-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CtBOCkobyoqPvcDJlanCKnKP4+FvRXKszuyCS89RxUtKli5sgka1gFJz4YM3dwRu GugG4qEbIYidL1zQisEFfw== /in/edgar/work/20000814/0000912057-00-037194/0000912057-00-037194.txt : 20000921 0000912057-00-037194.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037194 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COBALT GROUP INC CENTRAL INDEX KEY: 0001036290 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 911674947 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26623 FILM NUMBER: 698245 BUSINESS ADDRESS: STREET 1: 2200 FIRST AVENUE S STREET 2: STE 400 CITY: SEATTLE STATE: WA ZIP: 98134 BUSINESS PHONE: 2063867535 10-Q 1 a10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 000-26623 ------------------------ THE COBALT GROUP, INC. (Exact name of registrant as specified in its charter) WASHINGTON 91-1674947 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2200 FIRST AVENUE SOUTH, SEATTLE, WASHINGTON 98134 (Address of principal executive offices) (Zip Code)
(206) 269-6363 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of July 31, 2000, 17,669,359 shares of the Company's common stock, $.01 par value, were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE COBALT GROUP, INC. FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS
PAGE -------- PART I--Financial Information Item 1.--Financial Statements Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999...................................... 3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999................ 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999........................... 5 Condensed Notes to Consolidated Financial Statements.... 6 Item 2.--Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 Overview and Outlook.................................... 11 Results of Operations................................... 13 Liquidity and Capital Resources......................... 16 Item 3.--Quantitative and Qualitative Disclosures about Market Risk............................................. 17 PART II--Other Information Item 2.--Changes in Securities and Use of Proceeds........ 18 Item 4.--Submission of Matters to a Vote of Securities Holders................................................. 19 Item 6.--Exhibits and Reports on Form 8-K................. 20 Signatures.................................................. 21
2 ITEM 1.--FINANCIAL STATEMENTS THE COBALT GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents................................. $ 12,530 $ 14,224 Accounts receivable, net of allowance for doubtful accounts of $794 and $497, respectively................. 7,720 4,581 Note receivable from Boats.com, Inc....................... 7,146 -- Prepaid expenses and other current assets................. 972 2,225 -------- -------- 28,368 21,030 Capital assets, net......................................... 7,121 4,636 Intangible assets, net...................................... 27,971 27,330 Other assets................................................ 1,487 1,036 -------- -------- Total assets............................................ $ 64,947 $ 54,032 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable.......................................... $ 1,724 $ 2,020 Accrued liabilities....................................... 1,807 1,520 Deferred revenue.......................................... 3,195 2,456 Deferred gain on sale of YachtWorld....................... 7,000 -- Notes payable............................................. 258 -- Software financing contract, current portion.............. 777 362 Capital asset financing, current portion.................. 1,340 844 -------- -------- 16,101 7,202 -------- -------- Non-current liabilities Software financing contract, non-current portion.......... 262 28 Capital asset financing, non-current portion.............. 1,302 1,217 -------- -------- 1,564 1,245 -------- -------- Shareholders' equity Preferred stock; $0.01 par value per share; 100,000,000 shares authorized; 0 shares issued and outstanding Common stock; $0.01 par value per share; 200,000,000 shares authorized; 17,563,942 and 16,855,431 issued and outstanding, respectively............................... 176 169 Additional paid-in capital................................ 106,336 89,957 Deferred equity expenses.................................. (16,066) (3,036) Notes receivable from shareholders........................ (144) (144) Accumulated deficit....................................... (43,020) (41,361) -------- -------- 47,282 45,585 -------- -------- Total liabilities and shareholders' equity.............. $ 64,947 $ 54,032 ======== ========
See accompanying notes to consolidated financial statements. 3 THE COBALT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 ----------- ---------- ----------- ---------- Gross revenues Web site design and hosting........................ $ 7,373 $ 2,949 $ 13,163 $ 5,048 Data extraction and aggregation services........... 3,139 1,800 6,171 1,800 Other services..................................... 476 660 938 1,014 ----------- ---------- ----------- ---------- Total gross revenues............................... 10,988 5,409 20,272 7,862 Less: Amortization of non-cash equity discounts.... 14 -- 14 -- ----------- ---------- ----------- ---------- Net revenues..................................... 10,974 5,409 20,258 7,862 Cost of revenues, exclusive of stock-based compensation of $5, $32, $29 and $46, respectively....................................... 2,192 1,097 3,967 1,637 ----------- ---------- ----------- ---------- Gross profit....................................... 8,782 4,312 16,291 6,225 Operating expenses Sales and marketing, exclusive of stock-based compensation of $74, $155, $142 and $273, respectively..................................... 5,172 2,449 9,448 4,099 Product development, exclusive of stock-based compensation of $42, $150, $88 and $245, respectively..................................... 1,682 601 2,936 1,002 General and administrative, exclusive of stock-based compensation of $129, $658, $281 and $766, respectively............................... 5,020 2,685 8,803 4,493 Amortization of intangible assets.................. 1,584 924 3,092 986 Stock-based compensation........................... 250 995 540 1,330 ----------- ---------- ----------- ---------- Total operating expenses......................... 13,708 7,654 24,819 11,910 ----------- ---------- ----------- ---------- Loss from operations................................. (4,926) (3,342) (8,528) (5,685) Interest expense..................................... (151) (503) (219) (552) Interest income...................................... 381 36 698 93 Gain on sale of YachtWorld........................... -- -- 6,446 -- Other income, net.................................... 10 -- (56) -- ----------- ---------- ----------- ---------- Net loss........................................... $ (4,686) $ (3,809) $ (1,659) $ (6,144) =========== ========== =========== ========== Net loss available to common shareholders............ $ (4,686) $ (4,457) $ (1,659) $ (7,383) =========== ========== =========== ========== Basic and diluted net loss per share................. $ (0.27) $ (2.32) $ (0.10) $ (4.33) =========== ========== =========== ========== Weighted-average shares outstanding.................. 17,430,769 1,920,262 17,254,883 1,703,204 =========== ========== =========== ==========
See accompanying notes to consolidated financial statements. 4 THE COBALT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................. $(1,659) $(6,144) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred equity expenses................ 554 1,331 Depreciation and amortization........................... 4,294 1,468 Gain on sale of YachtWorld.............................. (6,446) -- Net loss on disposition of assets....................... 64 7 Changes in: Accounts receivable................................... (3,399) (1,741) Other assets.......................................... 802 (971) Accounts payable and accrued liabilities.............. 878 1,204 Deferred revenues..................................... 954 362 ------- ------- Net cash used in operating activities............... (3,959) (4,484) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of capital assets............................. (3,824) (205) Proceeds from sale of fixed assets........................ 24 -- Proceeds from sale of short term investment............... -- 983 Investment in PartsVoice.................................. -- (3,281) Investment in IntegraLink................................. (1,614) -- Proceeds from sale of YachtWorld.......................... 6,674 ------- ------- Net cash provided by (used in) investing activities..... 1,260 (2,503) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from lease financing transactions................ 1,170 -- Proceeds from exercise of stock options................... 431 140 Proceeds from line of credit.............................. -- 1,600 Payment of capital asset financing obligations and software financing contract............................. (771) (249) Proceeds from employee stock purchase plan................ 175 -- Proceeds from sale of preferred stock..................... -- 100 Prepayment of initial public offering expenses............ -- (297) ------- ------- Net cash provided by financing activities................... 1,005 1,294 ------- ------- Net change in cash and cash equivalents..................... (1,694) (5,693) Cash and cash equivalents, beginning of period.............. 14,224 5,756 ------- ------- Cash and cash equivalents, end of period.................... $12,530 $ 63 ======= =======
See accompanying notes to consolidated financial statements. 5 THE COBALT GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF THE BUSINESS The Cobalt Group, Inc. (the "Company") is a provider of Internet marketing and data aggregation services to individual franchised automobile dealerships, multi-franchise automobile dealer groups and automobile manufacturers in the United States. The Company enables its clients to develop and implement e-business strategies and to capitalize on the increasing use of the Internet by consumers to research, evaluate and buy new and pre-owned vehicles, parts and accessories and automotive-related services such as financing and insurance. The Company's current service offerings include comprehensive Web site design, development and management; application services; data extraction, aggregation and management; Internet advertising and promotion; and Internet training and support. During 1999 the Company maintained YachtWorld.com, a marine Web site, which contains photo listings of yachts for sale, as well as other marine-related information. On January 25, 2000 the Company sold assets related to YachtWorld. The accompanying unaudited financial statements include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary to present fairly the financial information set forth therein. Certain information and note disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Results of operations for the three- and six-month periods ended June 30, 2000 are not necessarily indicative of future financial results. Investors should read these interim statements in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto for the fiscal year ended December 31, 1999 included in our annual report on Form 10-K, SEC File No. 000-26623. 2. RECENT ACCOUNTING PRONOUNCEMENTS In March 2000, the Emerging Issues Task Force (the "EITF") of the Financial Accounting Standards Board (the "FASB") issued EITF 00-2 "Accounting for Website Development Costs." This statement requires the capitalization and expensing of defined costs incurred during the development of a Web site for the Company's own use. Costs incurred during the planning stage should be expensed; the costs incurred for activities during the web application and infrastructure development stage should be capitalized; and generally the costs incurred during the operation stage should be expensed. Costs incurred to create the initial graphics for the Web site would be capitalized and that any subsequent updates would be expensed as incurred. The Company has adopted this statement and does not expect it to have a material impact on the Company's results of operations, financial position or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The SEC has issued amendments to SAB 101 to defer the effective date of implementation for three quarters with earlier application encouraged. The Company has not yet adopted SAB 101 and will be required to do so in the fourth quarter of 2000. The Company is evaluating its revenue recognition policies for Web site set-up and design fees for compliance with the interpretation of generally accepted accounting principles currently set forth in SAB 101. The Web site set-up and design revenues currently comprise 6 THE COBALT GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) approximately 15% of the Company's revenues. It is not expected that implementation of SAB 101 will have a material effect, if any, on the Company's results of operations. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities." In May 1999, the FASB voted to delay the effective date of FAS 133 by one year. Adoption of FAS 133 is required for fiscal year 2001. This statement establishes a new model for accounting for derivatives and hedging activities. Under FAS 133, all derivatives must be recognized as assets and liabilities and measured at fair value. The Company adopted FAS 133 on January 1, 1999. 3. ACQUISITION OF INTEGRALINK On January 14, 2000 the Company acquired IntegraLink, Inc. ("IntegraLink"), whose principal business is advanced data extraction and reporting services. At closing, the Company paid aggregate purchase consideration of (i) $1.5 million in cash; (ii) promissory notes in the principal amount of $250,000 bearing interest at 8% due January 14, 2001; (iii) 85,000 shares of the Company's common stock valued at $22.00 per share; and (iv) expenses related to the acquisition in the amount of $114,000. The Company accounted for the IntegraLink acquisition using the purchase method of accounting. The aggregate purchase price of $3.7 million was allocated to the net assets acquired, based on their respective fair values. The excess of the purchase price, including acquisition costs, over the fair market value of the assets acquired was allocated to intangible assets as follows:
USEFUL LIVES INTANGIBLE ASSET ------------ ---------------- (YEARS) (IN THOUSANDS) Goodwill........................................... 4 $ 624 Customer Lists..................................... 3 390 Existing Technology................................ 5 2,060 Workforce.......................................... 3 660 -- ------ $3,734 ======
The historical operations of IntegraLink are not material to the Company's financial position or results of operations, therefore, pro forma financial statements have not been presented. 4. SALE OF YACHTWORLD On January 25, 2000 the Company sold the assets related to YachtWorld to Boats.com, Inc. for a total of $14.0 million, with cash proceeds of $3.5 million and a note receivable in the amount of $10.5 million. The note bears interest at 8.0% and is due in three installments during 2000. The first installment of $3.5 million was received on March 27, 2000. The Company also received warrants to purchase 473,455 shares of Boats.com common stock at $18.91 per share. The Company did not allocate value to these warrants due to lack of liquidity in Boats.com common stock. In addition, the Company received the right to appoint a representative to Boats.com's board of directors until the note is paid in full. Revenues for YachtWorld were $602,000, $185,000 and $80,000 for the years ended 7 THE COBALT GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. SALE OF YACHTWORLD (CONTINUED) December 31, 1999, 1998 and 1997, respectively. The following assets and liabilities were sold in the transaction: Accounts receivable......................................... $114,000 Capital assets.............................................. 50,000 Accounts payable............................................ 47,000 Deferred revenue............................................ 215,000 Other accrued liabilities................................... 1,000
In addition, expenses associated with the transaction were $653,000, resulting in a net gain of $13.4 million. As of June 30, 2000 the Company has recognized $6.4 million of that gain. Terms of the agreement require additional cash payments of $7 million, plus interest, with equal installments due on September 30, 2000 and December 31, 2000. Because of the risk associated with the collection of these payments, the Company has deferred that portion of the gain, which is presented on the balance sheet as deferred gain on sale of YachtWorld. 5. ACQUISITION OF PARTSVOICE On April 30, 1999, the Company acquired all of the equity interests in PartsVoice, LLC, ("PartsVoice") whose principal business is vehicle parts data acquisition and management services. Immediately prior to the closing, PartsVoice distributed to its owners certain assets and liabilities. The Company paid aggregate purchase consideration for the PartsVoice equity of (i) $26.0 million in cash; (ii) 500,000 shares of Series C convertible preferred mandatorily redeemable stock at $8.00 per share; and (iii) warrants to purchase 160,000 shares of the Company's common stock at $6.00 per share. The warrants were valued at $381,000 using the Black Scholes option-pricing model with the following assumptions: fair value of common stock of $7.20 per share, expected life of six months, risk free interest rate of 4.66%, volatility of 90% and dividend yield of 0%. The acquisition was accounted for using the purchase method of accounting. The aggregate purchase price was allocated to the net assets acquired, based upon their respective fair market values. The excess of the purchase price, including acquisition costs, over the fair market value of the assets acquired was allocated to intangible assets. The following summarizes the unaudited pro forma results of operations for the three and six months ended June 30, 1999, on a combined basis, as if the Company's acquisition of PartsVoice occurred on January 1, 1999, after including the impact of certain adjustments, such as amortization of goodwill and interest on acquisition indebtedness:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1999 JUNE 30, 1999 ------------------ ---------------- Revenues.................................... $6,288,000 $11,297,000 Net loss.................................... 3,908,000 6,855,000 Basic net loss per share.................... (2.04) (4.03)
8 THE COBALT GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. ACQUISITION OF PARTSVOICE (CONTINUED) The unaudited pro forma results are not necessarily indicative of the results of operations that would have been reported had the acquisition occurred prior to the beginning of the periods presented. In addition, they are not intended to be indicative of future results. 6. NET LOSS PER SHARE The following table sets forth the computation of the numerators and denominators in the basic and diluted net loss per share calculations for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 ----------- ---------- ----------- ---------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Numerator: Net loss.................................. $ (4,686) $ (3,809) $ (1,659) $ (6,144) Dividends on mandatorily redeemable convertible preferred stock............. -- (641) -- (1,225) Accretion of mandatorily redeemable convertible preferred stock............. -- (7) -- (14) ----------- ---------- ----------- ---------- Net loss available to common shareholders............................ $ (4,686) $ (4,457) $ (1,659) $ (7,383) =========== ========== =========== ========== Denominator: Weighted-average shares outstanding--basic and diluted............................. 17,430,769 1,920,262 17,254,883 1,703,204 =========== ========== =========== ==========
Since the Company incurred losses for all periods presented, 2,750,474 stock options and 2,308,307 warrants outstanding as of June 30, 2000 were excluded from the weighted-average shares calculation due to their antidilutive effect. 7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest during the six months ended June 30, 2000 and 1999 was $219,000 and $552,000, respectively. During the six months ended June 30, 2000 and 1999, the Company purchased capital assets under capital asset financing and a software financing contract totalling $1,170,000 and $1,863,000, respectively. 8. FINANCING AGREEMENTS On June 26, 2000 the Company entered into a securities purchase agreement with Warburg, Pincus Equity Partners, L.P., Riverside Partnership, Third Point Partners L.P., Third Point Offshore Fund Ltd., and Points West International Investments Ltd. (the "Investors"). The agreement provides the Company an option to sell up to an aggregate of 2,187,289 shares of common stock to the Investors at a per share price of $6.86 at any time between September 14, 2000 and November 13, 2000. As 9 THE COBALT GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. FINANCING AGREEMENTS (CONTINUED) consideration for the option, the Company issued to the Investors warrants to purchase 693,983 shares at an exercise price of $6.86 per share. The warrants are fully vested and expire on June 26, 2005. On April 12, 2000, the Company entered into a loan agreement with Charter Financial, Inc. Under the terms of the agreement, the Company can borrow up to $2.5 million, collateralized by specified capital assets. To date, the Company has borrowed $1.2 million under terms of this facility. Amounts borrowed are due in equal installments over 36 months at an effective interest rate of approximately 13%. The agreement contains restrictive covenants, including provisions that require maintenance of insurance, impose limitations on changes in the Company's ownership, provide for prepayment penalties, and require maintenance of unrestricted cash balances of $7.0 million. 9. DAIMLERCHRYSLER SERVICE AGREEMENT On May 1, 2000 the Company entered into an agreement with DaimlerChrysler Corporation to provide Web site design, hosting and maintenance services to its Chrysler, Dodge and Jeep Five-Star dealers. The initial term of the agreement is through December 31, 2002, with an option to renew through December 31, 2005. DaimlerChrysler is obligated to pay minimum annual revenues to the Company during the initial term of the agreement. In connection with the agreement, the Company issued 258,164 shares of its common stock to DaimlerChrysler. The Company also issued warrants to purchase 688,437 and 516,328 shares of its common stock at $10.03 and $12.53 per share, respectively. A third warrant to purchase 249,559 shares at $15.04 per share is contingent upon DaimlerChrysler's exercise of its option to renew the agreement. The three warrants are fully vested and become exercisable on May 1 of 2003, 2004 and 2005, respectively. Non-cash charges related to the common stock and warrants issued in connection with the DaimlerChrysler agreement total $14.6 million. Of the total value, $6.7 million was attributed to the warrant to purchase 688,437 shares, which expires on May 1, 2008. The valuation was determined using the Black-Scholes option pricing model with the following assumptions: 88% volatility, expected life of eight years, risk free rate of return of 6.55% and a fair market value of $11.44. The second warrant of 516,328 shares, expiring on May 1, 2009, was valued at $5.0 million, also using the Black-Scholes option pricing model. The assumptions used were as follows: 88% volatility, expected life of nine years, risk free rate of return of 6.29% and a fair market value of $11.44. The remaining $2.9 million in value was attributable to 258,164 shares of common stock issued to DaimlerChrysler. The total valuation will be amortized ratably with revenues recognized over the initial period of the agreement. The amortization will be reflected on the statement of operations as a sales discount. This valuation does not attribute value to the third warrant because issuance will be contingent upon DaimlerChrysler's exercise of its renewal option. Upon renewal, non-cash charges attributable to the third warrant will be calculated and amortized over the three year renewal period. This warrant expires on May 1, 2010. 10 ITEM 2.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INVESTORS SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES AND EXCHANGE ACT, AS AMENDED, THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. YOU SHOULD READ THE CAUTIONARY STATEMENTS MADE IN THIS REPORT AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN OUR REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND OUR QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000. YOU SHOULD NOT RELY ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT ONLY OUR OPINION AS OF THE DATE OF THIS REPORT. WE DO NOT ASSUME ANY OBLIGATION TO REVISE FORWARD-LOOKING STATEMENTS. OVERVIEW AND OUTLOOK OVERVIEW We derive our revenues from fees charged to our network of automobile dealership, dealer group and manufacturer clients. These network products and services include Web site design and hosting services, data extraction and aggregation services, and other services such as dealer training and placement of advertisements. Revenues from Web site hosting and data extraction services are recognized ratably over the applicable service period. Revenues from design and custom development are recognized based on completion and delivery of services or products as outlined in the applicable service agreement or contract. In certain cases, if projects require significant modification or customization, revenues are recognized on a percentage-of-completion basis based on the total project costs to be incurred. The majority of our services are sold to clients under short-term service agreements with an initial term of three to twelve months and month-to-month thereafter. Net revenues are reported after amortization of non-cash equity discounts related to the DaimlerChrysler agreement. The warrants and common stock issued in connection with that agreement are valued at $14.6 million and are being amortized over the initial term of the agreement. The discount will be fully amortized by the end of 2002. As a result, we expect that net revenues will increase at a significantly slower rate than gross revenues. Our cost of revenues consists of the costs associated with production, maintenance and delivery of our services. These costs include the costs of production, processing and design personnel, communication expenses related to data transfer, fees payable to third parties for distribution of vehicle inventory data to other Web sites and for banner advertising, site content licensing fees and costs of Web and database servers used to host client data. ACQUISITIONS AND DISPOSITIONS In April 1999 we acquired PartsVoice, LLC, an Oregon limited liability company, whose principal business is vehicle parts data acquisition and management services. The purchase price, including transaction expenses, was $30.7 million, of which $26.3 million was paid in cash and $4.4 million was paid by issuance of preferred stock and warrants. The PartsVoice acquisition was accounted for as a purchase transaction, and substantially all of the purchase price was allocated to intangible assets. The consolidated results of operations include PartsVoice for the period May 1, 1999 to June 30, 2000. In January 2000 we purchased IntegraLink, which enhanced our data extraction capabilities and provided new access to additional clients. At closing we paid purchase consideration and expenses of $1.6 million in cash, promissory notes in the principal amount of $250,000 due January 14, 2001, and 11 85,000 shares of the Company's common stock valued at $22.00 per share, for a total purchase price of $3.7 million. The IntegraLink acquisition was accounted for as a purchase transaction, and substantially all of the purchase price was allocated to intangible assets. In January 2000 we sold the assets related to YachtWorld to Boats.com, Inc. The sale provides capital for future growth and operations of our core business. The assets were sold for cash proceeds of $3.5 million and a note receivable in the amount of $10.5 million. The note bears interest at 8.0% and is due in three installments during 2000. The first installment of $3.5 million was paid on March 27, 2000. We also received warrants to purchase 473,455 shares of Boats.com common stock at $18.91 per share. In connection with the sale of YachtWorld, we have recorded a gain of $6.4 million through June 30, 2000. Terms of the agreement require additional cash payments of $7 million, plus interest, with equal installments due on September 30, 2000 and December 31, 2000. Because of the risk associated with the collection of these payments, the Company has deferred that portion of the gain, which is presented on the balance sheet as deferred gain on sale of YachtWorld. DAIMLERCHRYSLER On May 1, 2000 the Company entered into an agreement with DaimlerChrysler Corporation to provide Web site design, hosting and maintenance services to its Chrysler, Dodge and Jeep Five-Star dealers. The initial term of the agreement is through December 31, 2002, with an option to renew through December 31, 2005. DaimlerChrysler is obligated to pay minimum annual revenues to the Company during the initial term of the agreement. In connection with the agreement, the Company issued 258,164 shares of its common stock to DaimlerChrysler. The Company also issued warrants to purchase 688,437 and 516,328 shares of its common stock at $10.03 and $12.53 per share, respectively. A third warrant to purchase 249,559 shares at $15.04 per share will be contingent upon DaimlerChrysler's exercise of its option to renew the agreement. Non-cash charges related to the common stock and warrants issued in connection with the DaimlerChrysler agreement total $14.6 million. This amount will be amortized ratably with revenues recognized over the initial period of the agreement. The amortization will be reflected on the income statement as a non-cash sales discount. This valuation does not attribute value to the third warrant because issuance will be contingent upon DaimlerChrysler's exercise of its renewal option. Upon renewal, non-cash charges attributable to the third warrant will be calculated and amortized over the renewal period. We have other relationships with DaimlerChrysler to provide Web site services to Mercedes-Benz dealers and to provide data extraction and aggregation services to Chrysler dealers. Our new agreement will increase the relative importance of DaimlerChrysler to us and may create increased credit risk. OUTLOOK We continue to anticipate revenue growth from new dealer Web sites and additional sales to current dealer clients. These additional revenues may come from individual dealer sales or as a result of manufacturer endorsements. The size and timing of these endorsements may cause variations in our revenue growth rates. For example, we anticipate adding significant numbers of new sites in the remaining six months of the year due to the DaimlerChrysler agreement. However, the project has currently been delayed by approximately two months and further delays could impact the number of new sites, as well as revenue growth, in the latter half of 2000. As we continue to expand our client base and make planned improvements to our core Web site technology platform, we expect to leverage our production, maintenance and service delivery platform, which may maintain or improve our gross margin. However, some strategic new services may have 12 lower margins than our current service offerings as a result of both cash and non-cash costs. Further, we continue to experience increasing demand for custom design and development projects, which carry higher costs. As we respond to the customer demand for these services our gross margin may decline. As a strategic initiative or as a response to the competitive environment, we may from time to time make pricing, service, technology or marketing decisions or business or technology acquisitions that require near-term investment, including staff, management and infrastructure costs and may negatively impact near-term operating results. For example, we anticipate that our agreement with DaimlerChrysler will require increased staffing and infrastructure to accommodate anticipated growth in our client base as well as expanded service offerings. We also may experience seasonality in our business in the future resulting in diminished revenues as a result of diminished demand for our services during seasonal periods that correspond to seasonal fluctuations in the automotive industry or fluctuations in industry spending for our services. Due to all or any of the foregoing factors, in some future quarter our operating results may fall below the expectations of securities analysts and investors. In such event, the trading price of our common stock would likely be materially and adversely affected. Over upcoming quarters we anticipate making significant investments in internally developed software related to development of our core Web site technology platform. Portions of these costs will be capitalized according to the American Institute of Certified Public Accountants Statement of Position 98-1. The statement provides that certain costs associated with the development of software for internal use should be capitalized, including both internal and external costs, in the installation, coding and testing phases. However, costs related to the discovery phase, as well as the transfer of data to new software are not capitalized and will be expensed as incurred. We anticipate the capitalized portion of the project will be amortized over a three-year period upon completion of the project. The amortization of these costs may have a material effect on future operating results. As of June 30, 2000, we were in the discovery phase of this project and have not capitalized any related costs. We have incurred net losses each year since we began operations. Excluding the gain on sale of YachtWorld we had a net loss of $8.1 million for the six months ended June 30, 2000, which includes non-cash charges of $3.1 million in amortization of intangible assets and $540,000 in stock-based compensation. We intend to continue our investment in technology infrastructure development, marketing and promotion, product development and strategic relationships. As a result, we expect to continue to incur net losses from operations at least through 2001. Our limited operating history makes it difficult to forecast further operating results. Although our net revenues have grown in recent quarters, we cannot be certain that net revenues will continue to increase or that they will increase at a rate sufficient to achieve and maintain profitability. Even if we were to achieve profitability in any period, we might fail to sustain or increase that profitability on a quarterly or annual basis. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 REVENUES. Gross revenues increased to $11.0 million for the three months ended June 30, 2000 from $5.4 million for the same period in 1999, an increase of $5.6 million, or 103%. Of the increase, $4.4 million, or 79% of the change, is attributable to revenues generated by Web site design and hosting services and is due to the increase in our client base and the sale of additional services to existing clients. The increase in our client base is net of client attrition of 4.1% during the three months ended June 30, 2000 compared with a client attrition rate of 2.6% for the same period in 1999. Attrition rates were determined based on total dealer Web site clients as of June 30, 2000 and 1999, respectively. As of June 30, 2000 Cobalt was paid to manage and maintain Web sites for 5,894 dealer clients, compared to 3,699 at June 30, 1999. Revenues from data extraction and aggregation services increased by $1.3 million, accounting for 24% of the gross revenue increase. The increase in these services is primarily attributable to the 13 acquisitions of PartsVoice and IntegraLink on April 30, 1999 and January 14, 2000, respectively. Revenues from other services decreased by $184,000 due to decreased placements of Internet advertising. In the three months ending June 30, 2000 we began to amortize non-cash equity charges for common stock and warrants issued in connection with the May 1, 2000 DaimlerChrysler services agreement. The amount reported for the three months ended June 30, 2000 was $14,000. This amortization is reported as a non-cash equity discount to gross revenue, and the total of $14.6 million will be amortized ratably with revenue over the initial term of the agreement, which expires on December 31, 2002. We expect these amortization amounts to increase substantially over the next two to three quarters as the DaimlerChrysler launch continues and corresponding revenues increase. COST OF REVENUES. Cost of revenues, excluding stock-based compensation, increased to $2.2 million for the three months ended June 30, 2000 from $1.1 million for the same period in 1999, an increase of $1.1 million or 100%. Of this increase, $953,000, or 87% of the change, is related to increased staffing required to accommodate our increased client base. Excluding stock-based compensation, cost of revenues as a percentage of gross revenues decreased to 19.9% for the quarter ended June 30, 2000 from 20.3% for same period in 1999. The increase in revenues from higher-margin parts locating and hosting and maintenance services relative to gross revenue caused the decrease in cost of revenues as a percentage of gross revenues. SALES AND MARKETING. Sales and marketing expenses consist primarily of compensation for sales and marketing personnel, including sales commissions, travel expenses and promotional advertising and marketing costs. Sales and marketing expenses, exclusive of stock-based compensation, increased to $5.2 million for the three months ended June 30, 2000 from $2.4 million for the same period in 1999, an increase of $2.8 million, or 111%. Of the increase, $1.8 million, or 67% of the change, is caused by increased personnel and related costs to support our increased client base. Increased commission expense accounts for $426,000, or 16% of the change. The increase is primarily due to new product and bundle offerings, resulting in increased average commissions per new Web site and enhancement sales to current clients. PRODUCT DEVELOPMENT. Our product development expenses consist primarily of compensation for product development personnel and outside consulting costs. We expense product development costs as they are incurred. Excluding stock-based compensation costs, our product development expenses increased to $1.7 million for the three months ended June 30, 2000 from $601,000 for the same period in 1999, an increase of $1.1 million, or 180%. Of this increase, $632,000, or 58% of the change, is related to increased personnel devoted to product development initiatives. An additional $217,000, or 20% of the change, is attributable to outside consulting services used to assist in product development efforts. We anticipate further substantial increases in product development costs, net of costs expected to be capitalized, over the next six months as we continue to place emphasis on product development efforts and the development of our core Web site technology platform. GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist primarily of compensation for administrative personnel, facilities and fees for outside professional advisors. General and administrative expenses, excluding stock-based compensation, increased to $5.0 million for the three months ended June 30, 2000 from $2.7 million for the same period in 1999, an increase of $2.3 million, or 87%. Of this increase, $513,000, or 22% of the change, is due to increased personnel costs to support business growth, $406,000, or 17% of the change, is due to the acquisition of PartsVoice, and $385,000, or 17% of the change, is attributable to increased facilities costs associated with our new corporate headquarters. AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets increased to $1.6 million for the three months ended June 30, 2000 from $924,000 for the same period in 1999, an increase of 14 $660,000, or 71%. Of this increase, $431,000, or 65% of the change, is due to amortization of intangible assets and goodwill related to the acquisition of PartsVoice on April 30, 1999. The remainder of the increase is attributable to amortization of intangible assets and goodwill related to the acquisition of IntegraLink on January 14, 2000. STOCK-BASED COMPENSATION. Stock-based compensation decreased to $250,000 for the three months ended June 30, 2000 from $995,000 for the same period in 1999, a decrease of $745,000, or 75%. The decrease is due to the use of an accelerated method of amortizing deferred compensation and to cancellation of employee stock options in connection with employee terminations. NET LOSS. During the three months ended June 30, 2000 net loss increased to $4.7 million from $3.8 million for the same period of 1999. Increases in sales and marketing, product development and general and administrative costs offset the decrease in non-cash amortization and stock amortization charges as well as the increase in revenues. LOSS PER SHARE. Basic and diluted loss per share decreased to $0.27 for the three months ended June 30, 2000 from a loss per share of $2.32 for the same period in 1999. The increase in earnings per share of $2.05 is due to an increase in the number of weighted-average shares outstanding during the three months ended June 30, 2000 compared to the same period in 1999, offset by the increase in net loss available to common shareholders. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 REVENUES. Gross revenues increased to $20.3 million for the six months ended June 30, 2000 from $7.9 million for the same period in 1999, an increase of $12.4 million, or 158%. Of the increase, $8.1 million, or 65% of the change, is attributable to revenues generated by Web site design and hosting services and is due to the increase in our client base and the sale of additional services to existing clients. The increase in our client base is net of client attrition of 6.2% during the six months ended June 30, 2000 compared with a client attrition rate of 4.5% for the same period in 1999. Attrition rates were determined based on total dealer Web site clients as of June 30, 2000 and 1999, respectively. Revenues from data extraction and aggregation services increased by $4.4 million, accounting for 35% of the gross revenue increase. The increase in these services is primarily attributable to the acquisitions of PartsVoice and IntegraLink on April 30, 1999 and January 14, 2000, respectively. Revenues from other services decreased by $76,000 due to decreased placements of internet advertising. Non-cash equity discounts for the six months ended June 30, 2000 totaled $14,000, resulting in net revenues of $20.3 million. The non-cash equity discounts are a result of stock and warrants issued in connection with the DaimlerChrysler services agreement. COST OF REVENUES. Cost of revenues, excluding stock-based compensation, increased to $4.0 million for the six months ended June 30, 2000 from $1.6 million for the same period in 1999, an increase of $2.3 million or 142%. Of this increase, $1.8 million, or 76% of the change, is related to increased staffing required to accommodate our increased client base, $340,000, or 15% of the change, is due to PartsVoice, and $295,000, or 13%, is associated with the costs of equipment required to host the increased number of client Web sites. Excluding stock-based compensation, cost of revenues as a percentage of gross revenues decreased to 19.6% for the quarter ended June 30, 2000 from 20.8% for same period in 1999. The increase in the product mix of higher-margin parts locating and hosting and maintenance services caused the decrease in cost of sales as a percentage of revenues. SALES AND MARKETING. Sales and marketing expenses, excluding stock-based compensation, increased to $9.4 million for the six months ended June 30, 2000 from $4.1 million for the same period in 1999, an increase of $5.3 million, or 130%. Of this increase, $3.3 million, or 62% of the change, is 15 due to increased sales and marketing personnel. Increased commissions paid to sales and marketing personnel accounted for $710,000, or 13% of the change. The increase in commissions paid reflects approximately 720 dealer Web sites added in the first six months of 2000 compared to approximately 430 dealer Web sites added for the same period in 1999. In addition, new product and bundle offerings have resulted in increased average commissions per new Web site and increased enhancement sales to current clients. PRODUCT DEVELOPMENT. We expense product development costs as they are incurred. Excluding stock-based compensation, product development expenses increased to $2.9 million for the six months ended June 30, 2000 from $1.0 million for the same period in 1999, an increase of $1.9 million, or 193%. Of this increase, $1.3 million, or 66% of the change, is attributable to the increase in the number of product development personnel, while $250,000, or 13%, is due to product development efforts at PartsVoice. GENERAL AND ADMINISTRATIVE. General and administrative expenses, excluding stock-based compensation, increased to $8.8 million for the six months ended June 30, 2000 from $4.5 million for the same period in 1999, an increase of $4.3 million, or 96%. Of this increase, $910,000, or 21%, is due to PartsVoice, $876,000, or 20%, is attributable to increased staff and management personnel, and $799,000, or 19%, is due to increased facilities costs for new company headquarters to accommodate additional personnel, including one-time expenses related to moving our corporate headquarters in the first quarter of the year. AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets increased to $3.1 million for the six months ended June 30, 2000 from $986,000 for the same period in 1999, an increase of $2.1 million or 214%. Of this increase, $1.7 million, or 82% of the change, is due to amortization of intangible assets and goodwill related to the acquisition of PartsVoice on April 30, 1999. The remainder of the increase is attributable to amortization of intangible assets and goodwill related to the acquisition of IntegraLink on January 14, 2000. STOCK-BASED COMPENSATION. Stock-based compensation decreased to $540,000 for the six months ended June 30, 2000 from $1.3 million for the same period in 1999, a decrease of $790,000, or 59%. The decrease is due to the use of an accelerated method of amortizing deferred compensation and to cancellation of employee stock options in connection with employee terminations. NET LOSS. During the six months ended June 30, 2000 we sold the assets related to YachtWorld and realized a gain of $6.4 million. Excluding the gain on sale of YachtWorld, our net loss for the six months ended June 30, 2000 was $8.1 million compared to a net loss of $6.1 million for the same period in 1999. Increased operating expenses described above, including the increase in non-cash charges of $2.1 million for goodwill amortization, offset the increase in revenues. LOSS PER SHARE. Basic and diluted loss per share increased to $0.10 for the six months ended June 30, 2000 from a loss per share of $4.33 for the same period in 1999. Excluding the gain on sale of YachtWorld the basic and diluted loss per share was $0.47 for the six months ended June 30, 2000. The increase in earnings per share of $3.86 is due to an increase in the number of weighted-average shares outstanding during the six months ended June 30, 2000 compared to the same period in 1999, offset by the increase in net loss. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000 our cash balance was $12.5 million, which reflects a decrease of $1.7 million from our cash balance at December 31, 1999. Net cash used in operating activities was $4.0 million for the six months ended June 30, 2000. Cash used in operating activities consisted primarily of net operating loss adjusted for gain on sale of 16 YachtWorld assets, non-cash charges, and an increase in accounts receivable. These items were offset by a decrease in other assets and increases in current liabilities and deferred revenue. Net cash provided by investing activities was $1.3 million for the six months ended June 30, 2000. Cash provided by investing activities consisted of cash proceeds received from the sale of YachtWorld, offset by the investment in IntegraLink and purchase of capital assets. Net cash provided by financing activities was $1.0 million for the six months ended June 30, 2000. Cash provided by financing activities consisted of proceeds from a loan agreement with Charter Financial, Inc., as well as stock option exercises and employee stock purchase plan, offset by payments of capital asset financing obligations and a software financing contract. On June 26, 2000 we entered into a securities purchase agreement with Warburg, Pincus Equity Partners, L.P., Riverside Partnership, Third Point Partners L.P., Third Point Offshore Fund Ltd., and Points West International Investments Ltd. The agreement provides us an option to sell up to an aggregate of 2,187,289 shares of common stock to Warburg, Pincus Equity Partners, L.P., Riverside Partnership, Third Point Partners L.P., Third Point Offshore Fund Ltd., and Points West International Investments Ltd. at a per share price of $6.86 at any time between September 14, 2000 and November 13, 2000. As consideration for the option, we issued these parties warrants to purchase 693,983 shares at an exercise price of $6.86 per share. We have made substantial investments in infrastructure and in staffing and management to accommodate current and anticipated future growth. Over the last twelve months we have hired more than 170 employees, excluding the addition of IntegraLink employees, and invested more than $5.9 million in capital assets. We expect to continue to increase staffing and invest in infrastructure to implement the new DaimlerChrysler operating agreement and improve service to current clients. In addition, we anticipate investing substantial resources to continue development of the core technology that supports our Web site business and to open a new office in Detroit. These investments will include staffing as well as capital purchases. We do not currently generate sufficient cash to fully fund operations and the planned investments in infrastructure. Further, we expect to repay the Charter Financial loan facility with current sources of working capital or alternative financing. However, we believe that the current cash balance, the scheduled payments of the Boats.com note receivable, and our exercise of the Warburg Pincus $15.0 million put option will be sufficient to meet our cash requirements for the next twelve months. If the investment required to sustain our planned growth is greater than anticipated or if Boats.com is unable to repay its note, we may require additional equity or debt financing to meet future working capital needs. We cannot provide assurance that such additional financing will be available, or if available, that such financing can be obtained on satisfactory terms. ITEM 3.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Substantially all of our cash equivalents and marketable securities are at fixed interest rates, and, as such, the fair value of these instruments is affected by changes in market interest rates. However, all of our cash equivalents and marketable securities mature within one year. As a result, we believe that the market risk arising from our holding of these financial instruments is minimal. In addition, all of our current clients pay in U.S. dollars and, consequently, our foreign currency exchange rate risk is immaterial. We do not engage in hedging transactions. We currently hold one derivative instrument which is settled through the issuance of our common stock as described in Note 8 on page 9. 17 PART II--OTHER INFORMATION ITEM 2.--CHANGES IN SECURITIES AND USE OF PROCEEDS. CHANGES IN SECURITIES On May 1, 2000 Cobalt issued 258,164 shares of common stock to DaimlerChrysler in connection with DaimlerChrysler's execution, delivery, and performance of the services agreement described at Note 9 on page 10 and at Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," on pages 11 and 12. This transaction involved a sale of securities to one accredited investor and was exempt from registration under the Securities Act pursuant to Sections 4(2) and 4(6) thereof and Rule 506 of Regulation D thereunder. On June 26, 2000 the Company entered into a securities purchase agreement with Warburg, Pincus Equity Partners, L.P., Riverside Partnership, Third Point Partners L.P., Third Point Offshore Fund Ltd., and Points West International Investments Ltd. The agreement provides the Company a right to sell up to an aggregate of 2,187,289 shares of common stock to the investors at a price of $6.86 per share at any time between September 14, 2000 and November 13, 2000. As consideration for the option, the Company issued to the investors warrants to purchase 693,983 shares of common stock at an exercise price of $6.86 per share. The warrants are fully vested and expire on June 26, 2005. This transaction did not involve a public offering and was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. USE OF PROCEEDS On August 4, 1999, Cobalt's Registration Statement on Form S-1, Registration No. 333-79483 (the "Registration Statement"), was declared effective by the SEC. The Registration Statement registered 5,559,615 shares of common stock to be offered and sold in Cobalt's initial public offering and in a direct sale to General Electric Capital Assurance Company. As of June 30, 2000, Cobalt had realized and used the proceeds from its initial public offering as follows:
(IN THOUSANDS) -------------- Proceeds from sale of 4,500,000 shares, less underwriters' discounts of $3,465,000................................... $46,035 Proceeds from the direct sale to General Electric Capital Assurance Company......................................... 5,000 Expenses related to the initial public offering............. (564) ------- Total proceeds.............................................. $50,471 ======= Use of proceeds: Repayment of PartsVoice acquisition notes................... $23,000 Repayment of notes payable.................................. 3,600 Payment of preferred stock dividends to related parties..... 2,100 Payment of management fee to related party.................. 150 Acquisition of capital assets............................... 4,927 Investment in IntegraLink................................... 1,614 Working capital............................................. 11,342 ------- Use of proceeds............................................. $46,733 =======
The balance of proceeds have been invested in short-term (less than one year) investments. 18 ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on May 23, 2000. The following proposals were introduced and approved: PROPOSAL ONE--Election of two Class 1 directors, three Class 2 directors, and two Class 3 directors:
VOTES VOTES NAME FOR WITHHELD - ---- ------------------ -------------- John W.P. Holt........................... 14,483,338 (96.61%) 507,702 (3.39%) Mark T. Koulogeorge...................... 14,923,336 (99.55%) 67,704 (0.45%) Geoffrey T. Barker....................... 14,486,698 (96.64%) 504,342 (3.36%) J.D. Power, III.......................... 14,923,576 (99.55%) 67,464 (0.45%) Ernest H. Pomerantz...................... 14,923,586 (99.55%) 67,454 (0.45%) Joseph P. Landy.......................... 14,923,626 (99.55%) 67,414 (0.45%) Howard A. Tullman........................ 14,486,676 (96.64%) 504,364 (3.36%)
PROPOSAL TWO--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. FOR..................................................... 14,270,893 (95.25%) AGAINST................................................. 711,913 (4.75%) ABSTAINED............................................... 8,254 BROKER NON-VOTES........................................ None
PROPOSAL THREE--To ratify the appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal year ending December 31, 2000. FOR..................................................... 14,937,984 (99.72%) AGAINST................................................. 42,223 (0.28%) ABSTAINED............................................... 10,613 BROKER NON-VOTES........................................ None
The matters listed above are described in detail in the Company's definitive proxy statement dated April 20, 2000, for the Annual Meeting of Shareholders held on May 23, 2000. 19 ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits listed below are filed as part of this report:
4.1 Common Stock Purchase Warrant Agreement dated May 1, 2000 between DaimlerChrysler Corporation and The Cobalt Group, Inc. and schedule of similar warrants. 4.2* Common Stock Purchase Warrant Agreement dated June 26, 2000 between Warburg, Pincus Equity Partners, L.P. and The Cobalt Group, Inc. and schedule of similar warrants. 10.1 DaimlerChrysler Dealer Web Site Program Services Agreement dated May 1, 2000 between DaimlerChrysler Corporation and The Cobalt Group, Inc. 10.2 DaimlerChrysler Rights Agreement dated May 1, 2000 between DaimlerChrysler Corporation and The Cobalt Group, Inc. 10.3* Securities Purchase Agreement dated June 26, 2000 between Warburg, Pincus Equity Partners, L.P., Riverside Partnership, Third Point Partners L.P., Third Point Offshore Fund Ltd., Points West International Investments, Ltd. and The Cobalt Group, Inc. 10.4* Third Amendment to Registration Agreement dated June 26, 2000 between Warburg, Pincus Equity Partners, L.P., Riverside Partnership, Third Point Partners L.P., Third Point Offshore Fund Ltd., Points West International Investments, Ltd. and The Cobalt Group, Inc. 10.5** Master Loan and Security Agreement No. 4414 dated April 12, 2000 between The Cobalt Group, Inc. and Charter Financial, Inc. 10.6** Rider to Master Loan and Security Agreement No. 4414 dated April 12, 2000 between The Cobalt Group, Inc. and Charter Financial, Inc. 27.1 Financial Data Schedule.
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* The agreements are incorporated by reference to Schedule 13D filed by Warburg, Pincus Equity Partners, Inc. on July 10, 2000. ** Incorporated by reference to the Quarterly Report on Form 10-Q filed by the Registrant on May 15, 2000.
(b) Reports on Form 8-K None. 20 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. THE COBALT GROUP, INC. By: /s/ DAVID S. SNYDER ----------------------------------------- David S. Snyder, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: August 14, 2000
21 EX-4.1 2 ex-4_1.txt EX-4.1 SA. WARR. NO. 01 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS. THE COBALT GROUP, INC. COMMON STOCK PURCHASE WARRANT This certifies that, for good and valuable consideration received, DaimlerChrysler Corporation, or registered assigns, is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after May 1, 2003 and at or prior to 11:59 pm., Pacific time, on May 1, 2008 (the "Expiration Time"), but not thereafter, to acquire from The Cobalt Group, Inc., a Washington corporation (the "Company"), in whole or from time to time in part, up to 688,437 fully paid and nonassessable shares of Common Stock of the Company ("Warrant Stock") at a purchase price per share of $10.03 (the "Exercise Price"). Such number of shares, type of security and Exercise Price are subject to adjustment as provided herein, and all references to "Warrant Stock" and "Exercise Price" herein shall be deemed to include any such adjustment. This Warrant is one of a series of Warrants issued pursuant to the Services Agreement between the Company and DaimlerChrysler Corporation, dated May 1, 2000 (the "Services Agreement"). Capitalized terms used but not defined in this Warrant shall have the meanings given them in the Services Agreement. 1. EXERCISE OF WARRANT The purchase rights represented by this Warrant are exercisable by the registered holder hereof, in whole or in part, on the terms set forth herein by the surrender of this Warrant and the Notice of Exercise form attached hereto, duly executed, to the principal executive office of the Company at 2200 First Avenue South, Seattle WA 98134 (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company), and upon payment of the Exercise Price for the shares thereby purchased (by cash or by check or bank draft payable to the order of the Company); whereupon the holder of this Warrant shall be entitled to receive from the Company a stock certificate in proper form representing the number of shares of 1 Warrant Stock so purchased. 2. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP Certificates for shares purchased hereunder shall be delivered to the holder hereof within a reasonable time after the date on which this Warrant shall have been exercised in accordance with the terms hereof. The Company hereby represents and warrants that all shares of Warrant Stock which may be issued upon the exercise of this Warrant will, upon such exercise, be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issuance thereof (other than liens or charges created by or imposed upon the holder of the Warrant Stock). The Company agrees that the shares so issued shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been exercised in accordance with the terms hereof. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the price at which each share may be purchased hereunder shall be paid in cash or check to the holder of this Warrant. 3. CHARGES, TAXES AND EXPENSES Issuance of certificates for shares of Warrant Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; PROVIDED, however, that in the event certificates for shares of Warrant Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof. 4. NO RIGHTS AS SHAREHOLDER This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 5. EXCHANGE AND REGISTRY OF WARRANT This Warrant is exchangeable, upon the surrender hereof by the registered holder at the above-mentioned office or agency of the Company, for a new Warrant of like tenor and dated as of such exchange. The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered holder of this Warrant. This Warrant may be surrendered for exchange, transfer, or exercise in accordance with its terms, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 2 6. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of this Warrant. 7. SATURDAYS, SUNDAYS AND HOLIDAYS If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday. 8. NOTICE OF PROPOSED TRANSACTIONS. If at any time the Company proposes to sell or convey all or substantially all of its assets to any other entity, or consolidate with or into any other corporation or entity, or effect any reorganization or recapitalization, or engage in a transaction in which the shareholders of the Company immediately before the transaction will own immediately after the transaction less than a majority of the outstanding voting securities of the corporation or entity (or its parent) succeeding to the business of the Company, the Company shall give the holder of this Warrant 10 days' prior written notice of the proposed effective date of such transaction. 9. REORGANIZATION, RECLASSIFICATION, ADJUSTMENTS. If the Company at any time shall, by subdivision, combination, reorganization, merger, reclassification of securities, stock dividend or otherwise, change the Warrant Stock into the same or a different number of securities of any class or classes, this Warrant shall thereafter entitle the holder to acquire such number and kind of securities as would have been issuable in respect of the Warrant Stock (or other securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change) as the result of such change if this Warrant had been exercised in full for cash immediately prior to such change. The Exercise Price hereunder shall be adjusted if and to the extent necessary to reflect such change. If the Warrant Stock or other securities issuable upon exercise or conversion hereof are subdivided or combined into a greater or smaller number of shares of such security, the number of shares issuable hereunder shall be proportionately increased or decreased, as the case may be, and the Exercise Price shall be proportionately reduced or increased, as the case may be, in both cases according to the ratio which the total number of shares of such security to be outstanding immediately after such event bears to the total number of shares of such security outstanding immediately prior to such event. The Company shall give the holder prompt written notice of any change in the type of securities issuable hereunder, any adjustment of the Exercise Price for the securities issuable hereunder, and any increase or decrease in the number of shares issuable hereunder. 3 10. TRANSFERABILITY This Warrant and the rights hereunder are not transferable by the holder hereof without the prior written consent of the Company. 11. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the holder hereof that: (a) during the period this Warrant is outstanding, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise of this Warrant; (b) the issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares of Warrant Stock issuable upon exercise of this Warrant; (c) the Company has all requisite legal and corporate power to execute and deliver this Warrant, to sell and issue the Warrant Stock hereunder and to carry out and perform its obligations under the terms of this Warrant; (d) all corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Warrant by the Company, the authorization, sale, issuance and delivery of the Warrant Stock and the performance of the Company's obligations hereunder has been taken; and (e) the Warrant Stock, when issued in compliance with the provisions of this Warrant, will be validly issued, fully paid and nonassessable, and free of any liens or encumbrances, and will be issued in compliance with all applicable federal and state securities laws. 4 12. GOVERNING LAW This Warrant shall be governed by and construed in accordance with the laws of the State of Washington. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officers. Dated: May 1, 2000 THE COBALT GROUP, INC. By /s/ John W.P. Holt -------------------------------------- John W.P. Holt President and Chief Executive Officer ACCEPTED: May 1, 2000 DAIMLERCHRYSLER CORPORATION By /s/ Gary Dilts -------------------------------------- V.P. E-Commerce -------------------------------------- 5 NOTICE OF EXERCISE To: The Cobalt Group, Inc. (1) The undersigned hereby elects to purchase ___________ shares of Common Stock of The Cobalt Group, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: -------------------------- (Name) -------------------------- (Address) (3) The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. - ---------------------------------- ---------------------------------- (Date) (Signature) 6 ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to - -------------------------------------------------------------- (Please Print) whose address is: --------------------------------------------- (Please Print) Dated: --------------------------------- Holder's Signature: --------------------- Holder's Address: ----------------------- Guaranteed Signature: ----------------------------------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. 7
WARRANT NUMBER OF SHARES EXERCISE PRICE EXERCISABLE DATE EXPIRATION DATE SA Warrant No. 1 688,327 $ 10.03 5/1/03 5/1/08 SA Warrant No. 2 516,328 $ 12.53 5/1/04 5/1/09 SA Warrant No. 3 249,559 $ 15.04 5/1/05 5/1/10
8 EX-4.2 3 ex-4_2.txt EX-4.2 Schedule of Similar Warrants to Exhibit 4.2 Common Stock Purchase Warrant Agreements, dated June 26, 2000, between The Cobalt Group, Inc. and the holders identified below:
No. of Holder Warrant Shares PurchasePrice Period to Exercise - ------ -------------- ------------- ------------------ Riverside Partnership 138,797 $6.8578 06/26/00-06/26/05 Third Point Partners, L.P. 70,879 $6.8578 06/26/00-06/26/05 Third Point Offshore Fund, Ltd. 55,102 $6.8578 06/26/00-06/26/05 Points West International Investments, Ltd. 12,816 $6.8578 06/26/00-06/26/05
EX-10.1 4 ex-10_1.txt EX-10.1 DAIMLERCHRYSLER DEALER WEB SITE PROGRAM SERVICES AGREEMENT This Dealer Services Agreement (this "AGREEMENT") is effective as of May 1, 2000 (the "EFFECTIVE DATE"), by and between The Cobalt Group, Inc., a Washington corporation, ("COBALT") with offices located at 2200 First Avenue South, Seattle, Washington 98134, and DaimlerChrysler Corporation, a Delaware corporation, ("CLIENT") with offices located at 1000 Chrysler Drive, Auburn Hills, Michigan 48326 (each individually a "PARTY" and together the "PARTIES"). In consideration of the promises, terms and conditions contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Cobalt and Client agree as follows: 1. DEFINITIONS Any defined terms not otherwise defined herein shall have the following meanings: 1.1. An "AFFILIATE" of an entity shall mean any entity which, directly or indirectly, is controlled by, controls or is under common control with such entity (with control meaning ownership of 50 percent or more of an entity and/or otherwise having effective control of an entity). 1.2. "CLIENT SYSTEM" shall mean the templates developed for the Dealer Web Site Program and related services provided by Cobalt hereunder, as such templates may be updated or modified pursuant to the terms of this Agreement. 1.3. "CLIENT PROPERTY" means (i) any and all graphics, images, text, documentation or other materials provided by Client or a Dealer to Cobalt in connection with the Client System, and (ii) any and all graphics, images, text, documentation, HTML code or other elements of the Client System developed for Client or Dealers by Cobalt pursuant to this Agreement. 1.4. "COBALT PROPERTY" means any and all software, code, graphics, images, text, documentation or other materials, other than Client Property, used or provided by Cobalt in connection with this Agreement, or any other element of the Client System in which Cobalt has any preexisting intellectual property rights. 1.5. "DEALER" means each of Client's Dodge, Jeep and Chrysler automobile retailers in North America that participate in the Dealer Web Site Program under this Agreement. 1.6. "DEALER WEB SITE PROGRAM" shall mean the standard set of services offered by Cobalt to Dealers, consisting primarily of one or more Web sites made up of those Web pages identified in the Specifications. 1.7. "LICENSED PRODUCTS" shall mean any Cobalt Property or other property supplied by Cobalt, other than Client Property, which is incorporated into the Client System or otherwise supplied to Client or Dealers under this Agreement. 1.8. "SPECIFICATIONS" shall mean all the specifications for the Client System set forth in EXHIBIT A, as they may be revised pursuant to Section 2. 2. DEVELOPMENT AND DELIVERY OF THE CLIENT SYSTEM 1 COBALT CONFIDENTIAL 2.1. DEVELOPMENT. Cobalt shall develop and deliver to Client and Dealers the Client System in accordance with the Specifications and the delivery schedule set forth in Exhibit A to this Agreement. Client will encourage its Dealers to cooperate with Cobalt and to provide such assistance for the development and delivery of the Client System as Cobalt may reasonably request, subject to any and all applicable state or federal laws or regulations and Client's reasonable interpretation of those laws or regulations. 2.2. CHANGE REQUESTS. The Parties anticipate that Client may, from time to time, desire changes to the Client System, consisting of additions, modifications, deletions or other revisions to the Specifications. Each such change must be reflected in a written document (a "CHANGE ORDER"), signed by an authorized representative of each Party, that includes the cost of the change and a detailed description of the specific change, along with any modified Specifications ("APPROVED CHANGE ORDER"). Client agrees to pay for fees specified in an Approved Change Order. Client will not pay for any additions, modifications, deletions or other revisions or customizations requested or approved by a Dealer; those arrangements, if any, are beyond the subject matter of this Agreement. 3. ENDORSED WEB SITE SERVICES 3.1. COBALT WEB SERVICES. Cobalt will offer to Dealers the Dealer Web Site Program as described in Exhibit A , for the fees chargeable to Client, as set forth in Section 7 below. Cobalt agrees not to materially alter the components of the Dealer Web Site Program during the Term without the prior written approval of Client and an amendment to this Agreement signed by an authorized representative of each Party. Cobalt will provide support to the Dealers consistent with the Support Guidelines attached hereto as EXHIBIT B. Dealers will be required to enter into a Service Agreement with Cobalt covering the scope of services for Dealers required under this Agreement. Cobalt agrees that each of those Service Agreements will grant rights of the same scope granted to Client and impose restrictions no more restrictive than those imposed on Client under Sections 6 and 8 of this Agreement. In addition, Cobalt agrees that each of those Service Agreements will include warranties extending from Cobalt to each Dealer which are, in substance, the same as the warranties set forth in Sections 9.4-9.6 of this Agreement. In addition, each of those Service Agreements must state expressly and conspicuously that "DaimlerChrysler Corporation makes no representations or warranties of any kind to Dealers regarding software and services provided by Cobalt or regarding a Dealer's business results using that software or those services. In exchange for Client's guaranteed payment to Cobalt under this Agreement, Cobalt must deliver to each Dealer the software and services required under the Dealer Web Site Program, all as described in Exhibits A and B, and each Dealer may participate in the Dealer Web Site Program regardless of any delay that Cobalt may encounter in getting a Dealer to sign a Services Agreement. Client will, however, cooperate with Cobalt to get each Dealer to act expeditiously in its dealings with Cobalt regarding efforts to sign a Services Agreement." 3.2. CLIENT ENDORSEMENT. Client will identify Cobalt as the exclusive Client-endorsed provider of those services included in the Dealer Web Site Program to Dealers in the United States. Client agrees that the Dealer Web Site Program will be designated as "Client Endorsed." Only Cobalt-built Dealer Web Sites will be linked to dealer locators located at chrysler.com, jeep.com, plymouth.com, and 4adodge.com, except for the limited standard web sites that Client provides to every dealer. Client reserves the right to withdraw this endorsement upon 10 days' prior written notice to Cobalt, which notice must include reasonable grounds for the withdrawal. 2 COBALT CONFIDENTIAL 3.3. COBALT DEALER UPGRADES. The Parties agree that Dealers that are current customers of Cobalt and that participate in the Dealer Web Site Program under this Agreement will be eligible to terminate the Cobalt Services Agreement existing at the time of such purchase without penalty; provided that the Dealer executes a new Cobalt Services Agreement relating to the Dealer Web Site Program. 4. MARKETING EFFORTS 4.1. INITIAL PRESS RELEASE. Within five business days following the Effective Date, the Parties agree to issue a joint press release, the form and content of which shall be mutually agreed upon by the Parties in writing. From time to time thereafter the Parties may issue joint press releases as mutually agreed upon in writing. 4.2. MARKETING ACTIVITIES. Cobalt and Client will use their commercially reasonable efforts to develop and carry out marketing activities with respect to the Dealer Web Site Program. Cobalt and Client will work to launch the Dealer Web Site Program according to the schedule set forth on EXHIBIT C. Marketing support from Client and Cobalt will include, without limitation, those activities identified on EXHIBIT C, subject to the following limitation: Client reserves the right to review of all marketing programs and materials in which Cobalt proposes using Client's name, Marks or Client's endorsement, and to either approve, modify or reject those marketing programs and materials. 5. HOSTING & MAINTENANCE. Cobalt will operate, manage and host the Dealer Web Site Program using high industry standards of workmanship and service. Cobalt shall operate the Web sites associated with the Dealer Web Site Program (the "CLIENT OR DEALER SITES") so that such sites are accessible by users via the Internet twenty-four (24) hours per day, seven (7) days per week, with the exception of scheduled maintenance periods ("SCHEDULED MAINTENANCE PERIODS"), which shall last no longer than two hours per day between the hours of 12:00 a.m. and 6:00 a.m. Pacific Time, or at such other time as to which the Parties may agree. Except in the case of Scheduled Maintenance Periods, Cobalt shall, upon its discovery or receipt of notification that a Client or any Dealer Site is disabled or inaccessible or there are any defects, errors or omissions in a Client or a Dealer Site which materially and adversely impact the performance, delivery, accessibility or availability of that Client or Dealer Site (a "CLIENT OR DEALER SITE PROBLEM"), have qualified personnel promptly respond to such Client or Dealer Site Problems and use commercially reasonable efforts to remedy or cause to be remedied the Client or Dealer Site Problems within a commercially reasonable time not to exceed three business days. If Cobalt repeatedly fails to make a commercially reasonable attempt to fix a Client or Dealer Site Problem, or if a Client or Dealer Site Problem is experienced by more than a third of all Dealers, Cobalt will be deemed in material breach and Client may terminate this Agreement. 6. OWNERSHIP AND LICENSE 6.1. COBALT OWNERSHIP. Except for the license granted Client in Section 6.3, Cobalt reserves all right, title and interest to the Licensed Products (including, without limitation, all intellectual and proprietary rights therein), including, without limitation, any upgrades, documentation and derivative works related thereto delivered to Client under this Agreement. Client agrees to assign any interest Client has or may acquire (other than the license set forth in Section 6.3) in 3 COBALT CONFIDENTIAL the Licensed Products to Cobalt and otherwise reasonably assist Cobalt, at Cobalt's expense, in obtaining, securing, perfecting, maintaining, defending and enforcing for Cobalt's benefit all rights with respect to the Licensed Products. 6.2. CLIENT OWNERSHIP. Client or a Dealer, as applicable, retain all title and rights of ownership, including all copyrights, trademarks or other proprietary rights to the Client Property and any derivative works thereof, and all related documentation or Client or Dealer data. Cobalt agrees to assign any interest in the Client Property to Client or Dealer, as applicable, and to otherwise reasonably assist Client or Dealer, at Client's or Dealer's expense, in obtaining, securing, perfecting, maintaining, defending and enforcing for Client's or Dealer's benefit all rights with respect to the Client Property. 6.3. LICENSED PRODUCT LICENSE. Cobalt hereby grants to Client and to Dealers a non-exclusive, worldwide, royalty-free right to use, transmit, perform, display and otherwise utilize the Licensed Products solely in connection with the Client System and consistent with this Agreement. To the extent any software is licensed to Client or to Dealers by Cobalt under this Agreement, all such licenses shall be to software in object code form only. 6.4. CLIENT PROPERTY LICENSE. Client hereby grants to Cobalt and its Affiliates, a non-exclusive, worldwide, royalty-free right to use, reproduce, transmit, perform, display, and otherwise utilize the Client Property in connection with completing its obligations under this Agreement, except that any license or release regarding any graphics, images, text, documentation or other materials provided by a Dealer to Cobalt in connection with the Client System must be addressed in separate agreements. 6.5. RESTRICTIONS. The licenses granted to the Parties in Sections 6.3 and 6.4 above set forth the entirety of each of the Parties' rights as licensees to use the Licensed Products and Client Property. Without limiting the generality of the foregoing, Client agrees that Client will: 6.5.1. not modify or prepare any derivative work based upon the Licensed Products; 6.5.2. not directly or indirectly reverse engineer, disassemble or decompile the Licensed Products or any portion thereof or attempt to discover or disclose the source code of the Licensed Products or any portion thereof; 6.5.3. not remove, obscure, or alter any notice of intellectual property right present on or in any of the Licensed Products or any related documentation; 6.5.4. not sublicense, sell, lend, rent, lease, or otherwise transfer all or any portion of the Licensed Products or any related documentation to any third party. 7. PAYMENTS 7.1. FEE SCHEDULE. During the Term, Client shall pay Cobalt as follows, subject to Client's written acceptance of the Client System, which acceptance shall be based on the Client System's conformance to the Specifications in Exhibit A for each Dealer on the delivery and rollout schedule described in Exhibit C ("ACCEPTANCE"): 7.1.1. Dealer Web Site Program fees as set forth in Exhibit D ("PROGRAM FEES"); 4 COBALT CONFIDENTIAL 7.1.2. Fees set forth on any Approved Change Order; and 7.1.3. Fees associated with Internet domain name registrations and/or renewals. 7.2. PAYMENTS. Cobalt will invoice Client for Program Fees and domain name registration fees monthly, in arrears, and for fees associated with Change Orders as provided in the Change Order. Payment of all fees shall be due thirty (30) days after the date of the invoice. Program Fees will be based on the number of Dealers with active Web sites under the Dealer Web Site Program as of the last day of the previous month. 7.3. ANNUAL MINIMUM FEES. Client agrees to pay Cobalt not less than the annual guaranteed fees set forth in EXHIBIT D, subject to Cobalt's performance of its obligations under this Agreement. In addition to Program Fees, all fees paid to Cobalt by Client for any purpose during the Term, including but not limited to fees relating to products or services provided to Client's Canadian or other international affiliates, but specifically excluding fees relating to the provision of services to Client by Cobalt's PartsVoice or IntegraLink divisions ("Aggregate Fees"), will be included when determining whether the annual minimum has been met. 7.3.1. To the extent that Aggregate Fees during calendar year 2000 do not equal or exceed the annual minimum, Cobalt will invoice Client for the difference and such fees will be payable in accordance with Section 7.2. During calendar years 2001 and 2002, except for the first calendar quarter in the year 2001, to the extent Aggregate Fees during any calendar quarter do not equal or exceed one-fourth of the annual minimum, Cobalt will invoice Client for the difference (the "Quarterly Difference") and such fees will be payable in accordance with Section 7.2. 7.4. ADDITIONAL DEALER SERVICES. Client acknowledges and agrees that the prices set forth in this Section are exclusive of any custom development or design work that may be requested by a subscribing Dealer or Client and of any products or services a subscribing Dealer or Client may purchase in excess of the Dealer Web Site Program, as the case may be. Client will be invoiced directly by Cobalt for those additional products or services subscribed to by Dealers and identified on EXHIBIT D. Cobalt will invoice Dealers directly for those products or services not included in the Dealer Web Site Program and not identified on EXHIBIT D. Cobalt agrees that it will make available those products or services not included in the Dealer Web Site Program at or below the lowest price Cobalt charges other automobile dealers or manufacturers for the same products or services. 7.5. TAXES. The fees and any other amounts payable to Cobalt under this Agreement do not include any taxes, customs, duties, fees or other amounts assessed or imposed by any governmental authority, other than any taxes imposed on Cobalt's net income. Client will pay before delinquency or reimburse Cobalt for all such amounts upon demand and/or provide certificates or other evidence of exemption to Cobalt for such amounts. 7.6. ISSUANCE OF COBALT SHARES. Upon execution of this Agreement, Cobalt shall issue to Client 258,161 shares of newly issued, unregistered Cobalt common stock. 7.7. ISSUANCE OF COBALT WARRANTS. Upon execution of this Agreement, Cobalt shall issue to Client three warrants to purchase up to 688,430, 516,322 and 240,950 shares of Cobalt common stock, 5 COBALT CONFIDENTIAL respectively. The warrants to be issued pursuant to this Section will be subject to the terms and conditions and shall be in a form substantially the same as the warrant agreements attached hereto as EXHIBIT E. 8. TERM; TERMINATION 8.1. TERM. Unless earlier terminated as provided below, the initial term of this Agreement will run through December 31, 2002 beginning on the Effective Date (the "INITIAL TERM"). Thereafter, this Agreement shall automatically renew for an additional two-year term (the "RENEWAL TERM") on the same terms and conditions as set forth herein (except for fees, which will be as agreed by the Parties), unless either Party hereto has given written notice to the other Party no later than 90 days prior to the conclusion of the Initial Term. The Initial Term and the Renewal Term shall be referred to herein as the "TERM". 8.2. TERMINATION FOR BREACH. Either Party may terminate this Agreement at any time in the event of a material breach of the Agreement by the other Party which remains uncured after thirty (30) days written notice thereof to the other Party. 8.3. TERMINATION FOR BANKRUPTCY/INSOLVENCY. Either Party may terminate this Agreement immediately following written notice to the other Party if the other Party (i) ceases to do business in the normal course, (ii) is the subject of any proceeding related to its liquidation or insolvency (whether voluntary or involuntary) which is not dismissed within ninety (90) calendar days or (iii) makes an assignment for the benefit of creditors. 8.4. CONSEQUENCES OF TERMINATION. 8.4.1. In the event of any termination of this Agreement pursuant to Section 8.2, the license granted in Section 6.3 and any other rights granted to Client and Dealers with respect to any of the Licensed Products and any related documentation will continue for a period of 90 days following the effective date of such termination. During such period Cobalt will use commercially reasonable efforts to assist Client in transitioning the Client System to an alternate service provider, at a reasonable charge to Client for services rendered to Client. 8.4.2. TERMINATION FOR BANKRUPTCY/INSOLVENCY. In the event that Client terminates this Agreement pursuant to Section 8.3, Cobalt grants to Client and its Dealers, a royalty-free, worldwide, perpetual, irrevocable license to copy, use, create and use derivatives or improvements of, reduce to practice and manufacture, and distribute to Dealers, all Cobalt Property required for Client to operate the Client System. 8.4.3. GENERAL. Any and all liabilities accrued under the terms of this Agreement by either Party prior to the date of termination of this Agreement and during any transition period following termination will survive such termination. 9. OTHER TERMS 9.1. PUBLICITY. Client agrees that, following the initial public announcement of the business relationship between the Parties, Cobalt may reference the business relationship between the Parties and Cobalt's status as the sole endorsed provider of Dealer Web sites other than in Cobalt's marketing, advertising and other promotional materials. 6 COBALT CONFIDENTIAL 9.2. OWNERSHIP OF TRADEMARKS. Each Party acknowledges the ownership of the other Party in the names, logos, trademarks, tradenames and service marks (the "MARKS") of the other Party and agrees that all use of the other Party's Marks will inure to the benefit, and be on behalf, of the other Party. Each Party acknowledges that its utilization of the other Party's Marks under the terms of this Agreement will not create in it, nor will it represent it has, any right, title, or interest in or to such Marks other than the licenses expressly granted herein. Each Party agrees not to do anything contesting or impairing the trademark rights of the other Party. 9.3. INFRINGEMENT PROCEEDINGS. Each Party agrees to promptly notify the other Party of any unauthorized use of the other Party's Marks of which it has actual knowledge. Each Party will have the sole right and discretion to bring proceedings alleging infringement of its Marks or unfair competition related thereto; provided, however, that each Party agrees to provide the other Party with its reasonable cooperation and assistance with respect to any such infringement proceedings. 9.4. REPRESENTATIONS AND WARRANTIES. Cobalt warrants and represents to Client that, at all times relevant, Cobalt is not encumbered by any third party, via agreement, employment or other legal relationship (past or present) or otherwise, to provide the Client System or Licensed Products and/or to assign to Client or a Dealer the rights in such Client System or Licensed Products as set forth in this Agreement. Cobalt further warrants and represents to Client that the Licensed Products and the Client System do not infringe any U.S. or foreign patents or copyrights, mask work rights, trade secret rights, trademark or trade dress rights, or any other proprietary rights of others (including but not limited to moral rights or rights of privacy or publicity) of any third party. Cobalt further warrants that Cobalt has not previously granted and will not grant any rights to any third party that are inconsistent with the rights granted to Client herein; that each of Cobalt's employees, consultants, contractors, partners or agents who have been or will be involved in the development of the Client System or Licensed Products will have signed an agreement with Cobalt conveying all proprietary rights in the Client System and Licensed Products to Cobalt and agreeing to maintain in confidence all trade secrets embodied in the Client System or Licensed Products. Cobalt further warrants that the Client System and Licensed Products will conform substantially to the Specifications in Exhibit A to this Agreement, including as they may be amended under the terms of this Agreement. 9.5. NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE CLIENT SYSTEM, THE CLIENT PROPERTY AND THE LICENSED PRODUCTS, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. 9.6. LIMITATION OF LIABILITY. NEITHER PARTY HERETO SHALL HAVE ANY LIABILITY TO THE OTHER PARTY WITH RESPECT TO ITS OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL, OR INDIRECT, DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION APPLIES TO ALL CAUSES OF ACTION OR CLAIMS IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION TO BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, 7 COBALT CONFIDENTIAL MISREPRESENTATIONS, AND OTHER TORTS, BUT SPECIFICALLY EXCLUDING ANY CAUSES OF ACTION OR CLAIMS RELATING TO INFRINGEMENT OF PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS. 9.7. CONFIDENTIALITY. Cobalt agrees to keep confidential all Client Property, including but not limited to all data and information provided by a Dealer, except to the extent that use is expressly allowed under the terms of this Agreement. 9.8. PRIOR CLIENT APPROVAL FOR SALES OF OTHER COBALT PRODUCTS OR SERVICES. Cobalt agrees that, prior to January 1, 2001, Cobalt will not market or sell to Dealers any Internet-based MRO procurement services without Client's prior written consent. Other than services requested by a Dealer that relate to modifications or enhancements of the services provided under this Agreement as described in Exhibit A, and except for those services specified in Exhibit C, Cobalt will not engage in targeted solicitation of Dealers for sales of other products or services without Client's prior written consent. 9.9. NOTICE. Any notice, approval, request, authorization, direction or other communication under this Agreement will be given in writing and will be deemed to have been delivered and given for all purposes (i) on the delivery date if delivered by confirmed facsimile; (ii) on the delivery date if delivered personally to the Party to whom the same is directed; (iii) one business day after deposit with a commercial overnight carrier, with written verification of receipt; or (iv) five business days after the mailing date, whether or not actually received, if sent by U.S. mail, return receipt requested, postage and charges prepaid, or any other means of rapid mail delivery for which a receipt is available. In the case of Client, such notice will be provided to the attention of the Office of the General Counsel at the address of Client set forth in the first paragraph of this Agreement. In the case of Cobalt, the notice address will be to the attention of the Chief Executive Officer (with a copy to the Legal Department) at the address for Cobalt set forth in the first paragraph of this Agreement. Either Party may change the address for notice or any other relevant notice information, including the recipient for notice and, as applicable, such recipient's fax number or e-mail address by written notice to the other Party. 9.10. NO WAIVER. The failure of either Party to insist upon or enforce strict performance by the other Party of any provision of this Agreement or to exercise any right under this Agreement will not be construed as a waiver or relinquishment to any extent of such Party's right to assert or rely upon any such provision or right in that or any other instance; rather, the same will be and remain in full force and effect. 9.11. NON-SOLICITATION OF EMPLOYEES. During the term of this Agreement and for a period of one year thereafter, neither Party will solicit any employee of the other Party for the purpose of employment. Solicitation that is general in nature and not directed to a specific individual (such as, for example, employment advertising in a newspaper of general circulation) will not constitute solicitation of an employee for employment under this Agreement. 9.12. RETURN OF INFORMATION. Upon the expiration or termination of this Agreement, each Party will, upon the written request of the other Party, return or destroy (at the option of the Party receiving the request) all confidential information, documents, manuals and other materials specified the other Party. 8 COBALT CONFIDENTIAL 9.13. FORCE MAJEURE. To the extent that a party is not able to perform an obligation under this Agreement due to fire, flood, a strike or other labor interruption, war, riot, an act of God, an act of government, insurrection, civil disturbance, or other cause beyond that party's reasonable control, that party may not be liable for failing to perform that obligation, except that this Section may not excuse any party from the obligation to pay money that is owed. 9.14. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and supersedes any and all prior agreements of the Parties with respect to the transactions set forth herein. Neither Party will be bound by, and each Party specifically objects to, any term, condition or other provision which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proffered by the other Party in any correspondence or other document, unless the Party to be bound thereby specifically agrees to such provision in writing signed by that Party's authorized representative. 9.15. AMENDMENT. No change, amendment or modification of any provision of this Agreement will be valid unless set forth in a written instrument signed by an authorized representative of the Party subject to enforcement of such amendment. 9.16. FURTHER ASSURANCES. Each Party will take such action (including, but not limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by any other Party for the implementation or continuing performance of this Agreement. 9.17. ASSIGNMENT. Neither party may assign this Agreement or any right, interest or benefit under this Agreement without the prior written consent of the other Party. For purposes of this Agreement, a change in control of a Party whether effected by merger, consolidation or otherwise, will not constitute an assignment of this Agreement. Subject to the foregoing, this Agreement will be fully binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns. 9.18. CONSTRUCTION; SEVERABILITY. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties to this Agreement, (i) such provision will be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law, and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect. 9.19. REMEDIES. Except where otherwise specified, the rights and remedies granted to a Party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the Party may possess at law or in equity. 9.20. APPLICABLE LAW; VENUE. Except as otherwise expressly provided herein, this Agreement will be interpreted, construed and enforced in all respects in accordance with the laws of the State of Michigan except for its conflicts of laws principles. 9.21. EXPORT CONTROLS. Both Parties will adhere to all applicable laws, regulations and rules relating to the export of technical data and will not export or re-export any technical data, any products received from the other Party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. 9 COBALT CONFIDENTIAL 9.22. COUNTERPARTS. This Agreement may be executed in counterparts, each of which will be deemed an original and all of which together will constitute one and the same document. IN WITNESS WHEREOF, the Parties by their duly authorized representatives have executed this Agreement as of the date first above written. DAIMLERCHRYSLER CORPORATION THE COBALT GROUP, INC. By: /s/ James Holden By: /s/ John W.P. Holt ------------------------------- ------------------------------- John W.P. Holt Its: President President & CEO EXHIBITS Exhibit A - Specifications Exhibit B - Support Guidelines Exhibit C - Marketing Exhibit D - Fees Exhibit E - Forms of Warrants 10 COBALT CONFIDENTIAL EX-10.2 5 ex-10_2.txt EX-10.2 DAIMLERCHRYSLER RIGHTS AGREEMENT This Rights Agreement ("Agreement") is entered into as of May 1, 2000 between The Cobalt Group, Inc., a Washington corporation ("Cobalt"), and DaimlerChrysler Corporation, a Delaware corporation ("DaimlerChrysler"). RECITALS 1. Cobalt has issued to DaimlerChrysler Cobalt common stock and warrants ("Warrants") to purchase shares of Cobalt common stock, $0.01 par value (collectively the "Common Stock") pursuant to the Services Agreement between Cobalt and DaimlerChrysler, dated as of May 1, 2000 (the "Services Agreement"). 2. Cobalt and DaimlerChrysler wish to reflect certain cooperative aspects of the relationship between Cobalt and DaimlerChrysler as it relates to DaimlerChrysler's ownership of Cobalt capital stock. AGREEMENT 1. Special Definitions. (1) "Register," "registration," and "registered" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and the declaration or ordering of effectiveness of such registration statement by the U.S. Securities and Exchange Commission (the "SEC"). (2) "Registrable Shares" means the shares of Common Stock issued concurrently with the execution of the Services Agreement (the "Agreement Shares") and the shares of Common Stock issued or issuable upon exercise of the Warrants (the "Warrant Shares"), so long as such Agreement Shares and Warrant Shares are Registrable Securities. (3) "Registrable Securities" means (i) the Agreement Shares, commencing on the first anniversary of this Agreement and for a period of three years thereafter, and (ii) the Warrant Shares upon original issuance thereof, and for a period of three years thereafter. 2. Resale Registration. Cobalt shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms (a "Short Form Registration Statement"). If a Short Form Registration Statement is available for use by Cobalt, DaimlerChrysler may make a written request (a "Resale Registration Request") that Cobalt register under the Securities Act the Registrable Shares that are the subject of the Resale Registration Request on such form (a "Resale Demand Registration"). Promptly after receipt of such Resale Registration Request, which shall specify the number of Registrable Shares to be registered and the intended method of 1 disposition thereof, Cobalt shall as expeditiously as possible prepare and file a Short Form Registration Statement with respect to such Registrable Shares. Cobalt agrees to use its best efforts to cause such Resale Demand Registration to become effective as expeditiously as reasonably possible and thereafter to keep it continuously effective for a period of 90 days from the date on which the SEC declares the Resale Demand Registration effective or such shorter period as will terminate when all the Registrable Shares covered by the Resale Demand Registration have been sold. Cobalt shall be obligated to effect no more than one Resale Demand Registration for DaimlerChrysler in any twelve month period. 3. Obligations of Cobalt. When required by this Agreement to register Registrable Shares, Cobalt shall, as promptly as reasonably possible: (1) Prepare and file with the SEC a registration statement covering such Registrable Shares and use its best efforts to cause such registration statement to become effective, and keep such registration statement continuously effective for up to 90 days or such shorter period as will terminate when all the Registrable Shares covered by the registration statement have been sold. (2) Prepare and file with the SEC any amendments and supplements to the registration statement and the prospectus used in connection therewith that are needed to comply with the Securities Act with respect to the sale of all Registrable Shares covered by such registration statement. (3) Give DaimlerChrysler the number of copies of preliminary and final prospectuses, in conformity with the requirements of the Securities Act, and other documents that it reasonably requests to facilitate the sale of the Registrable Shares. (4) Use its best efforts to register and qualify the Registrable Shares covered by such registration statement under securities or Blue Sky laws of such jurisdictions as required by applicable law and as DaimlerChrysler may request, PROVIDED that Cobalt shall not be required in connection therewith to qualify to do business or to file a general consent to service of process in any such jurisdictions. (5) Notify DaimlerChrysler, at any time when a prospectus relating to Registrable Shares thereto is required to be delivered under the Securities Act, of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 4. DaimlerChrysler Information. Cobalt is obligated to take actions to register Registrable Shares under this Agreement only if DaimlerChrysler has requested registration and given Cobalt on a timely basis all information regarding DaimlerChrysler, its Registrable Shares, and its intended method of 2 disposition of such securities as shall be reasonably required to effect the registration of DaimlerChrysler's Registrable Shares. 5. Expenses of Registration. Cobalt shall pay all expenses other than underwriting discounts, commissions and fees and disbursements of legal counsel for DaimlerChrysler relating to Registrable Shares incurred in connection with registrations, filings or qualifications pursuant to this Agreement, including (without limitation) all registration, filing and qualification fees, printing and accounting fees, and fees and disbursements of counsel for Cobalt. 6. Indemnification. If any Registrable Shares are included in a registration statement under this Agreement: (1) To the extent permitted by law, Cobalt will indemnify and hold harmless DaimlerChrysler and each person, if any, who controls DaimlerChrysler within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages or liabilities to which it or they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based on any of the following statements, omissions, or violations (each a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary or final prospectus contained therein or any amendments or supplements thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by Cobalt of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; PROVIDED, HOWEVER, that this indemnity shall not inure to the benefit of DaimlerChrysler, or any controlling person thereof with respect to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Cobalt, nor with respect to any loss, claim, damage, liability or action that arises out of or is based on a Violation that occurs in reliance on written information given to Cobalt expressly for use in connection with such registration by DaimlerChrysler, or any controlling person thereof. (2) To the extent permitted by law, DaimlerChrysler will indemnify and hold harmless Cobalt, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls Cobalt within the meaning of the Securities Act (a "Cobalt Indemnitee"), against any losses, claims, damages or liabilities to which such Cobalt Indemnitee may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based on any Violation that occurs in reliance on written information given by DaimlerChrysler or its agents expressly for use in connection with such registration; PROVIDED, HOWEVER, that (i) this indemnity shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of 3 DaimlerChrysler and (ii) the obligations of DaimlerChrysler shall be limited to an amount equal to the gross proceeds to DaimlerChrysler. (3) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), the indemnified party will give the indemnifying party written notice thereof. The indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume the defense thereof. An indemnified party shall have the right to retain its own counsel, reasonably satisfactory to the indemnifying party, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party would be inappropriate due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to give written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6, but the failure to give such notice shall not relieve it of any liability that it may otherwise have to any indemnified party. (4) If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (5) The obligations of the parties under this Section 6 shall survive the completion of any offering of Registrable Shares. 7. Rule 144. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of the Common Stock to the public without registration or pursuant to a Short Form Registration Statement, Cobalt agrees to use its best efforts to: (1) Make and keep public information regarding Cobalt available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after the date that Cobalt becomes subject to the reporting requirements of the Exchange Act; and 4 (2) File with the SEC in a timely manner all reports and other documents required of Cobalt under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements. 8. Government Approvals. Cobalt agrees to assist and cooperate with DaimlerChrysler in preparing and filing any governmental or regulatory applications or filings necessary or required to be made in connection with the issuance to DaimlerChrysler of the Warrants and/or shares of Cobalt common stock in connection with the Services Agreement in order to give effect to the transactions contemplated by Cobalt and DaimlerChrysler in the Services Agreement and this Agreement. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. 10. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. 11. Entire Agreement; Amendment and Waiver. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. This Agreement may not be amended, waived, discharged or terminated, except by a written instrument signed by Cobalt and DaimlerChrysler. 12. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or by registered mail or overnight courier service to the party concerned addressed as follows: If to Cobalt, to: The Cobalt Group, Inc. 2200 First Avenue S. Seattle, WA 98134 Attention: Legal Department Facsimile No.: (206) 269-6350 If to DaimlerChrysler, to: 5 ------------------------- ------------------------- ------------------------- ------------------------- or to any other address as may from time to time be notified in writing by any party to the other parties hereto. Any notice or other communication shall be deemed to have been given on the day delivered, if delivered by hand; one business day following the day deposited with an overnight courier service; or within four business days of mailing. 13. Delays or Omissions; Waivers and Amendments. No delay or omission to exercise any right, power or remedy accruing to a party to this Agreement upon any breach or default by the other party to this Agreement shall impair any such right, power or remedy of the non-breaching or non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character under this Agreement, or any amendment or modification of any provisions or conditions of this Agreement, must be made in writing and shall be effective only to the extent specifically set forth in such writing and signed by the parties to be bound thereby. 14. Separability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 15. Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but each of which together shall constitute one instrument. DAIMLERCHRYSLER: COBALT: DaimlerChrysler Corporation The Cobalt Group, Inc. By /s/ Gary Dilts By /s/ John W.P. Holt -------------------------------- -------------------------------- Its V.P. E-Commerce John W.P. Holt ----------------------------- President and Chief Executive Officer 6 EX-27.1 6 ex-27_1.txt EX-27.1
5 1,000 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 12,530 0 8,514 794 0 28,368 9,836 2,715 64,947 16,101 0 0 0 176 47,106 64,947 0 10,974 0 2,192 13,708 72 151 (4,686) 0 (4,686) 0 0 0 (4,686) (0.27) (0.27) Net loss includes $6.4 million gain on sale of YachtWorld
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