10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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 Number 000-26623

THE COBALT GROUP, INC.
(Exact name of registrant as specified in its charter)

Washington
(State or other jurisdiction
of incorporation or organization) 91-1674947
(I.R.S. Employer Identification No.)

2200 First Avenue South
Seattle, Washington 98134
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (206) 269-6363

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of each class)

    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 / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

    As of March 14, 2001 the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was $20.6 million.

    As of March 14, 2001 the number of shares of the registrant's Common Stock outstanding was 20,303,137.

Documents incorporated by reference:

    Parts of the registrant's Proxy Statement for the 2001 annual meeting of shareholders to be held on May 22, 2001 are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

Item No.		Page No.
Part I
1.	BUSINESS	3
2.	PROPERTIES	17
3.	LEGAL PROCEEDINGS	17
4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	18
4A.	EXECUTIVE OFFICERS OF THE REGISTRANT	18
Part II
5.	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	19
6.	SELECTED FINANCIAL DATA	21
7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	30
9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
Part III
10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	54
11.	EXECUTIVE COMPENSATION	54
12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	54
13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	55
Part IV
14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	55

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PART I

PART I

ITEM 1. BUSINESS

General

    We are a leading provider of e-business products and services to the automotive industry. We evolved from a provider of Internet-based marketing services to the marine, real estate and automotive communities to be a focused provider of Internet applications and professional services to automotive dealers and manufacturers. Our products include feature-rich Web sites, Internet-based software applications, and customer relationship management ("CRM") tools for automotive dealers as well as comprehensive training in the effective use of e-business tools within the retail automotive market. Our products also include a parts locator and associated parts inventory management tools provided by our PartsVoice subsidiary, data collection, normalization, and reporting services provided by our IntegraLink subsidiary, and a wholesale used vehicle remarketing exchange, MotorPlace Auto Exchange.

    We currently provide Internet-hosted applications and professional services to approximately 8,800 automotive dealer clients and we are the manufacturer-endorsed provider of e-business solutions for the dealership networks of 14 automotive manufacturers. We also offer a variety of packaged e-business solutions that are endorsed by the National Automobile Dealers Association ("NADA"). Our IntegraLink data extraction and aggregation services are used to collect data from approximately 13,000 franchised dealerships. The PartsVoice parts locator database contains over 38 million parts. In total, we provide our services to clients representing approximately 15,000 new vehicle franchises.

    We believe opportunities for growth will come from the following industry trends:

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The Internet is increasingly an important medium for improving manufacturer/dealer relationships, creating new efficiencies within the dealership, and enabling value-added communication with potential and existing customers;



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A general decrease in the number of competing companies offering e-business services to the industry; and



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An increased emphasis on lifetime customer service and satisfaction.

    To capitalize on these opportunities, we have focused our business on the changing technology and data needs of the retail automotive industry. These include the need for e-business tools that address all of the dealership profit centers, applications that allow dealers to realize the lifetime value of their customers and applications that facilitate and enhance the relationship between automotive dealers and manufacturers.

    Since 1997, Cobalt has made acquisitions to increase its focus on automotive e-business products and services and has divested assets that are ancillary to the automotive business. During 2000, we acquired one company, disposed of assets unrelated to our core business, and entered into a strategic alliance. In particular:

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We acquired IntegraLink Corporation in January 2000. This acquisition added advanced data extraction and aggregation services to our offerings and provided us with client relationships and technical expertise that significantly enhanced our existing service offerings.



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We entered into a strategic relationship with General Electric Capital Auto Financial Services ("GE Capital") in August 2000 to develop MotorPlace Auto Exchange, a business-to-business marketplace allowing automobile leasing companies and institutional owners of automobiles to

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market and sell wholesale vehicles to automotive dealers before they are shipped to physical auction.

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We sold the assets constituting our YachtWorld division in January 2000. This sale provided us with additional cash resources and divested us of the last of our non-automotive assets.

    Cobalt was incorporated under the laws of the State of Washington in 1995. Our principal office is located at 2200 First Avenue South, Seattle, Washington 98134 and our telephone number is (206) 269-6363.

Products and Services

    Cobalt offers a broad range of products that are grouped into three primary categories: Internet Applications and Professional Services, Data Extraction and Aggregation Services, and Other E-Business Services.

Internet Applications and Professional Services

    Cobalt's Internet applications and professional services provide the key tools required for automotive dealers to market their vehicles and services online, and to establish and develop life-long relationships with their customers. We categorize our Internet applications and professional services into the following areas:

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Packaged E-Business Services



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Custom Development Services



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CRM Tools

Packaged E-Business Services

    The foundation of our service offering is a set of powerful, cost-effective e-business packages for automotive dealers, each of which begins with a flexible and functional dealer Web site. A basic dealer Web site consists of standardized content, e-mail forms, and new and used vehicle inventory listings and distribution, all hosted by Cobalt for a monthly subscription fee. Using our Design Gallery product, a dealer is able to choose from over 180 distinct Web site designs. Dealers can then complement the design they choose by providing photos and other images that are specific to the dealership. We provide our clients with the ability to enhance, customize and measure the effectiveness of their Web sites with the following tools:

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AdWizard Plus enables dealers to build high quality advertisements for their Web sites. This product includes a library of headlines, graphics and layouts to assist dealers in designing professional, effective advertisements for their Web sites. Using our AdWizard Plus tool, dealers can create and post custom vehicle display advertisements, coupons for services and advertisements highlighting special offerings on their Web sites.



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AutoShow allows dealers to showcase vehicle inventory on their Web sites with built-in, easy-to-use editing and management tools. Vehicles can be posted on the dealer's Web site, complete with photos and detailed listings of accessories, packages and options.



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Make & Match gives consumers the ability to configure their preferred car right on a dealer's Web site and determine if a comparable vehicle resides in the dealer's inventory. Integrating vehicle configuration technology and data from Chrome Data Corporation with Cobalt's proprietary inventory matching software, Make & Match helps automotive dealers market their new vehicle inventory and secure more qualified leads from their Web sites.

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TrafficReporter allows dealers to track the number of visitors to their site, how the visitors found the site, which pages were viewed, and which vehicles were searched for. TrafficReporter allows our clients to review activity on their Web sites, enabling them to make informed decisions about management of their Internet marketing programs and to allocate their marketing resources more effectively.

    Our core solution consists of five packages that give dealers the ability to select the suite of services that best meets their needs. These NADA-endorsed packages provide dealers with comprehensive e-business solutions that are designed to enhance customer relationships and the online car buying processes. Our NADA-endorsed e-business packages are:

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NADA Essentials Package provides fundamental Web development and business management tools. Features include Web site content and hosting, e-mail forms, automated new and used vehicle inventory listing capabilities, Web site traffic reporting and links to manufacturer and NADA resources.



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NADA Premier Package builds on the NADA Essentials Package with advanced e-business tools such as Cobalt's Lead Manager and AdWizard Plus. This package also features Cobalt's PartsVoice parts locator and NADA Guides' Dealer WindowLink, providing access to the NADA Official Used Car Value Guide.



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NADA Premier CRM Package adds value to the NADA Premier Package with our myCarTools CRM product as well as our eDealer Academy dealer e-business training program.



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NADA Sales Accelerator Package builds on the NADA Essentials Package with the addition of several process-driven features to help consumers quickly and easily research, locate and reserve a vehicle for sale through dealers' Web sites. This package includes eDealer Academy training.



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NADA Ultimate eBusiness Package features our full CRM solution and includes all Cobalt e-business products, unlimited user licenses for Lead Manager and myCarTools, as well as eDealer Academy training. It is the most advanced and comprehensive offering available from Cobalt.

Custom Development Services

    Many of our clients request custom solutions or service upgrades to enhance our standard dealership Web site solution. To address this need, we provide graphic design, software customization, and other custom development services through our professional services organization. For example, multi-franchise dealer group Web sites generally require significant custom design and development work to enable the client to express and build the brand of their dealership, as well as the brands of the manufacturers the dealership represents. A group site may also provide the ability to search the aggregated inventory for all of the franchises represented by a dealership. We provide these custom development professional services on a per-project basis and typically charge fees based on the anticipated labor required to complete the project.

CRM Tools

    Cobalt's suite of integrated products includes tools that enable dealers to successfully implement customer relationship management functions online. Our CRM tools are designed to integrate with our dealer clients' core Web site solution and assist dealers in realizing the lifetime value of their customers. Cobalt's CRM tools include:

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Lead Manager helps dealers manage and respond to all of their leads, regardless of source (e.g. Internet, telephone, walk-in) through a single Internet-hosted software application. By integrating leads from multiple sources, dealers can service prospective customers and manage

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follow-up communications more effectively. Our Lead Manager product is an Internet-based software tool that helps dealers save time by organizing and tracking Internet leads and routing them to dealer sales staff members according to the dealer's business rules.

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myCarTools is a personalized Web site that allows dealership customers to track maintenance and service records online. The Web site is automatically created and customized by the dealer for each consumer, but maintains the dealer brand imaging and provides the dealer with a direct means of interacting with customers.



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Pick-or-Pass is an e-business service that provides dealers with a cost effective alternative to online buying services, giving dealers the ability to control their online lead costs and as a result increasing their return on investment associated with Internet leads. With Pick-or-Pass, dealers view the lead information and "pick" which leads they want to purchase, and "pass" on the unwanted leads, paying for only those leads they want to pursue. Leads are typically originated through participating third-party portal sites.

Data Extraction and Aggregation Services

    Collecting data from automobile dealer information systems and effectively managing that data is a complex task. In serving automotive dealers and manufacturers in this area of service, we provide a competitive advantage. Our data extraction and aggregation services entail collecting data from automotive dealer computer systems, aggregating the data and distributing that data for a variety of purposes. Our data extraction and aggregation services primarily consist of:

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IntegraLink Data Collection Services



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PartsVoice Business-to-Business Services

IntegraLink Data Collection Services

    IntegraLink, a subsidiary of Cobalt, is a leading provider of automotive data collection and reporting, extracting data from the computer systems of automotive dealerships holding approximately 13,000 new vehicle franchises. IntegraLink specializes in collecting, normalizing and enhancing service, vehicle inventory, vehicle sales, parts and accounting data from automotive dealership management systems for Internet sites, one-to-one marketing, data analysis and data warehousing.

PartsVoice Business-to-Business Services

    Cobalt's PartsVoice subsidiary specializes in aggregating and managing vehicle parts inventory data from thousands of automotive dealers to deliver value-added information services. The PartsVoice parts locator system is the largest database of original equipment manufacturer parts in the United States, housing more than 38 million parts from nearly 9,000 subscribing dealers. Through the PartsVoice parts locator, our manufacturer clients and dealership parts managers can access the database, through the Internet and our interactive voice response telephone system, to locate parts needed by their customers. In addition to the parts locator, we leverage our data management expertise and the parts database to provide services that allow our dealer clients to include a searchable parts inventory on their Web sites and that assist our clients in identifying and selling surplus parts inventory.

Other E-Business Products and Services

    Cobalt also provides other services that support the e-business needs of automotive dealers and manufacturers. The primary services in this category are:

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Dealer Advisory Services



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Internet Portals



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MotorPlace Auto Exchange

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Dealer Advisory Services

    Cobalt's dealer training and consulting service, Dealer Advisory Services, offers best practices e-business training for automotive dealers and manufacturers. The customized e-business training programs include beginning, intermediate and advanced courses that are designed to help dealers maximize their e-business investments. The cornerstone of our training services is Cobalt's eDealer Academy. This course is designed for Internet sales managers and Internet sales representatives, and teaches these dealership personnel to use the Internet to improve sales closing ratios and better serve Internet shoppers. Dealer Advisory Services also provides, in conjunction with J.D. Power and Associates, customized in-person and online training in support of the dealer training initiatives of automotive manufacturers.

Internet Portals

    Cobalt's expertise in Web site design, hosting and maintenance, combined with our ability to aggregate and manage vehicle inventory data from thousands of automotive dealers, positions us to create destination Internet portal sites for our own use and on a private label basis for clients. For the benefit of our automotive dealer and manufacturer clients we host and maintain MotorPlace.com, an online business management and industry information resource, providing access to Cobalt's Web site management and CRM applications, MotorPlace Auto Exchange, and the PartsVoice parts locator. We also host and maintain an automotive research portal, DealerNet.com, that allows consumers to search an online inventory of more than one million new and used vehicles, locate local dealers and conduct research on automobiles. DealerNet.com serves as a platform for private-label sites for NADA as well as several automobile clubs and media companies.

MotorPlace Auto Exchange

    MotorPlace Auto Exchange is an online marketplace that allows auto-leasing companies and other institutional owners of automobiles to market and sell wholesale used vehicles to automotive dealers before they are shipped to auction. MotorPlace Auto Exchange offers dealers and lessors an alternative to traditional auctions, providing greater convenience and cost savings over the traditional model. An initial iteration of MotorPlace Auto Exchange is in commercial release and we expect to engage in substantial development of an enhanced release during 2001. We initiated development of MotorPlace Auto Exchange in August 2000 in conjunction with GE Capital, however, we expect that the agreement with GE Capital will be terminated due in part to the dissolution of the after-market auto finance and leasing segment of GE Capital. We anticipate that we will assume full development and operational responsibility for MotorPlace Auto Exchange effective in the first quarter of 2001.

Sales and Customer Support

Customers

    Cobalt's customers are the traditional participants in the retail automotive industry: dealers and manufacturers. Our e-business services are primarily provided to automotive dealers in connection with an endorsement from a manufacturer with whom the dealer is affiliated. Our product development and our sales strategies are built around our belief that the best way to effectively market to and service consumers in the digital age is for dealers and manufacturers to work together and share resources. The level of integration between dealer and manufacturer initiatives varies by manufacturer from simple online advertising guidelines for dealers to manufacturer programs that actively control and pay for their dealers' use of online marketing services, data services and CRM tools. As of March 14, 2001 we provided Internet applications and professional services to 8,800 dealers and maintained endorsed relationships with 14 manufacturers. Our largest single client is DaimlerChrysler Corporation. In 2000, DaimlerChrysler accounted for 20% of our revenues, for which we provided a full suite of e-business

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services, including data collection and aggregation services and Web sites to DaimlerChrysler and Mercedes Benz dealers.

Sales Organization

    Our products and services are primarily sold through our field sales and account services organizations, which consist of professionals based in the field as well as in our Seattle, Washington and Detroit, Michigan offices. Account services personnel based in our corporate offices are principally responsible for initiating and managing our relationships with our automotive manufacturer and large dealer group clients. Our field sales staff is principally responsible for initiating direct contact with our individual dealership and smaller dealer group clients. The account services staff is organized into an Eastern and Western region, with individual account executives assigned to specific manufacturers and dealer groups. The field sales organization is organized into 53 geographic territories within 6 regions. As of March 14, 2001 we had 31 personnel in our account services organization and 63 sales staff in our field sales organization.

Customer Support

    Our customer support efforts include both our eCare client service department as well as field-based service consultants. Our Seattle based eCare department, made up of 84 individuals as of March 14, 2001, responds to client requests including service, production, training and billing questions, and updates or changes to client Web sites. In addition, as of March 14, 2001, 29 service consultants provided our field-based support. These consultants call on dealers and provide training and other services in support of our manufacturer endorsed relationships.

Product Development and Technology

    Cobalt's product development expenditures for 2000, 1999 and 1998 were $7.7 million, $3.2 million and $961,000, respectively. Our product development program includes efforts to create new types of products and services as well as to expand and improve our current product and service offerings. We believe that strong software development capabilities are essential to implementing our strategy of expanding our customer base, selling more of our services to our existing customers and expanding our service offerings. We spend a substantial amount of time and resources on the development of new products and services. In an effort to increase our ability to develop and bring new products and services to market rapidly, we maintain an office in Austin, Texas dedicated to new product development. We believe that our future success will depend in significant part on our ability to improve the performance, functionality and reliability of our e-business products and services.

    Since mid-2000, we have increased our product development investments in the following areas:

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Core Technology. In mid-2000 we began work on the development of an all-new technology platform for Cobalt's Internet applications services. We believe that this project will improve Cobalt's competitive position. Among other things, we believe the development of our core Internet applications technology will help us continue to scale our operations to support more customers, increase the rate and efficiency of new product development and create barriers to competitive entry through technological leadership. During 2000 we spent $5.1 million on this project and we expect to spend an additional $6.0 million during 2001.



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MotorPlace Auto Exchange. On August 18, 2000, we entered into an agreement with GE Capital to develop, operate and market MotorPlace Auto Exchange, an Internet-based wholesale automobile listing and purchasing system for use by automobile dealers and lessors. During 2000 we jointly spent a total of $600,000 in development on this venture. We anticipate that during the first quarter of 2001, we will terminate our agreement with GE Capital and assume full control over the development and operations of MotorPlace Auto Exchange. During 2001, we

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expect to spend an additional $2.2 million on the development of MotorPlace Auto Exchange web site and related software.

Intellectual Property

    We regard substantial elements of our product and service offerings as proprietary and believe that they are protected by intellectual property rights including trademark, service mark, copyright, and trade secret laws, and contractual restrictions on their use by licensees and others. Although from time to time we may apply for registration of our trademarks, service marks, and copyrights with the appropriate U.S. agencies, we do not rely on such registrations for the protection of these intellectual property rights. We generally enter into confidentiality agreements with our employees and consultants and with third parties in connection with our business operations. These confidentiality agreements generally seek to control access to, and distribution of, our technology, documentation, and other confidential information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use or disclose to others our confidential information without authorization or to develop similar technology independently. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or trademarks or to determine the validity and scope of the intellectual property rights of others. Furthermore, our business activities may infringe upon the proprietary rights of others and other parties may assert infringement claims against us, including claims that our products or services infringe the patents, trademarks, service marks and other intellectual property rights of third parties. These claims and any resultant litigation, should it occur, might subject us to significant liability for damages, might result in invalidation of our intellectual property rights and, even if not meritorious, could result in substantial costs and diversion of resources and management attention and have a material adverse effect on our business, results of operations and financial condition.

    We currently license from third parties technologies and information incorporated into our products and services. As we continue to introduce new services that incorporate new technologies and information, we will likely be required to license additional technology and information from others. We cannot assure you that these third-party technology and information licenses will continue to be available to us on commercially reasonable terms, if at all. Additionally, we cannot assure you that the third parties from which we currently license our technology and information will be able to defend their proprietary rights successfully against claims of infringement or invalidity. If any of these technology and information licenses are not available to us in the future, we may be delayed in introducing, or fail to introduce, new features, functions or services. It could also adversely affect the performance of our existing services until equivalent technology or information can be identified, obtained and integrated.

Competition

    Cobalt's competitors range from large enterprise software providers to start-up companies focused on certain narrow segments of the retail automotive market.

    The market for Internet applications and professional services customized for the automotive industry is characterized by a few broad-based suppliers offering a wide range of technology products to automotive dealers, as well as smaller technology companies with narrower or specialized product offerings. Principal competitors in the Internet applications and professional services market include The Reynolds and Reynolds Company ("Reynolds"), Automated Data Processing, Inc. ("ADP"), Classified Ventures, LLC, AutoTrader.com, LLC and a number of regionally focused Web site development firms and application providers. In addition, we expect increasing competition from enterprise software companies including Siebel Systems, Inc., International Business Machines Corporation, and Microsoft CarPoint.

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    Competitors in the data extraction and aggregation market include Reynolds and Digital Motorworks, Inc. Two new entrants to the market include ChoiceParts, LLC, a consortium of Reynolds, ADP and CCC Information Services and OEConnect, LLC, a consortium of Bell and Howell Co., DaimlerChrysler Corporation, Ford Motor Company and General Motors Corporation.

    In the market for automotive dealer training, our competition includes divisions of Reynolds, Maritz Inc. and Sandy Corporation. MotorPlace Auto Exchange faces competition from established companies such as Auto Trade Center, Inc., Manheim Auctions, Inc. and from new entrants such as Autodaq, Inc. and TradeOut, Inc.

    The market for providing e-business products and services is relatively new and rapidly evolving. We anticipate competition in the market for automotive retailing industry Internet services will increase over time. Barriers to entry on the Internet are relatively low, and we will likely face competitive pressures from numerous companies, particularly those with existing data aggregation capabilities that may be easily integrated with Internet services. Furthermore, our existing and potential competitors may develop offerings that are perceived as better than our services or otherwise achieve greater market acceptance.

Employees

    As of March 14, 2001, Cobalt had 574 full time employees. We also engage independent contractors primarily for database management, Web site production, and programming activities. We consider our relations with our employees to be good. We have never had a work stoppage, and no employees are represented under collective bargaining agreements.

Risk Factors

    You should carefully consider the risks and uncertainties described below and the other information in this report in evaluating our business, operations and prospects.

Our limited operating history and unproven, evolving business model make it difficult to evaluate our prospects.

    We began offering our services in March 1995. We must achieve broad market acceptance of our services and continue to expand our service offerings for our business to succeed. Although our client base represents a significant percentage of the total franchised automotive dealer community in the United States, many of our dealer clients have been clients for only a short time. Furthermore, several of our newest product offerings and strategic initiatives, particularly MotorPlace Auto Exchange, are not yet in full commercial release or have yet to be proven in the marketplace. We cannot assure you that our new and planned future offerings will be successful or that our broader business model, as it evolves, will succeed.

We have a history of losses and may never achieve or maintain profitability. If we continue to lose money, our operations will not be financially viable.

    We have incurred net losses each year since we began operations and we expect that we will not be profitable at least through 2001. We cannot guarantee that our business strategy will be successful or that we will ever achieve or maintain significant revenues or profitability. We had a net loss of $25 million for the year ended December 31, 2000. As of that date, we had an accumulated deficit of $67 million. We have not had operating profits on a quarterly or annual basis. We expect to continue to incur significant operating expenses and, as a result, we will need to generate significant revenue increases and control expenses to achieve and maintain profitability.

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We have relied primarily on issuances of equity securities to finance our operations and may need to raise additional capital to fund our future operations. Any failure to obtain additional capital when needed or on satisfactory terms could damage our business and prospects.

    We do not generate sufficient cash to fully fund operations. Although we believe that our cash reserves, combined with amounts available under our commercial lending facility with Silicon Valley Bank, will be adequate to fund our operations for the next twelve months, such sources may be inadequate. To date we have financed our operations principally through the issuance of equity securities, through the sale of corporate assets, and through borrowings and expect that we may need to raise additional capital in the future to fund our ongoing operations. In October 2000 we issued 2,187,289 shares of common stock to private investors. If we issue additional securities in connection with strategic relationships or to raise additional capital, the percentage ownership of our then current shareholders will be reduced.

    Our future capital requirements depend on many factors, including the extent of our efforts to develop our new Internet application services technology platform, the rate at which we develop and deploy MotorPlace Auto Exchange, the extent to which we expand our other product and service offerings, the occurrence, timing, size and success of acquisitions, and the effect of competition on our performance. Any difficulty in obtaining additional capital when needed or on satisfactory terms could force us to curtail our operations or prevent us from pursuing our growth strategy.

We expend considerable resources in the development of our technology infrastructure, our services and the pursuit of strategic opportunities. Development efforts that take longer than expected to complete or that are unsuccessful could negatively affect our results of operations and financial condition.

    We are engaged in the development of a new technology platform to support our Internet application services. In aggregate, we expect this project alone will cost approximately $11 million. The time, expense and effort associated with developing and implementing this new technology infrastructure, as well as our product and service offerings and strategic initiatives, may exceed our expectations. The length of the development cycle varies depending on the nature and complexity of the product, service or initiative, the availability of development, marketing and other internal resources, and the responsiveness of strategic or technology partners. Larger more complex products, services or initiatives, such as the development of our technology infrastructure and the development of MotorPlace Auto Exchange, tend to have longer development cycles. Any delay or failure in developing or implementing these products, services or initiatives would have a negative effect on our results of operations and financial condition.

If we are unsuccessful in quickly and effectively integrating future acquisitions, our business and results of operations could suffer.

    A key element of our growth strategy is to pursue strategic acquisitions. Integrating newly acquired businesses or technologies may be expensive and time-consuming. We may fail to manage these integration efforts successfully. The negotiation of potential acquisitions or strategic relationships as well as the integration of future acquired businesses, products or technologies could divert our management's time and resources. We may not be able to operate any acquired businesses profitably or otherwise implement our growth strategy successfully. If we are unable to integrate any newly acquired entities or technologies effectively, our business and results of operations could suffer. Acquisitions may cause us to incur contingent liabilities and to amortize expenses related to goodwill and other intangible assets, which could adversely affect our results of operations. In addition, acquisitions may result in dilution to our shareholders.

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Any failure to build strong relationships with current and prospective automotive dealer and manufacturer clients could limit our growth prospects and adversely affect our business.

    For our business to succeed, we must continue to develop relationships with franchised automotive dealers. We derive a substantial portion of our revenues from fees paid by our automotive dealer clients and our future growth depends in part on expanding our base of dealer clients. We also must maintain close working relationships with automotive manufacturers. While we have established relationships with a number of manufacturers, these relationships are relatively new and we have little experience in maintaining them. In addition, manufacturers may elect to implement their own Internet strategies, which could reduce our potential client base. For example, during 2000 General Motors Corporation announced its intent to create a subsidiary focused solely on providing technology solutions, including e-business services such as dealer Web sites, to franchised General Motors dealers.

Excessive turnover of our dealer clients could increase our costs, damage our reputation and slow our growth.

    Our service agreements with dealers generally are short-term and cancelable on 30 days' notice. To be successful, we will need to maintain low dealer client turnover. During 2000, approximately 900 Web sites, or 10.6% of our total Web sites as of year-end, were terminated. Our rate of dealer client turnover may fluctuate from period to period, and may exceed recent levels. A material decrease in the number of dealers purchasing our services could have a material adverse effect on our business, results of operations, and financial condition.

We will face intense competition and, if we are unable to compete successfully, our business will be seriously harmed.

    Our Internet applications and professional services compete with services offered by large enterprise software providers such as Reynolds and ADP as well as local and regional Web site development firms and application providers. We may also be perceived by some dealers as competitors of automobile sales lead generation services such as autobytel.com, Inc., Microsoft CarPoint and Autoweb.com, Inc. if these dealers maintain a distinct Internet marketing budget. Our data extraction and aggregation services compete with services provided by Reynolds, ADP and Digital Motorworks, Inc. In 2000, established industry participants announced the formation of two new businesses to provide parts e-commerce services to the automotive industry. ChoiceParts, LLC was formed by Reynolds, ADP and CCC Information Services Corporation and OEConnect, LLC was formed by Ford, General Motors, DaimlerChyrsler and Bell and Howell Co. If implemented, these businesses could adversely affect usage of the PartsVoice parts locator service and significantly impair the growth of our data extraction and aggregation services. We anticipate that competition in the market for automotive industry Internet services will increase significantly over time. Barriers to entry on the Internet are relatively low, and we expect to face competitive pressures from numerous companies, particularly those with data aggregation capabilities that may be readily integrated with Internet services. Furthermore, our existing and potential competitors may develop offerings that equal or exceed the quality of our offerings or achieve greater market acceptance than ours. Many of our current and future competitors have and will continue to have substantially greater capital, resources and access to additional financing than we do or will. We cannot assure you that we will be able to compete successfully against our current and future competitors or that competition will not have a material adverse effect on our business, results of operations or financial condition.

If automotive manufacturers decide to provide Internet applications or data extraction and aggregation services directly to their dealer networks our revenues and growth prospects will be severely impaired.

    It is possible that some, or all, automotive manufacturers may attempt to provide services comparable to those that we provide to our clients. If this occurs, our ability to maintain or expand our client base and revenues will be impaired. In 1997, DaimlerChrysler announced an internal initiative to

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bring elements of our parts locator service in-house. We believe that this initiative will significantly reduce our contract revenues from parts data services that we currently provide to DaimlerChrysler dealers. In 1998, DaimlerChrysler elected to host the parts locator data internally, although we continue to extract and aggregate parts inventory from its dealers. In both 2000 and 1999, revenues from parts data services provided to the MOPAR division of DaimlerChrysler represented approximately 13% of our revenues. Manufacturers may choose to provide competitive services directly or through affiliation. For example, if OEConnect is implemented, it may result in a significant reduction in the data extraction and aggregation services we provide to dealers affiliated with the major domestic automotive manufacturers.

Any failure to manage our growth effectively will adversely affect our business and results of operations.

    We are experiencing rapid growth that places significant strain upon our management and operational systems and resources. Failure to manage our growth effectively would have a material adverse effect upon our business, results of operations and financial condition. Our ability to compete effectively as a provider of Internet applications and professional services to the automotive industry and to manage future growth will require us to continue to improve our operational systems, product development organization and our financial and management controls, reporting systems and procedures. We may fail to make these improvements effectively. Additionally, our efforts to make these improvements may divert the focus of our personnel.

    Our relationships with clients and strategic partners are frequently informal and are subject to frequent change. These changes are also often informal. A practice of entering into verbal agreements and of modifying or terminating past agreements by verbal agreement has resulted in the past, and may result in the future, in disputes regarding the existence, interpretation and circumstances regarding modification or termination of commercial contracts. If our relationships with clients or strategic partners evolve in an adverse manner, if we get into contractual disputes with clients or strategic partners or if any agreements with such persons are terminated, our business could suffer.

    We recently have hired a significant number of new employees, including key executives, and we will continue to add personnel to maintain our ability to grow in the future. Since March 2000, we have added a number of key managerial, technical and operations personnel, including our Executive Vice President and Chief Financial Officer, as well as our Executive Vice President of Sales and Account Services, Vice President of Human Resources, Vice President and General Manager of PartsVoice, Vice President and General Manager of IntegraLink, Vice President of Account Services—East, Vice President of Account Services—West, Vice President of Marketing, Vice President and General Manager of MotorPlace Auto Exchange and Vice President of Creative Services. We must integrate our key executives into a cohesive management team and at the same time increase the total number of employees and train and manage our employee work force in a timely and effective manner to expand our business. We cannot guarantee that we will be able to do so successfully. To manage the expected growth of our operations and personnel, we must continue improving or replacing existing operational, accounting and information systems, procedures and controls. We will also need to expand, train and manage our growing employee base, particularly our finance, administrative and operations staff. Further, we must manage effectively our relationships with our dealer, dealer group and manufacturer clients and other third parties necessary to our business. If we are unable to manage growth effectively, our business could suffer.

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Our quarterly results likely will fluctuate, which may subject the market price of our common stock to rapid and unpredictable change.

    As our business grows and the market for Internet applications and professional services matures, we expect that our quarterly operating results will fluctuate. Factors that we expect to lead to such period-to-period changes include:

•

the level of demand in the automotive industry for Internet applications, professional services and data extraction and aggregation services;



•

the amount and timing of increased expenditures for expansion of our operations, including the hiring of new employees, capital expenditures and related costs;



•

the rate and volume of additions to our client base;



•

our ability to continue to enhance, maintain and support our technology;



•

the amount and timing of expenditures by clients for our services;



•

the introduction of new products or services by us or our competitors;



•

our ability to attract and retain personnel with the necessary technical, sales, marketing and creative skills required to develop our services and to service our clients effectively;



•

technical difficulties with respect to the Internet or infrastructure; and



•

economic conditions generally and those specific to the automotive industry.

    We expect our business to experience seasonality, reflecting seasonal fluctuations in the automotive industry, Internet and commercial online service usage and advertising expenditures. In addition, because we only began operations in March 1995, and because the market for automotive e-business services such as ours is new and evolving, it is very difficult to predict future financial results. Due partly to our investments in our technology infrastructure and to our development of MotorPlace Auto Exchange, we plan to significantly increase our technology and development, sales and marketing, as well as general and administrative expenses during the remainder of the year 2001. Our expenses are relatively fixed in the short term and are based in part on our expectations of future revenues, which may vary significantly. If we do not achieve expected revenue targets, we may be unable to adjust our spending quickly enough to offset any revenue shortfall. If this were to occur, our results of operations would be significantly affected.

We may fail to retain our key executives and to attract and retain technical personnel, which would adversely affect our business and prospects.

    The loss of the services of one or more of our executive officers could have a material adverse effect on the development of our business and, accordingly, on our operating results and financial condition. We generally do not enter into employment agreements with our key executive officers and cannot guarantee that we will be able to retain them. Qualified technical personnel are in great demand throughout the Internet industry. Our future growth will depend in large part upon our ability to attract and retain highly skilled technical and engineering personnel. Our failure to attract and retain the technical personnel that are integral to our expanding development needs may limit the rate at which we can develop new products and services, which could have a material adverse effect on our business, results of operations and financial condition.

If we become unable to extract data from our clients' internal management systems, the value of our services would decrease dramatically.

    A significant component of our business and revenues depends on our ability to extract various data types from our clients' internal management systems. Most dealer information management

14

systems have been developed and sold by Reynolds and ADP and our ability to access these systems is essential to the success of our data extraction and aggregation service offerings. It is possible that new products, services or information management systems installed by dealers could limit or otherwise impair our ability to collect data from dealers. This could have a material adverse effect on our business, results of operations and financial condition.

We are vulnerable to disruptions in our computer systems and network infrastructure. System or network failures would adversely affect our operations.

    We depend on the continued performance of our systems and network infrastructure. Any system or network failure that causes interruption or slower response time for our services could result in less traffic to our clients' Web sites and, if sustained or repeated, could reduce the attractiveness of our services to clients. An increase in the volume of Internet traffic to sites hosted by us could strain the capacity of our technical infrastructure, which could lead to slower response times or system failures. Any failure of our servers and networking systems to handle current or future volumes of traffic would have a material adverse effect on our business and reputation. In addition, our operations depend upon our ability to maintain and protect our computer systems, which are located at facilities in Seattle, Washington, Portland, Oregon, Austin, Texas, and Columbus, Ohio. Our systems are vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures and similar events. Although we maintain back-up systems and capabilities and also maintain insurance against fires and general business interruptions, our back-up systems and our insurance coverages may not be adequate in any particular case. The occurrence of a catastrophic event could have a material adverse effect on our business, results of operations and financial condition.

Unknown software defects could cause service interruptions, which could damage our reputation and adversely affect our business.

    Our product and service offerings depend on complex software, both internally developed and licensed from third parties. Complex software often contains defects, particularly when first introduced or when new versions are created. Although we conduct extensive testing, we may not discover software defects that affect our new or current products and services or enhancements until after they are deployed. These defects could cause service interruptions, which could damage our reputation or increase our service costs. They also could cause us to lose revenue and divert our development resources.

Economic trends that negatively affect the automotive retailing industry may adversely affect our business by decreasing the number of automotive dealers purchasing our products and services, decreasing the amount our clients spend on our products and services, or both.

    Purchases of new vehicles are typically discretionary for consumers and may be particularly affected by negative trends in the economy. The success of our business will depend upon a number of factors influencing the spending patterns of automotive dealers and manufacturers for marketing and advertising services. These patterns are in part influenced by factors relating to discretionary consumer spending for automotive purchases, including economic conditions affecting disposable consumer income, such as employment, wages and salaries, business conditions, interest rates and availability of credit for the economy as a whole and in regional and local markets. Because the purchase of a vehicle is often a significant investment, any reduction in disposable income and the impact such reduction may have on our clients may affect us more significantly than businesses serving other industries or segments of the economy.

Our business depends on the protection of our intellectual property and proprietary rights and such protection is costly and may be inadequate. The loss of any of these rights or property would seriously harm our business.

15

    Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and still evolving, and we cannot predict the future viability or value of any of our proprietary rights. We also cannot assure you that the steps that we have taken to protect our intellectual property rights and confidential information will prevent unauthorized disclosure, misappropriation or infringement of these valuable assets. In addition, our business activities may infringe upon the intellectual property rights of others and other parties may assert infringement claims against us. Any litigation to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others might result in substantial costs and diversion of resources and management attention. Moreover, if we infringe upon the rights of others, we may be required to pay substantial amounts and may be required to either license the infringed intellectual property or to develop alternative technologies independently. We may not be able to obtain suitable substitutes for the infringed technology on acceptable terms or in a timely manner, which could adversely affect our business, results of operations and financial condition.

We could face liability for information retrieved from or transmitted over the Internet and liability for products sold over the Internet.

    We could be exposed to liability with respect to third-party information that is accessible through Web sites we create. These claims might assert that, by directly or indirectly providing links to Web sites operated by third parties, we should be liable for copyright or trademark infringement or other wrongful actions by third parties through these sites. It is also possible that if any information provided on our clients' Web sites contains errors, consumers and our clients could make claims against us for losses incurred in relying on this information. We access the systems and databases of our clients and, despite precautions, we may adversely affect these systems. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims and our reputation could suffer dramatically. While we believe our insurance is adequate, our general liability insurance and contractual indemnity and disclaimer provisions may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition.

Increasing government regulation could limit the market for Internet services, which could seriously harm our business.

    Due to concerns arising from the increasing use of the Internet, a number of laws and regulations have been and may be adopted covering issues such as user privacy, pricing, acceptable content, taxation and quality of products and services. Failure by our clients or us to comply with such laws and regulations could subject us to legal action, including fines, and could cause us to expend management and other resources. In addition, such legislation could dampen the growth in use of the Internet generally and decrease the acceptance of the Internet as a communications and commercial medium. Further, due to the global nature of the Internet, it is possible that multiple federal, state or foreign jurisdictions might attempt to regulate Internet transmissions or levy sales or other taxes relating to Internet-based activities. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain. We cannot assess the impact of any future regulation of the Internet on our business.

Our principal shareholder and its affiliates will continue to influence matters affecting us, which could conflict with your interests.

    As of March 14, 2001, E.M. Warburg, Pincus & Co., LLC beneficially owned approximately 45% of our issued and outstanding common stock and is able to exercise significant influence over us, including on matters submitted to our shareholders for a vote, such as:

•

the election of our board of directors;

16

•

the removal of any of our directors;



•

the amendment of our articles of incorporation or bylaws; and



•

the adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.

    Actions taken by Warburg could conflict with interests of other shareholders. As a result of Warburg's significant shareholdings, a potential acquirer could be discouraged from attempting to obtain control of us, which could have a material adverse effect on the market price of our common stock.

Our stock price may be volatile, which could result in substantial losses for individual shareholders and would increase the likelihood that we will be subject to securities class action litigation.

    The market price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of new products or services by us or our competitors, market conditions in the automotive industry, changes in financial estimates by securities analysts or other events or factors, many of which are beyond our control. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many technology and services companies and that often have been unrelated to the operating performance of these companies.

    In the past, following periods of volatility in the market price of their stock, many companies have been the subject of securities class action litigation. If we were sued in a securities class action, it could result in substantial costs and a diversion of management's attention and resources, and could cause our stock price to decline.

ITEM 2. PROPERTIES

    In January 2000 we relocated our principal offices in Seattle, Washington to a building in which we lease approximately 76,073 square feet. The current lease commenced on August 24, 1999 and expires on December 31, 2005. The Seattle offices serve as our corporate headquarters and house executive, administrative, research and development, sales and marketing, and customer support functions.

    In July 2001 we moved our operations in Austin, Texas to our current location in which we lease approximately 9,962 square feet. The lease expires on May 23, 2005. We use the space primarily for research, development, and general business activities.

    Our PartsVoice subsidiary operates from approximately 9,120 square feet of office space in Portland, Oregon, which is leased through November 30, 2002.

    On August 1, 2000, we entered into a five-year lease agreement for approximately 3,091 square feet of office space in Troy, Michigan. Our Michigan offices house sales and account services personnel.

    Our IntegraLink subsidiary operates from office space in Columbus, Ohio that we lease on a month-to-month basis.

    We believe that this space is adequate to meet our needs for the present, and that additional or substitute space will be available as needed to accommodate any expansion of our operations.

ITEM 3. LEGAL PROCEEDINGS

    There are no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our business, results of operations and financial condition.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

    The following sets forth certain information with respect to the executive officers of the Company as of March 14, 2001.

    John W.P. Holt, age 44, has been Cobalt's Chief Executive Officer and President since January 2000. Before that he served as Cobalt's Co-Chief Executive Officer and Director after co-founding Cobalt in March 1995. Prior to founding Cobalt, Mr. Holt was Director of Affiliate Label Publishing for IVI Publishing, Inc. from March 1994 to February 1995. Before that he served as Vice President of Growth and Development at Oceantrawl, Inc. from 1989 to 1993. Mr. Holt holds an M.P.P.M. degree from The Yale School of Organization and Management and a B.A. degree in English from Bowdoin College.

    Rajan Krishnamurty, age 43, has been Cobalt's Chief Technology Officer and Executive Vice President since January 2000. Prior to that, from December 1998 to January 2000, Mr. Krishnamurty served as Cobalt's Vice President of Development. From 1997 to 1998, Mr. Krishnamurty was a Manager of Test Execution for Perot Systems Corporation. From 1976 to 1997, Mr. Krishnamurty held various management positions at International Business Machines Corporation, including General Manager of Professional Services, India and Program Director of Power Personal Systems in Austin, Texas. Mr. Krishnamurty holds an M.S. degree in Electrical Engineering from the University of Texas and a B.S. degree in Electrical Engineering from the University of Houston.

    Terrence E. Smail, age 57, has been Cobalt's Executive Vice President of Sales and Account Services since May 2000. Prior to joining Cobalt, Mr. Smail served as Senior Vice President of Etak, Inc. from June 1998 to May 2000. From January 1997 to November 1997 he served as Vice President of Sales and Marketing at Rodeer Systems, Inc. and from September 1993 to December 1996, Mr. Smail served as Executive Vice President at OptImage/Xaos Tools, Inc. Mr. Smail holds an M.B.A. degree and a B.A. degree in Political Science from the University of Colorado, Boulder.

    David S. Snyder, age 40, has been Cobalt's Executive Vice President and Chief Financial Officer since May 2000. Prior to that, from September 1997 to May 2000, Mr. Snyder served as Senior Vice President and Chief Financial Officer of Strategic Hotel Capital, LLC. From September 1996 to August 1997, Mr. Snyder was Executive Vice President, Chief Financial Officer, and Chief Operating Officer of Equity Capital Holdings, LLC. Mr. Snyder holds an M.B.A. degree from the Harvard Graduate School of Business Administration and a B.S. degree in Economics from Ottawa University.

    Michael D. Bell, age 43, has been Cobalt's Vice President and General Manager of PartsVoice since April 2000. Before that, from 1991 to 2000 Mr. Bell held various positions at Bell and Howell, Co., including Vice President of Automotive eCommerce, Director of Product Marketing, National Account Manager, Account Systems Engineer, and Program Manager. Mr. Bell holds an A.A.S. degree in Electronics from the National Institute of Technology.

    Kevin M. Distelhorst, age 39, has been Cobalt's Vice President and General Manager of IntegraLink since April 2000. From January 2000 to April 2000, he served as Cobalt's Director of National Accounts and General Manager of IntegraLink. From October 1998 to January 2000 Mr. Distelhorst was Chief Executive Officer and co-founder of IntegraLink, Inc. Prior to founding IntegraLink, Mr. Distelhorst held a variety of management positions with the Reynolds and Reynolds Company from 1994 to 1998. Mr. Distelhorst received an M.B.A. degree from the Wharton School of the University of Pennsylvania and a B.S. degree in Business/Accounting from Ohio State University.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information and Dividends

    Cobalt's common stock began trading on the Nasdaq National Market under the symbol CBLT on August 5, 1999. The following table lists the high and low price per share, as well as the closing price, for Cobalt's common stock as reported by the NASDAQ National Market for the periods indicated.

		High		Low		Close
Year Ended December 31, 1999
	Third Quarter	$	18.50	$	7.31	$	9.66
	Fourth Quarter		10.50		5.50		9.38
Year Ended December 31, 2000
	First Quarter		34.00		8.50		11.88
	Second Quarter		12.75		5.31		6.88
	Third Quarter		7.25		3.44		3.50
	Fourth Quarter		4.13		0.88		1.13

    At March 14, 2001, there were 132 shareholders of record of Cobalt's common stock.

    Cobalt has not paid cash dividends on its capital stock. Cobalt currently intends to retain all available funds for use in its business and does not anticipate paying any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

    Between January 1, 2000 and December 31, 2000, we issued and sold the following unregistered securities on the dates and for the consideration indicated:

•

On January 14, 2000, Cobalt issued 85,000 shares of common stock to three individuals in connection with Cobalt's acquisition of IntegraLink, Inc.



•

On May 1, 2000 Cobalt issued 258,164 shares of common stock to DaimlerChrysler Corporation in connection with a strategic agreement. In addition, Cobalt issued to DiamlerChrysler two 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.



•

On June 26, 2000 Cobalt issued warrants to purchase 693,983 shares of common stock at an exercise price of $6.86 per share 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. in connection with a securities purchase agreement. On October 31, 2000, Cobalt issued 2,187,289 shares of common stock to the same investors at a price of $6.86 per share pursuant to the securities purchase agreement.



•

On August 18, 2000, in connection with the purchase of a software license and a strategic agreement, Cobalt issued to General Electric Capital Auto Financial Services Corporation 258,520 shares of common stock and warrants to purchase 400,000 shares of common stock. The exercise price of the warrants is $6.50 per share and the warrants expire on December 31, 2005.



•

From October 22, 2000 through December 31, 2000, Cobalt granted stock options to purchase an aggregate of 1,459,351 shares of common stock to employees with exercise prices ranging from $1.88 to $3.69 per share pursuant to our 2000 Stock Incentive Plan in consideration for services rendered.

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    No underwriters were used in connection with these sales and issuances. The sales and issuances of these securities were exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 701 promulgated thereunder on the basis that the options were offered and sold either pursuant to a written compensatory benefit plan or pursuant to written contracts relating to consideration, as provided by Rule 701, or pursuant to Section 4(2) thereof on the basis that the transactions did not involve a public offering.

Use of Proceeds

    On August 4, 1999, Cobalt's registration statement on Form S-1, file No. 333-79483, became effective. As of December 31, 2000, we realized and used the proceeds from our 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		7,350
Investment in IntegraLink		1,614
Working capital		12,657
Use of proceeds	$	50,471

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ITEM 6. SELECTED FINANCIAL DATA

    The following selected financial data should be read together with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Form 10-K.

			Year Ended December 31,
			2000			1999			1998			1997			1996
			(in thousands, except per share amounts)
Revenue			$	41,481		$	23,286		$	6,245		$	1,711		$	312
Cost of revenue				8,283			4,819			1,199			285			51
	Gross profit			33,198			18,467			5,046			1,426			261
Operating expenses
	Sales and marketing(1)			21,832			11,591			4,048			1,740			286
	Product development(2)			7,691			3,168			961			361			125
	General and administrative(3)			19,836			13,199			4,328			1,592			676
	Amortization of intangible assets			5,751			3,696			299			22			—
	Intangible asset impairment charge			9,742			—			—			—			—
	Stock-based compensation			909			2,806			806			406			—
		Total operating expenses		65,761			34,460			10,442			4,121			1,087
Loss from operations				(32,563	)		(15,993	)		(5,396	)		(2,695	)		(826	)
Interest expense				(411	)		(993	)		(93	)		(17	)		(2	)
Interest income				1,203			475			142			47			—
Gain on sale of assets				8,658			—			1,626			—			—
Common and preferred stock repurchase premium				—			—			(1,384	)		—			—
Other income, net				(67	)		10			—			—			—
	Net loss before cumulative change in accounting principle		$	(23,180	)	$	(16,501	)	$	(5,105	)	$	(2,665	)	$	(828	)
	Basic and diluted net loss per share before cumulative change in accounting principle		$	(1.29	)	$	(2.26	)	$	(4.74	)	$	(0.77	)	$	(0.24	)
	Net loss after cumulative change in accounting principle		$	(25,344	)
	Basic and diluted net loss per share after cumulative change in accounting principle		$	(1.41	)

			December 31,
			2000		1999		1998			1997			1996
			(in thousands)
Balance Sheet Data:
	Cash and cash equivalents		$	16,557	$	14,224	$	5,756		$	241		$	4
	Working capital (deficit)			13,367		13,828		5,534			(1,264	)		(712	)
		Total assets		57,926		54,032		10,062			1,951			168
		Long-term obligations, net of current portion		1,896		1,245		557			424			51
		Mandatorily redeemable stock		—		—		31,162			2,439			—
	Total shareholders' equity (deficit)			42,255		45,585		(24,242	)		(2,897	)		(651	)

(1)

Excluding stock-based compensation of $130, $737, $247, $26 and $0, respectively.

(2)

Excluding stock-based compensation of $173, $498, $90, $15 and 0, respectively.

(3)

Excluding stock-based compensation of $545, $1,457, $441, $360 and $0, respectively.

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ITEM 7. 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 Exchange Act of 1934, as amended, that involve known and unknown risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read 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 under "Risk Factors" beginning on page 10. 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 update forward-looking statements.

Overview

General

    We are a leading provider of e-business products and services to the automotive industry. We evolved from a provider of Internet-based marketing services to the marine, real estate and automotive communities to be singularly focused on providing Internet applications and professional services to automotive dealers and manufacturers. Our products include feature-rich Web sites, Internet-based software applications, and customer relationship management tools for automotive dealers. Also included in our product line are PartsVoice e-commerce services for original equipment manufacturer parts, IntegraLink data collection, normalization, and reporting services, MotorPlace Auto Exchange wholesale vehicle remarketing services, and Dealer Advisory Services e-business training and consulting services for manufacturers and dealers.

    We currently provide Internet-hosted applications and professional services to approximately 8,800 automotive dealer clients and we are the manufacturer-endorsed provider of e-business solutions for the dealership networks of 14 automotive manufacturers. We also offer a variety of packaged e-business solutions that are endorsed by the National Automobile Dealers Association. Our IntegraLink data extraction and aggregation services are used to collect data from approximately 13,000 new vehicle franchises. The PartsVoice parts locator database contains over 38 million parts. In total, we provide our services to clients representing approximately 15,000 new vehicle franchises.

Sources of Revenue and Revenue Recognition Policy

    We derive our revenues from fees charged to our automotive dealer and manufacturer clients. Our current service offerings include: comprehensive Internet applications and professional services; data extraction, aggregation and management services; and other services such as dealer training, placement of advertisements and an online wholesale vehicle exchange. The majority of our services are sold to clients under short-term service agreements. We believe that continued revenue growth will be primarily attributable to growth in revenues from our Internet applications and professional services offerings. We anticipate that these additional revenues will primarily come from individual dealer sales and sales resulting from manufacturer endorsements. The scope and timing of manufacturer endorsements and their related activities may cause variations in our revenue growth rates.

    In the fourth quarter of 2000, we implemented Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which we adopted retroactively to January 1, 2000. Previously, we recognized revenue on initial set-up fees and custom projects at the time of activation. After the adoption of SAB 101, we amortize set-up fees for Internet applications ratably over the

22

estimated customer life of three years, and professional service fees for custom projects over the estimated project life of two years.

    Revenues are reported after adjustments to amounts billed relating to the non-cash amortization of securities issued pursuant to our agreement with DaimlerChrysler Corporation. The warrants and common stock issued in connection with that agreement were valued at $14.6 million and are being amortized ratably with billings over the initial term of the agreement, which expires December 31, 2002.

Cost of Revenues and Operating Expenses

    Our cost of revenues consists of the costs associated with production, maintenance and delivery of our services. These expenditures include personnel costs related to production, processing and design, depreciation of Web and database servers used to host client data, expenses related to data transfer, royalties and fees payable to third parties, banner advertising, and site content licensing fees.

    As we continue to expand our client base and improve our Web site technology platform, we expect to leverage our technology platform, which we believe will maintain or improve our gross margin. In addition, our gross margin may be affected if we continue to experience increasing demand for custom design and development projects, which carry higher costs. As we respond to customer demand for these professional services, our product mix may shift, which could cause our gross margin to decline. In addition, strategic new services that we offer may have lower margins than our current service offerings.

    Our sales and marketing expenses consist primarily of salary and commissions for our sales staff. In addition, our sales and marketing expenses include the cost of travel associated with our sales force as well as advertising and public relations costs for the entire organization.

    Product development costs primarily consist of personnel dedicated to our product development initiatives, as well as outside consulting services to support our development efforts. Product development costs related to our Web site technology platform are capitalized in accordance with the American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"). This 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 research and definition of project parameters, as well as the transfer of data to new software are not capitalized and are expensed as incurred. Costs related to the development of our internal Web sites are accounted for in accordance with Emerging Issues Task Force Issues Summary 00-02, "Accounting for Web Site Development Costs" ("EITF 00-02"). We expense all costs incurred that relate to the planning and post-implementation phases of Web site development. Costs incurred in the development phase are capitalized and recognized over the Web site's useful life if the Web site is expected to have a useful life beyond one year.

    Our general and administrative expenses consist primarily of staff and management costs, facilities expenses and depreciation charges. The intangible asset amortization charges are associated with our acquisitions of PartsVoice, IntegraLink and DealerNet.

Acquisitions and Dispositions

    In January 2000 we purchased IntegraLink Corporation, which enhanced our data acquisition capabilities and provided access to additional clients. Aggregate purchase consideration and expenses consisted of $1.85 million in cash and 85,000 shares of our 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 the entire purchase price was allocated to intangible assets.

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    In January 2000 we sold the assets of our YachtWorld.com operation to Boats.com, Inc. The sale provided capital for investment in our core business. The assets were sold for cash proceeds of $3.5 million and a promissory note in the amount of $10.5 million. We also received warrants to purchase 473,455 shares of Boats.com common stock. The first note installment of $3.5 million was paid on March 27, 2000. A second payment, in the amount of $2.5 million, was received on September 29, 2000. As of December 31, 2000 we had recognized a gain on the sale of YachtWorld.com of $8.7 million, which represents the cash paid, net of transaction expenses. Due to the risk associated with collection, we recognize the gain associated with the sale of YachtWorld.com as payments are received. We have deferred the recognition of gains related to the unpaid consideration. Amounts that are outstanding under the note receivable are offset by deferred gain for financial statement presentation.

    On April 30, 1999, we acquired all of the equity interests in PartsVoice, LLC whose principle business is vehicle parts data aggregation and management services. We paid purchase consideration of $30 million for the PartsVoice equity. The aggregate purchase price was allocated to the net assets acquired, based on 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. At the time of acquisition we anticipated significant revenue growth from PartsVoice. However, higher than projected client attrition rates and weaker than anticipated new sales resulted in a net decrease in subscribers and revenues. Due to these changes in the results and prospects of our PartsVoice business, we evaluated the carrying amounts of the intangible assets related to the PartsVoice acquisition in accordance with guidance provided by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Impairment Charges" ("SFAS No. 121"). As a consequence of this evaluation, we recognized an impairment charge of $9.7 million related to the intangible assets of PartsVoice during the third quarter of 2000. This charge was allocated entirely to goodwill.

DaimlerChrysler

    On May 1, 2000 we 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 amounts during the initial term of the agreement. In connection with the agreement, we issued 258,164 shares of our common stock to DaimlerChrysler. We also issued warrants to purchase 688,437 shares of our common stock at $10.03 per share and 516,328 shares at $12.53 per share. 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 value of the common stock and warrants issued in connection with the DaimlerChrysler agreement totaled $14.6 million. We amortize this amount ratably as billings are rendered over the initial term of the agreement. The $14.6 million valuation does not attribute value to the third warrant because its exercisability is 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.

MotorPlace Auto Exchange

    On August 18, 2000, we entered into an agreement with GE Capital to jointly develop and operate MotorPlace Auto Exchange, an Internet-based wholesale automobile listing and purchasing system for use by automobile dealers and lessors. In conjunction with the agreement, we purchased a software license from GE Capital in exchange for 258,520 shares of our common stock valued at $4.81 per share, resulting in an aggregate purchase price of $1.2 million. The purchase price for the software license is amortized to cost of revenues over the life of the software, estimated to be three years. In

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connection with this agreement, we also issued 400,000 warrants to purchase our common stock, valued at $1.3 million, at an exercise price of $6.50 per share. The value of these warrants is being amortized on a straight-line basis to cost of revenues over the term of the agreement.

    The agreement with GE Capital specifies that revenues and expenses are shared between GE Capital and Cobalt. These revenues and expenses are shared on a cash basis and settled monthly between the parties. In accordance with the operating agreement, the percentage shared by either party may be changed on a semi-annual basis. We anticipate terminating the agreement with GE Capital effective in the first quarter of 2001. As of the effective date of the termination, we will be responsible for all expenses, as well as assets and liabilities and will recognize all revenues from MotorPlace Auto Exchange. We anticipate that, as a result of termination, we will expense all unamortized warrant charges related to this agreement, which currently total $1.2 million.

Technology Investment

    We have commenced a project to make significant investments in internally developed software related to our Web site technology platform. Portions of these costs are being capitalized in accordance with SOP 98-1, which 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 research and definition of project parameters, as well as the transfer of data to new software, are not capitalized and are expensed as incurred. We anticipate the capitalized portion of the project will be amortized over a three-year period beginning in the second quarter of 2001 and that the amortization of these costs may have a material effect on future operating results. The project is anticipated to cost approximately $11.0 million, approximately $9.0 million of which will be capitalized labor and capital investments. We expect to incur most of the remaining costs over the next six months. As of December 31, 2000, we were in the design and development phase of this project and had capitalized $2.9 million out of the total software development costs incurred of $3.8 million. Additionally, related capital assets purchased as of December 31, 2000 totaled $1.3 million.

    During 2001, we anticipate further investment in the development of MotorPlace Auto Exchange. The operations of MotorPlace Auto Exchange will require significant development of the MotorPlace.com Web site. In addition, we expect the costs associated with developing MotorPlace Auto Exchange to be approximately $2.2 million during 2001. These costs will be capitalized according to SOP 98-1 and EITF 00-02. Currently, we are moving into the development phase of this project. As of December 31, 2000, we were in the design and development phase of this project and had capitalized $300,000 out of the total software development costs incurred of $600,000.

Comparison of the Years Ended December 31, 2000 and 1999

    Revenues.  Amounts billed to DaimlerChysler are reduced by amounts relating to the fair value of warrants and common stock issued in connection with our agreement with DaimlerChrysler. The fair value of the warrants and common stock of $14.6 million is being amortized over the initial term of the agreement, which expires December 31, 2002. Amounts billed to DaimlerChysler are reduced by this amortization to arrive at revenues. In the year ended December 31, 2000, the Company recognized $842,000 less in revenues than amounts billed. The remaining amount to be amortized was $13.7 million at December 31, 2000. We expect these amortization changes to increase in future periods, resulting in a greater differential between amounts billed and recognized revenues.

    Our revenues increased to $41.5 million in 2000 from $23.3 million in 1999. This increase is primarily attributable to the addition of approximately 3,300 dealer clients for our Internet applications and professional services, which accounted for $13.8 million, or 76% of the revenue increase. The increase in Internet applications and professional services revenue is primarily due to the acquisition of

25

new clients pursuant to our agreement with DaimlerChrysler, and we do not expect to continue adding comparable numbers of new dealer clients in future periods. The increase in our client base is net of dealer client Web site attrition of 10.6% for the year ended December 31, 2000 compared with 6.7% for 1999. Attrition rates were determined based on total dealer Web site clients as of December 31, 2000 and 1999, respectively. We believe that the increase in client attrition rates is primarily attributable to service problems experienced by our dealer clients. We believe we have taken appropriate measures to provide better and faster service to our customers by creating our eCare department on July 31, 2000.

    Revenues from data extraction and aggregation services accounted for $5.2 million, or 29%, of the increase in revenues. The increase in these revenues is primarily due to the acquisitions of PartsVoice on April 30, 1999 and IntegraLink on January 14, 2000. The increases in Internet applications and professional services and data extraction and aggregation revenues were offset by a $786,000 decrease in other services, primarily attributable to reduced advertising placements as well as the additional $842,000 amortization related to the DaimlerChrysler stock and warrants issuance.

    In the fourth quarter of 2000 we implemented SAB 101. The effect of the change in accounting principle on revenues in the year ended December 31, 2000 was $2.5 million. Previously we recognized revenue on initial set-up fees and custom projects at the time of activation. After adopting SAB 101, we recognize set-up fees for Internet applications ratably over the estimated customer life of three years, and we recognize professional service fees for custom projects over an estimated life of two years.

    Cost of revenues.  Cost of revenues increased to $8.3 million in 2000 from $4.8 million in 1999. Costs related to additional staffing required to accommodate our increased client base accounted for $2.5 million, or 72% of the increase. An additional $780,000, or 23% of the change, is attributable to increased Internet hosting and server depreciation costs related to our client base and infrastructure improvements. Our gross margin percentage increased to 80.0% in 2000 from 79.3% in 1999. This change is primarily attributable to a decrease in lower-margin product sales, such as advertising, within the product mix.

    Sales and marketing.  Sales and marketing costs, excluding stock-based compensation, increased to $21.8 million in 2000 from $11.6 million in 1999. The increase is primarily due to the growth in the number of our sales and marketing personnel, including our new eCare department, which accounted for $8.3 million, or 81% of the increase.

    Product development.  Excluding stock-based compensation, product development costs increased to $7.7 million in 2000 from $3.2 million in 1999. Of the increase, $2.7 million, or 60% of the change, was due to additional personnel dedicated to product development initiatives, including the development of our new Web site technology platform. An additional $1.1 million, or 25% of the change, is attributable to outside consulting services used to assist in product development efforts, primarily our internally developed software related to our Web site technology platform. These charges do not include internally developed software costs capitalized in accordance with the SOP 98-1. In the year ended December 31, 2000, we capitalized $3.2 million in development costs related to the development of our Web site technology platform and MotorPlace Auto Exchange. With the exception of internally developed software and Web site development costs, we expense product development costs as they are incurred.

    General and administrative.  General and administrative costs, excluding stock-based compensation, increased to $19.8 million in 2000 from $13.2 million in 1999. Of this increase, $1.8 million, or 27% of the change, was due to increased staff and management personnel. An additional $1.3 million, or 19% of the change, is attributable to increased facilities costs associated with our new corporate headquarters, including one-time expenses related to moving our headquarters in the first quarter of

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2000. Depreciation charges associated with increased capital investments accounted for $1.2 million, or 18% of the change. A further $1.1 million, or 17% of the change, is attributable to increased telephone, furniture and postage costs associated with the growth in the number of employees and our new corporate headquarters.

    Amortization of intangible assets.  Amortization of intangible assets increased to $5.8 million in 2000 from 3.7 million in 1999, an increase of 56%, due primarily to amortization of the 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.

    Intangible asset impairment charge.  On September 30, 2000, we recognized an impairment charge of $9.7 million related to the intangible assets of PartsVoice. This charge was allocated entirely to goodwill as required by the Statement of Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets." We have also reassessed the estimated useful life of the technology acquired in the PartsVoice transaction. At December 31, 2000, we reduced the remaining life of the technology to 12 months from 40 months. These changes will reduce our future amortization charges related to the PartsVoice acquisition.

    Stock-based compensation.  Stock-based compensation costs decreased to $909,000 in 2000 from $2.8 million in 1999. 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. We do not currently and do not in the future expect to grant options with exercise prices below fair market value. Because we are no longer granting options with exercise prices below fair value and because we use an accelerated method of amortizing deferred compensation expense we expect these charges to decrease in the future.

    Provision for income taxes.  We incurred operating losses from inception through December 31, 2000. We have recorded a valuation allowance for the full amount of our net deferred tax assets based on the available evidence.

    As of December 31, 2000, we had a net operating loss carryforward for federal tax purposes of approximately $44.0 million. These federal tax loss carry-forwards are available to reduce future taxable income and expire at various dates through fiscal year 2020. Under the provisions of the Internal Revenue Code of 1986, as amended, certain substantial changes in our ownership may limit the amount of net operating loss carry-forwards that could be utilized annually in the future to offset taxable income. We determined that such a change occurred in October 1998 and the utilization of loss carryforwards generated through that period will be limited.

Comparison of the Years Ended December 31, 1999 and 1998

    Revenues.  Our revenues increased to $23.3 million in 1999 from $6.2 million in 1998. This increase was due in part to a significant net increase in our client base as well as the sale of additional services to existing clients, which accounted for $9.0 million, or 53% of the increase. During 1999 we began offering parts locating services through PartsVoice which we acquired in April 1999. These services accounted for $7.3 million or 43% of the increase in revenues. The increase in our client base is net of dealer client Web site attrition of 6.7% for the year ended December 31, 1999 compared with an attrition rate of 8.0% for 1998. Attrition rates were determined based on total dealer Web site clients as of December 31, 1999 and 1998, respectively.

    Cost of revenues.  Cost of revenues increased to $4.8 million in 1999 from $1.2 million in 1998. Costs related to additional staffing required to accommodate our growing client base accounted for $1.8 million, or 50% of the increase. Service delivery costs, which include server costs and telephone charges, accounted for $908,000, or 25% of the increase. Costs related to sales of advertising and

27

distribution of vehicle inventory data to third-party Web sites increased proportionally with sales and constituted $796,000 or 22% of the increase.

    Our gross margin percentage decreased to 79.3% in 1999 from 80.8% in 1998. We added a parts locating service to the product mix during 1999, which has a higher gross margin percentage than our other products. The impact of these higher margin revenues was offset by the increase in dealer service sales, which, due to an increase in personnel needed to service our manufacturer and dealer clients, have lower margins. Also during 1999, revenues from sale of third party products increased, which contributed to lower margins.

    Sales and marketing.  Sales and marketing costs increased to $11.6 million in 1999 from $4.0 million in 1998. The increase is primarily due to the growth in the number of our sales and marketing personnel and commissions on higher levels of revenue. These costs accounted for $5.3 million, or 70% of the increase. We also increased spending to promote our corporate brand by $1.5 million. Sales and marketing expenses as a percentage of revenues decreased to 49.8% in 1999 from 64.8% in 1998 due primarily to the significant increase in revenues during the same period.

    Product development.  Product development costs increased to $3.2 million in 1999 from $961,000 in 1998. The increase was due to the increase in the number of our product development personnel. During 1999 we increased our emphasis on product development initiatives. This was done in part by opening a product development office in Austin, Texas to take advantage of technology resources in that region.

    General and administrative.  General and administrative costs increased to $13.2 million in 1999 from $4.3 million in 1998. These expenses increased primarily due to the increase in the number of staff and management personnel. General and administrative spending not directly related to personnel increased in order to support our overall growth.

    Amortization of intangible assets.  Amortization of intangible assets increased to $3.7 million in 1999 from $299,000 in 1998 due to amortization of the intangible assets related to the PartsVoice acquisition.

    Stock-based compensation.  Stock-based compensation costs increased to $2.8 million in 1999 from $806,000 in 1998. The increase was due to an increase in the number of options that we granted to employees with exercise prices below the fair value of the underlying stock and to the vesting of previously issued options.

Liquidity and Capital Resources

    At December 31, 2000 our cash balance was $16.6 million, which reflects an increase of $2.4 million from our cash balance at December 31, 1999.

    Net cash used in operating activities was $8.8 million in 2000 compared to $11.4 million in 1999. In each period, cash used in operating activities consisted primarily of net operating losses that were offset by increases in operating assets, net of increases in current liabilities.

    Investments in capital assets and our acquisition of IntegraLink totaled $12.8 million in 2000, offset by proceeds of $8.9 million from the sale of assets related to YachtWorld.com. In 1999, investments in capital assets and PartsVoice totaled $5.2 million. We have used lease-financing facilities to obtain capital assets in addition to cash acquisitions. The value of assets acquired under capital leases was $1.8 million in 2000 and $2.5 million in 1999.

    Net cash provided by financing activities was $15.1 million in 2000 compared to $24.1 million in 1999. Cash provided by financing activities in 2000 consisted of $15.0 million from the sale of common stock to private investors, as well as stock option exercises and employee stock purchase plan

28

purchases, offset by payments of capital asset financing obligations and a software financing contract. In 1999, cash provided by financing activities consisted primarily of proceeds from the initial public offering of $49.8 million and direct sale of common stock offset by payments of notes and dividends on preferred stock.

    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 150 employees, excluding the addition of IntegraLink employees, and invested more than $11.0 million in capital assets and internally developed software.

    We expect continued increases in staffing and further investment in infrastructure to implement MotorPlace Auto Exchange and to improve product offerings to current clients. In addition, we anticipate continued investment of substantial resources developing technology that supports our Internet applications business, as well as our PartsVoice data services. These investments will include staffing and consulting costs, in addition to capital purchases. We estimate the total cost to develop our new Web site technology platform to be $11.0 million. Of this $11.0 million investment, we have spent $5.1 million to date, consisting of $2.9 million in capitalized labor costs, $1.3 million in hardware and software purchases and another $900,000 in labor and consulting expense. The operations of MotorPlace Auto Exchange will also require significant development of the MotorPlace.com Web site and we anticipate the costs associated with developing MotorPlace Auto Exchange to be approximately $2.2 million in 2001. We estimate the future costs associated with the improvement of PartsVoice technology will total approximately $2.0 million.

    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 that may negatively affect near-term operating results. For example, our investment in MotorPlace Auto Exchange requires increased staffing and infrastructure to accommodate anticipated growth in our client base. We also anticipate that we will require increased infrastructure and staffing to support expanded service offerings.

    On March 9, 2001, we entered into a loan agreement with Silicon Valley Bank, providing a line of credit up to $10 million, based on eligible accounts receivable balances. The agreement is subject to certain covenants and limitations including a tangible net worth covenant.

    We do not currently generate sufficient cash to fully fund operations. Although we believe our cash reserves, in addition to the Silicon Valley Bank loan facility, will be adequate to fund our operations for the next twelve months, such sources may be inadequate. To date we have financed our operations principally through the issuance of equity securities, through the sale of corporate assets, and through borrowings, and we expect that we may need to raise additional capital in the future to fund our ongoing operations. In October 2000 we issued 2,187,289 shares of common stock to private investors for proceeds of $15 million. If we issue additional securities in connection with strategic relationships or to raise additional capital, the percentage ownership of our then-current shareholders will be reduced.

    If the investment required to sustain our planned growth is greater than anticipated, 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.

New Accounting Pronouncements

    In June 1998, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including

29

certain derivative instruments embedded in other contracts, and for hedging activities. We adopted SFAS No. 133 in the quarter ending March 31, 2001. We have not engaged in significant hedging activities or invested in derivative instruments and do not expect the adoption of this standard to have a material impact on our financial position or results of operations.

    In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"). SFAS No. 140 replaces Statement of Financial Accounting Standards No. 125, revising the standards governing the accounting for securitizations and other transfers of financial assets and collateral. Adoption of SFAS No. 140 is required for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. We are currently evaluating the impact of SFAS No. 140, if any, on current accounting policies regarding the service of assets and extinguishment of liabilities.

ITEM 7A. 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The following consolidated financial statements, and the related notes thereto, of The Cobalt Group, Inc. and the Report of Independent Accountants are filed as a part of this Form 10-K.

	Page
Report of Independent Accountants	31
Consolidated Balance Sheets as of December 31, 2000 and 1999	32
Consolidated Statement of Operations for the years ended December 31, 2000, 1999, and 1998	33
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998	34
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998	35
Notes to the Consolidated Financial Statements	36

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Report of Independent Accountants

To the Board of Directors and Shareholders
of The Cobalt Group, Inc.

    In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 55 present fairly, in all material respects, the financial position of The Cobalt Group, Inc. and its subsidiaries at December 31, 2000 and December 31, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in under Item 14(a)(2) on page 55, present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington
January 25, 2001, except for paragraphs two and three of Note 19, which are as of March 9, 2001

31

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

			December 31, 2000			December 31, 1999
Assets
Current assets
	Cash and cash equivalents		$	16,577		$	14,224
	Accounts receivable, net of allowances for doubtful accounts of $944 and $497, respectively			8,892			4,581
	Other current assets			1,673			2,225
				27,142			21,030
Capital assets, net				14,256			4,636
Intangible assets, net				15,569			27,330
Other assets				959			1,036
	Total assets		$	57,926		$	54,032
Liabilities and Shareholders' Equity
Current liabilities
	Accounts payable		$	4,696		$	2,020
	Accrued liabilities			2,187			1,520
	Deferred revenue, current portion			4,668			2,456
	Notes payable			270			—
	Software financing contract, current portion			1,054			362
Capital lease obligations, current portion				900			844
				13,775			7,202
Non-current liabilities
	Deferred revenue, non-current portion			1,348			—
	Software financing contract, non-current portion			279			28
	Capital lease obligations, non-current portion			269			1,217
				1,896			1,245
Commitments and Contingencies				—			—
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; 20,140,376 and 16,855,431 issued and outstanding, respectively			201			169
	Additional paid-in capital			124,021			89,957
	Deferred equity subscriptions			(12,951	)		—
	Deferred equity expenses			(2,167	)		(3,036	)
	Notes receivable from shareholders			(144	)		(144	)
	Accumulated deficit			(66,705	)		(41,361	)
				42,255			45,585
		Total liabilities and shareholders' equity	$	57,926		$	54,032

See accompanying notes to consolidated financial statements.

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The Cobalt Group, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

			Year Ended December 31,
			2000			1999			1998
Revenues
	Internet applications and professional services		$	27,282		$	13,511		$	6,011
	Data extraction and aggregation services			12,546			7,336			—
	Other services			1,653			2,439			234
		Total revenues		41,481			23,286			6,245
Cost of revenues				8,283			4,819			1,199
		Gross profit		33,198			18,467			5,046
Operating expenses
	Sales and marketing, excluding stock-based compensation of $130, $737 and $247, respectively			21,832			11,591			4,048
	Product development, excluding stock-based compensation of $173, $498 and $90, respectively			7,691			3,168			961
	General and administrative, excluding stock-based compensation of $545, $1,457 and $441, respectively			19,836			13,199			4,328
	Amortization of intangible assets			5,751			3,696			299
	Intangible asset impairment charge			9,742			—			—
	Stock-based compensation			909			2,806			806
		Total operating expenses		65,761			34,460			10,442
Loss from operations				(32,563	)		(15,993	)		(5,396	)
Interest expense				(411	)		(993	)		(93	)
Interest income				1,203			475			142
Gain on sale of HomeScout				—			—			1,626
Gain on sale of YachtWorld				8,658			—			—
Common and preferred stock repurchase premium				—			—			(1,384	)
Other income, net				(67	)		10			—
	Net loss before cumulative change in accounting principle		$	(23,180	)	$	(16,501	)		(5,105	)
Cumulative effect for change in accounting principle				(2,164	)		—			—
Net loss available to common shareholders			$	(25,344	)	$	(18,028	)		(13,930	)
Basic and diluted net loss per share, before change in accounting principle				(1.29	)		—			—
Cumulative effect of change in accounting principle				(0.12	)		—			—
Basic and diluted net loss per share			$	(1.41	)	$	(2.26	)	$	(4.74	)
Weighted-average shares outstanding				17,926,335			7,971,443			2,938,460
Pro forma net loss available to common shareholders (unaudited)				(23,180	)		(19,395	)		(14,586	)
Pro forma basic and diluted net loss per share (unaudited)				(1.29	)		(2.43	)		(4.96	)
Pro forma weighted-average shares outstanding (unaudited)				17,926,335			7,941,443			2,938,460

See accompanying notes to consolidated financial statements.

33

The Cobalt Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
(in thousands, except share amounts)

	Common stock
						Additional paid-in capital			Deferred equity expenses			Deferred equity subscriptions			Notes receivable from shareholders			Accumulated deficit
	Shares		Par Value																		Total
Balances at December 31, 1997	3,406,597			34			1,268			(147	)		—			(144	)		(3,908	)		(2,897	)
Net loss																			(5,105	)		(5,105	)
Issuance of stock options to employees							2,244			(2,244	)											—
Amortization of deferred compensation										532												532
Forfeitures of employee stock options							(173	)		173												—
Proceeds from exercise of stock options	110,507			1			26															27
Accretion of mandatorily redeemable convertible preferred stock							(14	)														(14	)
Repurchase of mandatorily redeemable convertible preferred stock																			(8,262	)		(8,262	)
Repurchase of common stock	(2,173,206	)		(22	)		(367	)											(7,585	)		(7,974	)
Dividends on mandatorily redeemable convertible preferred stock							(549	)														(549	)
Balances at December 31, 1998	1,343,898			13			2,435			(1,686	)		—			(144	)		(24,860	)		(24,242	)
Net loss																			(16,501	)		(16,501	)
Issuance of stock options to employees							5,510			(5,510	)											—
Issuance of PartsVoice warrants							381															381
Proceeds from initial public offering, net	4,500,000			45			44,731															44,776
Sale of common stock	454,545			5			4,995															5,000
Conversion of preferred shares	9,666,402			97			34,635															34,732
Amortization of deferred compensation										2,806												2,806
Forfeitures of employee stock options							(1,354	)		1,354												—
Issuance of warrant shares	35,108																					—
Proceeds from exercise of stock options	855,478			9			151															160
Accretion of mandatorily redeemable convertible preferred stock							(17	)														(17	)
Dividends on mandatorily redeemable convertible preferred stock							(1,510	)														(1,510	)
Balances at December 31, 1999	16,855,431		$	169		$	89,957		$	(3,036	)	$	—		$	(144	)	$	(41,361	)	$	45,585
Net loss																			(25,344	)		(25,344	)
Issuance of stock related to operating agreements	516,684			5			4,097						(2,859	)								1,243
Issuance of stock related to acquisition of IntegraLink	85,000			1			1,869															1,870
Issuance of warrants related to operating agreements							13,053			(1,349	)		(11,704	)								—
Amortization of deferred equity expenses and subscriptions										885			1,612									2,497
Issuance of warrants related to put option							3,521															3,521
Proceeds from exercise of put option	2,210,830			22			11,457															11,479
Employee stock purchase plan	70,683						455															455
Proceeds from exercise of stock options	401,748			4			510															514
Acceleration of stock options							435															435
Forfeitures of employee stock options							(1,333	)		1,333												—
Balances at December 31, 2000	20,140,376		$	201		$	124,021		$	(2,167	)	$	(12,951	)	$	(144	)	$	(66,705	)	$	42,255

See accompanying notes to consolidated financial statements.

34

The Cobalt Group, Inc.

Consolidated Statements of Cash Flows

(in thousands)

			Fiscal year ended December 31,
			2000			1999			1998
Cash Flows from Operating Activities
	Net income (loss)		$	(25,344	)	$	(16,501	)	$	(5,105	)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Amortization of deferred equity expenses			993			2,806			806
	Depreciation and amortization			8,905			4,988			614
	Intangible asset impairment charge			9,742			—			—
	Gain on sale of YachtWorld			(8,658	)		—			—
	Common stock repurchase premium			—			—			1,384
	Net (gain) loss on disposition of assets			87			7			(1,617	)
	Changes in:
		Accounts receivable		(3,337	)		(3,331	)		(791	)
		Other assets		748			(3,120	)		(109	)
		Accounts payable and accrued liabilities		4,240			2,573			612
		Deferred revenues		3,775			1,166			393
		Net cash used in operating activities		(8,849	)		(11,412	)		(3,813	)
Cash Flows from Investing Activities
	Acquisition of capital assets			(11,148	)		(1,885	)		(472	)
	Proceeds from sale of fixed assets			24			—			5
	Investment in PartsVoice			—			(3,281	)		—
	Investment in IntegraLink			(1,614	)		—			—
	Short term investments			—			983			(983	)
	Proceeds from sale of HomeScout			—			—			1,626
	Proceeds from sale of YachtWorld			8,886			—			—
		Net cash provided by (used in) investing activities		(3,852	)		(4,183	)		176
Cash Flows from Financing Activities
	Proceeds from initial public offering and direct sale, net of costs			—			49,776			—
	Proceeds from sale of common stock			15,000			—			—
	Proceeds from sale of preferred stock			—			100			29,193
	Proceeds from exercise of stock options			514			160			27
	Proceeds from employee stock purchase plan			455			—			—
	Proceeds from lease financing transactions			1,170			—			—
	Repurchase of common stock and mandatorily redeemable convertible preferred stock			—			—			(19,227	)
	Payment of DealerNet acquisition liability			—			—			(500	)
	Payment of equity subscriptions			524
	Payment of dividends on preferred stock			—			(2,059	)		—
	Payment of notes payable			—			(26,600	)		(1,200	)
	Proceeds from notes payable			—			3,600			1,000
	Payment of capital lease obligations and software financing contract			(2,609	)		(914	)		(141	)
	Net cash provided by financing activities			15,054			24,063			9,152
Net Change In Cash				2,353			8,468			5,515
Cash, Beginning of Period				14,224			5,756			241
Cash, End of Period			$	16,577		$	14,224		$	5,756

See accompanying notes to consolidated financial statements.

35

The Cobalt Group, Inc.
Notes to Consolidated Financial Statements

1.  The Company and Its Significant Accounting Policies

Nature of the Business

    The Cobalt Group, Inc. (the "Company") is a provider of e-business services to automotive dealers and manufacturers in North America. The Company's current service offerings include: comprehensive Internet applications and professional services; data extraction, aggregation and management services; and other services such as dealer training, placement of advertisements and an online wholesale vehicle exchange.

    Prior to January 2000, the Company owned and operated YachtWorld.com, a marine Web site, which contained photo listings of yachts for sale, as well as other marine-related information. On January 25, 2000 the Company sold the assets related to YachtWorld.com.

    The Company has experienced significant net operating losses from inception. In fiscal year 2000, the Company incurred operating losses of $32.6 million and used $8.8 million of cash in its operating activities. The Company expects that operating losses and negative cash flows will continue at least through fiscal year 2001 as the Company continues to develop its product offerings and customer base. The Company expects that its cash and cash equivalents, the credit facility obtained in March 2001 together with funds from operations will be sufficient to fund operations through December 31, 2001. If the Company fails to develop revenues from sales of new products and to expand its customer base to generate adequate funding from operations, it will be required to reduce its operating expenses and/or seek additional debt or equity financing. Such financing may not be available on acceptable terms or at all.

Principles of Consolidation

    The Company's consolidated financial statements include the assets, liabilities and results of operations of majority-owned subsidiaries. Under the Company's agreement with General Electric Capital Auto Financial Services ("GE Capital") to operate MotorPlace Auto Exchange, revenues and expenses are shared equally therefore, the financial statements include the Company's share of all income statement items, while all assets and liabilities are consolidated at 100%. The agreement with GE Capital specifies that the Company wholly owns the assets and liabilities of MotorPlace Auto Exchange. The Company anticipates the agreement with GE Capital will dissolve effective during the first quarter of 2001. At that juncture, the Company will begin consolidating 100% of revenues and expenses, as well as assets and liabilities. All significant intercompany accounts and transactions have been eliminated.

Use of estimates

    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

    Due to technology investments of approximately $2.0 million which the Company anticipates will be made prior to December 31, 2001 in order to maintain the current parts locator revenue stream, the Company changed the remaining estimated life of the technology associated with the purchase of PartsVoice from 40 months to 12 months.

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Cash and cash equivalents

    The Company considers all short-term highly liquid instruments purchased within three months of their maturity date to be cash equivalents. The Company maintains its cash accounts with four financial institutions that are insured by the Federal Deposit Insurance Corporation up to $100,000.

Fair value of financial instruments

    The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, notes payable and deferred revenue. The carrying amounts of financial instruments approximate fair value due to their short maturities.

Concentration of credit risk

    Financial instruments that potentially subject the Company to concentrations of credit risk are primarily accounts receivable and cash equivalents. Substantially all of the Company's clients are in the automotive industry. The Company does not require collateral from its clients. Individual dealer balances are generally small and clients are required to pay for Web site service in advance. However, manufacturer client balances may be substantial and the Company does not require prepayment from these clients. DaimlerChrysler, including Mercedes-Benz, accounted for 31% and 19% of trade accounts receivable before allowances as of December 31, 2000 and 1999, respectively and 20% and 16% of revenues for the year ended December 31, 2000 and 1999, respectively. No other customer accounted for more than 10% of accounts receivable as of December 31, 2000 or 1999 or 10% of revenues for the years ended December 31, 2000 and 1999. No individual client accounted for more than 10% of accounts receivable as of December 31, 1998, or 10% of revenues for the year ended December 31, 1998. The Company maintains an allowance for doubtful accounts receivable based upon its historical experience and the expected collectibility of accounts receivable. Credit losses to date have been within the Company's estimates. The Company has a cash investment policy, which restricts investments to ensure preservation of principal and maintenance of liquidity.

Revenue recognition

    The Company derives its revenues from fees charged to its automotive, dealer and manufacturer clients for Internet applications and professional services, data extraction and aggregation services and other services such as dealer training and placement of advertisements. Internet applications and professional services, and data extraction and aggregation service revenue is recognized ratably over the service period. Revenue on initial design and construction fees and professional services projects was previously recognized at the time of Web site activation. After the application of Staff Accounting Bulletin No. 101 ("SAB 101") in January 2000, the Company recognizes set-up fees for Internet applications and professional services over the estimated life of the customer or project. The Company's obligations for Internet advertising services typically include guarantees of minimum number of "impressions," or times that an advertisement is viewed. To the extent minimum guaranteed impressions are not met, the Company defers recognition of the corresponding revenues until the remaining guaranteed impression levels are achieved.

    The majority of the Company's services are sold to clients under short-term service agreements with an initial term of three to twelve months and month-to-month thereafter. Revenues are recognized net of promotional discounts. Revenue is not recognized until the end of any applicable free trial period and until the client has agreed to continue services. Prepayments received for sites not yet activated and services not yet provided are reported as deferred revenue.

    Amounts billed are reduced by amounts relating to the fair value of warrants and common stock issued in connection with the agreement with DaimlerChrysler Corporation. The fair value of the warrants and common stock of $14.6 million is being amortized ratably with revenues over the initial

37

term of the agreement, which expires December 31, 2002 as amounts are billed under the contract. Amounts billed to DaimlerChrysler are reduced by this amortization to arrive at revenues. In the year ended December 31, 2000, the Company recognized $842,000 less in revenues than amounts billed. The remaining amount to be amortized is $13.7 million at December 31, 2000.

Cost of revenues

    The Company's cost of revenues consists of production, maintenance and delivery costs associated with the Company's services. These costs include production and design personnel costs, communication expenses related to data transfer, fees payable to third parties for distribution of vehicle inventory data to other Web sites, banner advertising purchased from third party Web sites and resold to clients and site content licensing fees. These costs also include software and hardware costs to host and serve data.

Product development

    Product development costs represent research and development expenses, which are charged to operations as incurred, unless they are capitalized as software or Web site development costs under the American Institute of Certified Public Accountants Statement of Position 98-1("SOP 98-1") or Emerging Issues Task Force Issues Summary 00-02, "Accounting for Web Site Development Costs" ("EITF 00-02").

Capital assets

    Capital assets consist of computer equipment, furniture and other equipment, purchased software and leasehold improvements, which are stated at historical cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is shorter. The useful lives of capital assets range from three to five years. Maintenance and repairs, which neither materially add to the value of an asset nor prolong its life, are charged to expense as incurred.

Internally developed software

    In the second quarter of 2000, the Company commenced a project to make significant investments in internally developed software related to the development of its core Web site technology platform. Portions of these costs are being capitalized in accordance with SOP 98-1. SOP 98-1 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 research and definition of project parameters, as well as the transfer of data to new software are not capitalized and are expensed as incurred. We anticipate the capitalized portion of the project will be amortized over a three-year period, beginning in the second quarter of 2001.

Web site development costs

    Costs incurred in developing the Company's Web sites are accounted for in accordance with EITF 00-02. As such, the Company expenses all costs incurred that relate to the planning and post implementation phases of development. Costs incurred in the development phase are capitalized and recognized over the Web site's estimated useful life if the Web site is expected to have a useful life beyond one year. Costs capitalized are included in fixed assets and are amortized over three years. Costs associated with repair or maintenance of existing sites or the development of Web site content are expensed as incurred.

38

Impairment of long-lived assets

    The Company periodically evaluates the carrying value of long-lived assets to be held and used, including but not limited to, capital assets and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.

Advertising costs

    Advertising costs include costs of print and Internet banner advertising. The Company expenses advertising costs when the advertising takes place. Advertising costs for the years ended December 31, 2000, 1999 and 1998 were $984,000, $985,000, and $276,000, respectively.

Stock-based compensation

    The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force, Issue 96-18.

Income taxes

    The Company provides for income taxes using the liability method. This method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and for tax loss and credit carryforwards. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded.

Net loss per share and unaudited pro forma net loss per share

    Basic net loss per share represents net loss available to common shareholders divided by the weighted-average number of shares outstanding during the period. Diluted net loss per share represents net loss available to common shareholders divided by the weighted-average number of shares outstanding including the potentially dilutive impact of common stock options and warrants. Basic and diluted net loss per share are equal for the periods presented because the impact of potential common stock equivalents is anti-dilutive. Potentially dilutive securities totaling 7,164,126, 1,273,082, and 11,259,342 shares for the years ended December 31, 2000, 1999, and 1998, respectively, were excluded from diluted net loss per share due to their anti-dilutive effect. Common stock options and warrants are converted using the treasury stock method. Mandatorily redeemable convertible preferred stock is converted using the if-converted method.

    In accordance with Emerging Issues Task Force Topic D-53, the Company's 1998 net loss available to common shareholders is increased by $8,262,000 which represents the excess of the fair value over the carrying value of Series A preferred shares which were repurchased by the Company during October 1998.

    Unaudited pro forma net loss per share is computed based on retroactive application of SAB 101 to January 1, 1997.

39

    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:

		2000			1999			1998
		(in thousands, except share amounts)
Numerator:
	Net loss	$	(25,344	)	$	(16,501	)	$	(5,105	)
	Dividends on mandatorily redeemable convertible preferred stock		—			(1,510	)		(549	)
	Excess consideration for redemption of Series A mandatorily redeemable convertible preferred stock		—			—			(8,262	)
	Accretion of mandatorily redeemable convertible preferred stock		—			(17	)		(14	)
Net loss available to common shareholders			(25,344	)		(18,028	)	$	(13,930	)
	Effect of change in accounting principle		2,164			(1,367	)		(656	)
	Pro forma net loss available to common shareholders	$	(23,180	)	$	(19,395	)	$	(14,586	)
Denominator:
	Basic and diluted weighted-average shares outstanding		17,926,335			7,971,443			2,938,460

Segment Information

    Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services, and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions about how to allocate resources and assess performance. The Company's chief decision maker, as defined under SFAS No. 131, is the Chief Executive Officer.

    During the 2001 budget preparation process, the Company began to report information for separate business units to the chief decision maker. As a result of this and other changes in management structure and focus, the Company will begin presenting segment reporting as established in SFAS No. 131 for the quarter ending March 31, 2001. The anticipated reportable segments are as follows:

Internet applications and professional services

    The Company's core businesses are Internet applications and professional services, which consist primarily of pre-packaged Web site designs for dealerships and manufacturers and the customization of these Web sites. The professional services organization supports the Internet application group with custom design and development of customer Web sites on a project basis.

Data extraction and aggregation services

    The Company's data extraction and aggregation services extract data from automotive dealer computer systems, aggregate the data and distribute the data for a variety of purposes, including analysis of vehicle sales and parts location for customers. These services consist of IntegraLink data collection services and PartsVoice business-to-business services.

40

New accounting pronouncements

    In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133") establishing accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company adopted SFAS No. 133 for quarter ending March 31, 2000. The Company has not engaged in significant hedging activities or invested in derivative instruments and does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations.

    In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"). SFAS No. 140 replaces Statement of Financial Accounting Standards No. 125, revising the standards governing the accounting for securitizations and other transfers of financial assets and collateral. Adoption of SFAS No. 140 is required for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. The Company is currently evaluating the impact of SFAS No. 140, if any, on current accounting policies regarding the service of assets and extinguishment of liabilities.

2.  Cumulative Effect of Change in Accounting Principle

    In the fourth quarter of 2000, the Company implemented SAB 101 retroactive to January 1, 2000. Previously, the Company recognized revenue on initial set-up fees and custom projects at the time of activation. After adoption of SAB 101, the Company recognizes set-up fees for Internet applications ratably over the estimated customer life of three years and fees for professional services projects over the estimated project life of two years. The cumulative effect of the change in accounting principle resulted in an increase to net loss of $2.2 million. The effect of the change on the year ended December 31, 2000 was to decrease net loss by $2.5 million. The pro forma amounts presented in the income statement were calculated assuming the accounting change was made retroactively to prior periods. For the year ended December 31, 2000, the Company recognized $1.3 million in revenue that was included in the cumulative effect adjustment on January 1, 2000.

41

    The following table illustrates the effect of the change in accounting principle, by quarter, for the year ended December 31, 2000.

			(In thousands, except per share data)
			First Quarter Ended 31-Mar-00					Second Quarter Ended 30-Jun-00						Third Quarter Ended 30-Sep-00						Fourth Quarter Ended 12/31/00
			As Previously Reported		As Restated			As Previously Reported			As Restated			As Previously Reported			As Restated
Revenue			$	9,284	$	8,914		$	10,974		$	10,195		$	11,104		$	10,776		$	11,596
Gross profit				7,509		7,139			8,782			8,003			8,987			8,659			9,397
Income (loss) before cumulative effect of change in accounting principle				3,027		2,659			(4,686	)		(5,465	)		(13,990	)		(14,317	)		(6,057	)
Cumulative effect of change in accounting principle				0		(2,164	)		0			0			0			0			0
Net income (loss)				3,027		495			(4,686	)		(5,465	)		(13,990	)		(14,317	)		(6,057	)
Amounts per common share:
	Income (loss) before cumulative effect of change in accounting principle(1)			0.18		0.16			(0.27	)		(0.31	)		(0.79	)		(0.81	)		(0.31	)
	Cumulative effect of change in accounting principle(1)			—		(0.13	)		—			—			—			—			—
		Net income (loss)	$	0.18	$	0.03		$	(0.27	)	$	(0.31	)	$	(0.79	)	$	(0.81	)	$	(0.31	)

(1)

For the three months ended March 31, 2000 diluted net income per share before the cumulative effect of the change in accounting principle was $0.14 as restated compared to previously reported at $0.16.

    SAB 101 also provides for the deferral of any separately identifiable expenses associated with revenues deferred in accordance with SAB 101. The Company has not specifically identified any expenses related to these deferred revenues and has not, therefore, deferred any related expenses.

3.  Acquisition of IntegraLink

    On January 14, 2000 the Company acquired IntegraLink Corporation, whose principal business is automotive 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 $125,000.

    The Company accounted for the IntegraLink acquisition using the purchase method of accounting. The aggregate purchase price of $3.7 million, including acquisition costs, was allocated to the net assets acquired of $11,000, based on their respective fair market values. The excess of the purchase price of $3.7 million 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

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    The historical operations of IntegraLink are not material to the Company's financial position or results of operations and, therefore, consolidated pro forma financial consolidated statements have not been presented.

4.  Sale of YachtWorld.com

    In January 2000, the Company sold the assets of its YachtWorld.com operation to Boats.com, Inc. The assets were sold for cash proceeds of $3.5 million and a promissory note in the amount of $10.5 million. The Company also received warrants to purchase 473,455 shares of Boats.com common stock. No value was attributed to the warrants. The total expected gain on the sale of YachtWorld.com was $13.5 million. However, due to the risk associated with collection of the sales proceeds, the Company recognizes the gain associated with the sale of YachtWorld.com as payments are received.

    The first note installment of $3.5 million was paid on March 27, 2000. A second payment, in the amount of $2.5 million, was received on September 29, 2000. As of December 31, 2000 the Company had recognized a gain on the sale of YachtWorld.com of $8.7 million, which represents the cash paid, net of transaction expenses. On September 29, 2000 the Company and Boats.com entered into a note modification agreement. Under the note modification agreement, the $4.8 million balance of the note receivable was re-negotiated to extend the final payment date to March 31, 2001, from December 31, 2000 and the interest rate was increased to 12.0% per annum. The Company received additional consideration, including a re-pricing of the Boats.com warrants and additional anti-dilution provisions. Boats.com also agreed to the imposition of affirmative and negative covenants relating to actions that Boats.com may take with regard to the YachtWorld.com assets.

5.  Acquisition of PartsVoice

    On April 30, 1999, the Company acquired all of the equity interests in PartsVoice, LLC whose principle business is vehicle parts data acquisition and management services. 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 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 PartsVoice 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 as follows:

	Useful Lives	Intangible Asset
	(years)	(in thousands)
Goodwill	6	$	13,247
Customer Lists	6		13,800
Existing Technology	5		1,100
Name	6		1,200
Workforce	5		1,200
		$	30,547

    The following summarizes the unaudited pro forma results of operations for the years ended December 31, 1999, and 1998 on a combined basis, as if the Company's acquisition of PartsVoice occurred at the beginning of each of the periods presented, after including the impact of certain

43

adjustments, such as amortization of goodwill, intangible asset impairment charge and interest on acquisition indebtedness:

	Years ended December 31,
	1999			1998
	(in thousands, except per share amounts) (unaudited)
Net revenues	$	26,721		$	15,773
Net loss		(17,212	)		(7,592	)
Basic and diluted net loss per share	$	(2.35	)	$	(5.67	)

    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.

    At the time of acquisition, the Company anticipated significant revenue growth from PartsVoice. However, higher than projected client attrition rates and weaker than anticipated new sales resulted in a net decrease in subscribers and a net decrease in revenues for the three months ended September 30, 2000 as compared to the three months ended June 30, 2000. In addition, the Company anticipates the need to make technology investments in excess of $2.0 million prior to December 31, 2001 in order to maintain the current revenue stream.

    Due to these business changes, the Company evaluated the carrying amounts of the intangible assets related to PartsVoice and determined that based on the gross expected cash flows from the PartsVoice operations, the intangible assets were impaired. In the quarter ended September 30, 2000, the Company recognized an impairment charge of $9.7 million related to the long-lived assets of PartsVoice. In computing the impairment charge, the Company assumed average annual revenue growth of 3.5%, an average expense growth of 8%, investment in technology as well as ongoing capital acquisition costs, a tax rate commensurate with the subsidiary's profitability, a terminal value at the end of a five-year period and a discount rate of 16.5%. This charge was allocated entirely to goodwill as required by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").

6.  Agreement with GE Capital to operate MotorPlace Auto Exchange

    On August 18, 2000, the Company entered into an agreement with GE Capital to develop and operate MotorPlace Auto Exchange, an Internet-based wholesale automobile listing and purchasing system for use by automobile dealers and lessors. In conjunction with the agreement, the Company purchased a software license from GE Capital in exchange for 258,520 shares of the Company's common stock valued at $4.81 per share, resulting in an aggregate purchase price of $1.2 million. The purchase price for the software license will be amortized on a straight-line basis to cost of revenues over the three-year term of the license.

    Consideration for the agreement included 400,000 warrants to purchase the Company's common stock at an exercise price of $6.50 per share as incentive for GE Capital to enter into the agreement with the Company. The warrants were valued at $1.3 million using the Black-Scholes option-pricing model with the following assumptions: fair value of common stock of $4.81 per share, expected life of five and one third years, risk free interest rate of 6.11%, volatility of 93% and dividend yield of 0%. The value of these warrants will be amortized on a straight-line basis to cost of revenues over the life of the agreement, which expires December 31, 2005.

    The agreement between GE Capital and the Company specifies that revenues and expenses will be shared between GE Capital and the Company. These revenues and expenses are shared on a cash basis and settled monthly between the parties. In accordance with the agreement, the percentage of revenues

44

and expenses shared by the parties may be changed on a semi-annual basis. However, the Company anticipates termination of the agreement with GE Capital effective in the first quarter of 2001. At the time of termination, the Company will be responsible for all expenses, as well as assets and liabilities and the Company will recognize all revenues from MotorPlace Auto Exchange. As a result of termination, the Company will expense all unamortized warrant charges related to this agreement, which currently total approximately $1.2 million.

7.  DaimlerChrysler Services 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 amounts 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.

    The value of the common stock and warrants issued in connection with the DaimlerChrysler agreement totals $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. 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.

    The proceeds for the shares and warrants will be received over the three-year term of the DaimlerChrysler agreement as the Company receives payments for services rendered under the agreement. The proceeds for the shares and warrants are presented as deferred equity subscriptions. The fair value of the warrants and common stock of $14.6 million is being amortized over the initial term of the agreement, which expires December 31, 2002. Amounts billed to DaimlerChrysler are reduced by this amortization to arrive at revenues. In the year ended December 31, 2000, the Company recognized $842,000 less in revenues than amounts billed. The remaining amount to be amortized is $13.7 million at December 31, 2000.

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8.  Capital Assets

    A summary of capital assets follows:

	December 31,
	2000			1999
	(in thousands)
Computer equipment	$	8,306		$	3,840
Furniture and other equipment		1,703			874
Software		8,293			1,421
Leasehold improvements		639			208
		18,941			6,343
Less: Accumulated depreciation and amortization		(4,685	)		(1,707	)
	$	14,256		$	4,636

    Equipment held under capital leases is included in capital assets. The cost of the leased equipment is $2.9 million, $2.9 million and $1.1 million at December 31, 2000, 1999 and 1998, respectively. The accumulated amortization for these items is $1.5 million, $857,000 and $173,000 at December 31, 2000, 1999 and 1998, respectively.

9.  Intangible assets

    A summary of intangible assets follows:

		December 31,
	Useful lives
		2000			1999
	(years)	(in thousands)
Goodwill	4-6	$	4,129		$	13,247
Trademarks/trade name	6		1,200			1,200
Customer lists	3-6		14,990			14,600
Existing technology	2.5-5		3,159			1,100
Workforce	3-5		1,859			1,200
		$	25,337			31,347
Less: Accumulated amortization		$	(9,768	)		(4,017	)
		$	15,569		$	27,330

    These assets are amortized using the straight-line method over their respective estimated useful lives. Beginning in the fourth quarter of 2000, the Company undertook a project to significantly upgrade the PartsVoice technology infrastructure, thereby reducing the useful life of existing technology purchased in the acquisition of PartsVoice. In December 2000, the Company changed the estimated remaining useful life of the technology related to PartsVoice assets from 40 months to 12 months.

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10. Accrued Liabilities

    A summary of accrued liabilities follows:

	December 31,
	2000		1999
	(in thousands)
Accrued payroll and related benefits	$	1,692	$	1,183
Accrued professional fees		65		—
Accrued taxes payable		87		141
Other		343		196
	$	2,187	$	1,520

11. Income Taxes

    From inception through February 28, 1997 the Company was organized as an S corporation for income tax reporting purposes and, as such, the tax effects were passed directly to the shareholders. Effective February 28, 1997, the Company became a C corporation. No current provision for income taxes has been recorded for the years ended December 31, 1999 or 1998, due to losses incurred during the periods. A valuation allowance has been recorded for deferred tax assets because the available objective evidence creates sufficient uncertainty regarding the ability to realize the deferred tax asset.

    For the periods in which the Company was a C corporation, a reconciliation of taxes on income at the federal statutory rate to actual tax expense is as follows:

	December 31,
	2000			1999			1998
	(in thousands)
Tax benefit at statutory rate	$	(8,617	)	$	(5,610	)	$	(1,736	)
Nondeductible items		233			—			564
Loss attributed to S corporation		—			—			—
Change in valuation allowance		8,374			5,529			1,249
Other		10			81			(77	)
	$	—		$	—		$	—

    Temporary differences that give rise to the Company's deferred tax assets and liabilities comprise the following:

	December 31,
	2000			1999			1998
	(in thousands)
Net operating loss carry-forwards	$	15,057		$	5,988		$	1,672
Depreciation and amortization		482			773			77
Compensation expense related to stock options		(564	)		629			336
Allowance for doubtful accounts		321			169			29
Accrued liabilities		193			121			37
Deferred revenue		565			—			—
Valuation allowance		(16,054	)		(7,680	)		(2,151	)
	$	—		$	—		$	—

    At December 31, 2000, the Company had net operating loss carry-forwards of approximately $44 million, which will expire beginning in the year 2010, if not previously utilized. Should certain

47

changes in the Company's ownership occur, there could be a limitation on the utilization of its net operating losses. The Company has determined that such a change occurred in October 1998 and the utilization of loss carryforwards generated through that period will be limited.

12. Equity Transactions

Initial public offering

    On August 10, 1999, the Company completed an initial public offering in which proceeds, net of underwriting discounts, commissions and expenses, of approximately $44.8 million were raised. An additional $5.0 million was raised in a direct sale of 454,545 shares of common stock to General Electric Capital Assurance Company. A portion of the proceeds was used to retire notes payable of $26.6 million and pay all accumulated dividends of $2.1 million on mandatorily redeemable convertible preferred stock.

    Upon completion of the initial public offering, all outstanding shares of the Company's mandatorily redeemable convertible preferred stock were converted to shares of common stock. One share of common stock was exchanged for each share of preferred stock, resulting in an increase in shareholder equity of $34.7 million.

Securities purchase agreement

    On June 26, 2000, the Company entered into a securities purchase agreement with private investors affiliated with Warburg, Pincus & Co., LLC, First Analysis Corporation and Third Point Management, LLC. The agreement provided the Company an option to sell an aggregate of 2,187,289 shares of common stock at a per share price of $6.86 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 its common stock at an exercise price of $6.86 per share. The warrants are fully vested and expire on June 26, 2005. The Company exercised this option on October 31, 2000, receiving $15.0 million in cash, net of expenses.

Stock repurchase

    On October 7, 1998, the Company used a portion of the proceeds from the issuance of the Series B preferred stock to repurchase and retire 2,173,206 shares of common stock and 2,404,652 shares of Series A preferred stock at $4.20 per share. The number of shares redeemed was sufficient to provide the Series B investor with a 62% ownership position, on a fully diluted basis, as of the investment date. The repurchase price of both the Series A preferred stock and common stock was in excess of the $3.99 and $3.78, respectively, per share fair values of the stock at the date of repurchase. In accordance with Emerging Issues Task Force Topic D-53, the Company recognized expense of $505,000, which represents the excess of the repurchase price over the fair value of the repurchased preferred shares. In accordance with FASB Technical Bulletin 85-6, the Company recognized expense of $879,000, which represents the excess of the repurchase price over the fair value of all common shares repurchased, with the exception of 76,382 repurchased shares which resulted from employee stock option exercises immediately preceding the repurchase. For these shares, $274,000 in expense was recognized for the excess of the repurchase price over the employees' cost basis in the shares.

Warrants

    On April 30, 1999, the Company issued warrants in connection with the acquisition of PartsVoice. See Note 2. On May 1, 2000, the Company issued warrants in connection with the DaimlerChrysler service agreement. See Note 6. On August 18, 2000, the Company issued warrants in connection with the MotorPlace Auto Exchange agreement. See Note 5. On June 26, 2000, the Company issued affiliates of Warburg, Pincus & Co, LLC, First Analysis Corporation and Third Point Management,

48

LLC warrants to purchase a total of 693,984 shares of common stock at an exercise price of $6.8578 per share. The warrants expire on June 26, 2005. The Black-Scholes value of the warrants was approximately $3.5 million

13. Stock Purchase and Option Plans

Stock purchase plan

    The Company's Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan") on August 12, 1999 under which 300,000 shares have been reserved for issuance. Under the Purchase Plan, eligible employees may purchase common stock in an amount not to exceed 15% of the employees' cash compensation. The purchase price per share will be 85% of the common stock fair value at the lower of certain plan-defined dates. Pursuant to the Purchase Plan, 70,683 shares were issued at a weighted average price of $6.43 per share for the year ended December 31, 2000, and no shares were issued for the years ended December 31, 1999 and December 31, 1998.

Stock option plans

    The Company has two stock option plans, each of which allows The Company to grant options to purchase its common stock to employees, directors, consultants and independent contractors. The Company has reserved for issuance under the 1995 Stock Option Plan 4,501,000 shares of its common stock. The Company has reserved 1,500,000 shares of common stock for issuance under the 2000 Stock Incentive Plan, subject to shareholder approval. Pursuant to the stock option plans, the Board of Directors has granted nonqualified stock options and incentive stock options. The vesting period, exercise price and expiration period of options are established at the discretion of the Board of Directors. While some options were vested when granted, options generally vest over a four-year period and expire ten years from the date of grant.

    The Company uses the intrinsic value method of accounting for its employee stock-based compensation plans. Accordingly, no compensation cost is recognized for any of its stock options when the exercise price of the option equals or exceeds the fair value of the underlying common stock as of the grant date. With respect to the stock options granted since inception through July 1999, the Company has recorded deferred stock-based compensation of $8.4 million for the difference between the exercise price and the fair value of the common stock. This amount is being amortized, in accordance with FASB Interpretation No. 28, over the vesting period of the options. Compensation expense relating to these grants of $641,000, $2,749,000, and $532,000 was amortized in 2000, 1999 and 1998, respectively. In addition, in 2000 the company recognized $138,000 in stock-based compensation expense related to the acceleration of vesting of certain employee stock options.

Stock option plan—grants to non-employees

    During the years ended December 31, 2000, 1999 and 1998 0, 45,500 and 0 options, respectively, were granted to third parties, excluding directors, under the Company's 1995 stock option plan. Compensation expense relating to these grants of $130,000, $57,000 and $0 was recognized in 2000, 1999 and 1998, respectively. The fair value of the options granted in 1999 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: exercise prices of $1.85 to $7.20, fair value of $6.00 to $9.24, expected lives of three to six months, weighted average risk free interest rate of 5.59%, volatility of 90% and dividend yield of 0%.

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Stock option plan activity and summary

    The following table summarizes the activity under the stock option plans:

		Year ended December 31,
		2000
							1999						1998
						Weighted- average FMV of options granted
		Shares		Weighted- average exercise price			Shares		Weighted- average exercise price		Weighted- average FMV of options granted		Shares		Weighted- average exercise price		Weighted- average FMV of options granted
Outstanding at beginning of period		2,327,875		$	2.71		2,043,940		$	0.39			1,647,754		$	0.20
	Granted	3,154,973			6.28		1,496,628			4.28			655,100			0.80
	Exercised	(401,748	)		1.28		(855,478	)		0.19			(110,507	)		0.27
	Forfeited	(625,281	)		4.82		(357,215	)		2.04			(148,407	)		0.37
Outstanding at end of period		4,455,819			5.07		2,327,875		$	2.71			2,043,940		$	0.39
Exercisable at the end of period		926,222			2.34		789,261		$	1.04			1,115,651		$	0.16
Options granted during the period at market		3,154,973		$	6.28	6.28	301,600		$	8.97	$	8.97	—		$	—	$	—
Options granted during the period at less than market		—		$	—	—	1,195,028		$	3.09	$	8.18	655,100		$	0.80	$	3.02

    At December 31, 2000, 245,809 shares remained reserved and available for grant under the stock option plans.

    The following table summarizes the information about stock options outstanding as of December 31, 2000:

	Outstanding
					Exercisable
		Weighted- average remaining contractual life (years)
Range of exercise prices	Number of shares		Weighted- average exercise price		Number of shares	Weighted- average exercise price
$0.10-0.75	553,057	6.68	$	0.41	455,520	$	0.35
1.85-1.88	706,437	8.62		1.86	314,621		1.85
2.56-3.69	1,563,023	9.83		2.72	—		—
4.13-6.56	338,590	9.52		5.58	17,035		6.00
7.20-8.00	201,938	8.58		7.27	81,761		7.27
10.38-11.44	686,805	9.25		10.58	40,754		10.71
13.88-19.50	405,969	9.17		15.20	16,531		17.98
	4,455,819	9.01	$	5.07	926,222	$	2.34

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Fair value disclosures

    Had the Company determined compensation expense based on the fair value of the option at the grant date for its stock options issued to employees in accordance with SFAS No. 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below:

		Years ended December 31,
		2000			1999			1998
		(in thousands except per share amounts)
Net loss
	As reported	$	(25,344	)	$	(16,501	)	$	(5,105	)
	Pro forma		(32,006	)		(16,758	)		(5,649	)
Basic and diluted net loss per share
	As reported	$	(1.41	)	$	(2.26	)	$	(4.74	)
	Pro forma		(1.79	)		(2.30	)		(4.93	)

    For all grants that were granted prior to the Company's initial public offering in August 1999, the fair value of these options was determined using the minimum value method, which assumes no volatility except for non-employees. The fair value for the options granted subsequent to the Company's initial public offering was estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for employee stock option grants in 2000, 1999 and 1998: risk free interest rate at grant date of 5.98%, 5.48% and 5.11%, respectively, no dividends, volatility of 103% in 2000, 118% subsequent to the company's initial public offering in 1999, no volatility from January to July in 1999,or 1998 and expected lives of five years in each year.

    Pro forma net loss amounts reported above reflect only options granted in 1995 through December 31, 2000. The full impact of calculating compensation expense for stock options based on fair value at the grant date is not reflected in the pro forma net loss amounts because compensation expense is reflected over the options' vesting period of four years.

14. Retirement Savings Plan

    On August 1, 1997, the Company established a retirement savings plan that qualifies under Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan covers all qualified employees. Contributions to this plan by the Company are made at the discretion of the Board of Directors. The Company has not contributed to the plan.

15. Lease Commitments

    The Company leases office space for its corporate headquarters in Seattle, Washington, under a lease that expires on December 31, 2005. The lease includes an option to extend the lease for two additional five-year terms. The Company also leases office space in Portland, Oregon, Troy, Michigan, Columbus, Ohio and Austin, Texas.

    The Company leases various equipment under master capital lease agreements with one of its shareholders. The leases expire at various dates between 2001 and 2005.

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    Future minimum lease payments at December 31, 2000 for these leases are as follows:

		Operating		Capital
		(in thousands)
Years ending December 31,
	2001	$	2,083	$	1,029
	2002		2,149		333
	2003		2,183		22
	2004		2,265		21
	2005		2,302		3
	Thereafter		121		—
	Total minimum lease payments	$	11,103		1,408
	Less: Portion representing interest				(239	)
	Present value of capital lease obligations				1,169
	Less: Current portion				(900	)
	Capital lease obligations, non-current portion			$	269

    The Company records operating lease expense using the straight-line method. Rental expense under operating leases was approximately $2.0 million, $883,000, and $349,000 for the years ended December 31, 2000, 1999, and 1998, respectively.

16. Supplemental Disclosures of Cash Flow Information

    Cash paid for interest during 2000, 1999 and 1998 was $411,000, $993,000, and $93,000, respectively.

    Changes in accounts receivable include $1.1 million in amortization of equity subscriptions in excess of payments received.

    The Company purchased capital assets under capital leases of $0, $2.5 million, and $959,000 during the years ended December 31, 2000, 1999 and 1998, respectively. During the year ended December 31, 2000, the Company purchased Oracle software licenses through non-cash financing in the amount of $600,000.

17. Sale of HomeScout

    On March 4, 1998 the Company sold substantially all of the assets related to its HomeScout operations to Homeshark, Inc. for $1,626,000. Revenues for HomeScout were $19,000 for the year ended December 31, 1998.

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18. Selected quarterly financial data

    The following table sets forth quarterly financial data for the years ended December 31, 1999 and 2000. The operating results for any given quarter are not indicative of results for any future period. Unaudited pro forma net loss per share is computed based on retroactive application of SAB 101 to January 1, 1997.

		Consolidated Statement of Operations (unaudited) (in thousands, except per share amounts)
		Three Months Ended
		Mar. 31, 1999			June 30, 1999			Sept. 30, 1999			Dec. 31, 1999			Mar. 31, 2000			June 30, 2000			Sept. 30, 2000			Dec. 31, 2000
Revenues			2,453			5,409			7,049			8,375			8,914			10,195			10,776			11,596
Gross profit			1,913			4,312			5,543			6,699			7,139			8,003			8,659			9,397
Loss from operations			(2,343	)		(3,342	)		(5,288	)		(5,020	)		(3,972	)		(5,705	)		(16,713	)		(6,172	)
	Net loss before cumulative effect of change in accounting principle		(2,335	)		(3,809	)		(5,527	)		(4,830	)		2,659			(5,465	)		(14,317	)		(6,057	)
	Cumulative effect of change in accounting principle		—			—			—			—			(2,164	)		—			—			—
	Net loss available to common shareholders		(2,926	)		(4,457	)		(5,830	)		(4,816	)		495			(5,465	)		(14,317	)		(6,057	)
	Basic and diluted net loss per share, before change in accounting principle(1)	$	(1.97	)	$	(2.32	)	$	(0.52	)	$	(0.29	)		0.16			(0.27	)		(0.79	)		(0.31	)
	Cumulative effect of change in accounting principle		—			—			—			—			(0.13	)		—			—			—
	Basic and diluted net loss per share	$	(1.97	)	$	(2.32	)	$	(0.52	)	$	(0.29	)	$	0.03		$	(0.27	)	$	(0.79	)	$	(0.31	)
	Weighted average shares outstanding(1)		1,488,681			1,920,262			11,286,321			16,850,441			17,082,768			17,430,769			17,777,662			19,406,069
	Pro forma net loss available to common shareholders		(3,098	)		(4,794	)		(6,137	)		(5,367	)		2,659			(5,465	)		(14,317	)		(6,057	)
	Pro forma basic and diluted net loss per share(1)		(2.08	)		(2.50	)		(0.54	)		(0.32	)		0.16			(0.31	)		(0.81	)		(0.31	)
	Pro forma weighted-average shares outstanding(1)		1,488,681			1,920,262			11,286,321			16,850,441			17,082,768			17,430,769			17,777,662			19,406,069

(1)

For the three months ended March 31, 2000 diluted weighted average shares outstanding were 18,587,055 on an actual and pro forma basis. Diluted net income per share before the cumulative effect of the change in accounting principle was $0.14. Diluted pro forma net income per share was also $0.14.

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    Changes in the presentation of revenue for 2000 are due to the reduction in amounts billed relating to the fair market value of warrants and common stock issued in connection with the agreement with DaimlerChrysler Corporation, as well as the implementation of SAB 101, retroactive to January 1, 2000. A reconciliation of previously reported 2000 revenues to currently stated revenue follows:

	Revenue Reconciliation (unaudited) (in thousands)
	Three months ended
	Mar. 31, 2000		June 30, 2000		Sept. 30, 2000		Dec. 31, 2000
Previously reported gross revenues	9,284		10,988		11,306		12,304
Amortization of stock	—		(14	)	(202	)	(708	)
Adjustment of stock amortization per SAB 101	—		—		84		—
SAB 101 adjustment	(370	)	(779	)	(412	)	—
Revenue	8,914		10,195		10,776		11,596

19. Subsequent Events

    Effective January 1, 2001, 860,000 shares of common stock were added to the 1995 Stock Option Plan. The addition of shares is part of an action approved by the shareholders at the Company's May 2000 annual meeting of shareholders, providing an "evergreen" increase in the number of shares reserved for issuance under the plan on the first day of each year to equal the lesser of 5% of the Company's outstanding shares of common stock or 860,000.

    On March 9, 2001 the Company executed a loan agreement with Silicon Valley Bank Commercial Finance Division. This line of credit gives the Company the ability to borrow up to $10 million against eligible accounts receivable balances, which are limited based on age and other factors within the agreement. The Company is also subject to a variety of covenants, including an obligation to maintain a minimum tangible net worth throughout the term of the agreement.

    In March 2001, the Company reached agreement in principle with GE Capital for termination of the MotorPlace Auto Exchange agreement. As a result of termination, all unamortized warrant charges, of approximately $1.2 million, will be written off.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information with respect to directors will be included under "Election of Directors" in our definitive proxy statement for our 2001 annual meeting of shareholders ("2001 Proxy Statement") to be filed not later than 120 days after the end of the fiscal year covered by this report and is incorporated by reference herein. Information with respect to our executive officers is included under Item 4A of Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

    Information with respect to executive compensation will be included under "Executive Compensation" in our 2001 Proxy Statement and is incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information with respect to security ownership of certain beneficial owners and management will be included under "Security Ownership of Certain Beneficial Owners and Management" in our 2001 Proxy Statement and is incorporated by reference herein.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information with respect to certain relationships and related transactions with management will be included under "Certain Transactions" in our 2001 Proxy Statement and is incorporated by reference herein.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are filed as part of this report:

1. Financial Statements

    See Item 8 of this Form 10-K.

2. Financial Statement Schedules

    The following financial statement schedule of Cobalt for each of the years ended December 31, 2000, 1999 and 1998 should be read in conjunction with the Consolidated Financial Statements, and related notes thereto, of Cobalt.

	PAGE NUMBER
Schedule II—Valuation and Qualifying Accounts and Reserves	S-1

    Schedules other than those listed above have been omitted since they are either not required, not applicable, or the information has otherwise been included.

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2. Exhibits

(a)

The exhibits listed below are filed as part of this report:

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation of The Cobalt Group, Inc. Incorporated by reference to the Annual Report on Form 10-K filed by the Registrant on March 30, 2000.
3.2	Bylaws of The Cobalt Group, Inc.
4.1	Common Stock Purchase Warrant dated April 30, 1999, from The Cobalt Group, Inc. to Parts Finder Locating Systems, Inc. and schedule of similar warrants. Incorporated by reference to the Registration Statement on Form S-1 (No. 333-79483) filed by the Registrant on May 27, 1999 (the "Form S-1").
4.2	Common Stock Purchase Warrant Agreement dated May 1, 2000 between DaimlerChrysler Corporation and The Cobalt Group, Inc. and schedule of similar warrants. Incorporated by reference to the Quarterly Report on Form 10-Q filed by the Registrant on August 14, 2000 (the "July 2000 Form 10-Q").
4.3	Common Stock Purchase Warrant dated August 18, 2000 between General Electric Capital Auto Financial Services, Inc. and The Cobalt Group, Inc. Incorporated by reference to the Quarterly Report on Form 10-Q filed by the Registrant on November 14, 2000 (the "November 2000 Form 10-Q").
4.4	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. Incorporated by reference to Schedule 13D filed by Warburg, Pincus Equity Partners, L.P. on July 10, 2000 (the "Schedule 13D").
10.1	The Cobalt Group, Inc. 1999 Employee Stock Purchase Plan. Incorporated by reference to Form S-1.
10.2	Lease Agreement (office form dated October 24, 1999). Incorporated by reference to the Quarterly Report on Form 10-Q filed by the Registrant on November 15, 1999.
10.3	Agreement and Plan of Merger dated January 14, 2000 between IL Acquisition, Inc., The Cobalt Group, Inc., IntegraLink, Inc., Kevin Distelhorst, Philip Turner and Steven French. Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on February 1, 2000.
10.4	Employment Agreement dated January 14, 2000 between The Cobalt Group, Inc. and Kevin Distelhorst.
10.5	Asset Purchase Agreement dated January 25, 2000 between The Cobalt Group, Inc., and Boats.com, Inc. Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on February 14, 2000.
10.6	DaimlerChrylser Dealer Web Site Program Services Agreement dated May 1, 2000 between DaimlerChrysler Corporation and The Cobalt Group, Inc. Incorporated by reference to the July 2000 Form 10-Q.
10.7	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. Incorporated by reference to the Schedule 13D.

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10.8	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. Incorporated by reference to the Schedule 13D.
10.9	MotorPlace Vehicle Network Business Agreement dated August 18, 2000 between General Electric Capital Auto Financial Services, Inc. and The Cobalt Group, Inc. Incorporated by reference to the November 2000 Form 10-Q. (Confidential treatment requested.)
10.10	Loan and Security Agreement dated March 8, 2001 between The Cobalt Group, Inc. and Silicon Valley Bank, Commercial Finance Division.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Independent Accountants.
24.1	Power of Attorney (reference is made to the signature page).

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SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned; thereunto duly authorized, in Seattle, Washington on April 2, 2001.

THE COBALT GROUP, INC.
By:	/s/ DAVID S. SNYDER David S. Snyder

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POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John W.P. Holt and David S. Snyder and each of them, his attorney-in-fact, with the power of substitution, for any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on April 2, 2001 on behalf of the Registrant and in the capacities indicated:

Signature	Title
/s/ JOHN W.P. HOLT John W.P. Holt	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ DAVID S. SNYDER David S. Snyder	Chief Financial Officer, Executive Vice President (Principal Financial and Accounting Officer)
/s/ HOWARD A. TULLMAN Howard A. Tullman	Chairman of the Board of Directors
/s/ GEOFFREY T. BARKER Geoffrey T. Barker	Director
/s/ MARK T. KOULEGEORGE Mark T. Koulegeorge	Director
/s/ JOSEPH P. LANDY Joseph P. Landy	Director
/s/ ERNEST H. POMERANTZ Ernest H. Pomerantz	Director
J.D. Power III	Director

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FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

		Balance at Beginning of period	Charge to Cost and Expenses	Deductions*		Balance at End of Period
Year ended December 31, 1998
	Allowance for doubtful accounts	40,000	193,000	(148,000	)	85,000
Year ended December 31, 1999
	Allowance for doubtful accounts	85,000	518,000	(106,000	)	497,000
Year ended December 31, 2000
	Allowance for doubtful accounts	497,000	761,000	(314,000	)	944,000

*

Deductions are direct write-offs of uncollectable amounts.

S-1

QuickLinks

Documents incorporated by reference:
TABLE OF CONTENTS
PART I
PART II
Report of Independent Accountants
Consolidated Balance Sheets (in thousands, except share and per share amounts)
The Cobalt Group, Inc. Consolidated Statements of Operations (in thousands, except share and per share amounts)
The Cobalt Group, Inc. Consolidated Statements of Cash Flows (in thousands)
The Cobalt Group, Inc. Notes to Consolidated Financial Statements
PART III
PART IV
SIGNATURES
POWER OF ATTORNEY
FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

EX-3.2

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EXHIBIT 3.2

AMENDED AND RESTATED BYLAWS

OF

THE COBALT GROUP, INC.

SECTION 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS

      1.1  Annual Meeting.  The annual meeting of the shareholders of this corporation (the "Corporation") for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at the principal office of the Corporation, or at some other place either within or without the State of Washington as designated by the Board of Directors, on such day and time as may be set by the Board of Directors.

      1.2  Special Meetings.  Special meetings of the shareholders for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, a majority of the Board of Directors, or any shareholder or shareholders holding in the aggregate one-fourth of the voting power of all shareholders. The meetings shall be held at such time and place as the Board of Directors may prescribe, or, if not held upon the request of the Board of Directors, at such time and place as may be established by the Chief Executive Officer or by the Secretary in such Chief Executive Officer's absence. Only business within the purpose or purposes described in the meeting notice may be conducted.

      1.3  Notice of Meetings.  Written notice of the place, date and time of the annual shareholders' meeting and written notice of the place, date, time and purpose or purposes of special shareholders' meetings shall be delivered not less than 10 (or, if required by Washington law, 20) or more than 60 days before the date of the meeting, either personally, by facsimile, or by mail, or in any other manner approved by law, by or at the direction of the Chairman of the Board, the Chief Executive Officer or the Secretary, to each shareholder of record entitled to notice of such meeting. Mailed notices shall be deemed to be delivered when deposited in the mail, first-class postage prepaid, correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders.

      1.4  Waiver of Notice.  Except where expressly prohibited by law or the Articles of Incorporation, notice of the place, date, time and purpose or purposes of any shareholders' meeting may be waived in a signed writing delivered to the Corporation by any shareholder at any time, either before or after the meeting. Attendance at the meeting in person or by proxy waives objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. A shareholder waives objection to consideration of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

      1.5  Shareholders' Action Without a Meeting.  Any action that may be taken at a meeting of the shareholders may be taken without a meeting or a vote if (i) the action is taken by written consent delivered to the Corporation of all shareholders entitled to vote on the action or (ii) the action is taken by written consent delivered to the Corporation by the shareholders of the Corporation holding of record, or otherwise entitled to vote, in the aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on the action were present and voted. A notice of the taking of action by shareholders by less than unanimous written consent shall be mailed at least one business day, or such longer period as is required by law, prior to the date the action becomes effective to those shareholders entitled to vote on

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the action who have not consented in writing, and, if required by law that notice of a meeting of shareholders to consider the action be given to nonvoting shareholders, to all nonvoting shareholders of the Corporation. Any such notice shall be in such form as may be required by applicable law. Any consent delivered to the Corporation pursuant to this Article shall be inserted in the minute book as if it were the minutes of a meeting of the shareholders.

      1.6  Telephone Meetings.  Shareholders may participate in a meeting of shareholders by means of a conference telephone or any similar communications equipment that enables all persons participating in the meeting to hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

      1.7  List of Shareholders.  At least ten days before any shareholders' meeting, the Secretary of the Corporation or the agent having charge of the stock transfer books of the Corporation shall have compiled a complete list of the shareholders entitled to notice of a shareholders' meeting, arranged in alphabetical order and by voting group, with the address of each shareholder and the number, class, and series, if any, of shares owned by each.

      1.8  Quorum and Voting.  The presence in person or by proxy of the holders of a majority of the votes entitled to be cast on a matter at a meeting shall constitute a quorum of shareholders for that matter. If a quorum exists, action on a matter shall be approved by a voting group if the votes cast within a voting group favoring the action exceed the votes cast within the voting group opposing the action, unless a greater number of affirmative votes is required by the Articles of Incorporation or by law. If the Articles of Incorporation or Washington law provide for voting by two or more voting groups on a matter, action on a matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group.

      1.9  Adjourned Meetings.  If a shareholders' meeting is adjourned to a different place, date or time, whether for failure to achieve a quorum or otherwise, notice need not be given of the new place, date or time if the new place, date or time is announced at the meeting before adjournment. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in these Bylaws, that determination shall apply to any adjournment thereof, unless Washington law requires fixing a new record date. If Washington law requires that a new record date be set for the adjourned meeting, notice of the adjourned meeting must be given to shareholders as of the new record date. Any business may be transacted at an adjourned meeting that could have been transacted at the meeting as originally called.

      1.10  Proxies.

    1.10.1  Appointment.  Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such shareholder by proxy. Such authorization may be accomplished by (a) the shareholder or such shareholder's authorized officer, director, employee or agent executing a writing or causing his or her signature to be affixed to such writing by any reasonable means, including facsimile signature or (b) by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the intended holder of the proxy or to a proxy solicitation firm, proxy support service or similar agent duly authorized by the intended proxy holder to receive such transmission; provided, that any such telegram, cablegram or other electronic transmission must either set forth or be accompanied by information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission by which a shareholder has authorized another person to act as proxy for such shareholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such

2

copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

    1.10.2  Delivery to Corporation; Duration.  A proxy shall be filed with the Secretary before or at the time of the meeting or the delivery to the corporation of the consent to corporation action in writing. A proxy shall become invalid three years after the date of its execution unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote at any reconvened meeting following adjournment of such meeting but shall not be valid after the final adjournment thereof.

      1.11  Business for Shareholders' Meetings.

    1.11.1  Proper Business for Shareholders' Meetings.  To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before a meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder

    (a) In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive office of the Corporation not fewer than 120 days prior to the date on which the Corporation first mailed its proxy materials for the prior year's annual meeting of shareholders; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed (other than as a result of adjournment) by more than 30 days from the anniversary of the prior year's annual meeting, notice by the shareholder to be timely must be delivered not later than the close of business on the later of the 90^th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. For purposes of this section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934.

    (b) A shareholder's notice to the Secretary shall set forth (i) one or more matters appropriate for shareholder action that the shareholder proposes to bring before the meeting; (ii) a brief description of the matters desired to be brought before the meeting, the reasons for conducting such business at the meeting, and the language of the proposal (if appropriate); (iii) the name and record address of the shareholder; (iv) the class and number of shares of the Corporation that the shareholder owns or is entitled to vote at the meeting; (v) a representation that the shareholder intends to appear in person or by proxy at the meeting to propose such matters; and (vi) any material interest of the shareholder in such matters.

    (c) Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedure set forth in this Section 1.11.1; provided, however, that nothing in this Section 1.11.1 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting.

    (d) The Chairman of the Board shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 1.11.1, and if the Chairman of the Board should so determine, shall

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so declare to the meeting that any such business not properly brought before the meeting shall not be transacted.

    1.11.2  Business at Special Meetings.  At any special meeting of the shareholders, only such business as is specified in the notice of such special meeting given by or at the direction of the person or persons calling such meeting, in accordance with Section 1.2 hereof, shall be transacted at such meeting.

    1.11.3  Shareholder Nomination of Directors—Annual Meeting.  Not fewer than 120 days prior to the date on which the Corporation first mailed its proxy materials for the prior year's annual meeting of shareholders, any shareholder who intends to make a nomination at the annual meeting shall deliver a notice to the Secretary of the Corporation setting forth (a) as to each nominee whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the nominee, and (iv) any other information concerning the nominee that would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee; and (b) as to the shareholder giving the notice, (i) the name and record address of the shareholder and (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the shareholder; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed (other than as a result of adjournment) by more than 30 days from the anniversary of the prior year's annual meeting, notice by the shareholder to be timely must be delivered not later than the close of business on the later of the 90^th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such nominee. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. For purposes of this section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934.

    1.11.4  Shareholder Nomination of Directors—Special Meeting.  Any shareholder who intends to make a nomination at any special meeting of shareholders held for the purpose of electing directors shall deliver a timely notice to the Secretary of the Corporation setting forth (a) as to each nominee whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the nominee, and (iv) any other information concerning the nominee that would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee; and (b) as to the shareholder giving the notice, (i) the name and record address of the shareholder and (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the shareholder. To be timely for these purposes, such notice must be given (a) if given by the shareholder (or any of the shareholders) who or that made a demand for a meeting pursuant to which such meeting is to be held, concurrently with the delivery of such demand, and (b) otherwise, not later than the close of business on the 10th day following the day on which the notice of the special meeting was mailed. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such nominee. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the

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Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

    1.11.5  Notice to Corporation.  Any written demand or notice required to be delivered by a shareholder to the Corporation pursuant to Section 1.2 or Section 1.11 hereof must be given, either by personal delivery or by registered or certified mail, postage prepaid, to the Secretary at the Corporation's executive offices.

      1.12  Inspectors of Election.

    1.12.1  Appointment.  In advance of any meeting of shareholders after this Corporation has become a public company (as defined below), the Board shall appoint one or more persons to act as inspectors of election at such meeting and to make a written report thereof. The Board may designate one or more persons to serve as alternate inspectors to serve in place of any inspector who is unable or fails to act. If no inspector or alternate is able to act at a meeting of shareholders, the chairman of such meeting shall appoint one or more persons to act as inspector of elections at such meeting. This corporation shall be a "public company" upon the earliest of (a) a vote by the Board of Directors of the corporation designating the Corporation a public company, (b) when a registration statement filed by the corporation under the Securities Act of 1933, as amended, in connection with an offering of the corporation's securities to the public first becomes effective or (c) upon the effective date of the registration of the Corporation's securities pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

    1.12.2  Duties.  The inspectors of election shall:

    (a) ascertain the number of shares of the Corporation outstanding and the voting power of each such share;

    (b) determine the shares represented at the meeting and the validity of proxies and ballots;

    (c) count all votes and ballots;

    (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by them; and

    (e) certify their determination of the number of shares represented at the meeting and their count of the votes and ballots.

    The validity of any proxy or ballot shall be determined by the inspectors of election in accordance with the applicable provisions of these Bylaws and the Washington Business Corporation Act as then in effect. In determining the validity of any proxy transmitted by telegram, cablegram or other electronic transmission, the inspectors shall record in writing the information upon which they relied in making such determination. Each inspector of elections shall, before entering upon the discharge of his or her duties, take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors of election may appoint or retain other persons or entities to assist them in the performance of their duties.

SECTION 2
BOARD OF DIRECTORS

      2.1  Number and Qualification.  The business affairs and property of the Corporation shall be managed under the direction of a Board of Directors, the number of members of which shall be as set by resolution of the Board of Directors. The Board of Directors may increase or decrease this number by resolution. A decrease in the number of directors shall not shorten the term of an incumbent director.

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      2.2  Election—Term of Office.  The directors shall be elected by the shareholders at each annual shareholders' meeting in accordance with the Articles of Incorporation. Despite the expiration of a director's term, the director continues to serve until his or her successor is elected and qualified or until there is a decrease in the authorized number of directors.

      2.3  Resignation; Removal.  Any Director may resign at any time by delivering written notice to the Chairman of the Board, the Chief Executive Officer, President, the Secretary or the Board, or to the registered office of the Corporation. Any such resignation shall take effect at the time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. One or more members of the Board (including the entire Board) may be removed, but only for cause, at a meeting of shareholders called expressly for that purpose, by the holders of not less than a majority of the shares entitled to elect the Director or Directors whose removal is sought in the manner provided by these Bylaws.

      2.4  Vacancies.  Except as otherwise provided by law, vacancies in the Board of Directors, whether caused by resignation, death, retirement, disqualification, removal, increase in the number of directors, or otherwise, may be filled for the remainder of the term by the Board of Directors, by the shareholders, or, if the directors in office constitute less than a quorum of the Board of Directors, by an affirmative vote of a majority of the remaining directors. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which such director is to be elected. A vacancy that will occur at a specific later date may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs.

      2.5  Quorum and Voting.  At any meeting of the Board of Directors, the presence in person (including presence by electronic means such as a telephone conference call) of a majority of all directors presently in office shall constitute a quorum for the transaction of business. If a quorum is present at the time of a vote, the affirmative vote of a majority of the directors present at the time of the vote shall be the act of the Board of Directors and of the Corporation except as may be otherwise specifically provided by the Articles of Incorporation, by these Bylaws, or by law. A director who is present at a meeting of the Board of Directors when action is taken is deemed to have assented to the action taken unless: (a) the director objects at the beginning of the meeting, or promptly upon his or her arrival, to holding it or to transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

      2.6  Regular Meetings.  Regular meetings of the Board of Directors shall be held at such place, date and time as shall from time to time be fixed by resolution of the Board.

      2.7  Special Meetings.  Special meetings of the Board of Directors may be held at any place and at any time and may be called by the Chairman of the Board, the Chief Executive Officer, Vice President, Secretary or Treasurer, or any two or more directors.

      2.8  Notice of Meetings.  Unless the Articles of Incorporation provide otherwise, any regular meeting of the Board of Directors may be held without notice of the date, time, place, or purpose of the meeting. Any special meeting of the Board of Directors must be preceded by at least two days' notice of the date, time, and place of the meeting, but not of its purpose, unless the Articles of Incorporation or these Bylaws require otherwise. Notice may be given personally, by facsimile or other form of electronic transmission, by mail, or in any other manner allowed by law. Oral notice shall be sufficient only if a written record of such notice is included in the Corporation's minute book. Notice shall be deemed effective at the earliest of: (a) receipt; (b) delivery to the proper address or telephone number of the director as shown in the Corporation's records; or (c) five days after its deposit in the United States mail, as evidenced by the postmark, if correctly addressed and mailed with first-class

6

postage prepaid. Notice of any meeting of the Board of Directors may be waived by any director at any time, by a signed writing, delivered to the Corporation for inclusion in the minutes, either before or after the meeting. Attendance or participation by a director at a meeting shall constitute a waiver of any required notice of the meeting unless the director promptly objects to holding the meeting or to the transaction of any business on the grounds that the meeting was not lawfully convened and the director does not thereafter vote for or assent to action taken at the meeting.

      2.9  Directors' Action Without A Meeting.  The Board of Directors or a committee thereof may take any action without a meeting that it could properly take at a meeting if one or more written consents setting forth the action are signed by all of the directors, or all of the members of the committee, as the case may be, either before or after the action is taken, and if the consents are delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Such action shall be effective upon the signing of a consent by the last director to sign, unless the consent specifies a later effective date.

      2.10  Committees of the Board of Directors.

    2.10.1  Creation and Authority.  The Board of Directors, by resolutions adopted by a majority of the members of the Board of Directors in office, may create from among its members one or more committees and shall appoint the members thereof. Each such committee must have two or more members, who shall be directors and who shall serve at the pleasure of the Board of Directors. Each committee of the Board of Directors may exercise the authority of the Board of Directors to the extent provided in its enabling resolution and any pertinent subsequent resolutions adopted in like manner, provided that the authority of each such committee shall be subject to applicable law. Each committee of the Board of Directors shall keep regular minutes of its proceedings and shall report to the Board of Directors when requested to do so.

    2.10.2  Audit Committee.  In addition to any committees appointed pursuant to this section 2.10, no later than such time as this Corporation may become a public company there shall be an Audit Committee, appointed annually by the Board, consisting of at least two Directors who are not members of management and are independent members of the Board. It shall be the responsibility of the Audit Committee, if and when appointed, to review the scope and results of the annual independent audit of books and records of the corporation, to review compliance with all corporate policies which have been approved by the Board and to discharge such other responsibilities as may from time to time be assigned to it by the Board. The Audit Committee shall meet at such times and places as the members deem advisable, and shall make such recommendations to the Board as they consider appropriate.

    2.10.3  Compensation Committee.  The Board may, in its discretion, designate a Compensation Committee consisting of one or more Directors as it may from time to time determine. The duties of the Compensation Committee shall consist of the following: (a) to establish and review periodically, but not less than annually, the compensation of the officers of the Corporation and to make recommendations concerning such compensation to the Board; (b) to consider incentive compensation plans for the employees of the Corporation; (c) to carry out the duties assigned to the Compensation Committee under any stock option plan or other plan approved by the Corporation; (d) to consult with the Chief Executive Officer concerning any compensation matters deemed appropriate by such Chief Executive Officer or the Compensation Committee; and (e) to perform such other duties as shall be assigned to the Compensation Committee by the Board.

      2.11  Telephone Meetings.  Members of the Board of Directors or of any committee appointed by the Board of Directors may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communications equipment that enables all persons

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participating in the meeting to hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

      2.12  Compensation of Directors.  The Board of Directors may fix the compensation of directors as such and may authorize the reimbursement of their expenses.

SECTION 3
OFFICERS

      3.1  Officers Enumerated—Election.  The officers of the Corporation shall consist of such officers and assistant officers as may be designated by resolution of the Board of Directors. The officers may include a Chairman of the Board, a Chief Executive Officer or Co-Chief Executive Officers, one or more Vice Presidents, a Secretary, a Treasurer, and any assistant officers. The officers shall hold office at the pleasure of the Board of Directors. Unless otherwise restricted by the Board of Directors, a Chief Executive Officer, may appoint any assistant officer, the Secretary may appoint one or more Assistant Secretaries, and the Treasurer may appoint one or more Assistant Treasurers; provided that any such appointments shall be recorded in writing in the corporate records.

      3.2  Qualifications.  None of the officers of the Corporation need be a director. Any two or more corporate offices may be held by the same person.

      3.3  Duties of the Officers.  Unless otherwise prescribed by the Board of Directors, the duties of the officers shall be as follows:

    Chairman of the Board.  The Chairman of the Board, if one is elected, shall be a non-executive officer position. The Chairman of the Board shall preside at meetings of the Board of Directors and of the shareholders, shall be responsible for carrying out the plans and directives of the Board of Directors, shall report to and consult with the Board of Directors. The Chairman of the Board shall have such other powers and duties as the Board of Directors may from time to time prescribe.

    Chief Executive Officer.  The Chief Executive Officer shall exercise the usual executive powers pertaining to the office of the President and the Chief Executive Officer of the Company. In the absence of a Chairman of the Board, the Chief Executive Officer shall preside at meetings of the Board of Directors and of the shareholders, perform the other duties of the Chairman of the Board prescribed in this Section, and perform such other duties as the Board of Directors may from time to time designate. In addition, if there is no Secretary in office, the Chief Executive Officer shall perform the duties of the Secretary.

    Vice President.  Each Vice President shall perform such duties as the Board of Directors may from time to time designate. In addition, the Vice President, or if there is more than one, the most senior Vice President available, shall act as President in the absence or disability of the President.

    Secretary.  The Secretary shall be responsible for and shall keep, personally or with the assistance of others, records of the proceedings of the directors and shareholders; authenticate records of the Corporation; attest all certificates of stock in the name of the Corporation; keep the corporate seal, if any, and affix the same to certificates of stock and other proper documents; keep a record of the issuance of certificates of stock and the transfers of the same; and perform such other duties as the Board of Directors may from time to time designate.

    Treasurer.  The Treasurer shall have the care and custody of, and be responsible for, all funds and securities of the Corporation and shall cause to be kept regular books of account. The Treasurer shall cause to be deposited all funds and other valuable effects in the name of the Corporation in such depositories as may be designated by the Board of Directors. In general, the Treasurer shall perform all of the duties incident to the office of Treasurer, and such other duties as from time to time may be assigned by the Board of Directors.

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    Assistant Officers.  Assistant officers may consist of one or more Assistant Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. Each assistant officer shall perform those duties assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer, or the officer who appointed him or her.

      3.4  Vacancies.  Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting.

      3.5  Removal.  Any officer or agent may be removed by action of the Board of Directors with or without cause, but any removal shall be without prejudice to the contract rights, if any, of the person removed. Election or appointment of an officer or agent shall not of itself create any contract rights.

      3.6  Compensation.  The compensation of all officers of the Corporation shall be fixed by the Board of Directors or the Compensation Committee of the Board, as determined by the Board.

SECTION 4
SHARES AND CERTIFICATES OF SHARES

      4.1  Share Certificates.  Share certificates shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by a Co-Chief Executive Officer, or a Vice President, and attested by the Secretary or an Assistant Secretary. Share certificates may be sealed with the corporate seal, if any. Facsimiles of the signatures and seal may be used as permitted by law. Every share certificate shall state:

    (a) the name of the Corporation;

    (b) that the Corporation is organized under the laws of the State of Washington;

    (c) the name of the person to whom the share certificate is issued;

    (d) the number, class and series (if any) of shares that the certificate represents; and

    (e) if the Corporation is authorized to issue shares of more than one class or series, that upon written request and without charge, the Corporation will furnish any shareholder with a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series, and the authority of the Board of Directors to determine variations for future series.

      4.2  Consideration for Shares.  Shares of the Corporation may be issued for such consideration as shall be determined by the Board of Directors to be adequate. The consideration for the issuance of shares may be paid in whole or in part in cash, or in any tangible or intangible property or benefit to the Corporation, including but not limited to promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation. Establishment by the Board of Directors of the amount of consideration received or to be received for shares of the Corporation shall be deemed to be a determination that the consideration so established is adequate.

      4.3  Transfers.  The transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation pursuant to authorization or document of transfer made by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney-in-fact authorized by power of attorney duly executed and filed with the Secretary of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and canceled.

      4.4  Loss or Destruction of Certificates.  In the event of the loss or destruction of any certificate, a new certificate may be issued in lieu thereof upon satisfactory proof of such loss or

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destruction, and upon the giving of security against loss to the Corporation by bond, indemnity or otherwise, to the extent deemed necessary by the Board of Directors, the Secretary, or the Treasurer.

      4.5  Fixing Record Date.  The Board of Directors may fix in advance a date as the record date for determining shareholders entitled: (i) to notice of or to vote at any shareholders' meeting or any adjournment thereof; (ii) to receive payment of any share dividend; or (iii) to receive payment of any distribution. The Board of Directors may in addition fix record dates with respect to any allotment of rights or conversion or exchange of any securities by their terms, or for any other proper purpose, as determined by the Board of Directors and by law. The record date shall be not more than 70 days and, in case of a meeting of shareholders, not less than 10 days (or such longer period as may be required by Washington law) prior to the date on which the particular action requiring determination of shareholders is to be taken. If no record date is fixed for determining the shareholders entitled to notice of or to vote at a meeting of shareholders, the record date shall be the date before the day on which notice of the meeting is mailed. If no record date is fixed for the determination of shareholders entitled to a distribution (other than one involving a purchase, redemption, or other acquisition of the Corporation's own shares), the record date shall be the date on which the Board adopted the resolution declaring the distribution. If no record date is fixed for determining shareholders entitled to a share dividend, the record date shall be the date on which the Board of Directors authorized the dividend.

SECTION 5
BOOKS, RECORDS AND REPORTS

      5.1  Records of Corporate Meetings, Accounting Records and Share Registers.  The Corporation shall keep, as permanent records, minutes of all meetings of the Board of Directors and shareholders, and all actions taken without a meeting, and all actions taken by a committee exercising the authority of the Board of Directors. The Corporation or its agent shall maintain, in a form that permits preparation of a list, a list of the names and addresses of its shareholders, in alphabetical order by class of shares, and the number, class, and series, if any, of shares held by each. The Corporation shall also maintain appropriate accounting records, and at its principal place of business shall keep copies of: (a) its Articles of Incorporation or restated Articles of Incorporation and all amendments in effect; (b) its Bylaws or restated Bylaws and all amendments in effect; (c) minutes of all shareholders' meetings and records of all actions taken without meetings for the past three years; (d) the year-end balance sheets and income statements for the past three fiscal years, prepared as required by Washington law; (e) all written communications to shareholders generally in the past three years; (f) a list of the names and business addresses of its current officers and directors; and (g) its most recent annual report to the Secretary of State.

      5.2  Copies of Corporate Records.  Any person dealing with the Corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the Chairman of the Board, the Chief Executive Officer, Vice President, Secretary or Assistant Secretary.

      5.3  Examination of Records.  A shareholder shall have the right to inspect and copy, during regular business hours at the principal office of the Corporation, in person or by his or her attorney or agent, the corporate records referred to in the last sentence of Section 5.1 of these Bylaws if the shareholder gives the Corporation written notice of the demand at least five business days before the date on which the shareholder wishes to make such inspection. In addition, if a shareholder's demand is made in good faith and for a proper purpose, a shareholder may inspect and copy, during regular business hours at a reasonable location specified by the Corporation, excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors, records of actions taken by the Board of Directors without a meeting, minutes of shareholders'

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meetings held or records of action taken by shareholders without a meeting not within the past three years, accounting records of the Corporation, or the record of shareholders; provided that the shareholder shall have made a demand describing with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect, and provided further that the records are directly connected to the shareholder's purpose. This section shall not affect any right of shareholders to inspect records of the Corporation that may be otherwise granted to the shareholders by law.

      5.4  Financial Statements.  Not later than four months after the end of each fiscal year, or in any event prior to its annual meeting of shareholders, the Corporation shall prepare a balance sheet and income statement in accordance with Washington law. The Corporation shall furnish a copy of each to any shareholder upon written request.

SECTION 6
FISCAL YEAR

    The fiscal year of the Corporation shall end on December 31.

SECTION 7
CORPORATE SEAL

    The corporate seal of the Corporation, if any, shall be in the form approved by the Board of Directors.

SECTION 8
MISCELLANEOUS PROCEDURAL PROVISIONS

    The Board of Directors may adopt rules of procedure to govern any meetings of shareholders or directors to the extent not inconsistent with law, the Corporation's Articles of Incorporation, or these Bylaws, as they are in effect from time to time. In the absence of any rules of procedure adopted by the Board of Directors, the chairman of the meeting shall make all decisions regarding the procedures for any meeting.

SECTION 9
AMENDMENT OF BYLAWS

    The Board of Directors is expressly authorized to make, alter and repeal the Bylaws of the Corporation, subject to the power of the shareholders of the Corporation to change or repeal the Bylaws.

SECTION 10
INDEMNIFICATION OF DIRECTORS AND OTHERS

      10.1  Grant of Indemnification.  Subject to Section 10.2, each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any threatened, pending, or completed action, suit or proceeding, whether formal or informal, civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director of the Corporation or who, while a director of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of this or another Corporation or of a partnership, joint venture, trust, other enterprise, or employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held

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harmless by the Corporation to the fullest extent permitted by applicable law, as then in effect, against all expense, liability and loss (including attorneys' fees, costs, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director and shall inure to the benefit of his or her heirs, executors and administrators.

      10.2  Limitations on Indemnification.  Notwithstanding Section 10.1, no indemnification shall be provided hereunder to any such person to the extent that such indemnification would be prohibited by the Washington Business Corporation Act or other applicable law as then in effect, nor, except as provided in Section 10.4 with respect to proceedings seeking to enforce rights to indemnification, shall the Corporation indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person except where such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

      10.3  Advancement of Expenses.  The right to indemnification conferred in this section shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, except where the Board of Directors shall have adopted a resolution expressly disapproving such advancement of expenses.

      10.4  Right to Enforce Indemnification.  If a claim under Section 10.1 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, or if a claim for expenses incurred in defending a proceeding in advance of its final disposition authorized under Section 10.3 is not paid within 20 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. The claimant shall be presumed to be entitled to indemnification hereunder upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the Corporation), and thereafter the Corporation shall have the burden of proof to overcome the presumption that the claimant is so entitled. It shall be a defense to any such action (other than an action with respect to expenses authorized under Section 10.3) that the claimant has not met the standards of conduct which make it permissible hereunder or under the Washington Business Corporation Act for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth herein or in the Washington Business Corporation Act nor (except as provided in Section 10.3) an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled.

      10.5  Nonexclusivity.  The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this section shall be valid to the extent consistent with Washington law.

      10.6  Indemnification of Officers, Employees and Agents.  The Corporation may, by action of its Board of Directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to officers, employees and agents of the Corporation on the same terms and with the same scope and effect as the provisions of this section with respect to the indemnification and advancement of expenses of directors and officers of the Corporation or pursuant

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to rights granted pursuant to, or provided by, the Washington Business Corporation Act or on such other terms as the Board may deem proper.

      10.7  Insurance and Other Security.  The Corporation may maintain insurance, at its expense, to protect itself and any individual who is or was a director, officer, employee or agent of the Corporation or another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against or incurred by the individual in that capacity or arising from his or her status as an officer, director, agent, or employee, whether or not the Corporation would have the power to indemnify such person against the same liability under the Washington Business Corporation Act. The Corporation may enter into contracts with any director or officer of the Corporation in furtherance of the provisions of this section and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this section.

      10.8  Amendment or Modification.  This section may be altered or amended at any time as provided in these Bylaws, but no such amendment shall have the effect of diminishing the rights of any person who is or was an officer or director as to any acts or omissions taken or omitted to be taken prior to the effective date of such amendment.

      10.9  Effect of Section.  The rights conferred by this section shall be deemed to be contract rights between the Corporation and each person who is or was a director or officer. The Corporation expressly intends each such person to rely on the rights conferred hereby in performing his or her respective duties on behalf of the Corporation.

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QuickLinks

EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS OF THE COBALT GROUP, INC.

EX-10.4

COBALT EMPLOYMENT AGREEMENT

    THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of January 14, 2000, by and between The Cobalt Group, Inc. ("Company"), and Kevin Distelhorst, a resident of the State of Ohio (the "Employee").

    Company and the Employee agree as follows:

ARTICLE 1.
Purpose

    The purpose of this Agreement is to describe the terms and conditions of employment applicable to the Employee and to describe the severance benefits available to the Employee in the event of termination.

ARTICLE 2.
Employment; Duties

    2.1   Employment. Company employs the Employee as Director, National Accounts, and the Employee accepts such employment, upon the terms and conditions of this Agreement.

    2.2   Duties. The duties to be performed by the Employee under this Agreement are such duties as are normally performed by a Director, National Accounts and those additional duties that Company's chief executive officer (or his delegate) may reasonably prescribe from time to time. In addition, Company reserves the right to reassign Employee to another position and to change the reporting structure that applies to Employee.

    2.3   Hours and Commitment. During the Term of this Agreement (as defined below), the Employee agrees to devote his full attention and working time to the business and affairs of Company (except for vacations and reasonable periods of illness or incapacity) and to use his best efforts to perform faithfully and efficiently such duties under this Agreement. Company's chief executive officer (or his delegate) may permit the Employee to take on specific employment in addition to employment at Company if the chief executive officer determines that such additional employment will not adversely affect the Employee's ability to perform his duties for Company and executes a specific waiver for a limited period of time in writing.

ARTICLE 3.
Term of Agreement

    This Agreement begins on the date of this Agreement and ends as provided in Article 6 (the "Term").

ARTICLE 4.
Compensation

    4.1   Base Salary. For services rendered by the Employee under this Agreement, Company agrees to pay to the Employee, and the Employee agrees to accept, a base salary ("Base Salary") of $100,000. Company shall pay the Employee's Base Salary in installments not less frequently than monthly, less all amounts required by law to be withheld, deducted or collected, in accordance with Company's normal payroll policies for similarly situated employees, as such policies may be changed from time to time.

    4.2   Optional Increases. Company may from time to time increase the Employee's Base Salary, and the term "Base Salary" as used in this Agreement shall refer to the Base Salary as so increased.

    4.3   Bonus Plan. In addition to the Base Salary, the Employee will be eligible to participate in a bonus plan, such plan to be instituted by the Company during Employee's employment. This bonus

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plan will provide Employee with the potential to earn up to twenty (20) percent of his base salary in bonus compensation.

    4.4   Stock Options. In addition to the Base Salary, upon commencement of employment pursuant to this Agreement, the Employee shall be granted options to acquire 10,000 shares of common stock of the Company pursuant to The Cobalt Group, Inc. 1995 Stock Option Plan (the "Options"). The Options shall vest over a four year period and be subject to such further terms and conditions as set forth in this Agreement and in the stock option agreement attached hereto as Exhibit A.

ARTICLE 5.
Other Benefits

    5.1   Savings and Retirement Plans. The Employee shall be entitled to participate in all savings and retirement plans or programs applicable to other similarly situated employees of Company.

    5.2   Welfare Benefits. The Employee and his family shall be eligible for participation in, and shall receive all benefits under, welfare benefit plans, practices, policies, and programs provided by Company to other similarly situated employees of Company. These may, but will not necessarily include medical and dental insurance, long-term disability insurance, group life insurance plans and programs.

    5.3   Fringe Benefits. The Employee shall be entitled to fringe benefits applicable to other similarly situated employees of Company.

    5.4   Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses incurred by the Employee upon Company's receipt of accountings in accordance with practices, policies, and procedures applicable to similarly situated employees of Company.

    5.5   Vacation and Sick Leave. The Employee shall be entitled to three (3) weeks of paid vacation and sick leave in accordance with the plans, policies, and programs applicable to other similarly situated employees of Company, including such increases in vacation and sick leave time as are provided for under such plans, policies and programs. In calculating such increases in vacation and sick leave time, the Employee shall be credited with the Employee's period of employment with IntegraLink, LLC.

    5.6   Changes in Benefits. As any of the forgoing benefits are enhanced, diminished, modified or eliminated for all other similarly situated employees, the same changes shall apply to the Employee, with the exception of those benefits provided for in Section 5.5, which shall not be diminished or eliminated. Company may offer individual benefit arrangements where Company believes it necessary to attract or retain key employees without having to extend such individual arrangements to other executive employees.

ARTICLE 6.
Termination

    6.1   Termination of Employment. Employee's employment shall end on the third anniversary of the date of this Agreement (the "Employment Period"), provided, however, that the Employment Period may be extended for such additional periods thereafter and on such terms as the Company and the Employee may agree. The Employee's employment may be terminated by the Company at any time for Cause (as defined below) or without Cause. The Employee's employment may be terminated by the Employee at any time. The Employee shall provide Company with at least 30 days advance notice in writing of Employee's intention to terminate employment, unless Company agrees to waive the requirement.

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    6.2   Termination for Cause. Company may terminate the Employee's employment at any time for Cause. For purposes of this Agreement, the term "Cause" shall include: continued neglect or failure to perform the duties, functions and responsibilities of his position, after written notice thereof, which notice specifies the instance(s) of the Employee's neglect or failure to perform satisfactorily; or willful misconduct by the Employee with respect to his duties and obligations under this Agreement; unauthorized expenditure of Company's funds without a plausible basis to believe such expenditure was authorized; practices in contravention of the Company's stated policies; misappropriation of Company's assets; any material breach by the Employee of any term or provision of this Agreement that Employee fails to cure within 10 days after written notice thereof; any act or action of the Employee during the Term of the Agreement involving embezzlement, dishonesty related to Company or Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by the Employee. Upon termination for Cause, the Employee shall not be entitled to payment of any compensation other than Base Salary and accrued benefits under this Agreement earned up to the date of such termination.

    6.3   Termination without Cause. Company may terminate the Employee's employment at any time without Cause. Termination without Cause shall include, but not be limited to, the following: (i) the termination of Employee's employment by the Company after Employee's refusal to agree to the Company's request to relocate or spend a substantial and continuous portion of his time at a location more than thirty (30) miles from the Company's present Columbus location, or (ii) the election by the Employee to terminate his employment upon the Company's institution of a substantial dimunition in Employee's responsibilities or authority. The Employee acknowledges that Employee's employment may require intensive travel during limited periods of time. In the event of any such termination, the Employee shall be entitled to receive from Company the following, payable in accordance with the normal payroll practices of Company for similarly situated employees, including deductions, withholdings, and collections as required by law:

    6.3.1  His Base Salary, at the rate in effect as of the termination date, payable in accordance with Section 4.1 above, for the remaining time in the Employment Period.

    6.3.2  An amount equal to the premiums that Employee would be required to pay if Employee elected to continue Employee-only medical and dental coverage under Company's medical and dental plans pursuant to section 4980B of the Internal Revenue Code ("COBRA") for the remaining time in the Employment Period or the period in which COBRA benefits are available, whichever period is longer. Company may pay such amounts in a lump sum upon termination or in monthly installments.

    6.3.3  To the extent permitted under any group insurance policy providing such benefits to the Employee, the Employee shall be entitled to convert coverage for long term disability insurance and group term life insurance to an individual policy of insurance.

    6.3.4  Accrued unused vacation leave up to the maximum permitted by Company's vacation policy shall be paid to the Employee upon termination of employment at the rate of annual salary in effect on the date of termination of employment.

    6.3.5  Any amount payable pursuant to this Section 6.3, together with any compensation pursuant to Article 4 that is payable for services rendered through the effective date of termination, shall constitute the sole obligation of Company payable with respect to the termination of the Employee as provided in this Section 6.3. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 6.3 by seeking other employment or otherwise, nor shall the amount of any payment provided for in Section 6.3 be reduced by any compensation earned by the Employee as a result of employment by another company, self-employment or otherwise.

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    6.4   Protected Information.

    6.4.1  Covenant. Either during or after expiration of the Employment Period, the Employee shall not, directly or indirectly, divulge, furnish or make accessible to any person, firm, corporation, association or other entity, or use in any manner, any Protected Information (as defined below), or cause any Protected Information to enter the public domain, except as may be required in the regular course of the Employee's employment by the Company.

    6.4.2  Access to Protected Information. The Company has advised the Employee and the Employee has acknowledged that it is the policy of the Company to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost and effort to the Company. The Employee acknowledges that he will acquire Protected Information with respect to the Company, which information is a valuable, special, and unique asset of the Company's business and operations, and that disclosure of such Protected Information would cause irreparable damage to the Company.

    6.4.3  Employee-Created Protected Information. The Employee agrees to promptly disclose to the Company all Protected Information developed in whole or in part by the Employee during his employment with the Company and which relates to the Company's business. Such Protected Information is, and shall remain, the exclusive property of the Company. All writings created during the Employee's employment with the Company (excluding writings unrelated to the Company's business) are considered to be "works-for-hire" for the benefit of the Company, and the Company shall own all rights in such writings. Washington law requires the following notice to be given to the Employee:

This Agreement does not require the Employee to assign to the Company any invention by the Employee for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time unless the invention related (i) directly to the Company's business, or (ii) to the Company's actual or demonstrably anticipated research or development, or (iii) the development results from any work performed by the Employee for the Company.

    6.4.4  Return of Confidential Records. All forms of information and all physical property made or compiled by the Employee prior to or during the Employment Period containing or relating in any way to Protected Information shall be the Company's exclusive property. All such materials and any copies thereof shall be held by the Employee in trust solely for the benefit of the Company and shall be delivered to the Company upon expiration of the Employment Period, or at any other time upon the Company's request.

    6.4.5  Protected Information. "Protected Information" means trade secrets, confidential and propriety business information of the Company, any information of the Company other than information which has entered the public domain (unless the Employee caused such information to enter the public domain) and all valuable and unique information and techniques acquired, developed or used by the Company relating to its business, operations, employees, customers and suppliers, which give the Company a competitive advantage over those who do not know the information and techniques and which are protected by the Company from unauthorized disclosure, including but not limited to, customer lists (including potential customers), sources of supply, processes, patented or proprietary technologies, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees.

    6.5   Non-Competition.

    6.5.1  Covenant. The Employee agrees that, while Employee is employed by the Company (or the expiration of Company's obligations under Section 6.3, if longer) and for a period of two years

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thereafter, he will not (i) directly or indirectly, in any capacity, engage or participate in, or become employed by or render advisory or consulting or other services in connection with any Prohibited Business, as defined below, or (ii) make any financial investment, whether in the form of equity or debt, or own any interest, directly or indirectly, in any Prohibited Business.

    6.5.2  Exception. Nothing in this Section 6.5 shall restrict the Employee from making any investment in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter market; provided that (i) such investment does not give the Employee the right or ability to control or influence the policy decisions of any Prohibited Business, and (ii) such investment does not create a material conflict of interest between the Employee's duties hereunder and the Employee's interest in such investment.

    6.5.3  Prohibited Business. "Prohibited Business" means any business entity providing data collection from automotive retailer systems or whose activities or products are directly and substantially competitive with those of the Company and which has contact, or seeks to establish contact (including without limitation by making or soliciting sales or submitting bids), with any business or governmental entity in North America that is, at any time, a customer of the Company.

    6.6   Non-Interference with Employment Relationships. The Employee agrees that during the Employment Period and for a period of two years after the expiration of the Agreement, he will not (i) directly or indirectly solicit, induce, or encourage any employee of the Company to leave his or her employment with the Company or interfere with any employment relationship between the Company and any of its employees, or (ii) hire or encourage or assist any other person to hire any person who has been an employee of the Company within the previous six months.

    6.7   Disclosure of Business Opportunities. The Employee agrees to promptly and fully disclose to the Company, and not to divert to his own use or benefit or the use or benefit of others, any business opportunities involving any existing or prospective line of business of the Company.

    6.8   Survival of Undertakings and Injunctive Relief.

    6.8.1  Survival. The provisions of Sections 6.4, 6.5, 6.6, and 6.7 shall survive the expiration of the Agreement, irrespective of the reasons therefor. In the event of any such violation of Sections 6.4, 6.5, 6.6, and 6.7, the Employee further agrees that the time periods set forth in such sections shall be extended by the period of such violation.

    6.8.2  Injunctive Relief. The Employee acknowledges and agrees that the restrictions imposed upon him by Sections 6.4, 6.5, 6.6, and 6.7 and the purpose of such restrictions are reasonable and are designed to protect the Protected Information and the continued success of the Company without unduly restricting the Employee's future employment by others. Furthermore, the Employee acknowledges that, in view of the Protected Information which the Employee has or will acquire or has or will have access to, and in view of the necessity of the restrictions contained in Sections 6.4, 6.5, 6.6, and 6.7, any violation of any provision of Sections 6.4, 6.5, 6.6, and 6.7 hereof would cause irreparable injury to the Company with respect to the resulting disruption in their operations. By reason of the foregoing, the Employee consents and agrees that if the Employee violates any of the provisions of Sections 6.4, 6.5, 6.6, and 6.7, the Company shall be entitled, in addition to any other remedies that it may have, including money damages, to an injunction to be issued by a court of competent jurisdiction, restraining the Employee from committing or continuing any violation of such sections of this Agreement.

    6.9   References to the Company. All references to the Company in this Article 6 shall be deemed to include any predecessor, subsidiary, parent, successor in interest, or other affiliate of the Company.

    6.10   Notice of Termination. Any purported termination of the Employee's employment by Company or by the Employee shall be communicated by written Notice of Termination to the other

5

party hereto in accordance with Section 7.5. "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated.

    6.11   Date of Termination. "Date of Termination" shall mean the following:

    6.11.1  If the Employee's employment is terminated by Company for any reason, the date specified in the Notice of Termination.

    6.11.2  In the case of a termination by the Employee, the date specified in the Notice of Termination but not less than thirty (30) nor more than sixty (60) days from the date such Notice of Termination is given.

ARTICLE 7.
Miscellaneous

    7.1   Assignment, Successors. Company may freely assign its rights and obligations under this Agreement to a successor of Company's business, without the prior written consent of the Employee. This Agreement shall be binding upon and inure to the benefit of the Employee and the Employee's estate and Company and any assignee of or successor to Company.

    7.2   Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Employee, and any such attempt to dispose of any right to benefits payable under this Agreement shall be void.

    7.3   Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid.

    7.4   Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by Company and the Employee. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition.

    7.5   Notices. All notices and other communications hereunder shall be in writing and either hand delivered or delivered by overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employee:
If to Company:	The Cobalt Group, Inc. 2200 First Avenue South Seattle, Washington 98134 Attn: Chief Executive Officer

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Company or the Employee may from time to time designate a new address by notice given in accordance with this section. Notice and communications shall be effective when actually received by the addressee.

    7.6   Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Washington, without regard to its choice of law principles.

    7.7   Effect on Other Agreements. This Agreement shall supersede all prior agreements, promises, and representations regarding employment by Company and severance or other payments contingent upon termination of employment.

    7.8   Counterpart Originals. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

    7.9   Entire Agreement. This Agreement forms the entire agreement between the parties hereto with respect to any severance payment and with respect to the subject matter contained in this Agreement.

    Executed as of the date first written above.

Company:		Employee:
By:	/s/ JOHN W.P. HOLT	/s/ KEVIN DISTELHORST
	Chief Executive Officer	Kevin Distelhorst

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EX-10.11

EXHIBIT 10.11

Silicon Valley Bank

Loan and Security Agreement

Borrower:	The Cobalt Group, Inc. PartsVoice, LLC IntegraLink Corporation
Address:	2200 First Avenue South Seattle, WA 98134
Date:	March 8, 2001

THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above (jointly and severally, the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 8 below.)

      1.  LOANS.

1.1    Loans.  Silicon will make loans to Borrower (the "Loans"), in amounts determined by Silicon in its*, up to the amounts (the "Credit Limit") shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of any Reserves for accrued interest and such other Reserves as Silicon deems proper from time to time**.

*good-faith business judgment,

**including, without limitation, a deferred revenue reserve in an amount of $542,000, which amount may be adjusted by Silicon, in its discretion, as it deems proper from time to time

1.2    Interest.  All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement. Interest shall be payable monthly, on the last day of the month. Interest may, in Silicon's discretion, be charged to Borrower's loan account, and the same shall thereafter bear interest at the same rate as the other Loans. Silicon may, in its discretion, charge interest to Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of Obligations that may be outstanding from time to time, Borrower shall pay Silicon minimum monthly interest during the term of this Agreement in the amount set forth on the Schedule (the "Minimum Monthly Interest").

1.3    Overadvances.  If at any time or for any reason the total of all outstanding Loans and all other Obligations exceeds the Credit Limit (an "Overadvance"), Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand. Without limiting Borrower's obligation to repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance, on demand, at a rate equal to the interest rate which would otherwise be applicable to the Overadvance, plus an additional 2% per annum.

1.4    Fees.  Borrower shall pay Silicon the fee(s) shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable.

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1.5    Letters of Credit.  [Not Applicable]*

*1.6    Cash Management Services.  Borrower may use up to $300,000 (the "Cash Management Sublimit") for Silicon's Cash Management Services (as defined below), including, merchant services, business credit card, ACH and other services identified in the cash management services agreement related to such service (the "Cash Management Services"). Silicon may, in its*, reserve against Loans which would otherwise be available hereunder such sums as Silicon shall determine in connection with the Cash Management Services, and Silicon may charge to Borrower's Loan account, any amounts that may become due or owing to Silicon in connection with the Cash Management Services. Borrower agrees to execute and deliver to Silicon all standard form applications and agreements, including without limitation, an indemnification and pledge agreement, of Silicon in connection with the Cash Management Services and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Silicon in connection with the credit card services and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Silicon in connection with the Cash Management Services. The Cash Management Services shall terminate on the Maturity Date.

*good-faith business judgment

      2.  SECURITY INTEREST.

2.1    Security Interest.  To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Silicon a security interest in all of Borrower's interest in the following, whether now owned or hereafter acquired, and wherever located: All Inventory, Equipment, Receivables, and General Intangibles, including, without limitation, all of Borrower's Deposit Accounts, and all money, and all property now or at any time in the future in Silicon's possession (including claims and credit balances), and all proceeds (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products and all books and records related to any of the foregoing (all of the foregoing, together with all other property in which Silicon may now or in the future be granted a lien or security interest, is referred to herein, collectively, as the "Collateral").

      3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

    In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants:

3.1    Corporate Existence and Authority.  Borrower, if a corporation*, is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation**. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a*** on Borrower. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally), and (iii) do not violate Borrower's articles or certificate of incorporation, or Borrower's by-laws****, or any law or any material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property.

*or a limited liability company, as the case may be,

**or organization, as the case may be

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***Material Adverse Effect

****in the case of a corporation, or Borrower's certificate of formation, or Borrower's operating agreement, in the case of a limited liability company,

3.2    Name; Trade Names and Styles.  The name of Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of Borrower's present and prior trade names. Borrower shall give Silicon 30 days' prior written notice before changing its name or doing business under any other name. Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name.

3.3    Place of Business; Location of Collateral.  The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business, and Collateral is located, only at the locations set forth on the Schedule*. Borrower will give Silicon at least 30 days' prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower's Address or one of the locations set forth on the Schedule.

*(except for laptop computers, and other portable Equipment in transit and temporarily used away from such locations in the ordinary course of business provided that the value of such laptop computers and other portable Equipment is, and shall throughout the term of this Agreement be, deminimus)

3.4    Title to Collateral; Permitted Liens.  Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased by Borrower*. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. Silicon now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Silicon and the Collateral against all claims of others. **of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture***. Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's right to remove any Collateral from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall specify, so as to ensure that Silicon's rights in the Collateral are, and will continue to be, superior to the rights of any such third party. Borrower will keep in full force and effect, and will comply with all the terms of, any lease of real property where any of the Collateral now or in the future may be located.

*and intellectual property Collateral licensed by Borrower from others and the following jointly owned Collateral: (i) the MotorPlace Auto Exchange software (jointly owned with General Electric) and (ii) various training materials (jointly owned with JD Power and Associates)

**Except for Collateral with an aggregate maximum value of $25,000, none

***unless prior to such Collateral becoming a fixture, Borrower shall have procured a landlord's subordination agreement in form and substance satisfactory to Silicon in its sole discretion and all other documents (in form and substance satisfactory to Silicon in its sole discretion) that Silicon deems necessary for assuring its first priority perfected and enforceable security interest in such Collateral have been executed and, if applicable, recorded

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3.5    Maintenance of Collateral.  Borrower will maintain the Collateral in good working condition, *and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral.

*ordinary wear and tear excepted,

3.6    Books and Records.  Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with*.

*GAAP

3.7    Financial Condition, Statements and Reports.  All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with* and now and in the future will **the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no material adverse change in the financial condition or business of Borrower. Borrower is now and will continue to be solvent***.

*GAAP

**fairly represent in all material respects

***on a consolidated basis

3.8    Tax Returns and Payments; Pension Contributions.  Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. *Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. Borrower shall, at all times, utilize the services of an outside payroll service providing for the automatic deposit of all payroll taxes payable by Borrower.

*Except as disclosed in the Schedule,

3.9    Compliance with Law.*Borrower has complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and all environmental matters.

*Except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect,

3.10    Litigation.  Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower's knowledge) threatened by or against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which* result, either separately or in the aggregate, in any**, or in any

4

material impairment in the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving any single claim of $50,000 or more, or involving $100,000 or more in the aggregate.

*could reasonably be expected to

**Material Adverse Change

3.11    Use of Proceeds.  All proceeds of all Loans shall be used solely for lawful business purposes. Borrower is not purchasing or carrying any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock."

      4.  Receivables.

4.1    Representations Relating to Receivables.  Borrower represents and warrants to Silicon as follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) represent an undisputed* bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services in the ordinary course of Borrower's business, and (ii) meet the Minimum Eligibility Requirements set forth in Section 8 below.

*(except as otherwise permitted in the definition of Eligible Receivables set forth in Section 8 below)

4.2    Representations Relating to Documents and Legal Compliance.  Borrower represents and warrants to Silicon as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower's books and records are and shall be genuine and in all respects what they purport to be, and all signatories and endorsers* have the capacity to contract. All sales and other transactions underlying or giving rise to each Receivable shall fully comply with all applicable laws and governmental rules and regulations. All signatures and endorsements on all documents, instruments, and agreements** relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms***.

*signing on behalf of Borrower have the capacity to contract and, to the best of Borrower's knowledge, all signatories and endorsers signing on behalf of Persons other than Borrower

**signed or endorsed on behalf of Borrower (and, to the best of Borrower's knowledge, all that are signed or endorsed on behalf of Persons other than Borrower)

***except as enforceability may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally

4.3    Schedules and Documents relating to Receivables.  Borrower shall deliver to Silicon transaction reports and loan requests, schedules and assignments* of all Receivables, and schedules of collections, all on Silicon's standard forms; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit Silicon's security interest and other rights in all of Borrower's Receivables, nor shall Silicon's failure to advance or lend against a specific Receivable affect or limit Silicon's security interest and other rights therein. Loan requests received after 12:00 Noon will not be considered by Silicon until the next Business Day. Together with each such schedule and assignment*, or later if requested by Silicon, Borrower shall furnish Silicon with

5

copies (or, at Silicon's request, originals) of all contracts, orders, invoices, and other similar documents, and all original shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Receivables, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to Silicon an aged accounts receivable trial balance in such form and at such intervals as Silicon shall request. In addition, Borrower shall deliver to Silicon the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Receivables,** receipt thereof and in the same form as received, with all necessary indorsements, all of which shall be with recourse. Borrower shall also provide Silicon with copies of all credit memos within two days after the date issued.

*for security

**promptly after

4.4    Collection of Receivables.  Borrower shall have the right to collect all Receivables, unless and until a Default or an Event of Default has occurred. Borrower shall hold all payments on, and proceeds of, Receivables in trust for Silicon, and Borrower shall immediately deliver all such payments and proceeds to Silicon in their original form, duly endorsed in blank, to be applied to the Obligations in such order as Silicon shall determine. Silicon may, in its discretion, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other "blocked account" as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify*. **

*except for amounts constituting the purchase price of an on-line transaction collected pursuant to the Motorplace Vehicle Network Business Agreement dated August 18, 2000 between General Electric Capital Auto Financial Services, Inc. and Borrower; provided, however, that any transaction or other fees collected by Borrower in connection with such on-line transactions shall be deposited by Borrower as Silicon may specify as provided for above

**After a Default or Event of Default has occurred, Silicon or its designee may, at any time, in its good faith business judgment notify Account Debtors that the Receivables have been assigned to Silicon. Prior to a Default or Event of Default occurring, Silicon or its designee may, at any time, in its good faith business judgment notify Account Debtors that the Receivables have been assigned for security to Silicon.

4.5.    Remittance of Proceeds.  All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred*, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete equipment disposed of by Borrower in good faith in an arm's length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

*and is continuing

4.6    Disputes.  Borrower shall notify Silicon promptly of all disputes or claims relating to Receivables. *Borrower shall not forgive (completely or partially), compromise or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm's length transactions, which are reported to

6

Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit. Silicon may, at any time after the occurrence of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for amounts and upon terms which Silicon considers advisable in its reasonable credit judgment and, in all cases, Silicon shall credit Borrower's Loan account with only the net amounts received by Silicon in payment of any Receivables.

*Except for the Promissory Note dated September 29, 2000 by Boats.com, Inc. (as the same may be amended, modified, extended or restated) in favor of Borrower in the amount of $4,788,438.00),

4.7    Returns.  Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount (sending a copy to Silicon). In the event any attempted return occurs after the occurrence of any Event of Default, Borrower shall (i) hold the returned Inventory in trust for Silicon, (ii) segregate all returned Inventory from all of Borrower's other property, (iii) conspicuously label the returned Inventory as Silicon's property, and (iv) immediately notify Silicon of the return of any Inventory, specifying the reason for such return, the location and condition of the returned Inventory, and on Silicon's request deliver such returned Inventory to Silicon.

4.8    Verification.  Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose.

4.9    No Liability.  Silicon shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to a Receivable. Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct.

      5.  ADDITIONAL DUTIES OF THE BORROWER.

5.1    Financial and Other Covenants.  Borrower shall at all times comply with the financial and other covenants set forth in the Schedule.

5.2    Insurance.  Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require*, and Borrower shall provide evidence of such insurance to Silicon, so that Silicon is satisfied that such insurance is, at all times, in full force and effect. All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so released will be so

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used. If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrower's expense. Borrower shall promptly deliver to Silicon copies of all reports made to insurance companies.

*and that are customary and in accordance with standard practices for Borrower's industry and locations

5.3    Reports.  Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Silicon shall from time to time reasonably specify.

5.4    Access to Collateral, Books and Records.  At reasonable times, and on one Business Day's notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process. The foregoing inspections and audits shall be at Borrower's expense and the charge therefor shall be $600 per person per day (or such higher amount as shall represent Silicon's then current standard charge for the same), plus reasonable out of pocket expenses*. Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower's books or records at any location other than Borrower's Address, without first obtaining Silicon's written consent, which may be conditioned upon such accounting firm, service bureau or other third party agreeing to give Silicon the same rights with respect to access to books and records and related rights as Silicon has under this Loan Agreement. **Borrower waives the benefit of any accountant-client privilege or other evidentiary privilege precluding or limiting the disclosure, divulgence or delivery of any of its books and records (except that Borrower does not waive any attorney-client privilege).

*provided that such charges shall not exceed $30,000 in any calendar year (but said limit shall not apply if any Default or Event of Default has occurred)

**With respect to Silicon and its agents,

5.5    Negative Covenants.  Except as may be permitted in the Schedule, Borrower shall not, without Silicon's prior written consent, do any of the following: (i) merge or consolidate with another corporation or entity*; (ii) acquire any assets, except in the ordinary course of business**; (iii) enter into any other transaction outside the ordinary course of business***; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower's business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets****; (viii) incur any debts, outside the ordinary course of business, which would have a*****; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity; (x) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock******; (xii) make any change in Borrower's capital structure which would have a***** or (xiv) dissolve or elect to dissolve*******. Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction.

*, except for Permitted Mergers

**and except as otherwise permitted under this Section 5.5

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***except as otherwise permitted under this Section 5.5

****except loans to employees in accordance with Borrower's usual and customary practices not to exceed $50,000 per employee and $150,000 in the aggregate outstanding at any time

*****Material Adverse Effect

******except for any such transactions relating to stock or stock options of Borrower's employees in an amount not to exceed $50,000 per annum

*******, except Permitted Dissolutions

5.6    Litigation Cooperation.  Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or in any manner relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding*.

*, provided that Borrower shall not be required to provide litigation cooperation that would waive any attorney-client privilege

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5.7    Further Assurances.  Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions, as Silicon, may deem reasonably necessary or useful in order to perfect and maintain Silicon's perfected security interest in the Collateral, and in order to fully consummate the transactions contemplated by this Agreement.

      6.  TERM.

6.1    Maturity Date.  This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"), subject to* Section 6.3 below.

*Section 6.2 and

6.2    Early Termination.  This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three Business Days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately. If this Agreement is terminated by Borrower or by Silicon under this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount equal to* of the Maximum Credit Limit, provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Silicon Valley Bank. The termination fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations.

*one percent (1.0%)

6.3    Payment of Obligations.  On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Without limiting the generality of the foregoing, if on the Maturity Date, or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith, to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicon's then standard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of Silicon's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the discretion of Silicon, Silicon may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Silicon's security interests.

      7.  EVENTS OF DEFAULT AND REMEDIES.

7.1    Events of Default.  The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrower's officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect*; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit;** or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule or shall fail to perform

10

any other non-monetary Obligation which by its nature cannot be cured; or (e) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within 5 Business Days after the date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within*** days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a****; or (i) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within***** days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof******, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a******* Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred.

*when made

**provided, however, if an Overadvance results directly from a change by Silicon of either the amount of Reserves or of the Minimum Eligibility Requirements, then if Borrower fails to pay such Overadvance within 3 Business Days of such Overadvance occurring

***20

****Material Adverse Effect

*****60

******that results in either: (i) a change in the controlling ownership of Borrower or (ii) any Person owning more than 20% of the outstanding shares of stock of Borrower

*******Material Adverse Change

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7.2    Remedies.  Upon the occurrence of any Event of Default, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Silicon deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Silicon shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and the Collateral need not be located at the place of disposition. Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables and the like for less than face value; (h) Offset against any sums in any of Borrower's general, special or other Deposit Accounts with Silicon; and (i) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of Silicon's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum.

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7.3    Standards for Determining Commercial Reasonableness.  Borrower and Silicon agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (i) Notice of the sale is given to Borrower at least* days prior to the sale, and, in the case of a public sale, notice of the sale is published at least* days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable.

*ten (10)

7.4    Power of Attorney.  Upon the occurrence of any Event of Default, without limiting Silicon's other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but Silicon agrees to exercise the following powers in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Silicon may, in its sole discretion, deem advisable in order to perfect and maintain Silicon's security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon's possession; (e) Endorse all checks and other forms of remittances received by Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. In no event shall Silicon's rights under the foregoing power of attorney or any of Silicon's other rights under this

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Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower.

7.5    Application of Proceeds.  All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor.

7.6    Remedies Cumulative.  In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

      8.  DEFINITIONS.  As used in this Agreement, the following terms have the following meanings:

    "Account Debtor" means the obligor on a Receivable.

    "Affiliate" means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person.

    "Business Day" means a day on which Silicon is open for business.

    "Code" means the Uniform Commercial Code as adopted and in effect in the State of California from time to time.

    "Collateral" has the meaning set forth in Section 2.1 above.

    "Default" means any event which with notice or passage of time or both, would constitute an Event of Default.

    "Deposit Account" has the meaning set forth in Section 9105 of the Code.

    "Eligible Inventory" [NOT APPLICABLE].

    "Eligible Receivables" means Receivables arising in the ordinary course of Borrower's business from the sale of goods or rendition of services, which Silicon, in its sole judgment, shall deem eligible for borrowing, based on such considerations as Silicon may from time to time deem appropriate. Without limiting the fact that the determination of which Receivables are eligible for borrowing is a matter of Silicon's discretion, the following (the "Minimum Eligibility Requirements") are the minimum requirements for a Receivable to be an Eligible Receivable: (i) the Receivable must not be outstanding for more than 90 days from its invoice date, (ii) the Receivable must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor, (iii) the Receivable must

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not be subject to any contingencies (including Receivables arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional), (iv) the Receivable must not be owing from an Account Debtor with whom the Borrower has any dispute (whether or not relating to the particular Receivable)*, (v) the Receivable must not be owing from an Affiliate of Borrower**, (vi) the Receivable must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii) the Receivable must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Silicon's satisfaction, with the United States Assignment of Claims Act), (viii) the Receivable must not be owing from an Account Debtor located outside the United States or Canada (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the Receivable must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise***. Receivables owing from one Account Debtor will not be deemed Eligible Receivables to the extent they exceed 25% of the total Receivables outstanding****. In addition, if more than 50% of the Receivables owing from an Account Debtor are outstanding more than 90 days from their invoice date (without regard to unapplied credits) or are otherwise not eligible Receivables, then all Receivables owing from that Account Debtor will be deemed ineligible for borrowing. Silicon may, from time to time, in its discretion, revise the Minimum Eligibility Requirements, upon***** written notice to the Borrower.

*but only to the extent of the amount subject to such dispute or claim

**(with the exception of DaimlerChrysler and General Electric, provided that the respective ownership interests of DaimlerChrysler and General Electric in Borrower remains less than 10% each and provided further no Default or Event of Default has occurred)

***but only to the extent of any amounts owed to such Account Debtor

****provided, however, such percentage shall be 40% with respect to Receivables for which DaimlerChrysler is the Account Debtor

*****one (1) Business Day's prior

    "Equipment" means all of Borrower's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located.

    "Event of Default" means any of the events set forth in Section 7.1 of this Agreement.*

*"GAAP" means generally accepted accounting principles as in effect from time to time in the United States.

    "General Intangibles" means all general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against Silicon, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders,

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and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification and all other intangible property of every kind and nature (other than Receivables).

    "Inventory" means all of Borrower's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing.*

*"Material Adverse Effect" or "Material Adverse Change" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under this Agreement or any other present or future documents or agreements between Borrower and Silicon.

    "Obligations" means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon, whether evidenced by this Agreement or any note or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, banker's acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrower's debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney's fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other present or future instrument or agreement between Borrower and Silicon.*

*"Permitted Dissolutions" means a dissolution whereby a Borrower may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to another Borrower.

    "Permitted Liens" means the following: (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable*; (iv) additional security interests and liens consented to in writing by Silicon, which consent shall not be unreasonably withheld; (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described** provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods***. Silicon will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicon's then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement.****

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*or being contested in good faith by appropriate proceedings and for which adequate reserves are being maintained provided such liens do not have priority over any of Silicon's security interests

**in clauses (i), (ii), (ix) or (x) of the definition of Permitted Liens,

***, (ix) liens existing as of the effective date of this Agreement that are not otherwise provided for above and that are disclosed on the Schedule, and (x) liens on assets acquired by Borrower in accordance with Section 5.5 hereof, provided such liens would otherwise be permitted pursuant to clauses (i) or (ii) of the definition of Permitted Liens

****"Permitted Merger" means (a) any Borrower may merge with another Borrower; and (b) any Borrower may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to another Borrower.

    "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity.

    "Receivables" means all of Borrower's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party.

    "Reserves" means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in good faith reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule: (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in good faith, do or may affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Receivables), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicon's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

    Other Terms.  All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with* consistently applied. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.

*GAAP,

      9.  GENERAL PROVISIONS.

9.1    Interest Computation.  In computing interest on the Obligations, all checks, wire transfers and other items of payment received by Silicon (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by Silicon on account of the Obligations three Business Days after receipt by Silicon of immediately available funds, and, for purposes of the foregoing, any such funds received after 12:00 Noon on any day shall be deemed received on the next Business Day. Silicon shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to Silicon in its sole

17

discretion, and Silicon may charge Borrower's loan account for the amount of any item of payment which is returned to Silicon unpaid.

9.2    Application of Payments.  All payments with respect to the Obligations may be applied, and in Silicon's sole discretion reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its sole discretion.

9.3    Charges to Accounts.  Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrower's Loan account, in which event they will bear interest at the same rate applicable to the Loans. Silicon may also, in its discretion, charge any monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.

9.4    Monthly Accountings.  Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within thirty days after each account is rendered, describing the nature of any alleged errors or admissions.

9.5    Notices.  All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid.

9.6    Severability.  Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.

9.7    Integration.  This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not set forth in this Agreement or in other written agreements signed by the parties in connection herewith.*

*Provided the Streamline Facility Agreement dated the date hereof between Silicon and Borrower is in effect, the terms and provisions contained in the Streamline Facility Agreement shall supersede any inconsistent terms and provisions in this Agreement.

9.8    Waivers.  The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Silicon shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower. Borrower waives demand, protest, notice of protest and notice of default or

18

dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement.

9.9    No Liability for Ordinary Negligence.  Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct.

9.10    Amendment.  The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by* Borrower and a duly authorized officer of Silicon.

*a duly authorized officer of

9.11    Time of Essence.  Time is of the essence in the performance by Borrower of each and every obligation under this Agreement.

9.12    Attorneys' Fees and Costs.  Borrower shall reimburse Silicon for all reasonable attorneys' fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys' fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records*; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon's security interest in, the Collateral; and otherwise represent Silicon in any litigation relating to Borrower. In satisfying Borrower's obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is representing only Silicon and not Borrower in connection with this Agreement. If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All attorneys' fees and costs to which Silicon may be entitled pursuant to this Paragraph shall immediately become part of Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.

*(subject to the provisions of Section 5.4 of this Agreement)

9.13    Benefit of Agreement.  The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations.

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9.14    Joint and Several Liability.  If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower.

9.15    Limitation of Actions.  Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other present or future document or agreement, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Silicon, or on any other person authorized to accept service on behalf of Silicon, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other present or future agreement.

9.16    Paragraph Headings; Construction.  Paragraph headings are only used in this Agreement for convenience. Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. The term "including", whenever used in this Agreement, shall mean "including (but not limited to)". This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise.

9.17    Governing Law; Jurisdiction; Venue.  This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the State of California. As a material part of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicon's option, be litigated in courts located within California, and that the exclusive venue therefor shall be Santa Clara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

9.18    Mutual Waiver of Jury Trial.BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

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    Borrower:

THE COBALT GROUP, INC.
By	/s/ DAVID S. SNYDER
	President or Vice President
By	/s/ LEE J. BRUNZ
	Secretary or Ass't Secretary

    Borrower:

PARTSVOICE, LLC
By:	THE COBALT GROUP, INC.
Its:	Manager
	By	/s/ DAVID S. SNYDER
		President or Vice President
	By	/s/ LEE J. BRUNZ
		Secretary or Ass't Secretary

    Borrower:

INTEGRALINK CORPORATION
By	/s/ DAVID S. SNYDER
	President or Vice President
By	/s/ LEE J. BRUNZ
	Secretary or Ass't Secretary

    Silicon:

SILICON VALLEY BANK
By	/s/ DON CHANDLER
Title

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Silicon Valley Bank

Schedule to
Loan and Security Agreement

Borrower:	The Cobalt Group, Inc. PartsVoice, LLC IntegraLink Corporation
Address:	2200 First Avenue South Seattle, WA 98134
Date:	March 8, 2001

    This Schedule forms an integral part of the Loan and Security Agreement between Silicon Valley Bank and the above-borrower of even date.

1.	CREDIT LIMIT (Section 1.1):	An amount not to exceed the lesser of: (i) $10,000,000 at any one time outstanding (the "Maximum Credit Limit"); or (ii) 80% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above).
		Loans will be made to each Borrower based on the Eligible Receivables of each Borrower, subject to the Maximum Credit Limit set forth above for all Loans to all Borrowers combined.
	Cash Management Sublimit (Section 1.6):	See Section 1.6 above.
2.	INTEREST.
	Interest Rate (Section 1.2):	A rate equal to the "Prime Rate" in effect from time to time, plus 2.0% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate;" it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate.
	Minimum Monthly Interest (Section 1.2):	N/A
3.	FEES (Section 1.4):
	Loan Fee:	$125,000, payable as follows: $75,000, payable concurrently herewith and $50,000, payable on or before the first anniversary of this Agreement.
	Collateral Monitoring Fee:	$1,500, per month, payable in arrears (prorated for any partial month at the beginning and at termination of this Agreement).

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	Unused Line Fee:	Borrower shall pay Silicon an Unused Line Fee, in addition to all interest and other fees payable hereunder. The amount of the Unused Line Fee shall be 0.25% per annum multiplied by an amount equal to the Maximum Credit Limit minus the average daily balance of the outstanding Loans. The Unused Line Fee shall be computed and paid monthly, in arrears (prorated for any partial calendar month at the beginning and at termination of this Agreement), and shall be due on the last calendar day of each month.
4.	MATURITY DATE (Section 6.1):	Two years from the date of this Agreement.
5.	FINANCIAL COVENANTS (Section 5.1):	The Cobalt Group, Inc. shall, on a consolidated basis, comply with the following covenant. Compliance shall be determined as of the end of each month, except as otherwise specifically provided below:
	Minimum Tangible Net Worth:	Borrower shall maintain a Tangible Net Worth of not less than the following:
		For the months ending February 28, 2001 and March 31, 2001: $17,744,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower.
		For the months ending April 30, 2001, May 31, 2001 and June 30, 2001: $12,754,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower.
		For the months ending July 31, 2001, August 31, 2001 and September 30, 2001: $9,695,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower.
		For the months ending October 31, 2001, November 30, 2001 and December 31, 2001: $8,302,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower.
		For the months ending January 31, 2002, February 28, 2002 and March 31, 2002: $9,695,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower.
		For the months ending April 30, 2002, May 31. 2002 and June 30, 2002: $9,695,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower plus 50% of Borrower's quarterly net income, if any, for the fiscal quarter ending March 31, 2002.

2

	For the months ending July 31, 2002, August 31. 2002 and September 30, 2002: $9,695,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower plus 50% of Borrower's quarterly net income, if any, for the fiscal quarters ending March 31, 2002 and June 30, 2002.
	For the months ending October 31, 2002, November 30. 2002 and December 31, 2002: $9,695,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower plus 50% of Borrower's quarterly net income, if any, for the fiscal quarters ending March 31, 2002, June 30, 2002 and September 30, 2002.
	For the month ending January 31, 2003 and each month ending thereafter: $9,695,000 plus 50% of the consideration received by Borrower after the date hereof for the issuance of equity securities of Borrower plus 50% of Borrower's quarterly net income, if any, for the fiscal quarters ending March 31, 2002, June 30, 2002, September 30, 2002 and December 31, 2002.
	In no event shall the amount of this Minimum Tangible Net Worth financial covenant be decreased.
Definitions.	For purposes of the foregoing financial covenant, the following term shall have the following meaning:
	"Current assets", "current liabilities" and "liabilities" shall have the meaning ascribed thereto by generally accepted accounting principles.
	"Tangible Net Worth" shall mean the excess of total assets over total liabilities, determined in accordance with generally accepted accounting principles, with the following adjustments:
		(A) there shall be excluded from assets: (i) notes, accounts receivable and other obligations owing to the Borrower from its officers or other Affiliates, and (ii) all assets which would be classified as intangible assets under generally accepted accounting principles, including without limitation goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises
		(B) there shall be excluded from liabilities: all indebtedness which is subordinated to the Obligations under a subordination agreement in form specified by Silicon or by language in the instrument evidencing the indebtedness which is acceptable to Silicon in its discretion.

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6.	REPORTING. (Section 5.3):
		Borrower shall provide Silicon with the following:
		1.	Monthly Receivable agings, aged by invoice date, within fifteen days after the end of each month.
		2.	Monthly accounts payable agings, aged by invoice date, within fifteen days after the end of each month.
		3.	Monthly reconciliations of Receivable agings (aged by invoice date), transaction reports, and general ledger, within thirty days after the end of each month.
		4.
		5.	Monthly consolidated and consolidating unaudited financial statements, as soon as available, and in any event within thirty days after the end of each month.
		6.	Monthly Compliance Certificates, within thirty days after the end of each month, in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenant set forth in this Agreement and such other information as Silicon shall reasonably request, including, without limitation, all outstanding or held check registers, if any, or, if applicable, a statement that at the end of such month there were no held checks.
		7.	Quarterly unaudited financial statements, as soon as available, and in any event within forty-five days after the end of each fiscal quarter of Borrower.
		8.	Annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower within thirty days prior to the end of each fiscal year of Borrower; provided, however, Borrower shall provide its fiscal year 2002 operating budgets to Silicon by no later than September 30, 2001.
		9.	Annual financial statements, as soon as available, and in any event within 90 days following the end of Borrower's fiscal year, certified by Price Waterhouse Coopers, or other independent certified public accountants acceptable to Silicon.
7.	COMPENSATION (Section 5.5):		Not Applicable.

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8.	BORROWER INFORMATION:
	Prior Names of Borrower (Section 3.2):	See Representations and Warranties dated October 2, 2000.
	Prior Trade Names of Borrower (Section 3.2):	See Representations and Warranties dated October 2, 2000.
	Existing Trade Names of Borrower (Section 3.2):	See Representations and Warranties dated October 2, 2000.
	Other Locations and Addresses (Section 3.3):	7004 Bee Cave Road, Suite 100, Austin, TX 78746; 8305 SE Monterey, Suite 104, Portland, OR 97266; 2701 Troy Center Drive, Suite 220, Troy, MI 48084; 2790 Fisher Road, Columbus, OH 43204.
	Material Adverse Litigation (Section 3.10):	None.
9.	OTHER COVENANTS (Section 5.1):	Borrower shall at all times comply with all of the following additional covenants:
		(1)	Banking Relationship. Borrower shall at all times maintain its primary banking relationship with Silicon.
		(2)	Subordination of Inside Debt. All present and future indebtedness of the Borrower to its shareholders, to whom it owes more than $25,000, its officers and directors ("Inside Debt") shall, at all times, be subordinated to the Obligations pursuant to a subordination agreement on Silicon's standard form except for Unsubordinated Insider Indebtedness (defined as collectively, (i) indebtedness for reimbursement of out of pocket expenses in the ordinary course of business and (ii) indebtedness for liabilities in the nature of indemnification, contribution and exoneration to the extent such liabilities of Borrower are directly or indirectly funded by Persons other than Borrower, such as insurers or indemnitors). Borrower represents and warrants that there is no Inside Debt presently outstanding, except for the following: NONE. Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to Silicon a subordination agreement on Silicon's standard form.

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(3)

Copyright Filings. Concurrently, each Borrower is executing and delivering to Silicon a Patent Mortgage and Security Agreement between Borrower and Silicon (the "Intellectual Property Agreement"). Within 30 days after the date hereof, Borrower shall (i) cause all of the following computer software, the licensing of which results in Receivables, to be registered with the United States Copyright Office: Cobalt Web Publishing System 1.0, Lead Manager 1.0, Lead Manager Redirect 1.0, Lead Manager Reports 1.0, Auto Show 2.2, 2.4, myCarTools 1.0, AdWizards 2.3, Secure Prequal 1.0 and FSBO 1.0, (ii) complete the Exhibits to the Intellectual Property Agreement with all of the information called for with respect to such software, (iii) cause the Intellectual Property Agreement to be recorded in the United States Copyright Office, and (iv) provide evidence of such recordation to Silicon. Within 45 days after the date hereof, Borrower shall (i) cause all remaining computer software, the licensing of which results in Receivables, to be registered with the United States Copyright Office, (ii) update the Exhibits to the Intellectual Property Agreement with all of the information called for with respect to such software, (iii) execute a Supplement to the Intellectual Property Agreement with respect to such software, (iv) cause the Supplement to the Intellectual Property Agreement to be recorded in the United States Copyright Office, and (v) provide evidence of such recordation to Silicon. Notwithstanding anything to the contrary in the Intellectual Property Agreement, with respect to computer software, the licensing of which results in Receivables, developed by Borrower after the date hereof, Borrower shall register such computer software on a quarterly basis with the United States Copyright Office, cause the Intellectual Property Agreement to be amended to include such software, cause such amendment to be recorded in the United States Copyright Office and provide evidence of such recordation to Silicon.

(4)

Cobalt Group, L.L.C. Financing Statements. Borrower represents and warrants to Silicon that "Cobalt Group, L.L.C." is not the same entity as The Cobalt Group, Inc., the Borrower under this Agreement, and that the UCC-1 Financing Statements filed in favor of The Laredo National Bank, or any other secured party, listing "Cobalt Group, L.L.C." or "Cobalt Group, L.L.C. d/b/a Cobalt Construction Co." as the debtor do not represent any liens or security interests on the assets of the Borrower.

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10.
OTHER PERMITTED LIENS
(Clause (ix) of Permitted Liens):
Lien in favor of General Electric Capital Auto Financial Services, Inc. on all of Borrower's right, title and interest in all computer software, programs and information that consist of a modification, upgrade, enhancement, change, repair or improvement of or to the computer software licensed by such secured party to Borrower pursuant to that certain Software License, dated August 18, 2000 between Borrower and such secured party, and all proceeds thereof.

7

Borrower:				Silicon:
	THE COBALT GROUP, INC.			SILICON VALLEY BANK
	By	/s/ DAVID S. SNYDERPresident or Vice President		By	/s/ DON CHANDLER
				Title
	By	/s/ LEE J. BRUNZSecretary or Ass't Secretary
Borrower:
	PARTSVOICE, LLC
	By:	THE COBALT GROUP, INC.
	Its:	Manager
		By	/s/ DAVID S. SNYDERPresident or Vice President
		By	/s/ LEE J. BRUNZSecretary or Ass't Secretary
Borrower:
	INTEGRALINK CORPORATION
	By	/s/ DAVID S. SNYDERPresident or Vice President
	By	/s/ LEE J. BRUNZSecretary or Ass't Secretary

8

Silicon Valley Bank

Certified Resolution and Incumbency Certificate

Borrower:	The Cobalt Group, Inc., a corporation organized under the laws of the State of Washington
Date:	March 8, 2001

I, the undersigned, Secretary or Assistant Secretary of the above-named borrower, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked.

RESOLVED, that this corporation borrow from Silicon, from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require;

RESOLVED, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Silicon, and Silicon is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments;

RESOLVED, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Silicon, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Silicon, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Silicon any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Silicon may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval; and

RESOLVED, that Silicon may conclusively rely upon a certified copy of these resolutions and a certificate of the Secretary of this corporation as to the officers of this corporation and their offices and signatures, and continue to conclusively rely on such certified copy of these resolutions and said certificate for all past, present and future transactions until written notice of any change hereto or thereto is given to Silicon by this corporation by certified mail, return receipt requested.

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    The undersigned further hereby certifies that the following persons are the duly elected and acting officers of the corporation named above as borrower and that the following are their actual signatures:

NAMES	OFFICE(S)	ACTUAL SIGNATURES
John W.P. Holt	President & Chief Executive Officer	x	/s/ JOHN W.P. HOLT
David S. Snyder	Executive Vice President & CFO	x	/s/ DAVID S. SNYDER
Lee J. Brunz	General Counsel & Secretary	x	/s/ LEE J. BRUNZ
		x

    IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary on the date set forth above.

/s/ LEE J. BRUNZSecretary

2

Silicon Valley Bank

Certified Resolution and Incumbency Certificate

Borrower:	PartsVoice, LLC, a limited liability company organized under the laws of the State of Oregon
Date:	March 8, 2001

I, the undersigned, Manager, Secretary or Assistant Secretary of the above-named borrower, a limited liability company organized under the laws of the state set forth above ("LLC"), do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Members of said company as required by law, and by the operating agreement of said company, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked.

RESOLVED, that this LLC borrow from Silicon, from time to time, such sum or sums of money as, in the judgment of the manager, this LLC may require;

RESOLVED, that the manager of this LLC be, and is hereby authorized, directed and empowered, in the name of this LLC, to execute and deliver to Silicon, and Silicon is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized manager is authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments;

RESOLVED, that said authorized manager be and is hereby authorized, directed and empowered, as security for any and all indebtedness of this LLC to Silicon, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Silicon, or deed in trust for its benefit, any property of any and every kind, belonging to this LLC, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Silicon any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Silicon may require and said authorized manager may approve, and the execution thereof by said authorized manager shall be conclusive evidence of such approval; and

RESOLVED, that Silicon may conclusively rely upon a certified copy of these resolutions and a certificate of the sole member of this LLC as to the manage of this LLC and such manager's signatures, and continue to conclusively rely on such certified copy of these resolutions and said certificate for all past, present and future transactions until written notice of any change hereto or thereto is given to Silicon by this LLC by certified mail, return receipt requested.

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    The undersigned further hereby certifies that the following person is the duly elected and acting manager and sole member of the LLC named above as borrower and that the following is the actual signature of the authorized chief executive officer thereof:

NAMES	OFFICE(S)	ACTUAL SIGNATURES
The Cobalt Group, Inc.	Manager	By x	/s/ JOHN W.P. HOLT John W.P. Holt President & CEO

    IN WITNESS WHEREOF, I have hereunto set my hand as Secretary of such Manager on the date set forth above.

/s/ LEE J. BRUNZSecretary of Manager

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Silicon Valley Bank

Certified Resolution and Incumbency Certificate

Borrower:	IntegraLink Corporation, a corporation organized under the laws of the State of Washington
Date:	March 8, 2001

I, the undersigned, Secretary or Assistant Secretary of the above-named borrower, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked.

RESOLVED, that this corporation borrow from Silicon, from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require;

RESOLVED, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Silicon, and Silicon is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments;

RESOLVED, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Silicon, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Silicon, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Silicon any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Silicon may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval; and

RESOLVED, that Silicon may conclusively rely upon a certified copy of these resolutions and a certificate of the Secretary of this corporation as to the officers of this corporation and their offices and signatures, and continue to conclusively rely on such certified copy of these resolutions and said certificate for all past, present and future transactions until written notice of any change hereto or thereto is given to Silicon by this corporation by certified mail, return receipt requested.

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    The undersigned further hereby certifies that the following persons are the duly elected and acting officers of the corporation named above as borrower and that the following are their actual signatures:

NAMES	OFFICE(S)	ACTUAL SIGNATURES
John W.P. Holt	President	x	/s/ JOHN W.P. HOLT
David S. Snyder	Vice President	x	/s/ DAVID S. SNYDER
Lee J. Brunz	Secretary	x	/s/ LEE J. BRUNZ
		x

    IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary on the date set forth above.

/s/ LEE J. BRUNZSecretary

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Silicon Valley Bank

NOTICE OF SECURITY INTEREST
March 8, 2001

Certified Mail, Return Receipt Requested

BancBoston Robertson Stephens
555 California Street
San Francisco, CA 94104

Re: THE COBALT GROUP, INC.

Ladies and Gentlemen:

    Notice is hereby given that your above-named customer has granted a security interest in all of its present and future deposit accounts maintained with your institution, general and special, and of every other kind, to Silicon Valley Bank, 3003 Tasman Drive, Santa Clara, California 95054.

    Please contact the undersigned at 408-654-1070, if you have any questions about this matter.

		Sincerely yours,
		Silicon Valley Bank
		By
		Title
THE COBALT GROUP, INC.
By	/s/ DAVID S. SNYDER
Title	Chief Financial Officer, Executive Vice President

Silicon Valley Bank

NOTICE OF SECURITY INTEREST
March 8, 2001

Certified Mail, Return Receipt Requested

U.S. Bank
Private Financial Services
111 SW 5th Avenue, Suite 600
Portland, OR 97204

Re: PARTSVOICE, LLC

Ladies and Gentlemen:

    Notice is hereby given that your above-named customer has granted a security interest in all of its present and future deposit accounts maintained with your institution, general and special, and of every other kind, to Silicon Valley Bank, 3003 Tasman Drive, Santa Clara, California 95054.

    Please contact the undersigned at 408-654-1070, if you have any questions about this matter.

			Sincerely yours,
			Silicon Valley Bank
			By
			Title
PARTSVOICE, LLC
By:	The Cobalt Group, Inc.
	By	/s/ DAVID S. SNYDER
	Title	Chief Financial Officer, Executive Vice President

EX-21.1

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Exhibit 21.1

Subsidiaries of the Registrant

PartsVoice, LLC, an Oregon limited liability company
IntegraLink Corporation, a Washington corporation

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Subsidiaries of the Registrant

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

    We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-45576) of The Cobalt Group, Inc. of our report dated January 25, 2001, except for paragraphs two and three of Note 19, which are as of March 9, 2001 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Seattle, Washington
March 30, 2001

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CONSENT OF INDEPENDENT ACCOUNTANTS