<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
</TABLE>
THE COBALT GROUP, INC.
-------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
-------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
----------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
* Set forth the amount on which the filing fee is calculated and
state how it was determined.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
3) Filing Party:
----------------------------------------------------------
4) Date Filed:
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</TABLE>
<PAGE>
THE COBALT GROUP, INC.
----------------
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
MAY 23, 2000
------------------------
Dear Shareholder:
The Annual Meeting of Shareholders of The Cobalt Group, Inc. ("Cobalt" or,
the "Company") will be held at the Company's offices located at 2200 First
Avenue South in Seattle, Washington on May 23, 2000, at 9:00 a.m. for the
following purposes:
1. To elect two Class 1 directors to serve for the ensuing one year and
until their respective successors are duly elected, to elect three
Class 2 directors to serve for the ensuing two years and until their
respective successors are duly elected, and to elect two Class 3
directors to serve for the ensuing three years and until their respective
successors are duly elected;
2. To approve an amendment to the Company's 1995 Stock Option Plan (i) to
increase the number of shares of common stock reserved for issuance
thereunder by 860,000 shares, and (ii) to annually increase the number of
shares reserved for issuance thereunder on the first day of the Company's
fiscal year beginning in 2001 by an amount equal to the lesser of
(a) 860,000 shares, (b) five percent (5%) of the Company's outstanding
shares at the end of the Company's preceding fiscal year, or (c) a lesser
amount determined by the Board;
3. To ratify the appointment of PricewaterhouseCoopers LLP as our
independent accountants for the fiscal year ending December 31, 2000; and
4. To conduct any other business that may properly come before the meeting.
If you were a shareholder of record on April 7, 2000, you will be entitled to
vote on these matters. A list of shareholders as of the record date will be
available for shareholder inspection at the headquarters of the Company,
2200 First Avenue South, Seattle, Washington during ordinary business hours from
May 13 to the date of our Annual Meeting. The list also will be available for
inspection at the Annual Meeting.
At the meeting, you will have an opportunity to ask questions about the
Company and its operations. Regardless of the number of shares you own, your
vote is important. Please sign, date and return the proxy card in the enclosed
envelope at your earliest convenience.
Details of the business to be conducted at the meeting are more fully
described in the accompanying Proxy Statement.
We look forward to seeing you. Thank you for your ongoing support of and
interest in The Cobalt Group, Inc.
SINCERELY,
[SIG]
John W.P. Holt
PRESIDENT & CHIEF EXECUTIVE OFFICER
April 20, 2000
Seattle, Washington
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING............. 1
INFORMATION ABOUT THE COBALT GROUP, INC. COMMON STOCK
OWNERSHIP................................................. 4
INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors...................................... 6
The Committees of the Board................................. 6
How We Compensate Directors................................. 6
The Executive Officers...................................... 6
How We Compensate Executive Officers........................ 7
Report on Executive Compensation for 1999................... 9
Stock Performance Graph..................................... 11
Certain Relationships and Related Transactions.............. 11
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: Election of Directors.......................... 12
Proposal 2: Amendment of the Company's 1995 Stock Option
Plan...................................................... 14
Proposal 3: Ratification of Independent Accountants........ 17
Other Business.............................................. 17
Incorporation by Reference.................................. 17
INFORMATION ABOUT SHAREHOLDER PROPOSALS AND
ADDITIONAL INFORMATION
Shareholder Proposals....................................... 18
Additional Information...................................... 18
</TABLE>
IMPORTANT
Whether or not you expect to attend the Annual Meeting in person, we urge
you to sign, date, and return the enclosed proxy card at your earliest
convenience. An addressed envelope for which no postage is required if mailed in
the United States is enclosed for that purpose. This will ensure the presence of
a quorum at the meeting. Promptly signing, dating, and returning the proxy card
will save the Company the expense and extra work of additional solicitation.
Sending in your proxy card will not prevent you from voting your shares at the
meeting if you desire to do so, as your proxy is revocable at your option.
<PAGE>
THE COBALT GROUP, INC.
2200 FIRST AVENUE SOUTH
SEATTLE, WASHINGTON 98134
------------------------
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
MAY 23, 2000
------------------------
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: WHY DID YOU SEND ME THIS PROXY STATEMENT?
A: We sent you this Proxy Statement and the enclosed proxy card because Cobalt's
Board of Directors is soliciting your proxy to vote at the 2000 Annual
Meeting of Shareholders.
This Proxy Statement summarizes the information regarding the matters to be
voted upon at the Annual Meeting. You do not need to attend the Annual
Meeting, however, to vote your shares. You may simply complete, sign and
return the enclosed proxy card.
On April 7, 2000, our "record date" for determining shareholders entitled to
vote at the Annual Meeting, there were 17,213,492 shares of our common stock
outstanding. If you owned shares of our common stock at the close of
business on the record date, you are entitled to vote the shares that you
owned as of that date. We mailed this Proxy Statement to all shareholders
entitled to vote their shares at the Annual Meeting on or about April 20,
2000.
Q: HOW MANY VOTES DO I HAVE?
A: You have one vote for each share of Cobalt common stock that you owned on the
record date. The proxy card will indicate the number of shares.
Q: HOW DO I VOTE BY PROXY?
A: If you properly fill in your proxy card and deliver it to us by the time of
the Annual Meeting on May 23, 2000, your "proxy" (one of the individuals
named on your proxy card) will vote your shares as you have directed. If you
sign the proxy card but do not make specific choices, your proxy will vote
your shares as recommended by the Board as follows:
- "FOR" electing all seven nominees for director;
- "FOR" amending the Company's 1995 Stock Option Plan to increase the number
of shares reserved under the plan; and
- "FOR" ratifying PricewaterhouseCoopers LLP as our independent accountants
for the fiscal year ending December 31, 2000.
If any other matter is presented, your proxy will vote in accordance with
his best judgment. At the time we printed this Proxy Statement, we knew of
no matters that needed to be acted on at the Annual Meeting other than those
discussed in this Proxy Statement.
1
<PAGE>
Q: MAY MY BROKER VOTE FOR ME?
A: Under the rules of the National Association of Securities Dealers, if your
broker holds your shares in its "street" name, the broker may vote your
shares on routine matters even if it does not receive instructions from you.
Q: MAY I REVOKE MY PROXY?
A: Yes. You may change your mind after you send in your proxy card by following
these procedures. To revoke your proxy:
1. Send in another signed proxy with a later date;
2. Send a letter revoking your proxy to The Cobalt Group, Inc.'s Secretary
at the Company's offices in Seattle, Washington; or
3. Attend the Annual Meeting and vote in person.
Q: WHAT IS THE QUORUM REQUIREMENT FOR THE MEETING?
A: The quorum requirement for holding the meeting and transacting business is a
majority of the outstanding shares entitled to be voted. The shares may be
present in person or represented by proxy at the meeting. Both abstentions
and broker non-votes are counted as present for the purpose of determining
the presence of a quorum. Generally, broker non-votes occur when shares held
by a broker for a beneficial owner are not voted with respect to a particular
proposal because (1) the broker has not received voting instructions from the
beneficial owner, or (2) the broker lacks discretionary voting power to vote
such shares.
Q: WHAT IS THE EFFECT OF ABSTENTIONS AND BROKER NON-VOTES?
A: Abstentions and broker non-votes will have no effect on the election of
directors, the amendment of the Company's 1995 Stock Option Plan or the
ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for 2000.
Q: HOW DO I VOTE IN PERSON?
A: If you plan to attend the Annual Meeting and vote in person, we will give you
a ballot when you arrive. If your shares are held in the name of your broker,
bank or other nominee, you must bring an account statement or letter from
that broker, bank or nominee. The account statement or letter must show that
you were the direct or indirect (beneficial) owner of the shares on April 7,
2000, the record date for voting.
Q: WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
A: The seven nominees for director who receive the most votes will be elected.
So, if you do not vote for a nominee, or you indicate "withhold authority to
vote" for a nominee on your proxy card, your vote will not count either "for"
or "against" the nominee.
A majority of the shares of Cobalt common stock voting at the Annual Meeting
is required to amend the Company's 1995 Stock Option Plan. So, if you do not
vote, or abstain from voting, it has no effect on this vote.
A majority of the shares of Cobalt common stock voting at the Annual Meeting
is required to ratify PricewaterhouseCoopers LLP as our accountants for
fiscal year 2000. So, if you do not vote, or if you abstain from voting, it
has no effect on this vote.
2
<PAGE>
Q: IS VOTING CONFIDENTIAL?
A: We keep all the proxies, ballots and voting tabulations private as a matter
of practice. We only let our Inspector of Election examine these documents.
We will not disclose your vote to management unless it is necessary to meet
legal requirements. We will forward to management, however, any written
comments that you make on the proxy card or elsewhere.
Q: WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
A: Cobalt will pay all the costs of soliciting these proxies. Although we are
mailing these proxy materials, our officers and employees may also solicit
proxies by telephone, by fax or other electronic means of communication, or
in person. We will reimburse banks, brokers, nominees and other fiduciaries
for the expenses they incur in forwarding the proxy materials to you.
Q: WHO SHOULD I CALL IF I HAVE ANY QUESTIONS?
A: If you have any questions about the Annual Meeting or voting, or your
ownership of The Cobalt Group, Inc. common stock, please send e-mail to
[email protected] or call David M. Douglass, our Secretary,
at (206) 269-6363 x 701.
3
<PAGE>
INFORMATION ABOUT THE COBALT GROUP, INC. COMMON STOCK OWNERSHIP
Q: HOW MUCH STOCK IS OWNED BY 5% SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS?
A: The following table shows as of March 17, 2000, to the best of the Company's
knowledge, the number of shares of Cobalt common stock beneficially owned by
all persons we know to be beneficial owners of at least 5% of Cobalt's common
stock, Cobalt's directors, the executive officers named in the Summary
Compensation Table on page 7 of this Proxy Statement and all current
directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES(1) COMMON STOCK
- ------------------------------------ ------------ -------------
<S> <C> <C>
Warburg, Pincus Equity Partners, L.P.(2) ................... 7,764,195 45.2%
466 Lexington Avenue
New York, NY 10017
Entities affiliated with First Analysis Corporation(3) ..... 1,205,504 7.0%
The Sears Tower, Suite 9500
233 South Wacker Drive
Chicago, IL 60606
Joseph P. Landy(2)(4) ...................................... 7,777,361 45.2%
Mark T. Koulogeorge(3)(5) .................................. 1,356,444 7.9%
Geoffrey T. Barker(6) ...................................... 766,155 4.4%
John W.P. Holt(7) .......................................... 656,966 3.8%
Howard A. Tullman(8) ....................................... 47,249 *
Ernest H. Pomerantz(2)(9) .................................. 13,166 *
J.D. Power, III(10) ........................................ 13,000 *
Rajan Krishnamurty(11) ..................................... 35,857 *
David M. Douglass(12) ...................................... 44,791 *
Diane R. Wetherington(13) .................................. 50,354 *
Kenneth D. Pfau(14) ........................................ 60,580 *
All directors and executive officers as a group
(17 people)(15) .......................................... 10,968,947 62.0%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of 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 or warrants that are currently exercisable or convertible or may
be exercised or converted within sixty days are deemed to be outstanding
and to be beneficially owned by the person holding these options or
warrants for the purpose of computing the number of shares beneficially
owned and the percentage ownership of the person or entity holding these
securities, but are not outstanding for the purpose of computing the
percentage ownership of any other person or entity. Percentage of
beneficial ownership is based on 17,180,929 shares of common stock
outstanding as of March 17, 2000.
(2) The sole general partner of Warburg, Pincus Equity Partners, L.P., or WPEP,
is Warburg, Pincus & Co., or WP. E.M. Warburg, Pincus & Co., LLC, or EMWP,
manages WPEP. Mr. Landy is a Managing Director of EMWP and may be deemed to
control WPEP.
(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 that 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 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
4
<PAGE>
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 13,166 shares Mr. Landy has the right to acquire pursuant to
options exercisable within 60 days of April 30, 2000.
(5) Includes 8,166 shares Mr. Koulogeorge has the right to acquire pursuant to
options exercisable within 60 days of April 30, 2000.
(6) Includes 40,000 shares held in trust for Mr. Barker's heirs and 128,748
shares Mr. Barker has the right to acquire pursuant to options exercisable
within 60 days of April 30, 2000.
(7) Includes 104,166 shares Mr. Holt has the right to acquire pursuant to
options exercisable within 60 days of April 30, 2000.
(8) Includes 2,000 shares held in trust for Mr. Tullman's heirs and 11,249
shares Mr. Tullman has the right to acquire pursuant to options exercisable
within 60 days of April 30, 2000.
(9) Includes 13,166 shares Mr. Pomerantz has the right to acquire pursuant to
options exercisable within 60 days of April 30, 2000.
(10) Includes 12,000 shares Mr. Power has the right to acquire pursuant to
options exercisable within 60 days of April 30, 2000.
(11) Includes 35,416 shares Mr. Krishnamurty has the right to acquire pursuant
to options exercisable within 60 days of April, 30, 2000.
(12) Includes 44,791 shares Mr. Douglass has the right to acquire pursuant to
options exercisable within 60 days of April, 30, 2000.
(13) Includes 10,417 shares Ms. Wetherington has the right to acquire pursuant
to options exercisable within 60 days of April 30, 2000.
(14) Includes 33,484 shares Mr. Pfau has the right to acquire pursuant to
options exercisable within 60 days of April 30, 2000.
(15) Includes an aggregate of 512,772 shares that the directors and officers as
a group have a right to acquire pursuant to options exercisable within
60 days of April 30, 2000.
Q: DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% SHAREHOLDERS COMPLY
WITH THE BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS UNDER SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 IN 1999?
A: Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors, executive officers and greater-than-10% shareholders file reports
with the SEC relating to their initial beneficial ownership of Cobalt's
securities and any subsequent changes. They must also provide us with copies
of the reports.
Based on copies of reports furnished to us, all of these reporting persons
complied with their filing requirements for 1999, with the exception of
Messrs. Tullman, Koulogeorge, Landy and Pomerantz. Each of the foregoing
individuals failed to timely file one report disclosing one stock option
grant in December 1999.
5
<PAGE>
INFORMATION ABOUT OUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS
The Board of Directors oversees our business and affairs and monitors the
performance of management. In accordance with corporate governance principles,
the Board does not involve itself in day-to-day operations. The directors keep
themselves informed through discussions with our chief executive officer, other
key executives and our principal advisers by reading the reports and other
materials that we send them regularly and by participating in Board and
committee meetings. Our directors hold office until their successors have been
elected and duly qualified unless the director resigns or by reason of death or
other cause is unable to serve in capacity of director.
The Board met 14 times during 1999. Each of the directors attended at least
75% of the meetings of the Board and committees on which they serve. The Board
also approved certain actions by unanimous written consent.
THE COMMITTEES OF THE BOARD
The Board has an Audit Committee and a Compensation Committee. There is no
standing nominating or other committee that recommends qualified candidates to
the Board for election as directors. The entire Board performs these duties.
THE AUDIT COMMITTEE. The Audit Committee reviews our accounting practices,
internal accounting controls, and interim and annual financial results, and
oversees the engagement and independence of the Company's independent
accountants.
Messrs. Koulogeorge, Pomerantz and Tullman currently serve on the Audit
Committee, with Mr. Pomerantz serving as Chairman. The Audit Committee met once
during 1999.
THE COMPENSATION COMMITTEE. The Compensation Committee makes
recommendations to the Board regarding salaries, incentives, and other forms of
compensation for our directors, officers, and other key employees, and
administers policies relating to compensation and benefits. The Compensation
Committee's Report on Executive Compensation for 1999 is set forth below
beginning on page 9.
Messrs. Landy and Tullman currently serve as members of the Compensation
Committee, with Mr. Tullman serving as Chairman. The Compensation Committee met
twice during 1999.
HOW WE COMPENSATE DIRECTORS
Directors do not receive any cash compensation for their services as members
of the Board of Directors, although they are reimbursed for travel expenses
incurred in connection with attendance at Board and committee meetings. Our
bylaws authorize the Board of Directors to fix director compensation, and we may
compensate non-employee directors in the future for their attendance at Board
and committee meetings. 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 receive additional
grants of 2,000 options on the anniversary date of commencement of Board
service. As Chairman of the Board of Directors, Howard A. Tullman received an
additional grant of 10,000 shares of common stock, vesting at a rate of 833
shares per month.
THE EXECUTIVE OFFICERS
Executive officers are elected by our Board of Directors and hold office
until their respective successors are elected and duly qualified.
6
<PAGE>
HOW WE COMPENSATE EXECUTIVE OFFICERS
The following table sets forth the compensation we paid to our Co-Chief
Executive Officers and all other executive officers of the Company receiving
compensation in excess of $100,000 for the fiscal year ended December 31, 1999
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------------
NAME AND SECURITIES ALL OTHER
PRINCIPAL POSITIONS SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ------------------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
John W.P. Holt ....................... 1999 $145,833 $10,000 100,000 --
Co-Chief Executive Officer 1998 $127,083
Geoffrey T. Barker(1) ................ 1999 $145,833 $10,000 100,000(1) --
Co-Chief Executive Officer 1998 $127,083
Rajan Krishnamurty ................... 1999 $135,000 $42,057 100,000 --
Vice President, Development
David M. Douglass .................... 1999 $123,750 $ 4,200 25,000 --
Vice President, Operations and Chief
Financial Officer
Diane R. Wetherington ................ 1999 $121,517 $ 5,000 25,000 --
Vice President, Marketing(2)
Kenneth D. Pfau ...................... 1999 $ 90,000 $10,000 -- $33,178
Vice President, Strategic 1998 $ 43,333 $ 2,000 40,000 $62,374
Initiatives(3)
</TABLE>
- ------------------------
(1) Mr. Barker resigned as Co-Chief Executive Officer in January 2000. Effective
with Mr. Barker's resignation, options to purchase 50,000 shares of our
common stock were cancelled.
(2) Ms. Wetherington resigned as Vice President, Marketing effective March 2000.
(3) Other compensation represents sales commissions for Mr. Pfau.
7
<PAGE>
OPTION GRANTS IN 1999
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended
December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM
UNDERLYING EMPLOYEES PRICE EXPIRATION ----------------------------
NAME OPTIONS GRANTED IN 1999 ($/SH) DATE 5% 10%
- ---- --------------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
John W.P. Holt........... 100,000 6.7% $1.85 4/14/09 $116,346 $294,842
Geoffrey T. Barker....... 100,000(1) 6.7% $1.85 4/14/09 $116,346 $294,842
Rajan Krishnamurty....... 80,000 5.3% $1.85 2/18/09 $ 93,076 $235,874
20,000 1.3% $7.20 5/20/09 $ 90,561 $229,499
David M. Douglass........ 25,000 1.7% $1.85 3/15/09 $ 29,086 $ 73,711
Diane R. Wetherington.... 25,000 1.7% $1.85 3/15/09 $ 29,086 $ 73,711
Kenneth D. Pfau.......... -- -- -- --
</TABLE>
- ------------------------
(1) In connection with Mr. Barker's resignation in January 2000, options to
purchase 50,000 shares of our common stock were cancelled.
- - 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 1,496,628 shares subject to options granted to
employees and directors of and consultants to Cobalt in the fiscal year ended
December 31, 1999.
- - 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 Named
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.
8
<PAGE>
AGGREGATED OPTION VALUES AS OF YEAR-END 1999.
The following table provides information regarding the aggregate number of
options exercised during fiscal 1999 by each of the Named Executive Officers and
the number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED VALUE ------------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W.P. Holt........... 328,060 $572,605 75,000 100,000 $695,625 $752,500
Geoffrey T. Barker....... 375,000 $644,250 102,360 100,000(2) $949,389 $752,500
Rajan Krishnamurty....... -- -- 20,000 80,000 $150,500 $495,000
David M. Douglass........ -- -- 26,562 73,438 $229,097 $605,903
Diane R. Wetherington.... -- -- 28,125 71,875 $242,578 $592,422
Kenneth D. Pfau.......... 29,994 $ 60,249 24,275 42,731 $214,299 $375,784
</TABLE>
- ------------------------
(1) The 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, 1999 as determined by the Board of Directors and the
exercise price of such options.
(2) In connection with Mr. Barker's resignation in January 2000, options to
purchase 50,000 shares of our common stock were cancelled.
EMPLOYMENT AGREEMENTS
In February 1997, the Company entered into confidentiality and
noncompetition agreements with Mr. Barker and Mr. Holt. These agreements 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 agreed that, for a period of three years following the
termination of their employment, they would not participate in any business that
sold competing services or products to clients that had purchased similar
services or products from Cobalt within the preceding three years and would not
solicit employees, customers or other business relations of the Company.
Following his resignation as Co-Chief Executive Officer of the Company in
January 2000, Mr. Barker continues to be employed by Cobalt but does not serve
as an officer of the Company.
CERTAIN TAX CONSIDERATION RELATED TO EXECUTIVE COMPENSATION
As a result of Section 162(m) of the Internal Revenue Code of 1986, as
amended, in the event that compensation paid by the Company to a "covered
employee" (the Co-Chief Executive Officers and the next four highest paid
employees) in a year were to exceed an aggregate of $1,000,000, the Company's
deduction for such compensation could be limited to $1,000,000.
REPORT ON EXECUTIVE COMPENSATION FOR 1999 BY THE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee of the Board of Directors is comprised of two
outside directors. The Compensation Committee is responsible for evaluating
compensation levels and compensation programs for executives and for making
recommendations to the Board regarding appropriate compensation awards for
executive management.
The executive compensation program of the Company is designed to attract,
retain and motivate executive officers capable of leading the Company to meet
its business objectives, to enhance long term shareholder value and to reward
executive management based on contributions to both the short and long term
success of the Company. The Compensation Committee's philosophy is for the
Company to
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use compensation policies and programs that align the interests of executive
management with those of the shareholders and to provide compensation programs
that incentivize and reward both the short and long term performance of the
executive officers based on the success of the Company in meeting its business
objectives.
EXECUTIVE COMPENSATION COMPONENTS
BASE SALARY. Recommendations for base salaries for executive officers are
made at levels believed by the Compensation Committee to be sufficient to
attract and retain qualified executive officers based on the stage of
development of the Company and the market practices of other companies. A change
in base salary of an executive officer is based on an evaluation of the
performance of the executive, prevailing market practices, and the performance
of the Company as a whole. In determining recommended base salaries, the
Compensation Committee not only considers the short term performance of the
Company, but also the success of the executive officers in developing and
executing the Company's strategic plans, developing management employees and
exercising leadership in the development of the Company.
INCENTIVE BONUS. The Compensation Committee believes that a portion of the
total cash compensation for executive officers should be based on the Company's
success in meeting its short term performance objectives and contributions by
the executive officers that enable the Company to meet its long term objectives,
and has structured the executive compensation program to reflect this
philosophy. This approach creates a direct incentive for executive officers to
achieve desired short term corporate goals that also further the long term
objectives of the Company, and places a portion of each executive officer's
annual compensation at risk.
STOCK OPTIONS. The Compensation Committee believes that equity
participation is a key component of the Company's executive compensation
program. Stock options are awarded by the Board of Directors to executive
officers primarily based on potential contributions to the Company's growth and
development and marketplace practices. These awards are designed to retain
executive officers and to motivate them to enhance shareholder value by aligning
the financial interests of executive officers with those of shareholders. Stock
options provide an effective incentive for management to create shareholder
value over the long term because the full benefits of the option grants cannot
be realized unless an appreciation in the price of the Company's common stock
occurs over a number of years.
COMPENSATION OF CO-CHIEF EXECUTIVE OFFICERS
From the January 1, 1999 to March 1, 1999, each of John W.P. Holt and
Geoffrey T. Barker, the Company's Co-Chief Executive Officers, received salaries
of $125,000 annually. In March 1999 Messrs. Holt and Barker received increases
in annual salary to $150,000. In addition, each of Mr. Holt and Mr. Barker
received grants of options to purchase 100,000 shares of the Company's common
stock in April 1999. Mr. Holt's and Mr. Barker's annual salaries and stock
option grants were approved by the Board of Directors by considering several
factors including the attainment of corporate revenue and operating results
goals, the Company's progress in growing its client base and in new product
development and the contribution of the Co-Chief Executive Officers to the
Company's strategic focus and market position. No set formula was used for this
determination, and no particular function was weighted greater or lesser than
the other.
COMPENSATION COMMITTEE
Howard A. Tullman
Joseph P. Landy
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STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on an
initial $100 investment in our common stock since August 5, 1999, the date our
common stock began trading on the Nasdaq Stock Market, to two indices: the
Nasdaq Stock Market Index and the Nasdaq Computer & Data Processing Services
Stocks ("Nasdaq C&DPS"). The Nasdaq C&DPS includes all Nasdaq Stock
Market-listed companies with a Standard Industrial Classification Code
classification category of 737. The past performance of our common stock is not
an indication of future performance. We cannot assure you that the price of our
common stock will appreciate at any particular rate or at all in future years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE COBALT GROUP, INC. NASDAQ INDEX NASDAQ C&DPS
<S> <C> <C> <C>
8/5/99 100 100 100
8/31/99 117 106 107
9/30/99 116 106 112
10/31/99 74 114 118
11/30/99 91 126 135
12/31/99 113 153 183
</TABLE>
This graph is based on the closing price of our common stock on the Nasdaq
Stock Market on the first day of trading of $8.3125. The initial price of our
common stock in the initial public offering was $11.00.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is proposing to enter into an equipment financing loan agreement
with Charter Financial, Inc., a company in which Warburg, Pincus Investors,
L.P., an affiliate of Warburg, Pincus Equity Partners, L.P., owns a 49.9%
interest. Under the terms of the proposed loan agreement, Cobalt would borrow up
to $2.5 million from Charter Financial. The initial amount proposed to be
borrowed under the agreement is $1.7 million, payable over three years at an
annual interest rate of approximately 13%. Amounts borrowed under the agreement
will be secured by the equipment purchased.
We currently are in negotiations with J.D. Power and Associates regarding a
proposed automobile dealer training program that would be jointly developed by
J.D. Power and Associates and us. If implemented, the joint arrangement likely
would involve an amount in excess of $60,000. J.D. Power and Associates is
controlled by J.D. Power, III, a director of Cobalt.
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 previously
purchased shares 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 respective promissory note is secured by a pledge of the 129,915 shares of
common stock issued to Messrs. Barker and Holt, respectively.
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<PAGE>
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL ONE: ELECTION OF DIRECTORS
Our Board of Directors currently is comprised of seven members who will be
divided into three classes with overlapping three-year terms. A director serves
in office until his or her respective successor is duly elected and qualified
unless the director resigns or by reason of death or other cause is unable to
serve in the capacity of director. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of an equal
number of directors.
Two Class 1 directors are to be elected at the Annual Meeting for a one-year
term ending in 2001. Three Class 2 directors are to be elected at the Annual
Meeting for a two-year term ending in 2002. Two Class 3 directors are to be
elected for a three-year term ending in 2003. The Board of Directors has
nominated John W.P. Holt and Mark T. Koulogeorge for election as Class 1
directors. The Board of Directors has nominated Geoffrey T. Barker, J.D.
Power, III, and Ernest H. Pomerantz for election as Class 2 directors. The Board
of Directors has nominated Joseph P. Landy and Howard A. Tullman for election as
Class 3 directors.
Set forth below are the name, position held, and age of each of the nominees
for director of the Company. The principal occupation and recent employment
history of each of the nominees are described below and the number of shares of
common stock beneficially owned by each nominee as of March 17, 2000, is set
forth beginning on page 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES NAMED
BELOW FOR DIRECTORS OF THE COMPANY.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- -----------------------------------------------
<S> <C> <C>
John W.P. Holt............. 43 Chief Executive Officer, President and Director
Geoffrey T. Barker......... 38 Director
Mark T. Koulogeorge(1)..... 35 Director
Joseph P. Landy(2)......... 38 Director
Ernest H. Pomerantz(1)..... 58 Director
J.D. Power, III............ 68 Director
Howard A. Tullman(1)(2).... 54 Chairman of the Board of Directors
</TABLE>
- ------------------------
(1) Member of audit committee
(2) Member of compensation committee
NOMINEES FOR CLASS 1 DIRECTOR--TERMS EXPIRING IN 2001
MR. HOLT co-founded Cobalt in March 1995. He has served as its President and
Chief Executive Officer since January 2000 and as a Director since inception.
From the Company's inception to January 2000, Mr. Holt served as Co-Chief
Executive Officer. 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. 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
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where he leads the firm's Internet and e-commerce investment practice. Prior to
joining First Analysis in 1994, Mr. Koulogeorge was an executive officer and
Vice President of Eagle Industries, Inc., a diversified manufacturer from 1991
through 1994. Mr. Koulogeorge holds an M.B.A. degree from Stanford University
and a B.A. degree in Economics from Dartmouth College.
NOMINEES FOR CLASS 2 DIRECTOR--TERMS EXPIRING IN 2002
MR. BARKER co-founded The Cobalt Group in March 1995 and served as its
Co-Chief Executive Officer from March 1995 until January 2000 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 Request4Bid, Inc. and Boats.com, Inc. Mr. Barker
holds an M.B.A. degree from Columbia University and a B.A. degree in Economics
from Tufts University.
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. 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. From 1982 through 1999 Mr. Pomerantz was a Managing Director of
E.M. Warburg, Pincus & Co., LLC, and since January 2000 he has served as Senior
Advisor. Mr. Pomerantz also serves as a director of Axxess Technologies, Inc., a
manufacturer of key duplication equipment and identification systems, J.D. Power
and Associates, a marketing information company, CustomerSat.com, Inc., a
provider of Internet survey research services, 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.
NOMINEES FOR CLASS 3 DIRECTOR--TERMS EXPIRING IN 2003
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 Indus International, 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. 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.
13
<PAGE>
PROPOSAL TWO: AMENDMENT OF THE COMPANY'S 1995 STOCK OPTION PLAN
Our 1995 Stock Option Plan (the "Plan") was originally adopted by the Board
of Directors in 1995 and approved by the shareholders in May 1995. In March
2000, the Board approved a proposal to amend the Plan to increase the number of
shares reserved for issuance by 860,000 shares, from 3,641,000 shares to
4,501,000 shares, and to annually increase the number of shares reserved for
issuance thereunder on the first day of our fiscal year beginning in 2001 by an
amount equal to the lesser of (i) 860,000 shares, (ii) five percent (5%) of the
outstanding shares at the end of the preceding fiscal year, or (iii) a lesser
amount determined by the Board.
REASONS FOR THE AMENDMENT
We rely upon the Plan as one of the benefits necessary to attract, reward
and retain skilled employees. The Board of Directors believes it is in our best
interests to increase the number of shares reserved for issuance under the Plan
so that we may continue to attract and retain the services of qualified
employees by providing employees an opportunity to purchase our common stock
through option grants.
ACTIVITY UNDER THE PLAN
We believe that the Plan is an important factor in attracting and retaining
skilled personnel. From time to time, we review the number of shares available
for issuance under the Plan and, based on our estimates of the number of shares
expected to be issued under the Plan, management presents to the Board of
Directors a recommendation for the addition of shares reserved for issuance. The
Board reviews such recommendation and, if approved by the Board, presents a
proposal for the shareholders' approval. As of December 31, 1999, 974,006 shares
of common stock had been issued upon exercise of stock options, options to
purchase an aggregate of 2,327,875 shares were outstanding at a weighted average
exercise price of $2.71 per share, and 415,501 shares remained available for
future issuance under the Plan.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT
The affirmative vote of a majority of the votes cast will be required to
approve the amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE
COMPANY'S 1995 STOCK OPTION PLAN.
SUMMARY OF THE PLAN
The essential features of the Plan are outlined below.
PURPOSE. The purpose of the Plan is to provide a means whereby eligible
employees, officers, directors, agents and consultants of the Company can
acquire our common stock.
ADMINISTRATION. The Plan is administered by our Board of Directors (the
"Plan Administrator"). Subject to the other provisions of the Plan, the Plan
Administrator has the power to determine the terms and conditions of any options
granted, including but not limited to the exercise price, the number of shares
subject to the option and the exercisability thereof.
ELIGIBILITY, TERMS OF OPTIONS AND LIMITATIONS. The Plan provides that
incentive stock options ("ISOs"), as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, may be granted only to employees or employees
of the Company's subsidiaries. Options that do not qualify as ISOs ("NSOs") may
be granted only to employees, officers, non-employee directors and consultants
of the Company. With respect to any optionee who owns stock possessing more than
10% of the voting
14
<PAGE>
power of all classes of stock of the Company (a "10% Shareholder"), the exercise
price of any ISO granted must equal at least 110% of the fair market value on
the grant date and the maximum term of the option must not exceed five years.
The term of all other ISOs under the Plan may not exceed ten years. The Plan
Administrator selects the optionees and determines the number of shares to be
subject to each option.
CONDITIONS OF OPTIONS. Each option granted under the Plan is evidenced by a
written stock option agreement between the optionee and the Company and is
subject to the following conditions:
(a) EXERCISE PRICE. The Plan Administrator determines the exercise
price of options to purchase shares of common stock. However, the exercise
price of an ISO must not be less than 100% (110%, if issued to a 10%
Shareholder) of the fair market value of the common stock on the date the
option is granted. The exercise price of an NSO is determined by the Plan
Administrator.
(b) VALUE LIMITATION. The aggregate fair market value of all shares of
common stock subject to an optionee's ISO which are exercisable for the
first time during any calendar year may not exceed $100,000. In the event
the optionee holds two or more such options that become exercisable for the
first time in the same calendar year, such limitation may be applied on the
basis of the order in which such options are granted.
(c) FORM OF CONSIDERATION. The consideration to be paid for the shares
of common stock issued upon exercise of an option may be cash or bank
certified or cashier's check. However, the Plan Administrator, in its sole
discretion, may permit additional forms of payment, including 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.
(d) EXERCISE OF THE OPTION. Each stock option agreement will specify
the term of the option and the date when the option is to become
exercisable. The terms of such vesting are determined by the Plan
Administrator. Options granted under the Plan generally have a ten-year term
(five years, if issued to a 10% Shareholder) and generally become
exercisable over four years at a rate of one-fourth of the shares subject to
the options at the end of twelve months from the date of grant and one-
forty-eighth of the shares every month thereafter, subject to the optionee's
continuation as a service provider. An option is exercised by giving written
notice of exercise to the Company and by tendering full payment of the
purchase price to the Company.
(e) TERMINATION OF EMPLOYMENT; ASSIGNABILITY. Generally, an optionee
may not transfer the option other than by will or the laws of descent or
distribution. A person whose service to the Company and its affiliates
ceases for any reason other than for cause, resignation in lieu of
termination, retirement, disability or death generally may exercise an
option, as to vested shares, in the three-month period following such
cessation. An optionee, or his heirs, generally may exercise an option, as
to vested shares, for up to one year after the optionee's service to the
Company ceases due to death or disability. 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 Plan.
(f) TERMINATION OF OPTIONS. Excluding ISOs issued to 10% Shareholders,
options granted under the Plan expire on the date set forth in the option
agreement (not to exceed ten years from the date of grant in the case of
ISOs). ISOs granted to 10% Shareholders expire five years from the date of
grant (or such shorter period set forth in the option agreement). No option
may be exercised by any person after the expiration of its term.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION. If there is any change in the
stock subject to the Plan or an option agreement through consolidation, stock
split, stock dividend, or similar change in the capital structure of the
Company, appropriate adjustments will be made by the Plan Administrator in
15
<PAGE>
order to preserve the benefits to the optionee, including adjustments to the
aggregate number, kind and price per share of shares subject to the Plan or an
option agreement.
CERTAIN CORPORATE TRANSACTIONS. If the Company 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 Plan:
(i) the outstanding options may remain in effect in accordance with
their terms;
(ii) 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; or
(iii) the Board 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 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.
AMENDMENT AND TERMINATION OF THE PLAN. The 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 (i) to increase the
number of shares of Common Stock reserved for issuance under the Plan,
(ii) permit the granting of options to a class of persons other than those
presently permitted to receive stock options under the Plan, or (iii) any other
amendment that requires shareholder approval under applicable law. No option may
be granted nor any stock issued under the Plan during any suspension or after
the termination of the Plan, and no amendment, suspension or termination of the
Plan will, without the affected individual's consent, alter or impair any rights
or obligations under any option previously granted under the Plan. The Plan will
terminate on May 18, 2005, unless previously terminated by the Board.
FEDERAL TAX INFORMATION
Options granted under the Plan may be either ISOs or NSOs. An optionee who
is granted an ISO will not recognize taxable income either at the time the
option is granted or upon its exercise, although the exercise may subject the
optionee to the alternative minimum tax. Upon the sale or exchange of the shares
more than two years after grant of the option and one year after exercise of the
option, any gain or loss will be treated as long-term capital gain or loss. If
these holding periods are not satisfied, the optionee will recognize ordinary
income at the time of sale or exchange equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise or (ii) the sale price of the shares. Any gain or
loss recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized as long-term, or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee owns more than ten percent of our outstanding common stock. The
Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee.
All of the options that do not qualify as ISOs are referred to as NSOs. An
optionee will not recognize any taxable income at the time he is granted an NSO.
However, upon its exercise, the optionee will recognize taxable income generally
measured as the excess of the then fair market value of the shares purchased
over the purchase price. Any taxable income recognized in connection with an
option exercise by an optionee who is also an employee of the Company will be
subject to tax withholding by the Company. The Company will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the optionee.
Upon disposition of such shares by the optionee, any difference between the
sales price and the optionee's purchase price, to the extent not recognized as
16
<PAGE>
taxable income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER THE
PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE
APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS
THE TAX CONSEQUENCES OF THE OPTIONEE'S DEATH OR THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE OPTIONEE MAY RESIDE.
PROPOSAL THREE: RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending December 31,
2000, and has further directed that the selection of such independent
accountants be submitted for ratification by the shareholders at the Annual
Meeting. The Company has been advised by PricewaterhouseCoopers LLP that neither
that firm nor any of its associates has any relationship with us other than the
usual relationship that exists between independent accountants and clients.
PricewaterhouseCoopers LLP will have one or more representatives at the Annual
Meeting who will have an opportunity to make a statement and will be available
to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2000.
Our bylaws do not require that our shareholders ratify the selection of
PricewaterhouseCoopers LLP as our independent accountants. We are seeking
shareholder ratification because we believe it is a matter of good corporate
practice. In the event that the votes cast in favor of ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants do not
exceed the votes cast against such action, the selection of other independent
accountants will be considered by the Board of Directors.
OTHER BUSINESS
We know of no other matters to be voted on at the Annual Meeting. If,
however, other matters are presented for a vote at the meeting, the proxy
holders (the individuals designated on the proxy card) will vote your shares
according to their judgment on those matters.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement is incorporated by reference into
any other filing by us under the Securities Act of 1933 or the Securities
Exchange Act of 1934, the sections of this Proxy Statement entitled "Report on
Executive Compensation for 1999 by the Compensation Committee" and "Stock
Performance Graph" will not be deemed incorporated, unless otherwise
specifically provided in such filing.
17
<PAGE>
INFORMATION ABOUT SHAREHOLDER PROPOSALS AND ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for inclusion in our
proxy statement for the year 2001 Annual Meeting, the written proposal must be
received by us no later than December 21, 2000. Such proposals also must comply
with Securities and Exchange Commission regulations regarding the inclusion of
shareholder proposals in company sponsored proxy materials.
If a shareholder proposal is not included in our proxy statement for the
2001 Annual Meeting, it may be raised from the floor during the meeting if
written notice of the proposal is received by the Company not less than 60 nor
more than 90 days prior to the meeting or, if less than 60 days' notice of the
date of the meeting is given, by the 10th business day following the first
public announcement of the meeting.
The proposal must also contain the information required in our Bylaws for
shareholder proposals, including:
1. your name and address,
2. a representation that you are entitled to vote at the meeting and a
statement of the number of shares of our stock that you beneficially own,
3. a representation that you intend to appear at the meeting, in person or
by proxy, and
4. a brief description of the business you wish to bring before the
meeting, the reasons for conducting such business, the language of the
proposal and any material interest you have in such business.
The Board of Directors or the Chairman of the Annual Meeting may determine
and declare that (a) a proposal does not constitute proper business to be
transacted at the Annual Meeting or (b) the business was not properly brought
before the meeting in accordance with our Bylaws.
ADDITIONAL INFORMATION
The Company's Annual Report for the fiscal year ended December 31, 1999 was
first mailed to the shareholders of the Company with this Proxy Statement on or
about April 20, 2000. The Annual Report is not to be treated as part of the
proxy solicitation material or as having been incorporated by reference herein.
A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
EXCLUDING EXHIBITS, MAY BE OBTAINED BY SHAREHOLDERS WITHOUT CHARGE BY WRITTEN
REQUEST TO DAVID M. DOUGLASS, SECRETARY, THE COBALT GROUP, INC., 2200 FIRST
AVENUE SOUTH, SEATTLE, WASHINGTON, 98134 OR MAY BE ACCESSED ON THE INTERNET AT
www.sec.gov.
By Order of the Board of Directors,
[SIG]
John W.P. Holt
PRESIDENT & CHIEF EXECUTIVE OFFICER
April 20, 2000
Seattle, Washington
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<PAGE>
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 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.
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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 upon changes in capitalization of the Company as
provided below and in Section 6 hereof, the maximum number of shares of the
Company's common stock ("Common Stock") that shall be made available for sale
under the Plan shall be 4,501,000 shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2001 equal to the lesser
of (i) 860,000 shares, (ii) 5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. 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.
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
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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.
(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.
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(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:
Period From the Date Portion of Total
the Option is Granted Which is Exercisable
--------------------- --------------------
Less than 12 months None
12th month 25%
13th month through 48th month Monthly vesting of remaining 75% in
36 equal increments
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 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
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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 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).
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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.
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.
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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
stockbroker 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.
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.
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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.
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
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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
off 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.
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
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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; (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
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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.
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, April 1999 and May 2000.
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THE COBALT GROUP, INC.
PROXY
FOR ANNUAL MEETING OF THE SHAREHOLDERS OF THE COBALT GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN W.P. HOLT and DAVID M. DOUGLASS, and
each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of The Cobalt
Group, Inc. (the "Company") to be held at the Company's executive offices,
2200 First Avenue South, Seattle, Washington on May 23, 2000 at 9:00 a.m., and
at any adjournments thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- FOLD AND DETACH HERE -
<PAGE>
Please mark
your votes as /X/
indicated:
This proxy when properly signed will be voted in the manner directed herein by
the undersigned shareholder. IF NO DIRECTION IS MADE, THE PROXY WILL VOTE FOR
ALL NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 AND 3, AND IN THE PROXY'S
DISCRETION AS TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
FOR ALL NOMINEES
(except for those that you WITHHOLD AUTHORITY
list in the space below) to vote for all nominees
/ / / /
1. Election of John W.P. Holt and Mark T. Koulogeorge as Class 1 directors to
serve for a one year term; Geoffrey T. Barker, J.D. Power, III, and Ernest
H. Pomerantz as Class 2 directors to serve for a two year term; and Joseph
P. Landy and Howard A. Tullman as Class 3 directors to serve for a three
year term.
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's 1995 Stock Option / / / / / /
Plan to increase the number of shares reserved for
issuance by 860,000 shares and to provide for annual
increases thereafter.
3. Proposal to ratify PricewaterhouseCoopers, LLP as / / / / / /
the Company's independent public accountants for the
fiscal year ending December 31, 2000.
4. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature(s) ______________________________________ Date: ________________, 2000
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
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