Exhibit 10.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS.
THE COBALT GROUP, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, in consideration for $100.00 and other value received,
MADRONA INVESTMENT GROUP, L.L.C., or registered assigns, is entitled, upon the
terms and subject to the conditions hereinafter set forth, at any time on or
after the date hereof (subject to the vesting provisions of Section 1) and at or
prior to 11:59 pm., Pacific time, on October 31, 2003 (the "Expiration Time"),
but not thereafter, to acquire from THE COBALT GROUP, INC., a Washington
corporation (the "Company"), in whole or from time to time in part, up to 24,000
fully paid and nonassessable shares of Common Stock of the Company ("Warrant
Stock") at a purchase price per share (the "Exercise Price") equal to the lesser
of (I) $1.25 or (ii) the lowest price per share at which shares of common stock
or conversion price per share for other securities are issued during the 12
months following the date of the engagement letter (other than options for
employees or consultants who are not controlling shareholders). Such number of
shares, type of security and Exercise Price are subject to adjustment as
provided herein, and all references to "Warrant Stock" and "Exercise Price"
herein shall be deemed to include any such adjustment.
1. EXERCISE OF WARRANT
The purchase rights represented by this Warrant are exercisable by the
registered holder hereof, in whole or in part (subject to the vesting schedule
set forth below in this Section 1), at any time and from time to time at or
prior to the Expiration Time by the surrender of this Warrant and the Notice of
Exercise form attached hereto duly executed to the office of the Company at 0000
Xxxxx Xxxxxx, 0xx Xxxxx, Xxxxxxx, XX 00000 (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the Exercise Price for the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the holder hereof, if any, at the time of
exercise in an amount equal to the purchase price of the shares thereby
purchased); whereupon the holder of this Warrant shall
-1-
be entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased.
This Warrant shall be exercisable for 1,000 shares on November 1, 1996 and for
an additional 1,000 shares on the first day of each month thereafter until a
total of 24,000 shares are exercisable, based upon the continued performance of
services pursuant to the letter from Madrona Investment Group, L.L.C. to The
Cobalt Group dated October 15, 1996 (the "Engagement Letter"), unless in each
case the Company has given written notice prior to the applicable date that its
chief executive officer has determined that the services covered by the
Engagement Letter are no longer being provided to the Company, other than by the
fault of the Company. The foregoing vesting schedule shall be subject to
acceleration as provided in Section 10.
2. CONVERSION OF WARRANT
The registered holder hereof shall have the right to convert this Warrant, in
whole or in part, at any time and from time to time at or prior to the
Expiration Time, by the surrender of this Warrant and the Notice of Conversion
form attached hereto duly executed to the office of the Company at the address
set forth in Section I hereof (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company), into shares of
Warrant Stock as provided in this Section 2. Upon exercise of this conversion
right, the holder hereof shall be entitled to receive that number of shares of
Warrant Stock of the Company equal to the quotient obtained by dividing [(A -
B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share of Warrant
Stock on the date of conversion of this Warrant.
B = the Exercise Price for one share of Warrant Stock under this
Warrant.
X = the number of shares of Warrant Stock as to which this Warrant is
being converted.
If the above calculation results in a negative number, then no shares of Warrant
Stock shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Stock shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 10 hereof, the value of the
consideration (determined, in the case of noncash consideration, in
good faith by the Board of Directors of the Company) to be received
pursuant to such transaction by the holder of one share of Warrant
Stock;
-2-
(b) if the conversion right is being exercised after the occurrence of an
initial public offering of common stock of the Company, the average of
the high and low trading prices of a share of Common Stock as reported
by the NASDAQ National Market (or equivalent recognized source of
quotations) for the previous 20 trading days; or
(c) in all other cases, the fair value as determined in good faith by the
Company's Board of Directors.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Stock determined in accordance with the foregoing.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP
Certificates for shares purchased hereunder or issuable upon conversion hereof
shall be delivered to the holder hereof within a reasonable time after the date
on which this Warrant shall have been exercised or converted in accordance with
the terms hereof. The Company hereby represents and warrants that all shares of
Warrant Stock which may be issued upon the exercise or conversion of this
Warrant will, upon such exercise or conversion, be duly and validly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issuance thereof (other than liens or charges created
by or imposed upon the holder of the Warrant Stock). The Company agrees that
the shares so issued shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been exercised or converted in accordance with the terms
hereof. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise or conversion of this Warrant. With respect to any
fraction of a share called for upon the exercise or conversion of this Warrant,
an amount equal to such fraction multiplied by the then current price at which
each share may be purchased hereunder shall be paid in cash or check to the
holder of this Warrant.
4. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise or
conversion of this Warrant shall be made without charge to the holder hereof for
any issue or transfer tax or other incidental expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the holder of this
Warrant or in such name or names as may be directed by the holder of this
Warrant; PROVIDED, HOWEVER, that in the event certificates for shares of Warrant
Stock are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof.
5. NO RIGHTS AS SHAREHOLDERS
-3-
This Warrant does not entitle the holder hereof to any voting rights or other
rights as a shareholder of the Company prior to the exercise or conversion
hereof.
-4-
6. REGISTRATION RIGHTS
The shares of Common Stock issuable upon exercise or conversion of this Warrant
shall be entitled to piggyback registration rights on terms no less favorable
than those granted at any time to any other holder of Company securities.
7. EXCHANGE AND REGISTRY OF WARRANT
This Warrant is exchangeable, upon the surrender hereof by the registered holder
at the above-mentioned office or agency of the Company, for a new Warrant of
like tenor and dated as of such exchange. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for
exchange, transfer, exercise or conversion, in accordance with its terms, at
such office or agency of the Company, and the Company shall be entitled to rely
in all respects, prior to written notice to the contrary, upon such registry.
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
9. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall be a Saturday or a Sunday or shall be
a legal holiday, then such action may be taken or such right may be exercised on
the next succeeding day not a legal holiday.
10. MERGER, SALE OF ASSETS, ETC.
If at any time the Company proposes to merge or consolidate with or into any
other corporation, effect any reorganization, or sell or convey all or
substantially all of its assets to any other entity, in a transaction in which
the shareholders of the Company immediately before the transaction will own
immediately after the transaction less than a majority of the outstanding voting
securities of the entity (or its parent) succeeding to the business of the
Company, then the Company shall give the holder of this Warrant 20 days' prior
written notice of the proposed effective date of such transaction, and if this
Warrant has not been exercised or converted by or on the effective date of such
transaction, it shall terminate.
-5-
The vesting schedule set forth in Section I shall be accelerated so that this
Warrant is 100% vested and exercisable upon receipt of such notice. In
addition, effective upon filing of a registration statement with the Securities
and Exchange Commission any public offering of more than $10 million of
securities of the Company, this Warrant shall likewise accelerate so that the
Warrant is 100% vested and exercisable.
11. RECLASSIFICATION, CONVERSION, ETC.
If the Company at any time shall, by reclassification of securities or
otherwise, change the Warrant Stock into the same or a different number of
securities of any class or classes, including, without limitation, conversion of
the Warrant Stock into Common Stock in accordance with the Certificate upon an
initial public offering or otherwise, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been issuable
in respect of the Warrant Stock (or other securities which were subject to the
purchase rights under this Warrant immediately prior to such subdivision,
combination, reclassification or other change) as the result of such change if
this Warrant had been exercised in full for cash immediately prior to such
change. The Exercise Price hereunder shall be adjusted if and to the extent
necessary to reflect such change. If the Warrant Stock or other securities
issuable upon exercise or conversion hereof are subdivided or combined into a
greater or smaller number of shares of such security, the number of shares
issuable hereunder shall be proportionately increased or decreased, as the case
may be, and the Exercise Price shall be proportionately reduced or increased, as
the case may be, in both cases according to the ratio which the total number of
shares of such security to be outstanding immediately after such event bears to
the total number of shares of such security outstanding immediately prior to
such event. The Company shall give the holder prompt written notice of any
change in the type of securities issuable hereunder, any adjustment of the
Exercise Price for the securities issuable hereunder, and any increase or
decrease in the number of shares issuable hereunder.
12. CERTAIN ADJUSTMENTS
In the event that the conversion price of any shares of convertible securities
at any time outstanding are adjusted to a conversion price which is lower than
the initially stated conversion price for such securities and lower than the
Exercise Price, then the Exercise Price shall forthwith be adjusted to equal
such decreased conversion price.
13. TRANSFERABILITY
Prior to the Expiration Time and subject to compliance with applicable laws,
this Warrant and all rights hereunder are transferable by the holder hereof, in
whole or in part, at the office or agency of the Company referred to in Section
I hereof, to any affiliate or constituent partner of the holder. Any such
transfer shall be made in person or by the holder's duly authorized attorney,
upon surrender of this Warrant to-ether with the Assignment Form attached hereto
properly endorsed.
14. REPRESENTATIONS AND WARRANTIES
-6-
The Company hereby represents and warrants to the holder hereof that:
-7-
(a) during the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise or
conversion of this Warrant;
(b) during the period this Warrant or the Warrant Stock issuable hereunder
is outstanding, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon conversion of the Warrant Stock issuable upon exercise or conversion of
this Warrant;
(c) the issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for the shares of Warrant Stock
issuable upon exercise or conversion of this Warrant;
(d) the Company has all requisite legal and corporate power to execute and
deliver this Warrant, to sell and issue the Warrant Stock hereunder, to issue
the Common Stock issuable upon conversion of the Warrant Stock and to carry out
and perform its obligations under the terms of this Warrant; and
(e) all corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Company, the authorization, sale, issuance
and delivery of the Warrant Stock and the Common Stock issuable upon conversion
of the Warrant Stock, the grant of registration rights as provided herein and
the performance of the Company's obligations hereunder has been taken;
(f) the Warrant Stock and the Common Stock issuable upon conversion of the
Warrant Stock, when issued in compliance with the provisions of this Warrant and
the Articles, will be validly issued, fully paid and nonassessable, and free of
any liens or encumbrances, and will be issued in compliance with all applicable
federal and state securities laws; and
(g) the issuance of the Warrant Stock and the Common Stock issuable upon
conversion of the Warrant Stock will not be subject to any preemptive rights,
rights of first refusal or similar rights.
15. COOPERATION
The Company will not, by amendment of its Articles or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holder of the Warrant against impairment.
16. GOVERNING LAW
-8-
This Warrant shall be governed by and construed in accordance with the laws of
the State of Washington.
-9-
IN WITNESS WHEREOF, the company has caused this Warrant to be executed by its
duly authorized officers.
Dated: October 23, 1996
THE COBALT GROUP, INC.
By _______________________
Title ______________________
ACCEPTED: October 23, 1996
MADRONA INVESTMENT GROUP, L.L.C.
By _________________________
Xxx X. Xxxxxx, Principal
-10-
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)
-11-
NOTICE OF CONVERSION
To: The Cobalt Group, Inc.
(1) The undersigned hereby elects to convert the attached Warrant into such
number of shares of Common Stock of The Cobalt Group, Inc. as is determined
pursuant to Section 3 of such Warrant, which conversion shall be effected
pursuant to the terms of the attached Warrant.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
__________________________
(Name)
__________________________
__________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
______________________ __________________________
(Date) (Signature)
-12-
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.
-13-
