administrator) in accordance with the policies of the
Company.
5.6 EXERCISE.
5.6.1 PROCEDURE. Subject to the provisions of Section 5.3 above,
each option may be exercised in whole or in part; provided, however, that no
fewer than 100 shares (or the remaining shares then purchasable under the
option, if less than 100 shares) may be purchased upon any exercise of any
option granted hereunder and that only whole shares will be issued pursuant to
the exercise of any option (the number of 100 shares shall not be changed by any
transaction or action described in Section 6 unless the Plan Administrator
determines that such a change is appropriate). Options shall be exercised by
delivery to the Secretary of the Company or his or her designated agent of
notice of the number of shares with respect to which the option is exercised,
together with payment in full of the exercise price.
5.6.2 PAYMENT. Payment of the option exercise price shall be made in
full at the time the notice of exercise of the option is delivered to the
Secretary of the Company or his or her designated agent and shall be in cash or
bank certified or cashier's check for the shares of Common Stock being
purchased. The Plan Administrator may determine at the time the option is
granted for Incentive Stock Options, or at any time before exercise for
Non-Qualified Stock Options, that additional forms of payment will be permitted,
including without limitation payment through irrevocable instructions to a stock
broker to deliver the amount of sales proceeds necessary to pay the appropriate
exercise price and withholding tax obligations, all in accordance with
applicable governmental regulations.
5.6.3 WITHHOLDING. Prior to the issuance of shares of Common Stock
upon the exercise of an option, the Optionee shall pay to the Company the amount
of any applicable federal, state or local tax withholding obligations. The
Company may withhold any distribution in whole or in part until the Company is
so paid. The Company shall have the right to withhold such amount from any
other amounts due or to become due from the Company, as the case may be, to the
Optionee, including salary (subject to applicable law) or to retain and withhold
a number of shares having a market value not less than the amount of such taxes
required to be withheld by the Company to reimburse it for any such taxes and
cancel (in whole or in part) any such shares so withheld.
<PAGE>
5.6.4 CONDITIONS PRECEDENT TO EXERCISE. The Plan Administrator may
establish conditions precedent to the exercise of any option, which shall be
described in the relevant Option Agreement.
5.7 FOREIGN QUALIFIED GRANTS. Options under this Plan may be granted to
officers and employees of the Company and other persons described in Section 4
who reside in foreign jurisdictions as the Plan Administrator may determine from
time to time. The Board of Directors may adopt such supplements to the Plan as
are necessary to comply with the applicable laws of such foreign jurisdictions
and to afford Optionees favorable treatment under such laws; provided, however,
that no award shall be granted under any such supplement on terms which are more
beneficial to such Optionees than the terms permitted by this Plan.
5.8 CORPORATE MERGERS, ACQUISITIONS, ETC. The Plan Administrator may also
grant options under this Plan having terms, conditions and provisions that vary
from those specified in this Plan provided that such options are granted in
substitution for, or in connection with the assumption of, existing options
granted, awarded or issued by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, reorganization or liquidation to which the Company is a party.
5.9 HOLDING PERIOD. Unless otherwise determined by the Plan
Administrator, if a person subject to Section 16 of the Exchange Act exercises
an option within six months of the date of grant of the option, the shares of
Common Stock acquired upon exercise of the option may not be sold until six
months after the date of grant of the option.
5.10 OPTION AGREEMENTS. Options granted under this Plan shall be evidenced
by written stock option agreements (the "Option Agreements") which shall contain
such terms, conditions, limitations and restrictions as the Plan Administrator
shall deem advisable and which are consistent with this Plan. All Option
Agreements shall include or incorporate by reference the applicable terms and
conditions contained in this Plan.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
6.1 STOCK SPLITS, CAPITAL STOCK ADJUSTMENTS. The aggregate number and
class of shares for which options may be granted under this Plan, the number and
class of shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and each such option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a stock split, stock
dividend or consolidation of shares or any like capital stock adjustment.
6.2 EFFECT OF MERGER, SALE OF ASSETS, LIQUIDATION OR DISSOLUTION.
<PAGE>
6.2.1 MERGERS, SALE OF ASSETS, OTHER TRANSACTIONS. In the event of a
merger, consolidation or plan of exchange to which the Company is a party or a
sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors, in its sole discretion and to the extent
possible under the structure of the Transaction, shall select one of the
following alternatives for treating outstanding options under this Plan:
(a) Outstanding options shall remain in effect in accordance
with their terms;
(b) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring corporation
in the Transaction. The amount, type of securities subject thereto and exercise
price of the converted options shall be determined by the Board of Directors of
the Company, taking into account the relative values of the companies involved
in the Transaction and the exchange rate, if any, used in determining shares of
the surviving corporation to be issued to holders of shares of the Company.
Unless otherwise determined by the Board of Directors, the converted options
shall be vested only to the extent that the vesting requirements relating to
options granted hereunder have been satisfied; or
(c) The Board of Directors provides a 30-day period prior to the
consummation of the Transaction during which outstanding options shall be
exercisable to the extent vested and, upon the expiration of such 30-day period,
all unexercised options shall immediately terminate. The Board of Directors, in
its sole discretion, may accelerate the exercisability of options so that they
are exercisable in full during such 30-day period.
6.2.2 LIQUIDATION; DISSOLUTION. In the event of the liquidation or
dissolution of the Company, options shall be treated in accordance with Section
6.2.1(c).
6.3 FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
6.4 DETERMINATION OF BOARD TO BE FINAL. All adjustments under this
Section 6 shall be made by the Board of Directors, and its determination as to
what adjustments shall be made, and the extent thereof, shall be final, binding
and conclusive. Unless an Optionee agrees otherwise, any change or adjustment to
an Incentive Stock Option shall be made, if possible, in such a manner so as not
to constitute a "modification," as defined in Section 424(h) of the Code, and so
as not to cause the Optionee's Incentive Stock Option to fail to continue to
qualify as an Incentive Stock Option.
7. SECURITIES REGULATIONS.
<PAGE>
Shares of Common Stock shall not be issued with respect to an option
granted under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, applicable laws of foreign
countries and other jurisdictions and the requirements of any quotation service
or stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance, including the availability of an exemption from registration for the
issuance and sale of any shares hereunder. The inability of the Company to
obtain, from any regulatory body having jurisdiction, the authority deemed by
the Company's counsel to be necessary for the lawful issuance and sale of any
shares hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability with respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require
the Optionee to represent and warrant at the time of any such exercise that the
shares of Common Stock are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provision of the aforementioned laws. The Company may place a stop-transfer
order against any shares of Common Stock on the official stock books and records
of the Company, and a legend may be stamped on stock certificates to the effect
that the shares of Common Stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
THEREUNDER.
Should any of the Company's capital stock of the same class as the
Common Stock subject to options granted hereunder be listed on a national
securities exchange, all shares of Common Stock issued hereunder if not
previously listed on such exchange shall be authorized by that exchange for
listing thereon prior to the issuance thereof.
8. AMENDMENT AND TERMINATION.
8.1 PLAN. The Board of Directors may at any time suspend, amend or
terminate this Plan, provided that, except as set forth in Section 6, the
approval of the Company's shareholders is necessary within 12 months before or
after the adoption by the Board of Directors of any amendment which will:
(a) increase the number of shares of Common Stock which are to
be reserved for the issuance of options under this Plan;
<PAGE>
(b) permit the granting of stock options to a class of persons
other than those presently permitted to receive stock options under this Plan;
or
(c) require shareholder approval under applicable law, including
Section 16(b) of the Exchange Act.
8.2 OPTIONS. Subject to the requirements of Section 422 of the Code with
respect to Incentive Stock Options and to the terms and conditions and within
the limitations of this Plan, the Plan Administrator may modify or amend
outstanding options granted under this Plan. The modification or amendment of
an outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee. Unless the Optionee
agrees otherwise, any changes or adjustments made to outstanding Incentive Stock
Options granted under this Plan shall be made in such a manner so as not to
constitute a "modification," as defined in Section 425(h) of the Code, and so as
not to cause any Incentive Stock Option issued hereunder to fail to continue to
qualify as an Incentive Stock Option as defined in Section 422(b) of the Code.
8.3 AUTOMATIC TERMINATION. Unless sooner terminated by the Board of
Directors, this Plan shall terminate ten years from the date on which this Plan
is adopted by the Board. No option may be granted after such termination or
during any suspension of this Plan. The amendment or termination of this Plan
shall not, without the consent of the Optionee, alter or impair any rights or
obligations under any option theretofore granted under this Plan.
9. MISCELLANEOUS.
9.1 TIME OF GRANTING OPTIONS. The date of grant of an option shall, for
all purposes, be the date on which the Company completes the required corporate
action relating to the grant of an option; the execution of an Option Agreement
and the conditions to the exercise of an option shall not defer the date of
grant.
9.2 NO STATUS AS SHAREHOLDER. Neither the Optionee nor any party to which
the Optionee's rights and privileges under the option may pass shall be, or have
any of the rights or privileges of, a shareholder of the Company with respect to
any of the shares of Common Stock issuable upon the exercise of any option
granted under this Plan unless and until such option has been exercised and the
issuance (as evidenced by the appropriate entry on the books of the Company or
duly authorized transfer agent of the Company) of the stock certificate
evidencing such shares.
9.3 STATUS AS AN EMPLOYEE. Nothing in this Plan or in any option granted
pursuant to this Plan shall confer upon any Optionee any right to continue in
the employ of the Company, or to interfere in any way with the right of the
Company to terminate his or her employment or other relationship with the
Company at any time.
<PAGE>
9.4 RESERVATION OF SHARES. The Company, during the term of this Plan, at
all times will reserve and keep available such number of shares of Common Stock
as shall be sufficient to satisfy the requirements of this Plan.
10. EFFECTIVENESS OF THIS PLAN.
This Plan shall become effective upon adoption by the Board so long as
it is approved by the Company's shareholders any time within 12 months after the
adoption of this Plan. No option granted under this Plan to any officer or
director of the Company shall become exercisable, however, until the Plan is
approved by the shareholders, and any options granted prior to such approval
shall be conditioned upon and are subject to such approval.
Adopted by the Board of Directors on May 18, 1995 and approved by the
Shareholders on May 18, 1995.
Amended by the Board of Directors and approved by the Shareholders in
March 1997, September 1998 and April 1999.
<PAGE>
Exhibit 10.2
PROMISSORY NOTE
$72,000.00 August 20, 1996
For value received, John W.P. Holt (hereinafter referred to as "DEBTOR"),
promises to pay to The Cobalt Group, Inc., a Washington Corporation ("COBALT"),
the sum of SEVENTY-TWO THOUSAND AND NO/100 U.S. DOLLARS ($72,000), together with
interest at the rate of eight percent (8%) per annum compounded annually on the
outstanding principal balance from the date hereof, until this note is fully
paid as follows:
All accrued but unpaid interest, the outstanding principal
balance and all other sums payable hereunder shall be immediately
due and payable on August 20, 2006.
All payments shall be made in lawful money of the United States of America
and shall be made at such place as Cobalt may designate in writing from time to
time. Payments shall be applied first to accrued but unpaid interest, then to
reduction of the outstanding principal balance. This note may be prepaid in
whole or in part at any time or times without penalty and without prior notice.
This note shall be in default if the payment required hereunder is not paid
when due and within 10 days after written notice of such default is given by
Cobalt. Upon or at any time after a default in this note or after a default in
compliance with any term, covenant or condition of the Stock Pledge Agreement
securing payment of this note, at the option of Cobalt, without further notice,
the entire debt evidenced hereby shall become due and payable and shall
thereafter bear interest at twelve percent (12%) per annum until paid. Cobalt's
failure to exercise this option in the event of a default shall not constitute a
waiver of Cobalt's right to exercise this option as the result of any other
default or of any subsequent default of the same or similar kind.
NOTHING HEREIN CONTAINED SHALL BE DEEMED TO CAUSE DEBTOR TO BE PERSONALLY
LIABLE TO PAY THIS NOTE OR ANY OBLIGATION EVIDENCED HEREBY AND COBALT SHALL NOT
SEEK ANY PERSONAL OR DEFICIENCY JUDGMENT ON THIS NOTE OR ANY OBLIGATION
EVIDENCED HEREBY AND THE SOLE REMEDY OF COBALT SHALL BE AGAINST THE PROPERTY
SECURING THIS NOTE AND THE INCOME FROM SUCH PROPERTY GIVEN IN CONNECTION WITH
THIS NOTE.
This note may not be assigned by Cobalt.
Debtor and any assignees thereof who are at any time liable for payment of
this note or other sum required hereby waive presentment for payment, notice of
dishonor and protest and consent that the terms of payment of any part or the
whole of the debt evidenced by this note may be modified or extended at any time
by agreement between Cobalt and Debtors and any assignees thereof now or
hereafter liable on this note and that any security now or hereafter
<PAGE>
given to secure payment of this note may be released or modified in whole or in
part by agreement between Cobalt and the owner of any such security.
Debtor and any assignees thereof who are at any time liable for payment of
this note or any installment or other sum required hereby waive all defenses
which might otherwise be asserted (a) that security is adequate or that resort
must first be had against any other person or against any security now or
hereafter given to secure payment of this note and (b) because any of the
following may occur in the future: delay in the enforcement of payment of this
note; and delay or omission in exercising any right or power granted to Cobalt
by the note.
Any notice or demand by Cobalt shall be sufficient if in writing and
delivered or mailed, certified or registered United States mail, postage
prepaid, to the address stated below for notice purposes or to such other
address as shall be designated in writing from time to time by the persons who
are then liable upon this note and received by Cobalt. Notice given and
received in complete and legible form by electronic facsimile devices and
delivery by courier or messenger service shall be deemed to have been personally
delivered.
This note is made with reference to and shall be construed and enforced in
accordance with the laws of the State of Washington without regard to its choice
of law provisions. This note is secured by a Stock Pledge Agreement affecting
the ownership interests of Debtor in Cobalt. Debtor agrees that the venue of
any action on this note may be laid in King County, Washington.
UNDER WASHINGTON LAW, ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE.
DEBTOR: Address for Notice:
John W.P. Holt
3001 10th Ave. West
_____________________________ Seattle, WA 98119
<PAGE>
Schedule to Exhibit 10.2
Other similar Note of the Company dated August 20, 1996.
<TABLE>
<CAPTION>
Holder Principal Amount
<S> <C>
Geoffrey Barker $72,000
</TABLE>
<PAGE>
Exhibit 10.3
LEASE
THIS LEASE (this "Lease") is entered into as of this 14th day of September, 1996
between DAVID A. EDELSTEIN and NANCY JO EDELSTEIN, husband and wife ("Landlord")
and The Cobalt Group, Inc. ("Tenant") (collectively, the "Parties").
AGREEMENT
1. EXHIBITS AND DEFINITIONS
1.1 DEFINITIONS. The following terms used in this Lease shall have the
definitions as set forth below; other terms are defined throughout the
Lease.
"BUILDING": The building and all other improvements located on the
Property, as they currently exist or as they may be renovated by
Tenant pursuant to this Lease.
"COMMENCEMENT DATE": The Commencement Date shall be November 1, 1996,
however, Tenant may occupy the Premises as of September 15, 1996.
"COMMON AREAS": Landlord shall make available (or cause to be made
available) throughout the Lease Term such common areas (including, but
not limited to, parking areas, exits, entrances, driveways, truckways,
delivery passages, truck-loading areas, access and egress roads,
parcel pickup stations, retaining walls, sidewalks, walkways,
footbridges, landscaped and planted areas and public restrooms) for
the common use and benefit of the tenants of the Property, their
employees, agents, customers and other invitees. Landlord shall (or
shall cause the same to be done) operate, manage, equip, light,
repair, replace and maintain the common areas for their intended
purposes in such manner as is consistent with the operation and
maintenance of a first-class or well maintained office building
similar in nature to and within the same metropolitan area as the
Property.
[Insert 6.1.1.]
"HAZARDOUS SUBSTANCES": Any hazardous, toxic, or dangerous substance,
waste, or other product, substance, or material that is now or
hereafter considered to be potentially injurious to the public health,
or to the
-1-
<PAGE>
environment or which is or becomes regulated under any federal, state,
or local statute, rule, regulation or ordinance now or hereafter in
effect pertaining to environmental protection, environmental
contamination or cleanup, or to the protection of human or animal
health or safety.
"INTEREST": Interest means interest at the rate equal to twelve
percent (12%) per annum.
"LEASE YEAR": The first Lease Year means the period beginning on the
Commencement Date and terminated on the last day of the twelfth (12th)
full calendar month after the Commencement Date. Each subsequent
Lease Year means each (12) month period during the Term following the
first Lease Year. If the first Lease Year has more than 365 days as a
result of the application of this Section, any prorations for the
first Lease Year shall be based on the actual number of days in that
first Lease Year.
"PREMISES": Shall mean the space commonly known as 11,536 rentable
square feet on the third floor of the building as indicated by
Exhibit B attachment, for the sole purpose of identification, together
with all appurtenant rights and easements, and the non-exclusive right
and easement to use all the Common Areas of the Property for their
intended purposes including, without limitation, access, ingress, and
egress.
"PROPERTY": The real property commonly known as 2030 First Avenue,
Seattle, Washington, and legally described on Exhibit A hereto,
together with all easements, licenses, and other rights appurtenant
thereto. Unless otherwise specifically stated, all references to the
Property shall include the Premises and the building.
"TAXES": All taxes or impositions of any kind levied with respect to
the Property or the use and occupation thereof, including without
limitation: service payments levied or assessed wholly or partly in
lieu of taxes; annual or periodic license, permit, inspection, or use
fees; excises, transit charges, housing fund assessments, assessments,
levies, fees, or charges; and all extraordinary, unforeseen as well as
foreseen, of any kind, that are levied, assessed, charges, confirmed,
or imposed by any public, quasi-public, or private authority upon the
property, its operation, the rent payable under this Lease, the land
upon which the property is situated, or the personal property
contained thereupon (but excluding state and federal, personal or
corporate income taxes measured by the net income of Landlord from all
sources, and franchise, inheritance, and estate taxes of Landlord).
-2-
<PAGE>
"TERMINATION DATE": The Termination Date of the initial Lease Term
means October 31, 2000.
"UTILITIES": Water, sewer, garbage, heat, air conditioning, and
electricity furnished to Tenant and/or other occupants of the
Building, in the manner and subject to the qualifications set forth in
Section 12.
"UTILITIES EXPENSES": All expenses related to the provision of
Utilities to the various occupants of the Building.
1.2. EXHIBITS. The following exhibits are attached hereto and are made a
part of this Lease.
Exhibit A - Legal Description of Property
Exhibit B - Site Plan of the Premises
Exhibit C - Amendment to Lease
Exhibit D - Second Floor Site Plan
2. DEMISE AND TERM
2.1. PREMISES AND DEMISE. Landlord hereby leases the Premises to Tenant,
and Tenant hereby leases the Premises from Landlord, subject to the
terms and conditions of this Lease.
2.2. TERM. This Lease shall be for four (4) years commencing on the
Commencement Date and terminating at 11:59 p.m. on the Termination
Date (the "Term"). If Tenant shall hold over with Landlord's written
consent following the expiration of the term, such holding over shall
be on a month-to-month tenancy under the terms of this Lease,
terminable by either party upon thirty (30) days written notice to the
other.
2.3. SURRENDER OF PREMISES Upon termination of this Lease, Tenant shall
surrender possession of the Premises to Landlord free of debris, broom
clean, and in good condition, as modified by any repairs, alterations
or improvements (excluding trade fixtures) made by Tenant in
accordance with this Lease, and subject to gradual and ordinary wear
and tear. Ordinary wear and tear shall not include any damage or
deterioration caused by Tenant's failure to perform or observe any
covenant or other provision of this Lease.
2.4. SURRENDER OF LEASE. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and
shall, at the
-3-
<PAGE>
option of Landlord, terminate all or any existing subleases or
subtenancies, or may at the option of Landlord, operate as an
assignment to it of any such subtenancies.
2.5 OPTION TO RENEW. Providing Tenant has not materially defaulted on
this Lease during the initial four (4) year Lease Term, Tenant shall
have one (1) five (5) year option(s) to renew the Lease at the then
existing fair market rents. The option shall be exercised by Tenant,
if at all, in writing at least two hundred forty (240) days prior to
the end of the initial Lease Term. [Insert 2.6, 2.7, 2.8]
3. RENT
3.1. MINIMUM RENT. Tenant agrees to pay Landlord Minimum Rent in the
amounts set out in the schedule below. No deduction or offset of any
kind is allowed except for prepaid rent as set out in the schedule
below. Landlord acknowledges receipt of $7,000.00 in prepaid rent
from Tenant, to be applied to the first month of the Lease Term.
BASE RENT DUE PER RENTABLE SQUARE FOOT PER YEAR
Years 1 - 4 $14.00
3.2. PAYMENT. All rent due under this Lease shall be payable in advance at
the Landlord's address for notice purposes set forth below, on the
first business day of each month throughout the Term of this Lease.
Tenant shall pay the first installment of Minimum Rent and last
month's rent upon signing of the Lease. If any monthly installment of
Minimum Rent is not received on or before the tenth (10th) day of the
month for which such payment is due, Tenant agrees to pay Landlord a
late charge in the sum of two percent (2%) of the amount of such
installment. In addition, all sums past due from Tenant shall bear
interest at one (1%) per month or any fraction thereof. If any check
given to Landlord by Tenant shall be dishonored by the bank upon which
it is drawn, Landlord, at its option, may require all future payments
of Rent to be made only by cashier's check.
3.3. PRORATION. All Minimum Rent and Additional Rent shall be prorated for
any partial calendar month at the beginning or end of the Term.
4. UTILITIES, TAXES, AND INSURANCE
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<PAGE>
Landlord shall pay before delinquent all Utilities Expenses, Taxes, and the
cost of any insurance to be carried hereunder and which are Landlord's
responsibility per paragraph 12.
5. TITLE, AUTHORITY, AND QUIET ENJOYMENT
5.1. TITLE AND AUTHORITY. Landlord warrants to Tenant that Landlord has
the right to lease the Premises to Tenant. Tenant warrants to
Landlord that Tenant has all requisite right, power, and authority to
enter into this Lease and to perform its obligations hereunder. Each
party shall provide the other party with reasonably satisfactory
evidence of its authority to enter into this Lease upon request.
5.2. QUIET ENJOYMENT. Landlord covenants to Tenant that, so long as Tenant
is not in default under this Lease beyond any applicable cure period,
Tenant shall have quiet enjoyment of the Premises and all of the
rights granted hereunder without interference by Landlord, anyone
acting by, through or under Landlord, or anyone having title or any
lien or interest paramount to Landlord. Landlord may enter the
Premises or the Building, and the same shall not be a breach of this
covenant of quiet enjoyment if done upon forty-eight (48) hours prior
written notice to Tenant (except in the event of emergency, in which
case no notice is required) for the purpose of:
5.2.1. curing a default by Tenant; or
5.2.2. showing the Premises to any prospective purchaser, lessee,
or mortgagee; or
5.2.3. posting reasonable signs indicating the Landlord is not
responsible for the cost of work done thereupon, or that the
Premises is for sale or lease; or
5.2.4. to inspect the Premises; or
5.2.5 in the event of an emergency, to enter the Premises without
notice to perform any duty of Tenant, whether or not
Tenant's failure to have performed by the time of Landlord's
entry then constitutes a default, if done to prevent injury
to persons or loss of property or life; or
5.2.6. to perform any act necessary to remediate any contamination
of the Property by Hazardous Substances; or
-5-
<PAGE>
5.2.7. to exercise any other right of Landlord under this Lease.
5.3. RIGHTS IN OTHERS. Landlord reserves the right to grant public utility
easements and other rights on, over, and under the Property without
any abatement in rent, provided that such rights do not materially
interfere with Tenant's business on the Premises. Tenant agrees to
sign any documents reasonably requested by Landlord in regard to the
grant of any such easement rights, dedication, map, or restrictions.
No grant of any such interest shall be a violation of Landlord's
covenant of quiet enjoyments. [Insert 5.4]
6. ACCEPTANCE OF PREMISES
6.1. PHYSICAL DEFECTS; USE RESTRICTIONS. Tenant warrants that it has fully
investigated the physical characteristics of the Premises and any
legal, physical, or other limitations relating to the Premises, and
except as noted in Section 8, is fully satisfied that there are no
physical defects in the Premises, and that there are no restrictions
(including, without limitation, zoning, building, fire, or health code
regulations) that could unfavorably limit Tenant's use of the
Premises. Tenant waives any right to terminate this Lease or to
enforce nay other remedy against Landlord with respect to use the
Premises for any given purpose, whether due to current or future legal
restrictions on the use of the premises, or any other reason
whatsoever, whether known or unknown, and whether existing now or in
the future.
[Insert 6.2]
7. HAZARDOUS SUBSTANCES
7.1. LANDLORD'S ACCESS. At its option, Landlord shall have access to the
Premises as set forth in Section 5.2.6., as may be required to carry
out any remediation, testing, or inspection of the Premises in any way
connected with or required with respect to the detection, analysis,
remediation, or other activity related to the presence or possible
presence of Hazardous Substances on the Premises or the Property.
Landlord shall use all reasonable measures to minimize the disturbance
to Tenant in connection with such entry. If any of the foregoing
actions is required because of a default of Tenant with respect to any
of its obligations set forth in this Lease, whether actual,
threatened, or imminent, Tenant shall pay Landlord's actual reasonable
expenses required to plan, supervise, and carry out any required cure
or remedy of such contamination, including reasonable attorney fees.
-6-
<PAGE>
7.2. INDEMNIFICATION OF TENANT. Landlord shall protect, indemnify, defend,
and hold Tenant harmless from and against any claims, demands,
penalties, fees, liens, damages, losses, expenses or liabilities
(including the costs of clean-up and reasonable professional fees,
including fees of Tenant's counsel), incurred by Tenant as a result of
any contamination of the Premises by Hazardous Substances to the
extent caused by Landlord, its agents, employees or contractors,
whether negligent or otherwise and whether occurring before or after
the Commencement Date. Except as provided in the preceding sentence,
Landlord shall not be responsible for any cost or expense of Tenant
arising from any contamination of the Premises by Hazardous Substances
arising from or in any way connected to any act or omission of Tenant
or any party other than Landlord, whether negligent or otherwise. The
indemnity and other duties provided for in this Section shall survive
the expiration or sooner termination of this Lease.
7.3. INDEMNIFICATION OF LANDLORD. Tenant will hold harmless, protect,
indemnify and defend Landlord from and against any claims, demands,
penalties, fees, liens, damages, losses, expenses or liabilities
(including the costs of clean-up and reasonable professional fees,
including fees of Landlord's counsel) incurred by Landlord as a result
of the presence of any Hazardous Substance on the Property to the
extent caused by Tenant, whether negligent or otherwise, and whether
occurring before or after the Commencement Date. Except as provided
in the preceding sentence, Tenant shall not be responsible for any
cost or expense of Landlord arising from any contamination of the
Premises by Hazardous Substances arising from or in any way connect to
any act or omission of Landlord or any party other than Tenant,
whether negligent or otherwise. The indemnity and other duties
provided for in this Section shall survive the expiration or sooner
termination of this Lease, and shall apply notwithstanding any
approval, knowledge, acquiescence, or notice of Landlord of any
activity of the Tenant on the Property.
7.4. TENANT'S RESPONSIBILITIES.
7.4.1. CONFORM WITH LAWS. Tenant shall not create, use or keep in,
on or around the Property any Hazardous Substance except such as is
used or sold by Tenant in the ordinary course of its business and then
only in accordance with all applicable laws, rules, regulations and
ordinances covering the transportation, storage, sale, use and
disposal of any such products. Without limiting the generality of the
foregoing, Tenant shall use and keep all solvents, petroleum, and
petroleum-based products used by it on the Property in conformity with
all applicable laws, rules, regulations and ordinances relating to
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the transportation, storage, sale, use and disposal of any such
products, and in conformity with any Hazardous Substance management
program and/or then-current industry practices related thereto.
7.4.2. DUTY TO INFORM LANDLORD. If Tenant knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving
or resulting from the same, has come to be located in, on, under, or
about the Premises other than as previously consented to by Landlord,
Tenant shall immediately give written notice of such fact to Landlord.
Tenant shall also immediately give Landlord a copy of any statement,
report, notice, registration application, permit, business plan,
license, claim action, or proceeding given to, or received from, any
governmental authority or private part, or persons entering or
occupying the Premises concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance, or
contamination in, or on, or about the Property.
7.5. SURRENDER PROPERTY FREE OF CONTAMINATION. Tenant shall, at its sole
cost, cause any Hazardous Waste contamination of the Premises to the
extent caused solely by any act or omission of Tenant to be fully
remedied to the satisfaction of all governmental entities having
jurisdiction over the Property by the Termination Date.
8. TENANT IMPROVEMENTS
Landlord shall have no duty to make any improvements to the Premises
the exception being the following:
1.) Landlord shall pressure wash the exterior of the Building.
2.) Landlord shall repair all exterior window and roof water leaks
and any damage as a result of.
All improvements shall be completed by Landlord prior to the Commencement
Date of the Lease.
9. TRADE FIXTURES AND PERSONAL PROPERTY
Any trade fixtures, equipment and other personal property installed in
or attached to the Premises by and at the expense of Tenant shall
remain the property of Tenant, except in any case where Tenant is the
lessee of any trade fixtures, equipment or other property, in which
case the lessor of such property shall retain title. Landlord agrees
that Tenant shall have the right to remove any
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and all of its trade fixtures, equipment and other personal property
which it may have stored, attached to, or installed in the Premises;
provided, however, that Tenant will repair all damage to the Premises
occasioned by such removal to Landlord's reasonable satisfaction prior
to the expiration or sooner termination of this Lease.
10. USE
Tenant shall use the Premises only for administrative office
purposes for Tenant's business, and for storage incidental
thereto, and for no other purpose. Tenant shall not use the
Premises in any way that constitutes a nuisance or violates any
law, ordinance, or regulation of any governmental entity having
jurisdiction over the property or causes any damage to any
property.
11. PERSONAL PROPERTY TAXES; LICENSE FEES
Tenant shall pay prior to delinquency all personal property taxes
assessed during the term of this Lease upon Tenant's fixtures,
furnishings, equipment and stock in trade or upon any other
personal property of Tenant situated in or upon the Premises.
Tenant shall also pay all fees or charges related to any permit,
approval, or license required to operate Tenant's business upon
the Premises. Tenant shall indemnify and hold Landlord harmless
from any lien against Landlord's interest in the Property arising
from such taxes and shall immediately cause the same to be
satisfied and removed of record.
12. UTILITIES
12.1. SERVICES INCLUDED. Landlord shall furnish Tenant the following
Utilities of the quality and quantity customarily supplied in
similar office buildings and retail locations located in Seattle,
Washington, all at Landlord's expense.
12.1.1. Water for drinking and office cleaning purposes.
12.1.2. Garbage collection and sewer services for ordinary
office and retail waste.
12.1.3. HVAC services.
12.1.4. Janitorial services
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12.2. Landlord shall be obligated to provide the foregoing services
only on normal business days, excluding Sundays and U.S. national
holidays.
12.3. Landlord does not warrant that the Utilities will be free from
interruption, but Landlord shall take all reasonable steps to
restore any interrupted utilities and services. Interruption of
utilities or services shall not be deemed an eviction or excuse
performance of any of Tenant's obligations under this Lease or
render Landlord liable for damages, unless caused by Landlord's
active negligence or willful misconduct. [Insert 12.3.]
12.4. DEFINITIONS. In Addition to the Minimum Rent provided in Section
3.1 of this Lease, Tenant shall pay to Landlord Tenant's Pro Rata
Share of increases in operating costs and taxes under this
Section 12.4.1 as Additional Rent. The Tenant's Pro Rata Share
shall be determined using a numerator equal to the rentable
square footage then currently leased by Tenant and a denominator
equal to the total rentable square footage for the Building,
which is equal to 33,037 square feet. The following definitions
shall apply to the calculation of Additional Rent.
12.4.1. "Operating Costs" shall mean:
12.4.1.1. All "Real Property Taxes" which shall mean that
portion of all real and personal property taxes, assessments and
charges levied upon or with respect to the Property. Real
Property Taxes shall include, without limitation, taxes on Tenant
improvements which are paid for by Landlord and not reimbursed by
Tenants but not taxes on personal property of Tenants; all
general real property taxes, charges, and general and special
assessments, for transit, housing, police, fire and other
governmental services or purported benefits to the Property, and
service payments in lieu of taxes; and shall also include any
other tax, fee or excise, however described, that may be levied
or assessed as a substitute for, or as an addition to, in whole
or in part, any other Real Property Taxes. Real Property Taxes
shall not include local, state or federal income, franchise, or
transfer taxes of Landlord unless, due to a change in the method
of taxation, any such tax is levied or assessed against Landlord
as a substitute for, in whole or part, any other tax that would
otherwise constitute a Real Property Tax. Real Property Taxes
shall not include interest or penalties assessed due to the late
payment of taxes or assessments by Landlord. All assessments
shall be paid in the maximum permissible number of installments.
If at any time during the Lease Term, any governmental authority
levies or assesses against Landlord any tax, fee or excise on (i)
rents payable under any lease of space or accruing from the use
of space in the Property, (ii) the
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business of renting space in the Property, (iii) the act of
entering into this Lease or any other lease of space in the
Property, (iv) the use or occupancy by Tenants of any space in
the Property, such tax, fee or excise shall constitute a Real
Property Tax. Real Property Taxes shall also include reasonable
legal fees, costs and disbursements incurred in connection with
proceedings to contest, determine or reduce Real Property Taxes.
12.4.1.2. All other expenses paid or incurred by Landlord
for obtaining services and products for maintaining, operating
and repairing the Property and the personal property used in
conjunction therewith, including without limitation, the costs of
refuse collection, water, sewer and other utilities services,
electricity, gas and other similar energy sources, supplies,
janitorial and cleaning services, window washing, landscape
maintenance, services of independent contractors, compensation
(including employment taxes and fringe benefits) off all persons
who perform duties in connection with the operation, maintenance
and repair of the Property, and its insurance premiums, licenses,
permits, and inspection fees, market rate management fees, legal
and accounting expenses and any other expenses or charges whether
or not herein above described, which in accordance with generally
accepted accounting and management practices would be considered
an expense of maintaining, operating, or repairing the Property.
For any costs applicable to properties other than the Property,
only the portion allocable to the Property shall be an Operating
Cost.
The following shall not be considered Operating Costs:
a. Costs incurred in connection with the initial construction or
design of the Property or to repair, change, improve, replace or
correct defects in the original construction or design of the
Property, ordinary wear and tear excepted.
b. Costs that are actually reimbursed to Landlord (other than
through pro-rated absorption of such costs by substantially all
of the Tenants in the Property), including reimbursements through
insurance or warrants.
c. Landlord's administrative and overhead expenses not incurred
directly in maintaining the common areas of the Property.
d. Costs incurred as a result of Landlord's negligence or breach of
any legal obligation (including any obligation of Landlord under
any lease of space in the Property).
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e. Costs, including (without limitation) any professional fees,
commissions, remodeling costs or court costs, incurred in
connection with the enforcement of leases with other Tenants of
the Property, or obtaining or retaining Tenants for the Property.
f. Amounts paid to persons or entities related to Landlord in excess
of the fair market value of services or materials provided in
exchange therefor.
g. Costs of achieving compliance with any environmental or other law
or regulation applicable to the Property.
h. Amounts payable under or in connection with Landlord's mortgage,
deed of trust, ground lease or other financing or refinancing
arrangements.
i. Depreciation of or reserves for replacement of any of Landlord's
assets.
j. Costs incurred in advertising or promoting the Property for any
purpose, including (without limitation) sale of the Property.
k. Costs, fines or penalties incurred due to violation by Landlord
of any applicable law.
l. Wages, salaries or other compensation or costs incurred to (a)
any executive employees or agents of Landlord for the purpose of
managing Landlord's interest in the Property or (b) any persons
employed in commercial concessions operated by Landlord.
m. Costs of traveling to and attending any off-site management
meetings of professional property management for promotional
associations or groups.
n. Capital costs, except for capital costs incurred for capital
repairs and replacements in the Property amortized over their
useful life. Capital costs incurred for renovation or expansion
of the Property shall not be Operating Costs.
12.4.2 "Lease Year" shall mean the twelve-month period
commencing January 1 and ending December 31.
12.4.3 "Actual Operating Costs" means the actual expenses
paid or incurred by Landlord for Operating Costs for any Lease Year of
the term hereof.
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12.4.4 "Actual Operating Costs Allocable to the Premises"
means the Tenant's Pro Rata Share of the Actual Operating Costs
determined by multiplying Tenant's Pro Rata Share by the Actual
Operating Costs.
12.4.5 "Estimated Operating Costs Allocable to the
Premises" means Landlord's estimate of Actual Operating Costs
Allocable to the Premises for the following Lease Year to be given by
Landlord to Tenant pursuant to Section 12.5.1 below.
12.4.6 "Base Service Year" shall mean the calendar year
1997.
12.5 ADDITIONAL CHARGES FOR ESTIMATED INCREASES IN OPERATING COSTS.
12.5.1 At the beginning of each Lease Year after the Base
Service Year, during the term hereof, Landlord shall furnish Tenant a
written statement of the Estimated Operating Costs Allocable to the
Premises for such Lease Year, and a calculation of the Additional
Charges payable hereunder as follows: One-twelfth (1/12) of the
amount, if any, by which such amount exceeds the Actual Operating
Costs Allocable to the Premises for the Base Service Year shall be
Additional Charges payable by Tenant for each month during such Lease
Year.
12.5.2 Within ninety (90) days after the close of each
Lease Year during the term hereof for which an estimated statement was
delivered to Tenant pursuant to Section 12.5.1 above, or as soon
thereafter as practicable, Landlord shall deliver to Tenant a written
statement setting forth in reasonable detail the Actual Operating
Costs for the preceding Lease Year or such prorated portion thereof if
this Lease commences or terminates on a day other than the first or
last day of a Lease Year (based on a 365-day Lease Year). If Tenant's
Pro Rata Share of such costs for any Lease Year exceed Estimated
Operating Costs Allocable to the Premises paid by Tenant to Landlord
pursuant to Section 12.5.1, Tenant shall pay the amount of such excess
to Landlord as Additional Charges within thirty (30) days after
receipt of such statement by Tenant. If such statement shows such
costs to be less than the amount paid by Tenant to Landlord pursuant
to Section 12.5.1, then the amount of such overpayment by Tenant shall
be credited by Landlord to the next Minimum Rent payable by Tenant or,
if the Lease has terminated, paid to Tenant within thirty (30) days
after such termination.
12.5.3 RIGHT TO REVIEW BOOKS. Landlord or its agent
shall keep records in reasonable detail, sufficient to conduct an
audit, showing all expenditures made for the items enumerated above,
which records shall be available for inspection by Tenant at any
reasonable time upon twenty-four (24) hours prior notice for a period
of up to six (6) months after expiration of the Lease Year remains.
Tenant shall be entitled to
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audit and copy these records within such six-month period in the
office of Landlord. In the event that the audit discloses that Tenant
has been overcharged for such expenses, Landlord shall immediately pay
Tenant the amount of such overpayment. Similarly, Tenant shall
immediately pay any underpayment to Landlord. If the overpayment of
any such charge exceeds 3% of Tenant's Pro Rata Share of such charge
for the subject fiscal or calendar year, Landlord shall be liable for
the cost of such audit.
12.5.4 BASE RENT. Notwithstanding anything to the
contrary in this Section 12.5.4, Additional Charges may decrease
throughout the term of this Lease, but the Minimum Rent payable by
Tenant shall in no event be less than the Minimum Rent specified in
Section 3.1. of this Lease.
12.5.5 PERSONAL PROPERTY TAXES. Tenant shall pay, prior
to delinquency, all Personal Property Taxes payable with respect to
all personal property of Tenant located on the Premises or the
Property and promptly, upon request of Landlord, shall provide written
proof of such payment.
13. MAINTENANCE AND REPAIR
13.1. TENANT'S DUTIES. Tenant shall repair and maintain the Premises
and any mechanical or electrical equipment located therein and
solely or primarily serving the Premises in good condition and
repair. Tenant shall also do anything required to put or
maintain the Premises, and any mechanical or electrical equipment
located thereon and solely or primarily serving the Premises, in
compliance with any laws, ordinances, rules, directives, or
requirements of any governmental entity having jurisdiction over
the Property, whether existing now or in the future.
13.2. LANDLORD'S DUTIES. Landlord shall keep in good order, condition
and repair the foundations, exterior walls (excluding the
interior of all walls and any exterior or interior of any
windows, doors, plate glass and display windows), and the Common
Areas of the Premises and the Building, except for the following,
for which Tenant shall bear the sole cost and responsibility for
repairing (i) any damage to the foregoing caused by an act,
negligence or omission of Tenant or Tenant's employees, agents,
contractors or customers; and (ii) any structural or other
alterations or improvements required by any governmental agency
by reason of Tenant's use and occupancy of the Premises.
14. ALTERATIONS
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14.1. RIGHT TO MAKE APPROVED ALTERATIONS. Tenant, at its sole cost and
expense, may make such repairs, alterations, improvements,
constructions, fabrication, or installations to the interior of
the Premises (the "Tenant Alterations") as Tenant deems
desirable; provided, that if the costs of any Tenant Alterations
made during the Term exceeds the cumulative total of Five
Thousand Dollars ($5,000.00), Tenant must first provide Landlord
with final plans and specifications for the Tenant Alterations,
and must thereafter obtain Landlord's written approval of the
Tenant Alterations prior to undertaking any demolition,
construction, or other activity relating to the same, such
consent not to be unreasonably withheld or delayed. Landlord
may, in its sole discretion, withhold approval for any Tenant
Alterations unless Tenant agrees to remove such Tenant
Alterations at the expiration or sooner termination of the Lease,
and to restore the Premises to a similar or better condition as
of the date of approval for the proposed Tenant Alterations is
requested.
14.2. COMPLIANCE WITH LAWS; WORKMANLIKE MANNER. Tenant shall comply
with any applicable laws, ordinances, rules, or regulations of
any governmental entity having jurisdiction over the Premises
relating to the design and accomplishment of the Tenant
Alterations. Tenant shall perform all Tenant Alterations in a
good workmanlike manner. Tenant shall obtain all permits and
approvals required for any aspect of any Tenant Alteration, and
shall provide Landlord with copies of all such permits and
approvals prior to commencing any activity on the Premises
related to the Tenant Alterations.
14.3 LIENS. Tenant shall not permit any liens to be filed against the
Property for materials delivered to the Premises or for labor or
other services performed on or with respect to the Premises at
the request of Tenant, or in any way arising from or related
thereto. Even if not previously required, and without waiving
any violation of this Section, Landlord may require that Tenant
post a bond against any lien filed against the Property in favor
of Landlord, the amount, form, and issuer of which shall be
acceptable to Landlord in it reasonable, discretion exercised
in good faith.
15. DISABILITY LAWS
15.1. ACCESSIBILITY LAW. "Accessibility Law" means any local, State,
or federal law, regulation, ordinance, resolution, order, or
directive relating to access, use, or enjoyment of the Premises
by, or employment thereupon, handicapped persons, or to the
removal of any tangible or intangible barrier or impediment to
access, use, or enjoyment of the Premises by handicapped persons,
including, but not limited to the Americans with Disabilities
Act.
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15.2. NEGATIVE COVENANTS. Notwithstanding anything in this Lease to
the contrary, Tenant shall make no Tenant Alteration that
violates any provision of any Accessibility Law. Tenant shall
not adopt or otherwise allow to exist any policy or practice
related to its use or occupancy of the Premises or the conduct of
its activities thereon that violates any Accessibility Law.
15.3. COLLATERAL CHANGES. Tenant shall reimburse Landlord upon demand
for any cost or expense required to alter any portion of the
Property to comply with any Disability law as a result of any
Tenant Alteration.
15.4. LANDLORD'S APPROVAL OF TENANT ALTERATIONS. Notwithstanding any
contrary provision of Section 14, Landlord shall have no
obligation to approve any Tenant Alteration if Landlord, in its
sole discretion exercised in good faith, determines that such
Tenant Alteration would obligate Landlord to make alterations of
or additions at its cost in the manner provided for other Tenant
Alterations.
15.5. INDEMNITY. If any claim is asserted against Landlord under any
Accessibility Law relating directly to any violation by Tenant of
any of the provisions of this Section 15, Tenant shall defend,
indemnify and hold Landlord harmless from and against any claims,
charges, liabilities, obligations, penalties, damages, judgments,
costs and expenses (including attorney's fees) arising directly
from such violation.
15.6. NO COVENANTS, REPRESENTATIONS, OR WARRANTIES. Landlord has made
no covenant, representation, or warranty regarding the compliance
or extend of noncompliance of any portion of the Property with
any Accessibility Law and hereby disclaims nay implied warranties
with respect thereto, including any implied warranty of
habitability or fitness for a particular purpose. No approval by
Landlord of any plans or specifications for any Tenant
Alterations, or failure to disapprove any such plans,
specifications, or Tenant Alterations shall constitute a
representation or warranty by Landlord, whether express or
implied, that such plans will comply with any Accessibility Law.
By initialing below, Tenant hereby agrees that the provisions of subsection
15.5. were explicitly negotiated.
Tenant ______________________
16. TENANT'S SIGNS
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Tenant may, at its own expense, maintain a door plaque or other
sign identifying the Premises; provided, that Tenant first
obtains Landlord's approval of the design and proposed manner of
installation thereof which approval shall not be unreasonably
withheld or delayed. At the termination of this Lease, all
signs, symbols and advertising matter attached to the Premises,
whether the exterior or interior thereof, shall be removed by
Tenant at its own expense, and any damage or injury to the
Premises caused thereby shall be repaired by Tenant at its sole
cost. Tenant shall maintain no other signs on the Premises in
any manner that would be visible from outside the Premises unless
it has the express written consent of Landlord. Tenant shall
also have the right to signage on the Building's south wall,
similar in size to the existing signage currently in place. The
design of this sign must be approved by Landlord, which approval
shall not be unreasonably withheld or delayed. At Tenant's
option throughout the Term, Tenant shall have the right to place
exterior signage on the south wall of the Building, comparable to
what exists at the date of Lease execution.
17. HOLD HARMLESS; DEFENSE FROM CLAIMS
Tenant agrees to hold harmless, protect, indemnify and defend
Landlord from all demands, claims, causes of action or judgments,
and all reasonable expenses incurred in investigating and
defending the same (including reasonable attorneys' fees and
costs) for injury to person or damage to property occurring on
the Premises during the Term or arising out of Tenant's use of
the Premises or the Property, except if caused by the gross
negligence or willful misconduct of Landlord, in which case
Landlord shall hold harmless, protect, indemnify and defend
Tenant therefrom including reasonable attorney's fee and costs.
Landlord need not have first paid any such claim in order to be
so indemnified. Should Landlord, without fault on Landlord's
part, be made a party to any litigation instituted by Tenant or
by any third party against Tenant, or by or against any person
holding under Tenant. Tenant shall defend and indemnify Landlord
from any liability, damages, or costs (including reasonable
attorneys' fees) arising from such action.
18. INSURANCE
18.1. ALL RISK INSURANCE. Commencing upon the date hereof, and
continuously during the entire term of this Lease, Landlord shall
keep in full force and effect a policy or policies of insurance
covering the Property, with the broadest available "all-risk"
coverage (including flood, boiler, and machinery insurance). The
casualty insurance shall be in an amount equal to the full
replacement cost of the Property. The policy shall not contain
any intra-insured exclusions as
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between insured persons or organizations. The policy shall also
insure against costs related to the enforcement of any ordinance
or law regulating the reconstruction or replacement of any
undamaged sections of the Property required to be demolished or
removed by reasons of the enforcement of any building, zoning,
safety, or land use laws as a result of a covered cause of loss.
18.2. RENTAL VALUE INSURANCE. Commencing on the date hereof and
continuing throughout the Term, Landlord may, at its option, keep
in force a policy or policies with loss payable to Landlord and
its lenders, insuring the loss of the full rental and other
charges payable by Tenant to Landlord under this Lease for one
(1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said insurance shall provide
that the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of
the Premises if necessary to provide one full year's loss of
rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected rental income, property taxes,
insurance premium costs, and other expenses, if any, otherwise
payable by Tenant for the following twelve (12) month period.
18.3. LIABILITY INSURANCE. Commencing on the date hereof and
continuously during the entire term of the Lease, or such other
time as Tenant occupies the Premises, Tenant shall keep in full
force and effect a policy or policies of liability insurance for
property damage and personal injury, with minimum limits of
$1,000,000.00 for any occurrence within or about the Premises
resulting in bodily injury or death of one person and
consequential damages arising therefrom, and in an amount of not
less than $1,000,000.00 for any occurrence within or about the
Premises resulting in injury to or death of more than one person
and consequential damages arising therefrom. Such policy shall
also include coverage for liability assumed under this Lease as
an "Insured Contract" for the performance of Tenant's indemnity
obligations under this Lease.
18.4. INSURANCE PROCEEDS. Unless this Lease is terminated pursuant to
Section 21, all insurance proceeds relating to the damage or
destruction of the Property shall be used by Landlord to pay all
costs of repair and restoration of any portion of the Property
damaged by an insured casualty. Notwithstanding the foregoing,
Landlord shall have no duty to restore the Property or to pay
over any insurance proceeds to the extend Landlord is required by
the terms of any mortgage or deed of trust superior to this Lease
to apply such proceeds to the debt secured thereby. Landlord
shall by under no obligation to restore or replace any
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personal property or trade fixtures of Tenant located upon the
Premises, unless gross damage to such items was caused by
Landlord's or its agent's grossly negligent acts or omissions.
18.5. GENERAL INSURANCE MATTERS. At Landlord's request made not more
frequently than once every two years during the Term, the amount
of casualty and liability insurance shall be updated to provide
adequate coverage in accordance with then-current industry
standards. Each policy shall name Landlord and Landlord's
lenders as additional named insureds, as their interests appear,
and shall contain a clause that the insurer shall not cancel or
materially change said policies without giving Landlord and
Landlord's lenders at least thirty (30) days prior written
notice. Each policy shall contain a waiver of any co-insurance
clause. Tenant shall deliver certificates of insurance
evidencing the insurance required to be carried by Tenant
hereunder to Landlord within ten (10) days of the Commencement
Date, and thereafter, upon Landlord's reasonable request. Tenant
shall provide Landlord with evidence of renewals or "insurance
binders" evidencing renewal of all insurance to be maintained by
Tenant at least thirty (30) days prior to the expiration of such
policies. If Tenant fails to do so, Landlord may obtain such
insurance and charge the cost thereof to Tenant, which amount
shall be payable by Tenant to Landlord upon demand and shall
constitute Additional Rent. Any insurance policies required
hereunder shall be written by insurance companies admitted and
authorized to do business in the state I which the property is
located, and rated A-IX by Best's Insurance Guide. If any policy
of insurance to be maintained by either party shall contain a
deductible clause, the deductible amount shall not exceed
$1,000.00 per occurrence and the insured shall be liable for such
deductible amount in the event of an insured loss. Tenant shall
settle no claims under any policy of insurance required to be
carried by either party under this Lease without the prior
written approval of Landlord. If Lease is terminated pursuant to
Section 21, all insurance proceeds relating to the damage or
destruction of the Property shall be paid to Landlord.
19. WAIVER OF SUBROGATION
Landlord and Tenant hereby release each other from liability and waive all
right of recovery against each other for any loss in or about the Premises
or the Property from perils insured against by the insurance required
hereunder, whether due to negligence or any other cause; provided that this
Section shall be inapplicable if it would have the effect, of invalidating
or reducing any insurance coverage required hereunder. Landlord and Tenant
shall, at the request of the other, execute and deliver to the other
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a waiver of subrogation in form and content as required by the respective
insurance carriers of each.
20. WAIVER OF LIABILITY
Landlord shall not be liable for injury or damage to the person or goods,
wares, merchandise, or other property of Tenant, Tenant's employees,
contractors, invitees, customers, or any other persons in or about the
Property, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water, or rain, or from the breakage, leakage,
obstruction, or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the
Property, or from other sources or places, and regardless of whether the
cause of such damage or injury or the means or repairing the same is
accessible to Tenant or not, except to the extent caused by the gross
negligence, willful or wanton act of Landlord, its agents, employees,
invitees, guests or contractors. Landlord shall not be liable for any
damages arising from any act or negligence of any other Tenant of Landlord.
Notwithstanding Landlord's negligence or breach of this Lease, Landlord
shall under no circumstances be liable for injury to Tenant's business or
for any loss of income or profit therefrom.
By initialing below, Tenant agrees that the terms of this Section 20 have
been explicitly negotiated between the parties and discussed with Tenant's
legal counsel.
Tenant _________________
21. DAMAGE BY CASUALTY
21.1. REPAIR AND RESTORATION. Subject to the provisions of Section
18.4., all insurance payments for damage to the Premises shall be
held for the sole purpose of repairing, rebuilding and/or
restoring the Premises with the exception that any payments from
rent loss insurance carried by Landlord shall be retained by
Landlord. If the Premises is damaged or destroyed by fire or
other insured casualty such that the repair of such damage is
reasonably estimated by Landlord not to exceed fifty percent
(50%) of the then-fair market value of the Premises, Landlord
shall promptly rebuild and restore the damaged area to its
pre-existing condition. If Landlord reasonably estimates the
cost of repairing such damage to the Premises to exceed fifty
percent (50%) of the then-fair market value of the Premises, or
if the Property is damaged by an uninsured casualty or Landlord
is required to apply an insurance proceeds to amounts secured by
a mortgage or deed of trust on the Property senior to this
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Lease, either party may elect to terminate this Lease upon thirty
(30) days written notice to the other, given within thirty (30)
days after such damage. If the Lease is not so terminated, the
Property shall be repaired in the manner and subject to the
conditions provided for above. Notwithstanding the foregoing, if
the Building is damaged or destroyed by fire or other insured
casualty such that the repair of such damage is reasonably
estimated by Landlord to exceed ten percent (10%) of the
then-fair market value of the Building, Landlord may terminate
this Lease upon thirty (30) days written notice to Tenant.
21.2. DAMAGE NEAR END OF TERM. Notwithstanding any contrary provision
of Section 21.1, if at any time during the last six (6) months of
the Term the Premises is damaged to an extent that Landlord
reasonably estimates will cost more than one (1) month's
installment of Minimum Rent to repair, whether or not an insured
loss, Landlord may, at Landlord's option, terminate this Lease
effective sixty (60) days following the date of occurrence of
such damage by giving written notice to Tenant of Landlord's
election to do so within thirty (30) days after the date of the
occurrence of such damage.
21.3. RENTAL ABATEMENT. In the event of damage or destruction to the
Premises or the Property which substantially affects Tenant's
ability to operate its business, Minimum Rent shall be abated in
the same proportion that Tenant's use of the Premises is
adversely affected thereby, until the Premises or the Property
(as the case may be) is repaired or restored.
22. CONDEMNATION
22.1. TOTAL TAKING. If all of the Property is taken by public or
private condemnation or eminent domain or transferred under the
threat thereof (hereinafter, a "Taking"), this Lease shall
automatically terminate as of the date of any final condemnation
judgment or as of the date possession is taken by the condemning
party, whichever is earlier.
22.2. SUBSTANTIAL TAKING. If a portion of the Building or access or
parking related thereto is Taken such that, in Landlord's
reasonable discretion, it is economically infeasible to continue
to operate the Building, Landlord may terminate this Lease within
twenty (20) days after such Taking by written notice to Tenant,
effective thirty (30) days after the date of such notice.
22.3.
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22.3.1. RESTORATION. If this Lease is not terminated upon a Taking
as provided for above, Landlord shall, as far as
economically feasible, promptly restore the Premises to a
unit architecturally and functionally comparable to the unit
existing just prior to such Taking (other than as to size),
and this Lease shall continue, except that rent shall be
adjusted to accommodate the change in size.
22.4. ABATEMENT OF RENT. Commencing with the date on which Tenant is
deprived of actual use of any portion of the Premises or Property
b a Taking, the Minimum Rent shall be reduced by the percentage
by which the fair market rental value of the Premises prior to
such taking or damage.
22.5. PROCEEDINGS. Landlord reserves all rights to an award for
damages to the Premises or the Property resulting from any
condemnation of the Property and Tenant hereby assigns to
Landlord any right Tenant may have to such an award, provided
that Tenant shall retain the right to receive compensation for
the value of: (i) trade fixtures and personal property on the
Premises, and (ii) any award for Tenant's interruption of
business and moving expenses. Neither Landlord nor Tenant shall
have the right to claim any portion of the condemnation of the
condemnation award separately allocated to the other party,
except as stated above.
23. ASSIGNMENT AND SUBLETTING
23.1. NO ASSIGNMENT OR SUBLETTING WITHOUT CONSENT. Tenant may not
assign this Lease or otherwise convey, transfer, or sublet any
interest herein without Landlord's prior written consent.
Landlord shall not unreasonably withhold such consent, but Tenant
agrees that the business experience, reputation and net worth of
any proposed transferee may be appropriately considered by
Landlord. Tenant agrees that Landlord may condition its approval
of an assignment or sublease by requiring amendments to this
Lease as Landlord may reasonably deem necessary or appropriate to
protect its interests with respect to such proposed assignee or
subtenant. [Insert 23.1]
23.2. RECAPTURE. Tenant shall pay Landlord any consideration of any
kind received by Tenant with respect to any sublease or
assignment of the Premises by Tenant to the extent that such
consideration exceeds the Minimum Rent.
23.3. NO RELEASE. The consent of Landlord to an assignment, sublease,
or other transfer to, or occupation of the Premises by, any
person or entity other than
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Tenant shall not discharge any liability of Tenant under this
Lease, nor shall such consent be deemed a consent to any
subsequent transfer to any other party. Any transfer without
Landlord's prior consent shall, at Landlord's option, be void.
23.4. LANDLORD'S EXPENSES. Tenant shall pay Landlord's reasonable
legal costs and other expenses incurred with respect to any
transfer, consent to transfer, or consideration of transfer
described above.
24 NO MERGER
Unless specifically stated otherwise in writing by Landlord, the voluntary
or other surrender of this Lease by Tenant, the mutual termination or
cancellation hereof, or termination hereof by Landlord for breach by
Tenant, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Landlord shall, in the event of any such
surrender, termination, or cancellation, have the option to continue any
one or all of such existing lesser interests. Landlord's failure within
ten (10) days following any such event to give written notice to the
contrary to the holder of any such lesser interests shall constitute
Landlord's election to terminate such interest.
25. DEFAULT
25.1. TENANT'S DEFAULT. The occurrence of any one or more of the
following shall be an Event of Default by Tenant under this
Lease:
25.1.1. PAYMENT. The failure by Tenant to make any payment of
Minimum Rent, Additional Rent, or any other payment
required to be made by Tenant hereunder, as and when
due.
25.1.2. INSURANCE AND BONDS. The failure of Tenant to provide
Landlord with any evidence of insurance or bonds as and
when required under this Lease.
25.1.3. GENERAL FAILURE. The failure by Tenant to observe or
perform any of the covenants, conditions or provisions
of this Lease or of the Lease Termination Agreement
between Landlord and Tenant of even date herewith (the
"Lease Termination Agreement"), or of the Settlement
Documents (as that term is defined in the Lease
Termination Agreement) to be observed or performed by
Tenant.
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25.1.4. INSOLVENCY. The insolvency of Tenant, its failure to
pay its debts in the ordinary course of business, or
the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt (unless in the case of a
petition filed against Tenant, the same is dismissed
within 60 days) or a petition for reorganization or
arrangement under any law relating to bankruptcy or the
reorganization of the debts of individuals or
corporations, or the appointment of a trustee or a
receiver to take possession of substantially all
Tenant's assets located on the Premises or of Tenant's
interest in this Lease.
25.1.5. NO NOTICE FOR MONETARY DEFAULTS. Tenant shall not be
in default until 10 days after notice of a monetary
default has been given by Landlord to Tenant.
25.1.6 NOTICE FOR NONMONETARY DEFAULTS. Landlord shall give
Tenant fifteen (15) days notice and opportunity cure
any default of more than fifteen (15) calendar days,
then Tenant shall have such longer period to cure such
default as is reasonably necessary, provided Tenant
commences such cure within said fifteen (15) calendar
day period and thereafter diligently prosecutes such
cure to completion within thirty (30) days after
receipt of Landlord's notice. If a cure is not
completed within (30) days after notice from Landlord,
Landlord may immediately pursue any remedy available to
it under the Lease upon the expiration of such period.
25.2. NOTICES CONCURRENT. Any notice and opportunity to cure to be
given by Landlord under the terms of this Lease shall run
concurrently with any such notice or cure rights provided for
under any applicable statute authorizing the forfeiture of leases
for unlawful detainer, and the failure of Tenant to cure any
default within the greater of the two such periods shall
constitute both an unlawful detainer and a breach of this Lease.
25.3 LANDLORD'S DEFAULTS. The occurrence of any one or more of the
following shall be an Event of Default by Landlord under this
Lease:
25.3.1. GENERAL FAILURE. Failure to perform any of the
obligations of Landlord under this Lease if not cured
within (10) calendar days after written notice by
Tenant to Landlord; provided, that if the nature of
Landlord's breach or obligation is such that more than
ten (10) calendar days are required for cure of
performance, then
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Landlord shall not be in default if it commences to cure
within said ten (10) calendar day period and thereafter
diligently prosecutes the same to completion within thirty
(30) days after Tenant's notice.
25.3.2. NOTICE TO LENDER. Tenant shall give any lender of Landlord
holding a security interest in the Property whose name and
address have been furnished to Tenant in writing for such
purpose thirty (30) days notice and opportunity to cure any
default of Landlord before invoking any remedies Tenant may
have by reason thereof.
26. REMEDIES
26.1. LANDLORD'S REMEDIES. Following any Event of Default defined
above that remains uncured beyond any applicable grace period,
Landlord may thereafter exercise any of the following remedies,
all of which remedies shall, to the greatest extent possible, be
cumulative, such that exercise of one shall not exclude any
other.
26 1.1. TERMINATE LEASE. Terminate the Lease and Tenant's
right to possession of the premises by any lawful means
and upon such notice as may be required hereunder and
by law, in which case this Lease shall terminate and
Tenant shall surrender possession of the Premises to
Landlord. In such event Landlord shall be entitled to
recover from Tenant all past due Minimum Rent,
Additional Rent and other payments due hereunder plus
the amount of the brokerage commission paid by Landlord
with respect to this Lease attributable to the
then-unexpired Term, plus the value at the time of
award of the amount by which the unpaid Minimum Rent,
Additional Rent and other payments due hereunder for
the balance of the Lease term after the time of such
award (discounted to present value at the discount rate
of the Federal Reserve Bank of San Francisco plus one
(1) percent) exceed the amount of such loss for the
same period that Tenant proves Landlord could have
avoided through reasonable attempts at mitigation.
Unpaid installments of Minimum Rent, and unpaid
Additional Rent, and any other sums due Landlord shall
bear Interest from the date such sums are payable to
Landlord, in addition to any late charge other fee
levied with respect to such amounts.
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26.1.2. CONTINUE LEASE. Continue the Lease in effect whether
or not Tenant shall have abandoned the Premises. In
such event Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease,
including the right to recover the Minimum Rent,
Additional Rent, and any other payments due hereunder
as they become due and/or relet the Premises in
Tenant's or Landlord's name, enter the Premises and
incur expenses to remove all persons and property from
the Premises, and to restore the same at Tenant's risk
and expense, to put the Premises in Tenantable
condition and to alter or improve the same as required
or any new Tenant, or remedy any other default of
Tenant, and to obtain a new Tenant (including all
brokerage fees related to such new lease), which costs
and expenses shall be considered Additional Rent, and
shall become due and payable by Tenant, with Interest
from the date such expenses are incurred; provided,
that Landlord shall use reasonable diligence to relet
the Premises in order to mitigate Landlord's damages.
Notwithstanding that Landlord may elect to keep this
Lease in force, Landlord may thereafter terminate the
Lease for any previous default that remains uncured or
for any subsequent default.
26.1.3. LANDLORD'S RIGHT TO CURE. If Tenant defaults in the
performance of any of its obligations hereunder,
Landlord may, at its option (but without obligation to
do so), pay such amounts or perform such obligations as
required to cure any defaults of Tenant, all on behalf
of and at the expense of Tenant and under protest if
requested by Tenant, and may do all necessary work and
make all necessary payments in connection therewith,
including but not limited to, the payment of any
reasonable attorney's fees, costs, or charges in
connection with any legal action which may have been
brought. Tenant shall pay Landlord the amount so paid
by Landlord upon demand, with Interest from the date of
payment, all of which shall be Additional Rent.
26.1.4. OTHER REMEDIES; FURTHER DAMAGES. Pursue any other
remedy available to Landlord at law or equity,
including the right to recover any other amount
necessary to compensate Landlord for all reasonably
foreseeable damages proximately caused by the Tenant's
failure to perform its obligations under this Lease.
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26.2 TENANT'S REMEDIES. Upon a default by Landlord that remains uncured
for any applicable grace period, Tenant shall have the right, but not
the obligation, to incur any cost or make any expenditure reasonably
necessary to cure Landlord's default, in which case Landlord shall
reimburse Tenant for any expenditure made or cost incurred with
Interest from the date of such expense. Tenant shall also have the
right to sue Landlord for damages and declaratory or injunctive
relief. Tenant shall have no right to cancel this Lease due to a
default of Landlord under this Lease or any other reason, other than
for a breach of Landlord's covenant of quiet enjoyment set forth
herein.
27. SURVIVAL
Any obligations or liability of Tenant or Landlord accruing prior to the
expiration or sooner termination of this Lease shall survive such
termination or expiration.
28. MEMORANDUM OF LEASE
This Lease shall not be recorded, but at the request of either party a
Memorandum of Lease setting forth the Term hereof and such other provisions
as may be reasonably acceptable to both parties shall be executed and
acknowledged by the parties and recorded in the county where the Property
is located. The party requesting such memorandum shall pay all costs of
recording such memorandum and the other party's reasonable attorneys' fees
required to review such memorandum.
29. SUBORDINATION AND NONDISTURBANCE
29.1. CONDITIONS. If any current or future holder of a mortgage, deed
of trust, or other consensual lien (a "Security Device") on the
Property requires that this Lease be subordinate thereto, Tenant
shall, upon the request of Landlord in writing, subordinate this
Lease to the Security Device and agrees to attorn to the holder
thereof if requested to do so by such holder, provided said
holder executes an agreement with Tenant, substantially providing
that (i) in the event of foreclosure of the lien of said Security
Device, Tenant's possession of the Premises including any options
to extend the Term hereof, shall remain undisturbed so long as
Tenant is not in default beyond any applicable grace period
hereunder, and that (ii) Tenant may remove Tenant's trade
fixtures from the Premises in accordance with the provisions of
this Lease. If any security device held by such lender, the
lender shall give written notice thereof to Tenant, and this
lease shall thereupon be deemed prior to such security device,
notwithstanding the relative dates of documentation or recording
thereof or any prior subordination of this Lease to such lien.
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29.2 AGREEMENT. Subject to the conditions set forth above, Tenant
agrees to execute and deliver to Landlord within fourteen (14)
business days after receipt thereof, any instruments necessary
or proper to effect a subordination complying with this article.
[Insert 29.3]
35. VENUE AND JURISDICTION
The parties agree that any suit, arbitration, action or other legal
proceeding arising out of or relating to this Lease may, at the option of
Landlord, be brought in a federal or state court located in the county in
which the Property is located. The parties consent to the jurisdiction of
each such court in any such suit, action or proceeding, and waive any
objection either may have as to the venue of any such suit, action or
proceeding in any such court. Alternatively, Landlord may institute suit
against Tenant in any other jurisdiction in which Tenant is subject to
suit.
36. MISCELLANEOUS PROVISIONS
36.1. SEVERABILITY. If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any
extent be invalid and unenforceable, the remainder of this Lease
or the application of such term or provision to persons or
circumstances other than those as to which it is invalid or
unenforceable shall not be affected thereby, and each remaining
term and provision of this Lease shall be valid and be enforced
to the extent permitted by law.
36.2. TIME OF ESSENCE. Time is of the essence of this Lease. The
failure of a party to insist upon a strict performance of any of
the terms, conditions and covenants herein or to exercise any
remedy available to it shall not be deemed a waiver of any rights
or remedies that said party may have and shall not be deemed a
waiver of any subsequent breach or default in the terms,
conditions, and covenants herein contained.
36.3 COUNTERPARTS. This agreement may be signed in counterparts, but
when so signed shall constitute but one and the same agreement.
This Lease may be delivered by facsimile transmission. The
party so delivering a document will deliver the original of
such document by overnight courier within two (2) business days
thereafter.
36.4. CONSENTS. No consent or approval of either Landlord or Tenant
required or contemplated under this Lease shaft be unreasonably
withheld or delayed.
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36.5. RULES AND REGULATIONS. Landlord shall have the right to make
reasonable, nondiscriminatory rules and regulations relating to
the use of the Common Areas of the Property and the parking
located thereon, and to amend the same from time to time on
reasonable notice to Tenant. Tenant shall observe such rules and
regulations. [Insert 36.5]
36.6 AMENDMENTS. No change in the provisions of this Lease shall be
effective unless made in writing and signed by the parties
to this Lease and approved by the holder of any mortgage or
deed of trust against the Property if such consent is required
by any agreement of Landlord and such Lender.
36.7. ENTIRE AGREEMENT. There are no verbal or other agreements,
representations, or warranties of the parties (unless attached
hereto or specifically referred to herein) that modify,
supplement, or affect this Lease. This lease supersedes any and
all prior agreements executed by or on behalf of the parties
hereto regarding Tenant's occupancy of the Premises. The
covenants and conditions contained in this Lease run with the
Property and are binding on and inure to the benefit of the
parties and their respective heirs, successors and assigns.
36.8. FORCE MAJEURE. Notwithstanding anything in this Lease to the
contrary, Landlord and Tenant shall not be deemed to be in
default in respect of the performance of any of the terms
covenants and conditions of this lease if any such failure or
delay is due to any strike, lockout, civil commotion, warlike
operation, invasion, rebellion, hostilities, military or usurped
power, sabotage, Act of God, or other cause beyond the reasonable
control of Landlord or Tenant, provided, however, that this
provision shall not excuse any obligation of Landlord or Tenant
to make any payment due to the other or to any third party,
including, but not limited to, Maximum Rent or Additional Rent.
36.9. BROKERAGE COMMISSION. Each party represents and warrants to the
other party that Teutsch Partners was the sole agent involved in
this transaction. Landlord shall pay said agent a leasing
commission equal to five percent (5%) of the total lease value,
half upon lease signing and half upon Tenant's occupancy. This
fee shall be paid in two components, the first portion being paid
over the gross rental for the first 16 months of the Lease Term.
The balance shall be paid within 15 days of Tenant indicating its
intention to continue its occupancy in the building by not
exercising it's option to terminate the Lease after October 1,
1997. In the event Landlord does not pay the balance by said
date, then Tenant shall have the right to make its monthly rental
payments directly to Teutsch Partners until the balance is paid.
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36.10. PREVAILING LAW. This Lease shall be governed by the laws of the
state in which the Property is located, as they exist from time
to time, and by any applicable federal law.
36.11 NO THIRD PARTY BENEFICIARIES. Unless otherwise expressly
specified herein, this Lease shall not be construed to be for the
benefit of any third party.
36.12. CONSTRUCTION. Landlord and Tenant have participated equally in
the negotiation of this Lease. This Lease shall be construed
without regard to which party drafted any particular clause under
consideration.
36.13. HEADINGS. The paragraph headings are not part of this Lease and
shall not be considered in construing the provisions hereof.
38. SECURITY AND/OR DAMAGE DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant has deposited
with Landlord $9375.33. Said sum shall be held by Landlord as security for
the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including but not limited to the provisions relating to the payment of
rent, Landlord may (but shall not be required to) use, apply or retain all
or any part of this sum in default, or for deposit for the payment of any
rent or any other sum in default, or for the payment of any amount which
Landlord may suffer by reason of Tenant's default. If any portion of said
deposit is so used or applied, Tenant shall, within ten (10) days after
written demand thereof, deposit cash with Landlord in an amount sufficient
to restore the security deposit to its original amount and Tenant's failure
to do so shall be a default under this Lease. Landlord shall not be
required to keep this security deposit separate from its general funds, and
Tenant shall not be entitled to interest on such deposit. If Tenant shall
fully and faithfully perform every provision of this Lease to be performed
by it, the security deposit or any balance thereof shall be returned to
Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) within ten (10) days following expiration of the Lease Term. In
the event of termination of Landlord's interest in this Lease, Landlord
shall transfer said deposit to Landlord's successor in interest.
Tenant will at all times maintain with the Landlord on deposit a sum equal
to one month's rent for the purposes of this paragraph.
Landlord hereby acknowledges receipt of ____________________________
DOLLARS ($___________) for the security deposit.
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Executed as of the date first above written.
LANDLORD TENANT
DAVID & NANCY EDELSTEIN
By:_________________________________ By_______________________
David A. Edelstein
Title:______________________
For: The Cobalt Group, Inc.
By:_________________________________
Nancy Edelstein
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LANDLORD
STATE OF WASHINGTON )
)SS
COUNTY OF KING )
On this _____ day of ________________, 199_, before me the undersigned, a
Notary Public in and for the State of Washington, duly commissioned and sworn,
personally appeared DAVID A. EDELSTEIN, to me known to be the person who signed
the within and foregoing instrument, and acknowledged said instrument to be
his/her free and voluntary act and deed for the uses and purposes therein
mentioned.
_________________________________
NOTARY PUBLIC in and for the State of
Washington, residing at_____________
My Appointment Expires____________
STATE OF WASHINGTON )
) SS
COUNTY OF KING )
On this _____ day of _________________, 199_, before me the undersigned, a
Notary Public in and for the State of Washington, duly commissioned and sworn,
personally appeared NANCY JO EDELSTEIN, to me known to be the person who signed
the within and foregoing instrument, and acknowledged said instrument to be
his/her free and voluntary act and deed for the uses and purposes therein
mentioned.
_________________________________
NOTARY PUBLIC in and for the State of
Washington, residing at______________
My Appointment Expires_____________
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<PAGE>
TENANT
STATE OF WASHINGTON )
) SS
COUNTY OF KING )
On this _____ day of _________________, 199_, before me, the undersigned, a
Notary Public in and for the State of Washington, duly commissioned and sworn,
personally appeared _______________________________ to me known to be the person
who signed the within and foregoing instrument, and acknowledged said instrument
to be his/her free and voluntary act and deed for the uses and purposes therein
mentioned.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
_________________________________
NOTARY PUBLIC in and for the State of
Washington, residing at______________
My Appointment Expires:____________
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EXHIBIT A
Lots 1 and 4, Block 43, Addition to the Town of Seattle as laid out by A.A.
Denny (commonly known as A.A. Denny's 6th Addition to the City of Seattle),
according to the Plat recorded in Volume I of Plats, page 99, in King County,
Washington; except the westerly 9 feet thereof condemned for First Avenue in
King County Superior Court Cause No. 7092, as provided by Ordinance No. 1129 of
the City of Seattle.
<PAGE>
Exhibit B
Third Floor Plan
<PAGE>
Exhibit C
Amendment to Lease
Dated September ____, 1996
For The Cobalt Group
At the First and Lenora building
SPACE POCKET. (Insert 2.6)
Tenant shall have the right to reduce the amount of office space and
corresponding rent by as much as approximately 5,536 Rentable Square Feet (RSF)
by designating space pockets throughout the premises. Tenant shall have the
right to absorb 5,536 RSF of pocket spaces on an incremental or office-by-office
basis. Tenant will commence paying rent on a portion of the pocketed space by
absorbing 2,036 RSF at the end of the sixth (6th) month of the Lease Term and
the remaining 3,500 RSF at the end of the sixteenth (16th) month of the Lease
Term or upon active use of the space, whichever occurs first.
RIGHT TO CANCEL. (Insert 2.7)
Tenant shall have the right to cancel this Lease after the end of the sixteenth
(16th) month of the Initial Lease Term by providing Landlord written notice of
its intent by no later than October 1, 1997. In the event Tenant chooses to
terminate, then a cancellation fee equal to $9,375.33 shall accompany the
written notice.
RIGHT OF FIRST REFUSAL. (Insert 2.8)
Tenant shall have a right of first refusal for the approximately 4,000 Rentable
Square Feet in the southeast corner of the second floor described herein as
Exhibit D. Upon receipt of a legitimate offer from an outside party for the
space, Landlord shall provide Tenant five (5) business days with which to
declare its intention to lease said space. If Tenant elects to lease this
space, all terms and conditions of the Initial Lease shall apply on a prorated
basis, as necessary.
TITLE, AUTHORITY, AND QUIET ENJOYMENT. (Insert 5.4)
Notwithstanding anything contained herein to the contrary, Landlord, its agents,
employees or contractors' entry onto the Premises, or any repair or work
performed thereon as provided under this Section shall not in any way materially
or unreasonably affect or interrupt with Tenant's use, business or operations on
the Premises or obstruct the visibility or ingress and egress of the Premises.
In the event of such substantial and material interference, Landlord shall first
obtain the written consent of Tenant which consent shall not be unreasonably
withheld, with the exception in case of emergency. Landlord shall be liable for
any damage or injury to persons or property caused by any grossly negligent,
willful, or wanton act of Landlord, its agents, employees, invitees, guests or
contractors resulting from its and/or their
<PAGE>
entry onto or the repair or any other work performed. Landlord shall give
Tenant no less than forty-eight (48) hour's notice before any entry hereunder,
unless an emergency requires shorter notice.
USE OF COMMON AREAS. (Insert 6.1.1.)
Tenant and its officers, employees, agents, contractors, customers and invitees
shall have and Landlord hereby grants a irrevocable license (in common with the
other tenants of the Property and their employees, agents, customers and other
invitees) to use the common areas of the Property for the intended purposes
(e.g. parking, access, ingress and egress).
ACCEPTANCE OF PREMISES. (Insert 6.2)
Notwithstanding anything contained herein to the contrary, Landlord represents,
to the best of the Landlord's knowledge, all structural parts, including but not
limited to foundation, roof, exterior walls, plumbing and electrical systems of
the Premises and Building, and any work constructed or caused to be constructed
by Landlord (except any additions, alterations or improvements made or caused to
be made by Tenant that constitute structural parts of the Premises or the
Building), meet and comply with federal, state, and local laws, ordinances and
regulations and are in good sanitary order, condition and repair at delivery of
the Premises to Tenant. Landlord shall promptly correct any latent defects as
they become known. Landlord shall disclose any known conditions that would
adversely affect use as contemplated by this Lease.
UTILITIES. (Insert 12.3)
Tenant shall have the right to sufficient utilities and ventilation necessary to
support its intended use of the Premises. Nothing contained herein precludes
Tenant from seeking recovery of any and all damages suffered and losses incurred
(including but not limited to loss of business) due to an interruption of
utilities for a period greater than forty-eight (48) hours if such interruption
was caused by the intentional or grossly negligent act of Landlord or its
agents, employees, contractors or invitees. If any such interruption continues
for a period of excess of one hundred twenty (120) days, in addition to any
other rights Tenant may have, Tenant shall have the right to terminate this
Lease.
UTILITIES (Insert 12.5)
Landlord shall pay before delinquent all Utilities Expenses, Taxes, and the cost
of any insurance to be carried hereunder by Landlord and which are Landlord's
responsibility per paragraph 12.
DAMAGE BY CASUALTY. (Insert 21.4)
Notwithstanding anything to the contrary contained in this Lease, in the event
of damage or destruction to the Premises or the Building, Tenant shall have the
night to terminate under the
<PAGE>
following conditions: (a) the damage is such that the Premises cannot be (or are
not) restored within one hundred eighty (180) days from the date of damage; (b)
damage or destruction is caused by a peril not required to be insured against
hereunder; or (c) the damage or destruction occurs during the last six (6)
months of the Term (or any Extension Term) and Tenant has not previously
exercised any option rights it may for succeeding extension or renewal terms.
ASSIGNMENT AND SUBLETTING. (Insert 23.1)
Notwithstanding the foregoing, Tenant may, without Landlord's prior written
consent, sublet all or any portions of the Premises or assign the Lease to (i) a
parent, subsidiary, affiliate, division, or corporation controlling, controlled
by or under common control with Tenant; (ii) a successor corporation related to
Tenant by merger, consolidation, nonbankruptcy reorganization or government
action; or (iii) a purchaser of substantially all of the Tenant's assets located
in the Premises, provided that, as of the date of such transfer, the purchaser
has the reasonable financial ability to perform its obligations with respect to
this Lease and/or the Premises. For the purpose of the Lease, any sale or
transfer of Tenant's capital stock through any exchange, or redemption or
issuance of additional stock of any class shall not be deemed an assignment,
subletting or any other transfer of the Lease or the Premises.
SUBORDINATION AND NON-DISTURBANCE. (Insert 29.3)
Notwithstanding anything contained herein to the contrary, Tenant's
subordination and attornment under this Article shall be conditioned upon such
transferee, purchaser, landlord, mortgagee, or beneficiary executing and
providing Tenant with a non-disturbance agreement preserving Tenant's rights and
leasehold interest under the Lease. Execution of any instruments required under
this Article shall not diminish or affect in any way Tenant's rights or remedies
under the Lease against Landlord or any other third party claiming under, by or
through Landlord.
MISCELLANEOUS PROVISIONS. (Insert 36.5)
All rules and regulations shall be equally applicable to all tenants. The Lease
provisions shall control and supersede any contradictory or inconsistent
provisions contained in the rules and regulations. Landlord shall provide
reasonable advance notice of any modifications or additions to the rules and
regulations, and such modifications or additions shall not materially, or
unreasonably interfere with Tenant's conduct of its business or Tenant's use or
enjoyment of the Premises, and shall not require payment of additional rent or
the incurring of any other costs and expenses.
<PAGE>
Exhibit D
Floor Plan
<PAGE>
STATE OF ________________ )
)ss
COUNTY OF ______________ )
On this _________ day of ____________, 1998, before me personally appeared
______________________, to me known to be the _______________________ of THE
COBALT GROUP, INC., a Washington corporation, which executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said partnership, for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute said instrument
on behalf of said partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
___________________________________
Notary Public
Commission Expires: ________________
<PAGE>
Exhibit 10.3.1
AMENDMENT NO. 1 TO LEASE AGREEMENT
This Amendment No. 1 dated as of April 21, 1998, is made by and between
FIRST & LENORA, LLC a Washington Limited Liability Company ("Landlord") and THE
COBALT GROUP, INC., a Washington Corporation ("Tenant").
RECITALS
A. David A. Edelstein and Nancy Jo Edelstein (then Landlord) and Tenant
executed a certain Lease, dated 14th day of September, 1996, for the
lease of certain office space in the building commonly known as the
First & Lenora Building.
B. The Office Lease Agreement is referred to herein as "Lease".
C. Landlord is the successor in interest to David A. Edelstein and Nancy
Jo Edelstein.
D. The space added to the current rentable area of the Premises as a
result of this amendment shall be referred to as the "Expansion
Space".
AGREEMENT
It is therefore agreed as follows:
1. SECTION 1.1 PREMISES is amended to increase the current net rentable
area of 11,536 leased by Tenant to include the 6,731 rsf northwestern
bay and the 3,325 rsf southwestern bay of the ground floor, increasing
the Premises by 10,056 rsf. Within the 6,731 rsf northwestern bay
1,261 square feet is mezzanine and within the 3,325 rsf southwestern
bay 553 square feet is mezzanine.
The adjusted rentable square footage for the entire Premises as of this
amendment shall be 21,592 rentable square feet.
2. SECTION 2.2 TERM: The lease term for the expanded premises shall begin
May 1, 1998 and expire coterminous with the initial lease expiration
date of October 31, 2000.
3. SECTION 2.1 --MINIMUM RENT FOR THE PREMISES
<PAGE>
<TABLE>
<CAPTION>
SPACE SQUARE FOOTAGE PER RSF COST PER ANNUM MONTHLY RENTAL AMOUNT
<S> <C> <C> <C>
Floor 1 10,056 rsf $19.50 $16,341.00
Floor 3 11,536 rsf $14.00 $13,458.67
</TABLE>
The total adjusted Minimum Rent for the entire Premises is $29,799.67
per month plus any past or future adjustments due to an increase in
operating costs passed through to Tenant as part of the Lease. The
Minimum Rent for the entire Premises is calculated as a fully serviced
lease pursuant to the terms of the Lease. Tenant shall be responsible
for payment of its own separately metered electrical service for the
ground floor spaces.
4. TENANT IMPROVEMENTS
Tenant shall occupy the Premises on an "as is" basis with the exception of
the demolition of the existing partition walls currently within the
northwestern bay of the first floor expansion space. Demolition work shall
be paid for by the Landlord. Any additional improvements to the Premises
shall be at the cost of Tenant.
5. RELOCATION OF EXPANDED PREMISES
In the event Landlord can make available to Tenant an office space on
the second floor of the building comparable in size to that leased by
Tenant on the ground floor, then Landlord shall have the right to relocate
Tenant provided the following conditions are met: 1.) Landlord provides
Tenant with $7.00 per rsf in tenant improvement dollars to refurbish the
new premises. 2.) Landlord provides Tenant with a one-month rental
abatement. 3.) Landlord provides Tenant with three months notice prior to
such relocation. In the event such relocation should occur, the rental
rate and the lease term remaining shall be the same as that on the first
floor.
6. EXTERIOR BUILDING CONSTRUCTION
Tenant acknowledges that during the course of this lease Landlord may
begin significant construction on the exterior of the building. While
Landlord shall use its best efforts to minimize any disruption to Tenant's
premises, it is expected that such work shall be of inconvenience to Tenant
during that period. Tenant agrees and understands that this may be the
case and understands that short of Landlord's negligence, Tenant shall have
no right to rental offset or abatement during the term of this lease.
However in no event shall Landlord's construction work materially effect
Tenant's ability to conduct normal business operations within the Premises.
Except as set forth in this Amendment No. 1 all provisions of the
Lease and the remainder of each Section referenced above, shall remain
unchanged and in full force and effect.
DATED this ___ day of ______________, 1998.
<PAGE>
TENANT: LANDLORD:
THE COBALT GROUP, INC. FIRST & LENORA, LLC.
A Washington Corporation a Washington limited liability company
By: By:
------------------------------- -------------------------------
Its: Its:
------------------------------ ------------------------------
<PAGE>
STATE OF ________________ )
)ss
COUNTY OF ______________ )
On this _________ day of ____________, 1998, before me personally appeared
______________________, to me known to be the _______________________ of FIRST &
LENORA, LLC., a Washington limited liability company, which executed the within
and foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said partnership, for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute said instrument
on behalf of said partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
------------------------------------
Notary Public
Commission Expires:
----------------
<PAGE>
Exhibit 10.3.2
AMENDMENT NO. 2 TO LEASE AGREEMENT
This Amendment No. 2 dated as of DECEMBER 16TH, 1998, is made by and
between FIRST AND LENORA, LLC a Washington Limited Liability Company
("Landlord") and THE COBALT GROUP, INC., a Washington Corporation ("Tenant").
RECITALS
A. David A. Edelstein and Nancy Jo Edelstein (then Landlord) and Tenant
executed a certain Lease, dated 14th day of September, 1996, for the lease
of certain office space in the building commonly known as the First &
Lenora Building, and an Amendment to Lease No. 1, dated April 21, 1998, for
the purpose of expanding the original leased space.
B. The Office Lease Agreement is referred to herein as "Lease."
C. Landlord is the successor in interest to David A. Edelstein and Nancy Jo
Edelstein.
D. The space added to the current rentable area of the Premises as a result of
this amendment shall be referred to as the "Second Expansion Space."
AGREEMENT
It is therefore agreed as follows:
1. SECTION 1.1 PREMISES is amended to increase the current net
rentable area of 21,592 rentable square feet (RSF) leased by Tenant to
include the 1,857 RSF formerly occupied by Coupe Rokei on the ground
floor.
The adjusted rentable square footage for the entire Premises as of
this amendment shall be 23,449 RSF.
2. SECTION 2.2 TERM The lease term for the Second Expansion Space
shall begin January 1, 1999, and expire coterminous with the initial
lease expiration date of October 31, 2000.
3. SECTION 2.1 MINIMUM RENT (for the entire Premises, including the
Second Expansion Space)
<TABLE>
<CAPTION>
Month(s) square footage monthly rental amount
-------- -------------- ---------------------
<S> <C> <C>
Month 1 23,449 RSF $26,608.80
Months 2-22 23,449 RSF $32,817.30
</TABLE>
<PAGE>
The total adjusted Minimum Rent for the entire Premises is $32,817.30
per month plus any past or future adjustments due to an increase in
operating costs passed through to Tenant as part of the Lease. The
Minimum Rent for the third floor of the Premises is calculated as a
fully serviced lease pursuant to the terms of the Lease. The Minimum
Rent for the ground floor is calculated as a partially serviced lease
with Tenant responsible for payment of its own separately metered
electrical services.
4. TENANT IMPROVEMENTS
Tenant shall occupy the Premises on an "as is" basis. Any
improvements to the Premises shall be at the cost of Tenant.
5. EXTERIOR BUILDING CONSTRUCTION
Tenant acknowledges that during the course of this lease Landlord may
begin significant construction on the exterior of the building. While
Landlord shall use its best efforts to minimize any disruption to
Tenant's premises, it is expected that such work shall be of
inconvenience to Tenant during that period. Tenant agrees and
understands that this may be the case and understands that short of
Landlord's negligence, Tenant shall have no right to rental offset or
abatement during the term of this lease. However in no event shall
Landlord's construction work materially effect Tenant's ability to
conduct normal business operations within the Premises.
Except as set forth in this Amendment No. 2 all provisions of the
Lease and the remainder of each Section referenced above shall remain
unchanged and in full force and effect.
DATED this 16TH day of DECEMBER, 1998.
TENANT: LANDLORD:
THE COBALT GROUP, INC. FIRST AND LENORA, LLC.
A Washington Corporation a Washington limited liability company
By: /s/ D Douglass By: /s/ John Teutsch
------------------------------ ------------------------------
John Teutsch
Its:VP-Ops & CFO Its:Managing Member
----------------------------- -----------------------------
<PAGE>
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
On this 16TH day of DECEMBER, 1998, before me personally appeared JOHN
TEUTSCH, to me known to be the MANAGING MEMBER of FIRST AND LENORA, LLC., a
Washington limited liability company, which executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said partnership, for the uses and purposes therein mentioned, and
on oath stated that he was authorized to execute said instrument on behalf of
said partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
[NOTARY SEAL OF
ANDREA L. SIEGEL] /s/ Andrea L. Siegel
----------------------------------------
Notary Public
Commission Expires: 5-24-02
---------------------
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
On this 16TH day of DECEMBER, 1998, before me personally appeared DAVID
DOUGLASS, to me known to be the V.P. OF OPERATIONS AND CFO of THE COBALT GROUP,
INC., a Washington corporation, which executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said partnership, for the uses and purposes therein mentioned, and
on oath stated that he was authorized to execute said instrument on behalf of
said partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
[NOTARY SEAL OF
ANDREA L. SIEGEL] /s/ Andrea L. Siegel
----------------------------------------
Notary Public
Commission Expires: 5-24-02
---------------------
<PAGE>
Exhibit 10.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS.
THE COBALT GROUP, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, in consideration for $100.00 and other value received,
MADRONA INVESTMENT GROUP, L.L.C., or registered assigns, is entitled, upon the
terms and subject to the conditions hereinafter set forth, at any time on or
after the date hereof (subject to the vesting provisions of Section 1) and at or
prior to 11:59 pm., Pacific time, on October 31, 2003 (the "Expiration Time"),
but not thereafter, to acquire from THE COBALT GROUP, INC., a Washington
corporation (the "Company"), in whole or from time to time in part, up to 24,000
fully paid and nonassessable shares of Common Stock of the Company ("Warrant
Stock") at a purchase price per share (the "Exercise Price") equal to the lesser
of (I) $1.25 or (ii) the lowest price per share at which shares of common stock
or conversion price per share for other securities are issued during the 12
months following the date of the engagement letter (other than options for
employees or consultants who are not controlling shareholders). Such number of
shares, type of security and Exercise Price are subject to adjustment as
provided herein, and all references to "Warrant Stock" and "Exercise Price"
herein shall be deemed to include any such adjustment.
1. EXERCISE OF WARRANT
The purchase rights represented by this Warrant are exercisable by the
registered holder hereof, in whole or in part (subject to the vesting schedule
set forth below in this Section 1), at any time and from time to time at or
prior to the Expiration Time by the surrender of this Warrant and the Notice of
Exercise form attached hereto duly executed to the office of the Company at 2030
First Avenue, 3rd Floor, Seattle, WA 98121 (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the Exercise Price for the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the holder hereof, if any, at the time of
exercise in an amount equal to the purchase price of the shares thereby
purchased); whereupon the holder of this Warrant shall
-1-
<PAGE>
be entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased.
This Warrant shall be exercisable for 1,000 shares on November 1, 1996 and for
an additional 1,000 shares on the first day of each month thereafter until a
total of 24,000 shares are exercisable, based upon the continued performance of
services pursuant to the letter from Madrona Investment Group, L.L.C. to The
Cobalt Group dated October 15, 1996 (the "Engagement Letter"), unless in each
case the Company has given written notice prior to the applicable date that its
chief executive officer has determined that the services covered by the
Engagement Letter are no longer being provided to the Company, other than by the
fault of the Company. The foregoing vesting schedule shall be subject to
acceleration as provided in Section 10.
2. CONVERSION OF WARRANT
The registered holder hereof shall have the right to convert this Warrant, in
whole or in part, at any time and from time to time at or prior to the
Expiration Time, by the surrender of this Warrant and the Notice of Conversion
form attached hereto duly executed to the office of the Company at the address
set forth in Section I hereof (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company), into shares of
Warrant Stock as provided in this Section 2. Upon exercise of this conversion
right, the holder hereof shall be entitled to receive that number of shares of
Warrant Stock of the Company equal to the quotient obtained by dividing [(A -
B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share of Warrant
Stock on the date of conversion of this Warrant.
B = the Exercise Price for one share of Warrant Stock under this
Warrant.
X = the number of shares of Warrant Stock as to which this Warrant is
being converted.
If the above calculation results in a negative number, then no shares of Warrant
Stock shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Stock shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 10 hereof, the value of the
consideration (determined, in the case of noncash consideration, in
good faith by the Board of Directors of the Company) to be received
pursuant to such transaction by the holder of one share of Warrant
Stock;
-2-
<PAGE>
(b) if the conversion right is being exercised after the occurrence of an
initial public offering of common stock of the Company, the average of
the high and low trading prices of a share of Common Stock as reported
by the NASDAQ National Market (or equivalent recognized source of
quotations) for the previous 20 trading days; or
(c) in all other cases, the fair value as determined in good faith by the
Company's Board of Directors.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Stock determined in accordance with the foregoing.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP
Certificates for shares purchased hereunder or issuable upon conversion hereof
shall be delivered to the holder hereof within a reasonable time after the date
on which this Warrant shall have been exercised or converted in accordance with
the terms hereof. The Company hereby represents and warrants that all shares of
Warrant Stock which may be issued upon the exercise or conversion of this
Warrant will, upon such exercise or conversion, be duly and validly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issuance thereof (other than liens or charges created
by or imposed upon the holder of the Warrant Stock). The Company agrees that
the shares so issued shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been exercised or converted in accordance with the terms
hereof. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise or conversion of this Warrant. With respect to any
fraction of a share called for upon the exercise or conversion of this Warrant,
an amount equal to such fraction multiplied by the then current price at which
each share may be purchased hereunder shall be paid in cash or check to the
holder of this Warrant.
4. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise or
conversion of this Warrant shall be made without charge to the holder hereof for
any issue or transfer tax or other incidental expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the holder of this
Warrant or in such name or names as may be directed by the holder of this
Warrant; PROVIDED, HOWEVER, that in the event certificates for shares of Warrant
Stock are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof.
5. NO RIGHTS AS SHAREHOLDERS
-3-
<PAGE>
This Warrant does not entitle the holder hereof to any voting rights or other
rights as a shareholder of the Company prior to the exercise or conversion
hereof.
-4-
<PAGE>
6. REGISTRATION RIGHTS
The shares of Common Stock issuable upon exercise or conversion of this Warrant
shall be entitled to piggyback registration rights on terms no less favorable
than those granted at any time to any other holder of Company securities.
7. EXCHANGE AND REGISTRY OF WARRANT
This Warrant is exchangeable, upon the surrender hereof by the registered holder
at the above-mentioned office or agency of the Company, for a new Warrant of
like tenor and dated as of such exchange. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for
exchange, transfer, exercise or conversion, in accordance with its terms, at
such office or agency of the Company, and the Company shall be entitled to rely
in all respects, prior to written notice to the contrary, upon such registry.
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
9. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall be a Saturday or a Sunday or shall be
a legal holiday, then such action may be taken or such right may be exercised on
the next succeeding day not a legal holiday.
10. MERGER, SALE OF ASSETS, ETC.
If at any time the Company proposes to merge or consolidate with or into any
other corporation, effect any reorganization, or sell or convey all or
substantially all of its assets to any other entity, in a transaction in which
the shareholders of the Company immediately before the transaction will own
immediately after the transaction less than a majority of the outstanding voting
securities of the entity (or its parent) succeeding to the business of the
Company, then the Company shall give the holder of this Warrant 20 days' prior
written notice of the proposed effective date of such transaction, and if this
Warrant has not been exercised or converted by or on the effective date of such
transaction, it shall terminate.
-5-
<PAGE>
The vesting schedule set forth in Section I shall be accelerated so that this
Warrant is 100% vested and exercisable upon receipt of such notice. In
addition, effective upon filing of a registration statement with the Securities
and Exchange Commission any public offering of more than $10 million of
securities of the Company, this Warrant shall likewise accelerate so that the
Warrant is 100% vested and exercisable.
11. RECLASSIFICATION, CONVERSION, ETC.
If the Company at any time shall, by reclassification of securities or
otherwise, change the Warrant Stock into the same or a different number of
securities of any class or classes, including, without limitation, conversion of
the Warrant Stock into Common Stock in accordance with the Certificate upon an
initial public offering or otherwise, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been issuable
in respect of the Warrant Stock (or other securities which were subject to the
purchase rights under this Warrant immediately prior to such subdivision,
combination, reclassification or other change) as the result of such change if
this Warrant had been exercised in full for cash immediately prior to such
change. The Exercise Price hereunder shall be adjusted if and to the extent
necessary to reflect such change. If the Warrant Stock or other securities
issuable upon exercise or conversion hereof are subdivided or combined into a
greater or smaller number of shares of such security, the number of shares
issuable hereunder shall be proportionately increased or decreased, as the case
may be, and the Exercise Price shall be proportionately reduced or increased, as
the case may be, in both cases according to the ratio which the total number of
shares of such security to be outstanding immediately after such event bears to
the total number of shares of such security outstanding immediately prior to
such event. The Company shall give the holder prompt written notice of any
change in the type of securities issuable hereunder, any adjustment of the
Exercise Price for the securities issuable hereunder, and any increase or
decrease in the number of shares issuable hereunder.
12. CERTAIN ADJUSTMENTS
In the event that the conversion price of any shares of convertible securities
at any time outstanding are adjusted to a conversion price which is lower than
the initially stated conversion price for such securities and lower than the
Exercise Price, then the Exercise Price shall forthwith be adjusted to equal
such decreased conversion price.
13. TRANSFERABILITY
Prior to the Expiration Time and subject to compliance with applicable laws,
this Warrant and all rights hereunder are transferable by the holder hereof, in
whole or in part, at the office or agency of the Company referred to in Section
I hereof, to any affiliate or constituent partner of the holder. Any such
transfer shall be made in person or by the holder's duly authorized attorney,
upon surrender of this Warrant to-ether with the Assignment Form attached hereto
properly endorsed.
14. REPRESENTATIONS AND WARRANTIES
-6-
<PAGE>
The Company hereby represents and warrants to the holder hereof that:
-7-
<PAGE>
(a) during the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise or
conversion of this Warrant;
(b) during the period this Warrant or the Warrant Stock issuable hereunder
is outstanding, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon conversion of the Warrant Stock issuable upon exercise or conversion of
this Warrant;
(c) the issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for the shares of Warrant Stock
issuable upon exercise or conversion of this Warrant;
(d) the Company has all requisite legal and corporate power to execute and
deliver this Warrant, to sell and issue the Warrant Stock hereunder, to issue
the Common Stock issuable upon conversion of the Warrant Stock and to carry out
and perform its obligations under the terms of this Warrant; and
(e) all corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Company, the authorization, sale, issuance
and delivery of the Warrant Stock and the Common Stock issuable upon conversion
of the Warrant Stock, the grant of registration rights as provided herein and
the performance of the Company's obligations hereunder has been taken;
(f) the Warrant Stock and the Common Stock issuable upon conversion of the
Warrant Stock, when issued in compliance with the provisions of this Warrant and
the Articles, will be validly issued, fully paid and nonassessable, and free of
any liens or encumbrances, and will be issued in compliance with all applicable
federal and state securities laws; and
(g) the issuance of the Warrant Stock and the Common Stock issuable upon
conversion of the Warrant Stock will not be subject to any preemptive rights,
rights of first refusal or similar rights.
15. COOPERATION
The Company will not, by amendment of its Articles or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holder of the Warrant against impairment.
16. GOVERNING LAW
-8-
<PAGE>
This Warrant shall be governed by and construed in accordance with the laws of
the State of Washington.
-9-
<PAGE>
IN WITNESS WHEREOF, the company has caused this Warrant to be executed by its
duly authorized officers.
Dated: October 23, 1996
THE COBALT GROUP, INC.
By _______________________
Title ______________________
ACCEPTED: October 23, 1996
MADRONA INVESTMENT GROUP, L.L.C.
By _________________________
Tom A. Alberg, Principal
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NOTICE OF EXERCISE
To: The Cobalt Group, Inc.
(1) The undersigned hereby elects to purchase shares of Common Stock of The
Cobalt Group, Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
__________________________
(Name)
__________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
______________________ ______________________
(Date) (Signature)
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NOTICE OF CONVERSION
To: The Cobalt Group, Inc.
(1) The undersigned hereby elects to convert the attached Warrant into such
number of shares of Common Stock of The Cobalt Group, Inc. as is determined
pursuant to Section 3 of such Warrant, which conversion shall be effected
pursuant to the terms of the attached Warrant.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
__________________________
(Name)
__________________________
__________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
______________________ __________________________
(Date) (Signature)
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ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
______________________________________________________________________
(Please Print)
whose address is_________________________________________________________
(Please Print)
Dated:___________________________________
Holder's Signature:_________________________
Holder's Address:__________________________
Guaranteed Signature:_____________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
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Exhibit 10.5
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
AGREEMENT made as of February 28, 1997 between The Cobalt Group, Inc.,
a Washington corporation (the "Company"), and John Holt ("Executive").
The Company and Executive desire to enter into an agreement (i)
defining the relative rights of the Company and Executive with respect to
Intellectual Property (as defined below) owned by the Company or its customers
or clients to which Executive may have access or may contribute as a result of
Executive's employment with the Company and (ii) setting forth the obligation of
Executive to refrain from competing with the Company during his employment with
the Company and for a period of time thereafter as provided herein.
The execution and delivery of this Agreement by the Company and
Executive is a condition to the purchase of shares of the Company's Series A
Preferred Stock by certain investors pursuant to a Purchase Agreement dated as
of this date (the "Purchase Agreement").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Executive hereby agree as
follows:
1. NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION.
(a) Executive will not disclose or use at any time, either during
his employment with the Company or thereafter, any Confidential Information (as
defined below) of which Executive is or becomes aware, whether or not such
information is developed by him, except to the extent that such disclosure or
use is directly related to and required by Executive's performance of duties
assigned to Executive by the Company. Executive will take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft.
(b) As used in this Agreement the term "Confidential Information"
means information that is not generally known in the industry or to the public
and that is used, developed or obtained by the Company in connection with its
business, including but not limited to (i) products or services, (ii) fees,
costs and pricing structures, (iii) designs, (iv) analysis, (v) drawings,
photographs and reports, (vi) computer software, including operating systems,
applications and program listings, (vii) flow charts, manuals and documentation,
(viii) data bases, (ix) accounting and business methods, (x) inventions,
devices, new developments, methods and processes, whether patentable or
unpatentable and whether or not reduced to practice, (xi) customers and clients
and customer or client lists, (xii) other copyrightable works, (xiii) all
technology and trade secrets, and (xiv) all similar and related information in
whatever form.
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2. THE COMPANY'S OWNERSHIP OF INTELLECTUAL PROPERTY. In the event
that Executive as part of his activities on behalf of the Company generates,
authors or contributes to any invention, design, new development, device,
product, method or process (whether or not patentable or reduced to practice or
comprising Confidential Information), any copyrightable work (whether or not
comprising Confidential Information) or any other form of Confidential
Information relating to the Company's business as now or hereinafter conducted
during the period Executive is employed by the Company (collectively,
"Intellectual Property"), Executive acknowledges that such Intellectual Property
is the exclusive property of the Company and hereby assigns all right, title and
interest in and to such Intellectual Property to the Company. Any copyrightable
work prepared in whole or in part by Executive as part of his activities on
behalf of the Company will be deemed "a work made for hire" under Section 201(b)
of the 1976 Copyright Act, as amended, and the Company will own all of the
rights comprised in the copyright therein. Executive will promptly and fully
disclose all Intellectual Property to the Company and will cooperate with the
Company to protect the Company's interests in and rights to such Intellectual
Property.
3. DELIVERY OF MATERIALS UPON TERMINATION OF EMPLOYMENT. As
requested by the Company from time to time and upon the termination of
Executive's employment with the Company for any reason, Executive will promptly
deliver to the Company all copies and embodiments, in whatever form, of all
Confidential Information or Intellectual Property in Executive's possession or
within his control (including, but not limited to, written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, will provide the
Company with written confirmation that all such materials have been delivered to
the Company.
4. NONCOMPETITION. Executive acknowledges and agrees with the
Company that Executive's services to the Company are unique in nature and that
the Company would be irreparably damaged if Executive were to provide similar
services to any person or entity competing with the Company or engaged in a
similar business. Executive accordingly covenants and agrees with the Company
that during the period commencing with the date of this Agreement and ending on
the third anniversary of the date of the termination of Executive's employment
with the Company for any reason (the "Noncompetition Period"), Executive will
not, directly or indirectly, either for himself or for any other individual,
corporation, limited liability company, partnership, joint venture or other
entity, Participate in any business (including, without limitation, any
division, group or franchise of a larger organization) anywhere in the world
which sells, proposes to sell, or represents or serves as an agent to a third
party proposing to sell any product or service competing with any product or
service of the Company's to any Person or its affiliates to whom the Company has
sold such of its products or services within the three years prior to
Executive's Participation in any such business. In addition, the Executive
agrees that, while employed by the Company, he will (a) pursue any and all
future opportunities involving products, technologies or markets of the Company
exclusively for the Company and (b) devote his full and complete efforts to the
Company's business. For purposes of this Agreement, the terms "Participation"
and "Participate in" will include, without limitation, having any direct or
indirect interest in any corporation, limited liability company, partnership,
joint
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venture or other entity, whether as a sole proprietor, owner, member,
stockholder, partner, joint venturer, creditor or otherwise, or rendering any
direct or indirect service or assistance to any individual, corporation, limited
liability company, partnership, joint venture and other business entity (whether
as a director, officer, member, manager, supervisor, employee, agent, consultant
or otherwise).
5. NONSOLICITATION. During the Noncompetition Period, Executive
shall not (i) induce or attempt to induce any employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship between
the Company and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Company at any time during the
Noncompetition Period, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company to cease doing
business with the Company, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation and the Company.
6. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company: The Cobalt Group, Inc.
2030 First Avenue, Suite 300
Seattle, Washington 98121
Attention: Chief Executive Officer
With a copy to: First Analysis Corporation
Sears Tower, Suite 9500
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Mark Koulogeorge
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<PAGE>
To Executive: John Holt
3001 10th Avenue West
Seattle, WA 98119
or such other address or to the attention of such other person as the recipient
party will have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
7. GENERAL PROVISIONS.
(a) COMPANY SUBSIDIARIES. For purposes of this Agreement, the term
"Company" shall include all subsidiaries of the Company, if any.
(b) NOT AN EMPLOYMENT AGREEMENT. Executive and the Company
acknowledge and agree that this Agreement is not intended and should not be
construed to grant Executive any right to continued employment with the Company
or to otherwise define the terms of Executive's employment with the Company.
(c) ABSENCE OF CONFLICTING AGREEMENT. Executive hereby warrants
and covenants that his employment by the Company and his execution, delivery and
performance of this Agreement do not and will not result in a breach of the
terms, conditions or provisions of any agreement, order, judgment or decree to
which Executive is subject.
(d) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. The
parties agree that a court of competent jurisdiction making a determination of
the invalidity or unenforceability of any term or provision of Section 4 of this
Agreement will have the power to reduce the scope, duration or area of any such
term or provision, to delete specific words or phrases or to replace any invalid
or unenforceable term or provision in Section 4 with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement will be
enforceable as so modified.
(e) COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
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(f) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(g) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement will bind and inure to the benefit of and be enforceable by the
Company and Executive and their respective successors and assigns; provided that
the rights and obligations of Executive under this Agreement will not be
assignable without the prior written consent of Executive and the Company.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Illinois without
giving effect to any choice or conflict of law provision or rule (either of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.
(i) REMEDIES. Each of the parties to this Agreement will be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorneys fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that Executive's breach of any
term or provision of this Agreement will materially and irreparably harm the
Company, that money damages will accordingly not be an adequate remedy for any
breach of the provisions of this Agreement by Executive and that the Company in
its sole discretion and in addition to any other remedies it may have at law or
in equity may apply to any court of law or equity of competent jurisdiction
(without posting any bond or deposit) for specific performance and/or other
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
(j) AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
Executive.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
THE COBALT GROUP, INC.
By
-----------------------------------
Its
----------------------------------
-------------------------------------
John Holt
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Schedule to Exhibit 10.5
The Company has entered into a similar Confidentiality and Noncompetition
Agreement on the same terms set forth above with Geoffrey Barker, dated February
28, 1997.
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Exhibit 10.6
WARRANT
TO PURCHASE 37,500
SHARES OF COMMON STOCK
OF
THE COBALT GROUP, INC.
THIS CERTIFIES THAT, for payment of $100 and other due and valid consideration,
GH Investments or its assigns is entitled to subscribe for and purchase from The
Cobalt Group, Inc. a Washington corporation (the "Company"), THIRTY-SEVEN
THOUSAND FIVE HUNDRED (37,500) fully paid and nonassessable shares of the Common
Stock of the Company at the price of $0.55 per share (the "Warrant Exercise
Price"), subject to the antidilution provisions of this Warrant, as set forth
below. The shares which may be acquired upon exercise of this Warrant are
referred to herein as the "Warrant Shares." As used herein, the term "Holder"
means GH Investments, any party who acquires all or a part of this Warrant as a
registered transferee of GH Investments, or any record holder or holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Company's presently
authorized common stock, par value $.01 per share, and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution, or winding up of the Company;
and the term "Convertible Securities" means any stock or other securities
convertible into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share
of Common Stock), by written notice of exercise (in the form attached
hereto) delivered to the Company at the principal office of the
Company prior to the expiration of this Warrant and accompanied or
preceded by the Surrender of this Warrant along with a check in
payment of the Warrant Exercise Price for such shares.
(b) This Warrant may be exercised in whole or in part at any time
from the date hereof to and including February 28, 2004.
(c) Until the Company has conducted a public offering of its Common
Stock registered under the Securities Act of 1933, as amended (an
"Initial Public Offering), this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred except
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to partners of GH Investments and subject to the opinion of counsel as
provided in Section 7 hereof that such transaction is not in violation
of federal or state securities laws. After an Initial Public
Offering, this Warrant may be sold, assigned, hypothecated, or
otherwise transferred without restriction, subject to the opinion of
counsel as provided in Section 7 hereof that such transaction is not
in violation of federal or state securities laws.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the
Company at its office for new Warrants of like tenor and date
representing in the aggregate the right to purchase the number of
Warrant Shares purchasable hereunder, each of such new Warrants to
represent the right to purchase such number of Warrant Shares (not to
exceed the aggregate total number purchasable hereunder) as shall be
designated by the Holder at the time of such surrender. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and, in the case of
loss, theft, or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant
of like tenor, in lieu of this Warrant. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay
all expenses, taxes (other than stock transfer taxes), and other
charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been
surrendered and the payment made for such Warrant Shares as aforesaid.
Subject to the provisions of the next section, certificates for the
Warrant Shares so purchased shall be delivered to the Holder within a
reasonable time, not exceeding ten (10) days after the rights
represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be
delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise
of this Warrant except in accordance with exemptions from the
applicable securities requirements or registrations under applicable
securities laws. Nothing herein, however, shall obligate the Company
to effect registrations under federal or state securities laws. If
registrations are not in effect and if exemptions are not available
when the Holder
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seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such
time as either registrations become effective or exemptions are
available, and the Warrant shall then remain exercisable for a period
of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or
exemptions. The Holder agrees to execute such documents and make such
representations, warranties and agreements as may be required solely
to comply with the exemptions relied upon by the Company, or the
registrations made, for issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued,
fully paid, nonassessable, and free from all taxes, liens, and charges
with respect to the issue thereof; and without limiting the generality
of the foregoing, the Company covenants and agrees that it will from
time to time take all such action as may be requisite to assure that
the par value per share of its Common Stock is at all times equal to,
or less than, the then effective Warrant Exercise Price. The Company
further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this
Warrant a sufficient number of shares of Common Stock to provide for
the exercise of the rights represented by this Warrant.
5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter: (i) pay a dividend or
make a distribution on its Common Stock in shares of Common Stock,
(ii) subdivide its Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number
of shares, or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Warrant Exercise Price in
effect immediately prior to such action shall be adjusted so that the
Holder of any Warrant thereafter surrendered for exercise shall be
entitled to receive the number of shares of Common Stock or other
capital stock of the Company which he would have owned immediately
following such action had such Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Subsection shall
become effective immediately after the record date in the case of a
subdivision, combination or reclassification. If, as a result of an
adjustment made pursuant to this Subsection, the Holder of any Warrant
thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive) shall determine the
allocation of the
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adjusted Warrant Exercise Price between or among shares of such
classes of capital stock or shares of Common Stock and other capital
stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares
of the Company other than shares of Common Stock, thereafter the
Warrant Exercise Price of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to Common Stock contained in this Section.
(b) In case of any consolidation or merger to which the Company is
the party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, or in the case of any statutory exchange
of securities with another corporation (including any exchange
effected in connection with a merger of a third corporation into the
Company), there shall be no adjustment under Subsection (a) of this
Section above, but the Holder of each Warrant then outstanding shall
have the right thereafter to convert such Warrant into the kind and
amount of shares of stock and other securities and property which he
would have owned or have been entitled to receive immediately after
such consolidation, merger, statutory exchange, sale, or conveyance
had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or
conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any
Holders of the Warrant, to the end that the provisions set forth in
this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and
other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall similarly
apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(c) Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder as shown on
the books of the Company, which notice shall state the Warrant
Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares of Common Stock purchasable
at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
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7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such
Holder's intention to do so, describing briefly the manner of any
proposed transfer. Promptly upon receiving such written notice, the
Company shall present copies thereof to the Company's counsel and to
counsel to the original purchaser of this Warrant. If in the opinion
of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities
laws), the Company, as promptly as practicable, shall notify the
Holder of such opinion, whereupon the Holder shall be entitled to
transfer this Warrant or to dispose of Warrant Shares received upon
the previous exercise of this Warrant, all in accordance with the
terms of the notice delivered by the Holder to the Company; provided
that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel and
satisfactory to the Company to prevent further transfers which would
be in violation of Section 5 of the Securities Act of 1933, as amended
(the "1933 Act") and applicable state securities laws; and provided
further that the prospective transferee or purchaser shall execute
such documents and make such representations, warranties, and
agreements as may be required solely to comply with the exemptions
relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If, in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or
such Warrant Shares described in the written notice given pursuant to
this Section 6 may not be effected without registration or
qualification of this Warrant or such Warrant Shares, the Company
shall promptly give written notice thereof to the Holder, and the
Holder will limit its activities in respect to such as, in the opinion
of both such counsel, are permitted by law.
8. CONVERSION RIGHTS.
(a) In addition to and without limiting the rights of the holder of
this Warrant under the terms of this Warrant, the holder of this
Warrant shall have the right (the "Conversion Rights") to convert this
Warrant or any portion thereof into shares of Common Stock as provided
in this paragraph 8 at any time or from time to time prior to its
expiration. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (the "Converted
Warrant Shares"), the Company shall deliver to the holder of this
Warrant, without payment by the holder of any exercise pace or any
cash or other consideration, that number of shares of Common Stock
equal to the quotient obtained by dividing the Net Value (as
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hereinafter defined) of the Converted Warrant Stock, determined in
each case as of the close of business on the Conversion Date (as
hereinafter defined). The "Net Value" of the Converted Warrant
Shares shall be determined by subtracting the aggregate warrant
purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. No fractional shares
shall be issuable upon exercise of the Conversion Rights and if the
number of shares to be issued in accordance with the foregoing formula
is other than a whole number, the Company shall pay to the holder of
this Warrant an amount in cash equal to the fair market value of the
resulting fractional share.
(b) The Conversion Right may be exercised by the holder of this
Warrant by the surrender of this Warrant at the principal office of
the Company together with a written statement specifying that the
holder thereby intends to exercise the Conversion Right and indicating
the number of shares subject to this Warrant which are being
surrendered (referred to in paragraph (a) above as the Converted
Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement or on such later date as
is specified therein (the "Conversion Date"), but not later than the
expiration date of the Warrant. Certificates for the shares of Common
Stock issuable upon exercise of the Conversion Right together with a
check in payment of any fractional share and, in the case of a partial
exercise, a new warrant evidencing the shares remaining subject to
this Warrant shall be issued as of the Conversion Date and shall be
delivered to the holder of this Warrant within 15 days following the
Conversion Date.
(c) For purposes of this paragraph 8, the "fair market value" of a
share of Common Stock as of a particular date shall mean, if the
Common Stock is traded on a securities exchange or on the NASDAQ
National Market System, the average of the closing prices of the
Common Stock on such exchange or the NASDAQ National Market System on
the 5 trading days ending on the trading day prior to the date of
determination, or if the Common Stock is otherwise traded in the
over-the-counter market, the average of the closing bid prices on the
5 trading days ending on the trading day prior to the date of
determination. If at any time the Common Stock is not traded on an
exchange or the NASDAQ National Market System, or otherwise traded in
the over-the-counter market, the Fair Market Value shall be deemed to
be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by
the Board of Directors of the Company as of the last day of any month
ending within 60 days preceding the date as of which the determination
is to be made, or (ii) the fair value thereof determined in good faith
by the Board of Directors of the Company as of a date which is within
15 days of the date as of which the determination is to be made.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer and this Warrant to be dated February 27, 1997.
THE COBALT GROUP, INC.
By:
-------------------------------
Its:
------------------------------
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<PAGE>
WARRANT EXERCISE
(To be Executed by the Registered Holder
in Order to Exercise Warrant)
The undersigned hereby irrevocably elects to exercise the attached Warrant
and to purchase for cash ____________ (*) of the shares issuable upon the
exercise of said Warrant and requests that certificates for such Shares shall be
issued in the name of:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF REGISTERED HOLDER
- --------------------------
- --------------------------
GH INVESTMENTS
- -------------------------------------------------------------------
Address
Dated: , 19
------------------------------------------ -------
Signature:
---------------------------------------------------------
* Insert here the number of Warrants evidenced on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof being exercised), in
either case without making any adjustment for additional Common Stock or any
other securities or property or cash which, pursuant to the adjustment
provisions referred to in the Warrant, may be deliverable upon exercise.
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<PAGE>
WARRANT ASSIGNMENT
(To be Executed by the Registered Holder
in Order to Transfer Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________ the purchase right represented by the foregoing Warrant
to purchase _________ shares of Common Stock of _____________ to which such
Warrant relates and appoints ____________ attorney to transfer such purchase
right on the books of __________________ with full power of substitution in the
premises.
- ----------------------------------------------------
(Name)
- -----------------------------------------------------------------
(Address)
Dated: , 19
------------------------- ------
Signature:
------------------------------------------
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<PAGE>
Exhibit 10.7
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of February 28, 1997, between The
Cobalt Group, Inc., a Washington corporation (the "Company") and the Persons
listed on the Schedule of Purchasers attached hereto (collectively referred to
herein as the "Purchasers" and individually as a "Purchaser").
The parties to this Agreement are parties to a Purchase Agreement
of even date herewith (the "Purchase Agreement"). In order to induce the
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the Closing under the Purchase
Agreement. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in the Purchase Agreement.
The parties hereto agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time after the second
anniversary of the date hereof, the holders of at least a majority of the
Registrable Securities (as defined below) may request registration under the
Securities Act of all or part of their Registrable Securities on Form S-1 or any
similar long-form registration ("Long-Form Registration"), or on Form S-2 or S-3
or any similar short-form registration ("Short-Form Registrations") if
available. Such request for a Demand Registration shall specify (i) the number
of Registrable Securities requested to be registered, (ii) the anticipated per
share price range for such offering, and (iii) if such holders wish to sell
Registrable Securities in a market other than that of the market transactions,
the intended method of distribution. Within ten days after receipt of any such
request, the Company will give written notice of such requested registration to
all other holders of Registrable Securities and, subject to the limitation set
forth in Section 1(d) hereof, will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice. All
registrations requested pursuant to this paragraph l(a) are referred to herein
as "Demand Registrations".
(b) LONG-FORM REGISTRATIONS. The holders of Registrable
Securities will be entitled to request one Long-Form Registration in which the
Company will pay all Registration Expenses. A registration will not count as
the permitted Long-Form Registration until it has become effective and unless
the holders of Registrable Securities are able to register and sell at least 90%
of the Registrable Securities requested to be included in such registration;
provided that
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<PAGE>
in any event the Company will pay all Registration Expenses in connection with
any registration initiated as a Long-Form Registration whether or not it has
become effective.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registration provided pursuant to paragraph 1(b), the holders of Registrable
Securities will be entitled to request three Short-Form Registrations in
which the Company will pay all Registration Expenses. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. After the Company has become subject to the
reporting requirements of the Securities Exchange Act, the Company will use its
best efforts to make Short-Form Registrations on Form S-3 available for the sale
of Registrable Securities.
(d) PRIORITY ON DEMAND REGISTRATIONS. The Company will not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of at least a
majority of the Registrable Securities initially requesting such registration.
If a Demand Registration is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the number of
Registrable Securities and, if permitted hereunder, other securities requested
to be included in such offering exceeds the number of Registrable Securities and
other securities, if any, which can be sold therein without adversely affecting
the marketability of the offering, the Company will include in such registration
prior to the inclusion of any securities which are not Registrable Securities
the number of Registrable Securities requested to be included which in the
opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, pro rata among the respective holders thereof on
the basis of the amount of Registrable Securities owned by each such holder.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company will
not be obligated to effect a Demand Registration within six months after the
effective date of a registration in which the holders of Registrable Securities
were given piggyback rights pursuant to paragraph 2 and in which there was no
reduction in the number of Registrable Securities requested to be included. The
Company may postpone for up to six months the filing or the effectiveness of a
registration statement for a Demand Registration if the Company determines in
its reasonable discretion that such Demand Registration could reasonably be
expected to have an adverse effect on any proposal or plan by the Company to
engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or similar transaction;
provided that in such event, the holders of Registrable Securities initially
requesting such Demand Registration will be entitled to withdraw such request
and, if such request is withdrawn, such Demand Registration will not count as
the permitted Long-Form Registration hereunder and the Company will pay all
Registration Expenses in connection with such registration.
(f) OTHER REGISTRATION RIGHTS. Except for the securities
held by Tom Alberg and Madrona Investment Group LLC as of the date hereof and as
provided in this Agreement, the Company will not grant to any Persons the right
to request the Company to register any equity securities of the Company, or any
securities convertible or exchangeable into or exercisable for
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<PAGE>
such securities, without the prior written consent of the holders of at least a
majority of the Registrable Securities, which consent shall not be unreasonably
withheld.
(g) REGISTRABLE SECURITIES. "Registrable Securities" means
(i) any Series A Preferred Stock issued pursuant to the Purchase Agreement, (ii)
any Common Stock issued upon the conversion of any Series A Preferred Stock
issued pursuant to the Purchase Agreement, and (ii) any Common Stock issued or
issuable with respect to the securities referred to in clauses (i) and (ii) by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public pursuant to
an offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 under the Securities
Act (or any similar rule then in force). For purposes of this Agreement, a
Person will be deemed to be a holder of Registrable Securities whenever such
Person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected. Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration or a registration related solely to employee benefit
plans) and the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), the Company will give
prompt written notice to all holders of Registrable Securities of its intention
to effect such a registration, which notice shall specify whether such offer
will be underwritten and shall include all jurisdictions in which the Company
intends to attempt to qualify such securities under applicable blue sky or state
securities laws, and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the
holders of Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, including the proposed price for
the securities, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Securities on the basis of the number
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<PAGE>
of shares owned by each such holder, and (iii) third, other securities requested
to be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, including the
proposed price for the securities, the Company will include in such registration
(i) first, the securities requested to be included therein by the holders
requesting such registration, (ii) second, the Registrable Securities requested
to be included in such registration, pro rata among the holders of such
Registrable Securities on the basis of the number of shares owned by each such
holder, and (iii) third, other securities requested to be included in such
registration.
(e) OTHER REGISTRATIONS. If the Company has previously filed
a registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least six months has elapsed from the effective date of such
previous registration.
3. HOLDBACK AGREEMENTS.
(a) Each holder of Registrable Securities agrees not to
effect any public sale or distribution (including sales pursuant to Rule 144) of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration in which Registrable
Securities are included (except as part of such underwritten registration),
unless the underwriters managing the registered public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-8 or
any successor form), unless the underwriters managing the registered public
offering otherwise agree, and (ii) to cause each holder of its Common Stock, or
any securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such 90-day period
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<PAGE>
(except as part of such underwritten registration, if otherwise permitted),
unless the underwriters managing the registered public offering otherwise agree.
Notwithstanding the foregoing, the Company may (i) issue securities upon
exercise or conversion of rights or other securities outstanding on the date of
execution of the underwriting agreement in connection with such underwritten
Demand Registration or underwritten Piggyback Registration and (ii) issue equity
securities in the ordinary course of business pursuant to The Cobalt Group, Inc.
1995 Stock Option Plan.
4. REGISTRATION PROCEDURES. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 90 days and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions (a) in the case of a Demand Registration, as any seller reasonably
requests, (b) in the case of a Piggyback Registration, in such jurisdictions as
are specified in the notice sent pursuant to paragraph 2(a) and (3) do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided, in each case, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
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<PAGE>
subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on The Nasdaq Stock Market and,
if listed on The Nasdaq Stock Market, use its best efforts to secure designation
of all such Registrable Securities covered by such registration statement as a
"national market system security" of The Nasdaq Stock Market within the meaning
of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to
secure Nasdaq authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements satisfactory to
Company in its reasonable discretion (including underwriting agreements in
customary form);
(i) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter upon reasonable notice and at
reasonable times, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply upon reasonable notice and at
reasonable times, all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
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<PAGE>
(k) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(l) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
and
(m) obtain a comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of the
Registrable Securities being sold reasonably request (provided that such
Registrable Securities constitute at least 10% of the securities covered by such
registration statement).
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding fees, discounts and commissions
attributable to Registrable Securities) and other Persons retained by the
Company (all such expenses being herein called "Registration Expenses"), will be
borne as provided in this Agreement, except that the Company will, in any event,
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed or on The Nasdaq Stock Market.
(b) In connection with each Demand Registration and each
Piggyback Registration, the Company will reimburse the holders of Registrable
Securities covered by such registration for the reasonable and documented fees
and disbursements of one counsel chosen by the holders of a majority of the
Registrable Securities initially requesting such registration, not to exceed
$15,000.
(c) To the extent Registration Expenses are not required to
be paid by the Company, each holder of securities included in any registration
hereunder will pay those Registration Expenses, including without limitation
underwriting fees, discounts and commissions, allocable to the registration of
such holder's securities so included, and any Registration Expenses
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<PAGE>
not so allocable will be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
will be individual to each holder and will be limited to the net amount of
proceeds received by such holder from the sale of Registrable Securities
pursuant to such registration statement, provided the Company shall not be
obligated to indemnify an underwriter for any liability relating to the failure
of such underwriter to deliver a preliminary or final prospectus.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not
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<PAGE>
to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person
may participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
8. MISCELLANEOUS.
(a) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company will not take any action, or permit any change to occur, with respect to
its securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(b) REMEDIES. Any Person having rights under any provision
of this Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(c) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of at least as a majority of
the Registrable Securities.
(d) SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the
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<PAGE>
benefit of purchasers or holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of Registrable Securities.
(e) INCORPORATION OF PURCHASE AGREEMENT PROVISIONS. The
paragraphs entitled "Severability," "Counterparts," "Descriptive Headings" and
"Governing Law" of the Purchase Agreement are hereby incorporated in this
Agreement by reference and made a part hereof, except that the provisions of
such paragraphs shall refer to this Agreement rather than the Purchase Agreement
and shall continue to apply hereto regardless of whether the Purchase Agreement
is no longer in effect.
(f) NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notices, demands and
other communications will be sent to each Purchaser at the address indicated on
the Schedule of Purchasers and to the Company at the address indicated below:
The Cobalt Group, Inc.
2030 First Avenue
Suite 300
Seattle, Washington 98121
Attention: John W.P. Holt
Geoffrey T. Barker
with a copy to:
Stoel Rives LLP
One Union Square
600 University Street
Suite 3600
Seattle, WA 98101-3197
Attention: Ronald J. Lone
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COBALT GROUP, INC.
By
----------------------------------------
Name:
Title:
THE PRODUCTIVITY FUND III, L.P., a
Delaware limited partnership
By: First Analysis Management Company
III, L.L.C., Its General Partner
By:
-------------------------------
Its:
ENVIRONMENTAL PRIVATE EQUITY FUND
II, L.P., a Delaware limited partnership
By: Environmental Private Equity
Management II, L.P.
Its: General Partner
By: First Analysis EPEF Management
Company II, a General Partner
By: First Analysis Corporation, a
General Partner
By:
-------------------------------
------------------------------------------
Mark Koulogeorge
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<PAGE>
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Total Purchase
Number of Shares Price of Shares of
Name and Address of Preferred Stock Preferred Stock
- ---------------- ------------------ ---------------
<S> <C> <C>
The Productivity Fund III, 1,804,373 $1,000,000
L.P.
The Sears Tower
Suite 9500
233 South Wacker Drive
Chicago, IL 60606
Environmental Private 2,481,014 $1,375,000
Equity Fund II, L.P.
The Sears Tower
Suite 9500
233 South Wacker Drive
Chicago, IL 60606
Mark Koulogeorge 225,547 $ 125,000
The Sears Tower
Suite 9500
233 South Wacker Drive
Chicago, IL 60606
</TABLE>
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<PAGE>
Exhibit 10.7.1
FIRST AMENDMENT TO
REGISTRATION AGREEMENT
This First Amendment to the Registration Agreement (this "Amendment") is
entered into as of October 7, 1998, by and between The Productivity Fund III,
L.P., a Delaware limited partnership (the "Productivity Fund"), Environmental
Private Equity Fund II, L.P., a Delaware limited partnership (the "Environmental
Private Equity Fund"), Mark Koulogeorge, Warburg, Pincus Equity Partners, L.P.
("WPEP") (all such persons listed on the Schedule of Purchasers attached hereto,
and collectively referred to herein as the "Purchasers" and individually as a
"Purchaser") and The Cobalt Group, Inc., a Washington corporation (the
"Company").
RECITALS
A. The Company, The Productivity Fund, the Environmental Private
Equity Fund and Mark Koulogeorge are parties to a Registration Agreement, dated
as of February 28, 1997 (the "Agreement").
B. The Company and WPEP have entered into a Purchase Agreement, of
even date herewith (the "Series B Purchase Agreement"). All capitalized terms
used herein and not defined shall have the meaning set forth in the Agreement.
C. The Company and the Purchasers desire to amend the Agreement to
induce WPEP to enter into the Series B Purchase Agreement.
AGREEMENT
1. AMENDMENT TO PARAGRAPH 1(a). The first sentence of Paragraph
1(a) is hereby amended to insert October 1, 2000," in the place of "the second
anniversary of the date hereof."
2. AMENDMENT TO PARAGRAPH 1(g). The first sentence of Paragraph
1(g) is hereby amended to read as follows:
"'Registrable Securities' means (i) any Series A Preferred Stock
issued pursuant to the Purchase Agreement, (ii) any Series B
Preferred Stock issued pursuant to the Series B Purchase
Agreement, (ii) any Common Stock issued upon the conversion of
any Series A Preferred Stock issued pursuant to the Purchase
Agreement, (iv) any Common Stock issued upon the conversion of
any Series B Preferred Stock issued pursuant to the Series B
Purchase Agreement, and (v) any Common Stock issued or issuable
with respect to the securities referred to in clauses (i), (ii),
(iii) and (iv) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization."
<PAGE>
The last sentence of Paragraph 1(g) is hereby amended to read as
follows:
"Unless otherwise stated, other capitalized terms contained
herein shall have the meanings set forth in the Series B Purchase
Agreement."
3. AMENDMENT TO PARAGRAPH 8(e). Paragraph 8(e) is hereby amended to
insert "the Series B Purchase Agreement" in the place of "the Purchase
Agreement."
4. NO OTHER AMENDMENTS. Except as expressly amended as set forth
above, the Registration Agreement shall remain in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment on the date first written above.
THE COBALT GROUP, INC.
By:
--------------------------------------
Name:
-----------------------------
Title:
----------------------------
WARBURG, PINCUS EQUITY PARTNERS, L.P.
By: Warburg, Pincus & Co., Inc.
Its: General Partner
By:
------------------------------
Joseph P. Landy, Partner
THE PRODUCTIVITY FUND III, L.P., a
Delaware limited partnership
By: First Analysis Management
Company III, L.L.C.,
Its: General Partner
By:
------------------------------
Its:
------------------------------
ENVIRONMENTAL PRIVATE EQUITY FUND II,
L.P., a Delaware limited partnership
By: Environmental Private
Equity Management II, L.P.
Its: General Partner
<PAGE>
By: First Analysis EPEF
Management Company II, a
General Partner
By: First Analysis Corporation,
a General Partner
By:
---------------------------
Mark Koulogeorge
<PAGE>
---------------------------
Mark Koulogeorge
<PAGE>
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF PREFERRED STOCK
NAME AND ADDRESS
<S> <C> <C>
Warburg, Pincus Equity Partners, L.P. Series A: 788,004
466 Lexington Avenue Series B: 1,858,100
New York, NY 10017 Series B-1: 5,118,091
The Productivity Fund III, L.P. Series A: 507,580
The Sears Tower Series B: 0
Suite 9500 Series B-1: 0
233 South Wacker Drive
Chicago, IL 60606
Environmental Private Equity Fund II, L.P. Series A: 697,924
The Sears Tower Series B: 0
Suite 9500 Series B-1: 0
233 South Wacker Drive
Chicago, IL 60606
Mark Koulogeorge Series A: 112,774
The Sears Tower Series B: 0
Suite 9500 Series B-1: 0
233 South Wacker Drive
Chicago, IL 60606
</TABLE>
<PAGE>
Exhibit 10.7.2
SECOND AMENDMENT TO
REGISTRATION AGREEMENT
This Second Amendment to the Registration Agreement (this "Amendment") is
entered into as of January 7, 1998, by and between The Reynolds and Reynolds
Company, an Ohio corporation ("Reynolds"), Warburg, Pincus Equity Partners, L.P.
("WPEP") and The Cobalt Group, Inc., a Washington corporation (the "Company").
RECITALS
A. The Company, The Productivity Fund III, L.P., a Delaware limited
partnership, Environmental Private Equity Fund II, L.P., a Delaware limited
partnership, Mark Koulogeorge, and Warburg, Pincus Equity Partners,
L.P.(collectively, the "Purchasers") are parties to a First Amendment to
Registration Agreement, dated as of October 7, 1998.
B. The Company plans to issue shares of its Series B Preferred Stock to
Reynolds pursuant to the Acquisition and Investment Agreement between the
Company and Reynolds dated as of November 25, 1997.
C. The Company wishes to add, and the Purchasers have consented to the
addition of, Reynolds to the Schedule of Purchasers.
AGREEMENT
1. SCHEDULE OF PURCHASERS. The Schedule of Purchasers is hereby amended
to insert:
"The Reynolds and Reynolds Company, 800 Germantown Street, Dayton, OH
45407. Series B - 71429."
2. AMENDMENT TO PARAGRAPH 1(g)(ii). Paragraph 1(g)(ii) is hereby amended
to read as follows:
"(ii) any Series B Preferred Stock issued pursuant to the Series B
Purchase Agreement and any Series B Preferred Stock issued to the
Reynolds and Reynolds Company,"
3. AMENDMENT TO PARAGRAPH 1(g)(iv). Paragraph 1(g)(iv) is hereby amended
to read as follows:
"(iv) any Common Stock issued upon the conversion of any Series B
Preferred Stock issued pursuant to the Series B Purchase Agreement and
any Common Stock issued upon the conversion of any Series B Preferred
Stock issued to the Reynolds and Reynolds Company, and"
<PAGE>
4. NO OTHER AMENDMENTS. Except as expressly amended as set forth above,
the Registration Agreement shall remain in full force and effect in accordance
with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
on the date first written above.
THE COBALT GROUP, INC.
By:
---------------------------------------
Title:
-------------------------------------
WARBURG, PINCUS EQUITY PARTNERS, L.P.
By: Warburg, Pincus & Co., Inc.
Its: General Partner
By:
----------------------------------
Joseph P. Landy, Partner
THE REYNOLDS AND REYNOLDS COMPANY
By:
----------------------------------------
Title:
-------------------------------------
<PAGE>
Exhibit 10.8
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made as of February 28, 1997 by and between The Cobalt
Group, Inc., a Washington corporation (the "COMPANY"), and First Analysis
Securities Corporation, an Illinois corporation ("FIRST ANALYSIS").
WHEREAS, the Company desires to retain First Analysis and First Analysis
desires to perform for the Company certain services;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. TERM. This Agreement shall be in effect from the date hereof and
shall terminate upon the Sale of the Company (used herein as defined in the
Stockholders Agreement as of the date hereof by and among the Company and
certain of the stockholders of the Company).
2. SERVICES. First Analysis shall perform or cause to be performed
such services for the Company and its subsidiaries as directed by the Company's
board of directors, which may include, without limitation, the following:
(a) general executive and management services;
(b) identification, support, negotiation and analysis of
acquisitions and dispositions by the Company;
(c) support, negotiation and analysis of financing
alternatives, including, without limitation, in connection with acquisitions,
capital expenditures and refinancing of indebtedness;
(d) finance functions, including assistance in the
preparation of financial projections, and monitoring of compliance with
financing agreements; and
(e) other services for the Company and its subsidiaries upon
which the Company's board of directors and First Analysis agree.
3. TRANSACTION FEES. During the term of this Agreement, First
Analysis shall be entitled to receive from the Company a transaction fee in
connection with the consummation of an initial public offering of the Company's
securities under the Securities Act of 1933 (an "IPO") in an amount equal to
0.75% of the aggregate value of such transaction (each such
1
<PAGE>
payment, a "TRANSACTION FEE"). In addition, during the term of this Agreement,
First Analysis shall be entitled to receive from the Company a Transaction Fee
in connection with the consummation of (a) each acquisition by the Company of an
additional business or disposition by the Company of any or all business assets
(other than sales of inventory in the ordinary course of business and other than
the sale of assets relating to HomeScout) and (b) each financing of either debt
or equity by the Company (other than for an IPO), in each case, in an amount
equal the greater of 1.5% of the aggregate value of such transaction or the
percentage fee that constitutes the industry standard for the performance of
such services; provided, however, First Analysis shall defer the receipt of any
Transaction Fee from the Company until the earlier of the Sale of the Company or
such time as the Company's enterprise value (defined herein as the sum of the
Company's debt plus its stockholders' equity) is at least $10,000,000.
4. PERSONNEL. First Analysis shall provide and devote to the
performance of this Agreement the services of Mark Koulogeorge (the
"COORDINATOR") and such other partners, employees and agents of First Analysis
as the Coordinator shall deem appropriate to the furnishing of the services
required.
5. LIABILITY. Neither First Analysis nor any of its affiliates,
partners, employees or agents shall be liable to the Company or its subsidiaries
or affiliates for any loss, liability, damage or reasonable expense arising out
of or in connection with the performance of services contemplated by this
Agreement, unless such loss, liability, damage or expense shall be proven to
result directly from gross negligence, willful misconduct or bad faith on the
part of First Analysis, its affiliates, partners, employees or agents acting
within the scope of their employment or authority.
6. INDEMNITY. The Company and its subsidiaries shall defend,
indemnify and hold harmless First Analysis, its affiliates, partners, employees
and agents from and against any and all loss, liability, damage, or expenses
arising from any claim (a "CLAIM") by any person with respect to, or in any way
related to, the performance of services contemplated by this Agreement
(including attorneys' fees) (collectively, "CLAIMS") resulting from any act or
omission of First Analysis, its affiliates, partners, employees or agents, other
than for Claims which shall be proven to be the direct result of gross
negligence, bad faith or willful misconduct by First Analysis, its affiliates,
partners, employees or agents. The Company and its subsidiaries shall defend at
its own cost and expense any and all suits or actions (just or unjust) which may
be brought against the Company, its subsidiaries and First Analysis, its
officers, directors, affiliates, partners, employees or agents or in which First
Analysis, its affiliates, partners, employees or agents may be impleaded with
others upon any Claim or Claims or upon any matter, directly or indirectly,
related to or arising out of this Agreement or the performance hereof by First
Analysis, its affiliates, partners, employees or agents, except that if such
damage shall be proven to be the direct result of gross negligence, bad faith or
willful misconduct by First Analysis, its affiliates, partners, employees or
agents, then First Analysis shall reimburse the Company and its subsidiaries for
the costs of defense and other costs incurred by the Company and its
subsidiaries.
2
<PAGE>
7. NOTICES. All notices hereunder shall be in writing and shall be
delivered by reputable express courier, personally or mailed by United States
mail, postage prepaid, addressed to the parties as follows:
To the Company:
The Cobalt Group, Inc.
2030 First Avenue, Suite 300
Seattle, Washington 98121
Attention: President
with a copy to:
Stoel Rives LLP
One Union Square
600 University Street, Suite 3600
Seattle, Washington 98101-3197
Attention: Ronald J. Lone
To First Analysis:
First Analysis Securities Corporation
233 South Wacker Drive, Suite 9500
Chicago, Illinois 60606
Attention: Mark Koulogeorge
with a copy to:
McDermott, Will & Emery
227 W. Monroe Street
Chicago, Illinois 60606-5096
Attention: Timothy R.M. Bryant
8. ASSIGNMENT. Neither party may assign any rights or obligations
hereunder to any other party without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, however, that
First Analysis (a) may assign its rights and obligations under this Agreement
to any of its affiliates without the consent of the Company and (b) shall assign
its rights and obligations to the Coordinator if he shall no longer be
affiliated with First Analysis. The assignor shall remain liable for the
performance of any assignee.
9. SUCCESSORS. This Agreement and all the obligations and benefits
hereunder shall inure to the successors and assigns of the parties.
3
<PAGE>
10. COUNTERPARTS. This Agreement may be executed and delivered by
each party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute but one and the same agreement.
11. ENTIRE AGREEMENT; MODIFICATION; GOVERNING LAW. The terms and
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions thereof shall be binding upon
either party unless approved in writing by an authorized representative of such
party. All issues concerning this agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.
* * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COBALT GROUP, INC.
By:
-------------------------------------
Its:
------------------------------------
FIRST ANALYSIS SECURITIES CORPORATION
By:
-------------------------------------
Its:
------------------------------------
5
<PAGE>
Exhibit 10.8.1
FIRST AMENDMENT TO
MANAGEMENT SERVICES AGREEMENT
This First Amendment to the Management Services Agreement (this
"Amendment") is entered into as of October 7, 1998, by and between First
Analysis Securities Corporation, an Illinois corporation ("First Analysis"), and
The Cobalt Group, Inc., a Washington corporation (the "Company").
RECITALS
A. The Company and First Analysis are parties to a Management
Services Agreement, dated as of February 28, 1997 (the "Agreement").
B. The Company has entered into a purchase agreement, of even date
herewith (the "Series B Purchase Agreement") with Warburg, Pincus Equity
Partners, L.P. ("WPEP").
C. The Company and First Analysis desire to amend the Agreement to
induce WPEP to enter into the Series B Purchase Agreement.
AGREEMENT
1. AMENDMENT TO SECTION 3. Section 3 is hereby amended in its
entirety to read as follows:
"First Analysis shall be entitled to receive from the Company a fee of
$150,000 for its services under this Agreement. This fee shall be payable upon
the earlier of (a) the completion by the Company of a Qualified Public Offering
(as defined in the Company's Amended and Restated Shareholders Agreement) or (b)
a liquidation of the Company (as defined in the Company's Amended and Restated
Articles of Incorporation) so long as in such liquidation the Purchaser (as
defined in the Series B and B-1 Preferred Stock Purchase Agreement of the
Company dated October 7, 1998) receives the full liquidation preference to which
it is entitled in such liquidation pursuant to the Company's Amended and
Restated Articles of Incorporation."
2. NO OTHER AMENDMENTS. Except as expressly amended as set forth
above, the Management Services Agreement shall remain in full force and effect
in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment on the date first written above.
THE COBALT GROUP, INC.
By:
-------------------------------------
Its:
------------------------------------
FIRST ANALYSIS SECURITIES CORPORATION
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
Exhibit 10.9
OFFICE LEASE
This lease, made and entered into at Portland, Oregon, this 20th day of October,
1997
by and between
LANDLORD: CTL Management, Inc.
and
TENANT: Compu-Time Inc.
Landlord hereby leases to Tenant the following:
5,008 SQ.FT KNOWN AS SUITES 110, 206, 208, 209 AND 210 (the premises)
in LEWIS AND CLARK BUILDING (the building)
at 8305 SE MONTEREY, Oregon, for a term commencing DECEMBER 1, 1997.
and continuing through NOVEMBER 30, 1999 at a Monthly Base Rental as
follows:
YEAR 1 YEAR 2
$13.50/SQ.FT. = $5,634/MONTH $14.00/SQ.FT. = 5,842/MONTH
Rent is payable in advance on the 1ST DAY of each month commencing December
1, 1997.
Landlord and Tenant covenant and agree as follows:
1.1 DELIVERY OF POSSESSION.
Should Landlord be unable to deliver possession of the premises on the date
fixed for the commencement of the term, commencement will be deferred and
Tenant shall owe no rent until notice from the Landlord tendering possession to
Tenant. If possession is not so tendered within 90 days following commencement
of the term, then Tenant may elect to cancel this lease by notice to Landlord
within 10 days following expiration of the 90 day period. Landlord shall have
no
Page 1 Landlord Tenant
-------- -----
<PAGE>
liability to Tenant for delay in delivering possession, nor shall such delay
extend the term of this lease in any manner.
2.1 RENT PAYMENT.
Tenant shall pay the Base Rent for the premises and any additional rent
provided herein without deduction or offset. Rent for any partial month
during the lease term shall be prorated to reflect the number of days during
the month that Tenant occupies the premises. Additional rent means amounts
determined under section 19 of this lease and any other sums payable by
Tenant to Landlord under this lease. Rent not paid when due shall bear
interest at the rate of one-and-one-half per month until paid. Landlord may
at its option impose a late charge of $.05 for each $1 of rent for rent
payments made more than 10 days late in lieu of interest for the first month
of delinquency, without waiving any other remedies available for default.
Failure to impose a late charge shall not be a waiver of Landlord's rights
hereunder.
3.1 LEASE CONSIDERATION.
Upon execution of the lease Tenant has paid the Base Rent for the first full
month to the lease term for which rent is payable and in addition has paid the
sum of $ -0- as lease consideration. Landlord may apply the lease consideration
to pay the cost of performing any obligation which Tenant fails to perform
within the time required by this lease, but such application by Landlord shall
not be the exclusive remedy for Tenant's default. If the lease consideration is
applied by Landlord, Tenant shall on demand, pay the sum necessary to replenish
the lease consideration to its original amount. To the extent not applied by
Landlord to cure defaults by Tenant, the lease consideration shall be applied
against the rent payable for the last month of the term. The lease
consideration shall not be refundable.
4.1 USE.
Tenant shall use the Premises for business for and for no other purpose without
Landlord's written consent. In connection with its use, Tenant shall at its
expense promptly comply with all applicable laws, ordinances, rules and
regulations of any public authority and shall not annoy, obstruct, or interfere
with the rights of other Tenants of the building. Tenant shall create no
nuisance nor allow any objectionable fumes, noise, or vibrations to be emitted
from the Premises. Tenant shall not conduct any activities that will increase
Landlords insurance rates for any portion of the building or that will in any
manner degrade or damage the reputation of the Building.
4.2 EQUIPMENT.
Tenant shall install in the Premises only such office equipment as is customary
for general office use and shall not overload the floors or electrical circuits
of the Premises or Building or alter the plumbing or wiring of the Premises or
Building. Landlord must approve in advance the location of and manner of
installing any wiring or electrical, heat generating or communications equipment
or exceptionally heavy articles. All telecommunications equipment, conduit,
cables and wiring
Please Initial
Page 2 ------ -------
Landlord Tenant
<PAGE>
and any additional air conditioning required because of heat generating
equipment or special lighting installed by Tenant shall be installed and
operated at Tenant's expense.
4.3 SIGNS.
No signs, awnings, antennas, or other apparatus shall be painted on or attached
to the Building or anything placed on any glass or woodwork of the Premises or
positioned so as to be visible from outside the Premises without Landlords
written approval as to design, size, location, and color. All signs installed
by Tenant shall comply with Landlord's standards for signs and all applicable
codes and all signs and sign hardware shall be removed upon termination of this
lease with the sign location restored to its former state unless Landlord elects
to retain all or any portion thereof.
5.1 UTILITIES AND SERVICES.
Landlord will furnish water, electricity and elevator service and, during the
normal Building hours of 8:00 AM to 6:00 PM Monday through Friday except
holidays, will furnish heat and air conditioning (if the Building is air
conditioned). Janitorial services will be provided in accordance with the
regular schedule of the Building, which schedule and service may change from
time to time. Tenant shall comply with all government laws or regulations
regarding the use or reduction of utilities on the Premises. Interruption of
services or utilities shall not be deemed an eviction or disturbance of Tenant's
use and possession of the Premises, render Landlord liable to Tenant for
damages, or relieve Tenant from performance of Tenant's obligations under this
lease. Landlord shall take all reasonable steps to correct any interruptions of
service. Electrical service will be 110 volts unless different service already
exist in the Premises. Tenant shall provide its own surge protection for power
furnished to computers.
5.2 EXTRA USAGE.
If Tenant uses excess amounts of utilities or services of any kind because of
operation outside of normal Building hours, high demands from office machinery
and equipment, nonstandard lighting, r any other cause, Landlord may impose a
reasonable charge for supplying such extra utilities of services, which charge
shall be payable monthly by Tenant in conjunction with rent payments. In case
of dispute over any extra charge under this paragraph, Landlord shall designate
a qualified independent engineer whose decision shall be conclusive on both
parties. Landlord and Tenant shall each pay one-half of the cost of such
determination.
6.1 MAINTENANCE AND REPAIR.
Landlord shall have no liability for failure to perform required maintenance and
repair unless written notice of such maintenance or repair is given be Tenant
and Landlord fails to commence efforts to remedy the problem in a reasonable
time and manner. Landlord shall have the right to erect scaffolding and other
apparatus necessary for the purpose of making repairs, and Landlord shall have
no liability for interference with Tenant's use because of repairs and
installation.
Page 3 Please Initial
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Landlord Tenant
<PAGE>
Tenant shall have no claim against Landlord for any interruption or reduction
of services or interference with Tenant's occupancy, and no such interruption
or reduction shall be construed as a constructive or other eviction of
Tenant. Repair of damage caused by negligent or intentional acts or breach
of this lease by Tenant, its employees or invitees shall be at Tenant's
expense.
6.2 ALTERATIONS.
Tenant shall not make any alterations, additions, or improvements to the
Premises, change the color of the interior, or install any wall or floor
coverings without Landlord's prior written consent which may be withheld in
Landlord's sole discretion. Any such improvements, alterations, wiring, cables
or conduit installed by Tenant shall at once become part of the Premises and
belong to Landlord except for removable machinery and unattached moveable trade
fixtures. Landlord may at its option require Tenant to remove any improvements,
alterations, wiring, cables or conduit installed by Tenant and restore the
Premises to the original condition upon termination of this lease. Landlord
shall have the right to approve the contractor used by Tenant for any work in
the Premises, and to post notices of non responsibility in connection with work
being performed by Tenant in Premises.
7.1 INDEMNITY.
Tenant shall not allow any liens to attach to the Building or Tenant's interest
in the Premises as a result of its activities. Tenant shall indemnify and
defend Landlord and its managing agents from any claim, liability, damage, or
loss occurring on the Premises, arising out of any activity by Tenant, its
agents, or invitees or resulting from Tenant's failure to comply with any term
of this lease. Neither Landlord or its managing agent shall have any liability
to Tenant because of loss or damage to Tenant's property or for death or bodily
injury caused by the acts or omissions of other Tenants of the Building, or by
third parties (including criminal acts).
7.2 INSURANCE.
Tenant shall carry liability insurance with limits of not less than One Million
Dollars ($1,000,000.00) combined single limit bodily injury and property damage
which insurance shall have an endorsement naming Landlord and Landlord's
managing agent, if any, as an additional insured and covering the liability
insured under paragraph 7.1 of this lease. Tenant shall furnish a certificate
evidencing such insurance which shall state that the coverage shall not be
canceled or materially changed without 10 days advance notice to Landlord and
Landlord's managing agent, if any. A renewal certificate shall be furnished at
least 10 days prior to expiration of any policy.
8.1 FIRE OR CASUALTY.
"Major Damage" means damage by fire or other casualty to the Building or the
Premises which causes the Premises or any substantial portion of the Building to
be unusable, or which will cost more than 25 per cent of the pre-damage value of
the Building to repair, or which is not covered by insurance. In case of major
damage, Landlord may elect to terminate this lease by notice in
Page 4 Please Initial
------- -------
Landlord Tenant
<PAGE>
writing to Tenant within 30 days of such date. If this lease is not
terminated following major damage, or if damage occurs which is not major
damage, Landlord shall promptly restore the Premises to the condition
existing just prior to the damage. Tenant shall promptly restore all damage
to tenant improvements or alterations installed by Tenant or pay the cost of
such restoration to Landlord if Landlord elects to do the restoration of such
improvements. Rent shall be reduced from the date of damage until the date
restoration work being performed by Landlord is substantially complete, with
the reduction to be in proportion to the area of the Premises not usable by
Tenant.
8.2 WAIVER OF SUBROGATION.
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises and any alterations or Tenant improvements it
has made to the Premises. Neither Landlord, its managing agent nor Tenant shall
be liable to the other for any loss or damage caused by water damage, sprinkler
leakage, or any of the risks that are or could be covered by a special all risk
property policy, or for any business interruption, and there shall be no
subrogated claim by one party's insurance carrier against the other party
arising out of any such loss. This waiver is binding only if it does not
invalidate the insurance coverage of either party hereto.
9.1 EMINENT DOMAIN.
If a condemning authority takes title by eminent domain or by agreement in lieu
thereof to the entire Building or a portion sufficient to render the Premises
unsuitable for Tenant's use, then either party may elect to terminate this lease
effective on the date that possession is taken by the condemning authority.
Rent shall be reduced for the remainder in an amount proportionate to the
reduction in area of the Premises caused by the taking. All condemnation
proceeds shall belong to Landlord, and Tenant shall have no claim against
Landlord or the condemnation award because of the taking.
10.1 ASSIGNMENT AND SUBLETTING.
This lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns, provided the Tenant shall not
assign its interest under this lease or sublet all or any portion of the
Premises without first obtaining Landlords consent in writing. This
provision shall apply to all transfers by operation of law including but not
limited to mergers and changes in control of Tenant. No assignment shall
relieve Tenant of its obligation to pay rent or perform other obligations
required by this lease, and no consent to one assignment or subletting shall
be a consent to any further assignment or subletting. Landlord shall not
unreasonably withhold its consent to any assignment or subletting provided
the effective rental paid by the sub-tenant or assignee is not less than the
current scheduled rental rate of the Building for comparable space and the
proposed Tenant is compatible with Landlord's normal standards for the
Building. If Tenant proposes a subletting or assignment to which Landlord is
required to consent under this paragraph, Landlord shall have the option of
terminating this lease and dealing directly with the proposed sub-
Page 5 Please Initial
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Landlord Tenant
<PAGE>
tenant or assignee, or any third party. If an assignment or subletting is
permitted, any cash profit, or the net value of any other consideration
received by Tenant shall pay any costs incurred by Landlord in connection
with a request for assignment or subletting, including reasonable attorney's
fees.
11.1 DEFAULT
Any of the following shall constitute a default by Tenant under this lease:
(a) Tenant's failure to pay rent or any other charge under this lease
within 10 days after it is due, or failure to comply with any other term or
condition within 20 days following written notice from Landlord specifying
the noncompliance. If such noncompliance cannot be cured within the 20 day
period, this provision shall be satisfied if Tenant commences correction
within such period and thereafter proceeds in good faith and with
reasonable diligence to effect compliance as soon as possible. Time is of
the essence of this lease.
(b) Tenant's insolvency, business failure or assignment for the benefit of
its creditors. Tenant's commencement of proceedings under any provision of
any bankruptcy or insolvency law or failure to obtain dismissal of any
petition filed against it under such laws within the time required to
answer, or the appointment of a receiver for all or any portion of Tenant's
properties or financial records.
(c) Assignment or subletting by Tenant in violation of paragraph 10.1.
(b) Vacation or abandonment of the Premises without the written consent of
Landlord or failure to occupy the Premises within 20 days after notice from
Landlord tendering possession.
11.2 REMEDIES FOR DEFAULT.
In case of default as described in paragraph 11.1 Landlord shall have the right
to the following remedies which are intended to be cumulative and in addition to
any other remedies provided under applicable law:
(a) Landlord may at its option terminate the lease by notice to Tenant.
With or without termination, Landlord may retake possession of the Premises
and may use or re-let the Premises without accepting a surrender or waiving
the right to damages. Following such retaking or possession, efforts by
Landlord to re-let the Premises shall be sufficient if Landlord follows its
usual procedures for finding Tenants for the space at rates not less than
the current rates for comparable space in the Building. If Landlord has
other vacant
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space in the Building, prospective tenants may be placed in such other
space without prejudice to Landlord's claim to damages or loss of
rentals from Tenant.
(b) Landlord may recover all damages caused by Tenant's default which
shall include an amount equal to rentals loss because of the default, lease
commissions paid for this lease, and the unamortized cost of any tenant
improvements installed by Landlord to meet Tenant's special requirements.
Landlord may sue periodically to recover damages as they occur throughout
the lease term, and no action for accrued damages shall bar a later action
for damages subsequently accruing. Landlord may elect in any one action to
recover accrued damages plus damages attributable to the remaining term of
the lease. Such damages shall be measured by the difference between the
rent under this lease and the reasonable rental value of the Premises for
the remainder of the term, discounted to the time of judgment at the
prevailing interest rate on judgments.
(c) Landlord may make any payment or perform any obligation which Tenant
has failed to perform, in which case Landlord shall be entitled to recover
from Tenant on demand all amounts so expected, plus interest from the date
of the expenditure at the rate of one-and-one-half percent per month. Any
such payment or performance by Landlord shall not waive Tenant's default.
12.1 SURRENDER.
On expiration or early termination of this lease Tenant shall deliver all
keys to Landlord and surrender the Premises vacuumed, swept, and free of all
debris and in the same condition as at the commencement of the term subject
only to reasonable wear from ordinary use. Tenant shall remove all of its
furnishings and trade fixtures that remain its property and repair all damage
resulting from such removal. Failure to remove shall be an abandonment of
the property, and Landlord may dispose of it in any manner without liability.
If Tenant fails to vacate the Premises when required, including failure to
remove all its personal property, Landlord may elect either: (i) to treat
Tenant as a tenant from month to month, subject to the provisions of this
lease except that rent shall be one-and-one-half times the total rent being
charged when the lease term expired, and any option or other rights regarding
extension of the term or expansion of the Premises shall no longer apply; or
(ii) to eject Tenant from the Premises and recover damages caused by wrongful
holdover.
13.1 REGULATIONS.
Landlord shall have the right but shall not be obligated, to make, revise and
enforce regulations or policies consistent with this lease for the purpose of
promoting safety, health (including moving, use of common areas and prohibition
of smoking), order, economy, cleanliness, and good service to all tenants of
the Building. All such regulations and policies shall be complied with as if
part of this lease.
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14.1 ACCESS.
During times other than normal Building hours Tenant's officers and employees or
those having business with Tenant may be required to identify themselves or show
passes in order to gain access to the Building. Landlord shall have no
liability for permitting or refusing to permit access by anyone. Landlord shall
have the right to enter upon the Premises at any time by passkey or otherwise to
determine Tenant's compliance with this lease, to perform necessary services,
maintenance and repairs or alterations to the Building or the Premises, or to
show the Premises to any prospective tenant or purchasers. Except in case of
emergency such entry shall be at such times and in such manner as to minimize
interference with the reasonable business use of the Premises by Tenant.
14.2 FURNITURE AND BULKY ARTICLES.
Tenant shall move furniture and bulky articles in and out of the building or
make independent use of the elevators only at times approved by Landlord
following at least 24 hours written notice to Landlord of the intended move.
Landlord will not unreasonably withhold its consent under this paragraph.
___________________________________
following mailing, postpaid prepaid, to the address for the party stated in
this lease or to such other address as either party may specify by notice to the
other. Notice to Tenant may always be delivered to the Premises. Rent shall be
payable to Landlord at the same address and in the same manner, but shall be
considered paid only when received.
16.1 SUBORDINATION ATTORNMENT.
This lease shall be subject to and subordinate to any mortgage, deeds of trust,
or land sales contracts (hereafter collectively referred to as encumbrances) now
existing against the Building. At Landlord's option this lease shall be subject
and subordinate to any future encumbrance hereafter placed against the Building
(including the underlying land) or any modifications of existing encumbrances,
and Tenant shall execute such documents as may reasonably be requested by
Landlord or the holder of the encumbrance to evidence this subordination. If
any encumbrance is foreclosed, then if the purchaser at foreclosure sale gives
to Tenant a written agreement to recognize Tenant's lease, Tenant shall attorn
to such purchaser and this Lease shall continue.
16.2 TRANSFER OF BUILDING.
If the Building is sold or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee and recognize it as the
lessor under this lease, and, provided the purchaser or transferee assumes all
obligations hereunder, the transferor shall have no further liability hereunder.
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16.3 ESTOPPELS.
Either party will within 10 days after notice from the other execute,
acknowledge and deliver to the other party a certificate certifying whether or
not this lease has been modified and is in full force and effect; whether there
are any modifications or alleged breaches by the other party; the dates to which
rent has been paid in advance, and the amount of any security deposit or prepaid
rent; and any other facts that may reasonably be requested. Failure to deliver
the certificate within the specified time shall be conclusive upon the party of
whom the certificate was requested that the lease is in full force and effect
has not been modified except as may be represented by the party requesting the
certificate. If requested by the holder of any encumbrance, or any ground
lessor, Tenant will agree to give such holder or lessor notice of and an
opportunity to cure any default by Landlord under this lease.
17.1 DISPUTE RESOLUTION.
INFORMAL DISPUTE CONFERENCES: In the event the Tenant has a grievance against
the Landlord, the Tenant shall notify the Landlord of his/her grievance in
writing. The Landlord agrees to meet with the Tenant within Twenty (20) days of
receiving said grievance.
MEDIATION: In the event any grievance between the parties is not resolved in
the Informal Dispute Conference discussed above, the parties agree that said
dispute be submitted to mediation, prior to the initiation of any litigation.
Either Tenant or Landlord may request mediation of dispute by notifying the
other party in writing. Within fifteen (15) days of such request, both parties
shall select a mediator. In the event that the parties cannot agree on a
mediator, a mediator will be selected pursuant to the rules of the Arbitration
Services of Portland, Inc. or the American Arbitration Association. The parties
and the mediator shall meet at an agreeable time and place within fifteen (15)
days of the mediator's selection in an attempt to mediate the dispute. The
mediator will select the time and place for the meeting. The mediator will have
five (5) days after the hearing to attempt to resolve the dispute. If either
party does not agree with the solutions suggested by the mediator, either party
may then request that the matter proceed to arbitration. Each party shall pay
their own costs and attorney fees, if any, of participation in the mediation.
Each party shall pay one half of the mediator's fee.
ARBITRATION: In the event that the parties are unable to resolve their dispute
in mediation, the matter shall then proceed to final and binding arbitration.
Either party may initiate the arbitration process through a written request to
the other. The parties shall then confer and attempt to agree on a single
arbitrator. If the parties are unable to do so within twenty (20) days of said
request, each party shall select its own arbitrator, the two of whom shall then
select a third arbitrator. The costs of arbitration shall be shared equally by
the parties. Each party shall pay their own attorney fees. The arbitrator(s)
will schedule and conduct a hearing within thirty (30) days of the selection of
the arbitrator(s). Within twenty-one (21) days of the arbitration hearing, the
arbitrator(s) shall serve written notice of their decision on the parties. The
arbitration shall be conducted pursuant to the rules of the American Arbitration
Association, or the Arbitration Service of Portland, Inc.
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or such other similar independent public arbitration service that is designed
to provide a fair and impartial arbitration process as Landlord shall select.
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18.1 QUIET ENJOYMENT.
Landlord warrants that so long as Tenant complies with all terms of this lease
it shall be entitled to peaceable and undisturbed possession of the Premises
free from any eviction or disturbance by Landlord. Neither Landlord or its
managing agent shall have any liability to Tenant for loss or damages arising
out of the acts, including criminal acts, of other tenants of the Building or
third parties, nor any liability for any reason which exceeds the value of its
interest in the Building.
19.1 ADDITIONAL RENT: TAX ADJUSTMENT.
Whenever for any July 1 - June 30 tax year the real property taxes levied
against the Building and its underlying land exceed those levied for the 1996 -
1997 tax year, than the monthly rental for the next succeeding calendar year
shall be increased by one-twelfth of such tax increase times Tenant's
proportionate share. "Real property taxes" as used herein means all taxes and
assessments of any public authority against the Building and the land on which
it is located, the cost of contesting any tax and any form of fee or charge
imposed on Landlord as a direct consequence of owning or leasing the Premises,
including but not limited to rent taxes, gross receipt taxes, leasing taxes, or
any fee or charge wholly or partially in lieu of or in substitution for ad
valorem real property taxes or assessments, whether now existing or hereafter
enacted. If any portion of the Building is occupied tax-exempt tenant so that
the Building has a partial tax exemption under ORS 307.112 or a similar statute,
than real property taxes shall mean taxes computed as if such partial exemption
did not exist. If a separate assessment or identifiable tax increase arises
because of improvements to the Premises, than Tenant shall pay 100 percent of
such increase.
19.2 TENANT'S PROPORTIONATE SHARE.
"Tenant's proportionate share" as used herein means the area of the Premises,
divided by the total area of office space in the Building, with area determined
using one of the methods of building measurements defined by the Building Owners
and Managers Association (BOMA). Tenant's proportionate share as of the lease
commencement date shall be 18.97 percent.
19.3 ADDITIONAL RENT: OPERATING EXPENSE ADJUSTMENT.
Tenant shall pay as additional rent its proportionate share, as defined in
paragraph 19.2, of the amount by which operating expenses for the Building
increase over those experienced by Landlord during the calendar year 1997
(base year). Effective January 1 of each year Landlord shall estimate the
amount by which operating expenses are expected to increase, if any, over
those incurred in the base year. Monthly rental for that year shall be
increased by one-twelfth of Tenant's share of the estimated increase.
Following the end of each calendar year, Landlord shall compute the actual
increase in operating expense and bill Tenant for any deficiency or credit
Tenant with any excess collected. As used herein "operating expenses" shall
mean all costs of operating and maintaining the Building as determined by
standard real estate accounting practice, including, but not limited to: all
water and sewer charges; the cost of natural gas and electricity
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provided to the Building; janitorial and cleaning supplies and services;
administration costs and management fees; superintendent fees; security
services, if any; insurance premiums; licenses; permits for the operation and
maintenance of the Building and all of its component elements and mechanical
systems; the annual amortized capital improvement cost (amortized over such a
period as Landlord may select but not shorter than the period allowed under
the Internal Revenue Code and at a current market interest rate) for any
capital improvements to the Building required by any governmental authority
or those which have a reasonable probability of improving the operating
efficiency of the Building.
20.1 COMPLETE AGREEMENT.
This lease and the attached exhibits and schedules if any, constitute the entire
agreement of the parties and supersede all prior written and oral agreements and
representations. Neither Landlord nor Tenant is relying on any representations
other than those expressly set forth herein.
20.2 SPACE LEASED AS IS.
Unless otherwise stated in this Lease, the Premises are leased as is in the
condition now existing with no alterations or other work to be performed by
Landlord.
20.3 CAPTIONS.
The titles to the paragraphs of this lease are descriptive only and are not
intended to change or influence the meaning of any paragraph or to be part of
this lease.
20.4 NON WAIVER.
Failure by Landlord to promptly enforce any regulation, remedy or right of any
kind under this Lease shall not constitute a waiver of the same and such right
or remedy may reasserted at any time after Landlord becomes entitled to the
benefit thereof notwithstanding delay in enforcement.
20.5 EXHIBITS.
The following Exhibits are attached hereto and incorporated as a part of this
Lease:
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IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this lease as of the day and year first written above.
LANDLORD: By:_____________________ By:______________________
Address for notices: Title:__________________ Title:___________________
9498 SW Barbur Blvd
Suite 200
Portland, OR 97219 By:_____________________ By:_____________________
Title:__________________ Title:__________________
TENANT: By:_____________________ By:______________________
Address for notices: Title:__________________ Title:___________________
_____________________
_____________________
_____________________ By:_____________________ By:_____________________
Title:__________________ Title:__________________
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Exhibit 10.11
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "AGREEMENT") is entered into as of
March 3, 1998, by and between Home Shark, Inc., a California corporation
("BUYER") and The Cobalt Group, Inc., a Washington corporation ("SELLER").
RECITALS
Buyer desires to acquire from Seller, and Seller desires to sell to
Buyer, all of the assets of Seller's business relating to the online real estate
listing service known as "HomeScout", which is made available on the World Wide
Web at http://www.homescout.com or http://www.homeontheweb.com (the "BUSINESS"),
on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
In consideration of the mutual agreements, representations, warranties
and covenants set forth below, Buyer and Seller agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
1.2 "AFFILIATE" means with respect to any Person, a Person directly
or indirectly controlling or controlled by or under common control with such
Person.
1.3 "GOVERNMENTAL ENTITY" means any court, or any federal, state,
municipal or other governmental authority, department, commission, board, agency
or other instrumentality (domestic or foreign).
1.4 "LIEN" means any mortgage, pledge, lien, security interest,
option, covenant, condition, restriction, encumbrance, charge or other
third-party claim of any kind.
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1.5 "PERSON" means an individual, corporation, partnership,
association, trust, government or political subdivision or agent or
instrumentality thereof, or other entity or organization.
1.6 "TAXES" means all taxes, however denominated, including any
interest, penalties or other additions to tax that may become payable in respect
thereof, (i) imposed on Seller by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, for which Buyer could become liable as successor to or transferee of
the Business or the Purchased Assets or which could become a charge against or
lien on any of the Purchased Assets, which taxes shall include, without
limitation, all sales and use taxes, ad valorem taxes, excise taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, real property gains taxes, transfer taxes, payroll and
employee withholding taxes, unemployment insurance contributions, social
security taxes, and other governmental charges, and other obligations of the
same or of a similar nature to any of the foregoing, which are required to be
paid, withheld or collected, or (ii) any liability for amounts referred to in
(i) as a result of any obligations to indemnify another person.
2. SALE AND PURCHASE.
2.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement and the Seller Disclosure Schedule (as defined in Article 4 hereof),
Seller shall sell, assign, grant, transfer, and deliver to Buyer, and Buyer
shall purchase and accept from Seller as of the Closing Date (PROVIDED, HOWEVER,
that, at Buyer's option, such delivery shall occur at such subsequent time and
place as the Buyer shall reasonably request), free and clear of all Liens, all
of the Seller's right, title and interest in and to all of the assets,
properties and business used in or necessary to the Business (the "PURCHASED
ASSETS"), including, without limitation:
(a) all tangible personal property and leases of, and other
interests in, tangible personal property used in connection with the Business,
including, without limitation, the computer equipment and other items listed on
SCHEDULE 2.1(a);
(b) all rights under each of the license agreements,
distribution agreements, marketing agreements, listing agreements, service
agreements, linking rights agreements and other agreements and contracts listed
on SCHEDULE 2.1(b) (collectively the "CONTRACTS");
(c) all prepaid expenses relating to the operation of the
Business including, but not limited to Taxes, leases and rentals;
(d) all of Seller's rights, claims, credits, causes of action
or rights of set-off against third parties relating to the Purchased Assets,
including, without limitation, unliquidated rights under warranties;
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(e) subject to Section 2.2 below, all technology,
intellectual property and general intangibles used in or necessary to the
Business, including, without limitation:
(i) all copyrights, trademarks, service marks, trade
names, logos, domain names and reservations thereof (including, without
limitation, homescout.com and homeontheweb.com) and patents (and all
applications and registrations related to the foregoing), in each case whether
pending, applied for or issued and whether filed in the United States or in
other countries, including without limitation the items listed in SCHEDULE
2.1(e)(i), including all royalties therefrom and infringement claims against
third parties related thereto;
(ii) all trade secrets, proprietary processes and
formulae, license rights, specifications, technical manuals and data, drawings,
inventions, designs, product information and data, know-how, development
work-in-progress, business and marketing plans and other intellectual or
intangible property used in or pertaining to the Business; and
(iii) all software programs (in both source and object
code form), databases, listings, software code (including HTML code), CGI
scripts, Java applets, routines and other computer-related materials or
information used in or pertaining to the Business, along with all electronic
documentation therefor, including without limitation all search engines and
related software used in the presentation of real estate listings;
(f) all permits, authorizations, consents and approvals of
any Governmental Entity affecting or relating in any way to the Business (the
"PERMITS");
(g) all books, records, files and papers, whether in hard
copy or electronic format, used in the Business, including without limitation,
engineering information, sales and promotional literature, manuals and data,
sales and purchase correspondence, lists of present, former and prospective
suppliers and customers, mailing lists, price lists, personnel and employment
records, and any information relating to Taxes imposed on the Business or
Purchased Assets; and
(h) all goodwill associated with the Business or the
Purchased Assets, together with the right to represent to third parties that
Buyer is the successor to the Business.
2.2 EXCLUDED ASSETS. Buyer acknowledges and agrees that the
intellectual property set forth on SCHEDULE 2.2 (the "EXCLUDED ASSETS") shall be
excluded from the Purchased Assets. The Purchased Assets and the Excluded
Assets shall be referred to collectively as the "ASSETS."
2.3 ASSUMPTION OF LIABILITIES. Except for those obligations assumed
by Buyer under the Contracts, Buyer shall not assume and shall not be liable
for, and Seller shall retain and remain solely liable for and obligated to
discharge, all of the debts, contracts, agreements, commitments, obligations and
other liabilities of any nature whatsoever of Seller, whether known or unknown,
accrued or not accrued, fixed or contingent.
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2.4 PURCHASE PRICE. Subject to the performance by Seller of all of
its obligations under this Agreement (including delivering all documents
required to be delivered) at the Closing and in consideration of the acquisition
by Buyer of the Purchased Assets under Section 2.1 and the assumption of the
liabilities set forth in Section 2.3, Buyer shall deliver to Seller at the
Closing (a) $500,000 in cash; (b) a promissory note in the principal amount of
$1,000,000, which is convertible into 1,583,280 shares of Buyer's Series B
Preferred Stock, par value $0.001 per share (the "SHARES"), in the form attached
hereto as EXHIBIT A (the "CONVERTIBLE NOTE"); and (c) a secured promissory note
in the principal amount of $1,000,000 in the form attached hereto as EXHIBIT B
(the "TERM NOTE"). The terms of the Term Note and the Convertible Note provide
that they may be prepaid on or before May 3, 1998, in each case at a discount as
set forth therein. Such discount reflects Seller's willingness to accept a
lower price for the Purchased Assets if payment on such notes is made on or
before May 3, 1998. The Cash Consideration, the Convertible Note and the Term
Note shall be referred to collectively as the "PURCHASE PRICE." In the event
that the Convertible Note is pre-paid, in whole or in part, during the initial
sixty (60) day period following the Closing Date as permitted thereby and/or the
Term Note is pre-paid, in whole or in part, during the initial sixty (60) day
period following the Closing Date as permitted thereby, the aggregate amounts so
pre-paid shall be considered Cash Consideration for purposes of Sections 11.4
and 12 of this Agreement.
2.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Purchased Assets as provided in EXHIBIT C for purposes of
complying with the requirements of Section 1060 of the Internal Revenue Code of
1986, as amended (the "CODE") and the regulations promulgated thereunder. Buyer
and Seller agree to each report to the appropriate federal, state and local tax
agencies an allocation of the Purchase Price that is consistent with the
allocation set forth in EXHIBIT C.
3. CLOSING.
3.1 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Venture Law Group
at 2775 Sand Hill Road, Menlo Park, California 94025 at 2:00 p.m., local time,
on March 3, 1998 or such other time, date and place as shall be fixed by
agreement of the parties hereto (the date on which the Closing actually occurs
being hereinafter referred to as the "CLOSING DATE").
3.2 ACTIONS AT THE CLOSING. At the Closing, Seller shall deliver the
Purchased Assets to Buyer, Buyer shall deliver the Purchase Price to Seller, and
Buyer and Seller shall take such actions and execute and deliver such
agreements, bills of sale, and other instruments and documents as necessary or
appropriate to effect the transactions contemplated by this Agreement in
accordance with its terms. Seller shall deliver all software, documentation,
databases and other similar intangible property hereunder via electronic
transmission only, without any accompanying physical packaging, disks, CD-ROMs
or tangible media of any kind. At the Closing, Seller shall provide reasonable
evidence of clear title to all of the Purchased Assets, in form and substance
reasonably satisfactory to Buyer.
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4. REPRESENTATIONS AND WARRANTIES OF SELLER.
Each representation and warranty set forth below is qualified by any
exception or disclosures set forth in the Seller Disclosure Schedule attached as
EXHIBIT D hereto, which exceptions specifically reference the Section(s) to be
qualified.
Seller hereby represents and warrants to Buyer as follows:
4.1 ORGANIZATION, STANDING AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington and has full corporate power and authority and the legal right to
execute and deliver this Agreement and all of the other agreements and
instruments to be executed and delivered by Seller pursuant hereto, and to
consummate the transactions contemplated hereby and thereby. Seller has no
subsidiaries as of the date hereof.
4.2 AUTHORITY. The execution and delivery of this Agreement (and all
other agreements and instruments contemplated under this Agreement) by Seller,
the performance by Seller of its obligations hereunder and thereunder, and the
consummation by Seller of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action. This Agreement has been
duly and validly executed and delivered by Seller and constitutes, and each
other agreement or instrument executed and delivered or to be executed and
delivered by the Seller pursuant to this Agreement will, upon such execution and
delivery, constitute a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms.
4.3 NONCONTRAVENTION. Neither the execution, delivery and
performance of this Agreement and all of the other agreements and instruments to
be executed and delivered pursuant hereto, nor the consummation of the
transactions contemplated hereby or thereby, will, with or without the passage
of time or the delivery of notice or both, (a) conflict with, violate or result
in any breach of the terms, conditions or provisions of the Articles of
Incorporation or Bylaws of Seller, (b) except as set forth in SCHEDULE 4.4,
conflict with or result in a violation or breach of, or constitute a default or
require consent of any Person (or give rise to any right of termination,
cancellation or acceleration with or without notice or the passage of time)
under, any of the terms, conditions or provisions of any Contract or any
contract, notice, bond, mortgage, indenture, license, franchise, permit,
agreement, lease or other instrument or obligation to which Seller is a party
and which relate to or affect any of the Assets, (c) violate any statute,
ordinance or law or any rule, regulation, order, writ, injunction or decree of
any Governmental Entity applicable to Seller or by which any properties or
assets of Seller may be bound, or (d) result in the creation of any Lien upon
any of the Assets pursuant to any mortgage, indenture, lease, agreement or other
instrument to which Seller is a party or by which Seller or any of its property
or assets is bound. No "bulk sales" legislation applies to the transactions
contemplated by this Agreement. The Seller is not required to give any notice
to, or make any filing with, a
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Governmental Entity or any other Person in connection with the execution by the
Seller of this Agreement and consummation and performance of the transactions
contemplated hereby.
4.4 CONSENTS. SCHEDULE 4.4 sets forth each agreement, contract or
other instrument binding upon Seller requiring a consent as a result of the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby (each a "REQUIRED CONSENT").
4.5 FINANCIAL INFORMATION. Seller has delivered to Buyer a schedule
of revenues for the Business for the twelve months ended December 31, 1997,
which schedule is true and complete in all respects.
4.6 NO UNDISCLOSED LIABILITIES. Seller does not have any liability,
indebtedness, or obligation resulting from or arising out of Seller's operation
of the Business, or ownership of the Purchased Assets, prior to the Closing,
whether accrued, absolute, contingent, matured, unmatured or other, that is not
disclosed in this Agreement or in the Seller Disclosure Schedule.
4.7 ASSETS GENERALLY.
(a) The Assets include all properties, tangible and
intangible, and only such properties, currently used by Seller in operating the
Business.
(b) Seller holds good and marketable title, license to or
leasehold interest in all of the Assets and has the complete and unrestricted
power and the unqualified right to sell, assign and deliver the Purchased Assets
to Buyer. Upon consummation of the transactions contemplated by this Agreement,
Buyer will acquire good and marketable title, license or leasehold interest to
the Purchased Assets free and clear of any Liens and there exists no restriction
on the use or transfer of the Purchased Assets other than as described in this
Agreement, the Security Agreement or in the Contracts. No Person other than
Seller has any right or interest in the Assets, including the right to grant
interests in the Assets to third parties.
(c) None of the Purchased Assets that constitute tangible
personal property are held under any lease, security agreement, conditional
sales contract, lien, or other title retention or security arrangement.
(d) All of the Assets are in good operating condition and
repair (normal wear and tear excepted), as required for their use in the
Business as presently conducted, and conform in all material respects to all
applicable laws, and no notice of any violation of an law relating to any of the
Assets has been received by Seller.
(e) To Seller's knowledge: (i) all of the Assets are free
from material defects; (ii) all software included within the Assets is free from
viruses, expiry codes and material bugs
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of any kind; (iii) and all software and other technology included within the
Assets is fit for the purposes for which it is intended.
(f) THE REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN
THIS ARTICLE 4 ARE THE ONLY WARRANTIES MADE BY SELLER WITH RESPECT TO THE
PURCHASED ASSETS. SELLER MAKES NO OTHER WARRANTY WITH RESPECT TO THE PURCHASED
ASSETS AND HEREBY DISCLAIMS ALL OTHER IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
4.8 INTELLECTUAL PROPERTY.
(a) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not breach,
violate or conflict with any instrument or agreement governing any intellectual
property necessary or required for, or used in, the conduct of the Business as
presently conducted and will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any such Intellectual Property
or, except as set forth in this Agreement or the Security Agreement, impair the
right of Buyer or any of its Affiliates to use, sell, license or dispose of, or
to bring any action for the infringement of any such intellectual property or
portion thereof;
(b) Neither the development, manufacture, marketing, license,
sale or use of any product or intellectual property currently licensed, used or
sold by Seller in the conduct of the Business or currently under development
for use in the Business violates or will violate any license or agreement to
which Seller is a party or infringes or will infringe any copyright, patent,
trademark, service mark, trade secret or other intellectual property right of
any other party. All registered trademarks, service marks, patents and
copyrights held by Seller are valid and subsisting. There is no pending or
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any of the Assets nor, to Seller's knowledge
and except as disclosed on SCHEDULE 2.1(e)(j), is there any basis for any such
claim. Seller has not received any notice asserting that any such Asset or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party. To Seller's knowledge, there is no
unauthorized use, infringement or misappropriation on the part of any third
party of any of the Assets;
(c) Seller has taken reasonable steps (including, without
limitation, entering into confidentiality and non-disclosure agreements with all
officers and employees of and consultants to Seller with access to the Business)
to maintain the secrecy and confidentiality of, and its proprietary rights in,
the Assets. SCHEDULE 2.1(e)(i) contains a complete and accurate list of all
applications, filings and other formal actions made or taken pursuant to
federal, state, local and foreign laws by Seller to perfect or protect its
interest in the Assets, including, without limitation, all patents, patent
applications, trademarks, trademark applications, service marks and copyright
registrations.
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(d) All fees to maintain Seller's rights in the Assets,
including, without limitation, patent and trademark registration and prosecution
fees and all professional fees in connection therewith pertaining to the Assets
due and payable on or before the Closing Date, have been paid by Seller or will
be paid by Seller within a reasonable period after the Closing.
4.9 WARRANTIES AND INDEMNITIES. The Seller Disclosure Schedule
sets forth a summary of all warranties and indemnities, express or implied,
relating to products sold or services rendered by Seller in the conduct of
the Business, and no warranty or indemnity has been given by Seller in the
conduct of the Business which is not listed on the Seller Disclosure Schedule
or which differs therefrom in any material respect. Seller is in compliance
with all warranties described in the Seller Disclosure Schedule. The Seller
Disclosure Schedule also indicates all warranty and indemnity claims
currently pending against Seller.
4.10 LICENSES AND PERMITS. Seller holds all consents, approvals,
registrations, certifications, authorizations, permits and licenses of, and has
made all filings with, or notifications to, all Governmental Entities pursuant
to applicable requirements of all federal, state, local and foreign laws,
ordinances, governmental rules or regulations applicable to the Business. The
Business is in compliance with all federal, state, local and foreign laws,
ordinances, governmental rules and regulations relating to the services rendered
by the Business or otherwise related to the Business and Seller has no reason to
believe that any consents, approvals, authorizations, registrations,
certifications, permits, filings or notifications that it has received or made
to operate the Business are invalid or have been or are being suspended,
canceled, revoked or questioned. There is no investigation or inquiry to which
Seller is a party or, to Seller's knowledge, pending or threatened, relating to
the Business and its compliance with applicable federal, state, local or foreign
laws, ordinances, governmental rules or regulations. Each such consent,
approval, registration, certification, authorization, permit or license is
transferable and shall be transferred to Buyer in accordance with the terms of
this Agreement.
4.11 EMPLOYEES.
(a) SCHEDULE 4.11 sets forth the names and job titles of all
of the Seller's employees or independent contractors who provide or have
provided service to, or in connection with, the Business (the "BUSINESS
EMPLOYEES"). All employees, consultants, officers, directors and shareholders
of Seller or any Seller Affiliate that have had access to the Assets are parties
to a written agreement (a "CONFIDENTIALITY AGREEMENT"), under which each such
person (i) is obligated to disclose and transfer to Seller (subject to
applicable laws), without the receipt by such person of any additional value
therefor (other than normal salary or fees for consulting services), all
inventions, developments and discoveries which, during the period of employment
with or performance of services for Seller, he or she makes or conceives of
either solely or jointly with others, that relate to any subject matter with
which his or her work for Seller may be concerned, or relate to or are connected
with the Business, products or projects of Seller, or involve the use of the
time, material or facilities of Seller, and (ii) is obligated to maintain the
confidentiality of proprietary information of Seller. To Seller's knowledge,
the Business
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Employees are not obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that conflicts with their
obligation to promote the interests of Seller with regard to the Business or the
Assets or, with respect to Pat Brown and Marci Singer, that would conflict with
an obligation to promote the interests of Buyer with regard to the Business or
the Assets. To Seller's knowledge, neither the execution nor the delivery of
this Agreement, nor the carrying on of the Business by its employees and
consultants, will conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such persons or entities are now obligated. It is
currently not necessary for Seller to utilize in the Business any inventions of
any employee or consultant made or owned prior to their employment by or
affiliation with Seller, nor is it necessary to utilize any other assets or
rights of any such persons made or owned prior to their employment with or
engagement by Seller, in violation of any registered patents, trade names,
trademarks or copyrights or any other limitations or restrictions to which any
such persons are a party or to which any of such assets or rights may be
subject. To Seller's knowledge, none of Seller's employees, consultants,
officers, directors or shareholders that has had knowledge or access to
information relating to the Assets has taken, removed or made use of any
proprietary documentation, manuals, products, materials, or any other tangible
item from his or her previous employer relating to the Assets by such previous
employer which has resulted in Seller's access to or use of such proprietary
items included in the Assets.
(b) Except for the Confidentiality Agreements, there are no
written or oral contracts of employment between Seller and any Business
Employee. All Business Employees are employees at will.
4.12 EMPLOYEE BENEFIT AND COMPENSATION PLANS. Buyer will incur no
liability with respect to, or on account of, and Seller will retain any
liability for, and on account of, any employee benefit plan of Seller, any of
its Affiliates or an predecessor employer of any Business Employee, including,
but not limited to, liabilities Seller may have to such employees under all
employee benefit schemes, incentive compensation plans, bonus plans, pension and
retirement plans, vacation, profit-sharing plans (including any profit-sharing
plan with a cash-or-deferred arrangement) share purchase and option plans,
savings and similar plans, medical, dental, travel, accident, life, disability
and other insurance and other plans or arrangements, whether written or oral and
whether "qualified" or "non-qualified," or to any Business Employee as a result
of termination of employment by Seller. Seller has not, with respect to any
Business Employee, maintained or contributed to, or been obligated or required
to contribute to, any retirement or pension plan or any employee benefit plan.
Seller is not a party to any collective bargaining agreement covering any
Business Employee and Seller knows of no effort to organize any such employee as
a part of any collective bargaining unit.
4.13 TAXES. All Taxes have been or will be paid by Seller for all
periods (or portions thereof) prior to and including the Closing Date. Seller
and any other person required to file returns or reports of Taxes have duly and
timely filed (or will file prior to the Closing Date) all
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returns and reports of Taxes required to be filed prior to such date, and all
such returns and reports are true, correct, and complete. There are no liens
for Taxes on any of the Purchased Assets. Seller has complied with all record
keeping and tax reporting obligations relating to income and employment taxes
due with respect to compensation paid to employees or independent contractors
providing services to the Business. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Code. There are no pending or, to Seller's
knowledge, threatened proceedings with respect to Taxes, and there are no
outstanding waivers or extensions of statutes of limitations with respect to
assessments of Taxes. No agreement or arrangement regarding compensation of any
employee providing services to the Business provides for any payments which
could result in a nondeductible expense to the Buyer pursuant to Section 280G of
the Code or an excise tax to the recipient of such payment pursuant to Section
4999 of the Code.
4.14 COMPLIANCE WITH LAW. The operation of the Business has been
conducted in all material respects in accordance with all applicable laws,
regulations and other requirements of Governmental Entities having jurisdiction
over the same.
4.15 ENVIRONMENTAL MATTERS. To Seller's knowledge, the Business is,
and at all times has been, conducted in compliance with all applicable federal,
state and local environmental laws, rules and regulations.
4.16 CONTRACTS.
(a) SCHEDULE 4.16 contains a list of all contracts relating
to the Business ("BUSINESS CONTRACTS"), along with the name of the appropriate
third party contact for each such contract other than described in subsection
(a)(vi) below). "BUSINESS CONTRACTS" shall include, without limitation, the
following and shall be categorized in the Seller Disclosure Schedule as follows:
(i) each contract (other than routine purchase orders
given and pricing quotes received in the ordinary course of the Business and
covering a period of less than one year) for the purchase of materials or
personal property with any supplier or for the furnishing of services to the
Business;
(ii) each customer contract and agreement of the
Business (other than routine purchase orders, pricing quotes with open
acceptance and other tender bids, in each case, entered into in the ordinary
course of business and covering a period of less than one year) which (A)
involved consideration of more than $5,000 in the aggregate during the fiscal
year ended December 31, 1997, (B) is likely to involve consideration of more
than $5,000 in the aggregate during the fiscal year ended December 31, 1998, (C)
is likely to involve consideration of more than $10,000 in the aggregate over
the remaining term of the contract or (D) cannot be canceled by Seller without
penalty or further payment;
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(iii) all distributor, sales representative, broker,
franchise, agency and dealer contracts and agreements of the Business and all
sales promotion, market research, marketing and advertising contracts and
agreements of the Business;
(iv) all management contracts with independent
contractors or consultants (or similar arrangements) of the Business and which
(A) involved consideration or more than $5,000 in the aggregate during the
fiscal year ended December 31, 1997, (B) are likely to involve consideration of
more than $5,000 in the aggregate during the fiscal year ended December 31,
1998, or (C) are likely to involve consideration of more than $10,000 in the
aggregate over the remaining term of the contract;
(v) all contracts and agreements under which the
Business has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness or under which the Business has imposed (or
may impose) a security interest or lien on any of its assets, whether tangible
or intangible, to secure indebtedness;
(vi) all contracts, whether written or oral, with any
real estate listings provider;
(vii) all contracts and agreements that limit the
ability of any Person related to the Business, or any of its affiliates, to
compete in any line of business or with any person or in any geographic area or
during any period of time, or to solicit any customer or client;
(viii) all contracts pursuant to which the Business has
agreed to supply products or provide services to a customer at specified prices,
whether directly or through a specific distributor, manufacturer's
representative or dealer; and
(ix) all contracts pursuant to which Seller has
licensed intellectual property to or from a third party that is necessary for,
or used in, the business, and all development agreements pursuant to which a
third party has developed for Seller any software, technology or other
intellectual property.
(b) At or prior to the Closing, Seller will furnish Buyer
with access to true and complete copies of all Business Contracts together with
all amendments, waivers or other changes thereto.
(c) Each Contract (as set forth on SCHEDULE 2.1(b)) is a
legal, valid and binding agreement of Seller, and none of the Contracts is in
default by its terms or has been canceled by the other party; Seller is not in
receipt of any claim of default under any Contract; and Seller does not
anticipate any termination or change to, or receipt of a proposal with respect
to, any Contract as a result of the transactions contemplated hereby.
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4.17 PRODUCTS AND SERVICES. Each of the products and services
produced, sold or provided by Seller in connection with the Business is, and at
all times has been, in compliance with all applicable federal, state, local and
foreign laws and regulations.
4.18 LITIGATION; OTHER CLAIMS.
(a) There are no claims, actions, suits, inquiries,
proceedings, or investigations against Seller, or any of its officers, directors
or shareholders, relating to the Business or the Assets which are currently
pending or, to Seller's knowledge, threatened, at law or in equity or before or
by any Governmental Entity, or which challenges or seeks to prevent, enjoin,
alter or delay any of the transactions contemplated hereby, nor is Seller aware
of any basis for such claims, actions, suits, inquiries, proceedings, or
investigations; and, to Seller's knowledge, no Governmental Entity has at any
time challenged or questioned the legal right of Seller to produce, sell or
provide any of its products or services in the present manner or style thereof.
(b) There are no grievance or arbitration proceedings pending
or, to Seller's knowledge, threatened, and there are no actual or threatened
strikes or work stoppages with respect to the Business, the Assets or the
Business Employees, nor is Seller aware of any basis for such proceedings or
events.
4.19 DEFAULTS. Seller is not in default under or with respect to any
judgment, order, writ, injunction or decree of any court or any Governmental
Entity. There does not exist any default by Seller or, to Seller's knowledge,
by any other Person, or event that, with notice or lapse of time, or both, would
constitute a default by Seller or, to Seller's knowledge, by any other Person,
under any agreement entered into by Seller as part of the operations of the
Business, and no notices of breach thereof have been received by Seller.
4.20 FULL DISCLOSURE. Neither this Agreement nor any other agreement,
exhibit, schedule or officer's certificate being entered into or delivered
pursuant to this Agreement contains any untrue statement of a material fact or,
when taken as a whole, omits to state any material fact necessary in order to
make the statements contained in such documents not misleading in light of the
circumstances under which they are made.
4.21 BROKERS AND FINDERS. Except as set forth in SCHEDULE 4.21,
neither Seller nor any of its officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fee, commission or
finder's fee in connection with the transactions contemplated by this Agreement.
4.22 NO FRAUDULENT CONVEYANCE. Seller is not now insolvent and will
not be rendered insolvent by the sale, transfer and assignment of the Purchased
Assets pursuant to the terms of this Agreement. Seller is not entering into
this Agreement or any of the other agreements referenced in this Agreement with
the intent to defraud, delay or hinder its creditors and the consummation of the
transactions contemplated by this Agreement, and the other
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agreements referenced in this Agreement, will not have any such effect.
Assuming that, in the event the Convertible Note is converted into the Shares
pursuant to the terms thereof, the Shares have a value equal to approximately
$0.6316 per share as of the Closing Date, the transactions contemplated in this
Agreement or any agreements referenced in this Agreement will not constitute a
fraudulent conveyance by Seller, or otherwise give rise to any right of any
creditor Seller to any of the Purchased Assets after the Closing.
4.23 INSURANCE. The Seller Disclosure Schedule lists all insurance
policies and fidelity bonds covering the Business or the Purchased Assets.
There is no claim by Seller pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies and bonds. All premiums due and payable under all such policies
and bonds have been paid and Seller is otherwise in compliance with the terms of
such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). There is no threatened termination of, or premium
increase with respect to, any of such policies.
4.24 INVESTMENT IN BUYER SECURITIES. Seller represents and warrants
as follows:
(a) NO REGISTRATION. Seller acknowledges that the
Convertible Note, the Shares issuable upon conversion of such Convertible
Note and the Common Stock issuable upon conversion of the Shares
(collectively, the "SECURITIES") have not been registered under the
Securities Act of 1933, as amended (the "ACT"), and Seller agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of
the Securities in the absence of (i) an effective registration statement
under the Act as to such shares and registration or qualification of such
securities under any applicable U.S. federal or state securities law then in
effect, (ii) an opinion of counsel, reasonably satisfactory to Buyer, that
such registration and qualification are not required or (iii) such sale is
made in accordance with Rule 144 under the Act, provided that Buyer is given
prior written notice of such sale.
(b) INVESTMENT REPRESENTATION. Seller hereby represents,
warrants and covenants that (i) the Securities are being acquired for investment
only and not with a view to, or for sale in connection with, any distribution
thereof; (ii) Seller has had such opportunity as Seller has deemed adequate to
obtain from representatives of Buyer such information as is necessary to permit
Seller to evaluate the merits and risks of its investment in Buyer; (iii) Seller
is able to bear the economic risk of holding such Securities for an indefinite
period; (iv) Seller understands that the Securities will not be registered under
the Act and will be "restricted securities" within the meaning of Rule 144 under
the Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of issuance, and even then will
not be available unless a public market then exists for the Shares, adequate
information concerning Purchaser is then available to the public, and other
terms and conditions of Rule 144 are complied with; and (v) the Convertible Note
and all stock certificates representing the Shares (and the Common Stock
issuable upon conversion of the Shares), if any, issued to Seller may have
affixed thereto a legend substantially in the following form:
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"THESE SECURITIES HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), AND MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT
REGISTRATION UNDER THE ACT OR UNLESS EITHER (A) THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN
CONNECTION WITH SUCH DISPOSITION OR (B) THE SALE OF SUCH SECURITIES IS
MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 144."
(c) MARKET STANDOFF. In connection with the initial public
offering of Buyer's securities and upon request of Buyer or the underwriters
managing any underwritten public offering of Buyer's securities, Seller (and any
transferee of Seller) agrees (i) not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any shares of
Buyer's capital stock without the prior written consent of Buyer or such
underwriters, as the case may be, for such period of time from the effective
date of such registration as may be requested by Buyer or such managing
underwriters but in no event more than 180 days, and (ii) to execute any
reasonable form of agreement reflecting the foregoing as may be requested by the
underwriters at the time of the public offering.
4.25 TRAFFIC AND GEOGRAPHIC DISTRIBUTION OF LISTINGS. The information
regarding traffic and geographic distribution of listings set forth on SCHEDULE
4.25 is true and correct.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Except as set forth in the Buyer Disclosure Schedule attached as EXHIBIT
E hereto (the "BUYER DISCLOSURE SCHEDULE"), Buyer represents and warrants to
Seller as follows:
5.1 ORGANIZATION. Buyer is a corporation duly formed and validly
existing under the laws of the State of California, and has full corporate power
and authority and the legal right to execute and deliver this Agreement and all
of the other agreements and instruments to be executed and delivered by Buyer
pursuant hereto, and to consummate the transactions contemplated hereby and
thereby.
5.2 AUTHORITY. The execution and delivery of this Agreement (and all
other agreements and instruments contemplated under this Agreement) by Buyer,
the performance by Buyer of its obligations hereunder and thereunder, and the
consummation by Buyer of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action. This Agreement has been
duly and validly executed and delivered by Buyer and constitutes, and each other
agreement or instrument executed and delivered or to be executed and delivered
by the Buyer pursuant to this Agreement will, upon such execution and delivery,
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constitute a legal, valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms.
5.2 NO VIOLATION. Neither the execution, delivery and performance of
this Agreement and all of the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (a) conflict with, violate or result in any breach
of the terms, conditions or provisions of the Articles of Incorporation or
Bylaws of Buyer, (b) conflict with or result in a violation or breach of, or
constitute a default or require consent of any Person (or give rise to any right
of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any contract, notice, bond, mortgage, indenture,
license, franchise, permit, agreement, lease or other instrument or obligation
to which Buyer is a party or by which any properties or assets of Buyer is
bound, (c) violate any statute, ordinance or law or any rule, regulation, order,
writ, injunction or decree of any Governmental Entity applicable to Buyer or by
which any properties or assets of Buyer is bound, or (d) result in the creation
of any Lien upon any property or assets of the Buyer pursuant to any mortgage,
indenture, lease, agreement or other instrument to which it is a party or by
which it or any of its property or assets is bound. Assuming the accuracy of
the representations set forth in Section 4.3 above, the Buyer is not required to
give any notice to, or make any filing with, a Governmental Entity or any other
Person in connection with the execution by the Buyer of this Agreement and
consummation and performance of the transactions contemplated hereby.
5.4 ADDITIONAL REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer set forth in Sections 3.7, 3.8, 3.9, 3.10, 3.11, 3.12,
3.13, 3.14, 3.19, 3.20, 3.21, 3.22, 3.23 and 3.24 of the Series B Preferred
Stock Purchase Agreement dated December 31, 1997, as modified by the Buyer
Disclosure Schedule (the "SERIES B AGREEMENT"), which Series B Agreement is
attached as EXHIBIT F hereto, are true and correct as of the date hereof.
5.5 CAPITALIZATION. The authorized capital stock of Buyer consists
of 40,000,000 shares of Common Stock, 4,240,000 of which are issued and
outstanding, and 20,818,604 shares of Preferred Stock of which 2,492,900 are
designated as Series A Preferred Stock, all of which are issued and outstanding,
2,492,900 are designated as Series A-1 Preferred Stock, none of which are issued
and outstanding as of the Closing Date, 7,916,402 are designated as Series B
Preferred Stock, 5,168,986 are issued and outstanding prior to the Closing and
7,916,402 are designated as Series B-1 Preferred Stock, none of which are issued
and outstanding as of the Closing Date. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable and were issued in compliance with applicable federal and state
securities laws. Buyer has reserved an aggregate of 7,916,402 shares of Common
Stock for issuance upon conversion of the Series B Preferred Stock and/or the
Series B-1 Preferred Stock, as the case may be, and 2,777,100 shares of its
Common Stock for issuance to officers, directors, employees, sales
representatives and consultants of Buyer under Buyer's 1997 Stock Option Plan.
The Series B Preferred Stock and Series B-1 Preferred Stock shall have the
rights, preferences, privileges and restrictions set forth in Buyer's Amended
and Restated
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Articles of Incorporation, a copy of which has been provided to Seller (the
"RESTATED ARTICLES"). Except as referenced herein, in the Rights Agreement or
in the Buyer Disclosure Schedule, there are no options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the capital stock or other
securities of Buyer, nor any agreements or understandings with respect thereto.
Except for the Voting Agreement, Buyer is not a party or subject to any
agreement or understanding and, to Buyer's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates to
the voting or giving of consents with respect to any security of Buyer. Buyer
currently intends to authorize and issue additional shares of Series B Preferred
Stock in connection with additional financing for Buyer, and in such event the
representations and warranties in this Section 5.5 shall not be deemed
inaccurate for any purpose so long as Buyer updates this Section 5.5 in writing
and delivers such information to Seller prior to the Closing.
5.6 VALIDITY OF SHARES. The Shares, when and if issued, sold and
delivered in compliance with the provisions of this Agreement and the
Convertible Note, will be duly and validly issued and will be fully paid and
nonassessable and free and clear of all liens and encumbrances, and the Common
Stock issuable upon conversion of the Shares has been duly and validly reserved
and, when issued and delivered in compliance with the provisions of the Restated
Articles, will be duly and validly issued and will be fully paid and
nonassessable and free and clear of all liens and encumbrances and restrictions
on transfer other than as set forth in this Agreement and the Rights Agreement;
PROVIDED, HOWEVER, that the Shares (and the Common Stock issuable upon
conversion of the Shares) may be subject to restrictions on transfer under state
and/or federal securities laws. Except as set forth herein or in the Rights
Agreement (as defined in Section 6.15), there are no outstanding rights of first
refusal or preemptive rights applicable to the Shares.
5.7 BROKERS AND FINDERS. Neither Buyer nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fee, commission or finder's fee in connection with
the transactions contemplated by this Agreement.
5.8 NO FRAUDULENT CONVEYANCE. Buyer is not now insolvent and will
not be rendered insolvent by the payment of the Consideration pursuant to the
terms of this Agreement. Buyer is not entering into this Agreement or any of
the other agreements referenced in this Agreement with the intent to defraud,
delay or hinder its creditors and the consummation of the transactions
contemplated by this Agreement, and the other agreements referenced in this
Agreement, will not have any such effect. Assuming that the value of the (a)
Purchased Assets, (b) the license granted to Buyer pursuant to Article 7 hereof
and (c) the non-competition obligations set forth in Section 6.8 hereof equals
or exceeds the value of the Purchase Price, the transactions contemplated in
this Agreement or any agreements referenced in this Agreement will not
constitute a fraudulent conveyance by Buyer, or otherwise give rise to any right
of any creditor of Buyer to any of the Consideration after the Closing.
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5.9 FULL DISCLOSURE. Neither this Agreement nor any other agreement,
exhibit, schedule or officer's certificate being entered into or delivered
pursuant to this Agreement contains any untrue statement of a material fact or,
when taken as a whole, omits to state any material fact necessary in order to
make the statements contained in such documents not misleading in light of the
circumstances under which they are made.
6. COVENANTS.
6.1 TRANSITION; ACCESS TO INFORMATION.
(a) Buyer and Seller shall use commercially reasonable
efforts to cooperate with each other, and shall cause their respective officers,
employees, agents, auditors and representatives to cooperate with each other,
for a period of not less than 180 days after the Closing, Date, to ensure the
orderly transition of the Purchased Assets from Seller to Buyer and to minimize
any disruption to the Business that might result from the transition of
ownership contemplated hereby. Seller shall use its commercially reasonable
efforts to enable the transition and continuing existence of all relationships
that exist between Seller and third party real estate listings providers as of
the Closing Date in accordance with the Support Services terms set forth as
EXHIBIT G hereto (the "SUPPORT SERVICES").
(b) After the Closing, upon reasonable written notice, Buyer
and the Seller shall furnish or cause to be furnished to each other and their
employees, counsel, auditors and representatives access, during normal business
hours and at the expense of the requesting party, to such information as is
reasonably necessary for financial reporting and accounting matters, the
preparation and filing of any tax returns, reports or forms or the defense of
any claim by a Governmental Entity or other third party.
(c) On the Closing Date, or as soon thereafter as
practicable, Seller shall deliver or cause to be delivered to Buyer all
agreements, documents, books, records and files, including records and files
stored on computer disks or tapes or any other storage medium, if any, in the
possession of the Seller relating to the Business or the Purchased Assets,
provided that Seller may retain any tax returns, reports or forms (and Buyer
shall be provided with copies of such returns, reports or forms) only to the
extent that they relate to separate returns or separate tax liability of Seller.
6.2 THIRD PARTY CONSENTS. Seller and Buyer shall use commercially
reasonable efforts to obtain, within the applicable time periods required, all
Required Consents, waivers, permits, consents and approvals and to effect all
registrations, filings and notices with or to third parties or Governmental
Entities which are necessary to consummate the transactions contemplated by this
Agreement.
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6.3 TAX RETURNS. Seller shall file in a timely manner all returns
and reports relating to Taxes for periods prior to the Closing, and such returns
and reports shall be true, correct and complete and Seller shall be responsible
for and pay when due any and all such Taxes.
6.4 POST-CLOSING COOPERATION. Seller agrees that, if reasonably
requested by Buyer, it will cooperate with Buyer, at Buyer's expense, in
enforcing the terms of any agreements between Seller and any third party
involving the Business, including without limitation terms relating to
confidentiality and the protection of intellectual property rights.
6.5 NO POST-CLOSING RETENTION OF COPIES. Upon the later of (i)
payment in full of the Term Note and (ii) completion of Seller's Support
Services obligations, Seller shall deliver to Buyer or destroy copies of
Purchased Assets in Seller's possession that are in addition to copies delivered
to Buyer as part of the Closing, whether such copies are in paper form, on
computer media or stored in another form; PROVIDED, HOWEVER, that Seller may
retain and use copies of financial books and records relating to the Business as
well as other documents required by law to be kept by Seller for the sole
purposes of preparing its statutory accounts, preparing reports relating to the
Taxes and performing its Support Services obligations. Seller shall not be
permitted to use the financial books and records of the Business for any other
reason.
6.6 PUBLIC ANNOUNCEMENTS. Neither Buyer nor Seller will make any
public disclosure with respect this Agreement or the transactions contemplated
hereby unless both parties agree on the text and timing of such public
disclosure; PROVIDED, HOWEVER, that nothing contained herein shall prevent
either party at any time from furnishing any information to any Governmental
Entity.
6.7 FURTHER ASSURANCES. Subsequent to the Closing Date, each of
Buyer and Seller shall, from time to time, execute and deliver, upon the request
of the other party, all such other and further materials and documents and
instruments of conveyance, transfer or assignment as may reasonably be requested
by such other party to effect, record or verify the transfer to, and vesting in
Buyer and Seller, of all right, title and interest in and to the Purchased
Assets and the Shares, respectively, each free and clear of all Liens, in
accordance with the terms of this Agreement.
6.8 NON-COMPETITION AGREEMENT.
(a) In consideration of the Buyer entering into this
Agreement:
(i) Seller undertakes that for the two (2) year period
following the Closing Date it will not:
(A) participate, assist or otherwise be
directly or indirectly involved or concerned, financially or otherwise, as a
member, shareholder, unitholder, director, consultant, adviser, contractor,
principal, agent, manager, beneficiary, partner, associate, trustee,
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financier or otherwise in any Restricted Business; PROVIDED, HOWEVER, that the
identified individuals may own up to 1% of the outstanding capital stock of a
publicly-traded corporation that engages in a Restricted Business;
(B) solicit, approach or accept any offer from
any person or entity who was at any time during the one (1) year immediately
preceding the Closing Date a customer or supplier of the Business with a view to
establishing a relationship with or obtaining the patronage of that person or
entity in a Restricted Business;
(C) interfere or seek to interfere, directly
or indirectly, with any relationship between Buyer and any client, customer,
employee or supplier of the Business.
(b) If any of the separate and independent covenants
and restraints referred to in clauses (a) and (b) of this Section 6.8 are or
become invalid or unenforceable for any reason then that invalidity or
unenforceability will not affect the validity or enforceability of any other
separate and independent covenants and restraints.
(c) If any prohibition or restriction contained in
clauses (a) or (b) of this Section 6.8 is judged to go beyond what is reasonable
in the circumstances, but would be judged reasonable if that activity was
deleted or that period or area was reduced, then the prohibitions or
restrictions apply with that activity deleted or period or area reduced by the
minimum amount necessary.
(d) Seller acknowledges that the prohibitions and
restrictions contained in clause (a) of this Section 6.8 are reasonable and
necessary and, in Seller's opinion, are fair in light of the consideration
provided to Seller under this Agreement.
(e) Seller and Buyer acknowledge and agree that it
will likely be difficult or impossible to determine the amount of damage or loss
to Buyer if Seller violated any of its agreements under this Section 6.8, that
Buyer will likely be without an adequate legal remedy if Seller violated the
provisions of this Section 6.8, and that any such violation may cause
substantial irreparable injury and damage to Buyer not fully compensable by
monetary damages. Therefore, Seller and Buyer agree that in the event of any
violation by Seller of this Section 6.8, Buyer, in addition to any other rights
and remedies it may have under this Agreement, shall be entitled to seek and
obtain specific performance, injunctive or other equitable relief, of either a
preliminary or permanent type.
6.9 NON-SOLICITATION. Except as otherwise set forth in Section 8
below, for a period of one (1) year following the conclusion of the parties'
Support Services obligations, neither party shall solicit, induce or encourage,
directly or indirectly, any employee of the other party to leave the employment
of such other party. Seller's non-solicitation obligation hereunder shall
extend to any Transferred Employees (as defined in Section 8.1 below).
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6.10 PERMITS. Seller will assist Buyer in obtaining any licenses,
permits or authorizations required for carrying on the Business but which are
not transferable provided that Seller shall in no event be required to pay any
fees or otherwise incur obligations in connection therewith.
6.11 TAXES. Seller shall be responsible for paying, shall promptly
discharge when due, and shall reimburse, indemnify and hold harmless Buyer from,
any sales or use, transfer, real property gains, excise, stamp, or other similar
Taxes arising from, imposed on or attributable to the transactions contemplated
by this Agreement.
6.12 NO CONFLICTS OF INTEREST.
(a) Seller shall take all reasonable and necessary measures
to prevent the disclosure of any of Buyer's confidential or proprietary
information including, without limitation, patents, patent applications,
research, product or service plans, products, developments, inventions,
processes, designs, drawings, engineering plans, formulae, software (including
source and object code), computer programs, business plans, agreements with
third parties, customer or supplier lists, or marketing or financial information
of Buyer, to any shareholder, director or strategic partner of Seller that is a
member, shareholder, unitholder, director, consultant, adviser, contractor,
principal, agent, manager, beneficiary, partner, associate, trustee, or
financier of a Restricted Business. In addition, in the event that (i) the
Convertible Note is converted into the Shares, or any portion thereof, pursuant
to the terms thereof and (ii) any director of Seller is a member, shareholder,
unitholder, director, consultant, adviser, contractor, principal, agent,
manager, beneficiary, partner, associate, trustee, or financier of a Restricted
Business, Seller shall cause such director to be recused from all board actions
related to the voting of the Shares.
(b) In the event that the Convertible Note is converted into
the Shares, or any portion thereof, pursuant to the terms thereof, Seller shall
not transfer any such Shares to a Restricted Business or to an officer,
director, Affiliate or 5% or greater shareholder of a Restricted Business
without the prior written consent of Buyer.
6.13 SECURITY INTEREST. Buyer shall take all necessary measures
including, without limitation, the execution and delivery of the Security
Agreement attached as EXHIBIT H hereto (the "SECURITY AGREEMENT") and any
necessary financing statements, to ensure that Seller receives a valid,
enforceable, perfected, first-priority security interest in the Assets until
such time as the Term Note is paid in full; PROVIDED, HOWEVER, that Buyer shall
not be required to register any copyrightable Assets with the United States
Copyright Office or file applications for any trademarks included within the
Assets (other than the maintenance of the "HomeScout" trademark application)
with the United States Patent and Trademark Office. Buyer further agrees that,
until the Term Note is paid in full, Buyer will not license, sell, assign,
pledge or otherwise transfer any of the Assets in any manner, shall keep the
Assets in good condition (reasonable wear and tear excepted) and shall keep the
Assets free of any Liens other than the security interest in favor of Seller
granted pursuant to the Security Agreement or as otherwise approved
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by Seller; PROVIDED, HOWEVER, that Buyer may, subject to the restrictions set
forth in this Agreement and the Security Agreement, grant non-exclusive licenses
to the Assets in the ordinary course of its business and provide for escrows of
related intellectual property in connection therewith and; PROVIDED FURTHER,
that Buyer may grant a security interest, subordinated to that of Seller, in
the Assets to Imperial Bank in connection with the extension of financial credit
to the Company by Imperial Bank.
6.14 FUTURE CONTRACTS. Until repayment in full of the Term Note,
Buyer shall not, without Seller's prior written consent, (a) enter into an
agreement with a third party whereby Buyer permits all or a portion of the
Purchased Assets to reside on a server owned or controlled by such third party
unless such agreement is terminable at will by Buyer (or a successor-in-interest
to the Business) within ninety (90) days following (i) an Event of Default under
the Security Agreement or (ii) the exercise by Buyer of its right of rescission
pursuant to Section 12 hereof, or (b) enter into an agreement whereby a third
party is permitted to provide listings search functionality using the Assets
under such party's branded service, which agreement is not terminable at will by
Buyer (or a successor-in-interest to the Business) within one (1) year following
(i) an Event of Default under the Security Agreement or (ii) the exercise by
Buyer of its right of rescission pursuant to Section 12 hereof.
6.15 SHAREHOLDER AGREEMENTS. In the event that the Convertible Note
is converted into the Shares, or any portion thereof, pursuant to the terms
thereof, Seller and Buyer shall, and Buyer shall cause all necessary and
appropriate Buyer shareholders to, execute and deliver (i) the Amended and
Restated Voting Agreement substantially in the form attached hereto as EXHIBIT I
(the "VOTING AGREEMENT") and (ii) the Amended and Restated Investor Rights
Agreement substantially in the form attached hereto as EXHIBIT J (the "RIGHTS
AGREEMENT"). The Voting Agreement and the Rights Agreement shall be referred to
collectively as the "SHAREHOLDER AGREEMENTS."
7. LICENSE TO EXCLUDED ASSETS.
Except as set forth on SCHEDULE 2.2, Seller hereby grants to Buyer, and
Buyer accepts from Seller, a sublicensable, royalty-free, worldwide right and
license under all applicable intellectual property rights (a) to use, modify and
reproduce the source code for any software included within the Excluded Assets,
(b) to use, modify and reproduce the technology, know-how and trade secrets
included within the Excluded Assets, and (c) to use, modify, publicly display,
publicly perform, distribute and transmit the software, content and other data
included within the Excluded Assets. Buyer's right and license hereunder shall
be irrevocable and perpetual so long as there has not been an Event of Default
under the terms of the Security Agreement and as long as Buyer has not exercised
its right of recession pursuant to Section 12 hereof.
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8. EMPLOYEE MATTERS.
8.1 TRANSFERRED EMPLOYEES.
(a) OFFER OF EMPLOYMENT. Seller agrees that Buyer may make
offers of employment to the Seller employees set forth on SCHEDULE 8.1 (the
"SELECTED EMPLOYEES") and such Selected Employees shall be free to accept
employment with Buyer. As soon as reasonably practicable following the Closing,
Buyer shall hire those Selected Employees to whom it has made an offer in
accordance with this Section 8.1 and who accept such offer in the manner and
within the time frame reasonably established by Buyer. Each such Selected
Employee who is employed by Seller on the Closing Date and who actually
transfers to employment with Buyer at or after the Closing Date as a result of
an offer of employment made by Buyer is hereafter referred to as a "TRANSFERRED
EMPLOYEE."
(b) PRIOR BENEFITS. Seller, and not Buyer, shall be
obligated to make all payments of salary, compensation, wages, health or similar
benefits, commissions, bonuses (deferred or otherwise), severance, stock or
stock options or any other sums accruing (i) to any Transferred Employee prior
to 12:01 a.m. on the day after the Closing Date (or the end of the day at such
later date on which such Transferred Employee ceases to be employed by Seller)
or (ii) to any Business Employees other than the Transferred Employees. In
addition, Seller will be fully responsible for all amounts payable to any
Business Employee, including (without limitation) all termination payments,
redundancy compensation, severance pay, accrued vacation pay and other amounts
payable in respect of the termination of employment of any employee in
connection with the sale of the Purchased Assets to the Buyer.
8.2 COMPENSATION AND BENEFITS OF TRANSFERRED EMPLOYEES. Coverage for
Transferred Employees under Buyer's compensation and benefit plans and other
programs shall commence as of 12:01 a.m. on the day after the Closing Date (or
at such later date on which such Transferred Employee commences employment with
Buyer). Buyer shall be free to establish its own employee benefit plans; Buyer
shall have no obligation to offer benefit plans of the same type or with terms
similar to or better than the terms of Seller's current employee benefit plans.
Buyer may, at its option, give each Transferred Employee credit for such
Transferred Employee's years of most recent continuous service with Seller for
purposes of determining participation and benefit levels under all of Buyer's
vacation policies and benefit plans and programs.
8.3 NO RIGHT TO CONTINUED EMPLOYMENT OR BENEFITS. No provision in
this Agreement, other than the indemnification provisions of Section 11 hereof,
shall create any third party beneficiary or other right in any Person (including
any beneficiary or dependent thereof) for any reason, including, without
limitation, in respect of continued, resumed or new employment with Seller or
Buyer or in respect of any benefits that may be provided, directly or
indirectly, under any plan or arrangement maintained by Seller or Buyer. Buyer
is under no obligation to hire any employee of Seller, or to make any payments
or provide any benefits to those employees of Seller whom Buyer chooses not to
employ.
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9. CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived by Buyer in writing, except as
otherwise provided by law:
9.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE; CERTIFICATE.
(a) The representations and warranties of Seller contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made or given again at and as of the Closing Date;
(b) Seller shall have performed and complied with all of its
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or on the Closing Date;
(c) The conditions set forth in this Section 9 have been
fulfilled or satisfied, unless otherwise waived in writing by Buyer; and
(d) Buyer shall have received a certificate, dated as of the
Closing Date, signed and verified by an officer of Seller on behalf of Seller
certifying to the matters set forth in Sections 9.1(a) and 9.1(b) above.
9.2 CONSENTS. All Governmental Authorizations, Required Consents and
consents required to transfer the Contracts to Buyer on the terms and conditions
provided to Seller, without change as a result of the transfer to Buyer, shall
have been obtained.
9.3 NO PROCEEDINGS OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation
before any Governmental Entity shall have been commenced and be pending against
any of the parties, or any of their respective Affiliates, associates, officers
or directors, seeking to prevent transactions contemplated by this Agreement,
including, without limitation, the sale of the Purchased Assets or asserting
that the sale of the Purchased Assets would be illegal or create liability for
damages or which may have an adverse effect on the Business or the Assets.
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9.4 DOCUMENTS. This Agreement, the exhibits and schedules attached
hereto, and any other instruments of conveyance and transfer and all other
documents to be delivered by Seller at the Closing and all actions of Seller
required by this Agreement and the exhibit agreements, or incidental thereto,
and all related matters, shall be in form and substance reasonably satisfactory
to Buyer and Buyer's counsel and shall be in full force and effect.
9.5 GOVERNMENTAL FILINGS. The parties shall have made any required
filing with Governmental Entities in connection with this Agreement and the
exhibit agreements, and any approvals related thereto shall have been obtained
or any applicable waiting periods shall have expired. If a proceeding or review
process by a Governmental Entity is pending in which a decision is expected,
Buyer shall not be required to consummate the transactions contemplated by this
Agreement until such decision is reached or rendered, notwithstanding Buyer's
legal ability to consummate the transactions contemplated by this Agreement
prior to such decision being, reached or rendered.
9.6 LEGAL OPINION. Buyer shall have received a legal opinion from
Stoel Rives LLP, legal counsel to Seller, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
9.7 DUE DILIGENCE. Buyer shall have satisfactorily completed its due
diligence review of the Business and the Assets.
9.8 EMPLOYMENT. Buyer shall have entered into satisfactory
employment arrangements with each of Patricia Brown and Marci Singer, which
arrangements shall include satisfactory assurances to the Buyer that Patricia
Brown and Marci Singer will provide continued service, at Buyer's discretion,
for up to one (1) year following the Closing Date (collectively, the "EMPLOYMENT
AGREEMENTS").
9.9 NO MATERIAL ADVERSE EFFECT. Subsequent to the date of this
Agreement, no event has occurred that has had or could reasonably be expected to
have a material adverse effect on the Assets.
10. CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived in writing by Seller, except as
otherwise provided by law:
10.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE.
(a) The representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made or given again at and as of the Closing Date;
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(b) Buyer shall have performed and complied with all of its
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or on the Closing Date;
(c) Seller shall have received a certificate, dated as of the
Closing Date, signed and verified by an officer of Buyer on behalf of Buyer
certifying to the matters set forth in Sections 10.1(a) and 10.1(b) above.
10.2 NO PROCEEDING OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation
before any Governmental Entity shall have been commenced and be pending against
any of the parties, or any of their respective Affiliates, associates, officers
or directors, seeking to prevent the sale of the Purchased Assets or asserting
that the sale of the Assets would be illegal or create liability for damages.
10.3 DOCUMENTS. This Agreement, any other instruments of conveyance
and transfer and all other documents to be delivered by Buyer to Seller at the
Closing and all actions of Buyer required by this Agreement or incidental
thereto, and all related matters, shall be in form and substance reasonably
satisfactory to Seller and Seller's counsel.
10.4 GOVERNMENTAL FILINGS. The parties shall have made any filing
required with Governmental Entities, and any approvals shall have been obtained
or any applicable waiting periods shall have expired. If a proceeding or review
process by a Governmental Entity is pending, in which a decision is expected,
Seller shall not be required to consummate the transactions contemplated by this
Agreement until such decision is reached or rendered, notwithstanding Seller's
legal ability to consummate the transactions contemplated by this Agreement
prior to such decision being reached or rendered.
10.5 LEGAL OPINION. Seller shall have received a legal opinion from
Venture Law Group, A Professional Corporation, legal counsel to Buyer, dated the
Closing Date, in a form reasonably satisfactory to Seller.
10.6 NOTES AND SECURITY AGREEMENT. Buyer shall have executed and
delivered to Seller the Convertible Note, the Term Note and the Security
Agreement.
10.7 CONSENTS. All consents required for Buyer to execute, deliver
and per-form this Agreement, or any agreement contemplated hereby, shall have
been obtained.
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10.8 NO MATERIAL ADVERSE EFFECT. Subsequent to the date of this
Agreement, no event has occurred that has had or could reasonably be expected to
have a material adverse effect on the financial condition or solvency of Buyer.
11. INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of Buyer and Seller contained in this Agreement
shall survive the Closing (even if the damaged party knew or had reason to know
of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of eighteen (18) months from the
Closing Date.
11.2 INDEMNIFICATION BY SELLER.
(a) In the event the Seller breaches (or in the event any
third party alleges facts that, if true, would mean the Seller has breached) any
of its representations, warranties and covenants contained in this Agreement,
and, if there is an applicable survival period pursuant to Section 11.1,
provided that the Buyers make a written claim for indemnification against the
Seller within such survival period, then the Seller agrees to indemnify the
Buyer, its officers, directors, employees, contractors, agents and
representatives (collectively, the "BUYER INDEMNIFIED PARTIES") from and against
any Adverse Consequences such Buyer Indemnified Party may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences such party may suffer after the end of any applicable survival
period) caused by the breach or the alleged breach.
(b) In addition, the Seller agrees to indemnify the Buyer
Indemnified Parties from and against any Adverse Consequences such parties may
suffer caused by:
(i) any liability of the Seller that becomes a
liability of the Buyer Indemnified Parties under any bulk transfer law of any
jurisdiction, under any common law doctrine of de facto merger or successor
liability, under environmental, health, and safety requirements or otherwise by
operation of law;
(ii) the retained liabilities of the Seller; and
(iii) any liability arising from claims relating to the
Closing or periods prior to the Closing brought by any employees or contractors
of Seller who are terminated at or prior to the Closing or in connection with
the transactions contemplated hereby.
11.3 INDEMNIFICATION BY BUYER In the event that Buyer breaches (or in
the event a third party alleges facts that, if true, would mean Buyer has
breached) any of its representations, warranties and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to Section
11.1, provided that the Seller makes a written claim for
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indemnification against the breaching Buyer within such survival period, then
Buyer agrees to indemnify the Seller, its officers, directors, employees,
contractors, agents and representatives (collectively, the "SELLER INDEMNIFIED
PARTIES") from and against any Adverse Consequences the Seller Indemnified
Parties may suffer through and after the date of the claim for indemnification
caused by the breach or the alleged breach.
11.4 LIABILITY LIMITATION.
(a) The maximum amount of liability of the Seller to the
Buyer Indemnified Parties under this Section 11, and the maximum amount of
liability of the Buyer to the Seller Indemnified Parties under this Section 11,
shall be limited in each case to an aggregate amount equal to the Purchase Price
(assuming, in the event that the Convertible Note is converted into the Shares
pursuant to the terms thereof, that the value of the Shares is $1,000,000 (the
"CAP"); PROVIDED, HOWEVER, that, in the event that the Convertible Note is
pre-paid, in whole or in part, during the initial sixty (60) day period
following the Closing Date as permitted thereby, the Cap shall be reduced by the
Discount (as defined in the Convertible Note) and, further, in the event the
Term Note is pre-paid, in whole or in part, during the initial sixty (60) day
period following the Closing Date as permitted thereby, the Cap shall be reduced
by the Discount (as defined in the Term Note); and PROVIDED FURTHER, that upon
the expenditure by Seller of an amount equal to the Cash Consideration in
satisfying any obligations under this Section 11, Seller may satisfy any
additional liability to Buyer hereunder by, at Seller's election, (i)
cancellation of principal amounts owing on the Convertible Note and Term Note,
if outstanding, dollar for dollar, (ii) in the event that the Convertible Note
is converted into the Shares, or any portion thereof, pursuant to the terms
thereof, returning to Buyer for cancellation a number of Shares having a value
equal to such additional liability, or (iii) a combination of (i) and (ii)
above. For the purposes of this Section 11.4, the Shares shall have a value
equal to $0.6316 per share, which was the per-share purchase price of Buyer's
Series B Preferred Stock.
(b) Seller shall have no obligation to indemnify the Buyer
Indemnified Parties pursuant to this Section 11 above for any Adverse
Consequences suffered by such Buyer Indemnified Parties unless and until the
aggregate amount of such Adverse Consequences exceeds $50,000, at which point
Seller shall be responsible for indemnifying such Buyer Indemnified Parties for
the amount of such Adverse Consequences that exceed the $50,000 threshold
(subject to the limitations set forth in Section 11.4(a) above).
(c) Buyer shall have no obligation to indemnify the Seller
Indemnified Parties pursuant to this Section 11.3 above for any Adverse
Consequences suffered by such Seller Indemnified Parties unless and until the
aggregate amount of such Adverse Consequences exceeds $50,000, at which point
Buyer shall be responsible for indemnifying such Seller Indemnified Parties for
the amount of such Adverse Consequences that exceed the $50,000 threshold
(subject to the limitations set forth in Section 11.4(a) above).
11.5 MATTERS INVOLVING THIRD PARTIES.
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(a) If any third party shall notify any party to this
Agreement (the "INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY
CLAIM") which may give rise to a claim for indemnification against any other
party to this Agreement (the "INDEMNIFYING PARTY") under this Section 11, then
the Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within twenty (20) days after
the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against any
Adverse Consequences the Indemnified Party may suffer that are caused by the
Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (iii) the
Third Party Claim involves only money damages and does not seek an injunction or
other equitable relief, (iv) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party, and (v) the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with (b) above, (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in (b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate,
provided it obtains the prior written consent of the Indemnifying Party (not to
be withheld unreasonably), (ii) the Indemnifying Party will reimburse the
Indemnified Party for the Indemnified Party's out-of-pocket expenses incurred in
defending against the Third Party Claim upon receipt of a monthly invoice
provided by the Indemnified Party, and (iii) the Indemnifying Party will remain
responsible for any Adverse Consequences the Indemnified Party may suffer as a
result of the Third Party Claim to the fullest extent provided in this Section
11.
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(e) Notwithstanding anything contained in this Section 11.5,
the Indemnified Party shall advance one-half of the out-of-pocket expenses
incurred by the Indemnifying Party in the defense of any third-party claim under
this Section 11.5, upon receipt of a monthly invoice provided by the
Indemnifying Party or, in the event that the Indemnified Party is defending the
third party claim in accordance with Section 11.5(d) above, the Indemnifying
Party shall, in lieu of its obligations under 11.5(d)(ii), reimburse the
Indemnified Party for one-half of the Indemnified Party's out-of-pocket expenses
incurred in defending against the Third Party Claim upon receipt of a monthly
invoice provided by the Indemnified Party. Upon any final resolution of the
third-party claim, the Indemnified Party shall be entitled to (i) a refund from
the Indemnifying Party of all advances made in accordance with this Section
11.5(e) or, (ii) in the event that the Indemnified Party is defending the third
party claim in accordance with Section 11.5(d) above, payment from the
Indemnifying Party of the remaining one-half of the out-of-pocket expenses
invoiced to the Indemnifying Party pursuant to Section 11.5(d)(ii) above, unless
the claim is conclusively determined not to be subject to indemnification
hereunder.
11.6 EXCLUSIVITY OF REMEDY. The foregoing indemnification provisions
shall be the exclusive remedy of Buyer and Seller with respect to any breach of
the representations, warranties, or covenants made pursuant to this Agreement.
12. CERTAIN REMEDIES OF BUYER. In the event that on or after the sixtieth
(60th) day following the Closing Date, despite Buyer's commercially reasonable
best efforts (which efforts shall not include making payments to listings
providers), Buyer has permission to use and display summary information on fewer
than 450,000 real estate listings in the Business database, Buyer, at its
option, may rescind this Agreement, and all transactions contemplated hereby.
If Buyer elects to rescind this Agreement and all transactions
contemplated hereby pursuant to this Section 12, Buyer shall provide written
notice thereof to Seller, whereupon, (a) this Agreement, and all agreements
contemplated hereby including, without limitation, the Security Agreement and
Seller's rights and obligations under the Shareholder Agreements, shall
terminate and be of no further force or effect, (b) Seller shall, within ten
(10) days following receipt of such written notice, (i) return to Buyer the Cash
Consideration and (ii) surrender for cancellation the Convertible Note and the
Term Note, if outstanding, and the Shares, if applicable, in each case free from
all Liens and (c) Buyer shall, within ten (10) days following Seller's return of
the Cash Consideration and surrender of the Convertible Note, Term Note and
Shares, as applicable, return the Purchased Assets in good condition (normal
wear and tear excepted).
13. DISPUTE RESOLUTION.
Any dispute between Buyer and Seller involving the interpretation of
this Agreement or the rights and obligations of, or remedies available to, the
parties hereto shall be determined by binding arbitration in accordance with the
arbitration rules of JAMS-Endispute in San Francisco County, California, in the
event that such arbitration is initiated by Seller, or in Seattle,
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<PAGE>
Washington, in the event that such arbitration is initiated by Buyer. The
arbitrator shall be knowledgeable in the relevant industry, shall be mutually
acceptable to the parties and shall have the authority to permit discovery upon
request of a party. The cost of such arbitration shall be shared equally by the
parties. Any determination or award issued from such arbitration may be
enforced in any court of competent jurisdiction in the United States.
14. MISCELLANEOUS.
14.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with
this Section 14.1 shall be binding upon the parties and their respective
successors and assigns.
14.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
14.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
14.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
14.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below,
or as subsequently modified by written notice, and (a) if to Buyer, with a copy
to Venture Law Group, 2775 Sand Hill Road, Menlo Park, CA 94025, Attn: Jim
Brock, or (b) if to Seller, with a copy to Stoel Rives LLP, 600 University
Street, Suite 3600, Seattle, WA 98101, Attn: Ronald J. Lone.
14.7 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith,
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in order to maintain the economic position enjoyed by each party as close as
possible to that under the provision rendered unenforceable. In the event that
the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision were
so excluded and (iii) the balance of the Agreement shall be enforceable in
accordance with its terms.
14.8 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein are the product of both of the parties hereto, and constitute the entire
agreement between such parties pertaining to the subject matter hereof and
thereof, and merge all prior negotiations and drafts of the parties with regard
to the transactions contemplated herein and therein. Any and all other written
or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.
14.9 ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
[Signature Page Follows]
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This Agreement has been duly executed and delivered by the duly
authorized officers of Seller and Buyer as of the date first above written.
HOME SHARK, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
THE COBALT GROUP, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
The following individuals are executing this Purchase Agreement solely
for the purposes of Section 6.8.
GEOF BARKER
-----------------------------------------
JOHN HOLT
-----------------------------------------
PATRICIA BROWN
-----------------------------------------
SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT
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<PAGE>
This Agreement has been duly executed and delivered by the duly
authorized officers of Seller and Buyer as of the date first above written.
HOME SHARK, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
THE COBALT GROUP, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
The following individuals are executing this Purchase Agreement solely
for the purposes of Section 6.8.
GEOF BARKER
-----------------------------------------
JOHN HOLT
-----------------------------------------
PATRICIA BROWN
-----------------------------------------
SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT
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<PAGE>
Exhibit 10.12
OFFICE LEASE
This lease, made and entered into at Portland, Oregon, this 1st day of December,
1997
by and between
LANDLORD: CTL Management, Inc.
and
TENANT: Parts Voice
Landlord hereby leases to Tenant the following:
3,772 SQ.FT KNOWN AS SUITES 104 AND 215 (the premises)
in LEWIS AND CLARK BUILDING (the building)
at 8305 SE MONTEREY, Oregon, for a term commencing DECEMBER 1, 1997.
and continuing through NOVEMBER 30, 1999 at a Monthly Base Rental as
follows:
YEAR 1 YEAR 2
------ ------
$15.00/SQ.FT. = $4,715/MONTH $15.50/SQ.FT. = 4,872/MONTH
Rent is payable in advance on the 1ST DAY of each month commencing December
1, 1997.
Landlord and Tenant covenant and agree as follows:
1.1 DELIVERY OF POSSESSION.
Should Landlord be unable to deliver possession of the premises on the date
fixed for the commencement of the term, commencement will be deferred and
Tenant shall owe no rent until notice from the Landlord tendering possession to
Tenant. If possession is not so tendered within 90 days following commencement
of the term, then Tenant may elect to cancel this lease by notice to Landlord
within 10 days following expiration of the 90 day period. Landlord shall have
no
Page 1 Landlord Tenant
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<PAGE>
liability to Tenant for delay in delivering possession, nor shall such delay
extend the term of this lease in any manner.
2.1 RENT PAYMENT.
Tenant shall pay the Base Rent for the premises and any additional rent
provided herein without deduction or offset. Rent for any partial month
during the lease term shall be prorated to reflect the number of days during
the month that Tenant occupies the premises. Additional rent means amounts
determined under section 19 of this lease and any other sums payable by
Tenant to Landlord under this lease. Rent not paid when due shall bear
interest at the rate of one-and-one-half per month until paid. Landlord may
at its option impose a late charge of $.05 for each $1 of rent for rent
payments made more than 10 days late in lieu of interest for the first month
of delinquency, without waiving any other remedies available for default.
Failure to impose a late charge shall not be a waiver of Landlord's rights
hereunder.
3.1 LEASE CONSIDERATION.
Upon execution of the lease Tenant has paid the Base Rent for the first full
month to the lease term for which rent is payable and in addition has paid the
sum of $ -0- as lease consideration. Landlord may apply the lease consideration
to pay the cost of performing any obligation which Tenant fails to perform
within the time required by this lease, but such application by Landlord shall
not be the exclusive remedy for Tenant's default. If the lease consideration is
applied by Landlord, Tenant shall on demand, pay the sum necessary to replenish
the lease consideration to its original amount. To the extent not applied by
Landlord to cure defaults by Tenant, the lease consideration shall be applied
against the rent payable for the last month of the term. The lease
consideration shall not be refundable.
4.1 USE.
Tenant shall use the Premises for business for and for no other purpose without
Landlord's written consent. In connection with its use, Tenant shall at its
expense promptly comply with all applicable laws, ordinances, rules and
regulations of any public authority and shall not annoy, obstruct, or interfere
with the rights of other Tenants of the building. Tenant shall create no
nuisance nor allow any objectionable fumes, noise, or vibrations to be emitted
from the Premises. Tenant shall not conduct any activities that will increase
Landlords insurance rates for any portion of the building or that will in any
manner degrade or damage the reputation of the Building.
4.2 EQUIPMENT.
Tenant shall install in the Premises only such office equipment as is customary
for general office use and shall not overload the floors or electrical circuits
of the Premises or Building or alter the plumbing or wiring of the Premises or
Building. Landlord must approve in advance the location of and manner of
installing any wiring or electrical, heat generating or communications equipment
or exceptionally heavy articles. All telecommunications equipment, conduit,
cables and wiring
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and any additional air conditioning required because of heat generating
equipment or special lighting installed by Tenant shall be installed and
operated at Tenant's expense.
4.3 SIGNS.
No signs, awnings, antennas, or other apparatus shall be painted on or attached
to the Building or anything placed on any glass or woodwork of the Premises or
positioned so as to be visible from outside the Premises without Landlords
written approval as to design, size, location, and color. All signs installed
by Tenant shall comply with Landlord's standards for signs and all applicable
codes and all signs and sign hardware shall be removed upon termination of this
lease with the sign location restored to its former state unless Landlord elects
to retain all or any portion thereof.
5.1 UTILITIES AND SERVICES.
Landlord will furnish water, electricity and elevator service and, during the
normal Building hours of 8:00 AM to 6:00 PM Monday through Friday except
holidays, will furnish heat and air conditioning (if the Building is air
conditioned). Janitorial services will be provided in accordance with the
regular schedule of the Building, which schedule and service may change from
time to time. Tenant shall comply with all government laws or regulations
regarding the use or reduction of utilities on the Premises. Interruption of
services or utilities shall not be deemed an eviction or disturbance of Tenant's
use and possession of the Premises, render Landlord liable to Tenant for
damages, or relieve Tenant from performance of Tenant's obligations under this
lease. Landlord shall take all reasonable steps to correct any interruptions of
service. Electrical service will be 110 volts unless different service already
exist in the Premises. Tenant shall provide its own surge protection for power
furnished to computers.
5.2 EXTRA USAGE.
If Tenant uses excess amounts of utilities or services of any kind because of
operation outside of normal Building hours, high demands from office machinery
and equipment, nonstandard lighting, r any other cause, Landlord may impose a
reasonable charge for supplying such extra utilities of services, which charge
shall be payable monthly by Tenant in conjunction with rent payments. In case
of dispute over any extra charge under this paragraph, Landlord shall designate
a qualified independent engineer whose decision shall be conclusive on both
parties. Landlord and Tenant shall each pay one-half of the cost of such
determination.
6.1 MAINTENANCE AND REPAIR.
Landlord shall have no liability for failure to perform required maintenance and
repair unless written notice of such maintenance or repair is given be Tenant
and Landlord fails to commence efforts to remedy the problem in a reasonable
time and manner. Landlord shall have the right to erect scaffolding and other
apparatus necessary for the purpose of making repairs, and Landlord shall have
no liability for interference with Tenant's use because of repairs and
installation.
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Landlord Tenant
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Tenant shall have no claim against Landlord for any interruption
or reduction of services or interference with Tenant's occupancy, and no such
interruption or reduction shall be construed as a constructive or other eviction
of Tenant. Repair of damage caused by negligent or intentional acts or breach
of this lease by Tenant, its employees or invitees shall be at Tenant's expense.
6.2 ALTERATIONS.
Tenant shall not make any alterations, additions, or improvements to the
Premises, change the color of the interior, or install any wall or floor
coverings without Landlord's prior written consent which may be withheld in
Landlord's sole discretion. Any such improvements, alterations, wiring, cables
or conduit installed by Tenant shall at once become part of the Premises and
belong to Landlord except for removable machinery and unattached moveable trade
fixtures. Landlord may at its option require Tenant to remove any improvements,
alterations, wiring, cables or conduit installed by Tenant and restore the
Premises to the original condition upon termination of this lease. Landlord
shall have the right to approve the contractor used by Tenant for any work in
the Premises, and to post notices of non responsibility in connection with work
being performed by Tenant in Premises.
7.1 INDEMNITY.
Tenant shall not allow any liens to attach to the Building or Tenant's interest
in the Premises as a result of its activities. Tenant shall indemnify and
defend Landlord and its managing agents from any claim, liability, damage, or
loss occurring on the Premises, arising out of any activity by Tenant, its
agents, or invitees or resulting from Tenant's failure to comply with any term
of this lease. Neither Landlord or its managing agent shall have any liability
to Tenant because of loss or damage to Tenant's property or for death or bodily
injury caused by the acts or omissions of other Tenants of the Building, or by
third parties (including criminal acts).
7.2 INSURANCE.
Tenant shall carry liability insurance with limits of not less than One Million
Dollars ($1,000,000.00) combined single limit bodily injury and property damage
which insurance shall have an endorsement naming Landlord and Landlord's
managing agent, if any, as an additional insured and covering the liability
insured under paragraph 7.1 of this lease. Tenant shall furnish a certificate
evidencing such insurance which shall state that the coverage shall not be
canceled or materially changed without 10 days advance notice to Landlord and
Landlord's managing agent, if any. A renewal certificate shall be furnished at
least 10 days prior to expiration of any policy.
8.1 FIRE OR CASUALTY.
"Major Damage" means damage by fire or other casualty to the Building or the
Premises which causes the Premises or any substantial portion of the Building to
be unusable, or which will cost more than 25 per cent of the pre-damage value of
the Building to repair, or which is not covered by insurance. In case of major
damage, Landlord may elect to terminate this lease by notice in
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Landlord Tenant
<PAGE>
writing to Tenant within 30 days of such date. If this lease is not
terminated following major damage, or if damage occurs which is not major
damage, Landlord shall promptly restore the Premises to the condition
existing just prior to the damage. Tenant shall promptly restore all damage
to tenant improvements or alterations installed by Tenant or pay the cost of
such restoration to Landlord if Landlord elects to do the restoration of such
improvements. Rent shall be reduced from the date of damage until the date
restoration work being performed by Landlord is substantially complete, with
the reduction to be in proportion to the area of the Premises not usable by
Tenant.
8.2 WAIVER OF SUBROGATION.
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises and any alterations or Tenant improvements it
has made to the Premises. Neither Landlord, its managing agent nor Tenant shall
be liable to the other for any loss or damage caused by water damage, sprinkler
leakage, or any of the risks that are or could be covered by a special all risk
property policy, or for any business interruption, and there shall be no
subrogated claim by one party's insurance carrier against the other party
arising out of any such loss. This waiver is binding only if it does not
invalidate the insurance coverage of either party hereto.
9.1 EMINENT DOMAIN.
If a condemning authority takes title by eminent domain or by agreement in lieu
thereof to the entire Building or a portion sufficient to render the Premises
unsuitable for Tenant's use, then either party may elect to terminate this lease
effective on the date that possession is taken by the condemning authority.
Rent shall be reduced for the remainder in an amount proportionate to the
reduction in area of the Premises caused by the taking. All condemnation
proceeds shall belong to Landlord, and Tenant shall have no claim against
Landlord or the condemnation award because of the taking.
10.1 ASSIGNMENT AND SUBLETTING.
This lease shall bind and inure to the benefit of the parties, their respective
heirs, successors, and assigns, provided the Tenant shall not assign its
interest under this lease or sublet all or any portion of the Premises without
first obtaining Landlords consent in writing. This provision shall apply to all
transfers by operation of law including but not limited to mergers and changes
in control of Tenant. No assignment shall relieve Tenant of its obligation to
pay rent or perform other obligations required by this lease, and no consent to
one assignment or subletting shall be a consent to any further assignment or
subletting. Landlord shall not unreasonably withhold its consent to any
assignment or subletting provided the effective rental paid by the sub-tenant or
assignee is not less than the current scheduled rental rate of the Building for
comparable space and the proposed Tenant is compatible with Landlord's normal
standards for the Building. If Tenant proposes a subletting or assignment to
which Landlord is required to consent under this paragraph, Landlord shall have
the option of terminating this lease and dealing directly with the proposed sub-
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Landlord Tenant
<PAGE>
tenant or assignee, or any third party. If an assignment or subletting is
permitted, any cash profit, or the net value of any other consideration received
by Tenant shall pay any costs incurred by Landlord in connection with a request
for assignment or subletting, including reasonable attorney's fees.
11.1 DEFAULT
Any of the following shall constitute a default by Tenant under this lease:
(a) Tenant's failure to pay rent or any other charge under this lease
within 10 days after it is due, or failure to comply with any other term or
condition within 20 days following written notice from Landlord specifying
the noncompliance. If such noncompliance cannot be cured within the 20 day
period, this provision shall be satisfied if Tenant commences correction
within such period and thereafter proceeds in good faith and with
reasonable diligence to effect compliance as soon as possible. Time is of
the essence of this lease.
(b) Tenant's insolvency, business failure or assignment for the benefit of
its creditors. Tenant's commencement of proceedings under any provision of
any bankruptcy or insolvency law or failure to obtain dismissal of any
petition filed against it under such laws within the time required to
answer, or the appointment of a receiver for all or any portion of Tenant's
properties or financial records.
(c) Assignment or subletting by Tenant in violation of paragraph 10.1.
(b) Vacation or abandonment of the Premises without the written consent of
Landlord or failure to occupy the Premises within 20 days after notice from
Landlord tendering possession.
11.2 REMEDIES FOR DEFAULT.
In case of default as described in paragraph 11.1 Landlord shall have the right
to the following remedies which are intended to be cumulative and in addition to
any other remedies provided under applicable law:
(a) Landlord may at its option terminate the lease by notice to Tenant.
With or without termination, Landlord may retake possession of the Premises
and may use or re-let the Premises without accepting a surrender or waiving
the right to damages. Following such retaking or possession, efforts by
Landlord to re-let the Premises shall be sufficient if Landlord follows its
usual procedures for finding Tenants for the space at rates not less than
the current rates for comparable space in the Building. If Landlord has
other vacant
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space in the Building, prospective tenants may be placed in such other
space without prejudice to Landlord's claim to damages or loss of rentals
from Tenant.
(b) Landlord may recover all damages caused by Tenant's default which
shall include an amount equal to rentals loss because of the default, lease
commissions paid for this lease, and the unamortized cost of any tenant
improvements installed by Landlord to meet Tenant's special requirements.
Landlord may sue periodically to recover damages as they occur throughout
the lease term, and no action for accrued damages shall bar a later action
for damages subsequently accruing. Landlord may elect in any one action to
recover accrued damages plus damages attributable to the remaining term of
the lease. Such damages shall be measured by the difference between the
rent under this lease and the reasonable rental value of the Premises for
the remainder of the term, discounted to the time of judgment at the
prevailing interest rate on judgments.
(c) Landlord may make any payment or perform any obligation which Tenant
has failed to perform, in which case Landlord shall be entitled to recover
from Tenant on demand all amounts so expected, plus interest from the date
of the expenditure at the rate of one-and-one-half percent per month. Any
such payment or performance by Landlord shall not waive Tenant's default.
12.1 SURRENDER.
On expiration or early termination of this lease Tenant shall deliver all keys
to Landlord and surrender the Premises vacuumed, swept, and free of all debris
and in the same condition as at the commencement of the term subject only to
reasonable wear from ordinary use. Tenant shall remove all of its furnishings
and trade fixtures that remain its property and repair all damage resulting from
such removal. Failure to remove shall be an abandonment of the property, and
Landlord may dispose of it in any manner without liability. If Tenant fails to
vacate the Premises when required, including failure to remove all its personal
property, Landlord may elect either: (i) to treat Tenant as a tenant from month
to month, subject to the provisions of this lease except that rent shall be one-
and-one-half times the total rent being charged when the lease term expired, and
any option or other rights regarding extension of the term or expansion of the
Premises shall no longer apply; or (ii) to eject Tenant from the Premises and
recover damages caused by wrongful holdover.
13.1 REGULATIONS.
Landlord shall have the right but shall not be obligated, to make, revise and
enforce regulations or policies consistent with this lease for the purpose of
promoting safety, health (including moving, use of common areas and prohibition
of smoking), order, economy, cleanliness, and good service to all tenants of
the Building. All such regulations and policies shall be complied with as if
part of this lease.
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14.1 ACCESS.
During times other than normal Building hours Tenant's officers and employees or
those having business with Tenant may be required to identify themselves or show
passes in order to gain access to the Building. Landlord shall have no
liability for permitting or refusing to permit access by anyone. Landlord shall
have the right to enter upon the Premises at any time by passkey or otherwise to
determine Tenant's compliance with this lease, to perform necessary services,
maintenance and repairs or alterations to the Building or the Premises, or to
show the Premises to any prospective tenant or purchasers. Except in case of
emergency such entry shall be at such times and in such manner as to minimize
interference with the reasonable business use of the Premises by Tenant.
14.2 FURNITURE AND BULKY ARTICLES.
Tenant shall move furniture and bulky articles in and out of the building or
make independent use of the elevators only at times approved by Landlord
following at least 24 hours written notice to Landlord of the intended move.
Landlord will not unreasonably withhold its consent under this paragraph.
- -----------------------------------
following mailing, postpaid prepaid, to the address for the party stated in
this lease or to such other address as either party may specify by notice to the
other. Notice to Tenant may always be delivered to the Premises. Rent shall be
payable to Landlord at the same address and in the same manner, but shall be
considered paid only when received.
16.1 SUBORDINATION ATTORNMENT.
This lease shall be subject to and subordinate to any mortgage, deeds of trust,
or land sales contracts (hereafter collectively referred to as encumbrances) now
existing against the Building. At Landlord's option this lease shall be subject
and subordinate to any future encumbrance hereafter placed against the Building
(including the underlying land) or any modifications of existing encumbrances,
and Tenant shall execute such documents as may reasonably be requested by
Landlord or the holder of the encumbrance to evidence this subordination. If
any encumbrance is foreclosed, then if the purchaser at foreclosure sale gives
to Tenant a written agreement to recognize Tenant's lease, Tenant shall attorn
to such purchaser and this Lease shall continue.
16.2 TRANSFER OF BUILDING.
If the Building is sold or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee and recognize it as the
lessor under this lease, and, provided the purchaser or transferee assumes all
obligations hereunder, the transferor shall have no further liability hereunder.
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16.3 ESTOPPELS.
Either party will within 10 days after notice from the other execute,
acknowledge and deliver to the other party a certificate certifying whether or
not this lease has been modified and is in full force and effect; whether there
are any modifications or alleged breaches by the other party; the dates to which
rent has been paid in advance, and the amount of any security deposit or prepaid
rent; and any other facts that may reasonably be requested. Failure to deliver
the certificate within the specified time shall be conclusive upon the party of
whom the certificate was requested that the lease is in full force and effect
has not been modified except as may be represented by the party requesting the
certificate. If requested by the holder of any encumbrance, or any ground
lessor, Tenant will agree to give such holder or lessor notice of and an
opportunity to cure any default by Landlord under this lease.
17.1 DISPUTE RESOLUTION.
INFORMAL DISPUTE CONFERENCES: In the event the Tenant has a grievance against
the Landlord, the Tenant shall notify the Landlord of his/her grievance in
writing. The Landlord agrees to meet with the Tenant within Twenty (20) days of
receiving said grievance.
MEDIATION: In the event any grievance between the parties is not resolved in
the Informal Dispute Conference discussed above, the parties agree that said
dispute be submitted to mediation, prior to the initiation of any litigation.
Either Tenant or Landlord may request mediation of dispute by notifying the
other party in writing. Within fifteen (15) days of such request, both parties
shall select a mediator. In the event that the parties cannot agree on a
mediator, a mediator will be selected pursuant to the rules of the Arbitration
Services of Portland, Inc. or the American Arbitration Association. The parties
and the mediator shall meet at an agreeable time and place within fifteen (15)
days of the mediator's selection in an attempt to mediate the dispute. The
mediator will select the time and place for the meeting. The mediator will have
five (5) days after the hearing to attempt to resolve the dispute. If either
party does not agree with the solutions suggested by the mediator, either party
may then request that the matter proceed to arbitration. Each party shall pay
their own costs and attorney fees, if any, of participation in the mediation.
Each party shall pay one half of the mediator's fee.
ARBITRATION: In the event that the parties are unable to resolve their dispute
in mediation, the matter shall then proceed to final and binding arbitration.
Either party may initiate the arbitration process through a written request to
the other. The parties shall then confer and attempt to agree on a single
arbitrator. If the parties are unable to do so within twenty (20) days of said
request, each party shall select its own arbitrator, the two of whom shall then
select a third arbitrator. The costs of arbitration shall be shared equally by
the parties. Each party shall pay their own attorney fees. The arbitrator(s)
will schedule and conduct a hearing within thirty (30) days of the selection of
the arbitrator(s). Within twenty-one (21) days of the arbitration hearing, the
arbitrator(s) shall serve written notice of their decision on the parties. The
arbitration shall be conducted pursuant to the rules of the American Arbitration
Association, or the Arbitration Service of Portland, Inc.
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or such other similar independent public arbitration service that is designed to
provide a fair and impartial arbitration process as Landlord shall select.
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18.1 QUIET ENJOYMENT.
Landlord warrants that so long as Tenant complies with all terms of this lease
it shall be entitled to peaceable and undisturbed possession of the Premises
free from any eviction or disturbance by Landlord. Neither Landlord or its
managing agent shall have any liability to Tenant for loss or damages arising
out of the acts, including criminal acts, of other tenants of the Building or
third parties, nor any liability for any reason which exceeds the value of its
interest in the Building.
19.1 ADDITIONAL RENT: TAX ADJUSTMENT.
Whenever for any July 1 - June 30 tax year the real property taxes levied
against the Building and its underlying land exceed those levied for the 1996 -
1997 tax year, than the monthly rental for the next succeeding calendar year
shall be increased by one-twelfth of such tax increase times Tenant's
proportionate share. "Real property taxes" as used herein means all taxes and
assessments of any public authority against the Building and the land on which
it is located, the cost of contesting any tax and any form of fee or charge
imposed on Landlord as a direct consequence of owning or leasing the Premises,
including but not limited to rent taxes, gross receipt taxes, leasing taxes, or
any fee or charge wholly or partially in lieu of or in substitution for ad
valorem real property taxes or assessments, whether now existing or hereafter
enacted. If any portion of the Building is occupied tax-exempt tenant so that
the Building has a partial tax exemption under ORS 307.112 or a similar statute,
than real property taxes shall mean taxes computed as if such partial exemption
did not exist. If a separate assessment or identifiable tax increase arises
because of improvements to the Premises, than Tenant shall pay 100 percent of
such increase.
19.2 TENANT'S PROPORTIONATE SHARE.
"Tenant's proportionate share" as used herein means the area of the Premises,
divided by the total area of office space in the Building, with area determined
using one of the methods of building measurements defined by the Building Owners
and Managers Association (BOMA). Tenant's proportionate share as of the lease
commencement date shall be 18.97 percent.
19.3 ADDITIONAL RENT: OPERATING EXPENSE ADJUSTMENT.
Tenant shall pay as additional rent its proportionate share, as defined in
paragraph 19.2, of the amount by which operating expenses for the Building
increase over those experienced by Landlord during the calendar year 1997 (base
year). Effective January 1 of each year Landlord shall estimate the amount by
which operating expenses are expected to increase, if any, over those incurred
in the base year. Monthly rental for that year shall be increased by
one-twelfth of Tenant's share of the estimated increase. Following the end of
each calendar year, Landlord shall compute the actual increase in operating
expense and bill Tenant for any deficiency or credit Tenant with any excess
collected. As used herein "operating expenses" shall mean all costs of operating
and maintaining the Building as determined by standard real estate accounting
practice, including, but not limited to: all water and sewer charges; the cost
of natural gas and electricity
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provided to the Building; janitorial and cleaning supplies and services;
administration costs and management fees; superintendent fees; security
services, if any; insurance premiums; licenses; permits for the operation and
maintenance of the Building and all of its component elements and mechanical
systems; the annual amortized capital improvement cost (amortized over such a
period as Landlord may select but not shorter than the period allowed under
the Internal Revenue Code and at a current market interest rate) for any
capital improvements to the Building required by any governmental authority
or those which have a reasonable probability of improving the operating
efficiency of the Building.
20.1 COMPLETE AGREEMENT.
This lease and the attached exhibits and schedules if any, constitute the entire
agreement of the parties and supersede all prior written and oral agreements and
representations. Neither Landlord nor Tenant is relying on any representations
other than those expressly set forth herein.
20.2 SPACE LEASED AS IS.
Unless otherwise stated in this Lease, the Premises are leased as is in the
condition now existing with no alterations or other work to be performed by
Landlord.
20.3 CAPTIONS.
The titles to the paragraphs of this lease are descriptive only and are not
intended to change or influence the meaning of any paragraph or to be part of
this lease.
20.4 NON WAIVER.
Failure by Landlord to promptly enforce any regulation, remedy or right of any
kind under this Lease shall not constitute a waiver of the same and such right
or remedy may reasserted at any time after Landlord becomes entitled to the
benefit thereof notwithstanding delay in enforcement.
20.5 EXHIBITS.
The following Exhibits are attached hereto and incorporated as a part of this
Lease:
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IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this lease as of the day and year first written above.
LANDLORD: By: By:
Address for notices: ----------------------- -----------------------
9498 SW Barbur Blvd Title: Title:
Suite 200 -------------------- --------------------
Portland, OR 97219
By: By:
----------------------- -----------------------
Title: Title:
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TENANT: By: By:
Address for notices: ----------------------- -----------------------
Title: Title:
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Title: Title:
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PURCHASE AGREEMENT
DATED OCTOBER 7, 1998
BY AND AMONG
THE COBALT GROUP, INC.
AND
THE PURCHASER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. AUTHORIZATION AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.1 AUTHORIZATION OF THE SERIES B PREFERRED STOCK . . . . . . . . . . .4
1.2 PURCHASE AND SALE OF THE SERIES B PREFERRED STOCK . . . . . . . . .4
1.3 THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. CONDITIONS OF THE PURCHASER'S OBLIGATION AT THE CLOSING . . . . . . . . . . . .5
2.1 REPRESENTATIONS AND WARRANTIES; COVENANTS . . . . . . . . . . . . .5
2.2 AMENDMENT OF ARTICLES OF INCORPORATION. . . . . . . . . . . . . . .5
2.3 REGISTRATION AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .5
2.4 SHAREHOLDERS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .5
2.5 SALE OF SERIES B PREFERRED STOCK TO THE PURCHASER . . . . . . . . .6
2.6 KEY-MAN LIFE INSURANCE. . . . . . . . . . . . . . . . . . . . . . .6
2.7 BLUE SKY CLEARANCE. . . . . . . . . . . . . . . . . . . . . . . . .6
2.8 OPINION OF THE COMPANY'S COUNSEL. . . . . . . . . . . . . . . . . .6
2.9 MANAGEMENT SERVICES AGREEMENT . . . . . . . . . . . . . . . . . . .6
2.10 CONFIDENTIALITY AND NONCOMPETITION AGREEMENT. . . . . . . . . . . .6
2.11 DELIVERY OF REDEMPTION OFFER. . . . . . . . . . . . . . . . . . . .7
2.12 CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . .7
3. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. . . . . . . . . . . . .7
3.2 INSPECTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . .9
3.3 RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.4 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 12
3.5 COMPLIANCE WITH AGREEMENTS. . . . . . . . . . . . . . . . . . . . 13
3.6 CURRENT PUBLIC INFORMATION. . . . . . . . . . . . . . . . . . . . 13
3.7 RESERVATION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . 14
3.8 FIRPTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. TRANSFER OF RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . . . 15
4.1 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 OPINION DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 LEGEND REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . 16
5.1 ORGANIZATION AND CORPORATE POWER. . . . . . . . . . . . . . . . . 16
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5.2 CAPITAL STOCK AND RELATED MATTERS . . . . . . . . . . . . . . . . 16
5.3 SUBSIDIARIES; INVESTMENTS . . . . . . . . . . . . . . . . . . . . 17
5.4 AUTHORIZATION; NO BREACH. . . . . . . . . . . . . . . . . . . . . 17
5.5 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . 18
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . 18
5.7 NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . 19
5.8 ABSENCE OF CERTAIN DEVELOPMENTS . . . . . . . . . . . . . . . . . 19
5.9 ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.11 CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . 21
5.12 PROPRIETARY RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . 23
5.13 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.15 GOVERNMENTAL CONSENT. . . . . . . . . . . . . . . . . . . . . . . 24
5.16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.17 EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.19 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . 27
5.20 AFFILIATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 27
5.21 REAL PROPERTY HOLDING CORPORATION STATUS. . . . . . . . . . . . . 27
5.22 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.23 CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.24 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.3 PURCHASER'S INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . 31
6.4 CONSENT TO AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . 32
6.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . 32
6.6 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . 32
6.7 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.9 DESCRIPTIVE HEADINGS; INTERPRETATION. . . . . . . . . . . . . . . 33
6.10 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.11 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 7, 1998 by and among The Cobalt
Group, Inc., a Washington corporation (the "Company"), and the Person listed on
the Schedule of Purchasers attached hereto (referred to herein as the
"Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 6 hereof.
The parties hereto agree as follows:
1. AUTHORIZATION AND CLOSING
1.1 AUTHORIZATION OF THE SERIES B PREFERRED STOCK
The Company shall authorize the issuance and sale to the Purchaser of
1,858,100 shares of its Series B Preferred Stock, par value $0.01 per share, and
5,118,091 shares of its Series B-1 Preferred Stock, par value $0.01 per share
(together, the "Series B Preferred Stock," which Series B Preferred Stock,
together with the Company's outstanding and issued shares of Series A Preferred
Stock shall be herein referred to as the "Preferred Stock"). The Preferred
Stock is convertible into shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock").
1.2 PURCHASE AND SALE OF THE SERIES B PREFERRED STOCK
At the Closing, the Company shall sell to the Purchaser and, subject to
the terms and conditions set forth herein, the Purchaser shall purchase from the
Company the number of shares of Series B Preferred Stock set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto at a price of
$4.20 per share, for a total price of $29,300,002.20 (the "Purchase Price").
1.3 THE CLOSING
The closing of the purchase and sale of the Series B Preferred Stock
(the "Closing") shall take place at the offices of Stoel Rives LLP, 3600 One
Union Square, Seattle, WA 98101 at 7:00 a.m. on October 7, 1998, or at such
other place, date or time as may be mutually agreeable to the Company and the
Purchaser. At the Closing, the Company shall deliver to the Purchaser stock
certificates evidencing the Series B Preferred Stock to be purchased by such
Purchaser, registered in such Purchaser's or its nominee's name, upon payment of
the purchase price thereof by wire transfer of immediately available funds to
the Company's account at Silicon Valley Bank in Seattle, Washington in the
aggregate amount set forth on the Schedule of Purchasers.
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2. CONDITIONS OF THE PURCHASER'S OBLIGATION AT THE CLOSING
The obligation of the Purchaser to purchase and pay for the Series B
Preferred Stock at the Closing is subject to the satisfaction as of the Closing
of the following conditions:
2.1 REPRESENTATIONS AND WARRANTIES; COVENANTS
The representations and warranties contained in Section 5 hereof shall
be true and correct in all material respects at and as of the Closing as though
then made, except to the extent of changes caused by the transactions expressly
contemplated herein, and the Company shall have performed in all material
respects all of the covenants required to be performed by it hereunder prior to
the Closing.
2.2 AMENDMENT OF ARTICLES OF INCORPORATION
The Company's Articles of Incorporation (the "Articles of
Incorporation") shall have been amended to include the provisions set forth in
EXHIBIT A hereto, shall be in full force and effect under the laws of the State
of Washington as of the Closing as so amended and shall not have been further
amended or modified.
2.3 REGISTRATION AGREEMENT
The Productivity Fund III, L.P., a Delaware limited partnership (the
"Productivity Fund"), Environmental Private Equity Fund II, L.P., a Delaware
limited partnership (the "Environmental Private Equity Fund") and Mark
Koulogeorge (together, the "Series A Purchasers"), the Company and the Purchaser
shall have entered into a First Amendment to the Registration Agreement, dated
February 28, 1997 in the form and substance as set forth in EXHIBIT B attached
hereto (the "Registration Agreement"), and the Registration Agreement shall be
in full force and effect as of the Closing.
2.4 SHAREHOLDERS AGREEMENT
The Company, the Purchaser, the Series A Purchasers, Geoffrey Barker,
John Holt and the individual shareholders named therein shall have entered into
a First Amendment to the Amended and Restated Shareholders Agreement dated May
18, 1995 and amended and restated as of February 28, 1997 in the form and
substance as set forth in EXHIBIT C attached hereto (the "Shareholders
Agreement"), and the Shareholders Agreement shall be in full force and effect as
of the Closing.
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<PAGE>
2.5 SALE OF SERIES B PREFERRED STOCK TO THE PURCHASER
The Company shall have sold to the Purchaser the Series B Preferred
Stock to be purchased by it hereunder at the Closing and shall have received
payment therefor in full.
2.6 KEY-MAN LIFE INSURANCE
The Company shall have obtained key-man life insurance policies on the
lives of each of Geoffrey T. Barker and John W.P. Holt in the face amount of
$1,500,000 each, which policies shall be in full force and effect as of the
Closing. Such insurance policies shall name the Purchaser as beneficiary and
shall provide that such insurance policies may not be cancelled unless the
insurance carrier gives at least 30 days' prior written notice of such
cancellation to the Purchaser. An executed copy of both policies (with evidence
of all corporate and board approval) shall be delivered to the Purchaser within
10 business days of the date hereof.
2.7 BLUE SKY CLEARANCE
The Company shall have made all filings under applicable state
securities laws necessary to consummate the issuance of the Series B Preferred
Stock pursuant to this Agreement in compliance with such laws.
2.8 OPINION OF THE COMPANY'S COUNSEL
The Purchaser shall have received from Stoel Rives LLP, counsel for the
Company, an opinion with respect to the matters set forth in EXHIBIT D attached
hereto, which shall be addressed to the Purchaser, dated the date of the Closing
and in form and substance reasonably satisfactory to the Purchaser.
2.9 MANAGEMENT SERVICES AGREEMENT
First Analysis Securities Corporation ("First Analysis") and the Company
shall have entered into a First Amendment to the Management Services Agreement,
dated as of February 28, 1997 in the form and substance as set forth in
EXHIBIT E attached hereto.
2.10 CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
The Company shall have entered into a confidentiality and noncompetition
agreement in form and substance as set forth in EXHIBIT F attached hereto (the
"Confidentiality and Noncompetition Agreement"), with each of Geoffrey T. Barker
and John W.P. Holt and the
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Confidentiality and Noncompetition Agreement shall be in full force and effect
as of the Closing.
2.11 DELIVERY OF REDEMPTION OFFER
The Company shall have delivered written notice of the offer of
redemption (the "Redemption Offer") to each holder of shares of Common Stock and
of shares of Series A Preferred Stock to be redeemed in accordance with the
provisions of paragraph 3.9, below, and shall have received binding acceptances
of the Redemption Offer with respect to at least 2,173,204 shares of Common
Stock and at least 2,404,652 shares of Series A Preferred Stock, pursuant to
which the Company shall redeem the above shares (the "Redemption"). Such
Redemption shall be effective as of the Closing Date.
2.12 CLOSING DOCUMENTS
The Company shall have delivered to the Purchaser all of the following
documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2.1 through
2.9, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and performance
of this Agreement, the Registration Agreement, the Shareholders Agreement, and
each of the other agreements contemplated hereby, the filing of the amendment to
the Articles of Incorporation referred to in paragraph 2.2, the issuance and
sale of the Series B Preferred Stock, the reservation for issuance upon
conversion of the Series B Preferred Stock an aggregate of 6,976,190 shares of
Common Stock and the consummation of all other transactions contemplated by this
Agreement;
(iii) certified copies of the Amended and Restated Articles of
Incorporation and the Company's bylaws, each as in effect at the Closing; and
copies of all third party and governmental consents, approvals and filings
required in connection with the consummation of the transactions hereunder
(including, without limitation, all blue sky law filings).
3. COVENANTS
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION
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The Company shall deliver to the Purchaser, who is at the time a holder
of Underlying Common Stock:
(i) as soon as available but in any event within 30 days
after the end of each monthly accounting period in each fiscal year, unaudited
statements of income and cash flows of the Company for such monthly period and
for the period from the beginning of the fiscal year to the end of such month,
and balance sheets of the Company as of the end of such monthly period, selling
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be prepared
in accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal year-end
adjustments;
(ii) within 90 days after the end of each fiscal year,
statements of income and cash flows of the Company for such fiscal year, and a
balance sheet of the Company as of the end of such fiscal year, setting forth in
each case comparisons to the annual budget and to the preceding fiscal year, all
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (a) an opinion of an independent
accounting firm of recognized national standing selected by the board of
directors;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(iv) prior to the beginning of each fiscal year, an annual
budget prepared on a monthly basis for the Company for such fiscal year
(displaying anticipated statements of income and cash flows and balance sheets),
and promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets;
(v) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or (to its knowledge) any of its officers or directors file with respect
to the Company, with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and copies
of all press release and other statements made available generally by the
Company to the public concerning material developments in the Company's
business, and
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(vi) with reasonable promptness, such other operating
information and financial data concerning the Company as any Person entitled to
receive information under this paragraph 3.1 may reasonably request.
Each of the financial statements referred to in subparagraphs (i) and
(ii) shall be true and correct in all material respects as of the dates and for
the periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end audit adjustments (none of
which would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, assets, operations or business prospects of the
Company). For purposes of this Agreement and the Registration Agreement, all
holdings of Underlying Common Stock by Persons who are Affiliates of each other
shall be aggregated for purposes of meeting any threshold tests under this
Agreement and the Registration Agreement.
3.2 INSPECTION OF PROPERTY
Prior to a Qualified Public Offering (used herein as defined in the
Registration Agreement), the Company shall permit representatives designated by
any Purchaser who is at the time a holder of the Underlying Common Stock, upon
reasonable notice, during normal business hours and upon delivery of an executed
confidentiality agreement by such representative in a form reasonably
satisfactory to the Company to (i) visit and inspect any of the properties of
the Company, (ii) examine the corporate and financial records of the Company and
make copies thereof or extracts therefrom and (iii) discuss the affairs,
finances and accounts of the Company with the directors, officers, key employees
and independent accountants of the Company. The presentation of an executed
copy of this Agreement by any Purchaser to the Company's independent accountants
shall constitute the Company's permission to its independent accountants to
participate in discussions with such representatives.
Each holder of Underlying Common Stock that is a "venture capital
operating company" for purposes of Department of Labor Regulation Section
2510.3-101 shall in addition to all other rights granted under this Agreement
have the right to consult with and advise the officers of the Company with
respect to the management of the Company.
3.3 RESTRICTIONS
Subject to the last sentence of this Section 3.3, without the consent of
the majority of the holders of Underlying Common Stock, the Company shall not:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon any of its equity securities;
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(ii) except as expressly contemplated by this Agreement,
directly or indirectly redeem, purchase or otherwise acquire any of the
Company's equity securities (including, without limitation, warrants, options
and other rights to acquire equity securities) other than the Preferred Stock
pursuant to the terms of the Articles of Incorporation;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any securities of the Company (including, without
limitation, warrants, options and other rights to acquire equity securities);
(iv) make any loans or advances to, guarantees for the
benefit of, or Investments in, any Person except for (a) reasonable advances to
employees in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments having a stated
maturity no greater than one year from the date the Company makes such
Investment (or similar Investment) in (1) obligations of the United States
government or any agency thereof or obligations guaranteed by the United States
government, (2) certificates of deposit of commercial banks having combined
capital and surplus of at least $50 million or (3) commercial paper with a
rating of at least "Prime-1" by Moody's Investors Service, Inc.;
(v) merge or consolidate with any Person;
(vi) sell, lease or otherwise dispose of more than 25% of the
assets of the Company in any transaction or series of related transactions or
sell or permanently dispose of any of its Proprietary Rights;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into partnership or limited liability company form);
(viii) acquire any interest in any business (whether by a
purchase of assets, purchase of stock, merger or otherwise) or enter into any
joint venture, involving an aggregate consideration (including the assumption of
liabilities whether direct or indirect) exceeding $1,000,000 in any one
transaction or exceeding $2,000,000 in any twelve-month period;
(ix) enter into the ownership, active management or operation
of any business other than as presently conducted;
(x) become subject to any agreement or instrument which by
its terms would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement, the Registration Agreement, the
Shareholders Agreement, the Articles of
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Incorporation or the Company's bylaws (including, without limitation, provisions
relating to making redemptions and conversions of the Preferred Stock);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Amended and Restated Articles of Incorporation or the
Company's bylaws, or file any resolution of the board of directors with the
Washington Secretary of State containing any provisions which would increase the
number of authorized shares of the Common Stock or the Preferred Stock or
adversely affect or otherwise impair the rights or relative priority of the
holders of the Preferred Stock or Underlying Common Stock under this Agreement,
the Articles of Incorporation, the Company's bylaws, the Registration Agreement,
or the Shareholders Agreement;
(xii) enter into any transaction with any of its officers,
directors, employees or Affiliates or any individual related by blood or
marriage to any such Person (a "Relative") or any entity in which any such
Person or individual owns a beneficial interest (an "Interested Entity"), except
for normal employment arrangements and benefit programs on reasonable terms,
which arrangements or programs must be approved by the Compensation Committee
(as defined) if Geoffrey Barker, John Holt, or any Affiliate, Relative or
Interested Entity thereof is a party thereto, and except as otherwise expressly
contemplated by this Agreement;
(xiii) the Company shall not increase the compensation of any
officer of the Company, unless approved by the compensation committee of the
board of directors, which shall be comprised of two directors representing the
Investors and one director representing the Executives (as such terms are used
in the Shareholders Agreement) (the "Compensation Committee");
(xiv) establish or acquire (a) any Subsidiaries other than
wholly-owned Subsidiaries or (b) any Subsidiaries organized outside of the
United States and its territorial possessions;
(xv) create, incur, assume or suffer to exist indebtedness
for borrowed money exceeding in the aggregate [$1,000,000] outstanding at any
time;
(xvi) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently applied)
exceeding [$300,000] in the aggregate during any twelve-month period;
(xvii) enter into any leases or other rental agreements
(excluding (a) capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied and (b) the lease of the
Company's offices at 2030 First Avenue, Suite 300, Seattle,
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Washington 98121) under which the amount of the aggregate lease payments for
all such agreements exceeds [$150,000] for any twelve-month period;
(xviii) enter into (a) any contract triggered by any change of
control or (b) any golden parachute agreement or (c) any employment agreement;
(xix) change its fiscal year; or
(xx) increase the authorized size of its board of directors
above six members.
Notwithstanding the foregoing, the board of directors' discretion in
administering The Cobalt Group, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") shall not be limited or restricted.
3.4 AFFIRMATIVE COVENANTS
Prior to the consummation of a Qualified Public Offering (used herein as
defined in the Registration Agreement), the Company shall:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its business;
(ii) maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its business may be properly and
advantageously conducted at all times;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies to the
extent to which the failure to pay or discharge such obligations would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently applied)
have been established on its books with respect thereto;
(iv) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due to the extent to which the failure to
so comply would reasonably be expected to
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have a material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Company, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with generally
accepted accounting principles, consistently applied) have been established on
its books with respect thereto;
(v) comply with all applicable laws, rules and regulations
of all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company;
(vi) maintain the key-man life insurance policies referred to
in paragraph 2.6 hereof;
(vii) maintain proper books of record and account which fairly
present its financial condition and results of operations and make provisions on
its financial statements for all such proper reserves as in each case are
required in accordance with generally accepted accounting principles,
consistently applied; and
3.5 COMPLIANCE WITH AGREEMENTS
The Company shall perform and observe (i) all of its obligations to each
holder of the Preferred Stock and the Underlying Common Stock set forth in the
Amended and Restated Articles of Incorporation and the Company's bylaws, and
(ii) all of its obligations to each holder of Registrable Securities set forth
in the Registration Agreement.
3.6 CURRENT PUBLIC INFORMATION
At all times after the Company has filed a registration statement with
the Securities and Exchange Commission pursuant to the requirements of either
the Securities Act or the Securities Exchange Act, the Company shall file all
reports required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Securities and
Exchange thereunder and shall take such further action as may be required by
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission
("Rule 144"), all to the extent required to enable such holders to sell
Restricted Securities pursuant to (i) Rule 144 or (ii) a registration statement
on Form S-1 or S-3 or any similar registration form hereafter adopted by the
Securities and Exchange Commission. Upon request, the Company shall deliver to
any holder of Restricted Securities a written statement as to whether it has
complied with such requirements.
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3.7 RESERVATION OF COMMON STOCK
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the Series B Preferred Stock, such number of
shares of Common Stock issuable upon the conversion of all outstanding Series B
Preferred Stock. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
3.8 FIRPTA
The Company acknowledges that certain Purchasers may be foreign entities
or have foreign persons and entities as partners and that the Company may be
required to file or cause to be filed in the future with the IRS certain
statements with its United States income tax returns required under
Section 1.897-2(h) of the Treasury Regulations. The Company shall use
reasonable efforts consistent with sound business practice to avoid becoming a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the IRC. Upon any Purchaser's request, the Company shall
provide such Purchaser with a statement that the Company is or is not a "United
States real property holding corporation" as of the date specified by the
Purchaser (or as of the date of the request if the Purchaser does not specify a
date) and shall send a copy of such statement to the IRS in a form and manner
which identifies the Purchaser and which otherwise satisfies the requirements of
Section 1.89-2(h)(2) of the Treasury Regulations. In the event the Company in
the future becomes a "United States real property holding corporation," the
Company shall promptly notify the Purchaser in writing of such fact.
Thereafter, upon written request from any Purchaser, the Company shall provide
information, documentation and assistance to such Purchaser reasonably related
to the Company's status as a "United States real property holding corporation,"
including but not limited to (i) an affidavit stating (if true) that the stock
held by such Purchaser is of a class that is regularly traded (as defined by
Sections 1.897-l(n) and 1.897-9T of the Treasury Regulations) on an established
securities market (as defined by Section 1.897-l(m) of the Treasury
Regulations), and (ii) information or assistance which would enable such
Purchaser to obtain a withholding certificate permitting a transferee of such
Purchaser's stock to avoid or reduce any withholding obligation such transferee
would otherwise have under federal tax law.
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3.9 REDEMPTION
From the Purchase Price received by the Company upon the purchase and
sale of the Series B Preferred Stock, as provided in Section 1.2 above, the
Company shall redeem at least 2,173,204 of outstanding shares of Common Stock
and at least 2,404,652 of outstanding shares of Series A Preferred Stock, and on
the date stated in the Redemption Offer, which Redemption Offer as provided in
paragraph 2.10 shall have been delivered as a condition to the Closing to each
holder thereof, the Company shall be obligated to pay each such holder an amount
equal to (i) $4.20 per share of Common Stock, and (ii) $4.20 per share of Series
A Preferred Stock.
4. TRANSFER OF RESTRICTED SECURITIES
4.1 GENERAL PROVISIONS
Restricted Securities are transferable only pursuant to (i) public
offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A of the
Securities and Exchange Commission (or any similar rule or rules then in force)
if such rule is available and (iii) subject to the conditions specified in
paragraph 4.2 below, any other legally available means of transfer.
4.2 OPINION DELIVERY
In connection with the transfer of any Restricted Securities (other than
a transfer described in paragraph 4.1(i) or (ii) above), the holder thereof
shall deliver written notice to the Company describing in reasonable detail the
transfer or proposed transfer, together with an opinion of Perkins Coie, LLP or
other counsel which (to the Company's reasonable satisfaction) is knowledgeable
in securities law matters to the effect that such transfer of Restricted
Securities may be effected without registration of such Restricted Securities
under the Securities Act. In addition, if the holder of the Restricted
Securities delivers to the Company an opinion of Perkins Coie, LLP or such other
counsel that no subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities
which do not bear the Securities Act legend set forth in paragraph 7.3. If the
Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions contained in this paragraph 4.2 and
paragraph 7.3.
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4.3 LEGEND REMOVAL
Upon the request of any holder of Restricted Securities, the Company
shall remove the Securities Act legend set forth in paragraph 7.3 from the
certificates for such holder's Restricted Securities; provided that such
Restricted Securities are eligible for sale pursuant to Rule 144(k).
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchaser to enter into this Agreement
and purchase the Series B Preferred Stock, the Company hereby represents and
warrants that:
5.1 ORGANIZATION AND CORPORATE POWER
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington and is qualified to do
business in every jurisdiction in which its ownership of property or conduct of
business requires it to qualify and in which the failure to qualify would have a
material adverse affect on the financial condition, operating results, assets,
operations or business prospects of the Company. The Company has all requisite
corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on its
business as now conducted and presently proposed to be conducted and to carry
out the transactions contemplated by this Agreement. The copies of the
Company's Amended and Restated Articles of Incorporation and bylaws which have
been furnished to the Purchaser's special counsel reflect all amendments made
thereto at any time prior to the date of this Agreement and are correct and
complete.
5.2 CAPITAL STOCK AND RELATED MATTERS
(i) As of the Closing and immediately after giving effect to
the Redemption, the authorized capital stock of the Company shall consist of
(a) 4,510,934 shares of Series A Preferred Stock of which 2,106,282 shares shall
be issued and outstanding, (b) 8,000,000 shares of Series B Preferred Stock of
which 1,858,100 shares shall be issued and outstanding, (c) 7,000,000 shares of
Series B-1 Preferred Stock of which 5,118,091 shares shall be issued and
outstanding and (d) 200,000,000 shares of Common Stock, of which 1,329,685
shares shall be issued and outstanding and (i) 2,106,282 reserved for issuance
upon conversion of the Series A Preferred Stock, (ii) 1,858,100 reserved for
issuance upon conversion of the Series B Preferred Stock and (iii) 5,118,091
reserved for issuance upon conversion of the Series B-1 Preferred Stock. As of
the Closing, the Company shall not have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or containing
any profit participation features, nor shall it have outstanding any rights or
options to subscribe for
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or to purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock; or any stock appreciation rights or phantom
stock plans other than as set forth on Schedule 5.2(i). As of the Closing, the
Company shall not be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, except pursuant
to the Amended and Restated Articles of Incorporation, the permitted redemptions
described in Section 3.9 or as otherwise provided herein. As of the Closing,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Series B Preferred Stock hereunder or the
issuance of the Common Stock upon conversion of the Series B Preferred Stock.
To the best of the Company's knowledge, the Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
or issuance of any of its capital stock, and the offer, sale and issuance of the
Series B Preferred Stock hereunder do not require registration under the
Securities Act or any applicable state securities laws. Other than as described
on Schedule 5.2(ii), to the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs.
5.3 SUBSIDIARIES; INVESTMENTS
Except as described on Schedule 5.3, the Company does not own or hold
any rights to acquire any shares of stock or any other security or interest in
any other Person, and the Company has never had any Subsidiary.
5.4 AUTHORIZATION; NO BREACH
The execution, delivery and performance of this Agreement, the
Registration Agreement, the Shareholders Agreement, and all other agreements
contemplated hereby to which the Company is a party, and the filing of the
Articles of Incorporation have been duly authorized by the Company. This
Agreement, the Registration Agreement, the Shareholders Agreement, the Amended
and Restated Articles of Incorporation, and all other agreements contemplated
hereby each constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as it may be limited by
applicable bankruptcy, insolvency; reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity. The execution and delivery by the Company of
this Agreement, the Registration Agreement, the Shareholders Agreement, and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and
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issuance of the Series B Preferred Stock hereunder, the issuance of the Common
Stock upon conversion of the Series B Preferred Stock, the Amended and Restated
Articles of Incorporation and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company, do not and shall not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice to
any court or administrative or governmental body pursuant to the Amended and
Restated Articles of Incorporation or bylaws of the Company, or any law,
statute, rule or regulation to which the Company is subject, or any agreement,
instrument, order, judgment or decree to which the Company is subject.
5.5 FINANCIAL STATEMENTS
Attached hereto as the "Financial Statements Schedule" are the following
financial statements:
(i) the unaudited balance sheets of the Company as of
December 31, 1996 and December 31, 1997, and the related statements of income
and cash flows (or the equivalent) for the respective twelve-month periods then
ended; and
(ii) the unaudited balance sheet of the Company as of
August 31, 1998 (the "Latest Balance Sheet").
Each of the foregoing financial statements (including in all cases the
notes thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject to the lack of footnote disclosure and changes resulting from normal
year-end adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations or business prospects of the Company).
5.6 ABSENCE OF UNDISCLOSED LIABILITIES
Except as set forth on the attached "Liabilities Schedule," the Company
does not have any material obligation or liability (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known to the Company,
whether due or to become due and regardless of when asserted) arising out of
transactions entered into at or prior to the Closing, or any action or inaction
at or prior to the Closing, or any state of facts existing at or prior to
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the Closing other than: (i) liabilities set forth on the Latest Balance Sheet
(including any notes thereto), (ii) liabilities and obligations which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business (none of which is a liability resulting from breach of contract, breach
of warranty, tort, infringement, claim or lawsuit) and (iii) other liabilities
and obligations expressly disclosed in the other Schedules to this Agreement.
5.7 NO MATERIAL ADVERSE CHANGE
Except as set forth on the attached "Adverse Change Schedule," since the
date of the Latest Balance Sheet, there has been no material adverse change in
the financial condition, operating results, assets, operations, business
prospects, employee relations or customer or supplier relations of the Company.
5.8 ABSENCE OF CERTAIN DEVELOPMENTS
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Developments Schedule," since the date of the Latest
Balance Sheet, the Company has not
(a) issued any notes, bonds or other debt securities
or any equity securities or any securities convertible, exchangeable or
exercisable into any equity securities;
(b) borrowed any amount or incurred or become subject
to any material liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability, other than current
liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its stock or
purchased or redeemed any shares of its stock or any warrants, options or other
rights to acquire its stock;
(e) pledged any of its properties or assets or
subjected them to any material lien, security interest, charge or other
encumbrance, except liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or cancelled any material
debts or claims;
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(g) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible assets,
or disclosed any material proprietary confidential information to any Person;
(h) suffered any material extraordinary losses or
waived any rights of material value, whether or not in the ordinary course of
business or consistent with past practice;
(i) made capital expenditures or commitments therefor
that aggregate in excess of $50,000;
(j) entered into any other material transaction other
than in the ordinary course of business or entered into any other material
transaction; whether or not in the ordinary course of business;
(k) made any loans or advances to, guarantees for the
benefit of, or any Investments in, any Persons in excess of $50,000 in the
aggregate;
(l) made any charitable contributions or pledges;
(m) suffered any damage, destruction or casualty loss
exceeding in the aggregate $50,000, whether or not covered by insurance; or
(n) made any Investment in or taken steps to
incorporate any Subsidiary.
(ii) The Company has not at any time made any payments for
political contributions or made any bribes, kickback payments or other illegal
payments.
5.9 ASSETS
Except as set forth on the attached "Assets Schedule," the Company has
good and marketable title to, or a valid leasehold interest in, the properties
and assets used by it, located on its premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all liens, security interests,
charges and encumbrances, except for properties and assets disposed of in the
ordinary course of business since the date of the Latest Balance Sheet and
except for liens disclosed on the Latest Balance Sheet (including any notes
thereto) and liens for current property taxes not yet due and payable. Except
as described on the Assets Schedule, the Company's buildings, equipment and
other tangible assets are in good operating condition in all material respects
and are fit for use in the ordinary course of business. The Company owns, or
has a valid
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leasehold interest in, all assets necessary for the conduct of its business as
presently conducted and as presently proposed to be conducted.
5.10 TAX MATTERS
Except as set forth in the attached "Taxes Schedule" the Company has
filed all tax returns which it is required to file under applicable laws and
regulations; all such returns are complete and correct in all material respects;
the Company in all material respects has paid all taxes due and owing by it and
has withheld and paid over all taxes which it is obligated to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; the Company has not waived any statute of limitations with respect to
taxes or agreed to any extension of time with respect to a tax assessment or
deficiency; the accrual for current taxes on the Latest Balance Sheet would be
adequate to pay all of the Company's current tax liabilities if its current tax
year were treated as ending on the date of the Latest Balance Sheet; the
assessment of any additional taxes for periods for which returns have been filed
is not expected to exceed the recorded liability therefor on the Latest Balance
Sheet; no foreign, federal, state or local tax audits are pending or being
conducted with respect to the Company, no information related to tax matters has
been requested by any foreign, federal, state or local taxing authority and no
notice indicating an intent to open an audit or other review has been received
by the Company from any foreign, federal, state or local taxing authority; and
there are no material unresolved questions or claims concerning the Company's
tax liability.
5.11 CONTRACTS AND COMMITMENTS
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Contracts Schedule," as of the Closing, the Company
is not a party to any written or oral:
(a) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or arrangement, or
any contract with any labor union, or any severance agreements;
(b) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time, consulting or
other basis providing annual compensation in excess of $50,000 or contract
relating to loans to officers, directors or affiliates;
(c) contract under which the Company has advanced or
loaned any other Person amounts in the aggregate exceeding $50,000;
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(d) agreement or indenture relating to the borrowing
of money or the mortgaging, pledging or otherwise placing a lien on any material
asset or material group of assets of the Company;
(e) guarantee of any obligation in excess of $50,000;
(f) lease or agreement under which the Company is
lessee of or holds or operates any property, real or personal, owned by any
other party, except for any lease of real or personal property under which the
aggregate annual rental payments do not exceed $50,000;
(g) lease or agreement under which the Company is
lessor of or permits any third party to hold or operate any property, real or
personal, owned or controlled by the Company;
(h) contract or group of related contracts with the
same party or group of affiliated parties the performance of which involves a
consideration in excess of $50,000;
(i) assignment, license, indemnification or agreement
with respect to any intangible property (including, without limitation, any
patent, trademark, trade name, copyright, know-how, trade secret or confidential
information);
(j) warranty agreement with respect to its services
rendered or its products sold or leased;
(k) agreement under which it has granted any Person
any registration rights (including piggyback rights);
(l) contract, agreement or other arrangement with any
officer, director, employee or Affiliate, or any Affiliate of any officer,
director or employee;
(m) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world; or
(n) any other agreement which is material to its
operations and business prospects or involves a consideration in excess of
$50,000 annually.
(ii) All of the contracts, agreements and instruments set
forth on the Contracts Schedule are valid, binding and enforceable in accordance
with their respective terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in
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equity. The Company has performed all material obligations required to be
performed by it and is not in default under or in breach of nor in receipt of
any claim of default or breach under any material contract, agreement or
instrument to which the Company is subject; no event has occurred which with the
passage of time or the giving of notice or both would result in a default,
breach or event of noncompliance under any material contract, agreement or
instrument to which the Company is subject; the Company does not have any
present expectation or intention of not fully performing all such obligations;
the Company has no knowledge of any breach or anticipated breach by the other
parties to any material contract or commitment to which it is a party; and the
Company is not a party to any materially adverse contract or commitment.
5.12 PROPRIETARY RIGHTS
The attached "Proprietary Rights Schedule" contains a complete and
accurate list of (i) all patented and registered Proprietary Rights owned by the
Company, (ii) all pending patent applications and applications for registrations
of other Proprietary Rights filed by the Company, (iii) all unregistered trade
names and corporate names owned or used by the Company, and (iv) all
unregistered trademarks, service marks and copyrights and computer software
which are material to the financial condition, operating results, assets,
operations or business prospects of the Company. The Proprietary Rights
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company to any third party with respect to any Proprietary
Rights and all licenses and other rights granted by any third party to the
Company with respect to any Proprietary Rights. The Company owns or has the
right to use pursuant to a valid license all Proprietary Rights necessary for
the operation of the business of the Company as presently conducted and as
presently proposed to be conducted. Except as set forth on the Proprietary
Rights Schedule, the loss or expiration of any Proprietary Right or related
group of Proprietary Rights would not have a material adverse effect on the
conduct of the Company's business, and no such loss or expiration is to the best
of the Company's knowledge, threatened, pending or reasonably foreseeable. The
Company has taken all reasonable and appropriate actions to maintain and protect
the Proprietary Rights which it owns and uses. To the best of the Company's
knowledge, the owners of any Proprietary Rights licensed to the Company have
taken all reasonable and appropriate actions to maintain and protect the
Proprietary Rights which are subject to such licenses. Except as indicated on
the Proprietary Rights Schedule, (i) the Company owns all right, title, and
interest in and to all of the Proprietary Rights listed on such Schedule and all
other Proprietary Rights material to the operation of the business of the
Company, (ii) there have been no claims made against the Company asserting the
invalidity, misuse or unenforceability of any of such rights and, to the best of
the Company s knowledge, there are no grounds for the same, (iii) the Company
has not received a notice of conflict with the asserted rights of others within
the last five years, and (iv) the conduct of the Company's business has not
infringed or misappropriated and does not infringe or misappropriate any
Proprietary Rights of other Persons, nor would any future conduct as presently
contemplated infringe any Proprietary Rights of other Persons.
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5.13 LITIGATION
Except as set forth on the attached "Litigation Schedule," there are no
actions, suits, proceedings, orders, investigations or claims pending or, to the
best of the Company's knowledge, threatened against or affecting the Company (or
to the best of the Company's knowledge, pending or threatened against or
affecting any of the officers, directors or employees of the Company with
respect to its business or proposed business activities) at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitations, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); the Company is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or, to the best of the Company's
knowledge, any governmental investigations or inquiries, and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. The Company is
not subject to any judgment, order or decree of any court or other governmental
agency. The Company has not received any opinion or memorandum or legal advice
from legal counsel to the effect that it is exposed, from a legal standpoint, to
any liability which is material to its business.
5.14 BROKERAGE
Except as described in the attached "Brokerage Schedule," there are no
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Company. The Company shall pay, and
hold the Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
5.15 GOVERNMENTAL CONSENT
No permit, consent, approval or authorization of, or declaration to or
filing with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby, except as set forth on the
attached "Consents Schedule" and except as expressly contemplated herein or in
the exhibits hereto.
5.16 INSURANCE
The attached "Insurance Schedule" contains a description of each
insurance policy maintained by the Company with respect to its properties,
assets and businesses, and each such policy is in full force and effect as of
the Closing. The Company is not in default with respect
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to its obligations under any insurance policy maintained by it. The insurance
coverage of the Company is customary for corporations of similar size engaged in
similar lines of business.
5.17 EMPLOYEES
The Company is not aware that any executive or key employee of the
Company or any group of employees of the Company has any plans to terminate
employment with the Company. The Company has complied in all material respects
with all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes, and the Company is not aware that it
has any material labor relations problems (including any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Except as set forth on Schedule 5.17, neither the Company nor, to
the best of the Company's knowledge, any of its employees is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreements relating to, affecting or in conflict with the present or proposed
business activities of the Company except for agreements between the Company and
its present and former employees.
5.18 ERISA
(i) The "ERISA Schedule" attached hereto lists each Employee
Benefit Plan that the Company maintains or to which the Company contributes.
(a) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the IRC, and other
applicable laws.
(b) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Section Sec. 4980B of the IRC have been met with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(c) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or before the
Closing have been paid with respect to each such Employee Benefit Plan which is
an Employee Welfare Benefit Plan.
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(d) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and which is described on the ERISA Schedule as
meeting the requirements of Section 401(a) of the IRC, meets the requirements of
a "qualified plan" under Section 401(a) of the IRC and has within the last two
years, either received a favorable determination letter from the IRS or has
requested such a letter within the remedial amendment period of Section 401(b)
of the IRC.
(e) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(f) The Company has delivered to the Purchaser correct
and complete copies of the plan documents and Summary Plan Descriptions, the
most recent determination letter received from the IRS, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(a) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a reportable event as to which
notices would be required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(b) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to
the administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or threatened. The
Company does not have any knowledge of any basis for any such action, suit,
proceeding, hearing, or investigation.
(c) The Company has not incurred, or will incur, any
liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability) or under the IRC with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
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(iii) Except as set forth on the ERISA Schedule, the Company
does not contribute to, has not contributed to, or has not been required to
contribute to any Multiemployer Plan or has any liability (including withdrawal
liability) under any Multiemployer Plan.
(iv) Except as set forth on the ERISA Schedule, the Company
does not maintain and has not maintained and does not contribute, has not
contributed, or ever has been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Section 4980B of the IRC).
5.19 COMPLIANCE WITH LAWS
Except as set forth on the attached "Compliance Schedule," the Company
has not violated any law or any governmental regulation or requirement which
violation would reasonably be expected to have a material adverse effect upon
the financial condition, operating results, assets, operations or business
prospects of the Company, and the Company has not received notice of any such
violation. The Company is not subject to any clean up liability, and has no has
reason to believe it may become subject to any clean up liability, under any
federal, state or local environmental law, rule or regulation.
5.20 AFFILIATED TRANSACTIONS
Except as set forth on the attached "Affiliated Transactions Schedule,"
no officer, director, shareholder or Affiliate of the Company or any individual
related by blood or marriage to any such Person or any entity in which any such
Person or individual owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company or has any material
interest in any material property used by the Company.
5.21 REAL PROPERTY HOLDING CORPORATION STATUS
Since its date of incorporation the Company has not been, and as of the
date of the Closing shall not be, a "United States real property holding
corporation," as defined in Section 897(c)(2) of the IRC, and in
Section 1.897-2(b) of the Treasury Regulations issued thereunder. The Company
has no current plans or intentions which would cause the Company to become a
"United States real property holding company," and the Company has filed with
the IRS all statements, if any, with its United States income tax returns which
are required under Section 1.897-2(h) of the Treasury Regulations.
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5.22 DISCLOSURE
Neither this Agreement nor any of the schedules, attachments, written
statements, documents, certificates or other items prepared or supplied to any
Purchaser by or on behalf of the Company with respect to the transactions
contemplated hereby contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein, in
light of the circumstances under which such statements were made, not
misleading. There is no fact which the Company has not disclosed to the
Purchaser in writing and of which any of its officers, directors or executive
employees is aware and which has had or would reasonably be anticipated to have
a material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company.
5.23 CLOSING DATE
The representations and warranties of the Company contained in this
Section 5 and elsewhere in this Agreement and all information contained in any
exhibit, schedule or attachment hereto or in any writing delivered by, or on
behalf of, the Company to any Purchaser shall be true and correct in all
material respects on the date of the Closing as though then made, except as
affected by the transactions expressly contemplated by this Agreement.
5.24 DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings set forth below:
"AFFILIATE" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare Benefit Plan, or (e) any bonus,
incentive, severance, stock option, stock purchase, short-term disability plan
or other material fringe benefit plan, program or arrangement, including
policies concerning holidays, vacations and salary continuation during short
absences for illness or otherwise.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"OFFICER'S CERTIFICATE" means a certificate signed by one of the
Company's Co-Chief Executive Officers, stating that (i) he has made or has
caused to be made such investigations as are necessary in order to permit him to
verify the accuracy of the information set forth in such certificate and (ii) to
the best of his knowledge, such certificate does not misstate any material fact
and does not omit to state any fact necessary to make the certificate not
misleading.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Section 406
and Section 4975 of the IRC.
"PROPRIETARY RIGHTS" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial
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and marketing plans and customer and supplier lists and information), (vii)
other intellectual property rights, and (viii) copies and tangible embodiments
thereof (in whatever form or medium).
"RESTRICTED SECURITIES" means (i) the Series B Preferred Stock issued
hereunder, (ii) the Common Stock issued upon conversion of the Series B
Preferred Stock and (iii) any securities issued with respect to the securities
referred to in clauses (i) or (ii) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) become eligible
for sale pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7.3 have been
delivered by the Company in accordance with paragraph 4.2. Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
paragraph 7.3.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SUBSIDIARY" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"TREASURY REGULATIONS" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or issuable
upon conversion of the Preferred Stock and (ii) any Common Stock issued or
issuable with respect to the-securities referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other
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reorganization. For purposes of this Agreement, any Person who holds Preferred
Stock shall be deemed to be the holder of the Underlying Common Stock obtainable
upon conversion of the Preferred Stock in connection with the transfer thereof
or otherwise regardless of any restriction or limitation on the conversion of
the Preferred Stock. As to any particular shares of Underlying Common Stock,
such shares shall cease to be Underlying Common Stock when they have been
(a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (b) distributed to
the public through a broker, dealer or market maker pursuant to Rule 144 under
the Securities Act (or any similar provision then in force).
6. MISCELLANEOUS
6.1 EXPENSES
The Company agrees to pay, and hold the Purchaser and all holders of
Underlying Common Stock harmless against liability for the payment of, (i) the
reasonable and documented fees and expenses of Perkins Coie, LLP not to exceed
$35,000 arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing and (ii) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any shares of Series B Preferred
Stock or any shares of Common Stock issuable upon conversion of the Series B
Preferred Stock.
6.2 REMEDIES
Each holder of Preferred Stock and Underlying Common Stock shall have
all rights and remedies set forth in this Agreement and the Amended and Restated
Articles of Incorporation and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
6.3 PURCHASER'S INVESTMENT REPRESENTATIONS
The Purchaser hereby represents that it or he is an accredited investor
as that term is defined in Regulation D promulgated under the Securities Act of
1933, as amended, and is acquiring the Restricted Securities purchased hereunder
or acquired pursuant hereto for its or his own account with the present
intention of holding such securities for purposes of investment, and that it or
he has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained
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herein shall prevent any Purchaser and subsequent holders of Restricted
Securities from transferring such securities in compliance with the provisions
of Section 4 hereof. Each certificate for Restricted Securities shall be
imprinted with a legend in substantially the following form:
"The securities represented by this certificate were originally
issued on October 7, 1998, and have not been registered under the
Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of
October 7, 1998 between the issuer (the "Company") and certain
investors, and the Company reserves the right to refuse the
transfer of such securities until such conditions have been
fulfilled with respect to such transfer. A copy of such
conditions shall be furnished by the Company to the holder hereof
upon written request and without charge."
6.4 CONSENT TO AMENDMENTS
Except as otherwise expressly provided herein, the provisions of this
Agreement may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the holders of a majority of the
Underlying Common Stock. No other course of dealing between the Company and the
holder of any Underlying Common Stock or any delay in exercising any rights
hereunder or under the Amended and Restated Articles of Incorporation shall
operate as a waiver of any rights of any such holders. For purposes of this
Agreement, shares of Preferred Stock or Underlying Common Stock held by the
Company shall not be deemed to be outstanding.
6.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained herein or made in writing
by any party in connection herewith shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Purchaser or on its behalf, for a
period of two years from the Closing.
6.6 SUCCESSORS AND ASSIGNS
Except with respect to the rights granted in paragraphs 3.1 and 3.2 and
as otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for any
Purchaser's benefit as a purchaser or holder of Preferred Stock or Underlying
Common Stock are
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also for the benefit of, and enforceable by, any subsequent holder of such
Preferred Stock or such Underlying Common Stock, except for the provisions in
paragraphs 3.1 and 3.2.
6.7 SEVERABILITY
Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.
6.8 COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
6.9 DESCRIPTIVE HEADINGS; INTERPRETATION
The descriptive headings of this Agreement are inserted for convenience
only and do not constitute a substantive part of this Agreement. The use of the
word "including" in this Agreement shall be by way of example rather than by
limitation.
6.10 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Washington without giving effect to any choice or
conflict of law provision or rule (either of the State of Washington or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
6.11 NOTICES
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally to the recipient,
sent to the recipient by reputable express courier service (charges prepaid) or
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Purchaser at the address indicated on the Schedule of
Purchasers and to the Company at the address indicated below:
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The Cobalt Group, Inc.
2030 First Avenue
Suite 300
Seattle, Washington 98121
Attention: John W.P. Holt
Geoffrey T. Barker
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
THE COBALT GROUP, INC.
By:
------------------------------------
Name:
---------------------------
Title:
--------------------------
WARBURG, PINCUS EQUITY
PARTNERS, L.P.
By: Warburg, Pincus & Co., Inc.
Its: General Partner
By:
----------------------------
Joseph P. Landy
Its
---------------------
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SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
TOTAL PURCHASE
NUMBER OF SHARES PRICE OF SHARES OF
NAME AND ADDRESS OF SERIES B PREFERRED STOCK SERIES B PREFERRED STOCK
<S> <C> <C>
Warburg, Pincus Equity Series B 1,858,100 Series B $7,804,020
Partners, L.P. Series B-1 5,118,091 Series B-1 $21,495,982
466 Lexington Avenue
New York, NY 10017
</TABLE>
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Exhibit 10.14
INFORMATION RIGHTS AGREEMENT
This Information Rights Agreement (the "Agreement") is entered into as
of October 7, 1998 by and between The Cobalt Group, Inc., a Washington
corporation, and the undersigned holders of Series A Preferred Stock of the
Company (the "Series A Purchasers").
RECITALS
A. The Company and the Series A Purchasers are parties to an
Agreement to Terminate Series A Purchase Agreement dated October 2, 1998.
B. The Company and the Series A Purchasers have determined that it
is in their best interests to continue the information rights contained in the
previous Series A Purchase Agreement on the terms and conditions set forth
herein.
AGREEMENT
1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company
shall deliver to each of the Series A Purchasers, who is at the time a holder of
(i) the Common Stock issued or issuable upon conversion of the Series A
Preferred Stock and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization (the "Underlying Common Stock"):
(i) as soon as available but in any event within 30
days after the end of each monthly accounting period in each fiscal
year, unaudited statements of income and cash flows of the Company for
such monthly period and for the period from the beginning of the fiscal
year to the end of such month, and balance sheets of the Company as of
the end of such monthly period, setting forth in each case comparisons
to the annual budget and to the corresponding period in the preceding
fiscal year, and all such statements shall be prepared in accordance
with generally accepted accounting principles, consistently applied,
subject to the absence of footnote disclosures and to normal year-end
adjustments;
(ii) within 90 days after the end of each fiscal year,
statements of income and cash flows of the Company for such fiscal year,
and a balance sheet of the Company as of the end of such fiscal year,
setting forth in each case comparisons to the annual budget and to the
preceding fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by
(a) an opinion of an
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independent accounting firm of recognized national standing selected by
the board of directors;
(iii) promptly upon receipt thereof, any additional
reports, management letters or other detailed information concerning
significant aspects of the Company's operations or financial affairs
given to the Company by its independent accountants (and not otherwise
contained in other materials provided hereunder);
(iv) prior to the beginning of each fiscal year, an
annual budget prepared on a monthly basis for the Company for such
fiscal year (displaying anticipated statements of income and cash flows
and balance sheets), and promptly upon preparation thereof any other
significant budgets prepared by the Company and any revisions of such
annual or other budgets;
(v) within ten days after transmission thereof, copies
of all financial statements, proxy statements, reports and any other
general written communications which the Company sends to its
stockholders and copies of all registration statements and all regular,
special or periodic reports which it files, or (to its knowledge) any of
its officers or directors file with respect to the Company, with the
Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press
release and other statements made available generally by the Company to
the public concerning material developments in the Company's business;
and
(vi) with reasonable promptness, such other operating
information and financial data concerning the Company as any Person
entitled to receive information under this paragraph may reasonably
request.
Each of the financial statements referred to in subparagraphs (i) and (ii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end audit adjustments (none of which would,
alone or in the aggregate, be materially adverse to the financial condition,
operating results, assets, operations or business prospects of the Company).
For purposes of this Agreement, any individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated organization, or governmental agency or department,
agency or political subdivision thereof ("Person") who holds Series A Preferred
Stock shall be deemed to be the holder of the Common Stock obtainable upon
conversion of the Preferred Stock in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Preferred Stock. For purposes of this Agreement, all holdings of Underlying
Common Stock by Persons who are controlled by or under common control with each
other shall be aggregated for purposes of meeting any threshold tests under this
Agreement.
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2. CURRENT PUBLIC INFORMATION. At all times after the
Company has filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act or the
Securities Exchange Act, the Company shall file all reports required to be filed
by it under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as may be required by Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act (as such rule may be
amended from time to time) or any similar rule or regulation hereafter adopted
by the Securities and Exchange Commission ("Rule 144"), all to the extent
required to enable such holders to sell Restricted Securities pursuant to (i)
Rule 144 or (ii) a registration statement on Form S-1 or S-3 or any similar
registration form hereafter adopted by the Securities and Exchange Commission.
Upon request, the Company shall deliver to any holder of Restricted Securities a
written statement as to whether it has complied with such requirements.
3. RESERVATION OF COMMON STOCK. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuance upon the conversion of the
Preferred Stock, such owner of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock. All shares of Common Stock which
are so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Company shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately transmitted by the Company upon issuance).
4. SUCCESSORS AND ASSIGNS. Except with respect to the
rights granted in paragraph 1 and as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. In
addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Series A Purchaser's benefit as a
purchaser or holder of Preferred Stock or Underlying Common Stock are also for
the benefit of, and enforceable by, any subsequent holder of such Preferred
Stock or such Underlying Common Stock, except for the provisions in paragraph 1.
5. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
-3-
<PAGE>
6. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Washington
without giving effect to any choice or conflict of law provision or rule (either
of the State of Washington or any other jurisdiction) that cause the application
of the laws of any jurisdiction other than the State of Washington.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
THE COBALT GROUP, INC.
By:
---------------------------------------
Name:
Title:
THE PRODUCTIVITY FUND III, L.P., a
Delaware limited partnership
By: First Analysis Management Company
III, L.L.C.,
Its: General Partner
By:
-------------------------------
Its
ENVIRONMENTAL PRIVATE EQUITY FUND II,
L.P., a Delaware limited partnership
By: Environmental Private Equity
Management II, L.P.
Its: General Partner
By: First Analysis EPEF Management
Company II, a General Partner
By: First Analysis Corporation, a
General Partner
By:
-------------------------------
------------------------------------------
Mark Koulogeorge
-5-
<PAGE>
EXHIBIT 10.15
PURCHASE AGREEMENT
BY AND AMONG
LOCATORS, INC., PARTS FINDER LOCATING SYSTEMS, INC.
AND COMPU-TIME, INC.,
AS SELLERS,
AND
THE COBALT GROUP, INC.,
AS PURCHASER
DATED APRIL 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. SALE AND PURCHASE OF THE UNITS . . . . . . . . . . . . . . . . . . . . .5
SECTION 3. CLOSING AND CLOSING DOCUMENTS. . . . . . . . . . . . . . . . . . . . . .5
3.1 CLOSING; EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . .5
3.2 CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . .6
3.3 LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. . . . . . . . . . . . . .7
4.1 ORGANIZATION, STANDING, OWNERSHIP . . . . . . . . . . . . . . .7
4.2 TITLE TO UNITS. . . . . . . . . . . . . . . . . . . . . . . . .8
4.3 AUTHORITY AND BINDING EFFECT. . . . . . . . . . . . . . . . . .8
4.4 VALIDITY OF CONTEMPLATED TRANSACTIONS . . . . . . . . . . . . .8
4.5 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. . . . . . . .9
4.6 ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . .9
4.7 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 ENVIRONMENTAL COMPLIANCE. . . . . . . . . . . . . . . . . . . 11
4.10 PERSONAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . 11
4.11 COPYRIGHTS, PATENTS AND TRADEMARKS. . . . . . . . . . . . . . 12
4.12 PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.13 CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.14 CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.15 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.16 EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . 14
4.17 PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.18 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . 15
4.19 BUSINESS RELATIONS. . . . . . . . . . . . . . . . . . . . . . 15
4.20 WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.21 INTEREST IN COMPETITORS, SUPPLIERS, DEALERS, CUSTOMERS. . . . 15
4.22 BROKERS' AND FINDERS' FEES. . . . . . . . . . . . . . . . . . 16
4.23 ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . 16
4.24 INVESTMENT INTENT; SHAREHOLDERS AGREEMENT . . . . . . . . . . 16
SECTION 5. REPRESENTATIONS AND WARRANTIES OF COBALT . . . . . . . . . . . . . . . 16
5.1 ORGANIZATION AND STANDING . . . . . . . . . . . . . . . . . . 17
5.2 AUTHORITY AND BINDING EFFECT. . . . . . . . . . . . . . . . . 17
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS . . . . . . . . . . . . 17
5.4 INVESTMENT INTENT . . . . . . . . . . . . . . . . . . . . . . 17
5.5 ACCESS TO INFORMATION AND INSPECTION. . . . . . . . . . . . . 18
5.6 RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . 18
5.7 BROKERS' AND FINDERS' FEES. . . . . . . . . . . . . . . . . . 18
<PAGE>
PAGE
----
5.8 ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . 18
5.9 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. . . . . . . 18
5.10 NO BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6. TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 ACCESS TO RECORDS FOLLOWING CLOSING . . . . . . . . . . . . 19
6.2 PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . 19
6.3 PARTNERSHIP TERMINATION; SECTION 754 ELECTION . . . . . . . . 19
6.4 TAX TREATMENT AS ASSET ACQUISITION . . . . . . . . . . . . . 20
SECTION 7. FURTHER ASSURANCES; SURVIVAL . . . . . . . . . . . . . . . . . . . . . 20
7.1 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . 20
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 20
SECTION 8. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 SELLERS' INDEMNITY. . . . . . . . . . . . . . . . . . . . . . 20
8.2 COBALT'S INDEMNITY. . . . . . . . . . . . . . . . . . . . . . 21
8.3 CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 RIGHT OF OFFSET . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 GUARANTEES; ESCROW. . . . . . . . . . . . . . . . . . . . . . 22
8.6 KNOWLEDGE PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . 23
SECTION 9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.1 ASSIGNMENT; SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . 23
9.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.3 GOVERNING LAW; JURISDICTION; VENUE. . . . . . . . . . . . . . 25
9.4 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 25
9.5 SECTION HEADINGS. . . . . . . . . . . . . . . . . . . . . . . 25
9.6 COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.7 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . 25
9.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 26
9.9 INTERPRETATION, KNOWLEDGE . . . . . . . . . . . . . . . . . . 26
9.10 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement"), dated April 19, 1999 (the
"Effective Date"), is made and entered into between and among Locators, Inc., an
Oregon corporation, Parts Finder Locating Systems, Inc., an Oregon corporation,
and Compu-Time, Inc., an Oregon corporation (collectively, "Sellers"), Brian
Allen and Shirley Atherton (each, individually, a "Guarantor"), and The Cobalt
Group, Inc., a Washington corporation ("Cobalt").
RECITALS
A. The Sellers are the owners of all of the membership interests in
PartsVoice LLC, an Oregon limited liability company ("Company"), which
membership interests constitute all of the issued and outstanding equity of
Company (the "Units").
B. Cobalt desires to purchase from the Sellers, and the Sellers
desire to sell to Cobalt, the Units in accordance with the terms and conditions
of this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
For convenience and brevity, certain terms used in various parts of this
Agreement are listed in alphabetical order and defined or referred to below.
"ACQUISITION" means the acquisition of the Units by Cobalt and all
related transactions provided for in this Agreement and the Exhibits hereto.
"AFFILIATE" means any entity or person which, directly or indirectly,
through one or more intermediaries controls, is controlled by, or is under
common control with such entity. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or the policies of an entity, whether through the ownership of voting
securities, by contract or otherwise.
"AGREED DISTRIBUTION" means the cash, receivables and accounts payable
represented on the balance sheet of Company as of April 30, 1999 for billing and
payment periods through April 30, 1999, which items shall have been distributed
or otherwise transferred and conveyed to the Sellers at or prior to April 30,
1999.
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<PAGE>
"ASSETS" means all of the assets, properties, business, goodwill and
rights of every kind and description, real and personal, tangible and
intangible, wherever situated and whether or not reflected on the Financial
Statements, necessary for and used in the Business, other than the items
comprising the Agreed Distribution.
"BUSINESS" means the business known as "PartsVoice," which business
includes, but is not limited to, conducting a national and international parts
locating service for the motor vehicle industry under the trade name
PARTSVOICE-Registered Trademark- for itself and under various other names for
various motor vehicle manufacturers and others related to the motor vehicle
industry and the gathering of inventory, financial and service data from dealers
and providing specialized reports of such data to dealers and manufacturers, and
which was, prior to the formation of the Company, conducted by the Sellers.
"BUSINESS DAY" means any calendar day which is not a Saturday, Sunday or
public holiday under the laws of the State of Oregon.
"CLAIM NOTICE" is defined in Section 8.2(a).
"CLOSING" is defined in Section 3.1 hereof.
"CLOSING DATE" means the date of the Closing.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means PartsVoice LLC, an Oregon limited liability company,
which, as of the date hereof and the Closing Date, is the owner of the Assets
and the entity through which the Business is conducted.
"CONTRACT" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any person or its property
under applicable law.
"DEFAULT" means (i) a material breach of or material default under any
Contract, (ii) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a material breach of or material
default under any Contract, or (iii) the occurrence of an event that with or
without the passage of time or the giving of notice or both would give rise to a
right of termination, renegotiation or acceleration under any Contract.
"DISCLOSURE SCHEDULE" is defined in Section 4.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2
<PAGE>
"EXCLUDED LIABILITY" means all Losses arising from or related to the
pending audit of the Business by Texas state tax authorities for the years 1989
through 1996.
"FACILITIES" means the facilities and offices in which the Business is
conducted at 8305 SE Monterey in Portland, Oregon.
"FINANCIAL STATEMENTS" is defined in Section 4.5.
"GROUP" means, individually and collectively, (i) Company and (ii) any
individual, trust, corporation, partnership or any other entity as to which
Company is liable for Taxes incurred by such individual or entity either as a
transferee, or pursuant to any other provision of federal, territorial, state,
local or foreign law or regulations.
"HAZARDOUS MATERIALS" means any oil or petrochemical products, PCB's,
asbestos, urea formaldehyde, flammable explosives, radioactive materials, solid
or hazardous wastes, chemicals, toxic substances or related materials,
including, without limitation, any substances defined as or included in the
definition of "hazardous substances," "Hazardous wastes," "hazardous materials,"
or "toxic substances" under any applicable federal or state laws or regulations.
"HAZARDOUS MATERIALS REGULATIONS" means any Regulations governing the
use, generation, handling, storage, treatment, disposal or release of Hazardous
Materials, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and Recovery
Act and the Federal Water Pollution Control Act.
"INTELLECTUAL PROPERTY" is defined in Section 4.11.
"IRS" means the Internal Revenue Service.
"LIABILITIES" means Company's accounts payable, accrued vacation,
accrued property taxes, accrued incentive payments and other payroll expenses
and all other accrued general liabilities.
"LIEN" means any mortgage, lien, security interest, pledge, encumbrance,
restriction on transferability or charge on any property or property interest.
"LITIGATION" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry
involving Company, the Business, the Assets or any Contracts to which Company is
a party or by which it or any of the Assets or the Business is bound.
3
<PAGE>
"LOSSES" means all damages, losses, deficiencies, liabilities, fines,
penalties, costs and expenses, including attorneys' fees.
"ORDER" means any judgment, decree, injunction, order or ruling of any
federal, state or local court or governmental or regulatory body or authority
that is binding on any person or its property under applicable law.
"PERMITS" is defined in Section 4.17.
"REAL PROPERTY" means the real property upon which the Facilities are
located.
"REAL PROPERTY INTERESTS" is defined in Section 4.8.
"REGISTRATIONS" is defined in Section 4.11.
"REGULATION" means any applicable statute, law, ordinance, regulation,
order or rule of any federal, state, local or other governmental agency or body
or of any other type of regulatory body.
"RELATED DOCUMENTS" means the 90-Day Notes, the 270-Day Notes, the
Warrants, the Management Agreement and the Pledge Agreement.
"RETURNS" means all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
"TAXES" means all taxes, however denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
imposed by any federal, territorial, state, local or foreign government or any
agency or political subdivision of any such government, which taxes shall
include all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
the Group is required to pay, withhold or collect.
"UNITS" means all of the membership interests comprising the ownership
equity of Company, as described in the preamble of this Agreement and as set
forth on the Schedule of Sellers.
4
<PAGE>
"WORKPLACE REGULATIONS" means any Regulations relating to the health of
workers or the safety of the workplace, including, without limitation, any
Regulations promulgated pursuant to the Occupational Safety and Health Act.
SECTION 2. SALE AND PURCHASE OF THE UNITS
At Closing, the Sellers shall sell to Cobalt and Cobalt shall purchase
from the Sellers the Units for an aggregate purchase price consisting of the
following:
(a) $3,000,000 in cash;
(b) promissory notes in the aggregate face amount of
$12,000,000, bearing interest at the rate of 8.75% per annum and maturing on
July 30, 1999, in the form attached as Exhibit A-1 hereto (the "90-Day Notes");
provided, however, that the Sellers may, by written notice given to Cobalt at
least two business days prior to the Closing Date, elect to receive, in lieu of
up to $10,000,000 of principal amount of the 90-Day Notes, up to 1,250,000
Shares (as defined in Section 2(e) below) at a rate of $8.00 per share;
(c) promissory notes in the aggregate face amount of
$15,000,000, bearing interest at the rate of 8.75% per annum and maturing on
January 25, 2000, in the form attached as Exhibit A-2 hereto (the "270-Day
Notes");
(d) warrants to purchase an aggregate of 160,000 shares of
Cobalt common stock, in the form attached as Exhibit B hereto (the "Warrants");
and
(e) up to 1,250,000 shares of Series C Preferred Stock of
Cobalt having the rights and preferences described in the Cobalt Amended and
Restated Articles of Incorporation attached as Exhibit J hereto (the "Shares"),
such number of Shares being determined prior to the Closing Date by the election
described in Section 2(b) above.
The aggregate purchase price shall be allocated among the respective Sellers in
accordance with the Schedule of Sellers attached hereto. The cash portion of
the purchase price shall be paid by Cobalt to the Sellers at Closing by wire
transfer of immediately available funds to the bank accounts designated by the
Sellers prior to Closing.
SECTION 3. CLOSING AND CLOSING DOCUMENTS
3.1 CLOSING; EFFECTIVE DATE
The closing of the sale and purchase of the Units and the other
transactions contemplated under this Agreement (the "Closing") shall take place
at the offices of Stoel
5
<PAGE>
Rives LLP, 900 S.W. Fifth Avenue, Portland, Oregon 97204, at 10:00 a.m. local
time, on April 30, 1999.
3.2 CLOSING DOCUMENTS
At the Closing, subject to the provisions of this Agreement:
(a) Cobalt shall receive from the Sellers or the Manager, as
appropriate:
(i) certificates representing the Units of each Seller
duly endorsed in blank, or with separate transfer powers attached
thereto and endorsed in blank;
(ii) a certificate of the Manager of Company certifying
true copies of the Articles of Organization of Company, with
original certification by the Secretary of State of Oregon, and
the Amended Operating Agreement of Company;
(iii) a true copy of resolutions of such Seller
authorizing the sale of the Units of such Seller and the
execution, delivery and performance by such Seller of this
Agreement and the transactions provided for herein and therein,
and attesting that such resolutions are in full force and effect
without amendment or modification on the Closing Date;
(iv) opinions of counsel to each Seller and Company
satisfying the requirements set forth in Section 3.3(a); and
(v) Consulting and Employment Agreements, duly
executed by Company and each of Alex DeLucia and Brian Allen,
respectively, in the forms attached as Exhibits C-1 and C-2
hereto;
(b) Cobalt shall deliver to the Sellers as set forth in
Section 2 and the Schedule of Sellers:
(i) the cash portion of the purchase price;
(ii) the 90-Day Notes, 270-Day Notes, the Warrants and
certificates for the Shares, all duly executed by Cobalt;
(iii) the Agreement for Management of Security, in the
form attached as Exhibit D-1 hereto ("Management Agreement") and
the Pledge and Security Agreement, in the form attached as
Exhibit D-2 hereto ("Pledge Agreement"),
6
<PAGE>
each duly executed by Cobalt and the related documents required
pursuant to the terms of the Pledge Agreement;
(iv) a certificate of the Secretary of Cobalt
certifying a copy of resolutions duly adopted by the Board of
Directors of Cobalt authorizing the purchase of the Units and the
execution, delivery and performance of this Agreement and the
Related Documents and the issuance of the Shares, and the
transactions provided for herein or therein, and attesting that
such resolutions are in full force and effect without amendment
or modification on the Closing Date;
(v) an opinion of counsel to Cobalt satisfying the
requirements set forth in Section 3.3(b).
3.3 LEGAL OPINIONS
(a) Each Seller shall cause the delivery to Cobalt at Closing
of an original opinion of counsel to such Seller and of counsel to the Company,
dated as of the Closing Date, in form and substance satisfactory to counsel to
Cobalt, addressing substantially the matters described on Exhibits G-1 and G-2,
respectively.
(b) Cobalt shall cause the delivery to the Sellers and
Company at Closing of an original opinion of counsel to Cobalt, dated as of the
Closing Date, in form and substance satisfactory to counsel to the Company,
addressing substantially the matters described on Exhibit G-3.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby make the following representations and warranties to
Cobalt as of the date hereof and the Closing Date. Any representations and
warranties made below with respect to "the Sellers" or any "Seller,"
individually, or with respect to the Units being conveyed to Cobalt by a Seller,
are made separately by each Seller as to itself and its Units and not as to any
other Seller or such other Seller's Units. All representations and warranties
below are subject to the exceptions and qualifications reflected in the
disclosure schedule attached hereto as Exhibit E ("Disclosure Schedule"):
4.1 ORGANIZATION, STANDING, OWNERSHIP
Company is a limited liability company duly organized and validly
existing under the laws of the state of Oregon and has full power and authority
to carry on the Business and to own, lease and operate the Assets. To the
knowledge of the Sellers, Company is duly qualified to do business and is in
good standing as a foreign limited liability company in each
7
<PAGE>
jurisdiction in which such qualification is required, other than such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the business of Company. Company owns all of the Assets free and
clear of all Liens.
4.2 TITLE TO UNITS
Sellers are the record and beneficial owners of the Units. The Units
represent all of the issued and outstanding equity interests of Company.
Sellers have good title to the Units, free and clear of all Liens other than
restrictions on transfer in the Amended Operating Agreement of Company. Sellers
have full power and right and authority to sell and deliver the Units to Cobalt
in the manner provided for in this Agreement and at Closing Cobalt shall receive
good title to the Units free and clear of all Liens. Other than the Amended
Operating Agreement, there are no existing Contracts, subscriptions, options,
warrants, calls, commitments or rights of any character to purchase or otherwise
acquire any equity of Company whether or not presently issued or outstanding.
4.3 AUTHORITY AND BINDING EFFECT
Each Seller has full power and authority to execute, deliver and perform
this Agreement and has taken all actions necessary to secure all approvals
required in connection therewith. This Agreement constitutes legal, valid and
binding obligations of each Seller, enforceable against each such Seller in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, or other laws of general application relating to or affecting the
enforcement of creditors' rights, and except as enforceability may be limited by
equitable principles, including those limiting the availability of specific
performance, injunctive relief and other equitable remedies providing for
defenses based on fairness and reasonableness, regardless of whether considered
in a proceeding in equity or at law.
4.4 VALIDITY OF CONTEMPLATED TRANSACTIONS
To the knowledge of the Sellers, neither the execution and delivery of
this Agreement by the Sellers nor the consummation of the transactions provided
for herein will contravene or violate any Regulation or Order which is
applicable to the Sellers or Company or will result in a Default under, or
require the consent or approval of any party to, any Contract relating to the
Business or the Assets or to or by which the Sellers or Company is a party or
otherwise bound or affected, or require any of the Sellers or the Company to
notify or obtain any Permits or consents from any federal, state, local or other
court or governmental agency or body or from any other regulatory authority,
other than such Defaults, consents, approvals or Permits the failure to cure or
obtain would not have a material adverse effect on the Business or Company.
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<PAGE>
4.5 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES
The Sellers have delivered to Cobalt unaudited (i) balance sheets as of
December 31, 1998 and 1997 for the Business, (ii) statements of income and cash
flows for the Business for the twelve month periods ended December 31, 1998,
1997 and 1996, and (iii) all related notes and schedules (such financial
statements are collectively referred to herein as the "Financial Statements").
True, correct and complete copies of the Financial Statements are included in
the Disclosure Schedule. All of the Financial Statements, including any notes
or schedules thereto, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and fairly present the financial position and results of operations of
the Business at the dates and for the periods covered and include all
adjustments that are necessary for a fair presentation of the information shown.
The Company has no material obligations or liabilities except for those
reflected in the balance sheet as of December 31, 1998 included in the Financial
Statements or those that have arisen since December 31, 1998 in the ordinary
course of business.
4.6 ABSENCE OF CERTAIN CHANGES
To the knowledge of the Sellers, since December 31, 1998, other than the
Agreed Distribution, there has not been:
(a) any material adverse change in the business, operations
or financial condition of the Business or Company;
(b) any damage, destruction or loss of any material part of
the Assets;
(c) any amendment or termination of any Contract which
materially and adversely affects Company or the Business;
(d) any indebtedness incurred by Company for borrowed money,
any mortgage, pledge or other encumbrance of the Assets;
(e) any expenditure of or commitment to expend capital in an
amount in excess of $30,000 in an annual period;
(f) any material transaction involving Company or the
Business not in the ordinary course of business; or
(g) any operation of the Business in a manner materially
different than it had been operated during the period covered by the Financial
Statements.
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4.7 TAXES
(a) All Returns required to have been filed by or on behalf
of members of the Group have been duly filed on a timely basis and such Returns
are true, complete and correct in all material respects. All Taxes shown to be
payable on the Returns or on subsequent assessments with respect thereto have
been paid in full on a timely basis, and no other Taxes are payable by the Group
with respect to items or periods covered by such Returns (whether or not shown
on or reportable on such Returns) or, unless an adequate reserve has been
established, with respect to any other period ending on or before the Closing
Date. Each member of the Group has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party. There are no liens on
any of the Assets with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that a member of the Group is contesting in good faith
through appropriate proceedings and for which appropriate reserves have been
established.
(b) Cobalt has been furnished by Sellers and Company true and
complete copies of (i) relevant portions of income tax audit reports, statements
of deficiencies, closing or other agreements received by the Group or on behalf
of the Group relating to Taxes and (ii) all federal and state income or
franchise tax returns for the Group for all periods ending on and after December
31, 1994.
(c) Except as described in the Disclosure Schedule, the
Returns of the Group have never been audited by a government or taxing
authority, nor is any such audit in process, pending or threatened (either in
writing or verbally, formally or informally); no deficiencies exist or have been
asserted (either in writing or verbally, formally or informally) or are expected
to be asserted with respect to Taxes of the Group, and no member of the Group
has received notice (either in writing or verbally, formally or informally) or
expects to receive notice that it has not filed a Return or paid Taxes required
to be filed or paid by it; and the Group is neither a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or verbally, formally or informally)
against the Group or any of the Assets. No waiver or extension of any statute
of limitations is in effect with respect to Taxes or Returns of the Group. Each
member of the Group has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662.
(d) Company is not (and never has been) a party to any tax
sharing agreement and has not assumed the liability of any other person under
contract. Company has never made any elections under Treasury Regulation
Section 301.7701-3 or Code Section 761(a). No member of the Group is or has
been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) and Cobalt is not required to withhold Tax on the
purchase of
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the Units by reason of Code Section 1445. Sellers are not "foreign persons" (as
that term is defined in Code Section 1445). No member of the Group has entered
into any compensatory agreements with respect to the performance of services for
which payment thereunder would result in a nondeductible expense to the Group
pursuant to Code Section 280G.
4.8 REAL PROPERTY
The Company owns no Real Property. All interests in and rights to real
property and improvements located thereon used in and necessary for the Business
are leased by Company and are listed on the Disclosure Schedule (the "Real
Property Interests"). Company leases the Real Property Interests indicated on
the Disclosure Schedule free and clear of all Liens. To the knowledge of the
Sellers, the present uses of the Real Property Interests are in material
compliance with all applicable zoning and land use and development laws and
ordinances. Neither the Sellers nor Company has received any notice, oral or
written, that any governmental body having jurisdiction over the Real Property
Interests intends to exercise the power of eminent domain or a similar power
with respect to all or any part of the Real Property Interests. Neither the
Sellers nor Company has received any notice, oral or written, from any
governmental body, that the Real Property Interests or any improvements erected
or situate thereon, or the uses conducted thereon or therein, violate any
Regulations of any governmental body having jurisdiction over the Real Property
Interests.
4.9 ENVIRONMENTAL COMPLIANCE
Other than the storage and use of cleaning materials in an amount and
manner consistent with the normal operation of an office, to the knowledge of
the Sellers, neither the Sellers nor Company has caused or permitted the
Business to use, generate, manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process Hazardous Materials, except in compliance
with all applicable Hazardous Materials Regulations and, to the knowledge of the
Sellers, there has been no release of any Hazardous Materials on- or off-site of
any of the Real Property which might affect the Real Property or Company. In
addition, to the knowledge of the Sellers, there are no substances or conditions
on the Real Property which may support a claim or cause of action, whether by a
governmental agency or body, private party or individual, under any Hazardous
Materials Regulations.
4.10 PERSONAL PROPERTY
The Disclosure Schedule sets forth each item of personal property used,
but not owned, by Company that requires rental or lease payments. Neither
Sellers nor Company make any representations or warranties with respect to the
operating condition or suitability for the purpose of use by Company of any of
the items of tangible personal property included in the Assets.
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4.11 COPYRIGHTS, PATENTS AND TRADEMARKS
The Disclosure Schedule lists those patents, patent applications,
trademark registrations and copyrights that are registered in the name of any of
the Sellers and which are used in and necessary for the Business (the
"Registrations"). To the knowledge of the Sellers, Company has good title to,
or possesses adequate right to use, its respective Registrations, and all other
unregistered copyrights and trademarks, trade names, inventions, processes,
designs, formulae, trade secrets, know-how, and other proprietary rights
(collectively, the "Intellectual Property") necessary for the conduct of the
Business. To the knowledge of the Sellers, Company has the sole and exclusive
right to the Intellectual Property reflected in the Registrations, and, except
as set forth in the Disclosure Schedule, Sellers have taken reasonable steps and
precautions to protect and prevent the disclosure of the Intellectual Property
which is not disclosed by a Registration and is material to the Business.
Except as set forth in the Disclosure Schedule, to the knowledge of Sellers,
none of the Registrations or Intellectual Property of Company is subject to any
outstanding order, decree, judgment, stipulation or agreement restricting its
scope of use or is the subject of any pending or threatened proceeding and there
are no licenses, sublicenses, or agreements now in effect relating to the use by
others of any of the foregoing. To the knowledge of the Sellers, Company has
not infringed or violated, and the conduct of the Business as presently
conducted does not infringe or violate, any patent, trademark, trade name, trade
secret, or other intellectual property right of any other person or entity, and
no such claim is pending, has been made, or, to the knowledge of the Sellers, is
threatened to such effect. The Sellers have no knowledge of any current or past
infringement by others of the Registrations or Intellectual Property. The
Company or Sellers have provided to Cobalt copies of all written reports of
tests that the Sellers have conducted to ascertain whether any of the computer
software, firmware or hardware used in the Business will malfunction, will cease
to function, will generate incorrect data or will produce incorrect results as a
result of processing, providing or receiving (i) date-related data into and
between the twentieth and twenty-first centuries or (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
4.12 PERSONNEL
To the knowledge of the Sellers, Sellers and Company are in compliance
in all material respects with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours, and are not engaged in any unfair labor or discriminatory practices.
There is no unfair labor practice claim against Company before the National
Labor Relations Board, or any strike, dispute, arbitration, slowdown, or
stoppage pending or any discrimination claim, to the knowledge of the Sellers,
threatened against or involving Company.
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4.13 CONTRACTS
(a) The Disclosure Schedule sets forth a complete and correct
list of all consents or approvals required under any Contracts that are
necessary for the Sellers to complete the transactions provided for
herein or to avoid a Default under such Contracts and the Sellers or
Company, as the case may be, have obtained all such consents or
approvals.
(b) The Disclosure Schedule identifies all of the following
Contracts which Company or the Business is bound by or a party to:
(i) Contracts involving an amount in the aggregate in
excess of Ten Thousand Dollars ($10,000) for the future purchase
of or payment for, supplies or products or services;
(ii) Contracts involving an amount in the aggregate in
excess of Ten Thousand Dollars ($10,000) to sell or supply
products or to perform services;
(iii) Contracts limiting or restraining Company from
engaging or competing in any lines of business with any person,
firm, corporation or other entity;
(iv) material license, franchise, distribution or other
Contracts, including those which relate in whole or in part to
any ideas, technical assistance or other know-how; or
(v) Contracts not entered into in the ordinary course
of business which involve the payment or receipt in the aggregate
of Ten Thousand Dollars ($10,000) or more.
(c) All of the Contracts to which Company is a party or by
which it or any of the Assets or the Business is bound or affected and
that are material to the Business are valid, binding and enforceable by
Company in accordance with their terms. To the knowledge of the
Sellers, no Default exists with respect to such Contracts and no event
has occurred which, with the passage of time or the giving of notice, or
both, would constitute a Default, except for such Contracts the Default
under which would not have a material adverse effect on the Business.
To the knowledge of the Sellers, all other parties to such Contracts
have complied in all material respects with the provisions thereof and
no event has occurred which, with the passage of time or the giving of
notice, or both, would constitute a default by such other party.
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4.14 CLAIMS
Except as set forth on the Disclosure Schedule, there is no Litigation
pending or, to the knowledge of Sellers, threatened against Company, the
Business or the Assets that would materially and adversely affect the financial
condition of Company, the Business or the Assets as of the date hereof, and, to
the knowledge of Sellers, no such claim has been asserted in writing.
4.15 INSURANCE
The Disclosure Schedule contains a true and complete list of the
insurance coverage applicable to the Business. All such coverage is in full
force and effect. There are no pending claims against such insurance by or on
behalf of Sellers or Company as to which the insurers have denied liability, and
to the knowledge of Sellers, there exist no material claims under such insurance
that have not been filed by Sellers or Company. The Disclosure Schedule lists
any claims under such insurance that have been filed but not paid as of the date
of this Agreement.
4.16 EMPLOYEE BENEFIT PLANS
Neither Company nor the Business is a party to or bound by any type of
collective bargaining agreement, written employment agreement applicable to the
employees of the Business (other than those that are terminable upon notice of
30 days or less), multi-employer plan of any type, or any profit sharing or
pension plan or plan subject to ERISA. Company is not a party to any employment
agreement or plan providing any employees with severance or other
post-employment benefits.
4.17 PERMITS
To the knowledge of the Sellers, Company possesses all permits,
licenses, orders or approvals of any federal, state, county, local or foreign
governmental or regulatory body, required by any Regulation, that are material
to the conduct of the Business (collectively, the "Permits"). The Permits are
listed on the Disclosure Schedule. To the knowledge of Sellers, all such
Permits as have been obtained are in full force and effect, no written notice of
any material violations has been received by Company, no proceeding is pending
or threatened to revoke or limit any such Permits, and the Sellers have no
knowledge of any circumstances which could result in a revocation or limitation
with respect to any Permit and all consents necessary to be obtained from the
Permit issuers with respect to the transactions provided for herein have been
obtained.
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4.18 COMPLIANCE WITH LAWS
Company has received no written notice or written advice from legal
counsel that it is in violation of, or that the Assets or the Business have been
used or operated in violation of, any Order, Permits or any Workplace Regulation
or any other Regulation the violation of which would have a material adverse
effect on the Business or Company.
4.19 BUSINESS RELATIONS
The Sellers have no knowledge that any customer, supplier or distributor
that is material to the Business will cease to do business with Company after
the consummation of the transactions provided for herein in the same manner as
previously conducted with Company and/or the Sellers.
4.20 WARRANTIES
The Disclosure Schedule sets forth a list and brief description of all
express warranties and guarantees made by Company or Sellers to third parties
with respect to products sold or services rendered by the Business, as well as a
list of all written warranty claims for breach of any presently effective
product or service warranty by customers of the Business, together with a
description of each defect or problem to which such claims or series of claims
relate, the product or service which is the subject of such claims or series of
claims, the amount expended prior to the date hereof in satisfying such claims
or series of claims, and the amount reasonably expected to be expended following
the date hereof in satisfying such claims or series of claims. Except as set
forth on the Disclosure Schedule, and except for non-recurring claims for breach
of any presently effective product or service warranty against Company or
Sellers which are not material, no written claim for breach of any presently
effective product or service warranty by any customer has been made against
Company and, to the knowledge of the Sellers, no state of facts exists, and no
event has occurred, which may form the basis of any present claim against
Company or Sellers for liability on account of any express or implied written
warranty to any third party in connection with products sold or services
rendered by the Business.
4.21 INTEREST IN COMPETITORS, SUPPLIERS, DEALERS, CUSTOMERS
Neither the Company nor any of the Sellers nor any officer, director or
owner of any of the Sellers has any ownership interest in any competitor,
supplier, dealer or customer of the Business (other than ownership of securities
of a publicly-held corporation of which such person owns, or has real or
contingent rights to own, less than two percent of any class of outstanding
securities) or in any property used in the operation of the Business.
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4.22 BROKERS' AND FINDERS' FEES
No broker, agent, person or firm acting on behalf of Company or the
Sellers is, or will be, entitled to any commission or broker's or finder's fee
from any of the parties hereto, or from any Affiliate of any of the parties
hereto, in connection with any of the transactions contemplated hereby.
4.23 ADDITIONAL INFORMATION
No information furnished by the Sellers or Company to Cobalt in
connection with this Agreement, including the Financial Statements and all
information in the exhibits and schedules hereto, is false or misleading in any
material respect. In connection with such information and this Agreement,
neither Company nor the Sellers have made any untrue statement of a material
fact or omitted to state or will omit to state a material fact necessary in
order to make the statements made or information delivered, in the light of the
circumstances under which they were made or not made, not misleading.
4.24 INVESTMENT INTENT; SHAREHOLDERS AGREEMENT
Each Seller acknowledges that the Warrants and the Shares to be received
by it in connection with the transactions provided for herein (collectively,
"the Securities") are being issued in transactions exempt from registration
under the Securities Act of 1933 ("1933 Act") and applicable state securities
laws. Sellers are acquiring the Securities for investment purposes only and not
with a view to the resale thereof until such time as such resale has been
registered or an exemption from registration is available under the 1933 Act and
applicable state securities laws. Each Seller is an accredited investor, as
that term is defined in Regulation D under the 1933 Act. Each Seller has had
access to such information, books and records of Cobalt and has asked questions
of and received satisfactory responses from Cobalt management to the extent such
Seller has deemed necessary in order to evaluate fully an investment in the
Securities. Each Seller acknowledges and agrees that to the extent it becomes a
shareholder of Cobalt, either as a result of the exercise or conversion of
Warrants or as a result of its receipt of Shares, such Seller shall, as a
condition to Cobalt's obligation to issue such capital stock to Seller, became a
party to the Cobalt Shareholders Agreement in the form attached as Exhibit H
hereto, or in such form as exists at the time of issuance of such capital stock.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF COBALT
Cobalt hereby represents and warrants to the Sellers that as of the date
hereof and the Closing Date:
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5.1 ORGANIZATION AND STANDING
Cobalt is a corporation duly organized and validly existing under the
laws of the state of Washington, having full corporate power and authority to
perform its obligations under this Agreement and the Related Documents. Cobalt
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which such qualification is required, other
than such jurisdictions where the failure to so qualify would not have a
material adverse effect on the business of Cobalt, taken as a whole.
5.2 AUTHORITY AND BINDING EFFECT
Cobalt has the full corporate power and authority to execute, deliver
and perform this Agreement and the Related Documents, and has taken all actions
necessary to secure all approvals required in connection therewith. The
execution, delivery and performance of this Agreement and the Related Documents
by Cobalt has been duly authorized by all necessary corporate action. The
execution and delivery of this Agreement and the Related Documents, and the
consummation of the transactions provided for herein and therein, will not
violate the Articles of Incorporation or Bylaws of Cobalt. This Agreement and
the Related Documents constitute legal, valid and binding obligations of Cobalt,
enforceable against it in accordance with their terms, except as may be limited
by bankruptcy or insolvency laws or other similar laws or equitable principles
affecting rights of creditors generally. Upon issuance of the Shares to Sellers
in accordance with this Agreement, the Shares will be duly and validly issued,
fully paid and non-assessable.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS
Neither the execution and delivery of this Agreement and the Related
Documents by Cobalt nor the consummation of the transactions provided for herein
and therein by Cobalt will contravene or violate any Regulation or Order which
is applicable to Cobalt, or will result in a Default under any Contract to which
Cobalt is a party or by which it is otherwise bound, or require Cobalt to notify
or obtain any Permits from any federal, state, local or other court or
governmental agency or body or from any other regulatory authority.
5.4 INVESTMENT INTENT
The Units are being acquired by Cobalt for investment purposes only, for
its own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof. Cobalt does not have any agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Units. Cobalt is an
"accredited investor" as that term is defined in Regulation D under the 1933
Act.
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5.5 ACCESS TO INFORMATION AND INSPECTION
Cobalt believes it has received all of the information it considers
necessary or appropriate in deciding whether to purchase the Units. Cobalt has
had an opportunity to ask questions and receive answers from Company and the
Sellers regarding the terms and conditions of its purchase of the Units, to
obtain further information about Company, the Business and the Assets and to
verify the accuracy of the information supplied or to which it had access.
Cobalt also has had the opportunity to inspect the tangible personal property of
Company included in the Assets and accepts such tangible personal property "As
Is."
5.6 RESTRICTED SECURITIES
Cobalt understands that the purchase of the Units has not been
registered under the 1933 Act, that the Units are being acquired in a
transaction not involving a public offering and the Units may not be resold
without registration under the 1933 Act or an exemption therefrom.
5.7 BROKERS' AND FINDERS' FEES
No broker, agent, person or firm acting on behalf of Cobalt is, or will
be, entitled to any commission or brokers' or finders' fee from any of the
parties hereto, or from any Affiliate of any of the parties hereto, in
connection with any of the transactions contemplated hereby.
5.8 ADDITIONAL INFORMATION
No information furnished by Cobalt to Sellers or Company in connection
with this Agreement is false or misleading in any material respect. In
connection with such information and this Agreement and the Related Documents,
Cobalt has made no untrue statement of a material fact or omitted to state or
will omit to state a material fact necessary in order to make the statements
made or information delivered, in the light of the circumstances under which
they were made or not made, not misleading.
5.9 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES
Cobalt has delivered to Sellers unaudited (i) balance sheet as of
December 31, 1998 and 1997, (ii) statements of income and cash flow for the
12-month periods ended December 31, 1998 and 1997, and (iii) all related notes
and schedules (such financial statements are collectively referred to herein as
the "Cobalt Financial Statements"). The Cobalt Financial Statements were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis with prior periods and fairly present the financial position
and results of the operations of Cobalt at the dates and for the periods covered
and include all adjustments
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that are necessary for a fair presentation of the information shown. Cobalt has
no material obligations or liabilities except for those reflected in the balance
sheet as of December 31, 1998 or those that have arisen since December 31, 1998.
5.10 NO BREACH
Neither Cobalt nor any representative of Cobalt during the course of
their due diligence has identified any fact that would constitute a breach of
the representations and warranties of any Seller under this Agreement.
SECTION 6. TAX MATTERS
6.1 ACCESS TO RECORDS FOLLOWING CLOSING
Cobalt and Sellers agree that so long as any books, records and files
retained by Sellers relating to Company or the Business, or the books, records
and files delivered to the control of Cobalt pursuant to this Agreement, to the
extent such books, records and files relate to the operations of Company or the
Business prior to the Closing Date, remain in existence and available, each
party (at its expense) shall have the right upon prior notice to inspect and
make copies of the same at any time during business hours for any proper
purpose. Company and Sellers shall not destroy or allow the destruction of any
such books, records and files without the prior written consent of Cobalt.
Cobalt shall not destroy or allow the destruction of any such books, records and
files without the prior written consent of Sellers.
6.2 PAYMENT OF TAXES
Sellers shall timely file all required Returns of the Group and timely
pay all Taxes of the Group (including all Taxes of the Group that are imposed on
Cobalt as a transferee of the Units or Assets), regardless of when such taxes
are due, to the extent such Taxes are allocable to any period ending on or
before the Closing Date. Cobalt shall pay all transfer taxes that are
statutorily imposed on Cobalt as a result of the transactions contemplated by
this Agreement. Sellers shall pay all transfer taxes that are statutorily
imposed on Sellers as a result of the transactions contemplated by this
Agreement.
6.3 PARTNERSHIP TERMINATION; SECTION 754 ELECTION
Sellers agree to treat the Company as a partnership for federal income
tax purposes and treat the partnership as terminating on the Closing Date.
Sellers shall timely file the Company's federal partnership income tax returns
for its taxable year ending on the Closing Date. Sellers shall include with
such tax return an election under Treasury Regulation Section 1.754-1(b) to
adjust the basis of partnership property under Code Sections 734(b) and 743(b)
for the partnership's taxable year.
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6.4 TAX TREATMENT AS ASSET ACQUISITION
Cobalt and Sellers agree to treat the Acquisition, for federal income
tax purposes, as a sale of the Assets by Sellers to Cobalt. The purchase price
paid by Cobalt shall be allocated among the Assets in accordance with the
Schedule to be attached as Exhibit F hereto, which shall be in a form mutually
agreeable to the parties prior to Closing. Cobalt and Sellers shall file all
Returns in a manner consistent with such allocation, and shall use their best
efforts to sustain such allocation in any subsequent tax audit or tax dispute.
SECTION 7. FURTHER ASSURANCES; SURVIVAL
7.1 FURTHER ASSURANCES
Upon the terms and subject to the conditions herein provided, each of
the parties hereto agrees to use its best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions provided for in this Agreement as expeditiously as practicable.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Regardless of any investigation at any time made by or on behalf of any
party hereto or of any information any party may have in respect thereof, the
representations, warranties, covenants, agreements and indemnities made by each
party in this Agreement shall survive until the second anniversary of the
Closing Date; provided, however, that the representations and warranties
contained in Section 4.7 and the covenants contained in Sections 6.1 through 6.4
hereof shall survive until the lapse of the relevant statute of limitations
period.
SECTION 8. INDEMNIFICATION
8.1 SELLERS' INDEMNITY
Sellers shall severally indemnify, defend and hold harmless Cobalt and
its directors, officers, employees, agents and Affiliates ("Cobalt Indemnified
Parties") from and against any and all Losses suffered or incurred by Cobalt
Indemnified Parties as a result of any of the following:
(a) Any inaccuracy in or breach of any representation or
warranty made in Section 4 other than representations and warranties made in
Section 4 with respect to state, county or local sales, use, income or excise
taxes in respect of which the parties have agreed the Sellers shall have no
indemnification obligation hereunder;
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(b) Any breach of any covenant made by Sellers in this
Agreement other than the covenants made in Section 6 with respect to state,
county or local sales, use or excise taxes in respect of which the parties have
agreed the Sellers shall have no indemnification obligation hereunder; and
(c) The Excluded Liability.
8.2 COBALT'S INDEMNITY
Cobalt shall indemnify, defend and hold harmless Sellers and their
respective directors, officers, employees, agents and Affiliates ("Seller
Indemnified Parties") from any and all Losses suffered or incurred by Seller
Indemnified Parties as a result of any of the following:
(a) Any inaccuracy in or breach of any representation or
warranty made in Section 5;
(b) Any breach of any covenant made by Cobalt in this
Agreement; and
(c) The ownership of the Assets and the operation of the
Business, including but not limited to the performance or failure to perform any
Contract of the Company included in the Assets as of the Closing Date, from and
after the Closing Date.
8.3 CLAIMS
(a) Any notice of a claim for indemnification shall specify
the facts alleged to constitute a breach and the representations, warranties and
covenants alleged to have been breached and shall be accompanied by an estimate
of the amount of Losses due to such breach.
(b) If any party entitled to indemnification hereunder (the
"INDEMNITEE") is subject to any action, suit, proceeding or demand at any time
instituted against or made upon it for which it may seek indemnification
hereunder (a "CLAIM") from a party hereto (the "INDEMNITOR"), the Indemnitee
shall notify the Indemnitor of such Claim as soon as reasonably practicable
after becoming aware of such Claim (specifying in reasonable detail the nature
and amount of the Claim); PROVIDED that failure to give such notice shall not
relieve the Indemnitor of its obligations hereunder except to the extent the
Indemnitor shall have been prejudiced by such failure. Upon receipt of such
notice, the Indemnitor shall be entitled to participate in and, at the
Indemnitee's option, assume the defense of such Claim with counsel reasonably
satisfactory to the Indemnitee, and in the case of such an assumption the
Indemnitor shall have the authority to negotiate, compromise and settle such
Claim for the Indemnitee; PROVIDED, HOWEVER, that (i) the Indemnitor shall
conduct such settlement or defense at all times in good faith and in a
reasonable manner and (ii) the Indemnitor shall promptly reimburse the
Indemnitee for all out-of-pocket expenses incurred as a result of the assumption
by the
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Indemnitor of control of such settlement or defense. Neither Indemnitor nor
Indemnitee shall enter into any settlement without the prior written consent of
the other party, which consent shall not be unreasonably withheld.
(c) The Indemnitee shall retain the right to employ its own
counsel at its own expense to participate in the defense of any Claim, the
defense of which has been assumed by the Indemnitor. The Indemnitee shall
cooperate in all respects in the defense of the Claim, including refraining from
taking any position adverse to the Indemnitor.
(d) For any Losses, other than Losses arising from the
Excluded Liability, the Indemnitor shall have no indemnity obligation pursuant
to this Section 8 until the Losses of the Indemnitee exceed $300,000 in the
aggregate from all matters as to which such party would be entitled to
indemnification pursuant to Section 8, at which point the indemnity obligation
of the Indemnitor shall cover all Losses in excess of such threshold amount.
With respect to the Excluded Liability, the Indemnitors shall fully and
completely indemnify the Indemnitees for all Losses from the first dollar. In
determining the amount of claims against an Indemnitor pursuant to this
Section 8, other than with respect to the Excluded Liability, the tax effect
(federal, state, local or foreign) to the Indemnitee by reason of such claims
(or the events giving rise to such claims) and the receipt of such
indemnification payment shall be included in the calculation of the amount to be
paid by the Indemnitor.
(e) The maximum indemnity obligation of any Seller under this
Agreement shall not exceed the aggregate purchase price received by such Seller
as set forth in Section 2.1 and the Schedule of Sellers.
8.4 RIGHT OF OFFSET
Subject to the notice requirements and other limitations provided in
this Section 8, Cobalt shall have the right to offset any Losses it incurs, once
such Losses are finally determined to be subject to indemnification hereunder
either by agreement of the parties or in a final, binding and non-appealable
decision of a court of competent jurisdiction, against any amounts payable to
Sellers pursuant to this Agreement and the 90-Day Notes or 270-Day Notes.
8.5 GUARANTEES; ESCROW
Each of Brian Allen and Shirley Atherton hereby unconditionally,
absolutely and irrevocably guarantee to the Cobalt Indemnified Parties to
promptly pay or perform, or cause Compu-Time, Inc. and Parts Finder Locating
Systems, Inc., respectively, to pay or perform, such corporation's respective
obligations under Section 8 of this Agreement. The foregoing several guarantees
are continuing guarantees and shall remain in full force and effect until the
obligations of the corporation in which respect of which the guarantee is given
have been fully
22
<PAGE>
and irrevocably paid, performed, satisfied, terminated or otherwise extinguished
as provided in this Agreement. Each Guarantor represents that the obligations
set forth in this Section 8.5 are valid and binding upon such Guarantor as
stated and that the guarantees shall inure and be binding upon, and enforceable
against, such Guarantor's successors-in-interest and assignees. The Guarantors
hereby waive promptness and diligence, notice of any actions taken by the
Sellers or Cobalt under this Agreement and all other notices, demands and
protests, and all other formalities of every kind in connection with the
enforcement of their obligations as Guarantors hereunder, the omission of or
delay in which, but for the provisions hereof, might constitute grounds for
relieving the Guarantor of his or her obligations hereunder.
Locators, Inc. agrees with respect to its indemnification obligations
set forth under Section 8 of this Agreement, that $3 million in value (based on
the $8.00 per share conversion price) of the Shares received by Locators, Inc.
at Closing shall be placed into an escrow account pursuant to the terms of an
escrow agreement on terms and conditions satisfactory to both Locators, Inc. and
Cobalt ("Escrow Agreement") to be executed and delivered by Locators, Inc. and
Cobalt at Closing (the "Escrow Fund"). The Escrow Fund shall be held by the
escrow agent designated in the Escrow Agreement as security for the indemnity
obligations of Locator, Inc. until the second anniversary of the Closing Date.
8.6 KNOWLEDGE PRIOR TO CLOSING
Any party to whom an indemnification obligation is owed by reason of
this Section 8 shall be deemed to have waived any indemnification obligation
based upon such inaccuracy or breach if the Indemnitee had knowledge of such
inaccuracy or breach before the Closing Date.
SECTION 9. MISCELLANEOUS
9.1 ASSIGNMENT; SUCCESSORS AND ASSIGNS
This Agreement may not be assigned prior to the Closing by any party
hereto without the prior written consent of the other parties. Subject to the
foregoing, all of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
9.2 NOTICES
Any notice, request, demand, waiver, consent, approval or other
communication which is required or permitted hereunder shall be in writing and
shall be deemed given only if delivered personally to the address set forth
below (to the attention of the person identified below) or sent by telegram, by
registered or certified mail, postage prepaid, or by overnight courier service,
or by facsimile with written facsimile transmission confirmation as follows:
23
<PAGE>
If to Cobalt to: With a copy to:
The Cobalt Group, Inc. Stoel Rives LLP
2030 First Avenue 3600 One Union Square
Seattle, WA 98121 600 University Street
Attention: Geoffrey T. Barker, Seattle, WA 98101
Co-Chief Executive Officer Attention: Ronald J. Lone
Facsimile No.: (206) 269-6350 Facsimile No.: (206) 386-7500
If to the Sellers to: With a copy to:
Parts Finder Locating Systems, Inc. Bruce G. Berning
14718 S.W. Scarlett Drive Tonkon Torp LLP
Tigard, OR 97224 888 SW Fifth Avenue, Suite 1600
Facsimile No.: (503) 590-6193 Portland, OR 97204
Facsimile No.: (503) 972-3712
With a copy to:
Locators, Inc. Allen B. Bush
8305 S.E. Monterey, Suite 104 13825 SW 33rd Place
Portland, OR 97266 Beaverton, OR 97008
Facsimile No.: (503) 653-9536 Facsimile No.: (503) 646-1391
With a copy to:
Compu-Time, Inc. Thomas G. Guilbert
8305 S.E. Monterey, Suite 110 2370 S.W. Montgomery Drive
Portland, OR 97266 Portland, OR 97201
Facsimile No.: (503) 659-3753 Facsimile No.: (503) 228-0811
If to Company to: With a copy to:
PartsVoice LLC Stephen B. Hill
8305 S.E. Monterey, Suite 104 Bullivant Houser Bailey
Portland, OR 97266 888 S.W. Fifth Avenue, Suite 300
Facsimile No.: (503) 653-9536 Portland, OR 97204
Facsimile No.: (503) 295-0915
or to such other address as the addressee may have specified in a notice duly
given to the sender and to counsel as provided herein. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to have
been given as of the date so delivered
24
<PAGE>
or telegraphed or, if mailed, three (3) business days after the date so mailed
or, if sent by overnight courier service or facsimile, one (1) business day
after the date so sent.
9.3 GOVERNING LAW; JURISDICTION; VENUE
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Oregon without reference to its choice of law
principles. Each party hereby irrevocably consents to the jurisdiction and
venue of the courts of the State of Oregon, Multnomah County, the United States
District Court for the District of Oregon at Portland, and all applicable
appellate courts, in connection with any action to interpret or enforce, or
otherwise arising out of or relating to, this Agreement.
9.4 ENTIRE AGREEMENT
This Agreement, together with the Exhibits hereto and all other
documents referred to herein and therein, sets forth the entire agreement of the
parties hereto with respect to the transactions contemplated hereby. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto, and no claimed amendment, modification, termination or waiver
shall be binding unless in writing and signed by the party against whom or which
such claimed amendment, modification, termination or waiver is sought to be
enforced.
9.5 SECTION HEADINGS
All section headings are for convenience only and shall in no way modify
or restrict any of the terms or provisions hereof.
9.6 COOPERATION
Subject to the provisions hereof, the parties hereto shall use their
best efforts to take, or cause to be taken, such action to execute and deliver,
or cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable under
the provisions of this Agreement and under applicable law to consummate and make
effective the transactions contemplated by this Agreement.
9.7 ATTORNEYS' FEES
Should any party employ an attorney or attorneys to enforce any of the
provisions of this Agreement or to protect its interest or enforce its rights in
any manner arising under this Agreement or to recover damages for the breach
hereof, and if a suit, action or other proceeding of any nature whatsoever
(including any contested matter or adversary proceeding under the U.S.
Bankruptcy Code) is instituted in connection with any controversy arising out
25
<PAGE>
of this Agreement or to interpret or enforce any rights hereunder, the
prevailing party shall be entitled to recover mediation and arbitration
expenses, if any, and its attorneys', paralegals', accountants' and other
experts' fees, and all other fees, costs and expenses actually incurred in
connection therewith, as determined by the judge at trial or on appeal or
review, in addition to all other amounts provided by law.
9.8 COUNTERPARTS
This Agreement may be executed in counterparts, each of which is an
original and all of which together shall be deemed to be one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by all the parties.
9.9 INTERPRETATION, KNOWLEDGE
This Agreement and each of the terms and provisions hereof are deemed to
have been explicitly negotiated among the parties and the language in all parts
of this Agreement shall in all cases be construed according to its fair meaning
and not strictly for or against any party. To the extent a statement or
representation contained in this Agreement is qualified to the "knowledge" of
Sellers, or using words of similar import, "knowledge" shall mean: as to Parts
Finder Locating Systems, Inc., the actual knowledge of Shirley Atherton; as to
Locators, Inc., the actual knowledge of Alex DeLucia; and as to Compu-Time,
Inc., the actual knowledge of Brian Allen.
9.10 PAYMENT OF EXPENSES
The Sellers and Cobalt shall be responsible for and pay any and all
legal, accounting, broker, investment banking and other fees and expenses which
they (and Company in the case of the Sellers) incur in connection with
preparation and performance of this Agreement, the transactions provided for
herein and in the Exhibits hereto.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
THE SELLERS: COBALT:
Locators, Inc. The Cobalt Group, Inc.
By By
--------------------------------- --------------------------------
Its Its
------------------------- ------------------------
Compu-Time, Inc.
By
---------------------------------
Its
-------------------------
Parts Finder Locating Systems, Inc.
By
---------------------------------
Its
-------------------------
With respect to the obligations and agreements set forth in Section 8.5
hereof only:
THE GUARANTORS:
- -----------------------------------
Brian Allen
- -----------------------------------
Shirley Atherton
27
<PAGE>
EXHIBIT INDEX
Exhibit A-1 90-Day Notes
Exhibit A-2 270-Day Notes
Exhibit B Warrants
Exhibit C-1 DeLucia Consulting Agreement
Exhibit C-2 Allen Employment Agreement
Exhibit D-1 Agreement for Management of Security
Exhibit D-2 Pledge and Security Agreement
Exhibit E Disclosure Schedule
Exhibit F Allocation Schedule
Exhibits G-1 through G-3 Opinions of Counsel
Exhibit H Second Amendment to Amended and Restated
Shareholders Agreement
Exhibit I Registration Rights Agreement
Exhibit J Amended and Restated Articles of
Incorporation of Cobalt
<PAGE>
SCHEDULE OF SELLERS
<TABLE>
<CAPTION>
Principal Principal
Unit Amount of Amount of
Units Ownership 90-Day 270-Day
Seller Conveyed Percentage Cash Portion Notes Notes Warrants Shares
------ -------- ---------- ------------ ----- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Locators, Inc. 56 56% $1,680,000 $3,720,000 $8,400,000 83,000 375,000
Compu-Time, Inc. 20 20% 600,000 1,400,000 3,000,000 35,000 125,000
Parts Finder
Locating Systems, 24 24% 720,000 2,880,000 3,600,000 42,000 0
Inc. --------- -------- ---------- ----------- ----------- ------- ---------
Totals 100 100% $3,000,000 $8,000,000 $15,000,000 160,000 500,000
</TABLE>
<PAGE>
Exhibit 10.16
AGREEMENT FOR MANAGEMENT OF SECURITY
This Agreement for Management of Security ("AGREEMENT") is made and
entered into this 30th day of April, 1999, by and among The Cobalt Group, a
Washington corporation ("COBALT"), and Compu-Time, Inc., an Oregon corporation,
Parts Finder Locating Systems, Inc., an Oregon corporation, and Locators, Inc.,
an Oregon corporation (COLLECTIVELY, "SELLERS").
RECITALS:
A. Pursuant to the terms of a Purchase Agreement dated as of the
date hereof ("PURCHASE AGREEMENT"), Cobalt has purchased from Sellers all of the
membership interest units ("UNITS") of PartsVoice LLC, an Oregon limited
liability company ("PARTSVOICE"). As payment of the purchase price for the
Units, Pledgor has executed and delivered to Secured Party $3,000,000 in cash,
three Promissory Notes in the aggregate principal amount of $12,000,000 due
90 days from the date hereof (THE "90-DAY NOTES"), three Promissory Notes in the
aggregate principal amount of $15,000,000 due 270 days from the date hereof (THE
"270-DAY NOTES", AND TOGETHER WITH THE 90-DAY NOTES, THE "NOTES") and warrants
to purchase 160,000 shares of Cobalt Common Stock. To secure payment of the
Notes, Cobalt has executed and delivered to the Sellers a Pledge and Security
Agreement of even date herewith (THE "PLEDGE AGREEMENT").
B. In recognition of Cobalt's ownership of PartsVoice and Sellers'
security interests therein, and in accordance with the terms of the Purchase
Agreement, the parties have agreed that Sellers shall continue to operate and
manage PartsVoice on and subject to the terms and conditions set forth below.
AGREEMENT:
1. MANAGEMENT OF PARTSVOICE. Until the Notes are paid in full,
Sellers shall have the exclusive right, power and authority, and shall have the
duty, to operate and manage the business and affairs of PartsVoice. Sellers
shall exercise such right, power and authority, and shall discharge such duty,
in good faith in a manner consistent with historical practice and in accordance
with the Operating Agreement of PartsVoice (a copy of which is attached hereto
and by this reference incorporated herein ("OPERATING AGREEMENT")). Except as
provided in Section 3 below, the right, power and authority granted to Sellers
and the duty of Sellers hereunder shall include, but not be limited to: the
purchase, sale, lease, mortgage or other transfer of the assets of PartsVoice;
the incurrence of debt and making of contracts, leases and
1
<PAGE>
other accommodations with customers and third parties; the employment of
personnel and payment of salaries and benefits related thereto; the expenditure
of funds and the undertaking of any and all other good faith actions related to
the operation and management of PartsVoice.
2. MANAGER. Until the Notes are paid in full, the right, power and
authority granted to Sellers and the duty of Sellers hereunder to operate and
manage the business and affairs of PartsVoice shall continue to be exercised by
Alex DeLucia ("DELUCIA"), as Manager of PartsVoice, as provided in the Operating
Agreement ("MANAGER"). In the event of the death, disability, resignation or
removal of DeLucia, the Manager shall be Brian Allen. The Manager shall be
compensated as provided in the Operating Agreement. Cobalt shall not consent,
approve or take any other action to remove or replace the Manager without the
prior written consent of Sellers.
3. LIMITATIONS ON MANAGEMENT. Notwithstanding Section 1 of this
Agreement, until an Event of Default as defined in the Pledge Agreement, Sellers
and the Manager shall not authorize, approve or take any of the following
actions without the prior written consent of Cobalt:
(a) The sale, lease, exchange, mortgage or other transfer or
disposition of any asset or related assets of PartsVoice having either a book or
fair market value, individually or in the aggregate, in excess of $50,000.
(b) The reorganization, consolidation, merger, dissolution or
liquidation of PartsVoice.
(c) An amendment to the articles of organization of
PartsVoice or the Operating Agreement.
(d) The incurrence of indebtedness by PartsVoice in an amount
in excess of $50,000.
(e) A material change in the nature of the business of
PartsVoice.
(f) A material change in the employment of personnel or the
engagement of consultants and payment of salaries, benefits or other
compensation related thereto, including entering into a contract for such
services with a term exceeding 1 year or with payment obligations exceeding
$100,000, or any significant change in the payment of salaries, benefits or
other compensation of senior management of PartsVoice.
(g) Any other action not in the ordinary course of
PartsVoice's business.
2
<PAGE>
4. DISTRIBUTIONS. Until the Notes are paid in full, no distribution
of cash or other assets of any kind of PartsVoice shall be made to Cobalt;
provided, however, that distributions of cash may be made by PartsVoice to
Sellers on behalf of Cobalt to pay monthly accrued but unpaid interest owed to
Sellers under the Notes to the extent of Net Cash Flow from the operations of
PartsVoice. For purposes of determining distributions permitted hereunder, Net
Cash Flow is defined as the amount of cash available at the end of any month in
excess of $100,000. Nothing in this section, and no distribution made or
permitted hereunder, shall in any way relieve Cobalt of its obligation to pay
the balance of the amounts due under the Notes.
5. VOTING. Notwithstanding the articles of organization of
PartsVoice and the Operating Agreement, all voting rights and other rights with
respect to the Units shall be governed by the terms of the Pledge Agreements.
6. TERMINATION. Upon payment of the Notes in full, this Agreement
shall terminate.
7. BINDING AGREEMENT. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
8. ENTIRE AGREEMENT AND AMENDMENT. This Agreement, together with
the Purchase Agreement and the other related agreement and documents included as
Exhibits thereto constitute the complete and final agreement of the parties with
regard to the transactions contemplated hereby and thereby and all previous and
contemporaneous understandings and agreements not stated herein or therein are
hereby waived and abandoned by the parties. No supplement, modification or
amendment to this Agreement shall be binding unless executed in writing by all
the parties hereto.
9. WAIVER. No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the waiver.
10. APPLICABLE LAW. The law applicable to this Agreement shall be
the law of the State of Oregon.
11. ATTORNEY FEES. If a suit, action or other proceeding of any
nature whatsoever (including any contested matter or adversary proceeding under
the U.S. Bankruptcy Code) is instituted in connection with any controversy
arising out of this Agreement or to interpret or enforce any rights hereunder,
the prevailing party shall be entitled to recover its reasonable attorneys',
paralegals', accountants' and other experts' fees, and all other fees, costs and
3
<PAGE>
expenses actually incurred in connection therewith, as determined by the judge
at trial or on appeal or review, in addition to all other amounts provided by
law.
12. COUNTERPARTS. This Agreement maybe executed in any number of
counterparts, each of which shall constitute an original of this Agreement.
COBALT: THE COBALT GROUP, INC.
By:
------------------------------
Its:
------------------------------
SELLERS: COMPU-TIME, INC.
By:
------------------------------
Its:
------------------------------
PARTS FINDER LOCATING SYSTEMS, INC.
By:
------------------------------
Its:
------------------------------
LOCATORS, INC.
By:
------------------------------
Its:
------------------------------
4
<PAGE>
Exhibit 10.17
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement ("AGREEMENT") is made and entered into
this 30th day of April, 1999, by and among The Cobalt Group, a Washington
corporation ("PLEDGOR"), and Compu-Time, Inc., Parts Finder Locating Systems,
Inc. and Locators, Inc., an Oregon corporation ("SECURED PARTY").
RECITALS:
A. Pursuant to the terms of a Purchase Agreement dated as of the date
hereof ("PURCHASE AGREEMENT"), Pledgor has purchased from Secured Party all of
the membership interest units ("UNITS") of PartsVoice LLC, an Oregon limited
liability company ("PARTSVOICE"). As payment of the purchase price for the
Units, Pledgor has executed and delivered to Secured Party $3,000,000 in cash,
three promissory notes in the aggregate principal amount of $12,000,000 of even
date herewith due in 90 days (THE "90-DAY NOTES"), and three promissory notes in
the aggregate principal amount of $15,000,000 of even date herewith due in 270
days (THE "270-DAY NOTES", AND TOGETHER WITH THE 90-DAY NOTES, THE "NOTES").
B. To secure payment of the Notes and performance of other obligations
described herein, Pledgor has agreed to pledge the Units, and grant a security
interest in the Units, to Secured Party on the terms set forth below.
AGREEMENT:
1. SECURITY INTEREST AND OBLIGATIONS SECURED. Pledgor hereby
assigns and pledges the Units to Secured Party, and grants a security interest
in the Units to Secured Party, to secure the full, complete and timely payment
of the Notes and the performance of Cobalt's obligations under this Agreement
and the Management Agreement (as defined in Section 5).
2. CERTIFICATE AND ASSIGNMENT. Upon execution of this Agreement,
Pledgor shall deliver to Secured Party a certificate representing all of the
Units ("CERTIFICATE"), together with an executed assignment separate from
certificate assigning all of the Units to Secured Party, in the form of Exhibit
A attached hereto ("ASSIGNMENT"). Upon payment in full of the Notes, Secured
Party shall promptly return the Certificate and the Assignment to Pledgor.
3. FINANCING STATEMENTS. Upon execution of this Agreement, Pledgor
shall execute and deliver to Secured Party such financing statements for filing
as deemed necessary or appropriate by Secured Party. Upon payment in full of
the Notes and the performance of all other obligations secured hereunder,
Secured Party shall terminate any financing statements filed by Secured Party
hereunder.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents
and warrants to Secured Party that:
(a) Pledgor is the sole legal and equitable owner of the Units,
free and clear of any pledges, security interests, liens, encumbrances,
restrictions on transfer, options, or agreements to sell the Units, except for
the pledge and security interest granted hereunder.
(b) Pledgor has full power and authority to execute, deliver and
perform this Agreement, and to pledge and grant a security interest in the Units
as provided herein.
(c) The execution, delivery and performance of this Agreement by
Pledgor has been duly and properly authorized and will not result in any
violation of Pledgor's articles of incorporation or bylaws or any agreement,
license, instrument, judgment, decree or order applicable to Pledgor.
5. COVENANTS OF PLEDGOR WITH RESPECT TO UNITS. Pledgor agrees that:
(a) Prior to payment in full of the Notes, Pledgor shall not
transfer (whether by sale, gift, or otherwise) any interest in the Units unless
such transfer is (i) expressly subject to the terms of this Agreement and the
Agreement for Management of Security of even date herewith among Pledgor,
Compu-Time, Inc., Parts Finder Locating Systems, Inc., and Locators, Inc.
("MANAGEMENT AGREEMENT"), and (ii) made with the prior written consent of
Secured Party in Secured Party's sole and absolute discretion. Prior to payment
in full of the 90-Day Notes, Pledgor shall not pledge or grant a security
interest in the Units, nor create, incur or allow any other lien, encumbrance or
restriction on transfer with respect to the Units, without the prior written
consent of Secured Party in Secured Party's sole and absolute discretion.
Following payment in full of the 90-Day Notes, Pledgor shall not pledge or grant
a security interest in the Units, nor create, incur or allow any other lien,
encumbrance or restriction on transfer with respect to the Units, unless such
pledge, security interest, lien, encumbrance or restriction is expressly
subordinate and subject to the terms of this Agreement and the Management
Agreement and made with the prior written consent of Secured Party which will
not be unreasonably withheld.
(b) Pledgor shall procure, execute, and deliver from time to
time any assignments, financing statements, continuation statements and other
writings reasonably necessary to perfect, maintain, and protect Secured Party's
security interest in the Units and its priority therein.
(c) Prior to payment in full of Notes, Pledgor shall not,
without the prior written consent of Secured Party in Secured Party's sole and
absolute discretion, (i) amend or restate the articles of organization or
operating agreement of PartsVoice, (ii) effect any reorganization,
consolidation, merger, dissolution or liquidation of PartsVoice (iii) sell,
<PAGE>
lease, exchange, mortgage or effect any other transfer or disposition of assets
of PartsVoice other than in the ordinary course of business, (iv) effect the
incurrence by PartsVoice of any indebtedness other than in the ordinary course
of business, (v) effect any material change in the nature of the business of
PartsVoice, or (vi) effect any withdrawal or distribution of cash or assets of
any kind of PartsVoice, except as provided in this Agreement or the Management
Agreement.
(d) Prior to payment in full of the Notes, Pledgor shall not
effect the admission of any additional members of PartsVoice without the prior
written consent of Secured Party in Secured Party's sole and absolute
discretion.
6. AUTHORIZED ACTION BY SECURED PARTY; PROXY. Subject to Section
7(a) hereof, Pledgor irrevocably appoints Secured Party as attorney-in-fact and
grants Secured Party a proxy to do any act that Pledgor is obligated by this
Agreement to do and to exercise such rights and powers as Pledgor might exercise
with respect to the Units pursuant to this Agreement. With respect to voting
the Units as provided in Section 7(b), this Section 6 constitutes an irrevocable
appointment of a proxy, coupled with an interest, which shall continue until the
Notes are paid in full.
7. VOTING OF UNITS.
(a) Unless and until an Event of Default (as hereinafter
defined) has occurred and is continuing, neither party shall exercise any voting
rights pertaining to the Units; provided, however, that Pledgor may vote for,
consent to, authorize or approve actions or transactions which provide for or
result in the payment in full of the Notes.
(b) If an Event of Default has occurred and is continuing,
Secured Party shall, at its option and election evidenced by a notice to
Pledgor, and whether or not Secured Party exercises any other rights or remedies
available to it under this Agreement, have the right to exercise all voting
rights with respect to the Units.
8. EVENTS OF DEFAULT. Any one or more of the following events
constitutes an event of default ("EVENT OF DEFAULT"):
(a) Occurrence and continuation of an Event of Default (as
therein defined) under the Notes;
(b) A breach or failure by Pledgor to perform any of the terms
of this Agreement, which breach or failure has not been cured within twenty (20)
days after written notice has been given of such breach or failure, including,
without limitation, the covenants contained in Section 5 of this Agreement;
(c) If any representation or warranty in this Agreement shall
prove to have been false when made; or
<PAGE>
(d) A breach or failure by Pledgor to perform any of the terms
of the Management Agreement, which breach or failure has not been cured within
twenty (20) days after written notice has been given of such breach or failure.
9. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of
Default, Secured Party may, in Secured Party's sole discretion and with or
without further notice to Pledgor and in addition to all rights and remedies at
law or in equity or otherwise:
(a) Transfer any or all of the Units into the Secured Party's
name.
(b) Exercise Secured Party's proxy rights with respect to all or
a portion of the Units. In such event, Pledgor agrees to deliver promptly to
Secured Party evidence of the grant of such proxy in any form reasonably
requested by Secured Party.
(c) Continue the management of PartsVoice pursuant to the terms
of Management Agreement.
(d) Sell or otherwise dispose of the Units in accordance with
Section 10 below.
Upon the occurrence of an Event of Default that has been caused by a
material breach or material failure of Pledgor to perform its obligations under
this Agreement or the Management Agreement, Secured Party may, in addition to
the foregoing rights and remedies, declare in writing the entire amount of the
principal and interest due under the Notes immediately due and payable.
Pledgor shall be liable for Secured Party's reasonable costs and
expenses, including attorney fees, incurred or paid in exercising any remedy
under this Agreement or in the enforcement hereof, in either such case after an
Event of Default has occurred and while it is continuing, which costs and
expenses shall become part of the indebtedness secured hereby and shall be paid
to Secured Party immediately upon demand.
10. SALE UPON DEFAULT. Pledgor and Secured Party acknowledge and
agree that the Units are restricted, unregistered securities that are difficult
to value and for which no public market exists. The parties further agree that
the Units are not subject to sale in a "recognized market" as that term is
described in ORS 79.5040. Pledgor and Secured Party wish to agree to reasonable
standards for conducting a commercially reasonable sale of the Units. Without
limiting rights and remedies otherwise available to Pledgor, the parties agree
that compliance with the following steps shall satisfy requirements of a
commercially reasonable sale:
(a) The sale may be either a public or a private sale, at
Secured Party's reasonable discretion, and it may be for all or any portion of
the Units.
<PAGE>
(b) Secured Party shall set a date for public sale of the Units,
or a date after which a private sale may occur, which date shall be not less
than thirty (30) days after the date notice of the sale is given to Pledgor, and
shall send written notification to Pledgor in advance regarding the date and the
time of the public sale, or the date after which a private sale may occur.
(c) Any public sale shall take place at a site in Portland,
Oregon and time during normal business hours selected by Secured Party in its
reasonable discretion.
(d) As soon as practicable after request therefor by Secured
Party, and in any event within twenty (20) days, Pledgor shall provide Secured
Party with information relating to Pledgor requested by Secured Party for
compliance with state or federal securities laws.
(e) At any sale of any of the Units, Secured Party may restrict
the prospective bidders or purchasers to persons or entities who, by certain
representations made by them, would render registration of the sale under state
or federal securities laws unnecessary.
Upon any sale of the Units as provided above, the sale proceeds shall
be applied as follows: first, to the payment of all costs and expenses incurred
in connection with the holding, preparing for sale and sale of the Units,
including but not limited to attorneys' fees and legal expenses incurred by
Secured Party in connection therewith; second, to payment of all amounts due
under the Notes; and third, any surplus thereafter remaining shall be paid to
Pledgor or whoever may be lawfully entitled thereto.
11. REMEDIES CUMULATIVE. The rights and remedies of Secured Party
herein shall be cumulative and in addition to, and not exclusive of, any rights
or remedies provided by law.
12. NOTICES. Notices, requests, demands and other communications
required under this Agreement shall be in writing and considered validly served
when delivered by first-class mail, facsimile, telex or telecopy to the address
or telephone number specified below:
TO PLEDGOR: The Cobalt Group, Inc.
Attn: Geoffrey T. Barker
1525 First Avenue, Third Floor
Seattle, WA 98101
Fax (206) __________
With a copy to:
Stoel Rives LLP
Attn: Ronald J. Lone
3600 One Union Square
600 University Street
<PAGE>
Seattle, WA 98101
Fax (206) 386-7500
TO PLEDGEE: Compu-Time, Inc.
8305 S.E. Monterey, Suite 110
Portland, OR 97266
Fax (503) 659-3753
Parts Finder Locating Systems, Inc.
14718 S.W. Scarlett Drive
Tigard, OR 97224
Fax (503) 538-9103
Locators, Inc.
8305 S.E. Monterey, Suite 104
Portland, OR 97266
Fax (503) 653-9536
With a copy to:
Bullivant Houser Bailey
Professional Corporation
Attention: Stephen B. Hill, Esq.
888 S.W. Fifth Avenue
300 Pioneer Tower
Portland, Oregon 97204-20898
Fax (503) 295-0915
Any party may alter its address by giving written notice of such
change to the other parties hereto.
13. SECURED PARTY REPRESENTATIONS. The Manager of PartsVoice, as
defined in Section 2 of the Management Agreement, shall serve as the sole and
exclusive agent of Secured Party for purposes of any decision or action required
or permitted to be taken by Secured Party hereunder unless any of the entities
collectively known as the Secured Party shall have given notice to Pledgor to
the contrary and, prior to the actual receipt of such notice by Pledgor, Pledgor
shall be entitled to rely on the authority of the Manager as such.
14. BINDING AGREEMENT AND ASSIGNMENT. This Agreement shall be
binding upon the respective successors and assigns of the parties hereto.
15. ENTIRE AGREEMENT AND AMENDMENT. This Agreement, together with
the Purchase Agreement and the other related agreements and documents included
as Exhibits thereto constitute the complete and final agreement of the parties
with regard to the transactions contemplated hereby and thereby and all previous
and contemporaneous
<PAGE>
understandings and agreements not stated herein or therein are hereby waived and
abandoned by the parties. No supplement, modification or amendment to this
Agreement shall be binding unless executed in writing by all the parties hereto.
16. WAIVER. No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the waiver.
17. APPLICABLE LAW. The law applicable to this Agreement shall be
the law of the State of Oregon.
18. ATTORNEY FEES. If a suit, action or other proceeding of any
nature whatsoever (including any contested matter or adversary proceeding under
the U.S. Bankruptcy Code) is instituted in connection with any controversy
arising out of this Agreement or to interpret or enforce any rights hereunder,
the prevailing party shall be entitled to recover its reasonable attorneys',
paralegals', accountants' and other experts' fees, and all other fees, costs and
expenses actually incurred in connection therewith, as determined by the judge
at trial or on appeal or review, in addition to all other amounts provided by
law.
19. COUNTERPARTS. This Agreement maybe executed in any number of
counterparts, each of which shall constitute an original of this Agreement.
PLEDGOR: The Cobalt Group, Inc.
By:
------------------------------------
Its:
------------------------------------
<PAGE>
SECURED PARTY: Compu-Time, Inc.
By:
------------------------------------
Its:
------------------------------------
Parts Finder Locating Systems, Inc.
By:
------------------------------------
Its:
------------------------------------
Locators, Inc.
By:
------------------------------------
Its:
------------------------------------
<PAGE>
EXHIBIT A
(Form of Assignment Separate From Certificate)
<PAGE>
Exhibit 10.18
WARRANT SHARES AND SERIES C PREFERRED SHARES
REGISTRATION AGREEMENT
This Registration Agreement ("Agreement") is entered into as of April 30,
1999 by and among The Cobalt Group, Inc., a Washington corporation ("Cobalt"),
and Locators, Inc., an Oregon corporation, Parts Finder Locating Systems, Inc.,
an Oregon corporation, and Compu-Time, Inc., an Oregon corporation
(collectively, the "Holders").
RECITALS
A. Cobalt has issued to the Holders warrants ("Warrants") to purchase
shares of Cobalt common stock, $0.01 par value ("Common Stock") and shares of
Cobalt Series C Preferred Stock, $0.01 par value ("Series C Preferred") pursuant
to the terms of a Purchase Agreement to which Cobalt and Holders are parties,
dated as of April 30, 1999 (the "Purchase Agreement").
B. Cobalt has agreed to take steps to permit the Holders to resell the
Common Stock to be received by the Holders on conversion of Series C Preferred
and on exercise or conversion of Warrants without restriction under the
Securities Act of 1933, as amended (the "Securities Act").
AGREEMENT
1. SPECIAL DEFINITIONS.
(a) "Register," "registration," and "registered" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement by the U.S. Securities and Exchange Commission (the
"SEC").
(b) "Registrable Shares" means the shares of Common Stock issued or
issuable upon conversion of the Series C Preferred and upon exercise or
conversion of the Warrants.
(c) "Registrable Securities" means (i) any Series A Preferred Stock issued
pursuant to the Purchase Agreement between Cobalt, The Productivity Fund III,
L.P., Environmental Private Equity Fund II, L.P., and Mark Koulogeorge dated
February 28, 1997 (the "Series A Purchase Agreement"); (ii) any Series B
Preferred Stock issued pursuant to the Purchase Agreement between Cobalt and
Warburg, Pincus Equity Partners, L.P. dated October 7, 1998 (the "Series B
Purchase Agreement") and any Series B Preferred Stock issued to the Reynolds and
Reynolds Company, (iii) any Common Stock issued upon the conversion of any
Series A Preferred Stock issued pursuant to the Series A Purchase Agreement;
(iv) any Common Stock issued upon the conversion of any Series B Preferred Stock
issued pursuant to the Series B Purchase Agreement and any Common Stock issued
upon the conversion of any Series B
<PAGE>
Preferred Stock issued to the Reynolds and Reynolds Company, and (v) any Common
Stock issued or issuable with respect to the securities referred to in clauses
(i), (ii), (iii) and (iv) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization.
2. RESALE REGISTRATION.
After its initial public offering, Cobalt shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms (a "Short Form Registration Statement"). If a Short Form Registration
Statement is available for use by Cobalt, the holders of a majority of the
Registrable Shares that have not previously been registered for resale pursuant
to this Section 2 may make a written request (a "Resale Registration Request")
that Cobalt register under the Securities Act the Registrable Shares that are
the subject of the Resale Registration Request on such form (a "Resale Demand
Registration"). Promptly after receipt of such Resale Registration Request,
which shall specify the number of Registrable Shares to be registered and the
intended method of disposition thereof, Cobalt shall as expeditiously as
possible prepare and file a Short Form Registration Statement with respect to
such Registrable Shares. Cobalt agrees to use its best efforts to cause such
Resale Demand Registration to become effective as expeditiously as reasonably
possible and thereafter to keep it continuously effective for a period of
180 days from the date on which the SEC declares the Resale Demand Registration
effective or such shorter period as will terminate when all the Registrable
Shares covered by the Resale Demand Registration have been sold.
3. PIGGYBACK REGISTRATIONS.
(a) Whenever the Company proposes to register any of its securities under
the Securities Act (other than pursuant to a registration on Form S-8 or S-4)
and the registration form to be used may be used for the registration of
Registrable Shares (a "Piggyback Registration"), the Company will give prompt
written notice to all holders of Registrable Shares of its intention to effect
such a registration, which notice shall specify whether such offer will be
underwritten and shall include all jurisdictions in which the Company intends to
attempt to qualify such securities under applicable blue sky or state securities
laws, and will include in such registration all Registrable Shares with respect
to which the Company has received written requests for inclusion therein within
ten days after the receipt of the Company's notice.
(b) The Registration Expenses of the holders of Registrable Shares will be
paid by the Company in all Piggyback Registrations.
(c) If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, including the
proposed price for the securities, the Company will include in such
2
<PAGE>
registration (i) first, the securities the Company proposes to sell,
(ii) second, the Registrable Shares and Registrable Securities requested to
be included in such registration, pro rata among the holders of such
Registrable Shares and Registrable Securities on the basis of the number of
shares owned by each such holder, and (iii) third, other securities requested
to be included in such registration.
(d) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering without adversely affecting the
marketability of the offering, including the proposed price for the
securities, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration, (ii) second, the Registrable Shares and Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Shares and Registrable Securities on the basis of the number
of shares owned by each such holder, and (iii) third, other securities
requested to be included in such registration.
(e) If the Company has previously filed a registration statement with
respect to Registrable Shares pursuant to paragraph 2 or pursuant to this
paragraph 3, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or S-4 or any successor form), whether on its own behalf
or at the request of any holder or holders of such securities, until a period of
at least ninety days has elapsed from the effective date of such previous
registration.
4. OBLIGATIONS OF COBALT.
When required by this Agreement to register Registrable Shares, Cobalt
shall, as promptly as reasonably possible:
(a) Prepare and file with the SEC a registration statement covering such
Registrable Shares and use its best efforts to cause such registration statement
to become effective, and, keep such registration statement continuously
effective for up to 180 days or such shorter period as will terminate when all
the Registrable Shares covered by the registration statement have been sold.
(b) Prepare and file with the SEC any amendments and supplements to the
registration statement and the prospectus used in connection with it needed to
comply with the Securities Act with respect to the sale of all Registrable
Shares covered by such registration statement.
3
<PAGE>
(c) Give the Holders the number of copies of preliminary and final
prospectuses, in conformity with the requirements of the Securities Act, and
other documents that they reasonably request to facilitate the sale of their
Registrable Shares.
(d) Use its best efforts to register and qualify the Registrable Shares
covered by such registration statement under securities or Blue Sky laws of such
jurisdictions that the Holders request, PROVIDED that Cobalt shall not be
required in connection therewith to qualify to do business or to file a general
consent to service of process in any such jurisdictions.
(e) Notify each holder of Registrable Shares covered by such registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
5. HOLDERS' INFORMATION.
Cobalt is obligated to take actions to register Registrable Shares under
this Agreement only if the Holders requesting registration give Cobalt on a
timely basis all information regarding themselves, their Registrable Shares, and
their intended method of disposition of such securities as shall be reasonably
required to effect the registration of their Registrable Shares.
6. EXPENSES OF REGISTRATION.
Cobalt shall pay all expenses other than underwriting discounts,
commissions and fees and disbursements of legal counsel for the selling Holders
relating to Registrable Shares incurred in connection with registrations,
filings or qualifications pursuant to this Agreement, including (without
limitation) all registration, filing and qualification fees, printing and
accounting fees, and fees and disbursements of counsel for Cobalt.
7. INDEMNIFICATION.
If any Registrable Shares are included in a registration statement under
this Agreement:
(a) To the extent permitted by law, Cobalt will indemnify and hold
harmless each Holder and each person, if any, who controls such Holder within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), against any losses, claims, damages or liabilities
to which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based on any of
the following statements, omissions, or violations (each a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary or final prospectus
contained therein or any amendments or supplements thereto,
4
<PAGE>
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by Cobalt of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; PROVIDED, HOWEVER, that this indemnity shall not inure to the
benefit of any Holder, or controlling person with respect to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Cobalt, nor with respect to any
loss, claim, damage, liability or action that arises out of or is based on a
Violation that occurs in reliance on written information given to Cobalt
expressly for use in connection with such registration by any such Holder, or
controlling person.
(b) To the extent permitted by law, each Holder whose Registrable Shares
are included in a registration pursuant hereto will indemnify and hold harmless
Cobalt, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls Cobalt within the
meaning of the Securities Act (a "Cobalt Indemnitee"), against any losses,
claims, damages or liabilities to which such Cobalt Indemnitee may become
subject, under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based on any Violation that occurs in
reliance on written information given by such Holder or its agents expressly for
use in connection with such registration; PROVIDED, HOWEVER, that (i) this
indemnity shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder and (ii) the obligations of such Holder shall be limited to an
amount equal to the gross proceeds to such Holder.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action (including any governmental action),
the indemnified party will give the indemnifying party written notice thereof.
The indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly notified, to assume the defense thereof. An indemnified party
shall have the right to retain its own counsel, reasonably satisfactory to the
indemnifying party, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party would be inappropriate due to
actual or potential conflicting interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to give
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6, but the failure to give such notice
shall not relieve it of any liability that it may otherwise have to any
indemnified party.
(d) If the indemnification provided for in this Section 6 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable
5
<PAGE>
by such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the parties under this Section 6 shall survive the
completion of any offering of Registrable Shares.
8. RULE 144.
With a view to making available the benefits of certain rules and
regulations of the SEC that may permit the sale of the Registrable Shares to the
public without registration or pursuant to a Short Form Registration Statement,
after its initial public offering, Cobalt agrees to use its best efforts to:
(a) Make and keep public information regarding Cobalt available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times from and after the effective date that Cobalt becomes subject to the
reporting requirements of the Securities Act or the Exchange Act; and
(b) File with the SEC in a timely manner all reports and other documents
required of Cobalt under the Securities Act and the Exchange Act at any time
after it has become subject to such reporting requirements.
9. LOCK-UP AGREEMENT.
If requested by Cobalt and an underwriter managing an underwritten offering
of Cobalt's securities, each Holder that is an officer, director, consultant or
is otherwise an affiliate of Cobalt or any subsidiary entity agrees that it
shall not sell or otherwise transfer or dispose of any Registrable Shares held
by such Holder without the prior written consent of Cobalt or such underwriter
for a period of time not to exceed one hundred eighty (180) days following the
effective date of a registration statement of Cobalt filed under the Securities
Act (the "Lock-up Period"), provided, however, that all other officers,
directors and similarly situated affiliates also agree to such a restriction.
6
<PAGE>
10. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Oregon.
11. SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, permitted assigns,
heirs, executors and administrators of the parties hereto.
12. ENTIRE AGREEMENT; AMENDMENT AND WAIVER.
This Agreement constitutes the full and entire understanding and agreement
between the parties with regard to the subject matter hereof. This Agreement may
not be amended, waived, discharged or terminated, except by a written instrument
signed by Cobalt and the holders of at least a majority of the Registrable
Shares.
13. NOTICES.
All notices and other communications required or permitted hereunder shall
be in writing and shall be delivered personally or by registered mail or
overnight courier service to the party concerned addressed as follows:
If to Cobalt to: With a copy to:
The Cobalt Group, Inc. Stoel Rives LLP
2030 First Avenue 3600 One Union Square
Seattle, WA 98121 600 University Street
Attention: Geoffrey T. Barker, Seattle, WA 98101
Co-Chief Executive Officer Attention: Ronald J. Lone
Facsimile No.: (206) 269-6350 Facsimile No.: (206) 386-7500
If to the Holders to: With a copy to:
Parts Finder Locating Systems, Inc. Bruce G. Berning
14718 S.W. Scarlett Drive Tonkon Torp LLP
Tigard, OR 97224 888 SW Fifth Avenue, Suite 1600
Facsimile No.: (503) 590-6193 Portland, OR 97204
Facsimile No.: (503) 972-3712
7
<PAGE>
With a copy to:
Locators, Inc. Allen B. Bush
8305 S.E. Monterey, Suite 104 13825 SW 33rd Place
Portland, OR 97266 Beaverton, OR 97008
Facsimile No.: (503) 653-9536 Facsimile No.: (503) 646-1391
With a copy to:
Compu-Time, Inc. Thomas G. Guilbert
8305 S.E. Monterey, Suite 110 2370 S.W. Montgomery Drive
Portland, OR 97266 Portland, OR 97201
Facsimile No.: (503) 659-3753 Facsimile No.: (503) 228-0811
or to any other address as may from time to time be notified in writing by any
party to the other parties hereto. Any notice or other communication shall be
deemed to have been given on the day delivered, if delivered by hand; one
business day following the day deposited with an overnight courier service; or
within four business days of mailing.
14. DELAYS OR OMISSIONS.
No delay or omission to exercise any right, power or remedy accruing to any
Holder upon any breach or default of Cobalt under this Agreement shall impair
any such right, power or remedy of such Holder, nor shall it be construed to be
a waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
therefore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of any breach or default under
this Agreement, or any waiver on the part of any Holder of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
15. RIGHTS; SEPARABILITY.
Unless otherwise expressly provided herein, a Holder's rights hereunder are
several rights, not rights jointly held with any of the other Holders. In case
any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
8
<PAGE>
THE HOLDERS: COBALT:
Locators, Inc. The Cobalt Group, Inc.
By By
---------------------------- ---------------------------------
Its Its
---------------------- ---------------------------
Compu-Time, Inc.
By
----------------------------
Its
----------------------
Parts Finder Locating Systems, Inc.
By
----------------------------
Its
----------------------
9
<PAGE>
Exhibit 10.19
PROMISSORY NOTE
$1,400,000 April 30, 1999
FOR VALUE RECEIVED, The Cobalt Group, Inc., a Washington corporation
("Cobalt"), promises to pay to the order of Compu-Time, Inc. ("Seller"), at
Seller's office at 8305 S.E. Monterey, Suite 110, Portland, OR 97266, or at such
other address as the holder hereof may from time to time designate in writing,
the principal sum of One Million Four Hundred Thousand Dollars ($1,400,000)
together with interest from the date of this Promissory Note (this "Note") until
July 30, 1999 ("Maturity") on the principal balance from time to time remaining
unpaid hereon at the rate of eight and seventy-five one hundredths percent
(8.75%) per annum. Prior to Maturity, interest on this Note will be payable in
arrears on the first business day of each calendar month with respect to the
prior calendar month, except that the first such payment will be payable on
June 1, 1999 with respect to the period from the date of this Note through
May 31, 1999. There are no scheduled payments of principal on this Note prior
to Maturity. All then unpaid principal and interest hereon shall be due and
payable on Maturity.
This Note evidences a part of the purchase price for Cobalt's purchase from
Seller of the membership interest of Seller in PartsVoice LLC, an Oregon limited
liability company ("PartsVoice") represented by membership certificate number __
of PartsVoice (the "Membership Certificate") pursuant to the Purchase Agreement
dated as April 19, 1999 to which Cobalt and Seller are parties (the "Purchase
Agreement"). This Note is secured by a pledge of the Membership Certificate
pursuant to the Pledge and Security Agreement dated of even date herewith
between Cobalt and Seller (the "Pledge Agreement").
Cobalt shall have the right to prepay any or all of the outstanding balance
of this Note at any time and from time to time without penalty or premium of any
kind.
Until this Note is paid, Cobalt shall be required, within two (2) business
days of its receipt of the net proceeds of a Qualified Public Offering, to pay
in full to Seller all remaining amounts due under this Note (a "Mandatory
Prepayment"), subject to the consent of the underwriters. As used herein,
"Qualified Public Offering" shall mean a public offering of equity securities of
Cobalt with net proceeds to Cobalt of at least $25 million.
Each of the following shall constitute an Event of Default ("Event of
Default") hereunder and under the Pledge Agreement:
(a) Failure of Cobalt to make any payment or Mandatory Prepayment of
principal or interest upon this Note when due, and such failure or refusal shall
continue for a period of ten (10) days after written notice is given to Cobalt
by Seller specifying such failure; provided, however, that no written notice is
required to be given to Cobalt by Seller if Seller
<PAGE>
has already given Cobalt written notice on two separate occasions of the failure
to make payment in the prior twelve (12)months; or
(b) Failure of Cobalt to observe or perform any other covenant or
condition contained in this Note and such default shall continue for thirty (30)
days after notice is given to Cobalt specifying the nature of the failure; or
(c) Filing by Cobalt of a voluntary petition in bankruptcy or filing
by Cobalt of any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, or similar
relief for itself under any present or future federal, state or other statute,
law or regulation relating to bankruptcy, insolvency or other relief for
debtors, or the seeking, consenting to, or acquiescing by Cobalt in the
appointment of any trustee, receiver, custodian, conservator or liquidator for
Cobalt, or the making by Cobalt of any general assignment for the benefit of
creditors; or
(d) Filing of a petition against Cobalt seeking any reorganization,
arrangement, composition, readjustment, liquidation, or similar relief under any
present or future federal, state or other law or regulation relating to
bankruptcy, insolvency or other relief for debts, or the appointment of any
trustee, receiver, custodian, conservator or liquidator of Cobalt, unless such
petition shall be dismissed within sixty (60) days after such filing, but in any
event prior to the entry of an order, judgment or decree approving such
petition; or
(e) The institution of any proceeding for the dissolution of Cobalt
voluntarily, involuntarily, or by operation of law; or
(f) The occurrence and continuation of an Event of Default (as
therein defined) under the Pledge Agreement; or
(g) Failure of Cobalt to observe or perform any obligation of Cobalt
under the Purchase Agreement or the Agreement for Management of Security of even
date herewith among Cobalt, Compu-Time, Inc., Parts Finder Locating Systems,
Inc., and Locators, Inc. (the "Management Agreement") when such observance or
performance is due, and such failure shall continue beyond the applicable cure
period set forth in such Agreement, or if the default cannot be cured within
such applicable cure period, Cobalt fails within such time to commence and
pursue curative action with reasonable diligence or fails at any time after
expiration of such applicable cure period to continue with reasonable diligence
all necessary curative actions.
Upon the occurrence of any of the foregoing Events of Default, Seller shall
have the option in writing to declare the entire amount of principal and
interest due under this Note
2
<PAGE>
immediately due and payable, and Seller may exercise any of its rights under
this Note and the Pledge Agreement. After acceleration or Maturity, Cobalt
shall pay interest on the outstanding principal balance of this Note at the rate
of thirteen and seventy-five one hundredths percent (13.75%) per annum provided
that such interest rate shall not exceed the maximum interest rate permitted by
law.
All payments of the principal and interest on this Note shall be first
applied against interest and made in coin or currency of the United States of
America which at the time shall be the legal tender for the payment of public
and private debts.
If this Note is placed in the hands of an attorney for collection, Cobalt
agrees to pay any reasonable attorneys' fees and costs incurred by Seller in
connection therewith, and in the event suit or action is instituted to enforce
or interpret this Note, the prevailing party shall be entitled to recover all
expenses reasonably incurred at, before or after trial and on appeal, whether or
not taxable as costs, or in connection with post-judgment collection efforts,
including, without limitation, reasonable attorneys' fees, witness fees (expert
and otherwise), deposition costs, copying charges and other expenses.
This Note shall be governed and construed in accordance with the laws of
the State of Oregon applicable to contracts made and to be performed therein
(excluding choice-of-law principles). Cobalt hereby irrevocably submits to the
jurisdiction of any state or federal court sitting in Oregon in any action or
proceeding brought to enforce or otherwise arising out of or relating to this
Note, and hereby waives any objection to venue in any such court and any claim
that such forum is an inconvenient forum.
This Note is given in a commercial transaction solely for business
purposes.
Cobalt and all sureties, endorsers, guarantors and other parties now or
hereafter liable for the payment of this Note, in whole or in part, hereby
severally (i) waive demand, notice of demand, presentment for payment, notice of
nonpayment, notice of default, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices, and further waive
diligence in collecting this Note or in enforcing any of the security for this
Note; (ii) agree to any substitution, subordination, exchange or release of any
security for this Note or the release of any party primarily or secondarily
liable for the payment of this Note; (iii) agree that Seller shall not be
required to first institute suit or exhaust its remedies hereon against Cobalt
or others liable or to become liable for the payment of this Note or to enforce
its rights against any security for the payment of this Note; and (iv) consent
to any extension of time for the payment of this Note, or any installment
hereof, made by agreement by Seller with any person now or hereafter liable for
the payment of this Note, even if Cobalt is not a party to such agreement.
All agreements between Cobalt and Seller, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason
3
<PAGE>
of demand or acceleration of the Maturity of this Note or otherwise, shall the
interest contracted for, charged, received, paid or agreed to be paid to
Seller exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Seller in excess
of the maximum amount permissible under applicable law, the interest payable to
Seller shall be reduced to the maximum amount permissible under applicable law;
and if from any circumstance shall Seller ever receive anything of value deemed
interest by applicable law in excess of the maximum amount permissible under
applicable law, an amount equal to the excessive interest shall be applied to
the reduction of the principal hereof and not to the payment of interest, or if
such excessive amount of interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to Cobalt. All interest paid or agreed to
be paid to Seller shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period (including
any renewal or extension) until payment in full of the principal so that the
interest hereon for such full period shall not exceed the maximum amount
permissible under applicable law. Seller expressly disavows any intent to
contract for, charge or receive interest in an amount which exceeds the maximum
amount permissible under applicable law.
UNDER OREGON LAW (ORS 41.580), AFTER OCTOBER 8, 1989, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY A LENDING PARTY CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES, OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE, MUST BE IN WRITING, SET FORTH THE
CONSIDERATION GIVEN AND BE SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE LENDING
PARTY TO BE ENFORCEABLE.
THE COBALT GROUP, INC.
-------------------------------------
By:
Its:
4
<PAGE>
Schedule to Exhibit 10.19
Other similar Notes of the Company dated April 30, 1999:
Holder Principal Amount
Parts Finder Locating Systems, Inc. $2,880,000
Locators, Inc. $3,720,000
5
<PAGE>
Exhibit 10.20
PROMISSORY NOTE
$3,000,000 April 30, 1999
FOR VALUE RECEIVED, The Cobalt Group, Inc., a Washington corporation
("Cobalt"), promises to pay to the order of Compu-Time, Inc. ("Seller"), at
Seller's office at 8305 S.E. Monterey, Suite 110, Portland, OR 97266, or at such
other address as the holder hereof may from time to time designate in writing,
the principal sum of Three Million Dollars ($3,000,000) together with interest
from the date of this Promissory Note (this "Note") until January 25, 2000
("Maturity") on the principal balance from time to time remaining unpaid hereon
at the rate of eight and seventy-five one hundredths percent (8.75%) per annum.
Prior to Maturity, interest on this Note will be payable in arrears on the first
business day of each calendar month with respect to the prior calendar month,
except that the first such payment will be payable on June 1, 1999 with respect
to the period from the date of this Note through May 31, 1999. There are no
scheduled payments of principal on this Note prior to Maturity. All then unpaid
principal and interest hereon shall be due and payable on Maturity.
This Note evidences a part of the purchase price for Cobalt's purchase from
Seller of the membership interest of Seller in PartsVoice LLC, an Oregon limited
liability company ("Parts Voice") represented by membership certificate
number __ of Parts Voice (the "Membership Certificate") pursuant to the Purchase
Agreement dated April 19, 1999 to which Cobalt and Seller are parties (the
"Purchase Agreement"). This Note is secured by a pledge of the Membership
Certificate pursuant to the Pledge and Security Agreement dated of even date
herewith between Cobalt and Seller (the "Pledge Agreement").
Cobalt shall have the right to prepay any or all of the outstanding balance
of this Note at any time and from time to time without penalty or premium of any
kind.
Until this Note is paid, Cobalt shall be required, within two (2) business
days of its receipt of the net proceeds of a Qualified Public Offering, to pay
in full to Seller all remaining amounts due under this Note (a "Mandatory
Prepayment"), subject to the consent of the underwriters. As used herein,
"Qualified Public Offering" shall mean a public offering of equity securities of
Cobalt with net proceeds to Cobalt of at least $25 million.
Each of the following shall constitute an Event of Default ("Event of
Default") hereunder and under the Pledge Agreement:
(a) Failure of Cobalt to make any payment or Mandatory Prepayment of
principal or interest upon this Note when due, and such failure or refusal shall
continue for a period of ten (10) days after written notice is given to Cobalt
by Seller specifying such failure; provided, however, that no written notice is
required to be given to Cobalt by Seller if Seller has
<PAGE>
already given Cobalt written notice on two separate occasions of the failure to
make payment in the prior twelve (12) months; or
(b) Failure of Cobalt to observe or perform any other covenant or
condition contained in this Note and such default shall continue for thirty (30)
days after notice is given to Cobalt specifying the nature of the failure; or
(c) Filing by Cobalt of a voluntary petition in bankruptcy or filing
by Cobalt of any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, or similar
relief for itself under any present or future federal, state or other statute,
law or regulation relating to bankruptcy, insolvency or other relief for
debtors, or the seeking, consenting to, or acquiescing by Cobalt in the
appointment of any trustee, receiver, custodian, conservator or liquidator for
Cobalt, or the making by Cobalt of any general assignment for the benefit of
creditors; or
(d) Filing of a petition against Cobalt seeking any reorganization,
arrangement, composition, readjustment, liquidation, or similar relief under any
present or future federal, state or other law or regulation relating to
bankruptcy, insolvency or other relief for debts, or the appointment of any
trustee, receiver, custodian, conservator or liquidator of Cobalt, unless such
petition shall be dismissed within sixty (60) days after such filing, but in any
event prior to the entry of an order, judgment or decree approving such
petition; or
(e) The institution of any proceeding for the dissolution of Cobalt
voluntarily, involuntarily, or by operation of law; or
(f) The occurrence and continuation of an Event of Default (as
therein defined) under the Pledge Agreement; or
(g) Failure of Cobalt to observe or perform any obligation of Cobalt
under the Purchase Agreement or the Agreement for Management of Security of even
date herewith among Cobalt, Compu-Time, Inc., Parts Finder Locating Systems,
Inc. and Locators, Inc. (the "Management Agreement") when such observance or
performance is due, and such failure shall continue beyond the applicable cure
period set forth in such Agreement, or if the default cannot be cured within
such applicable cure period, Cobalt fails within such time to commence and
pursue curative action with reasonable diligence or fails at any time after
expiration of such applicable cure period to continue with reasonable diligence
all necessary curative actions.
Upon the occurrence of any of the foregoing Events of Default, Seller shall
have the option in writing to declare the entire amount of principal and
interest due under this Note immediately due and payable, and Seller may
exercise any of its rights under this Note and the Pledge Agreement. After
acceleration or Maturity, Cobalt shall pay interest on the outstanding principal
balance of this Note at the rate of thirteen and seventy-five one hundredths
percent (13.75%) per
2
<PAGE>
annum, provided that such interest rate shall not exceed the maximum interest
rate permitted by law.
All payments of the principal and interest on this Note shall be first
applied against interest and made in coin or currency of the United States of
America which at the time shall be the legal tender for the payment of public
and private debts.
If this Note is placed in the hands of an attorney for collection, Cobalt
agrees to pay any reasonable attorneys' fees and costs incurred by Seller in
connection therewith, and in the event suit or action is instituted to enforce
or interpret this Note, the prevailing party shall be entitled to recover all
expenses reasonably incurred at, before or after trial and on appeal, whether or
not taxable as costs, or in connection with post-judgment collection efforts,
including, without limitation, reasonable attorneys' fees, witness fees (expert
and otherwise), deposition costs, copying charges and other expenses.
This Note shall be governed and construed in accordance with the laws of
the State of Oregon applicable to contracts made and to be performed therein
(excluding choice-of-law principles). Cobalt hereby irrevocably submits to the
jurisdiction of any state or federal court sitting in Oregon in any action or
proceeding brought to enforce or otherwise arising out of or relating to this
Note, and hereby waives any objection to venue in any such court and any claim
that such forum is an inconvenient forum.
This Note is given in a commercial transaction solely for business
purposes.
Cobalt and all sureties, endorsers, guarantors and other parties now or
hereafter liable for the payment of this Note, in whole or in part, hereby
severally (i) waive demand, notice of demand, presentment for payment, notice of
nonpayment, notice of default, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices, and further waive
diligence in collecting this Note or in enforcing any of the security for this
Note; (ii) agree to any substitution, subordination, exchange or release of any
security for this Note or the release of any party primarily or secondarily
liable for the payment of this Note; (iii) agree that Seller shall not be
required to first institute suit or exhaust its remedies hereon against Cobalt
or others liable or to become liable for the payment of this Note or to enforce
its rights against any security for the payment of this Note; and (iv) consent
to any extension of time for the payment of this Note, or any installment
hereof, made by agreement by Seller with any person now or hereafter liable for
the payment of this Note, even if Cobalt is not a party to such agreement.
All agreements between Cobalt and Seller, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of demand or acceleration of the Maturity of this
Note or otherwise, shall the interest contracted for, charged, received, paid or
agreed to be paid to Seller exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would otherwise
be payable to Seller in excess of the maximum amount permissible under
applicable law, the interest payable
3
<PAGE>
to Seller shall be reduced to the maximum amount permissible under applicable
law; and if from any circumstance shall Seller ever receive anything of value
deemed interest by applicable law in excess of the maximum amount permissible
under applicable law, an amount equal to the excessive interest shall be applied
to the reduction of the principal hereof and not to the payment of interest, or
if such excessive amount of interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to Cobalt. All interest paid or agreed to
be paid to Seller shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period (including
any renewal or extension) until payment in full of the principal so that the
interest hereon for such full period shall not exceed the maximum amount
permissible under applicable law. Seller expressly disavows any intent to
contract for, charge or receive interest in an amount which exceeds the maximum
amount permissible under applicable law.
UNDER OREGON LAW (ORS 41.580), AFTER OCTOBER 8, 1989, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY A LENDING PARTY CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES, OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE, MUST BE IN WRITING, SET FORTH THE
CONSIDERATION GIVEN AND BE SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE LENDING
PARTY TO BE ENFORCEABLE.
THE COBALT GROUP, INC.
---------------------------------
By:
Its:
4
<PAGE>
Schedule to Exhibit 10.20
Other similar Notes of the Company dated April 30, 1999:
Holder Principal Amount
Parts Finder Locating Systems, Inc. $3,600,000
Locators, Inc. $8,400,000
5
<PAGE>
Exhibit 10.21
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS.
THE COBALT GROUP, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration received, PARTS FINDER
LOCATING SYSTEMS, INC., or registered assigns, is entitled, upon the terms and
subject to the conditions hereinafter set forth, at any time on or after the
date hereof and at or prior to 11:59 pm., Pacific time, on April 30, 2004 (the
"Expiration Time"), but not thereafter, to acquire from THE COBALT GROUP, INC.,
a Washington corporation (the "Company"), in whole or from time to time in part,
up to Forty-Two Thousand (42,000) fully paid and nonassessable shares of Common
Stock of the Company ("Warrant Stock") at a purchase price per share of $6.00
(the "Exercise Price"). Such number of shares, type of security and Exercise
Price are subject to adjustment as provided herein, and all references to
"Warrant Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment.
1. EXERCISE OF WARRANT
The purchase rights represented by this Warrant are exercisable by the
registered holder hereof, in whole or in part, at any time and from time to time
at or prior to the Expiration Time by the surrender of this Warrant and the
Notice of Exercise form attached hereto, duly executed, to the principal
executive office of the Company at 2030 First Avenue, Suite 300, Seattle WA
98121 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
for the shares thereby purchased (by cash or by check or bank draft payable to
the order of the Company); whereupon the holder of this Warrant shall be
entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased.
1-
<PAGE>
2. CONVERSION OF WARRANT
The registered holder hereof shall have the right to convert this Warrant, in
whole or in part, at any time and from time to time at or prior to the
Expiration Time, by the surrender of this Warrant and the Notice of Conversion
form attached hereto duly executed to the office of the Company at the address
set forth in Section 1 hereof (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company), into shares of
Warrant Stock as provided in this Section 2. Upon exercise of this conversion
right, the holder hereof shall be entitled to receive that number of shares of
Warrant Stock of the Company equal to the quotient obtained by dividing [(A -
B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share of
Warrant Stock on the date of conversion of this Warrant.
B = the Exercise Price for one share of Warrant Stock under this
Warrant.
X = the number of shares of Warrant Stock as to which this
Warrant is being converted.
If the above calculation results in a negative number, then no shares of Warrant
Stock shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Stock shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 10 hereof, the value of the consideration
(determined, in the case of noncash consideration, in good faith by the
Board of Directors of the Company) to be received pursuant to such
transaction by the holder of one share of Warrant Stock;
(b) if the conversion right is being exercised after the occurrence
of an initial public offering of common stock of the Company, the average
of the high and low trading prices of a share of common stock as reported
by the NASDAQ National Market (or equivalent recognized source of
quotations) for the previous 20 trading days; or
(c) in all other cases, the fair value as determined in good faith by
the Company's Board of Directors.
2-
<PAGE>
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Stock determined in accordance with the foregoing.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP
Certificates for shares purchased hereunder or issuable upon conversion hereof
shall be delivered to the holder hereof within a reasonable time after the date
on which this Warrant shall have been exercised or converted in accordance with
the terms hereof. The Company hereby represents and warrants that all shares of
Warrant Stock which may be issued upon the exercise or conversion of this
Warrant will, upon such exercise or conversion, be duly and validly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issuance thereof (other than liens or charges created
by or imposed upon the holder of the Warrant Stock). The Company agrees that
the shares so issued shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been exercised or converted in accordance with the terms
hereof. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise or conversion of this Warrant. With respect to any
fraction of a share called for upon the exercise or conversion of this Warrant,
an amount equal to such fraction multiplied by the then current price at which
each share may be purchased hereunder shall be paid in cash or check to the
holder of this Warrant.
4. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise or
conversion of this Warrant shall be made without charge to the holder hereof for
any issue or transfer tax or other incidental expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the holder of this
Warrant or in such name or names as may be directed by the holder of this
Warrant; PROVIDED, however, that in the event certificates for shares of Warrant
Stock are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof.
5. NO RIGHTS AS SHAREHOLDERS
This Warrant does not entitle the holder hereof to any voting rights or other
rights as a shareholder of the Company prior to the exercise or conversion
hereof.
3-
<PAGE>
6. SHAREHOLDERS AGREEMENT
Upon exercise or conversion hereof, the holder of this Warrant agrees to become
a party to the Shareholders Agreement of the Company that is in force and
effect on the date of such exercise or conversion.
7. EXCHANGE AND REGISTRY OF WARRANT
This Warrant is exchangeable, upon the surrender hereof by the registered holder
at the above-mentioned office or agency of the Company, for a new Warrant of
like tenor and dated as of such exchange. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for
exchange, transfer, exercise or conversion, in accordance with its terms, at
such office or agency of the Company, and the Company shall be entitled to rely
in all respects, prior to written notice to the contrary, upon such registry.
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
9. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall be a Saturday or a Sunday or shall be
a legal holiday, then such action may be taken or such right may be exercised on
the next succeeding day not a legal holiday.
10. MERGER, SALE OF ASSETS, ETC.
If at any time the Company proposes to or sell or convey all or substantially
all of its assets to any other entity, or consolidate with or into any other
corporation or entity, or effect any reorganization or recapitalization, or, in
a transaction in which the shareholders of the Company immediately before the
transaction will own immediately after the transaction less than a majority of
the outstanding voting securities of the corporation or entity (or its parent)
succeeding to the business of the Company, then the Company shall give the
holder of this Warrant 10 days' prior written notice of the proposed effective
date of such transaction.
4-
<PAGE>
11. RECLASSIFICATION, CONVERSION, ETC.
If the Company at any time shall, by reclassification of securities or
otherwise, change the Warrant Stock into the same or a different number of
securities of any class or classes, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been issuable
in respect of the Warrant Stock (or other securities which were subject to the
purchase rights under this Warrant immediately prior to such subdivision,
combination, reclassification or other change) as the result of such change if
this Warrant had been exercised in full for cash immediately prior to such
change. The Exercise Price hereunder shall be adjusted if and to the extent
necessary to reflect such change. If the Warrant Stock or other securities
issuable upon exercise or conversion hereof are subdivided or combined into a
greater or smaller number of shares of such security, the number of shares
issuable hereunder shall be proportionately increased or decreased, as the case
may be, and the Exercise Price shall be proportionately reduced or increased, as
the case may be, in both cases according to the ratio which the total number of
shares of such security to be outstanding immediately after such event bears to
the total number of shares of such security outstanding immediately prior to
such event. The Company shall give the holder prompt written notice of any
change in the type of securities issuable hereunder, any adjustment of the
Exercise Price for the securities issuable hereunder, and any increase or
decrease in the number of shares issuable hereunder.
12. TRANSFERABILITY
In the event this Warrant, or any rights hereunder, are transferred by the
holder hereof, holder shall give written notice of the transfer and the identity
of the transferee(s) to the Company at or prior to such transfer.
13. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the holder hereof that:
(a) during the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Warrant Stock upon the exercise or
conversion of this Warrant;
(b) the issuance of this Warrant shall constitute full authority to
the Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the shares
of Warrant Stock issuable upon exercise or conversion of this Warrant;
5-
<PAGE>
(c) the Company has all requisite legal and corporate power to
execute and deliver this Warrant, to sell and issue the Warrant Stock
hereunder and to carry out and perform its obligations under the terms of
this Warrant;
(d) all corporate action on the part of the Company, its directors
and shareholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Company, the authorization, sale,
issuance and delivery of the Warrant Stock and the performance of the
Company's obligations hereunder has been taken; and
(e) the Warrant Stock, when issued in compliance with the provisions
of this Warrant and the Articles, will be validly issued, fully paid and
nonassessable, and free of any liens or encumbrances, and will be issued in
compliance with all applicable federal and state securities laws.
14. COOPERATION
The Company will not, by amendment of its Articles or through any
reorganization. recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holder of the Warrant against impairment.
15. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the laws of
the State of Oregon.
6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officers.
Dated: April ___, 1999
THE COBALT GROUP, INC.
By
-------------------------------------
Title
-----------------------------
ACCEPTED: April ____, 1999
[________________________]
By
-----------------------------
-----------------------------
7-
<PAGE>
NOTICE OF EXERCISE
To: The Cobalt Group, Inc.
(1) The undersigned hereby elects to purchase ___________ shares of Common
Stock of The Cobalt Group, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------
(Name)
-------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
- --------------------------------- ----------------------------------
(Date) (Signature)
8-
<PAGE>
NOTICE OF CONVERSION
To: The Cobalt Group, Inc.
(1) The undersigned hereby elects to convert the attached Warrant into such
number of shares of Common Stock of The Cobalt Group, Inc. as is determined
pursuant to such Warrant, which conversion shall be effected pursuant to the
terms of the attached Warrant.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------
(Name)
-------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
- --------------------------------- ----------------------------------
(Date) (Signature)
9-
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
- -------------------------------------------------------------------------------
(Please Print)
whose address is ______________________________________________________________
(Please Print)
Dated: __________________________________________
Holder's Signature:______________________________
Holder's Address:________________________________
_________________________________________________
Guaranteed Signature:__________________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
10-
<PAGE>
Schedule to Exhibit 10.21
Other similar Warrants of the Company dated April 30, 1999:
Holder Shares of Common Stock
Compu-Time, Inc. 35,000
Locators, Inc. 83,000
11-
<PAGE>
Exhibit 21.1
SUBSIDIARIES of the Registrant, PartsVoice, LLL
<PAGE>
Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated March 29, 1999, except as to Note 14, which is as of May 27, 1999,
relating to the financial statements and financial statement schedule of The
Cobalt Group, Inc., which appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
May 27, 1999
<PAGE>
Exhibit 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated May 12, 1999, relating to the financial statements of PartsVoice,
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
May 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM THE COBALT
GROUP, INC. DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,756
<SECURITIES> 983
<RECEIVABLES> 1,250
<ALLOWANCES> (85)
<INVENTORY> 0
<CURRENT-ASSETS> 8,119
<PP&E> 1,453
<DEPRECIATION> (410)
<TOTAL-ASSETS> 10,062
<CURRENT-LIABILITIES> 2,585
<BONDS> 0
31,162
0
<COMMON> 13
<OTHER-SE> (144)
<TOTAL-LIABILITY-AND-EQUITY> 10,062<F1>
<SALES> 0
<TOTAL-REVENUES> 6,245
<CGS> 0
<TOTAL-COSTS> 1,199
<OTHER-EXPENSES> 9,636
<LOSS-PROVISION> 185<F2>
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> (8,117)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,117)
<EPS-BASIC> (2.95)
<EPS-DILUTED> (2.95)
<FN>
<F1>Notes receivable from shareholders
<F2>Operating expenses
</FN>
</TABLE>
<PAGE>
Exhibit 16.b.1 REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of The Cobalt Group, Inc:
Our audits of the financial statements referred to in our report dated March
29, 1999, except as to Note 14, which is as of May 27, 1999, appearing in
this Registration Statement on Form S-1 also included an audit of the
financial statement schedule listed in Item 16(b) of this Form S-1. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
March 29, 1999
<PAGE>
Exhibit 16.b.2 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR EXPENSE DEDUCTIONS* END OF YEAR
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
1998 40,000 185,000 140,000 85,000
1997 - 54,000 14,000 40,000
1996 -
VALUATION ALLOWANCE ON DEFERRED TAX ASSETS
1998 812,000 1,067,000 - 1,879,000
1997 - 812,000 - 812,000
1996 - - - -
</TABLE>
*Deductions represent amounts written off against the allowance, net of
recoveries.
