-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QrMMUdxznO7mTM+4V5ZwegYazEzY3+xCpv7XTedNxQ2UpgcpPzHyRN+eTgBHp91v MWnBjOgld9oLA5kM9I7iMA== 0000950149-00-000584.txt : 20000324 0000950149-00-000584.hdr.sgml : 20000324 ACCESSION NUMBER: 0000950149-00-000584 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 44 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGROUPS INC CENTRAL INDEX KEY: 0001105102 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943302741 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-33162 FILM NUMBER: 576942 BUSINESS ADDRESS: STREET 1: 350 BRANNAN ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 BUSINESS PHONE: 4155462700 MAIL ADDRESS: STREET 1: 350 BRANNAN ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 S-1 1 FORM S-1 FOR EGROUPS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 2000. REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 EGROUPS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375 94-3302741 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
350 BRANNAN STREET, SAN FRANCISCO, CA 94107, (415) 546-2700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) MICHAEL B. KLEIN PRESIDENT AND CHIEF EXECUTIVE OFFICER 350 BRANNAN STREET, SAN FRANCISCO, CA 94107, (415) 546-2700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: RALPH L. ARNHEIM III, ESQ. MICHAEL J. HALLORAN, ESQ. CYNTHIA CLARFIELD HESS, ESQ. ROBERT E. SULLIVAN, ESQ. JOHN S. WILLS, ESQ. W. WARREN H. BINFORD, ESQ. PERKINS COIE LLP PILLSBURY MADISON & SUTRO LLP 180 TOWNSEND STREET, 3RD FLOOR 50 FREMONT STREET SAN FRANCISCO, CA 94107 SAN FRANCISCO, CA 94105 (415) 344-7000 (415) 983-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] __________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- Common stock, $0.001 par value.......................... $75,000,000.00 $19,800.00 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 We will amend and complete the information in this prospectus. Although we are permitted by US federal securities laws to offer these securities using this prospectus, we may not sell them or accept your offer to buy them until the documentation filed with the SEC relating to these securities has been declared effective by the SEC. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy these securities in any jurisdiction where that would not be permitted or legal. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS , 2000 [LOGO] SHARES OF COMMON STOCK - -------------------------------------------------------------------------------- EGROUPS, INC.: - We provide the most widely used email group communication platform on the Internet. - eGroups, Inc. 350 Brannan Street San Francisco, CA 94107 (415) 546-2700 PROPOSED SYMBOL AND MARKET: - EGPS/Nasdaq National Market THE OFFERING: - - We are offering shares of our common stock. - - The underwriters have an option to purchase an additional shares from us to cover over-allotments. - - This is our initial public offering. We anticipate that the initial public price will be between $ and $ per share. - - We plan to use the net proceeds from this offering for the development of our services, sales and marketing, and general corporate purposes. - - Closing: , 2000.
------------------------------------------------------------------------------------ Per Share Total ------------------------------------------------------------------------------------ Public Offering Price: $ $ Underwriting Fees: Proceeds to eGroups, Inc.: ------------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. - -------------------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- DONALDSON, LUFKIN & JENRETTE CHASE H&Q ROBERTSON STEPHENS 3 [Inside Front Cover of Prospectus] The top of the page has the following header: THE LEADER IN EMAIL GROUP COMMUNICATION The following four subheaders are located across the page directly under the above header: "eGroups empowers individuals and businesses to communicate and collaborate around common interests." "Our 14 million active members exchange 2 billion emails per month." "The majority of our new members are referred by existing members." "Our members have created 600,000 active email groups." Below these sub-headers, on the right side of the page, there is screen shot of an eGroups web page, including a magnified "My Groups" menu from that page. To the left of this screen shot, and below the sub-headers, there are photographs of an individual and four groups, each arranged on a separate circular pod. The four groups have the following captions: "Music Fans;" "Class of '85;" "Investing Group;" and "Regional Sales Managers." - ------------------------------------------------------------------------ [Inside Front Cover Gatefold] The top of the page has the following centered header: HIGHLY TARGETED ADVERTISING AND DIRECT MARKETING SOLUTIONS The following three sub-headers are located across the page directly under the above header: "eGroups offers advertising inventory of 2 billion email impressions and 163 million web page views each month." "We deliver highly targeted marketing messages to our members based on their self-declared interests." "We have 2.5 million opt-in subscriptions from members who have elected to receive email promotional offers." Below these sub-headers, on the right-center and left-center of the page, there are screen shots of two eGroups web pages, including a magnified message from the group. There are several photographs of individuals arrayed around the gatefold, along with eleven interspersed circles with the following text: "Corvette World;" "Class of '85;" "Tech Investor;" Regional Sales Managers;" "College Intramurals;" "Santana Fans;" "FlightSim Jockeys;" Golf-Pros;" "Parenting;" "Sports Fans Now;" and "Spring Landscapes." The following text is also interspersed among the photographs and circles: "Prominent banner positioning on eGroups' web pages" "Targeted sponsorships" "Opt-in offers in specific categories of interest" "Ad banners embedded within group messages and delivered to the email inbox" 4 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of the prospectus or any sale of the common stock. In this prospectus, unless the context indicates otherwise, the Company, eGroups, we, us and our refer to eGroups, Inc., a Delaware corporation. eGroups, eGroup, email Groups, ONElist and the eGroups logo are our trademarks. This prospectus also contains trademarks and service marks of other companies. Unless otherwise indicated, all information in this prospectus: - gives effect to the conversion of all our outstanding shares of series A, B, C and D convertible preferred stock into shares of common stock upon the closing of this offering and the conversion of approximately $3.2 million in principal amount of subordinated debt into 437,500 shares of our common stock prior to the closing of this offering; - assumes the effectiveness of our amended and restated certificate of incorporation in the State of Delaware upon the completion of this offering; and - assumes no exercise of the underwriters' over-allotment option. TABLE OF CONTENTS
Page Prospectus Summary.................. 3 Risk Factors........................ 7 Use of Proceeds..................... 18 Dividend Policy..................... 18 Corporate Information............... 18 Forward-Looking Statements.......... 18 Capitalization...................... 19 Dilution............................ 20 Selected Consolidated Financial Data.............................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 22 Business............................ 29
Page Management.......................... 43 Relationships and Related Transactions...................... 52 Principal Stockholders.............. 55 Description of Capital Stock........ 57 Shares Eligible for Future Sale..... 60 Underwriting........................ 62 Legal Matters....................... 65 Experts............................. 65 Additional Information.............. 65 Index to Consolidated Financial Statements........................ F-1
5 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before buying shares in the offering. You should read the entire prospectus carefully. EGROUPS OUR BUSINESS eGroups is the most widely used email group communication platform on the Internet. Our service enables our members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members participating in approximately 600,000 member-created groups, with new members joining our service at a rate of approximately 1.5 million per month. During February 2000, our members exchanged email messages at a rate of approximately 2 billion per month, and our web site generated 163 million page views. We derive revenue from permission-based direct marketing programs, sponsorships and other forms of online advertising. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member-designated interests, demographic information and other data. In addition, through our permission-based direct marketing programs, we deliver full-page emails to members who have elected to receive promotional offers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. Our rapid growth in members has been driven by the inherently viral nature of our business and the ease of using our service. The organic growth of our member base occurs as existing members expand their groups by inviting new members, who often form their own groups and invite additional new members. Our member base has expanded rapidly in both the United States and abroad, with over 20% of our members coming from international domains. BENEFITS TO OUR MEMBERS Our easy-to-use and customizable email group communication service provides numerous benefits to our members. Through our service, group members communicate with each other using a single group email address, rather than the individual email addresses of each member. We deliver group email directly to the member's email inbox, allowing the member to read and reply at his or her convenience. In addition, we archive group email communications over the prior six months, enabling prospective and existing members to search our archives for past communications among group members. Each group also has access to a group calendar, an online chat application, a group polling feature, and dedicated storage space to share files such as photographs, documents and digital music. In April 2000, our members will have access to our web-based platform in 14 different languages and will be able to continue sending emails to other group members in any language. We are able to align advertisements more effectively with our members' self-designated interests, providing them with relevant advertisements that they are more likely to find useful. BENEFITS TO ADVERTISERS AND DIRECT MARKETERS We offer advertisers and direct marketers broad reach as well as a variety of targeting capabilities. Because our 14 million active members have segmented themselves across approximately 600,000 groups based on business and personal interests, we enable advertisers and direct marketers 3 6 to deliver highly targeted advertisements to specific audiences. We currently deliver approximately 2 billion emails and 163 million web page views per month, nearly all containing an advertisement. For example, online financial services firms can target advertisements to members of an investment group, while pharmaceutical companies can promote new therapies to a health-related group. Because consumers spend a significant portion of their online time using email, we believe advertisers are better able to reach these consumers by delivering advertisements in email messages. In addition, we currently have approximately 2.5 million subscriptions from our members who have elected to receive promotional offers by email in specific categories of interest. OUR MARKET OPPORTUNITY The Direct Marketing Association estimates that a total of $309 billion was spent on advertising and direct marketing in the United States in 1999. Because the Internet enables precise targeting of consumers through the use of behavioral, demographic and other data, advertisers and direct marketers are increasingly adopting online forms of advertising. Forrester Research estimates that the amount spent on online advertising and direct marketing worldwide will increase ten-fold from $3.3 billion in 1999 to $33.1 billion in 2004. The Internet enables group communications to occur on a global scale and offers efficiencies currently unavailable offline. Because email is the most widely used application on the Internet, we believe that groups will utilize email as a preferred medium for creating and managing their group communications. Given the self-segmented nature of groups, we believe that advertisers and direct marketers will embrace an email-based group communication platform that enables them to deliver highly targeted advertisements to their desired audience. THE EGROUPS STRATEGY Our objective is to maintain our leading position as the most widely used email group communication platform on the Internet. The following are key elements of our strategy: - Continue to develop, acquire and license proprietary products and technology to improve our member experience with enhanced functionality and new features; - Continue to increase the size of our member base and the level of group activity among existing members; - Maximize awareness of our brand among members and advertisers through various marketing channels; - Increase revenue by expanding our direct sales efforts, increasing our inventory of rich-media email advertisements, improving our ability to target our web and email advertising, refining our opt-in direct marketing programs, and introducing new subscription-based services; and - Leverage our email group communication platform to further expand internationally. EGROUPS, INC. We were incorporated in Delaware in June 1998. Our principal office is located at 350 Brannan Street, San Francisco, California, and our telephone number is (415) 546-2700. We maintain a web site at www.egroups.com. Information contained on our web site is not part of this prospectus. 4 7 THE OFFERING Common stock offered by eGroups.......................... shares Common stock to be outstanding after the offering............... shares Use of proceeds.................. We plan to use the net proceeds from this offering for the development of our services, sales and marketing, and general corporate purposes. Proposed Nasdaq National Market symbol........................... EGPS The number of shares to be outstanding after this offering is based on shares outstanding as of March 15, 2000. This number excludes: - 8,817,293 shares of our common stock reserved for issuance under our option and employee stock purchase plans, of which 2,711,453 shares of our common stock are issuable upon the exercise of outstanding stock options; and - 8,330 shares of our common stock issuable upon exercise of an outstanding warrant. See "Capitalization," "Management--Stock Plans," and Notes 8 and 11 of Notes to our Consolidated Financial Statements. 5 8 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes the consolidated statement of operations data for our business. The shares used in calculating our pro forma net loss per share data include the assumed conversion of all shares of convertible preferred stock into shares of our common stock from the date of issuance, but exclude the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some employees through the exercise of stock options. For a more detailed explanation of this financial data, see "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our Consolidated Financial Statements located elsewhere in this prospectus.
PERIOD FROM INCEPTION SIX MONTHS ENDED (JUNE 5, 1998) TO JANUARY 31, JULY 31, ----------------------- 1999 1999 2000 (UNAUDITED) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenue......................................... $ 489 $ 43 $ 3,464 Gross profit (loss)............................. 267 (44) 3,139 Operating loss.................................. (6,804) (1,240) (12,605) Net loss attributable to common stockholders.... $(6,857) $(1,235) $(12,903) Net loss per share attributable to common stockholders Basic and diluted.......................... $ (1.25) $ (0.29) $ (1.61) Shares used in per share calculation....... 5,465 4,303 8,011 Pro forma net loss per share attributable to common stockholders Basic and diluted (unaudited).............. $ (0.49) $ (0.56) Shares used in pro forma per share calculation (unaudited)................. 13,641 22,643
The following table summarizes our consolidated balance sheet data. The pro forma data reflects the assumed conversion of all of our shares of convertible preferred stock into shares of our common stock, the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some employees through the exercise of stock options. The pro forma as adjusted consolidated balance sheet data also gives effect to the sale of shares of common stock at an assumed initial public offering price of $ per share in this offering, after deducting estimated underwriting discounts, commissions and offering expenses payable by us, and the application of the resulting net proceeds.
JANUARY 31, 2000 --------------------------------- PRO PRO FORMA ACTUAL FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................. $44,586 $44,585 $ Working capital....................................... 44,578 44,576 Total assets.......................................... 52,211 51,312 Long-term capital lease obligations and debt.......... (8,149) (4,999) (4,999) Total stockholders' equity............................ 41,555 43,806
6 9 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus before making an investment decision about our common stock. Additional risks and uncertainties that we do not presently know about or that we currently deem immaterial may also impair our business operations. Any of the following risks could harm our business, financial condition or operating results, or cause the trading price of our common stock to decline. As a result, you could lose all or part of the money you paid to buy our common stock. RISKS RELATED TO OUR BUSINESS OUR LIMITED OPERATING HISTORY, UNPROVEN BUSINESS MODEL, RECENT MERGER, AND UNPREDICTABLE OPERATING RESULTS, COMBINED WITH THE UNCERTAINTIES OF OUR RAPIDLY EVOLVING MARKET, MAKE EVALUATING OUR BUSINESS DIFFICULT AND MAY LEAD TO VOLATILITY IN OUR STOCK PRICE. We were incorporated and began providing email group communication services in mid-1998, and have only recently begun to recognize revenue. Our historical financial information offers limited value in projecting our future operating results due to our limited operating history and the frequently changing nature of our market. Our business model is still evolving and could change significantly. In addition, because our merger with ONElist, Inc., was completed only recently in November 1999, we continue to integrate our operations and business activities. For example, we are planning to launch the integrated eGroups and ONElist web site in April 2000. Our operating results have varied during our short operating history and may continue to fluctuate significantly. As a result, we may fail to meet the expectations of investors and securities analysts, causing our stock price to become volatile or decline. Factors that may adversely affect our operating results include: - Failure to convince advertisers and direct marketers to adopt and continue to use our service; - Decreases in the price that advertisers and direct marketers will pay to deliver advertisements through our service; - Inability to increase our advertising response rates and targeting capabilities; - Introduction of new web sites, products or services by our competitors; - Inability to build brand awareness; - Inability to retain an active member base and attract new members; - Inability to increase the size and productivity of our engineering, marketing and sales forces; - Decreases in the rate at which our members opt into our direct marketing programs; - Failure to enhance our services to members and advertisers in a timely and effective manner; - Service interruptions that lead to significant downtime in our services to members or advertisers; - General economic conditions and economic conditions specific to the Internet; and - Seasonal changes in Internet usage and advertising revenues. As a result of all the factors described above, we believe that period-to-period comparisons of our historical operating results do not offer any indicator of our future performance and that 7 10 unfavorable period-to-period comparisons could cause our stock price to become volatile and to decline. WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT INCREASED LOSSES FOR THE FORESEEABLE FUTURE. We have experienced increasing operating losses since we began operations in June 1998. As of January 31, 2000, we had an accumulated deficit of approximately $19.4 million. Although we have experienced revenue growth in recent periods, our revenue may not continue to increase at its current rate and we expect to experience increased losses for the foreseeable future as we: - Increase our marketing activities to members and advertisers; - Continue to expand our product development activities, including enhancing our email-serving and ad-serving technology, developing new service features and increasing our operational infrastructure; - Increase our number of personnel; and - Incur higher general and administrative expenses to support our growing business. We are investing considerable resources in our expansion strategies in advance of anticipated growth, and these expenditures may delay our profitability. We cannot predict when or if we will achieve sustained profitability. Our failure to become and remain profitable would hinder our ability to sustain our business. WE FACE INTENSE AND INCREASING COMPETITION FOR MEMBERS AND ADVERTISERS THAT MAY ADVERSELY AFFECT OUR BUSINESS. Our market is intensely competitive and we expect that competition will persist and intensify in the future. We face competition for members and for advertising and direct marketing customers. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, technical, sales, marketing and other resources. Many of these competitors can devote substantially more resources to the development of their products and services. In addition, our competitors may form strategic alliances or complete acquisitions of businesses, technologies or products that could reduce our competitive advantage. We compete for members with: - Communication services such as Critical Path's RemarQ division, eCircles, Inc., Microsoft Corporation's Listbot Service, Topica, Inc., and Visto Corporation; and - Community and club services of established portals such as Excite@Home Networks, Inc., Lycos, Inc., Microsoft Corporation's MSN, and Yahoo! Inc. We compete for Internet advertising, direct marketing and sponsorship revenues with: - Major web publishers and portals such as America Online, Inc., Excite@Home Networks, Inc., Lycos, Inc., MSN and Yahoo! Inc.; - Internet advertising networks such as DoubleClick, Inc.; and - Opt-in email companies such as LifeMinders.com, Inc., NetCreations, Inc. and yesmail.com, Inc. 8 11 We also compete with traditional advertising channels including television, radio, print and outdoor media for a share of advertisers' and direct marketers' total advertising budgets. Increased competition for advertising and direct marketing spending may result in price reductions and reduced gross margins. WE DEPEND UPON REVENUE FROM ADVERTISERS AND DIRECT MARKETERS, AND IF THEY DO NOT ADOPT AND CONTINUE TO USE OUR SERVICE, OUR OPERATING RESULTS WOULD SUFFER. We derive substantially all of our revenue from the sale of web-based and email-based banner advertising, sponsorships and opt-in direct marketing programs. The sale and deployment of email-based advertising remains a new and unproven business, and we face significant hurdles and potential delays in convincing many advertisers and direct marketers to utilize our platform to reach their desired audiences. Even if we succeed in increasing the number of these customers, a majority of our contracts are purchased on a short-term basis and may be terminated at any time without penalty. The cancellation or deferral of even a small number of advertising contracts could harm our business, and we might not adjust our spending in time to compensate for any unexpected revenue shortfall. Competitive pressures could cause us to decrease the prices we charge advertisers, which would have a negative impact on our revenue. WE RELY ON OUR ABILITY TO ENABLE ADVERTISERS AND DIRECT MARKETERS TO DELIVER TARGETED ADVERTISEMENTS, AND IF WE FAIL TO CONTINUE ENHANCING OUR CAPABILITIES FOR TARGETING ADVERTISING TO INDIVIDUAL MEMBERS, WE MAY LOSE CUSTOMERS. The growth of our business will depend upon our ability to increase our revenue from targeted advertising. We believe that our ability to realize such increases will depend partly on our ability to acquire, develop and refine technologies that better identify the preferences of individual members. For example, we recently licensed technology intended to enable us to develop better information regarding our members' interests and activities. We may fail to implement this technology in a timely fashion or may not achieve the results we expect from this technology. Our ability to analyze and predict accurately the members who are likely to respond to particular advertisements will significantly affect the prices that we can charge advertisers and may influence their willingness to pay for advertisements at all. If we fail to increase our capabilities to provide targeted advertising, our results of operations would be harmed. FAILURE TO REALIZE SUSTAINED OR HIGHER "CLICK THROUGH" RATES ON OUR ADVERTISEMENTS MAY ADVERSELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN ADVERTISING CUSTOMERS. To achieve the high response rates for our advertisers, we need to identify and deliver the types and placement of advertisements that our members find most appealing. Our ability to achieve higher "click through" or response rates on our advertisements may be diminished by factors such as a failure to place advertisements appropriately, a lack of interest in online advertising in general, or a failure to deliver appealing advertising messages, such as those using hyper-text markup language, or HTML. Consequently, advertisers and direct marketers may not adopt, increase or continue their utilization of our service, which would harm our operating results. IF RESPONSE RATES TO OUR ADVERTISEMENTS FALL BELOW ADVERTISERS' EXPECTATIONS, WE MAY NEED TO DELIVER MORE ADVERTISEMENTS THAN PLANNED, REDUCING OUR AVAILABLE ADVERTISEMENT INVENTORY AND HARMING OUR OPERATING RESULTS. Advertisers have demonstrated a keen interest in the level of response to advertisements placed on our service. We base the deployment of advertisements upon the rate of response that we expect. 9 12 However, if we realize lower rates of response to particular advertisements than we anticipated, sometimes we may choose to deliver more of those advertisements than we have guaranteed to advertisers to achieve the desired absolute levels of click-through responses. This could result in the over-delivery of some advertisements, thereby reducing our available web site and email inventory to sell to other advertisers and potentially harming our operating results. IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, IT WILL PLACE SIGNIFICANT STRAIN ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES. We have rapidly expanded our operations and plan to continue this expansion. For example, from June 1998 to March 15, 2000, we grew from three employees to 154 employees. We also recently commenced operations in Japan, Germany, England and France. This recent growth has placed a significant strain on our managerial, operational and financial resources, and we expect this strain to continue. We also may establish additional web sites, acquire additional companies or develop new geographic markets, each of which would create additional managerial, operational and financial challenges. We must expand our procedures and controls to support our operations. If we fail to continue to implement and improve our operational and financial systems or to train our employees adequately, it could disrupt our business or place additional strain on our management team. In addition, nearly all of our management team have joined us in the last nine months and have not worked together previously. This may compound future growth-related strains on our operations. It may also prevent our management team from making decisions rapidly enough to exploit market opportunities for our member and advertiser services. OUR INTERNATIONAL EXPANSION IS SUBJECT TO ADDITIONAL RISKS THAT COULD HARM OUR BUSINESS AND OPERATING RESULTS. A key component to our business strategy is to further expand internationally. Our international operations will continue to be subject to a number of risks. These risks include: - Difficulties in staffing and managing foreign operations; - Compliance with multiple, conflicting and changing laws and regulations; - Uncertainty of acceptance of our services by potential members, advertisers and direct marketers in international markets; and - Costs of customizing our web pages and securing domain names for foreign countries. Our international operations also face foreign currency-related risks, and we have not engaged in any hedging activity to mitigate these risks. Fluctuations in the value of foreign currencies could have an adverse effect on our operating results. ATTEMPTS TO EXPAND BY MEANS OF ACQUISITIONS AND STRATEGIC ALLIANCES MAY FAIL, AND SUCH FAILURES COULD DISRUPT OUR BUSINESS. We anticipate that we will expand our operations and market presence by entering into business combinations, investments, strategic alliances and joint ventures in the United States and internationally. We may have difficulty assimilating the operations, technology and personnel of acquired companies, and other disruptions and costs may arise from these combinations. If our members disapprove of these transactions or feel that they harm our services or reputation, our brand 10 13 and business could suffer. Employees may not wish to continue working for us following any business combination, and duplication of responsibilities between our personnel and that of acquired companies may force us to dismiss some employees. We recently completed a merger with ONElist in November 1999, and we continue to integrate our businesses and technologies. For example, we continue to operate out of two facilities and are continuing the integration of the ONElist and eGroups web sites. This integration process may prove to consume more of management's time and energy and involve greater expense than we currently anticipate and may not ultimately succeed. Although we have not entered into any agreements to acquire other companies, we continually evaluate potential acquisitions. In conjunction with any such business combination, we may need to incur debt or issue equity securities to pay for acquisitions. We also may assume contingent liabilities or amortize expenses related to goodwill. If we are unsuccessful in closing or integrating any business combination, our business and operating results could suffer. THE TERMINATION OF CERTAIN PRE-EXISTING STRATEGIC ALLIANCES MAY DIVERT MANAGEMENT RESOURCES OR RESULT IN LITIGATION THAT COULD HARM OUR BUSINESS. In the past, we have entered into strategic alliances, some of which have diverted engineering and other resources from other efforts or have involved terms that restricted our growth. We are in the process of terminating, and have previously terminated, agreements with third parties that we believe have hindered our business. The termination of these agreements may result in substantial costs and diversion of management and technical resources. In the future, we may decide to terminate other contracts that we feel do not serve the goals of our business. The termination of any contracts may result in litigation or penalties, which could harm our business and operating results. WE DEPEND ON KEY PERSONNEL FOR WHOM INTENSE COMPETITION EXISTS, AND ANY FAILURE TO ATTRACT AND RETAIN THOSE PERSONNEL COULD HARM OUR BUSINESS. Our future performance will depend on our ability to retain and motivate our officers and key employees. The loss of the services of any of our executive officers or other key employees, especially members of our engineering, operations, sales, marketing and business development teams, could harm our business. We intend to purchase a "key person" life insurance policy on our chief executive officer, and the proceeds from that policy could aid us in recruiting his replacement, if needed. However, this policy would not remedy the likely disruption of our business that would be caused by his loss and subsequent efforts to recruit and assimilate new senior management. We do not maintain "key person" life insurance policies on any other employees. We do not have long-term employment agreements with any members of senior management, and losing any of these personnel could significantly harm our business. Competition for talented and experienced personnel is intense, especially in the San Francisco Bay area where our headquarters are located. Our future success will depend on our ability to attract, train, integrate, retain and motivate highly skilled individuals. OUR FAILURE TO EXPAND, UPDATE AND CREATE REDUNDANCIES IN OUR INFRASTRUCTURE COULD MATERIALLY HARM OUR BUSINESS. Our future success will depend on the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our reputation and ability to attract and retain members and advertisers depend on the satisfactory performance, reliability and availability of our web site, email-servers and ad-servers, and operations infrastructure. If the volume of traffic on our web site continues to increase, we will need to expand, upgrade and create redundancies in our technology, systems and operations infrastructure to assure minimal disruptions. We currently house all of our data storage and servers at Global Crossing Ltd.'s Global Center facility in Sunnyvale, 11 14 California, and these systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, vandalism and other events. Any such damage or disruption to Global Crossing's Global Center facility and services could prohibit us from delivering emails, page views and advertisements to members. We may enter into agreements with other third parties that lead us to depend upon their timely and effective performance and delivery of services. If these services are not performed according to our expectations, our business may suffer. IF WE FAIL TO PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE GROWTH OF OUR BUSINESS MAY SUFFER. We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. The steps we have taken to protect our intellectual property may not prevent misappropriation of our technology or deter independent third-party development of similar technologies and services. We pursue the registration of our trademarks and service marks in the United States and internationally. However, effective intellectual property protection may not be available in every country in which our services are made available. Enforcing and protecting our intellectual property rights may require substantial amounts of management's time and resources and may harm our financial results. If we prove unable to protect our intellectual property, our actual and potential competitors could improve their services and detract from our ability to attract and retain members, advertisers and direct marketers. FAILURE TO INTEGRATE AND MAINTAIN TECHNOLOGIES THAT WE LICENSE MAY ADVERSELY AFFECT OUR OPERATIONS AND BUSINESS. We rely on certain technologies that we license from third parties. These third-party technology licenses may not remain available to us on commercially reasonable terms. Our loss of this technology could require us to re-engineer the technology internally, putting an unanticipated strain on our engineering and operations teams, or to obtain substitute technology of lower quality or performance standards, or at greater cost from third parties. Any of these outcomes could harm our ability to maintain and improve our services. For example, we currently license certain database technology from E.piphany, Inc. The failure to integrate and maintain these technologies successfully may adversely affect our operations and business. WE ARE VULNERABLE TO CLAIMS THAT OUR PRODUCTS INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS, AND ANY RESULTING LITIGATION COULD HARM OUR BUSINESS. We may become exposed to future litigation based on claims that our service infringes the intellectual property rights of others. Claims of infringement could require us to obtain licenses from third parties to continue offering our services or cause us to cease offering them. To date, we have not been notified that our technologies infringe the proprietary rights of others. However, third parties may claim infringement by us in the future with respect to our current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. In addition, an adverse legal decision affecting our intellectual property, or the use of significant resources to defend against this type of claim, could significantly strain our financial resources and harm our reputation. We rely on technologies that we license from third parties, and these licenses may not continue to be available to us on commercially reasonable terms. Failure to obtain these licenses may have an adverse affect on our operating results and business. 12 15 WE MAY BECOME SUBJECT TO LIABILITY FOR CONTENT THAT OUR MEMBERS INCLUDE IN THEIR EMAIL MESSAGES OR FOR VIOLATION OF MEMBERS' PRIVACY RIGHTS. We face potential liability for defamation, negligence, copyright infringement or other claims based on the nature and content of materials that our members publish or distribute. In the past, plaintiffs have brought these types of claims and successfully litigated them against other online services. In addition, we plan to collect personal information from our members that we will use internally to improve our services and products. Although we have instituted a policy on member privacy related to such information, and publish that policy on our web site, our policy may not prevent members from claiming that we have infringed their privacy rights. WE MAY REQUIRE ADDITIONAL FINANCING, WHICH WE MAY NOT BE ABLE TO OBTAIN ON FAVORABLE TERMS, IF AT ALL. Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations for the foreseeable future. We currently anticipate that the net proceeds of this offering, together with our available funds, will be sufficient to meet our anticipated needs for development of our services, sales and marketing, and general corporate purposes, including working capital and capital expenditures, for at least 12 months. If we require additional funding, we cannot be certain that it will be available to us on favorable terms, if at all. If we raise additional funds by issuing equity or debt securities, such securities may have rights, preferences or privileges senior to our common stock, and our stockholders may experience additional dilution. Sales of a substantial number of shares of our common stock in the public market following this offering could cause the market price of our common stock to decline. IF WE DO NOT BUILD OUR BRAND RECOGNITION, WE MAY FAIL TO ATTRACT AND RETAIN MEMBERS, ADVERTISERS AND DIRECT MARKETERS. Quickly building recognition of our brand is critical to expanding and retaining our base of members, advertisers and direct marketers. Promoting and positioning our brand will depend largely on the success of our marketing efforts and our ability to provide consistent, high quality member experiences and to meet or exceed the expectations of our advertisers. We anticipate that we will incur significantly greater marketing and promotional expenses than we have previously expended in our efforts to build brand awareness and to attract members, advertisers and direct marketers to our service. Our increased brand-promotion activities may not yield increased revenues, and any increased revenues may not offset the expenses we incur to build our brand. RISKS RELATED TO THE INTERNET IF WE FAIL TO KEEP PACE WITH THE RAPID TECHNOLOGICAL CHANGES THAT CHARACTERIZE THE INTERNET, OUR SERVICES MAY BECOME LESS DESIRABLE TO MEMBERS, ADVERTISERS AND DIRECT MARKETERS. Rapid innovations in technology, markets and business models characterize the Internet. The emerging nature of Internet-based markets and the fact that many other companies will introduce new Internet products and services in the near future amplify these characteristics. For example, the widespread adoption of new communication platforms such as personal digital assistants and digital telephones could affect the nature and viability of our service and advertising solutions. Our future success also will depend on our ability continually to improve our product offerings, technology and services to attract and retain the interest of members and advertisers. 13 16 NEW AND EXISTING REGULATION OF THE INTERNET COULD HINDER OUR BUSINESS. Due to the increasing popularity and use of the Internet and online services, it is likely that the government will adopt new laws and regulations with respect to the Internet or online services. These laws and regulations could cover issues such as online contracts, user privacy, spam, freedom of expression, fraud, content and quality of products and services, advertising, intellectual property rights and information security. For example, recent laws adopted in Europe have restricted our right to use information about our users and have required us to amend some member agreements in order to attempt to maintain compliance with these laws. Applicability to the Internet of existing laws governing issues such as property ownership, copyright and other intellectual property issues, libel, obscenity and user privacy remains uncertain. The vast majority of laws were adopted prior to the advent of the Internet and related technologies and fail to address the unique issues that have emerged. Those laws that do reference the Internet, such as the Digital Millennium Copyright Act, have not yet been extensively interpreted by the courts, and their applicability and reach are therefore uncertain. Current and future laws and regulations could harm our business and have potentially significant adverse effects on our financial and operating results. We may be vulnerable to recently proposed regulations regarding unsolicited email, known as "spam." We do not send unauthorized email, and we have instituted mechanisms to prevent others from sending unauthorized emails to our members. However, negative public perception, press reports or governmental action related to spam could result in claims against us or our members. Although we have instituted mechanisms to reduce the likelihood of a claim, including limiting the addition of large numbers of email addresses to a particular group at one time, we cannot assure you that a claim will not be made. In addition, Internet service providers who misperceive our distribution of email as spam could impede our ability to deliver emails. Any failure or delay in the delivery of such emails would adversely affect our business and operating results. OUR BUSINESS IS SUBJECT TO ONLINE SECURITY RISKS THAT COULD LEAD TO MISAPPROPRIATION OF OUR DATA AND SERVICE INTERRUPTIONS AND COULD HARM OUR REPUTATION WITH MEMBERS. We monitor and collect information regarding member-designated interests, demographics and other data that we obtain from our members' use of our service. Although we do not distribute or sell this information to third parties, our security measures may not prevent security breaches and misappropriation of data that we collect. A party who circumvents our security measures could cause interruptions in our operations. Our reputation and popularity with members could suffer if this misappropriation occurs. We may need to expend significant resources to protect against security breaches or service interruptions or to address problems caused by these breaches. These expenditures could be significant and harm our operating results. UNFORESEEN PROBLEMS WITH CONTINUED YEAR 2000 COMPLIANCE COULD DISRUPT OUR SERVICE. To date, we have not experienced any material disruption in our services as a result of, nor are we aware that any of the third-party vendors on which we depend has been materially affected by, the commencement of the year 2000. In light of our experiences to date, we have not developed any specific contingency plan for year 2000 issues. Although we do not anticipate that our services will be affected by the year 2000, if we, or our third-party providers, fail to remedy any year 2000 issues, the result could be lost revenues, increased operating expenses, the loss of members or advertisers, and other business interruptions, any of which could harm our business. If we fail to address adequately year 2000 compliance issues, we may experience legal claims against us which could be costly and time-consuming to defend. If we did experience significant year 2000 problems and were unable to provide services to our members and advertisers, our business and operating results would suffer. 14 17 RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK THERE HAS BEEN NO PUBLIC MARKET FOR OUR STOCK PRIOR TO THIS OFFERING AND OUR STOCK PRICE COULD BE EXTREMELY VOLATILE. Previously there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market or how liquid any trading market might become. The public market may not agree with or accept the valuation determined in connection with this offering, and the initial public offering price for the shares of our common stock might not reflect prices that will prevail in the trading market. The stock market has experienced extreme price and volume fluctuations, and the market prices of technology-company securities, particularly those related to the Internet, have been highly volatile. After this offering, you might not succeed in reselling your shares at or above the initial public offering price. WE COULD BE NAMED AS A DEFENDANT IN SECURITIES CLASS ACTION LAWSUITS, WHICH COULD DIVERT MANAGEMENT ATTENTION AND HARM OUR BUSINESS. In the past, following periods of volatility in the market price of their stock, many companies have been named in securities class action lawsuits. If we, or our directors or officers, were named in a securities class action lawsuit, it could result in substantial costs and a diversion of management's attention and resources and could cause our stock price to fall. As has been the case for other Internet companies, we expect that the market price of our common stock could fluctuate significantly. These fluctuations could result in a class action lawsuit. Volatility in our stock price may occur as a result of various factors, such as the following, some of which are beyond our control: - Actual or expected variations in our quarterly results from operations; - Initiation of coverage and changes in financial estimates by securities analysts; - Announcements by us or our competitors of significant new ventures, acquisitions, strategic alliances or capital commitments; - Announcements of technological innovations or new products or services by us or our competitors; - Additions or departures of key personnel; - Changes in the operating performance or market valuations of other Internet companies; - Releases of lock-up agreements or other transfer restrictions on our outstanding shares of common stock, or sales or announcements of sales of additional shares of common stock; - Potential or actual litigation; and - Changes in Internet regulation. A SIGNIFICANT NUMBER OF SHARES IS ELIGIBLE FOR SALE AND THE SALE OF THESE SHARES COULD DEPRESS OUR STOCK PRICE. Sales of substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering could depress the market price of our common stock. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Upon completion of this offering, we will have outstanding shares of common stock based upon shares 15 18 outstanding as of March 15, 2000, assuming no exercise of the underwriters' over-allotment option. Of these shares, the shares sold in this offering are freely tradable. All of the holders of our common stock and stock options are subject to agreements that limit their ability to sell common stock. These holders cannot sell or otherwise dispose of any shares of common stock for a period of at least 180 days after the date of this prospectus without the prior written approval of Donaldson, Lufkin & Jenrette. However, 25% of a holder's shares may be sold on the earlier of 90 days after the date of this offering or on the second trading day after the first public release of our quarterly results if the last recorded sale price on the Nasdaq National Market for 20 of the 30 trading days ending on that date is at least twice the price per share in this initial public offering. Under these agreements, an additional 25% of each holder's shares may be sold 135 days after the date of this offering if the price per share of common stock has achieved the same target level. When these agreements expire, all of the shares of common stock and the shares underlying the options will become eligible for sale, in most cases only pursuant to the volume, manner of sale and notice requirements of Rule 144. YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE. The assumed public offering price is substantially higher than the net tangible book value per outstanding share of common stock. Purchasers of our common stock will incur immediate and substantial dilution of approximately $ to $ per share in the net tangible book value of our common stock from the assumed initial public offering price of $ per share. Additional dilution will occur upon the exercise of outstanding options. MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE ALLOCATION OF PROCEEDS FROM THIS OFFERING. The net proceeds to us from the sale of the shares of common stock we are offering are estimated to be approximately $ million after deducting estimated underwriters' discounts, commissions and offering expenses payable by us. We currently have no specific plans for a significant portion of our net proceeds from this offering. Consequently, our management will have the discretion to allocate the net proceeds to uses that stockholders may not deem desirable. Our investment of the proceeds may not yield a significant return. Pending their application, substantially all of our proceeds from the offering will be invested in short-term, interest-bearing, investment-grade securities immediately following the offering. WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WHO MAY MAKE DECISIONS WITH WHICH YOU DISAGREE. Upon completion of this offering, a small number of stockholders and our executive officers and directors and their affiliates will own approximately % of our outstanding common stock. They will have the ability to control our company and direct our affairs and business, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our company and may make some transactions more difficult or impossible without the support of these stockholders. Any of these events could decrease the market price of our common stock. 16 19 PROVISIONS OF OUR CHARTER AND BYLAWS MAY DELAY OR PREVENT TRANSACTIONS THAT MANY STOCKHOLDERS FAVOR. Provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions include: - Authorizing the issuance of "blank check" preferred stock without any need for stockholder action; - Prohibiting the removal of directors without cause; - Limiting the ability of stockholders to call special meetings of stockholders; - Prohibiting stockholders from acting by written consent; - Prohibiting stockholders from filling vacancies on the board of directors; - Requiring a super-majority stockholder vote to amend our bylaws and certain provisions of our certificate of incorporation; and - Establishing advance notice requirements for nominations of directors or other matters to be voted on by stockholders other than by or at the direction of the board of directors. 17 20 USE OF PROCEEDS We estimate that the net proceeds from the sale of the shares of common stock we are selling in this offering will be approximately $ million, at an assumed initial public offering price of $ per share, after deducting estimated underwriters' discounts, commissions and offering expenses payable by us. If the underwriters' option to purchase an additional shares of common stock is exercised in full, we estimate the aggregate net proceeds to be approximately $ million. We expect to use the net proceeds for the development of our services, sales and marketing, and general corporate purposes, including working capital, capital expenditures and possible acquisitions or investments in complementary businesses or technologies. We have no current plans, agreements or commitments relating to any such acquisition or investment. The amounts actually expended for these purposes may vary significantly and will depend on a number of factors, including the amount of our future revenue and the other factors described under "Risk Factors." Accordingly, our management will retain broad discretion in the allocation and use of the net proceeds of this offering. Pending these uses, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all of our earnings to finance our operations and do not anticipate paying cash dividends on our capital stock in the foreseeable future. In addition, our lending facilities contain restrictions on our ability to pay dividends. We may also incur indebtedness in the future that may prohibit or further restrict any payment of dividends. CORPORATE INFORMATION We were incorporated in the State of Delaware as Findmail Communications, Inc., in June 1998 and changed our name to eGroups, Inc., in December 1998. Our principal headquarters is located at 350 Brannan Street, San Francisco, California 94107, and our telephone number is (415) 546-2700. Our fiscal year ends on July 31. We maintain a web site at www.egroups.com. Information contained on our web site is not part of this prospectus. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, the accuracy of which involves risks and uncertainties. We use words such as "anticipates," "continue," "may," "goal," "believes," "plans," "expects," "future," "intends," and similar expressions to identify forward-looking statements. This prospectus also contains forward-looking statements attributed to certain third parties relating to their estimates regarding the growth of the Internet and online advertising. Prospective investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" and elsewhere in this prospectus. 18 21 CAPITALIZATION The following table describes the actual, pro forma and pro forma as adjusted capitalization of eGroups as of January 31, 2000. Our pro forma capitalization gives effect to the automatic conversion of all of our shares of convertible preferred stock into shares of our common stock upon the closing of this offering, the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the treatment of $898,000 of unamortized debt-issuance costs as an offset to additional paid-in capital, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some employees through the exercise of stock options. Our pro forma as adjusted capitalization gives effect to the sale of shares of common stock at an assumed initial public offering price of $ per share in this offering, after deducting estimated underwriting discounts, commissions and offering expenses payable by us, and the application of the resulting net proceeds.
JANUARY 31, 2000 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED (IN THOUSANDS, EXCEPT PER SHARE DATA) Long-term capital lease obligations and debt............. $ 8,149 $ 4,999 $ 4,999 Stockholders' equity: Convertible preferred stock: $0.001 par value; 17,500 shares authorized, 16,539 shares issued and outstanding, actual; 10,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted................................... 17 -- -- Common stock: $0.001 par value; 43,000 shares authorized, 16,244 shares issued and outstanding, actual; 150,000 shares authorized, 33,592 shares issued and outstanding, pro forma; 150,000 shares authorized, shares issued and outstanding, pro forma as adjusted............................... 16 34 Additional paid-in capital............................. 75,297 83,330 Notes receivable from stockholders..................... (2,160) (7,943) (7,943) Deferred stock compensation............................ (12,196) (12,196) (12,196) Accumulated deficit.................................... (19,419) (19,419) (19,419) -------- -------- -------- Total stockholders' equity..................... 41,555 43,806 -------- -------- -------- Total capitalization........................... $ 49,704 $ 48,805 $ ======== ======== ========
19 22 DILUTION Our pro forma net tangible book value as of January 31, 2000, was $43.8 million or approximately $1.30 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the number of shares of common stock outstanding on a pro forma basis. Pro forma net tangible book value gives effect to the automatic conversion of all of our shares of convertible preferred stock into shares of our common stock upon the closing of this offering, the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some of our employees through the exercise of stock options. Dilution in pro forma net tangible book value represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma net tangible book value per share of our common stock immediately afterwards. After giving effect to our sale of shares of common stock offered by this prospectus in this offering at an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts, commissions and offering expenses payable by us, our pro forma as adjusted net tangible book value would have been $ million, or approximately $ per share. This represents an immediate increase in net tangible book value per share of $ to existing stockholders and an immediate dilution per share of $ to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of January 31, 2000.................................................. $1.30 Increase per share attributable to new investors............ ----- Pro forma as adjusted net tangible book value per share after this offering....................................... ----- Dilution in pro forma net tangible book value per share to new investors............................................. =====
The following table describes, as of January 31, 2000, on the pro forma basis described above, the differences between the number of shares of common stock purchased from us, the total price and the average price per share paid by existing stockholders and by the new investors in this offering, at an assumed initial public offering price of $ per share, before deducting estimated underwriters' discounts, commissions and offering expenses payable by us.
SHARES PURCHASED TOTAL CONSIDERATION -------------------- --------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE Existing stockholders........ 33,592,379 $63,321,072 $ New investors................ $ ---------- ----- ----------- ----- Total...................... $ ========== ===== =========== =====
The discussion and tables assume no exercise of options and warrants that will remain outstanding upon completion of this offering. As of January 31, 2000, there were options outstanding to purchase a total of 1,951,190 shares of common stock, with a weighted average exercise price of $1.09 per share. As of January 31, 2000, there was a warrant outstanding to purchase 8,330 shares of our common stock at an exercise price of $7.20 per share. If the outstanding options and warrants were exercised in full for cash, the dilution in pro forma net tangible book value per share to new investors in this offering would be $ and shares held by new investors would comprise % of outstanding shares. If the underwriters' over-allotment option is exercised in full, the number of shares held by new public investors will be increased to or approximately % of the total number of shares of our common stock outstanding after this offering. 20 23 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The consolidated statement of operations data for the period from inception (June 5, 1998) to July 31, 1999, and for the six months ended January 31, 2000, and the consolidated balance sheet data at July 31, 1999 and January 31, 2000, are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended January 31, 1999 is derived from unaudited consolidated financial statements included elsewhere in this prospectus, but in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of our operations for the period. The historical results presented below are not necessarily indicative of future results or results to be expected for an entire fiscal year. The following selected consolidated financial data is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements and related Notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this prospectus.
PERIOD FROM SIX MONTHS ENDED INCEPTION JANUARY 31, (JUNE 5, 1998) TO ------------------ JULY 31, 1999 1999 2000 CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue..................................................... $ 489 $ 43 $ 3,464 Cost of revenue............................................. 222 87 325 ------- ------- -------- Gross profit (loss)......................................... 267 (44) 3,139 Operating expenses: Product development.................................... 1,282 204 3,717 Sales and marketing.................................... 2,689 304 4,228 General and administrative............................. 2,125 550 3,804 Amortization of deferred stock compensation(1)......... 975 138 3,995 ------- ------- -------- Total operating expenses.......................... 7,071 1,196 15,744 ------- ------- -------- Operating loss.............................................. (6,804) (1,240) (12,605) Other income (expense)...................................... 159 39 (169) ------- ------- -------- Net loss.................................................... (6,645) (1,201) (12,774) Accretion on redeemable convertible preferred stock......... (212) (34) (129) ------- ------- -------- Net loss attributable to common stockholders................ $(6,857) $(1,235) $(12,903) ======= ======= ======== Basic and diluted net loss per share attributable to common stockholders(2)........................................... $ (1.25) $ (0.29) $ (1.61) ======= ======= ======== Shares used in per share calculation(2)..................... 5,465 4,303 8,011 ======= ======= ======== Pro forma basic and diluted net loss per share attributable to common stockholders (unaudited)(2)..................... $ (0.49) $ (0.56) ======= ======== Shares used in pro forma per share calculation (unaudited)(2)............................................ 13,641 22,643 ======= ========
JULY 31, JANUARY 31, 1999 2000 CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 4,957 $ 44,586 Working capital............................................. 4,053 44,578 Total assets................................................ 6,756 52,211 Long-term capital lease obligations and debt................ 224 8,149 Redeemable convertible preferred stock...................... 4,237 -- Accumulated deficit......................................... (6,645) (19,419) Total stockholders' equity.................................. 761 41,555
- ------------------------------ (1) See Note 8 of Notes to Consolidated Financial Statements for a description of the amortization of deferred stock compensation. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares in the calculation of net loss per share and pro forma net loss per share. 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" and elsewhere in this prospectus. You should read the following discussion in conjunction with the "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. OVERVIEW eGroups is the most widely used email group communication platform on the Internet. Our service allows members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members in approximately 600,000 member-created groups, with new members joining our service at a rate of approximately 1.5 million per month. Also, during February 2000, our members exchanged email messages at a rate of approximately 2 billion per month, and our web site generated 163 million page views. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member designated interests, demographic information and other data. We derive substantially all of our revenue from the sale of advertising, including permission-based direct marketing programs, sponsorships and banner advertising. Through our permission-based direct marketing programs, we deliver full-page emails to members who have elected to receive promotional offers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. In a typical sponsorship agreement, we provide sponsors with a variety of additional promotional opportunities, such as the delivery of impressions on our web site through banner, button or text-link advertising, sometimes granting exclusive placement on specific web pages. Under a typical banner advertising agreement, we serve advertisements to web pages and into emails that we deliver through our service. In the past, we have received, and we anticipate that we will continue to receive, higher advertising rates for targeted advertisements than for non-targeted advertisements. Permission-based direct marketing advertisements, for example, are a more highly targeted form of advertising and command much higher rates than non-targeted banner advertisements. If we are able to increase our targeting capabilities and further enhance our ad-serving technology, we believe we will be able to increase revenue generated from the sale of these advertisements. We also aim to increase revenue by expanding our direct sales force, increasing our inventory of rich-media email advertisements, refining our permission-based email direct marketing programs, and introducing new subscription-based services. We were incorporated in June 1998 as a Delaware corporation and our fiscal year ends on July 31. Since inception, our operating activities have focused primarily on developing an easy-to-use, convenient service for members, expanding our member and advertiser base by increasing sales and marketing activities, recruiting personnel, and raising capital. In November 1999, we merged with ONEList, Inc., a privately-held company and leading provider of email group communication services. The merger was treated as a pooling of interests for accounting purposes, and accordingly, all of our historical financial information has been restated to combine the results of the two entities for all periods presented. We have recently opened offices in four foreign countries and expect to release 22 25 web sites in 14 languages in April 2000. No significant revenue has been recognized to date from our international operations. Because of the rapid evolution of our business and our limited operating history, we believe that period-to-period comparisons of our revenue and operating results, including our gross margin and operating expenses as a percentage of total revenue, are not meaningful, and you should not rely upon them as an indication of future performance. REVENUE We derive our revenue principally from short-term advertising contracts that guarantee a minimum number of advertising impressions that are delivered to members in email messages or on web pages. We recognize advertising revenue using either the ratio of impressions delivered to the total guaranteed impressions or on a straight-line basis over the term of the contract, whichever is less, provided that we do not have any significant remaining obligations and collection of the resulting receivable is probable. For advertising contracts that do not involve guaranteed impressions but are tied to members' "click through" or other action, revenue is recognized as services are provided. We provide for bad debts and additional discounts at the time revenue is recognized, based on historical experience and current economic conditions. Through January 31, 2000, the majority of our advertising contracts have ranged from several weeks to two months in duration. Revenue in any quarter substantially depends on advertising orders received and campaigns run in that quarter. Accordingly, we cannot predict revenue for any future quarter with any significant degree of certainty. In addition, given our limited operating history, we are unable to predict the effect of seasonality on our business. However, during the December 1999 holiday season, we experienced increased advertising revenue. Through February 2000, we derived a portion of our revenue from advertising contracts negotiated by third-party advertising brokers. We recorded as revenue our contractual percentage of the total revenue generated from the delivery of advertisements, net of commissions taken by these advertising brokers. We recognized this revenue in the period in which the advertisement was delivered, provided that no significant obligations remained and collection of the resulting receivable was probable. We have not recognized any revenue related to the non-monetary exchange of advertising-for-advertising as these exchanges were not objectively determinable. COST OF REVENUE The major components of cost of revenue consist of direct costs related to the ad-serving process, including web-hosting costs, direct labor attributable to product development and depreciation on equipment. These costs relate to serving advertisements to our members on behalf of our advertisers and direct marketers. OPERATING EXPENSES Product development. Product development expenses primarily include personnel and related expenses associated with the development of our email group communication platform, technical support, member support, quality assurance, and group categorization. Sales and marketing. Sales and marketing expenses include salaries, commissions and related expenses of employment for our direct sales force, business development and marketing personnel, 23 26 together with the expenses of marketing promotional programs, advertising, and public relations activities. General and administrative. General and administrative expenses include personnel and related expenses for corporate functions, such as accounting and finance, human resources, facilities, legal and information systems. General and administrative expenses also include consulting and professional service fees which may vary over time. Amortization of deferred stock compensation. Deferred stock compensation represents the aggregate difference at the date of grant for our option awards, between the respective exercise price and the deemed fair value of the underlying stock. This deferred stock compensation is amortized using the graded amortization method over the vesting period of the related awards, which is generally four years. We recorded deferred stock compensation of approximately $11.9 million for the six months ended January 31, 2000, and approximately $5.3 million for the period from inception to July 31, 1999. In connection with grants made in February and March 2000, we estimate that we will record additional deferred stock compensation of approximately $15.9 million. RESULTS OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 2000 AND 1999 REVENUE Total revenue was approximately $3.5 million and $43,000 for the six months ended January 31, 2000 and 1999. The increase in revenue was primarily due to the growth of our direct sales force during the six months ended January 31, 2000. For the six months ended January 31, 2000 and 1999, sales through third-party advertising brokers accounted for 22% and 0% of total revenue. As we transition to using our direct sales force to sell the advertising inventory formerly sold by these third-party brokers, we expect revenue generated by outside brokers to be insignificant in future periods. COST OF REVENUE Cost of revenue was approximately $325,000 and $87,000 for the six months ended January 31, 2000 and 1999. The increase in cost of revenue was primarily due to the increased number of personnel and additional equipment required to support the ad-serving process. Additional network and web-hosting costs also contributed to the increase. We expect cost of revenue to increase over time in absolute dollars as our ad-serving personnel and equipment costs continue to increase. OPERATING EXPENSES Product development. Product development expenses were approximately $3.7 million and $204,000 for the six months ended January 31, 2000 and 1999. The increase was due primarily to an increase in product development personnel and related expenses. We expect product development expenses to increase in absolute dollars as we continue to increase our product development personnel and further enhance our email group communication infrastructure. Sales and marketing. Sales and marketing expenses were approximately $4.2 million and $304,000 for the six months ended January 31, 2000 and 1999. The increase was primarily a result of growth in our direct sales, business development and marketing personnel. Direct labor and related expenses accounted for a substantial portion of the increase. Additional promotional spending, advertising, market-research activities and consulting fees also contributed to the growth. We expect 24 27 sales and marketing expenses to increase significantly in absolute dollars as we continue to grow our sales force and expand our marketing programs in the United States and abroad. General and administrative. General and administrative expenses were approximately $3.8 million and $550,000 for the six months ended January 31, 2000 and 1999. The increase was primarily due to increases in facility expenses, professional fees and personnel expenses associated with growth in headcount. In addition, in the six months ended January 31, 2000, we incurred merger-related expenses of $500,000. We expect general and administrative expenses to increase in absolute dollars to support an increasing number of employees and as a result of becoming a public company. Amortization of deferred stock compensation. Amortization of deferred stock compensation was approximately $4.0 million for the six months ended January 31, 2000, which consisted of $1.1 million related to product development, $1.5 million related to sales and marketing, and $1.4 million related to general and administrative expenses. Amortization expense was approximately $138,000 for the six months ended January 31, 1999, which consisted of $44,000 related to product development and $94,000 related to sales and marketing expenses. The unamortized deferred stock compensation balance at January 31, 2000 will be amortized as follows: $4.6 million for the six months ended July 31, 2000, $4.8 million for the year ended July 31, 2001, $2.1 million for the year ended July 31, 2002, $693,000 for the year ended July 31, 2003, and $22,000 for the year ended July 31, 2004. Stock options granted after January 31, 2000 will increase future deferred stock compensation. If we terminate the employment of option holders, this may reduce future stock compensation. OTHER INCOME (EXPENSE) Other income (expense) consists primarily of interest earned on investments in money market funds and interest payable on debt and capital lease obligations. Other income (expense) was approximately ($169,000) and $39,000 for the six months ended January 31, 2000 and 1999. We expect other income to increase as a result of interest earned on the anticipated cash proceeds from the offering, and other expense to increase as a result of interest payable on debt issued in October 1999 and January 2000 and additional anticipated capital lease financings as we expand our operations infrastructure. PROVISION FOR INCOME TAXES We recorded no provision for federal and state income taxes as we incurred net operating losses from inception to January 31, 2000. As of January 31, 2000, we had federal net operating loss carryforwards of approximately $12.6 million. If not utilized, the net operating loss carryforwards will expire at various dates beginning in 2019. Utilization of these net operating losses is likely to be subject to substantial annual limitation due to ownership change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. In addition, sales of stock, including shares sold in this offering, may further restrict our ability to utilize our net operating loss carryforwards. PERIOD FROM INCEPTION TO JULY 31, 1999 Revenue for the period from inception to July 31, 1999 was approximately $489,000. Advertising sold through third-party advertising brokers accounted for 44% of this revenue. We currently do not sell any advertising through third-party brokers. This advertising inventory is now sold through our direct sales force. Cost of revenue consisted of approximately $222,000 in direct costs related to the 25 28 ad-serving process. Product development expenses were $1.3 million and primarily consisted of personnel expenses. Sales and marketing expenses were approximately $2.7 million and primarily consisted of personnel-related expenses, promotional spending, advertising, market research activities and consulting. General and administrative expenses were approximately $2.1 million and primarily consisted of personnel, facilities, and recruiting expenses, and professional fees. Amortization of deferred stock compensation amounted to approximately $975,000, which consisted of $332,000 related to product development, $532,000 related to sales and marketing, and $111,000 related to general and administrative expenses. QUARTERLY OPERATING RESULTS The following table provides the unaudited quarterly condensed consolidated statements of operations data for each of the four quarters ended January 31, 2000. We believe this information reflects all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of such information for the quarters presented. The results for any quarter are not necessarily indicative of results for any future period.
FISCAL QUARTER ENDED ------------------------------------------------ APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 1999 1999 1999 2000 (IN THOUSANDS) Revenue....................................... $ 126 $ 320 $ 1,048 $ 2,416 Cost of revenue............................... 28 43 150 175 ------- ------- ------- ------- Gross profit ............................ 98 277 898 2,241 Operating expenses, excluding amortization of deferred stock compensation................. 1,685 3,416 4,422 7,327 Amortization of deferred stock compensation... 179 658 1,658 2,337 ------- ------- ------- ------- Total operating expenses................. 1,864 4,074 6,080 9,664 ------- ------- ------- ------- Operating loss........................... $(1,766) $(3,797) $(5,182) $(7,423) ======= ======= ======= =======
The increase in revenue over the four quarters above was primarily due to expanding our direct sales force beginning in April 1999, increasing our advertising targeting capabilities, and introducing our opt-in, permission-based marketing program in October 1999. The increase in operating expenses, excluding amortization of deferred stock compensation, over the four quarters above was due primarily to an increase in personnel in the product development, sales and marketing, and general and administrative areas. Other factors contributing to the increase included: higher facilities and infrastructure expenses associated with the growth in personnel and increased promotional spending, advertising and market research activities. The increase in the amortization of deferred stock compensation over the four quarters above was due to extensive hiring of the senior management team and staff. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations through private placements of preferred and common stock, issuance of subordinated debt, revenue from advertising sales and strategic alliances, and, to a lesser extent, equipment financings. Through January 31, 2000, we have raised an aggregate of approximately $51.9 million in preferred stock private placements, $7.0 million in subordinated debt, $1.3 million in capital lease obligations, and $500,000 in senior debt. As of January 31, 2000, we had working capital of $44.6 million. 26 29 Net cash used for operating activities was $8.6 million for the six months ended January 31, 2000, primarily as a result of a net loss of $12.8 million and an increase in accounts receivable of $1.8 million, adjusted for non-cash expenses of $5.1 million from stock, debt and warrant issuances. Net cash used in operating activities was $4.6 million for the period from inception to July 31, 1999, primarily as a result of a net loss of $6.6 million, adjusted for non-cash expenses of $1.4 million from stock, debt and warrant issuances, and net changes in assets and liabilities of $558,000. Net cash used in investing activities was $2.1 million for the six months ended January 31, 2000 and $1.0 million for the period from inception to July 31, 1999. Net cash used in investing activities consisted of capital expenditures for computer equipment, leasehold improvements, and furniture and fixtures. Net cash provided by financing activities was $50.3 million for the six months ended January 31, 2000 and $10.6 million for the period from inception to July 31, 1999. Cash provided by financing activities primarily consisted of proceeds from the sale of preferred and common stock, issuance of subordinated debt, and, to a lesser extent, equipment financings. The net cash provided by financing activities for the six months ended January 31, 2000 was mainly attributable to the issuance of $7.0 million of subordinated debt and $42.0 million of preferred stock during that period. As of January 31, 2000, our principal commitments consisted of operating and capital leases and debt payments. Future minimum cash payments under all of these non-cancelable commitments total $8.0 million through the year 2005, excluding approximately $3.2 million of subordinated debt which will be converted into common stock prior to the closing of this offering. The future minimum cash payments include approximately $3.9 million of principal outstanding under a subordinated loan which bears interest at 8.25% per annum. The loan is due and payable in 24 equal monthly installments of interest-only payments, followed by 12 equal monthly installments of principal and interest payments. There is no prepayment penalty on the debt. Our working capital requirements depend on numerous factors including market acceptance of our service and the resources we allocate to supporting our growing member base, further improving our email group communication platform, launching new marketing programs, increasing our revenue, hiring additional personnel and expanding our international operations. We have experienced substantial increases in our expenditures since our inception consistent with growth in our operations and personnel, and we anticipate that our expenditures will continue to increase significantly for the foreseeable future. We believe that our available cash and cash equivalents, combined with the net proceeds of this offering, will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months. After that period, however, we may need to raise additional funds to finance our ongoing product development efforts, external marketing programs, increased staffing and related expenses, and acquisitions or investments in complementary businesses, technologies, services or products. In addition, to meet our long-term liquidity needs, we may need to raise additional funds, establish credit facilities, or seek other financing arrangements. Additional funding may not be available on favorable terms, on a timely basis, if at all. YEAR 2000 READINESS To date, we have not experienced any material disruption in our services as a result of, nor are we aware that any of the third-party vendors on which we depend has been materially affected by, the commencement of the year 2000. In light of our experiences to date, we have not developed any specific contingency plan for year 2000 issues. Although we do not anticipate that our services will be affected by the year 2000, if we, or our third-party providers, fail to remedy any year 2000 issues, we 27 30 may experience a decrease in revenue, increased operating expenses, the loss of members or advertisers, and other business interruptions, any of which could harm our business. If we fail to adequately address year 2000 compliance issues, we may experience legal claims against us, which could be costly and time-consuming to defend. If we did experience significant year 2000 problems and were unable to provide services to our members and advertisers, our revenue would decline. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS 133. SFAS 133 requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in the fair value of the assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of the derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for years beginning after June 15, 2000. We do not currently hold any derivatives and do not expect this pronouncement to impact materially our results of operations. On December 3, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, or SAB 101. This SAB summarizes some areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. We believe that our current revenue recognition principles comply with SAB 101. DISCLOSURES REGARDING MARKET RISK We have limited exposure to financial market risks, including changes in interest rates. Our interest income and interest expense is sensitive to changes in the general level of United States interest rates. Our $7.0 million subordinated debt carries a fixed rate of interest and therefore does not expose us to any risk from interest-rate fluctuations. An increase or decrease in interest rates would not significantly increase or decrease interest income on cash balances due to our cash being primarily invested in short-term marketable securities. Due to the short-term nature of our investments, we believe that we have no material exposure to interest-rate fluctuations. As our international operations have been minimal to date, we believe that we have no material exposure to foreign exchange rate fluctuations. 28 31 BUSINESS OVERVIEW eGroups is the most widely used email group communication platform on the Internet. Our service enables our members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members participating in approximately 600,000 member-created groups, with new members joining our service at a rate of approximately 1.5 million per month. During February 2000, our members exchanged email messages at a rate of approximately 2 billion per month, and our web site generated 163 million page views. We derive revenue from permission-based direct marketing programs, sponsorships and other forms of online advertising. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member-designated interests, demographic information and other data. In addition, through our permission-based direct marketing programs, we deliver full-page emails to members who have elected to receive promotional offers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. Our rapid growth in members has been driven by the inherently viral nature of our business and the ease of using our service. The organic growth of our member base occurs as existing members expand their groups by inviting new members, who often form their own groups and invite additional new members. Our member base has expanded rapidly in both the United States and abroad, with over 20% of our members coming from international domains. INDUSTRY BACKGROUND GROWTH OF THE INTERNET AND EMAIL The Internet is a global communications network that allows millions of people to interact, share information and conduct business online. According to International Data Corporation, or IDC, the number of Internet users worldwide will increase from 196 million in 1999 to more than 500 million by the end of 2003. Jupiter Communications Inc. estimates that email is used by approximately 96% of Internet users. In addition, we believe that a majority of users' time online is spent composing and reading email, making it the most popular online application. Email continues to evolve as a primary facilitator of online interaction and is quickly becoming the predominant medium for personal and business communications. As the number of Internet users increases and email continues to grow in popularity, the number of email accounts created and messages delivered is projected to increase significantly. IDC estimates that the number of email accounts worldwide will more than double, from approximately 315 million in 1999 to approximately 757 million in 2005. Further, IDC estimates that email delivery volumes will increase nearly five-fold, from 1.4 trillion messages in 1999 to 6.9 trillion in 2005. IMPORTANCE OF GROUP COMMUNICATIONS Individuals, businesses and other organizations often form groups to communicate, coordinate and collaborate around areas of common interest. For example, an individual may belong to a corporate project team, a music fan club, an investment group, an alumni association, and a group of 29 32 family or friends. Businesses may join trade organizations or form vendor or customer groups to share ideas or transact business. Groups are dynamic, forming as people connect with each other and growing by personal referral. Groups may also evolve over time as they grow, with members creating additional groups focused on new or related interests. However, assembling and communicating can be difficult offline, requiring time, effort and expense to identify and contact participants. Traditional methods of communication among multiple group members can prove difficult unless all participants are able to gather simultaneously. Therefore, time constraints, geographic separation and technological limitations can inhibit the growth of offline groups and the effectiveness of their communications. The Internet enables group communications to occur on a global scale and offers efficiencies currently unavailable offline. Several online applications have been developed in an effort to assist group interaction, such as message boards, web-based clubs, online chat groups and newsletter distribution services. However, all of these online applications have significant limitations for group members and organizers. Many are difficult to use, and some require expert assistance to add members or administer groups. Some are inconvenient, as members must continually visit a web site to read group communications, while others require multiple group members to communicate simultaneously. Accordingly, group members and organizers are seeking a solution that provides a rich set of integrated and easy-to-use features for creating, customizing and managing their group communications. TRADITIONAL, INTERNET AND EMAIL-BASED ADVERTISING AND DIRECT MARKETING Advertisers and direct marketers spent approximately $309 billion on advertising in the United States in 1999, of which $132 billion was invested in brand advertising and $177 billion was spent on direct marketing, according to the Direct Marketing Association. Traditional forms of advertising media, such as print, broadcast and outdoor provide limited targeting capabilities and generally provide for marketing messages to be delivered on an undifferentiated basis to reach the broadest audience. Direct marketers attempt to target consumers with direct mail pieces, catalogs, magazine inserts and telemarketing. Advertising and direct marketing campaigns can be costly to administer due to the acquisition of targeting data, production and distribution of creative material, and the time delays involved in measuring customer responses. The Internet represents an attractive new medium for advertising and direct marketing and offers a combined set of features that are unavailable in traditional media. Online advertising enables advertisers to target consumers more precisely through the use of behavioral, demographic and other data. In addition, the Internet allows advertisers to receive immediate responses, to test campaign effectiveness, and to direct consumers to a precise point-of-sale where they may more rapidly complete a purchase transaction. These factors combine to increase the return on advertising investment and motivate advertisers to increase their online advertising expenditures. Forrester Research estimates that the amount spent on online advertising and direct marketing worldwide will increase ten-fold from $3.3 billion in 1999 to $33.1 billion in 2004. Internet advertisers and direct marketers are increasingly turning to email as a preferred delivery mechanism for their marketing messages. Email marketing provides significant efficiencies over traditional direct marketing through the elimination of postage, paper, printing, and handling costs and through enhanced delivery, tracking and reporting capabilities. In addition, email marketing also enables advertisers to send targeted, more relevant advertisements and promotions to consumers who have given permission to receive relevant advertising in their categories of interest. Since consumers are more likely to respond to advertising that they elect to receive, or which is targeted to their specific interests, direct marketers have embraced permission-based online marketing programs over traditional means. Jupiter Communications reports that response rates for direct email campaigns 30 33 targeted to permission-based audiences are three to ten times greater than the response rates of traditional direct mail methods. Although the Internet and email offer advertisers and direct marketers a number of advantages over traditional media, there remain significant challenges to realizing the full potential of online advertising. To date, online advertising generally has consisted of banner advertisements and sponsorships on heavily trafficked portals and other web content sites, similar to billboards on a well-traveled roadway. To complement these forms of broad-reaching advertising, advertisers also must be able to identify, target and reach specific consumers and showcase products and services that are relevant to those consumers. Many online advertisers have been unable to target their audiences successfully, largely due to a lack of accurate data on users and their interests. As a result, significant time and financial resources have been spent obtaining and analyzing critical data about consumers in order to determine the appropriate placement for advertisements and direct marketing offers. As advertisers and direct marketers strive to increase the effectiveness of their marketing programs, they are seeking solutions that will enable them to achieve broad reach and to deliver highly targeted messages to consumers. THE EGROUPS SOLUTION eGroups is the most widely used email group communication platform on the Internet. Our service allows members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members participating in approximately 600,000 member-created groups. During that same month, our members exchanged email messages at a rate of approximately 2 billion per month, while our web site generated 163 million page views. New members joined our service at a rate of approximately 1.5 million per month, the majority of whom were referred by existing members. Over 20% of our members have joined from international domains despite limited marketing efforts. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member-designated interests, demographic information and other data. BENEFITS TO OUR MEMBERS: - EASY-TO-USE, CONVENIENT SERVICE. We have designed our platform to offer maximum ease of use and convenience to our members. Members communicate with each other using a single group email address, such as golf_fanatics@egroups.com, rather than the individual email addresses of each group member. Members can easily create groups and send personalized email invitations to others to join. Also, our web site provides an intuitive approach for members to join publicly accessible groups. We deliver group email directly to the member's email inbox allowing the member to read and reply at his or her convenience. Groups range in size from several people to hundreds of thousands. Our platform supports all popular email programs. - EXTENSIVE ARCHIVE OF MEMBER-GENERATED CONTENT. We believe that our archived email messages, which represent 825 gigabytes of data, constitute one of the largest searchable archives of user-generated content on the Internet. We archive public and private group email communications over the prior six months. On our web site, existing and prospective members can search the communications within publicly accessible groups or private groups to which they belong. During the past six months, we posted over nine billion messages to our archives. 31 34 Many of our members regularly browse and review these archives, representing a significant percentage of the time they spend on our web site. In addition, the publicly accessible archives attract new members to our service, as prospective members can browse the archives and then join groups that best match their interests. - CUSTOMIZABLE, PRIVACY-PROTECTED GROUPS. We enable group members to customize how they communicate and protect their privacy by limiting access to their groups. Members may elect to receive each email as it is sent, to receive a digest of each day's email messages, or to view group email solely at our web site. Members can configure their groups as announcement-only or discussion groups. Email messages to the group can be moderated by a group member, and the group archives can be kept private among group members or made public. In addition, we have developed a variety of safeguards that are designed to protect members and groups from the delivery of unauthorized email. We do not sell or disclose our member information or identities to our advertisers or other outside organizations. - INTEGRATED GROUP COMMUNICATION FEATURES. We offer a set of integrated web-based features that complement our email service and support dynamic groups. Each group receives dedicated storage space to share files such as photographs, documents and digital music. Group calendars with automatic email reminders allow groups to coordinate events. Our chat feature allows groups to schedule and conduct real-time discussions when needed. A polling feature allows members to survey their group on various topics that may be of interest to them, such as favorite political candidates or places to go to dinner. A group database allows members to store group information, such as contact data and project lists. - MULTIPLE-LANGUAGE PLATFORM. We plan to make our web-based platform available to users in 14 different languages starting in April 2000. Because members and moderators generate their own content for distribution within their groups, the emails can be written in the group members' native languages. Consequently, we only need to translate our homepage and certain parts of our web site to enhance the accessibility of our service to more international members in the future. In many countries, we are the first group communication platform available to Internet users in their native language, and we have already seen rapid expansion in those countries even prior to the planned launch of translations of our web site. - USEFUL AND RELEVANT ADVERTISING. We believe that more highly targeted advertisements and promotions can provide valuable information to our members. We are able to align advertisements more effectively with our members' self-designated interests providing them relevant advertisements that they are more likely to find useful. In addition, through our opt-in direct marketing programs, members can elect to receive category-specific email promotional offers, including new product offerings and special promotions. Because these advertisements are permission-based and highly targeted towards member-selected categories, they tend to provide more relevant content than less targeted advertisements. BENEFITS TO ADVERTISERS AND DIRECT MARKETERS: - ACCESS TO A LARGE AND GROWING AUDIENCE. We offer advertisers considerable breadth and reach, with 14 million active members across approximately 600,000 groups. We currently deliver approximately 2 billion emails and 163 million web-page views per month, nearly all containing an advertisement. According to Media Metrix, our web site ranked as the 13th most-visited site in the web-services category in February 2000 based on page views alone. Importantly, this statistic only measures 10% of our advertising inventory because Media Metrix does not measure email traffic, which represents 90% of our advertising inventory. 32 35 - MEMBER-DESIGNATED AFFINITY ADVERTISING. By subscribing to a group, our members segment themselves based on the interest category of their group. Advertisers and direct marketers then are able to target advertisements to members based on their interests. For example, online financial services firms can deliver email advertisements to members of an investment group, while pharmaceutical companies can promote new therapies to a health-related group. We believe that our member-designated category approach to targeting advertisements is a more effective approach than existing industry methods. In addition to individual group targeting, advertisements on our web site can be targeted to a member according to his or her age, gender, zip code and the multiple groups to which the member belongs. During 2000, we plan to extend this type of member targeting to our email inventory and to offer email and web targeting according to country, local geography, domain, operating system and type of web browser. - OPT-IN, PERMISSION-BASED DIRECT MARKETING. In addition to joining groups, our members may elect to receive relevant advertisements and promotions from our direct marketers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. Through our permission-based direct marketing programs, we deliver full-page emails to our members who have opted into this program. These members have elected to receive special offers and promotions in over 20 different product categories including books, computers, electronics, health, home and garden, investments, software, sports and travel. The offers provide more detailed product or service descriptions in the content of the email. As a result, this form of advertising generally yields higher response rates and commands higher prices than banner advertising. - EMAIL DELIVERY OF ADVERTISING IMPRESSIONS. We believe that by delivering advertisements in email messages rather than web-page views, advertisers are better able to reach consumers where they are spending the majority of their online time. As email programs increasingly support HTML-based content, we expect to be able to improve our delivery of rich-media advertising within group emails. THE EGROUPS STRATEGY We intend to maintain our leading position as the most widely used email group communication platform on the Internet. The following are key elements of our strategy: FURTHER ENHANCE OUR EMAIL GROUP COMMUNICATION PLATFORM. We intend to continue to develop, acquire and license proprietary products and technology to maintain our position as the leading email communication platform for online groups. To retain our current members and attract additional members, we expect to continue investing in and improving our members' experience with enhanced functionality and new features. For example, after conducting usability tests of our eGroups and ONElist web sites, we selected the best elements of each, and recently built a new web site architecture to deliver a better member experience. In April 2000, we plan to launch our redesigned web site with several major service enhancements, including a new user interface with over 100 usability and navigation improvements, including enhanced search, directory and archive features. INCREASE MEMBER BASE AND ACTIVITY. We intend to continue to increase our member base rapidly and encourage additional activity among existing members. To date, our member base has grown almost exclusively through word-of-mouth referrals by existing members. We plan to continue to expand our audience through member referrals and by launching more member-acquisition advertising and promotional programs, and by establishing more partnerships. We expect our members' activity to increase through cross-promotion of our other services and groups that may be of interest. Increasing member activity creates stronger relationships between us and our members, as 33 36 they join additional groups, use more applications, and send and receive more email. We also expect our large and growing member base to increase our attractiveness to advertisers and enhance our ability to enter into strategic partnerships. Additionally, we intend to encourage increased participation by our new and existing members in our opt-in direct marketing program. PROMOTE BRAND AWARENESS. We believe that building strong brand awareness will be instrumental in growing our member base and increasing our advertising revenues. We intend to promote our brand by consistently delivering value to our members and advertisers. We plan to promote eGroups within email messages sent by members and through select online and offline marketing campaigns. We also intend to maximize awareness of our brand among businesses and advertisers through traditional marketing channels. Our goal is for eGroups to be recognized as the leading platform for email group communication and as a leading provider of email advertising solutions. CONTINUE TO PURSUE MULTIPLE REVENUE SOURCES. We generate revenue from diverse sources, including web site and email advertising, sponsorships and opt-in email direct marketing programs. We plan to expand revenue from existing sources by increasing our direct sales efforts, increasing our inventory of rich-media email advertisements, improving our ability to target our web and email advertising, improving our data analysis capabilities and refining our opt-in direct marketing programs. In addition, we plan to introduce new subscription-based services and to develop other revenue sources. EXPAND INTERNATIONAL PRESENCE. We will leverage our email group communication platform to further expand internationally. To date, we have attracted over 20% of our members from international domains without incurring significant marketing expenditures. Since members create the content of the group communications, email messages can be composed in the member's native language and require no translation. Coinciding with the launch of our enhanced service in April 2000, we will launch 14 foreign language versions of our web site. We expect the number of international members to increase as we continue to launch additional foreign language versions of our web site and accelerate international marketing efforts. MEMBER SERVICES We provide a free email group communication service that allows members to create, join and manage email groups. Email groups offer a convenient way for members to communicate, coordinate and collaborate online around areas of common interest. We host approximately 600,000 active email groups on our service, and our members create several thousand new email groups each day. A new group can be created at our web site in a few easy steps--the group creator or moderator simply chooses a name for the group, provides a description, selects the appropriate category for the group directory and inputs the email addresses of the members he or she wants to invite to join the group. Groups are classified by the creator or moderator of the group, into categories provided by us. These categories are based on a classification system established by the Open Directory Project, or ODP. The ODP classification system allows individuals to find groups of interest through our directory using descriptions that are also used by numerous Internet search engines. MEMBER FEATURES Anyone with an email account may create a group or become a member of an existing group. Group members can send email messages to their groups from any email application such as Microsoft Outlook or Eudora, or through any email service, such as America Online, Inc.'s email service, Microsoft Corporation's Hotmail service or Yahoo! Inc.'s Yahoo Mail. Members also can configure email aliases to use multiple email addresses on our service. Email messages are delivered 34 37 directly to the member's inbox, where the member can read them and reply at his or her convenience. Through our web site, members can manage their email groups and customize their personal experience on our service. At the MyGroups page, each member can easily access all the groups to which he or she belongs and get an overview of current and past group activity. Members can decide when and how to view group email messages by changing their mail delivery settings--members may receive individual messages, receive a daily digest that consolidates all messages into one, view messages solely on the eGroups web site, or halt messages temporarily such as when going out of town. Members can also elect to receive special offers and promotions from our direct marketing partners in over 20 different product categories, such as investing, travel, sports and electronics. Each group benefits from an integrated set of web-based features that enhances email group communications. Each group also has a group page that provides a custom description of the group and allows access to group information and applications. Groups receive dedicated storage space to share files such as photos, documents and digital music. The group calendar enables groups to schedule meetings and events and can be configured to distribute email reminders to the group automatically. Each group also can use a private chat room on occasions when the members need a real-time collaboration tool and can create polls to quickly tabulate group opinion. For example, the poll may ask the group to vote on a date for a meeting, pick a design, or elect a group leader. A group database allows members to store group information, such as contact data and project lists. We also archive all the messages that a group has sent over the past six months, providing an easy and valuable reference tool for the group. Email archives can be viewed by date, author or discussion topic. Groups and their related archives may be designated as public or private. Publicly accessible archives can be viewed by any visitor to the eGroups web site, which helps attract new members to our service because prospective members can choose groups that best match their interests. Private archives can be viewed only by group members, thus maintaining group privacy. Because our members generate the content for their groups, our costs associated with acquiring and maintaining content remain minimal. In February 2000, PC Magazine awarded eGroups its Editor's Choice award for free email publishing based upon a number of factors including content management, administration, reporting, archiving, protection against unsolicited emails and back-end security. MODERATOR FEATURES Members who manage groups are known as "moderators." Moderators express pride of ownership in their groups and invite prospective members to their groups by sending out personalized email messages. Many members promote our service on their own personal and business web sites. Accordingly, we have tailored our service to provide several features designed to support group moderators. We enable moderators to customize their group settings based on the nature and purpose of the group. Moderators can easily configure their groups to be announcement groups, moderated discussion groups, or unmoderated discussion groups. Announcement groups are one-way newsletters from the moderator to the group. Moderated discussion groups allow any group member to post a message, but the moderator must approve the message before it is distributed to the group. Unmoderated discussion groups allow for free-flowing discussion with no moderator intervention. A group may be restricted so that the moderator must approve new members, or may be unrestricted so that any member may join. A group may be marked as "private" so that it will not appear in our public search database and will not be accessible to anyone but the members of that group. For example, a 35 38 music fan group may be configured as a public, unrestricted, announcement group to encourage the broadest possible fan base for an artist. By comparison, the moderator of a health support group may configure the group as a private, restricted and moderated discussion group to maintain privacy and control over the discussion content. Additional features enable moderators to invite others to join their group and to customize group communications. Moderators can easily add email addresses to their groups and invite members to join their groups, either by sending email invitations or posting links from their own web sites to the group page. We also provide each group with customized software tools to promote the group via a web-based subscription box, allowing the moderator to facilitate new member subscriptions from his or her own web site. Moderators also can customize email messages that go to their groups via an automated signature that is appended to each message. Customized welcome and goodbye messages can be sent to new and departing members. Moderators can also be notified by email when members join or leave the group. Large groups can have multiple moderators to facilitate group management. REPRESENTATIVE GROUPS Our service seamlessly handles email delivery for large and small groups. Each email group, whether it has several people or a hundred thousand, uses a single email address to communicate. For example, a member of a golfing group can communicate with his or her entire group by sending a single message to golf_fanatics@egroups.com. Our email system then distributes the email message to each member of the group. When another group member replies to the message, our service distributes the reply. Examples of groups that use our platform include: - Student and Alumni Groups. Student groups use our platform to coordinate study sessions, share class notes and plan social events. Alumni groups from high schools, colleges and universities utilize the eGroups service to stay in touch, coordinate meetings and fundraising efforts, and discuss favorite topics such as sports or politics. - Business Groups. Businesses use our platform as an alternative to setting up their own corporate intranet. In this regard, a business may establish an employee group to coordinate work projects and share files, a customer group to communicate new product announcements and product information, and a vendor group to coordinate project schedules and supplier needs. - Music/Entertainment Groups. Music groups have become especially popular among teens and young adults, as fans discuss favorite songs, concerts, or upcoming albums from popular artists like the BackStreet Boys, Ricky Martin and Brittney Spears. Our members participate in different music groups, which are focused on individual artists or types of music including pop, rock, country, hip hop, punk and classical. Television and movie fans also discuss episodes of their favorite TV shows or films. - Investor Groups. Investor groups use our platform to discuss investment ideas and portfolio strategies, as well as to exchange personal finance advice. Groups may form around broad themes such as the stock market in general or may be focused more narrowly on a specific industry or a particular group's investment theme. PRIVACY AND OTHER POLICIES Our platform has several features and policies to prevent unauthorized delivery of emails, harassment and illegal content. In order to prevent the unauthorized delivery of unwanted email 36 39 messages, we have implemented the following features: only group members may post a message to a group, moderators are limited in their ability to add large numbers of email addresses to their groups at one time, and email addresses appearing in the archives on the web site are masked to prevent people from copying and using email address lists without permission. Our member support team responds to member complaints of harassment or illegal content and removes offending content, groups and members from the service. Our privacy policies have been certified by TRUSTe, a leading non-profit organization, which provides privacy certification of web sites. MEMBER SUPPORT We provide support to our members seven days a week, 20 hours a day. Our support service is evolving to provide coverage 24 hours a day on a two-tiered basis. Tier 1 will consist of support representatives responsible for responding to email inquiries within four hours. Tier 2 support representatives will be dedicated to providing a more comprehensive level of support for participating large groups with greater than 500 members. Further, we provide support information on our web site that is accessible to all members. We utilize both commercial and proprietary support tools to ensure the highest degree of member service. These tools also afford us the ability to track recurring member issues that highlight opportunities for service improvements and enhancements. ADVERTISER AND DIRECT MARKETER SERVICES We offer a wide range of packages and options for advertisers and direct marketers to meet their specific needs. - RUN-OF-NETWORK ADVERTISING. Our advertising customers can reach a broad audience of over 14 million active members through run-of-network advertising. These advertisements are in the form of HTML banners, which can be delivered within page views on our web site or into group email messages, or in the form of text email messages. - TARGETED ADVERTISING. Advertisers can target banner advertisements to individual groups based on member-designated interests. In addition, advertisements on our web site can be targeted to a member according to his or her age, gender, zip code, and the multiple groups to which the member belongs. During 2000, we plan to extend this type of member targeting to our email inventory and to offer increased email and web targeting capabilities, including country, local geography, domain, operating system, and type of web browser. For advertisers seeking repeated exposure and increased response rates, we offer sponsorships, which involve multiple advertising placements over an extended period of time. Sponsorships provide a variety of additional promotional opportunities, such as the delivery of impressions on our web site through banner, button, or text-link advertising, sometimes including exclusive placement on certain web pages. - OPT-IN, PERMISSION-BASED DIRECT MARKETING PROGRAMS. We also offer permission-based direct marketing programs, which involve delivering full-page email promotional offers related to the categories of interest specified by our opt-in members. Because consumers are more likely to respond to advertising that they elect to receive and which is targeted to their specific interests, our permission-based email marketing programs have been well received by direct marketers. We currently have approximately 2.5 million subscriptions from our members who have elected to receive email promotional offers from our advertisers in specific categories of 37 40 interest. Our permission-based direct marketing programs can be targeted to 20 different product categories, consisting of: apparel games pets autos gifts small business books health software collectibles home & garden sports & outdoors computers investment toys electronics movies travel food & wine music
ADVERTISING AND DIRECT MARKETING SALES Advertisers, direct marketers and advertising agencies buy directly through our sales force, which is comprised of 23 people as of March 15, 2000. Our sales force is structured as a multi-regional organization with account managers, sponsorship managers and regional directors. Our sales personnel operate out of our offices in San Francisco and New York City. We also intend to leverage third-party advertising sales organizations in international markets. ADVERTISER AND DIRECT MARKETING CUSTOMERS During the three months ended January 31, 2000, we delivered advertisements for 114 advertisers and direct marketers. These customers represented several sectors, including technology companies, financial institutions, industrial manufacturers, and media companies. MARKETING Without the benefit of significant marketing programs to date, over 14 million active members have joined our groups. Our rapid growth in members has been driven by the inherently viral nature of our business and the ease of using our service. The organic growth of our member base occurs as existing members expand their groups by inviting new members, who often form their own groups and invite additional new members. To promote greater brand awareness, we intend to implement an integrated marketing program, which may include print advertising in consumer and trade publications, broadcast advertising on television and radio, outdoor advertising and online advertising. In addition, we plan to strengthen the eGroups brand with existing members by placing our own advertisements in group email messages and on our web site. We also will promote our business through trade show participation, speaking engagements and other public relations programs. We expect to increase our marketing activities in the future. TECHNOLOGY We have developed, and continue to expand, our expertise and industry-standard technology to deliver a robust, highly scalable email group communication platform. Our technology consists of several key components: EMAIL SYSTEM Our proprietary email system uses a reliable, scalable, distributed architecture to accept incoming email messages from group members, to process the messages through several proprietary steps, and then to distribute the messages to all members of that group. Incoming messages are authenticated to 38 41 confirm group status and the sender's identity by checking the member database. The system reformats the email according to the email preference of each member in text or HTML and inserts a targeted advertisement from our proprietary ad server. The system automatically handles problems common to large email lists such as auto responders and bounced messages. Our email system is designed to scale to support increasing email volumes by adding modest incremental hardware with limited incremental software engineering efforts. We delivered email messages at the rate of approximately 68 million messages per day during the month of February 2000. AD SERVERS Our ad-serving technology is based on a highly reliable, scalable and distributed architecture for targeting proprietary advertisements and delivering them into group emails and on the eGroups web site. The proprietary ad server manages our inventory of web and email advertising in order to maximize advertising revenues. The ad server is currently capable of targeting advertisements based on a number of parameters, including: - Group characteristics, such as group name and category; - Ad characteristics, such as ad location, size, format and type; - Priority and timing of ad campaigns; - Member demographics, such as age, gender and zip code. During 2000, we plan to enhance our targeting capabilities by enabling the ad server to target advertising based on additional member characteristics, such as country, local geography, domain, operating system and type of web browser. WEB AND APPLICATION SERVERS The web and application servers are run on the Linux operating system. Our web applications are based on a reliable, scalable, distributed architecture and provide the user interface and logic for our email group service. The web applications are integrated with the member database, archive servers and ad servers. ARCHIVE SERVERS The archives serve as a central repository for the historical content generated by groups on our service. Members can search for and retrieve prior messages sent over the past six months within the groups to which they belong and from other groups with publicly accessible archives. The archive servers also provide designated storage space for storing files such as documents, photos and digital music. We have licensed search technology to provide members with advanced capabilities to search for groups of interest and to search contents of archived messages. MEMBER DATABASE Our member database is the central repository for group and member information and is never sold or distributed outside the company according to our privacy policy. Each member's profile, preferences and group memberships are stored in the database and changes are managed via our web applications. Member information is also used to direct our ad targeting. Our member information may be supplemented by third-party information to enhance ad-targeting capabilities. The member database is maintained using an Oracle database on Sun Solaris servers. We also have entered into a 39 42 license agreement with E.piphany, Inc., to utilize its Data Mart software as the central database for all member information. The Data Mart software will enable us to integrate and analyze information from a variety of sources, including web logs, ad logs, email logs, member profiles, subscription data and customer support information. By enhancing our ability to analyze member information, we intend to provide superior member support, implement more effective member acquisition programs, and increase the response rates to our advertising. HOSTING AND NETWORK INFRASTRUCTURE Our email system and applications are hosted at Global Crossing's Global Center in Sunnyvale, California. Our hosting facility features redundant systems for power, fire protection, seismic reinforcement, and security surveillance by personnel and video monitors on a 24-hour basis. To enhance the security and performance of our service, our employees monitor the network hardware and software 24 hours a day, seven days a week. In addition, we employ a firewall solution to reduce the incidence of network security breaches. We intend to open additional data centers that will add further redundancy and network diversity. COMPETITION We face competition for members and for advertising and direct marketing customers. Our market is intensely competitive, and we expect that competition will persist and intensify in the future. Many of our competitors have longer operating histories, larger user bases, greater brand recognition and significantly greater financial, sales, technical, marketing and other resources. Many of these competitors can devote substantially more resources to the development of their products and services. In addition, our competitors may form strategic alliances or complete acquisitions of businesses, technologies or products that could reduce our competitive advantage. We believe that the primary competitive factors determining success in the market for email group communications include easy-to-use integrated group applications, a critical mass of active groups engaged in a diverse range of topics, service reliability, and responsive member support. While we believe that we compete favorably for members with respect to these factors, there is increasing competition emerging in this field. We compete for members with other Internet companies offering group communication services, such as Critical Path's RemarQ division, eCircles, Inc., Microsoft Corporation's Listbot Service, Topica, Inc., and Visto Corporation. In addition, the community and club services of established portals, such as Excite@Home Networks, Inc., Lycos, Inc., Microsoft Corporation's MSN, and Yahoo! Inc., represent alternatives to the consumer. We believe that the primary competitive factors determining success in the market for advertising and direct marketing customers include: the size, activity, and demographic profiles of the member base, and the ability to target members based on specific interests and demographic criteria. While we believe that we compete favorably with respect to these factors, numerous competitors may have an advantage over us with respect to specific factors. We compete for Internet advertising and sponsorship revenues with major web publishers and portals, such as America Online, Inc., Excite@Home Networks, Inc., Lycos, Inc., Microsoft Corporation's MSN, and Yahoo! Inc., as well as Internet advertising networks, such as DoubleClick, Inc. We compete for opt-in direct marketing revenues with companies such as Life Minders.com, Inc., NetCreations, Inc. and yesmail.com, Inc. We also compete with traditional advertising channels, including television, radio, print and outdoor media, for a share of advertisers' and direct marketers' total advertising budgets. 40 43 GOVERNMENT REGULATION We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally or directly applicable to electronic commerce. However, the Internet is increasingly popular and, as a result, laws and regulations may be adopted to govern it. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Furthermore, the growth of electronic commerce may prompt calls for more stringent consumer protection laws. Several jurisdictions have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. The adoption of such consumer protection laws could create uncertainty in web usage and reduce the demand for our products and services. We have a privacy and information security policy and seek to keep customer information private. We are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, libel and obscenity. The vast majority of such laws were adopted prior to the advent of the Internet. As a result, they do not address the unique issues of the Internet and related technologies. Changes in laws intended to address such issues could create uncertainty in the Internet marketplace. This uncertainty could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs. Legislation has recently been enacted in several states relating to the sending of unsolicited emails, a practice commonly referred to as "spamming." The federal government and several states, including New York and California, are considering, or have enacted, similar legislation. Although the provisions of these current and contemplated laws vary, they generally limit or prohibit both the transmission of unsolicited emails and the use of familiar spamming techniques such as the use of forged or fraudulent routing and header information. We believe that our services will not be significantly affected by this legislation because our current practices are intended to comply with current and proposed legislation. In addition, we have implemented a number of features and policies designed to reduce the likelihood of the transmission of unsolicited emails to our members. However, this legislation may affect our services, particularly in light of the rapidly evolving state of the law in this area. In addition, because our services are available over the Internet in multiple states and foreign countries, other jurisdictions may claim that we are required to qualify to do business in each state or foreign country. Our failure to qualify in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could have a material adverse effect on our business and operating results. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY PRODUCTS AND SERVICES We rely on various intellectual property laws and contractual restrictions to protect our proprietary products and services. These include confidentiality, invention assignment and nondisclosure agreements with our employees, contractors, suppliers and strategic partners. We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. In addition, we pursue the registration of our trademarks and service marks in the United States and internationally. However, effective 41 44 intellectual property protection may not be available in every country in which our services are made available online. We have filed for the registration of our trademarks in 21 countries. We have licensed various proprietary rights to third parties. Existing and future licensees may take actions that materially adversely affect the value of our proprietary rights or our reputation, or the quality of our brand. We also rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms. As a result, we may be required to obtain substitute technology of lower quality at greater cost, which could materially adversely affect our business and operating results. To date, we have not been notified, and are not aware, of any claims that our technologies infringe the proprietary rights of third parties. However, third parties could claim infringement by us with respect to our current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, with or without merit, could prove time-consuming, result in costly litigation, cause service upgrade delays, or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements may not be available, or may not be available on terms acceptable to us. As a result, any claim of infringement against us could have a material adverse effect upon our business and operating results. EMPLOYEES As of March 15, 2000, we had 154 full-time employees. We are not subject to any collective bargaining agreements and consider our employee relations to be good. Competition for employees in our industry is intense and our future success depends on our ability to attract, retain and motivate skilled employees. FACILITIES Our corporate offices are located in San Francisco, California, where we lease approximately 11,000 square feet under two leases that expire in September 2004 for 10,550 square feet and July 2000 for 450 square feet, and in Redwood City, California, where we lease approximately 14,000 square feet under a lease that expires in July 2004. We also maintain a sales office in New York City, where we lease approximately 3,850 square feet under a lease that expires in September 2004. We have business development and marketing offices in Europe and Japan. LEGAL PROCEEDINGS We currently are not a party to any material litigation, nor are we aware of any pending or threatened litigation that, individually or in the aggregate, would have a material adverse effect on our business, operating results or financial condition. However, occasionally we may become involved in litigation. Any litigation potentially could result in the expenditure of significant financial and managerial resources, even if the underlying claims have no merit. 42 45 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information with respect to our executive officers and directors as of March 15, 2000:
NAME AGE POSITION Michael B. Klein................. 29 President, Chief Executive Officer and Director Richard J. Carey................. 43 Senior Vice President, Product Development Marjorie T. Sennett.............. 39 Senior Vice President and Chief Financial Officer Steven T. Comfort................ 32 Vice President, Sales David W. Cragg................... 44 Vice President, Human Resources Jacqueline A. Maartense.......... 35 Vice President, Marketing Margaret E. Nibbi................ 38 Vice President, General Counsel and Secretary Carolyn J. Patterson............. 36 Vice President, Operations Marcus Riecke.................... 34 Vice President, Business Development and International Gayle A. Crowell(2).............. 49 Director Peter Mills(1)................... 48 Director Michael J. Moritz(2)............. 45 Director Daniel D. Springer(1)............ 36 Director
- ------------------------------ (1) Member of Audit Committee (2) Member of Compensation Committee Michael B. Klein has served as our Chief Executive Officer since November 1999 and served on our board of directors since December 1999. Prior to joining us, Mr. Klein was the Chief Executive Officer of ONElist, Inc., beginning in October 1999. Prior to that, he founded Transoft Networks, Inc., a leading supplier of storage area networking software, and served as its President and Chief Executive Officer from 1992 until May 1999 when the Company was acquired by Hewlett Packard. From 1989 to 1992, Mr. Klein founded and served as Chief Executive Officer of MIBEK Corporation, a developer of financial modeling and analysis software which was acquired in 1992. Mr. Klein holds a B.A. from the University of California, Santa Barbara, a J.D. from the Santa Barbara College of Law and an M.B.A. from Pepperdine University. Richard J. Carey has served as our Senior Vice President of Product Development since February 2000 and served as Vice President and Chief Technical Officer since November 1999. Prior to joining us, Mr. Carey was Vice President of Engineering at ONElist, Inc., beginning in September 1999. From September 1998 to January 1999, Mr. Carey co-founded and served as Vice President of Engineering at Listen.com, Inc., an online music service. Prior to that, Mr. Carey led the development team and the industry consortium for VRML, an Internet standard. He served as Director of Engineering at Silicon Graphics, a workstation and server company, from 1989 to 1998 and Director of Engineering at Vertigo/Cubicomp, a three-dimensional graphics and animation company, from 1984 to 1989. Mr. Carey holds a B.S. from the University of Maryland and an M.S. from Cornell University. Marjorie T. Sennett has served as our Senior Vice President and Chief Financial Officer since July 1999. Prior to joining us, she served as Senior Vice President and Chief Financial Officer of Amylin Pharmaceuticals, Inc., a biotechnology company, from 1989 to 1998. From 1982 to 1986, Ms. Sennett worked in the corporate finance and leveraged buyout departments at Bankers Trust Company. Ms. Sennett holds a B.A. from Vanderbilt University and an M.B.A. from the Stanford Graduate School of Business. 43 46 Steven T. Comfort has served as our Vice President of Sales since April 1999. Prior to joining us, Mr. Comfort served as a Vice President of Sales at 24/7 Media, an Internet advertising firm, beginning in February 1997. From January 1995 to February 1997, Mr. Comfort served as General Manager of Wired Online at Wired Ventures/Lycos. He worked in positions related to media planning at the advertising firms Messner Vetere Berger McNamee Schmetterer Euro-RSCG from 1991 to 1994 and D'Arcy Masius Benton and Bowles from 1989 to 1990. Mr. Comfort holds a B.A. from the University of North Carolina, Chapel Hill. David W. Cragg has served as our Vice President of Human Resources since March 2000. Prior to joining us, Mr. Cragg served as Principal HR Consultant at Genentech Inc., beginning in 1996. From 1992 until 1995, he worked as Director of Human Resources at Software Publishing Corporation. Mr. Cragg holds a B.A. from the University of California, Santa Cruz. Jacqueline A. Maartense has served as our Vice President of Marketing since September 1999. From 1991 to 1999, Ms. Maartense worked at Intuit, Inc., in a variety of marketing and general management roles, including Director of Quicken Marketing, Director of Online Sales and General Manager for Intuit, U.K. Prior to that, she worked at Gillette and Bristol Myers Squibb in positions related to brand management. Ms. Maartense holds a Bachelor of Commerce from Queen's University, Canada, and an M.B.A. from Harvard Business School. Margaret E. Nibbi has served as our Vice President, General Counsel and Corporate Secretary since November 1999. Prior to joining us, Ms. Nibbi was Legal Counsel at GetThere.com, an Internet services company, from October 1997 to September 1999. From 1995 to 1997, Ms. Nibbi was an associate at the law firm Gunderson, Dettmer, Stough, Villeneuve, Franklin & Hachigian and, from 1987 to 1995, she was an associate at the law firm Brobeck, Phleger & Harrison. Ms. Nibbi holds a B.A. and an M.A. from Stanford University and a J.D. from the Georgetown University Law Center. Carolyn J. Patterson has served as our Vice President of Operations since September 1999. Prior to joining us, Ms. Patterson served as Vice President of Operations at Critical Path, Inc., a leading provider of Internet messaging solutions, from August 1998 to August 1999. From January 1998 to August 1998, Ms. Patterson was the Channel Manager of Strategic Platform Alliances at Sybase, Inc., an integrated software company. From 1986 to 1997, Ms. Patterson worked in a variety of roles at AT&T, most recently as General Manager of Data Services Operations. Ms. Patterson holds a B.S. from Rider University and an M.B.A. from Monmouth University. Marcus Riecke has served as our Vice President of Business Development and International since January 2000. Prior to joining us, Mr. Riecke served as General Manager Europe at ONElist, Inc., beginning in September 1999. Prior to that, Mr. Riecke was Vice President New Business at AOL Bertelsmann Online from November 1998 to August 1999. Before joining AOL, Mr. Riecke was Managing Director at Lycos Bertelsmann, Germany, from June 1997 to October 1998. Prior to Lycos, Mr. Riecke was a consultant to the Chief Executive Officer and board of Bertelsmann AG from August 1996 to June 1997. Mr. Riecke holds a B.A. from the University of London (1989) and an M.B.A. from the Haas School of Business of the University of California, Berkeley (1996). Gayle A. Crowell has served on our board of directors since March 2000. Ms. Crowell is currently President of E.piphany.net, the online business unit of E.piphany, Inc., a customer relationship management software company. She has held that position since January 2000, following E.piphany's acquisition of RightPoint, Inc., a real-time marketing software company. From January 1998 to December 1999, Ms. Crowell served as President, Chief Executive Officer and Director of RightPoint. Ms. Crowell was named Chairman of the Board of RightPoint in May 1998. From 1995 to 1998, Ms. Crowell served as Senior Vice President and General Manager of Worldwide Field 44 47 Operations for Mosaix, Inc., which provides enterprise customer management call-center solutions to more than 1,300 customers worldwide. She holds a B.S. from the University of Nevada, Reno. Peter Mills has served on our board of directors since December 1999. Mr. Mills is a General Partner in CMGI @Ventures and has served as the Managing Partner of CMGI @Ventures since March 1995. From March 1992 to March 1995, from September 1988 to August 1998, Mr. Mills was the Chief Executive Officer of the United States Display Consortium (USDC) and served as SEMATECH's Chief Administrative Officer from September 1988 to August 1998. Mr. Mills serves as a director of Vicinity Corporation, as well as several privately held companies. Mr. Mills holds a B.S. from Ithaca College and an M.B.A. from the Graduate School of Business at Columbia University. Michael J. Moritz has served on our board of directors since December 1998. He has been a general partner of Sequoia Capital, a venture capital firm, since 1986. Mr. Moritz serves as a director of Yahoo! Inc., Flextronics International Ltd., Webvan Group, Inc., eToys, Inc., and Agile Software Corporation, as well as several private companies. Mr. Moritz holds an M.A. from Oxford University. Daniel D. Springer has served on our board of directors since March 2000. Mr. Springer has served as Chief Marketing Officer of NextCard, Inc., since February 1998. From 1991 to 1997, Mr. Springer worked at McKinsey & Co., an international consulting firm, where he consulted for a wide range of enterprises. Mr. Springer holds a B.A. from Occidental College and an M.B.A. from Harvard University. BOARD COMPOSITION Each of our officers who is also a director devotes full time to our business and affairs. Our nonemployee directors devote such time to our business and affairs as is necessary to discharge their duties. There are currently no family relationships among any of our directors, officers or key employees. BOARD COMMITTEES Our board of directors has an audit committee and a compensation committee. Audit Committee. The board of directors established our audit committee in March 2000. The audit committee has the powers and responsibilities to monitor our exposure to major financial risks and review, among other things, the adequacy of our internal control systems and financial reporting procedures, our annual and quarterly financial statements, and our annual audit. The audit committee currently consists of Messrs. Mills and Springer. Compensation Committee. The board of directors established our compensation committee in March 2000. The compensation committee has authority to review and recommend to the board of directors the compensation and benefits of all of our executive officers, and general policies relating to compensation and benefits of our employees. The compensation committee currently consists of Mr. Moritz and Ms. Crowell. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationships currently exist between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. 45 48 DIRECTOR COMPENSATION Our directors do not currently receive cash compensation from us for their service as members of the board of directors. We do not provide additional compensation for committee participation or special assignments of the board of directors. In March 2000, our board of directors adopted our stock option grant program for non-employee directors. The program will be administered under our 2000 Stock Incentive Plan. Under this program, each non-employee director will receive a nonqualified stock option to purchase 50,000 shares of common stock upon initial election or appointment to the board following this offering. One-fourth of the shares subject to these options will vest after one year of service with the balance vesting in equal monthly installments over the next 36 months of continuous service. After that, beginning with the annual meeting of stockholders in 2001, each nonemployee director will automatically receive an additional option to purchase 12,500 shares of common stock immediately following each year's annual meeting of stockholders. This option will vest monthly over a four-year period measured from the date of grant. The exercise price for all options granted under the program will be the fair market value of the common stock on the date of grant. Options will have a ten-year term, except that the unvested portion of options may expire on the earlier date that a director ceases services as a director and the vested portion of those options will expire three months after a nonemployee director ceases services as a director, or in the case of death, one year after the date of death. If specified corporate transactions occur, such as a merger or sale of the company, 25% of the outstanding unvested options granted to a nonemployee director under the program will automatically accelerate and become exercisable immediately prior to the corporate transaction. Acceleration of option vesting will not occur if the corporate transaction is a related-party transaction specified in the plan. EXECUTIVE COMPENSATION The following table provides the total compensation received by our chief executive officer for services rendered to us in all capacities for the period from our inception on June 5, 1998 to July 31, 1999, the end of our last fiscal year. The executive listed below is referred to as the Named Executive Officer elsewhere in this prospectus. 46 49 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION FOR THE PERIOD FROM COMPENSATION INCEPTION (JUNE 5, 1998) TO JULY 31, 1999 AWARDS ------------------------------------------- -------------- ALL OTHER RESTRICTED NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) STOCK AWARD($) Martin Roscheisen................. $104,781 -- -- $364,549(1) Former President and Chief Executive Officer(2)
- ------------------------------ (1) This award covered 1,215,164 restricted shares of our common stock of which 401,004 shares were fully vested at the time of the award. During the period from June 5, 1998 to February 4, 2000, the remaining unvested shares vested at the rate of 22,616 shares for each month of continuous service completed by Mr. Roscheisen in any capacity. On February 4, 2000, Mr. Roscheisen entered into an executive separation agreement with us under which all of his remaining unvested shares became vested as of that date. (2) In November 1999, Mr. Roscheisen resigned from the office of President and Chief Executive Officer. Michael B. Klein has served as our Chief Executive Officer since November 1999 and receives an annual salary of $195,000. Marjorie T. Sennett has served as our Senior Vice President and Chief Financial Officer since July 1999 and receives an annual salary of $175,000. Richard J. Carey has served as our Senior Vice President, Product Development, since February 2000 and receives an annual salary of $175,000. Jacqueline A. Maartense has served as our Vice President, Marketing, since September 1999 and receives an annual salary of $150,000. Steven T. Comfort has served as our Vice President, Sales, since April 1999 and receives an annual salary of $100,000. Mr. Comfort received $75,000 as a sales commission bonus for the calendar year 1999. OPTION GRANTS SINCE INCEPTION We did not grant stock options to our Named Executive Officer during the period from our inception to July 31, 1999. We have never granted any stock appreciation rights. Michael B. Klein has served as our Chief Executive Officer since November 1999 and has been granted options to purchase 1,030,894, 196,809 and 522,297 shares of common stock at exercise prices of $0.05762, $5.00 and $6.00 per share, all of which shares have been acquired upon exercise. Marjorie T. Sennett has served as our Senior Vice President and Chief Financial Officer since July 1999 and has been granted options to purchase 232,000 and 143,000 shares of common stock at exercise prices of $0.30 and $6.00 per share, all of which shares have been acquired upon exercise. Richard J. Carey has served as our Senior Vice President, Product Development since November 1999 and has been granted options to purchase 256,161 and 118,839 shares of common stock at exercise prices of $0.05762 and $6.00 per share, all of which shares have been acquired upon exercise. Jacqueline A. Maartense has served as our Vice President, Marketing since September 1999 and has been granted an option to purchase 200,000 shares of common stock at an exercise price of $0.35 per share, all of which shares have been acquired upon exercise. Steven T. Comfort has served as our Vice President, Sales since April 1999 and has been granted options to purchase 100,000, 15,000 and 10,000 shares of common stock at exercise prices of $0.30, $0.35 and $6.00 per share, all of which shares have been acquired upon exercise. As of March 15, 2000, all of the shares acquired upon exercise of stock options are subject to a right of repurchase by us at the exercise price paid. These repurchase rights lapse over a period of four years measured from the date of the option grant. 47 50 FISCAL YEAR-END OPTION VALUES Our Named Executive Officer did not hold options to purchase our stock as of July 31, 1999. EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS On February 4, 2000, our Named Executive Officer, Martin Roscheisen, entered into an executive separation agreement with us under which all of his remaining unvested shares became vested as of that date. All of our executive officers employed in the United States are employed "at-will" and their employment may be terminated at any time. We have issued offer letters to all of our executive officers pursuant to which each person is entitled to a base salary, bonuses and options to purchase restricted shares of our common stock. In addition, we provided Ms. Sennett with a loan in the principal amount of $100,000, bearing no interest, for relocation expenses as part of her agreement to join us. The note also provides that we will forgive this loan in 48 equal monthly installments following July 31, 1999, provided she continues her employment with us on each of those dates. We also agreed upon commencement of their employment that if any of the following executive officers is actually or constructively discharged without cause in connection with or following a transaction in which we experience a change in control, then a portion of their remaining unvested shares will vest immediately: Michael B. Klein, Marjorie T. Sennett, Richard J. Carey, Jacqueline A. Maartense and Steven T. Comfort. STOCK PLANS 2000 STOCK INCENTIVE PLAN Our 2000 Stock Incentive Plan, or 2000 Plan, was adopted by our board in March 2000, and we expect it will be approved by our stockholders in April 2000. The purpose of our 2000 Plan is to enhance long-term shareholder value by offering opportunities to officers, directors, employees, consultants, agents, advisors and independent contractors of eGroups and its subsidiaries to participate in eGroups' growth and success, and to encourage them to remain in the service of eGroups and its subsidiaries and to own eGroups stock. Our 2000 Plan provides for awards of stock options and stock. Our board has reserved a total of 5,400,000 shares of common stock for issuance under the plan, plus: - Any shares reserved but not granted under our 1998 Stock Option Plan or returned to the 1998 Stock Option Plan upon termination of options up to a total of 1,808,729 shares; and - An automatic annual increase, to be added on the first day of our fiscal year beginning in 2001, equal to the lesser of (1) 2,000,000 shares, (2) 5% of the average number of shares outstanding as used to calculate fully diluted earnings per share as reported in eGroups' financial statements for the preceding fiscal year, and (3) a lesser number determined by the board. Any shares from increases in previous years that are not actually issued shall be added to the aggregate number of shares available for issuance under the 2000 Plan. Our 2000 Plan provides for the granting to employees, including officers, of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and for the granting to employees, officers, directors, consultants, agents, advisors and independent contractors of nonqualified stock options. To the extent an optionee would have the right in any calendar year to exercise for the first time one or more incentive stock options for shares having an aggregate fair market value, determined for each share as of the date the option to purchase the shares was granted, in excess of $100,000, any of these excess options shall be treated as nonqualified stock options. Unless terminated earlier, our 2000 Plan will terminate on March 1, 2010. 48 51 Our 2000 Plan may be administered by the board of directors or a committee or committees of the board. Currently, our 2000 Plan will be administered by the compensation committee of our board. The plan administrator determines the terms of options granted under the 2000 Plan, including the number of shares subject to an option and its exercise price, which, for incentive stock options, must be at least equal to the fair market value of the common stock on the date of grant, term and exercisability. The plan administrator determines the term of options, which may not exceed ten years, or five years in the case of an incentive stock option granted to a 10% shareholder. Optionees may not transfer options other than by will or the laws of descent or distribution, with the provision that the plan administrator may grant nonqualified stock options with limited transferability rights in some circumstances. The plan administrator determines when options vest and become exercisable. eGroups expects that options granted under the 2000 Plan generally will vest at the rate of 1/4 of the total number of shares subject to the options 12 months after the date of grant, and 1/48 of the total number of shares subject to the options each month thereafter. The plan administrator is authorized under our 2000 Plan to issue shares of common stock to eligible participants with terms, conditions and restrictions established by the plan administrator in its sole discretion. Restrictions may be based on continuous service with eGroups or its subsidiaries or the achievement of performance goals. Holders of restricted stock are shareholders of eGroups and have all the rights of stockholders with respect to such shares with some restrictions. The plan administrator will make proportional adjustments to the aggregate number of shares issuable under our 2000 Plan and to outstanding awards in the event of stock splits or other capital adjustments. In the event of the sale of all or substantially all of eGroups' assets, or a merger or consolidation of eGroups with or into another corporation, all options outstanding under the 2000 Plan will be assumed or equivalent options substituted by the successor corporation, unless such successor corporation does not agree to such assumption or substitution, in which case each outstanding option and restricted stock award will automatically accelerate and become 100% vested and exercisable immediately before the corporate transaction, and any unexercised options will terminate upon consummation of the transaction. No awards will be granted under our 2000 Plan until the effective date of this offering. EGROUPS 1998 STOCK OPTION PLAN Our 1998 Stock Option Plan was adopted by our board and approved by our stockholders in June 1998. We reserved a total of 5,410,024 shares of common stock for issuance under the 1998 Stock Option Plan. Simultaneous with the effectiveness of this offering, our board of directors has suspended our 1998 Stock Option Plan and determined that no further grants will be made under it. Any shares remaining for future option grants and any future cancellations of options from our 1998 Stock Option Plan will become available for future grant under our 2000 Plan. The purposes of the 1998 Stock Option Plan are to attract and retain the best available personnel, to provide additional incentives to eGroups' employees and persons rendering consulting or advisory services, and to promote the success of eGroups' business. The 1998 Stock Option Plan provides for the granting of incentive and nonqualified options. Our 1998 Stock Option Plan may be administered by our board or a committee of the board. Currently, the 1998 Stock Option Plan is administered by the board. The plan administrator determines the terms of options granted under the 1998 Stock Option Plan, including the number of shares subject to an option and its exercise price, term and exercisability. The terms and conditions for options granted under the 1998 Stock Option Plan are substantially similar to those for options granted under the 2000 Plan, except as follows. Generally, options under 49 52 the 2000 Plan may not be exercised until the options are vested. In some instances, the plan administrator may grant options that may be exercised immediately after the grant date, but to the extent the shares subject to the options are not vested as of the date of the exercise, eGroups retains a right to repurchase any shares that remain unvested at the time of the optionee's termination of employment by paying an amount equal to the exercise price times the number of unvested shares. No option may be transferred by the optionee other than by will or the laws of descent or distribution. As of March 15, 2000, options to purchase 2,711,453 shares of eGroups common stock at a weighted average exercise price of $2.55 per share were outstanding under the eGroups 1998 Stock Option Plan and the ONElist 1998 Stock Plan described below. ONELIST 1998 STOCK PLAN We assumed the ONElist 1998 Stock Plan and options outstanding under that plan in connection with the merger of eGroups and ONElist under which all outstanding ONElist options were assumed by eGroups and are exercisable for eGroups' stock. No further option grants will be made under this plan. The purposes of the ONElist Plan were to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the company's business. The ONElist Plan provided for the granting of incentive and nonqualified options. The terms and conditions for options granted under the ONElist Plan were substantially similar to those for options granted under the eGroups 1998 Option Plan. EGROUPS 2000 EMPLOYEE STOCK PURCHASE PLAN eGroups' 2000 Employee Stock Purchase Plan was adopted by our board in March 2000, and we expect it to be approved by our stockholders in April 2000. We will implement the Purchase Plan upon the effectiveness of this offering. We reserved a total of 500,000 shares of common stock for issuance under the Purchase Plan. The number of shares reserved will be increased automatically each year on the first day of our fiscal year beginning in 2001 by an amount equal to the lesser of (1) 420,000 shares, (2) 1.2% of the average number of shares outstanding as used to calculate fully diluted earnings per share as reported in eGroups' financial statements for the preceding fiscal year, and (3) a lesser amount determined by our board. Any shares from increases in previous years that are not actually issued shall be added to the aggregate number of shares available for issuance under the Purchase Plan. We intend for the Purchase Plan to qualify under Section 423 of the Internal Revenue Code. We intend to implement the Purchase Plan by an offering period commencing upon the effectiveness of this offering and ending on May 31, 2002. Each subsequent offering period will have a duration of 24 months. Each offering period after the first offering period will commence on June 1st of each year. Each offering period will consist of four consecutive purchase periods of six months duration with the last day of each period being designated a purchase date. The first purchase date will occur on November 30, 2000, with subsequent purchase dates to occur every six months thereafter. The Purchase Plan will be administered by the compensation committee of our board. Employees, including officers and employee directors, of eGroups, or of any of its majority-owned subsidiaries designated by our board, are eligible to participate in the Purchase Plan if they are employed by eGroups or any such subsidiary for at least 20 hours per week and more than five months per year. The Purchase Plan permits eligible employees to purchase shares of stock through payroll deductions, which may not exceed 15% of an employee's compensation. Under the Purchase Plan, no employee may purchase common stock worth more than $25,000 in any calendar year, valued as of 50 53 the first day of each offering period, or more than $25,000 of common stock in any purchase period, valued as of the last day of that purchase period. In addition, owners of 5% or more of eGroups' or a subsidiary's common stock may not participate in the Purchase Plan. The price of the common stock purchased under the Purchase Plan will be the lesser of 85% of the fair market value of eGroups' common stock at the beginning of the offering period or at the purchase date, except that the purchase price for the first offering period will be equal to the lesser of 100% of the initial public offering price of the common stock or 85% of the fair market value on the purchase date. If the fair market value of the common stock on a purchase date is less than the fair market value at the beginning of the offering period, a new 24 month offering period will automatically begin on the first business day following the purchase date with a new fair market value. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with eGroups or a participating subsidiary. If not terminated earlier, the Purchase Plan will have a term of ten years. The Purchase Plan provides that in the event of a merger of eGroups with or into another corporation or a sale of all or substantially all of eGroups' assets, each right to purchase stock under the Purchase Plan will be assumed or an equivalent right substituted by the successor corporation. If the successor corporation refuses to assume or substitute for the purchase right, the offering period during which a participant may purchase stock will be shortened to a specified date before the proposed merger or sale. Our board has the power to amend or terminate the Purchase Plan if that action does not adversely affect any outstanding rights to purchase stock under the Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS Our Amended and Restated Certificate of Incorporation limits the liability of our directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors except liability for breach of their duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, unlawful payments of dividends or unlawful stock repurchases or redemptions, or any transaction from which the director derived an improper personal benefit. This limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies like injunctive relief or rescission. Our bylaws provide that we shall indemnify our directors to the fullest extent permitted by law. They also permit us similarly to indemnify officers, employees and other agents. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity. We plan to enter into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements will indemnify our directors and executive officers for some expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of or in connection with their services as a director, officer, employee or agent of eGroups, any subsidiary of eGroups, or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. At present, there is no pending litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. 51 54 RELATIONSHIPS AND RELATED TRANSACTIONS Since our inception in June 1998, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, or holder of more than 5% of any class of our voting securities or members of such person's immediate family had or will have a direct or indirect material interest, other than (1) compensation agreements and other arrangements, which are described in "Management," and (2) the transactions described below. EQUITY TRANSACTIONS In June 1998, we sold 1,620,000 shares of our Series A preferred stock for $0.50 per share. In December 1998, we sold 3,556,772 shares of our Series B preferred stock for $1.43955 per share. On November 30, 1999, we merged with ONElist through a statutory merger of EG Acquisition Corporation, a wholly owned subsidiary of eGroups and ONElist by which 2,662,882 shares of ONElist common stock were exchanged and converted into 8,318,629 shares of eGroups common stock, and 2,330,665 shares of ONElist preferred stock were exchanged and converted into 7,280,811 shares of eGroups Series C preferred stock. In December 1999, we sold 4,081,633 shares of our Series D preferred stock for $10.29 per share. Listed below are the directors, executive officers and stockholders who beneficially own more than 5% of our securities who participated in these transactions. "See Description of Capital Stock."
VALUE AT SERIES A SERIES B SERIES C SERIES D AMOUNT $ PER COMMON PREFERRED PREFERRED PREFERRED PREFERRED PAID SHARE STOCKHOLDER (IN THOUSANDS) Michael B. Klein........................... 1,030,894 -- -- -- -- 59 Richard J. Carey........................... 256,161 15 Mark Fletcher.............................. 4,685,880 -- -- -- -- 150 Entities affiliated with CMGI @Ventures.... -- -- -- 4,314,558 291,545 5,400 Bertelsmann Ventures....................... -- -- -- 2,876,371 680,272 8,600 Entities affiliated with Sequoia Capital... -- -- 2,848,112 -- 485,909 9,100 Entities affiliated with Atlas Venture..... -- 1,620,000 694,660 -- 680,272 8,810
These parties acquired these shares on the same terms as other purchasers in this transaction. Shares held by all affiliated persons and entities have been aggregated. Share numbers and purchase price information are reflected on an as-if-converted into shares of common stock basis. See "Principal Stockholders" for more detail on shares held by these purchasers. Peter Mills, one of our directors, is an affiliate of each of the entities affiliated with CMGI @Ventures. Michael Moritz, one of our directors, is a general partner of Sequoia Capital VIII and thus is an affiliate of each of the entities affiliated with Sequoia Capital. EMPLOYMENT-RELATED CONTRACTS As part of Mr. Roscheisen's employment with us, he assigned a business concept and related intellectual property rights to us. In return, we issued to him 1,215,164 restricted shares of our common stock, all of which have vested. Some of our executive officers have received employment offer letters from us. See "Management--Employment Contracts and Change of Control Arrangements." We plan to enter into indemnification agreements with each of our directors and executive officers. See "Management--Indemnification of Officers and Directors." 52 55 LOANS TO EXECUTIVE OFFICERS The following executive officers delivered to us full-recourse promissory notes to purchase restricted stock under our 1998 Stock Option Plan. The full principal amount and accrued interest under each note remain outstanding. The terms of the notes are summarized below:
INTEREST ACCRUED INTEREST BALANCE NAME DATE OF MATURITY RATE PRINCIPAL AS OF 3/15/00 AS OF 3/15/00 Richard J. Carey................. March 15, 2004 6.80 $ 712,915 $ 0 $ 712,915 Steven T. Comfort................ October 12, 2003 6.25% 35,135 937 36,072 Steven T. Comfort................ March 15, 2004 6.80 59,990 0 59,990 David W. Cragg................... March 15, 2004 6.80 749,875 0 749,875 Michael B. Klein................. January 26, 2004 6.21 983,848 11,685 995,533 Michael B. Klein................. March 15, 2004 6.80 3,133,260 0 3,133,260 Jacqueline A. Maartense.......... October 12, 2003 6.25 69,800 1,862 71,662 Margaret E. Nibbi................ January 5, 2004 6.21 674,850 8,015 682,865 Carolyn J. Patterson............. November 17, 2003 6.08 27,920 555 28,475 Carolyn J. Patterson............. March 15, 2004 6.80 269,955 0 269,955 Marjorie T. Sennett.............. October 11, 2003 6.25 69,368 1,863 71,231 Marjorie T. Sennett.............. March 15, 2004 6.80 857,857 0 857,857
We extended Marjorie T. Sennett, our Senior Vice President and Chief Financial Officer, a loan related to her relocation expenses. See "Management--Employment Contracts and Change of Control Arrangements." OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS SINCE INCEPTION David W. Cragg has served as our Vice President, Human Resources since March 2000 and has been granted an option to purchase 125,000 shares of common stock at an exercise price of $6.00 per share, all of which shares have been acquired upon exercise. Margaret E. Nibbi has served as our Vice President, General Counsel since November 1999 and has been granted an option to purchase 150,000 shares of common stock at an exercise price of $4.50 per share, all of which shares have been acquired upon exercise. Carolyn J. Patterson has served as our Vice President, Operations since September 1999 and has been granted options to purchase 80,000 and 45,000 shares of common stock at exercise prices of $0.35 and $6.00 per share, all of which shares have been acquired upon exercise. Marcus Riecke has served as our Vice President, Business Development since January 2000 and has been granted options to purchase 168,691 and 31,309 at exercise prices of $0.05762 and $5.00 per share, of which no shares have been acquired upon exercise. See also "Management -- Option Grants Since Inception." As of March 15, 2000, all of the shares acquired upon exercise of stock options are subject to a right of repurchase by us at the exercise price paid. These repurchase rights lapse over a period of four years measured from the date of the option grant. OTHER TRANSACTIONS In March 2000, we entered into a Software License and Services Agreement with E.piphany, Inc. Under this agreement, we acquired a nonexclusive license for approximately $900,000 to use E.piphany's customization and campaign management software to enhance our email and web-based services. We may terminate the agreement at any time, and E.piphany may terminate upon written notice if we materially breach the agreement and fail to correct the breach within 30-days' notice. 53 56 Gayle Crowell, one of our directors, also serves as the President of E.piphany.net, the online and electronic commerce operation of E.piphany. In December 1999 and February 2000, we entered into advertising contract orders with X.com, Inc., to provide $225,000 and $50,500, respectively, of advertising placement services. Michael J. Moritz, one of our directors, is a general partner of Sequoia Capital IX, which holds an equity interest in X.com, Inc. 54 57 PRINCIPAL STOCKHOLDERS The following table provides information regarding beneficial ownership of our common stock, following automatic conversion of all preferred stock, as of March 15, 2000, and as adjusted to reflect our sale of common stock in this offering by: - Each person or entity known by us to own beneficially more than 5% of our common stock; - Each of our directors and our Named Executive Officer; and - All of our executive officers and directors as a group. We determined this beneficial ownership under the rules of the Securities and Exchange Commission, which generally require inclusion of shares over which a person has voting or investment power. Share ownership in each case includes shares issuable upon exercise of outstanding options and warrants that are exercisable within 60 days of March 15, 2000, as described in the footnotes below. The following calculations of the percentages of outstanding shares are based on 33,583,879 shares of our common stock outstanding as of March 15, 2000, on an as-converted basis, and shares of common stock outstanding after this offering. PRINCIPAL STOCKHOLDERS TABLE
PERCENTAGE OF SHARES BENEFICIALLY OWNED NUMBER OF SHARES -------------------------------- NAME BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING 5% STOCKHOLDERS Mark Fletcher(2)......................... 4,685,880 14.0% Entities affiliated with CMGI @Ventures(3).......................... 4,606,103 13.7% Entities affiliated with Atlas Venture(4)............................ 2,994,932 8.9% Bertelsmann Ventures(5).................. 3,556,643 10.6% Entities affiliated with Sequoia Capital(6)............................ 3,334,021 9.9% Scott Hassan(7).......................... 1,912,164 5.7% DIRECTORS AND EXECUTIVE OFFICERS Michael B. Klein(8)...................... 1,750,000 5.2% Gayle Crowell(9)......................... 50,000 * Peter Mills(10).......................... 4,656,103 13.9% Michael J. Moritz(11).................... 3,384,021 10.1% Daniel D. Springer(12)................... 50,000 * Martin Roscheisen........................ 1,215,164 3.6% All directors and executive officers as a group (13 persons)(8)(9)(10)(11)(12) (13)..... 12,780,288 37.6%
- ------------------------------ * Less than 1% of the outstanding shares of common stock. (1) Beneficial ownership is determined under the rules of the Securities and Exchange Commission and includes investment or voting power relating to the securities. Shares of common stock subject to options, warrants or other rights to purchase common stock that are currently exercisable or are exercisable within 60 days after March 15, 2000, are deemed outstanding for purpose of computing the percentage ownership of the persons holding such options, warrants or other rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. (2) At March 15, 2000, 1,366,715 shares held by Mr. Fletcher were vested, and 3,319,165 shares were unvested and subject to a right of repurchase in favor of us. This right lapses over a period of four years from the date of 55 58 issuance and accelerates in some instances. Mr. Fletcher's address is 374 Genoa Drive, Redwood City, CA 94065. (3) Represents 830,190 shares held by @Ventures Foreign Fund III, L.P., 2,767,175 shares held by @Ventures III, L.P., 92,123 shares held by @Ventures Investors, LLC, and 916,615 shares held by CMG@Ventures III, LLC. The address for CMGI @Ventures is 100 Brickstone Square, 5th Floor, Andover, MA 01810. (4) Represents 63,732 shares held by Atlas Venture Entrepreneurs' Fund III, L.P., and 2,931,200 shares held by Atlas Venture Fund III, L.P. The address for Atlas Venture is 222 Berkeley Street, Boston, MA 02116. (5) Bertelsmann Ventures' address is 813 Anacapa Street, Studio 111, Santa Barbara, CA 93101. (6) Represents 6,266 shares held by Sequoia 1997, 3,022,692 shares held by Sequoia Capital VIII, 38,342 shares held by Sequoia International Technology Partners VIII, 200,041 shares held by Sequoia International Technology Partners VIII (Q), and 66,680 shares held by CMS Partners LLC. The address of Sequoia Capital is 3000 Sand Hill Road, Building 4, Suite 280, Menlo Park, CA 94025. (7) Mr. Hassan's address is 961 Duncan Street, San Francisco, CA 94131. (8) At March 15, 2000, all of the shares held by Mr. Klein were unvested and subject to a right of repurchase in favor of us. This right lapses over a period of four years from the date of issuance and accelerates in some instances. (9) Represents 50,000 shares subject to options that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (10) Includes 830,190 shares held by @Ventures Foreign Fund III, L.P., 2,767,175 shares held by @Ventures III, L.P., 92,123 shares held by @Ventures Investors, LLC and 916,615 shares held by CMG@Ventures III, LLC. Mr. Mills is a Managing Partner of CMGI @Ventures and thus may be deemed to be a beneficial owner of these shares. Mr. Mills disclaims beneficial ownership of these shares. Also includes 50,000 shares subject to options held by Mr. Mills that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (11) Represents 6,266 shares held by Sequoia 1997, 3,022,692 shares held by Sequoia Capital VIII, 38,342 shares held by Sequoia International Technology Partners VIII, 200,041 shares held by Sequoia International Technology Partners VIII (Q), and 66,680 shares held by CMS Partners LLC. Mr. Moritz is a general partner of Sequoia Capital and as such may be deemed to be a beneficial owner of these shares. Mr. Moritz disclaims beneficial ownership of these shares. Also includes 50,000 shares subject to options held by Mr. Moritz that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (12) Represents 50,000 shares subject to options that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (13) Includes 400,000 shares subject to options that are exercisable within 60 days and 3,225,000 shares subject to a right of repurchase in favor of us. This right lapses over a period of four years from the date of issuance and accelerates in some instances. 56 59 DESCRIPTION OF CAPITAL STOCK GENERAL Upon completion of this offering, we will be authorized to issue 150,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock is not complete and is qualified in its entirety by our certificate of incorporation and bylaws, which are included as exhibits to the registration statement, of which this prospectus forms a part, and by the provisions of applicable Delaware law. COMMON STOCK As of March 15, 2000, we had 33,583,879 shares of common stock outstanding and held of record by 120 stockholders, which includes the automatic conversion of all of our shares of convertible preferred stock and the issuance of 437,500 of common stock upon the conversion of subordinated debt prior to the closing of this offering. In addition, as of March 15, 2000, there were 2,711,453 shares of common stock subject to outstanding options and 8,330 shares of common stock subject to outstanding warrants. Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock issued after the sale of the common stock offered by this prospectus may be entitled, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of eGroups, holders of common stock would be entitled to share in the assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered by us in this offering, when issued and paid for, will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that our board of directors may designate in the future. PREFERRED STOCK Upon the closing of this offering, the board of directors will have the authority, without action by the stockholders, to designate and issue up to an aggregate of 10,000,000 shares of preferred stock in one or more series, and to designate the rights, preferences and privileges of each series. These rights may be greater than those of the common stock. We cannot determine the actual effect of the issuance of any shares of preferred stock upon the rights of holders of common stock until the board of directors determines the specific rights of the holders of the preferred stock. However, the effects might include: - Restricting dividends on the common stock; - Diluting the voting power of the common stock; - Impairing the liquidation rights of the common stock; or - Delaying or preventing a change in control of us without further action by the stockholders. 57 60 Upon the closing of this offering, no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock. WARRANTS In June 1999, we issued a warrant to purchase 8,330 shares of Series B preferred stock to Comdisco, Inc., at an exercise price of $7.20 per share. This warrant expires in June 2003. REGISTRATION RIGHTS We have entered into an investor rights agreement among us and some of our stockholders. Under the terms of that agreement, the holders of 16,539,216 shares of the outstanding common stock, referred to as registrable securities, are entitled to registration rights for their shares under the Securities Act. These registration rights include the following: - Beginning 180 days following the date of this prospectus, the holders of a majority of the registrable securities may require us, subject to some limitations, to file a registration statement covering their registrable securities, provided that the anticipated aggregate offering price would be at least $15,000,000. - Most holders of registrable securities are entitled to piggyback registration rights as part of any registration by us of securities for our own account or the account of other security holders. If we propose to register any shares of common stock under the Securities Act, the holders of such piggyback registration rights are entitled to receive notice of the registration and are entitled to include their shares in the offering, with some exceptions. - At any time after we become eligible to file a registration statement on Form S-3, any holder of the registrable securities may require us to file registration statements on Form S-3 under the Securities Act for a public offering of registrable securities if the reasonably anticipated aggregate offering price would exceed $1,000,000, with some exceptions. Each of these registration rights has some conditions and limitations, including the right of the underwriters in any underwritten offering to limit the number of shares included in that registration. All registration rights terminate either three years from the effective date of this offering or, with respect to a particular holder, when the shares held by that holder either may be sold under Rule 144 during any three-month period or represent less than one percent of our outstanding voting stock. We are generally required to bear all of the expenses of all such registrations, except underwriting discounts and commissions. Registration of any of the shares entitled to registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. The investor rights agreement obligates us to indemnify the holders of registration rights, with some exceptions. EFFECT OF SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AND THE DELAWARE ANTI-TAKEOVER LAW Various provisions of our Amended and Restated Certificate of Incorporation and Bylaws, which will become effective upon the closing of this offering, may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, with 58 61 some exceptions, prohibits a Delaware corporation from engaging in any business combination involving any interested stockholder, unless: - Prior to that date, the board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - Upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers, and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - On or after that date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Our certificate of incorporation and bylaws contain provisions that may have the effect of delaying, deferring or preventing a change in control. These provisions: - Enable the board of directors, without further stockholder approval, to designate and issue up to ten million shares of preferred stock; - Prohibit the removal of directors without cause; - Impose special notice requirements upon the right of stockholders to call special meetings of stockholders; - Prohibit stockholders from acting by written consent once this offering closes; - Prevent stockholders from filling vacancies on the board of directors; - Require super-majority approval of the stockholders to effect amendments to the bylaws and certain provisions of our certificate of incorporation; and - Require no less than 60 days' advance notice with respect to nominations of directors or other matters to be voted on by stockholders other than by or at the direction of the board of directors. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for our common stock is ChaseMellon Shareholder Services, LLC. NASDAQ NATIONAL MARKET LISTING We have applied to list our common stock on the Nasdaq National Market under the trading symbol "EGPS." 59 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering, we will have outstanding shares of common stock. Of these shares, the shares sold in the offering, plus any shares issued upon exercise of the underwriters' over-allotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act, generally, officers directors or 10% stockholders. The remaining 33,583,879 shares outstanding are "restricted securities" within the meaning of Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted shares in the public market, or the availability of these shares for sale, could adversely affect the market price of the common stock. All of these shares will be subject to "lock-up" agreements that will prohibit these stockholders from offering, selling or otherwise disposing of any of the shares of common stock owned by them for a period of 180 days after the date of this offering, subject to the following exceptions applicable to stockholders who are not officers of eGroups: - 25% of a holder's shares may be sold on the earlier of 90 days after the date of this offering or on the second trading day after the first public release of our quarterly results if the last recorded sale price on the Nasdaq National Market for 20 of the 30 trading days ending on that date is at least twice the price per share in this initial public offering; and - An additional 25% of each holder's shares may be sold 135 days after the date of this offering if the price per share of common stock has achieved the same target level. However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. Upon expiration of the lock-up agreements, shares will become eligible for sale pursuant to Rule 144(k), shares will become eligible for sale under Rule 144 and shares will become eligible for sale under Rule 701. ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET (LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
APPROXIMATE NUMBER OF SHARES ELIGIBLE DAY AFTER DATE OF THIS PROSPECTUS ON EFFECTIVENESS FOR FUTURE SALE 90 days after the effective date or second trading day following first public release of quarterly earnings(1)............................................. 135 days after the effective date(1)........................ 180 days after the effective date (expiration of lock-up)...
- ------------------------------ (1) The number of shares listed may be offered, sold or traded, provided that the last recorded sale price per share for 20 of the 30 trading days ending on such date is at least twice the initial public offering price per share. 60 63 In general, under Rule 144, and beginning after the expiration of the lock-up agreements 180 days after the date of this prospectus, a person, or persons whose shares are combined, who has beneficially owned restricted securities for at least one year would be entitled to sell within any three- month period a number of shares that do not exceed the greater of the following: - one percent of the number of shares of common stock then outstanding that will equal approximately shares immediately after this offering; or - the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to some manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Persons deemed to be affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied. We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Prior to this offering, there has been no public market for the common stock, and we cannot assure you that a significant public market for the common stock will develop or be sustained after the offering. Any future sale of substantial amounts of the common stock in the open market may adversely affect the market price of the common stock offered under this prospectus. Any of our employees or professionals who purchased his or her shares under a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits nonaffiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume-limitation, or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the date of this prospectus. We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our stock plans. We expect to file the registration statement covering shares offered under our stock incentive plans within 180 days after the date of this prospectus, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act. In addition, after this offering, holders of shares will be entitled to rights relating to registration of their shares under the Securities Act. Registration of such shares would result in these shares, except for shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately on the effectiveness of registration. 61 64 UNDERWRITING Subject to the terms and conditions contained in an underwriting agreement dated , 2000, the underwriters named below, whom Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and FleetBoston Robertson Stephens Inc. represent, have severally agreed to purchase from us the respective number of shares of common stock set forth opposite their names below:
NUMBER UNDERWRITERS: OF SHARES: Donaldson, Lufkin & Jenrette Securities Corporation......... Chase Securities Inc. ...................................... FleetBoston Robertson Stephens Inc. ........................ -------- Total............................................. ========
The underwriting agreement provides that the obligations of the underwriters to purchase and accept delivery of the shares of common stock in the offering are subject to approval by their counsel of legal matters concerning the offering and to conditions precedent that must be satisfied by us. The underwriters are obligated to purchase and accept delivery of all the shares of common stock in the offering, other than those shares covered by the over-allotment option described below, if any are purchased. The underwriters initially propose to offer some of the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and in part to dealers at the initial public offering price less a concession not in excess of $ per share. The underwriters may allow, and those dealers may re-allow, a concession not in excess of $ per share. After the initial offering of the common stock to the public, the public offering price and other selling terms may be changed by the representatives at any time without notice. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. An electronic prospectus will be available on the web site maintained by DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation. Other than the prospectus in electronic format, the information on that web site relating to this offering is not part of this prospectus and has not been approved or endorsed by us or the underwriters, and should not be relied on by prospective investors. We have granted to the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of additional shares of common stock at the initial public offering price less underwriting discounts and commissions. The underwriters may exercise the option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise the option, each underwriter will become obligated, subject to conditions contained in the underwriting agreement, to purchase its pro rata portion of such additional shares based on the underwriters' percentage underwriting commitment as indicated in the above table. 62 65 The following table provides the compensation payable to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of our common stock.
NO FULL EXERCISE EXERCISE Per share................................................. Total.....................................................
We will pay the offering expenses, estimated to be $ . We have agreed to indemnify the underwriters against liabilities which may arise in connection with this offering, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make with respect to these liabilities. We, our executive officers, directors, stockholders and option holders are subject to lock-up agreements that will prohibit them from offering, selling or otherwise disposing of any of the shares of common stock owned by them for a period of 180 days after the date of this offering, subject to the following exceptions applicable to stockholders who are not officers of eGroups: - 25% of a holder's shares may be sold on the earlier of 90 days after the date of this offering or on the second trading day after the first public release of our quarterly results if the last recorded sale price on the Nasdaq National Market for 20 of the 30 trading days ending on that date is at least twice the price per share in this initial public offering; and - an additional 25% of each holder's shares may be sold 135 days after the date of this offering if the price per share of common stock has achieved the same target level. However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. In addition, during this 180-day period, we have also agreed not to file any registration statement pertaining to, and each of our executive officers, directors and stockholders have agreed not to make any demand for, or exercise any class right pertaining to, the registration of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Prior to this offering, there has been no established trading market for our common stock. The initial public offering price of the shares of our common stock offered by this prospectus will be determined by negotiation among us and the representatives of the underwriters. The factors to be considered in determining the initial public offering price include: - The history of and the prospects for the industry in which we compete; - Our past and present operations; - Our historical results of operations; - Our prospects for future earnings; - The recent market prices of securities of generally comparable companies; and - The general condition of the securities markets at the time of the offering. At our request, the underwriters have reserved up to 15% of the shares of common stock to be sold in this offering for sale to some of our members who have registered with our service. No shares 63 66 have been reserved for sale to our directors or officers. Through this directed share program, we intend to ensure that those members that have supported us, or who are in a position to support us in the future, have the opportunity to purchase our common stock at the same price that we are offering our shares to the general public. Indications of interest will be sought by means of a written notice, which conforms to Rule 134 under the Securities Act, accompanied by a copy of this prospectus. Prospective participants will be permitted to participate in this offering at the initial public offering price presented on the cover page of this prospectus. No commitment to purchase shares by any participant in the directed share program will be accepted until after the registration statement of which this prospectus is part is effective and an initial public offering price has been established. The number of shares of our common stock available for sale to the general public will be reduced by the number of shares sold through the directed share program. Any shares reserved for the directed share program which are not purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We have applied to list our common stock on the Nasdaq National Market under the trading symbol "EGPS." Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock included in this offering in any jurisdiction where action for that purpose is required. The shares of common stock included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any of these shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. We advise persons who receive this prospectus to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy any shares of common stock included in this offering in any jurisdiction where an offer or solicitation is unlawful. As part of this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot this offering, creating a syndicate short position. The underwriters may bid for and purchase our shares of common stock in the open market to cover such syndicate short positions or to stabilize the price of our common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members and selected dealers if they repurchase previously distributed common stock in syndicate covering transactions, in stabilizing transactions or otherwise. These activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time. 64 67 LEGAL MATTERS The validity of the common stock we are offering will be passed upon for us by Perkins Coie LLP, San Francisco, California. Selected legal matters in connection with this offering will be passed upon for the underwriters by Pillsbury Madison & Sutro LLP, San Francisco, California. As of the consummation of this offering, an investment partnership associated with, and some partners of, Perkins Coie LLP own an aggregate of 9,718 shares of our Series D Preferred Stock, which will convert into 9,718 shares of common stock prior to the closing of this offering. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at July 31, 1999 and January 31, 2000, and for the period from our inception on June 5, 1998 to July 31, 1999 and for the six months ended January 31, 2000, as set forth in their report. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the SEC, a registration statement on Form S-1 under the Securities Act relating to the shares of common stock we are offering. This prospectus does not contain all the information provided in the registration statement and the exhibits to it. For further information with respect to eGroups, Inc., and our common stock, we refer you to the registration statement and to the exhibits filed with the registration statement. Statements contained in this prospectus relating to the contents of any contract or other document are not necessarily complete, and in each instance we make reference to the copy of such contract or other document that we have filed as an exhibit to the registration statement, each of these statements being fully qualified by that reference. Anyone may inspect a copy of the registration statement without charge at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any portion of the registration statement from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. 65 68 EGROUPS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity............................ F-5 Consolidated Statements of Cash Flows....................... F-7 Notes to Consolidated Financial Statements.................. F-8
F-1 69 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders eGroups, Inc. We have audited the accompanying consolidated balance sheets of eGroups, Inc. as of July 31, 1999 and January 31, 2000, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity, and cash flows for the period from inception (June 5, 1998) to July 31, 1999 and for the six-month period ended January 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of eGroups, Inc. at July 31, 1999 and January 31, 2000, and the consolidated results of its operations and its cash flows for the period from inception (June 5, 1998) to July 31, 1999 and for the six-month period ended January 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Palo Alto, California February 25, 2000 F-2 70 EGROUPS, INC. CONSOLIDATED BALANCE SHEETS
PRO FORMA STOCKHOLDERS' EQUITY AT JULY 31, JANUARY 31, JANUARY 31, 1999 2000 2000 ----------- ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......................... $ 4,957,231 $ 44,586,059 Accounts receivable, net of allowance for doubtful accounts of $10,000 and $150,000 at July 31, 1999 and January 31, 2000...................... 329,127 2,157,805 Prepaids and other current assets................. 301,404 340,797 ----------- ------------ Total current assets........................... 5,587,762 47,084,661 Property and equipment, net......................... 950,594 2,697,423 Other assets, net................................... 217,595 2,429,171 ----------- ------------ Total assets................................... $ 6,755,951 $ 52,211,255 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................. $ 708,065 $ 1,118,346 Accrued liabilities............................... 668,113 905,324 Deferred revenue.................................. -- 47,568 Short-term debt................................... 135,454 136,344 Short-term capital lease obligations.............. 23,030 299,240 ----------- ------------ Total current liabilities...................... 1,534,662 2,506,822 Long-term capital lease obligations................. 54,662 938,162 Long-term debt...................................... 169,046 7,211,143 Commitments......................................... Redeemable convertible preferred stock, $0.001 par value, 7,300,000 shares authorized, 7,280,811 shares issued and outstanding at July 31, 1999 (no shares authorized, issued or outstanding at January 31, 2000 and pro forma)................... 4,236,723 -- $ -- Stockholders' equity: Convertible preferred stock, $0.001 par value, issuable in series; 5,220,000 and 17,500,000 shares authorized at July 31, 1999 and January 31, 2000; 5,176,772 and 16,539,216 (liquidation preference of $51,979,337) shares issued and outstanding at July 31, 1999 and January 31, 2000 (10,000,000 shares authorized, no shares issued or outstanding pro forma)............... 5,177 16,539 -- Common stock, $0.001 par value; 43,000,000 shares authorized; 12,453,628 and 16,244,195 shares issued and outstanding at July 31, 1999 and January 31, 2000 (150,000,000 shares authorized, 32,783,411 shares issued and outstanding pro forma)......................... 12,454 16,244 32,783 Additional paid-in capital........................ 11,717,496 75,296,764 75,296,764 Notes receivable from stockholders................ (14,330) (2,159,493) (2,159,493) Deferred stock compensation....................... (4,315,327) (12,196,265) (12,196,265) Accumulated deficit............................... (6,644,612) (19,418,661) (19,418,661) ----------- ------------ ------------ Total stockholders' equity..................... 760,858 41,555,128 $ 41,555,128 ----------- ------------ ============ Total liabilities and stockholders' equity..... $ 6,755,951 $ 52,211,255 =========== ============
See accompanying notes. F-3 71 EGROUPS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM INCEPTION SIX MONTHS ENDED JANUARY 31, (JUNE 5, 1998) TO ----------------------------- JULY 31, 1999 1999 2000 ----------------- ------------ ------------- (UNAUDITED) Revenue..................................... $ 488,700 $ 42,535 $ 3,463,636 Cost of revenue............................. 221,832 86,464 324,471 ----------- ----------- ------------ Gross profit (loss)......................... 266,868 (43,929) 3,139,165 Operating expenses: Product development....................... 1,282,240 204,480 3,717,296 Sales and marketing....................... 2,688,900 303,503 4,227,690 General and administrative................ 2,124,727 550,120 3,804,245 Amortization of deferred stock compensation(1)........................ 974,754 138,294 3,994,627 ----------- ----------- ------------ Total operating expenses............... 7,070,621 1,196,397 15,743,858 ----------- ----------- ------------ Operating loss.............................. (6,803,753) (1,240,326) (12,604,693) Interest and other income................... 181,871 44,255 348,509 Interest and other expense.................. (22,730) (4,638) (517,865) ----------- ----------- ------------ Total other income (expense)........... 159,141 39,617 (169,356) ----------- ----------- ------------ Net loss.................................... (6,644,612) (1,200,709) (12,774,049) Accretion on redeemable convertible preferred stock..................................... (212,625) (33,861) (128,934) ----------- ----------- ------------ Net loss attributable to common stockholders.............................. $(6,857,237) $(1,234,570) $(12,902,983) =========== =========== ============ Basic and diluted net loss per share attributable to common stockholders....... $ (1.25) $ (0.29) $ (1.61) =========== =========== ============ Shares used in per share calculation........ 5,465,400 4,302,949 8,011,140 Pro forma basic and diluted net loss per share attributable to common stockholders (unaudited)............................... $ (0.49) $ (0.56) =========== ============ Shares used in pro forma per share calculation (unaudited)................... 13,641,257 22,642,636
- ------------------------------ (1) See Note 8 for a description of the amortization of deferred stock compensation. See accompanying notes. F-4 72 EGROUPS, INC. CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY --------------------------------------------------------- REDEEMABLE CONVERTIBLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------ -------------------- -------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at inception (June 5, 1998)........................... -- $ -- -- $ -- -- $ -- $ -- Issuances of common stock to founders at $0.005 to $0.032 per share........................... -- -- -- -- 11,490,340 11,490 214,725 Issuances of common stock and options to consultants for cash and services at $0.005 to $0.30 per share....................... -- -- -- -- 522,427 523 455,380 Issuance of Series A preferred stock at $0.50 per share, net of issuance costs of $18,375....... -- -- 1,620,000 1,620 -- -- 790,005 Issuance of Series B preferred stock at $1.44 per share, net of issuance costs of $12,545....... -- -- 3,556,772 3,557 -- -- 5,104,050 Issuance of Series C redeemable preferred stock at $0.56 per share, net of issuance costs of $25,088......................... 7,280,811 4,024,098 -- -- -- -- -- Warrants issued in connection with debt............................ -- -- -- -- -- -- 51,498 Accretion of redeemable convertible preferred stock..... -- 212,625 -- -- -- -- (212,625) Issuances of common stock upon exercise of options............. -- -- -- -- 647,737 648 34,520 Repurchases of common stock upon termination..................... -- -- -- -- (206,876) (207) (10,138) Deferred stock compensation....... -- -- -- -- -- -- 5,290,081 Amortization of deferred stock compensation.................... -- -- -- -- -- -- -- Net loss and comprehensive loss... -- -- -- -- -- -- -- ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at July 31, 1999 (carried forward)........................ 7,280,811 4,236,723 5,176,772 5,177 12,453,628 12,454 11,717,496 STOCKHOLDERS' EQUITY ---------------------------------------------------------- NOTES RECEIVABLE DEFERRED TOTAL FROM STOCK ACCUMULATED STOCKHOLDERS' STOCKHOLDERS COMPENSATION DEFICIT EQUITY ------------ ------------ ------------ ------------- Balance at inception (June 5, 1998)........................... $ -- $ -- $ -- $ -- Issuances of common stock to founders at $0.005 to $0.032 per share........................... -- -- -- 226,215 Issuances of common stock and options to consultants for cash and services at $0.005 to $0.30 per share....................... -- -- -- 455,903 Issuance of Series A preferred stock at $0.50 per share, net of issuance costs of $18,375....... -- -- -- 791,625 Issuance of Series B preferred stock at $1.44 per share, net of issuance costs of $12,545....... -- -- -- 5,107,607 Issuance of Series C redeemable preferred stock at $0.56 per share, net of issuance costs of $25,088......................... -- -- -- -- Warrants issued in connection with debt............................ -- -- -- 51,498 Accretion of redeemable convertible preferred stock..... -- -- -- (212,625) Issuances of common stock upon exercise of options............. (14,330) -- -- 20,838 Repurchases of common stock upon termination..................... -- -- -- (10,345) Deferred stock compensation....... -- (5,290,081) -- -- Amortization of deferred stock compensation.................... -- 974,754 -- 974,754 Net loss and comprehensive loss... -- -- (6,644,612) (6,644,612) ----------- ------------ ------------ ------------ Balance at July 31, 1999 (carried forward)........................ (14,330) (4,315,327) (6,644,612) 760,858
F-5 73 EGROUPS, INC. CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
STOCKHOLDERS' EQUITY --------------------------------------------------------- REDEEMABLE CONVERTIBLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------ -------------------- -------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL - ---------------------------------- ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at July 31, 1999 (brought forward)........................ 7,280,811 $ 4,236,723 5,176,772 $ 5,177 12,453,628 $12,454 $11,717,496 Issuances of common stock upon exercise of options............. -- -- -- -- 4,001,489 4,001 2,274,925 Issuances of common stock and options to consultants for cash and services at $0.068 to $5.00 per share....................... -- -- -- -- 4,998 5 927,146 Accretion of redeemable convertible preferred stock..... -- 128,934 -- -- -- -- (128,934) Conversion of redeemable preferred to nonredeemable preferred stock........................... (7,280,811) (4,365,657) 7,280,811 7,281 -- -- 4,358,376 Issuance of Series D preferred stock at $10.29 per share, net of issuance costs of $27,420.... -- -- 4,081,633 4,081 -- -- 41,968,502 Warrants issued in connection with debt............................ -- -- -- -- -- -- 2,327,500 Repurchases of common stock upon termination..................... -- -- -- -- (215,920) (216) (23,812) Deferred stock compensation....... -- -- -- -- -- -- 11,875,565 Amortization of deferred stock compensation.................... -- -- -- -- -- -- -- Net loss and comprehensive loss... -- -- -- -- -- -- -- ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at January 31, 2000....... -- $ -- 16,539,216 $16,539 16,244,195 $16,244 $75,296,764 ========== =========== ========== ======= ========== ======= =========== STOCKHOLDERS' EQUITY ---------------------------------------------------------- NOTES RECEIVABLE DEFERRED TOTAL FROM STOCK ACCUMULATED STOCKHOLDERS' STOCKHOLDERS COMPENSATION DEFICIT EQUITY - ---------------------------------- ------------ ------------ ------------ ------------- Balance at July 31, 1999 (brought forward)........................ $ (14,330) $ (4,315,327) $ (6,644,612) $ 760,858 Issuances of common stock upon exercise of options............. (2,148,153) -- -- 130,773 Issuances of common stock and options to consultants for cash and services at $0.068 to $5.00 per share....................... -- -- -- 927,151 Accretion of redeemable convertible preferred stock..... -- -- -- (128,934) Conversion of redeemable preferred to nonredeemable preferred stock........................... -- -- -- 4,365,657 Issuance of Series D preferred stock at $10.29 per share, net of issuance costs of $27,420.... -- -- -- 41,972,583 Warrants issued in connection with debt............................ -- -- -- 2,327,500 Repurchases of common stock upon termination..................... 2,990 -- -- (21,038) Deferred stock compensation....... -- (11,875,565) -- -- Amortization of deferred stock compensation.................... -- 3,994,627 -- 3,994,627 Net loss and comprehensive loss... -- -- (12,774,049) (12,774,049) ----------- ------------ ------------ ------------ Balance at January 31, 2000....... $(2,159,493) $(12,196,265) $(19,418,661) $ 41,555,128 =========== ============ ============ ============
See accompanying notes. F-6 74 EGROUPS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM INCEPTION SIX MONTHS ENDED JANUARY 31, (JUNE 5, 1998) TO ----------------------------- JULY 31, 1999 1999 2000 ----------------- ------------ ------------- (UNAUDITED) OPERATING ACTIVITIES: Net loss........................................ $(6,644,612) $(1,200,709) $(12,774,049) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................. 100,613 16,302 356,334 Noncash expenses from stock, debt and warrant issuances.................................. 1,426,897 175,654 5,149,888 Changes in assets and liabilities: Accounts receivable........................ (329,127) (26,033) (1,828,678) Prepaids and other current assets.......... (301,404) (20,909) (39,393) Other assets, net.......................... (187,266) (3,330) (118,076) Accounts payable........................... 708,065 32,240 410,281 Accrued liabilities........................ 668,113 77,971 237,211 Deferred revenue........................... -- 1,401 47,568 ----------- ----------- ------------ Net cash used in operating activities.... (4,558,721) (947,413) (8,558,914) INVESTING ACTIVITIES: Capital expenditures............................ (1,038,828) (218,785) (2,098,107) FINANCING ACTIVITIES: Principal payments of capital lease and debt financing..................................... (2,740) -- (214,940) Proceeds from capital lease obligations......... 80,432 -- 1,217,872 Proceeds from issuances of debt................. 304,500 100,000 7,199,765 Proceeds from issuances of preferred stock, net........................................... 5,899,232 9,906,520 41,972,583 Proceeds from issuances of redeemable preferred stock, net.................................... 4,024,098 -- -- Proceeds from issuances of common stock......... 259,603 203,849 131,607 Repurchase of common stock...................... (10,345) -- (21,038) ----------- ----------- ------------ Net cash provided by financing activities............................ 10,554,780 10,210,369 50,285,849 ----------- ----------- ------------ Net increase in cash and cash equivalents....... 4,957,231 9,044,171 39,628,828 Cash and cash equivalents at beginning of period........................................ -- -- 4,957,231 ----------- ----------- ------------ Cash and cash equivalents at end of period...... $ 4,957,231 $ 9,044,171 $ 44,586,059 =========== =========== ============ SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for other assets....... $ 26,213 $ 26,213 $ -- =========== =========== ============ Issuance of common stock for notes receivable... $ 14,330 $ -- $ 2,148,153 =========== =========== ============ Deferred stock compensation..................... $ 5,290,081 $ 720,718 $ 11,875,565 =========== =========== ============ Deferred debt interest in connection with issuance of warrants and conversion option.... $ 51,498 $ -- $ 2,327,500 =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.......................... $ 11,715 $ 4,732 $ 147,414 =========== =========== ============
See accompanying notes. F-7 75 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION On June 5, 1998, eGroups, Inc., "eGroups", was incorporated in the state of Delaware under the name Findmail Communications, Inc. eGroups offers a widely used email group communication platform on the Internet, with an integrated set of web-based features that support dynamic groups. eGroups enables advertisers and direct marketers to reach consumers by delivering targeted email advertising solutions. The financial operations of eGroups for the period from inception (June 5, 1998) to July 31, 1998 were insignificant, with a net loss of approximately $65,000 in the period, and have been combined with eGroups' results for the period from inception (June 5, 1998) to July 31, 1999. The accompanying consolidated financial statements include the accounts of eGroups and its wholly owned subsidiary, ONElist, Inc., which merged with eGroups on November 30, 1999 (see Note 2), and the accounts of its wholly owned foreign subsidiaries in Germany and Japan. The historical consolidated financial statements of eGroups prior to the merger date have been restated to reflect the merger with ONElist, Inc., which has been accounted for as a pooling of interests. eGroups has sustained net losses and negative cash flows from operations since inception. eGroups' ability to meet its obligations in the ordinary course of business is dependent upon its ability to establish profitable operations and to raise additional financing through public or private equity financings, collaborative or other arrangements with corporate sources, or other sources of financing. In the six months ended January 31, 2000, eGroups received financing of approximately $42,000,000 through the issuance of Series D convertible preferred stock and $7,000,000 through issuance of subordinated debt. Management believes that these funds will be sufficient to enable eGroups to meet planned expenditures through at least January 31, 2001. If anticipated operating results are not achieved, and additional financial resources are not available on terms acceptable to eGroups, management intends to delay or reduce expenditures so as not to require such resources. INTERIM FINANCIAL INFORMATION In the opinion of management, the unaudited financial statements for the six months ended January 31, 1999 have been prepared on the same basis as the audited financial statements and contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the unaudited interim results when read in conjunction with the audited financial statements and the accompanying notes. Operating results for any interim period are not necessarily indicative of results to be expected for the entire year or for any other subsequent period. 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 amounts reported in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. F-8 76 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION eGroups derives its revenue principally from short-term advertising contracts in which eGroups guarantees a minimum number of impressions (a view of an advertisement by a member), for a fixed fee. Advertising revenue is recognized using either the ratio of impressions delivered to the total guaranteed impressions or on a straight-line basis over the term of the contract, whichever is less, provided that eGroups does not have any significant remaining obligations and collection of the resulting receivable is probable. To the extent that minimum guaranteed impression levels or other obligations are not being met, eGroups defers recognition of the corresponding revenue until guaranteed levels are being achieved or the obligations are satisfied. For advertising contracts that do not involve guaranteed impressions, revenue is recognized based on actual impressions delivered. Provisions for bad debts and additional discounts are provided at the time of revenue recognition based upon historical experience and current economic conditions. Through January 31, 2000, the majority of eGroups' advertising contracts have ranged from several weeks to two months in duration. eGroups has also derived a portion of its revenue from short-term advertising contracts negotiated by third-party advertising brokers. eGroups records as revenue its contractual percentage of the total revenue generated from the delivery of advertisements, net of the commission taken by the advertising broker. Such revenue is recognized in the period in which the advertisement is delivered, provided that no significant obligations remain and collection of the resulting receivable is probable. To the extent the advertising broker does not collect billings from the advertisers, or grant additional discounts, eGroups is not at risk for its contractual percentage of such bad debts and additional discounts. Net revenue derived from these agreements represented 44%, 0% and 22% of eGroups' revenue for the period from inception (June 5, 1998) to July 31, 1999 and the six-month periods ended January 31, 1999 and January 31, 2000. Revenue also includes sponsorship revenue under contracts in which eGroups commits to provide sponsors with a variety of promotional opportunities in addition to traditional banner advertising. In a typical sponsorship agreement, eGroups provides sponsors with a variety of additional promotional activities, such as the delivery of impressions on its website through banner, button or text-link advertising, sometimes granting exclusive placement on specific web pages. The portion of sponsorship revenue that is recognized in the period in which the advertisement is displayed is the ratio of impressions delivered over the total guaranteed impressions or the straight-line basis over the term of the contract, provided that no significant obligations remain and the collection of the resulting receivable is probable. eGroups also derives revenue from the delivery of permission-based, direct marketing email campaigns. Such revenue is recognized upon the delivery of the email advertisements at the lesser of the ratio of emails delivered over the total guaranteed number of emails or on a straight-line basis over the term of the contract. eGroups has not recognized any revenue related to the nonmonetary exchange of advertising for advertising as such exchanges were not objectively determinable. F-9 77 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CERTAIN RISKS AND CONCENTRATIONS eGroups has a limited operating history and its prospects are subject to the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as Internet services. These risks include the difficulty of developing and extending the eGroups brand, competitive challenges posed by other group communication services, fluctuations in operating results, dependence on advertising revenues, and the difficulty in maintaining and increasing the level of traffic to the eGroups networks and online services. eGroups' revenue is principally derived from the sale of online advertising, the market for which is highly competitive and rapidly changing. Significant changes in the industry or changes in customer buying behavior could adversely affect operating results. In the event that eGroups does not successfully implement its business plan, certain assets may not be recoverable. For the period from inception (June 5, 1998) to July 31, 1999, revenue from eGroups' two largest customers accounted for approximately 44% and 37% of total revenue. For the six-month period ended January 31, 2000, revenue from eGroups' largest customer accounted for approximately 20% of total revenue. At July 31, 1999, one customer accounted for approximately 53% of the net accounts receivable balances. At January 31, 2000, two customers accounted for 27% and 10% of net accounts receivable balances. eGroups generally does not require collateral and maintains allowances for potential credit losses. Such losses have been insignificant. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated amortization and depreciation which is provided using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the asset. ADVERTISING EXPENSES Advertising is expensed as incurred. The costs of producing advertising are incurred and expensed during production. The costs of communicating advertising are incurred and expensed as the advertisement is broadcast in accordance with Statement of Position No. 93-7, "Reporting on Advertising Costs." Advertising expense was approximately $128,000 for the period from inception (June 5, 1998) to July 31, 1999, and approximately $194,000 for the six-month period ended January 31, 2000. CASH AND CASH EQUIVALENTS eGroups considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. As of July 31, 1999 and January 31, 2000, cash equivalents consisted primarily of investments in money market funds. To date, eGroups has not experienced losses on any of its investments. F-10 78 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of eGroups' cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying amount of eGroups debt and capital lease obligations approximates the fair value of such instruments based upon management's best estimate of interest rates that would be available for similar debt obligations at January 31, 2000. NET LOSS PER SHARE Basic and diluted net loss per share is presented in conformity with the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Pursuant to the Securities and Exchange Commission ("SEC") Accounting Bulletin No. 98, common stock and convertible preferred stock issued or granted for nominal consideration prior to the anticipated effective date of an initial public offering must be included in the calculation of basic and diluted net loss per share as if they had been outstanding for all periods presented. To date, eGroups has not had any issuances or grants for nominal consideration. In accordance with SFAS 128, basic and diluted net loss per share has been computed using the weighted-average number of common shares outstanding during the period, less the weighted-average number of shares of common stock issued to founders, investors, and employees that are subject to repurchase. Shares subject to repurchase have been excluded as these shares must be returned to eGroups if specified conditions are not met. Basic and diluted pro forma net loss per share, as presented in the statements of operations, have been computed as described above and also give effect, under SEC guidance, to the conversion of the convertible preferred stock and redeemable convertible preferred stock (using the if-converted method) from the original date of issuance. The F-11 79 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share:
PERIOD FROM INCEPTION (JUNE 5, 1998) TO SIX MONTHS ENDED JANUARY 31, JULY 31, ----------------------------- 1999 1999 2000 ----------------- ------------ ------------- (UNAUDITED) Net loss................................... $(6,644,612) $(1,200,709) $(12,774,049) Accretion on redeemable convertible preferred stock.................................... (212,625) (33,861) (128,934) ----------- ----------- ------------ Net loss attributable to common stockholders............................. $(6,857,237) $(1,234,570) $(12,902,983) =========== =========== ============ Basic and diluted: Weighted-average shares of common stock outstanding........................... 9,651,015 8,254,854 15,828,528 Less: weighted-average shares subject to repurchase............................ (4,185,615) (3,951,905) (7,817,388) ----------- ----------- ------------ Weighted-average shares used in computing basic and diluted net loss per share..... 5,465,400 4,302,949 8,011,140 =========== =========== ============ Basic and diluted net loss per share....... $ (1.25) $ (0.29) $ (1.61) =========== =========== ============
PERIOD FROM INCEPTION SIX MONTHS (JUNE 5, 1998) TO ENDED JULY 31, JANUARY 31, 1999 2000 ----------------- ------------ Net loss.................................. $(6,644,612) $(12,774,049) =========== ============ Pro forma basic and diluted: Shares used above....................... 5,465,400 8,011,140 Pro forma adjustment to reflect weighted-average effect of assumed conversion of convertible preferred stock (unaudited).................... 8,175,857 14,631,496 ----------- ------------ Shares used in computing pro forma basic and diluted net loss per share (unaudited)............................. 13,641,257 22,642,636 =========== ============ Pro forma basic and diluted net loss per share (unaudited)....................... $ (0.49) $ (0.56) =========== ============
eGroups has excluded all convertible preferred stock, redeemable convertible preferred stock, warrants for convertible preferred stock, outstanding stock options, and shares subject to repurchase from the calculation of diluted net loss per share because all such securities are antidilutive for all periods presented. If eGroups' initial public offering is consummated, all of the convertible preferred stock outstanding will automatically be converted into common stock. Unaudited pro forma stockholders' equity at January 31, 2000, as adjusted for the assumed conversion of convertible F-12 80 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) preferred stock based on the shares of convertible preferred stock outstanding at January 31, 2000, is disclosed on the balance sheet. The total number of shares excluded from the calculation of diluted net loss per share was as follows (on an as-converted-to-common basis):
JULY 31, JANUARY 31, 1999 2000 ----------- ----------- Common stock subject to repurchase.................. 7,197,104 9,902,047 Preferred stock..................................... 12,457,583 16,539,216 Common stock options outstanding.................... 2,816,835 1,951,190 Warrants to purchase preferred stock................ 8,330 445,830 ----------- ---------- 22,479,852 28,838,283 =========== ==========
INCOME TAXES Since incorporation, eGroups has recognized income taxes under the liability method. Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. STOCK-BASED COMPENSATION As permitted by the FASB Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), eGroups accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for its stock-based compensation plans. Under APB 25, when the exercise price of eGroups' employee stock awards equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Stock compensation related to non-employees is based on the fair value of the related stock or options in accordance with SFAS 123 and its interpretations. COMPREHENSIVE LOSS To date, comprehensive loss has been the same as net loss and the accumulated deficit is the same as the accumulated comprehensive loss. SEGMENT INFORMATION eGroups has organized its operations into a single operating segment, the development of group communication services on the Internet. eGroups derives the significant majority of its revenues from operations in the United States. At January 31, 2000, no material assets were held outside of the United States. F-13 81 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOFTWARE DEVELOPED FOR INTERNAL USE Through January 31, 2000, capitalizable costs incurred have not been significant for any development project. Accordingly, eGroups has charged all costs to product development expense in the periods they were incurred. RECENT PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires eGroups to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for years beginning after June 15, 2000. eGroups does not currently hold any derivatives and does not expect this pronouncement to materially impact the results of its operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. eGroups believes that its current revenue recognition principles comply with SAB 101. 2. MERGER WITH ONELIST On November 30, 1999, eGroups completed its merger with ONElist, Inc. ("ONElist"), a privately held company that operates in the Internet group communication business. ONElist commenced operations in June 1998. eGroups exchanged all of the outstanding common stock of ONElist for 8,318,629 shares of eGroups common stock at an exchange ratio of 3.12392 shares of eGroups common stock for each share of ONElist common stock, and exchanged all of the outstanding Series A redeemable convertible preferred stock of ONElist for 7,280,811 shares of eGroups Series C redeemable convertible preferred stock. eGroups also assumed all outstanding stock options to acquire 1,304,182 shares of ONElist capital stock, after giving effect to the exchange ratio. The merger was treated as a pooling of interests for accounting purposes, and accordingly, the historical financial statements of eGroups have been restated to combine the results of both companies in all periods. F-14 82 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 2. MERGER WITH ONELIST (CONTINUED) Separate results of the combined entities through the date of the merger (November 30, 1999) were as follows (Unaudited):
PERIOD FROM INCEPTION (JUNE 5, 1998) TO SIX MONTHS ENDED FOUR MONTHS ENDED JULY 31, JANUARY 31, NOVEMBER 30, 1999 1999 1999 ----------------- ---------------- ----------------- Revenue: eGroups.......................... $ 265,582 $ 41,413 $ 1,179,056 ONElist.......................... 223,118 1,122 434,359 ----------- ----------- ----------- $ 488,700 $ 42,535 $ 1,613,415 =========== =========== =========== Net loss attributable to common stockholders: eGroups.......................... $(4,343,492) $ (933,718) $(4,363,859) ONElist.......................... (2,513,745) (300,852) (3,579,520) ----------- ----------- ----------- $(6,857,237) $(1,234,570) $(7,943,379) =========== =========== ===========
There were no intercompany transactions between the two companies or significant conforming accounting adjustments. 3. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following:
JULY 31, JANUARY 31, 1999 2000 ---------- ----------- Cash and cash equivalents: Cash................................................ $ 498,152 $ 1,501,325 Money market funds.................................. 4,459,079 43,084,734 ---------- ----------- Total cash and cash equivalents.................. $4,957,231 $44,586,059 ========== ===========
4. LOAN TO OFFICER In June 1999, eGroups provided a $100,000 loan to an officer in connection with relocation and in exchange for a nonrecourse promissory note. The note does not bear interest, is being forgiven over a four-year period beginning in July 1999, and is included in other assets in the accompanying balance sheet. Amounts forgiven have been recorded as compensation expense. F-15 83 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 5. BALANCE SHEET DETAIL
JULY 31, JANUARY 31, 1999 2000 ---------- ----------- Property and equipment: Computer and software equipment...................... $ 876,417 $2,546,083 Furniture, fixtures, and leasehold improvements...... 79,240 486,828 Other equipment...................................... 83,171 104,024 ---------- ---------- 1,038,828 3,136,935 Accumulated depreciation and amortization............ (88,234) (439,512) ---------- ---------- $ 950,594 $2,697,423 ========== ==========
As of July 31, 1999 and January 31, 2000, eGroups had approximately $80,432 and $1,217,872 of fixed assets purchased under capital leases with approximately $0 and $71,456 of accumulated depreciation, respectively. Other assets: Other assets at January 31, 2000 are primarily comprised of the unamortized debt interest expense associated with the value of a conversion option issued in connection with subordinated debt. See Note 8. Accrued liabilities: Accrued compensation................................. $ 290,957 $ 439,737 Accrued legal and accounting......................... 40,000 184,000 Accrued marketing and advertising.................... 45,000 60,000 Other accrued expenses............................... 292,156 221,587 ---------- ---------- $ 668,113 $ 905,324 ========== ==========
6. COMMITMENTS AND BORROWINGS eGroups leases its main facilities under noncancelable operating lease agreements, which expire in July 2004 and September 2004. Rent expense was $102,211 for the period from inception (June 5, 1998) to July 31, 1999, and $468,296 for the six-month period ended January 31, 2000. In September 1999, eGroups entered into a noncancelable sublease agreement with a stockholder of eGroups, which expires in April 2000. Rent expense in connection with this sublease was $168,525 for the six-month period ended January 31, 2000. In December 1999, eGroups entered into a noncancelable sub-sublease for the same property with an unrelated third party which expires in April 2000. Rental income was approximately $26,700 for the six-month period ended January 31, 2000. In June 1999, eGroups entered into a one-year Master Lease Agreement with a lender that allows eGroups to borrow up to $1,500,000 for the purchase of property and equipment. Under this Agreement, in July 1999, eGroups signed a $204,500 Secured Promissory Note with the lender. The Note bears interest at an annual rate of 7.4%. Payments of approximately $3,600 are due monthly with a final $30,675 payment due on September 1, 2003. Also under this agreement, in October and December 1999, the Company entered into lease agreements for approximately $436,000 and $782,000, respectively. The leases are payable in 48 equal monthly payments of approximately $9,100 and $16,300, respectively, beginning in October and December 1999. The Note and lease agreements F-16 84 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 6. COMMITMENTS AND BORROWINGS (CONTINUED) are secured by certain property and equipment of eGroups. The Note and lease agreements reduce the available borrowings under the Master Lease Agreement to approximately $77,600 as of January 31, 2000. In July 1999, eGroups entered into a three-year capital lease agreement for the purchase of $80,432 in equipment. As of January 31, 2000, minimum payments under all noncancelable leases were as follows:
CAPITAL OPERATING LEASES LEASES ---------- ---------- Six months ending July 31, 2000........................ $ 191,590 $ 383,305 Years ending July 31: 2001................................................. 383,180 700,581 2002................................................. 380,440 700,581 2003................................................. 350,304 348,654 2004................................................. 118,395 330,334 2005 and thereafter.................................. -- 66,794 ---------- ---------- Total minimum lease payments........................... 1,423,909 $2,530,249 ========== Less amount representing interest...................... (186,507) ---------- Present value of minimum payments...................... 1,237,402 Less current portion................................... (299,240) ---------- Long-term portion...................................... $ 938,162 ==========
In July 1998, eGroups entered into a $100,000 loan agreement with a financial institution for the purchase of property and equipment. The rate of interest was the lender's prime lending rate plus 2.00%. Payments of approximately $3,000 in principal plus interest, were due monthly beginning in August 1999 through January 2003. The loan was secured by substantially all of eGroups' assets. In October 1999, eGroups repaid the entire outstanding balance. In September 1999, eGroups entered into a $200,000 loan agreement with a financial institution. The loan bears interest at 8% and is payable in 24 equal monthly payments of approximately $7,900, plus interest, beginning in September 1999 through August 2001. In October 1999, eGroups entered into a $7,000,000 Subordinated Loan and Security Agreement. Notes taken out under this Agreement bear interest at 8.25% per annum and are due and payable in 24 equal monthly installments of interest-only payments, followed by 12 equal monthly installments of principal and interest payments. The loan is secured by a secondary lien on substantially all of eGroups' assets. In connection with this Agreement, eGroups issued an option, allowing the lender to convert 45% of the notes taken out under the loan into shares of eGroups' convertible preferred stock (see Note 8). As of January 31, 2000, eGroups has borrowed $7,000,000 under the terms of the Subordinated Loan Security Agreement. The loan agreement provides that eGroups shall not, without prior written consent of the lender, declare or pay cash dividends or make a distribution on any class of stock. F-17 85 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 6. COMMITMENTS AND BORROWINGS (CONTINUED) A summary of eGroups' outstanding debt is as follows:
JULY 31, JANUARY 31, 1999 2000 --------- ----------- Subordinated notes...................................... $ -- $7,000,000 Other notes............................................. 304,500 347,487 --------- ---------- Total debt.............................................. 304,500 7,347,487 Short-term debt......................................... (135,454) (136,344) --------- ---------- Long-term debt.......................................... $ 169,046 $7,211,143 ========= ==========
401(k) PROFIT SHARING PLAN Effective January 1, 1999, eGroups established the eGroups 401(k) Profit Sharing Plan (the "Plan"). The Plan provides for eGroups to match employee contributions at a rate equal to 50% of employee contributions up to 6% of their compensation. Employees are eligible to participate in the Plan on any January 1, April 1, July 1, or October 1 following the first day of employment. The terms of the Plan are subject to change as determined by management. eGroups made contributions for the period from inception (June 5, 1998) to July 31, 1999 and for the six months ended January 31, 2000, of $25,351 and $65,638, respectively. 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK As part of the merger agreement with ONElist, eGroups exchanged all shares of ONElist redeemable convertible preferred Series A shares for a new class of Series C eGroups redeemable convertible preferred shares with terms identical to the redeemable convertible preferred Series A shares of ONElist. For so long as shares of Series C redeemable convertible preferred stock remained outstanding, each holder of Series C redeemable convertible preferred stock could, at the option of the holder, on each of December 31, 2003, December 31, 2004 and December 31, 2005, require eGroups to redeem a number of shares of Series C preferred stock equal to one-third of the number of shares of Series C preferred stock held by such holder as of the first such date. The shares were redeemable at the original issue price plus an additional 9% per annum, compounded annually commencing on the date of issuance. The carrying amount of Series C preferred stock has been increased by periodic accretions so as to equal redemption amounts at the redemption dates. In December 1999, in connection with the issuance of Series D convertible preferred stock, the Series C redeemable preferred stock was modified to be non-redeemable. At January 31, 2000, the outstanding shares are classified as convertible preferred stock in stockholders' equity. F-18 86 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK
SHARES SHARES ISSUED AND AUTHORIZED OUTSTANDING ----------------------- ----------------------- JULY 31, JANUARY 31, JULY 31, JANUARY 31, 1999 2000 1999 2000 --------- ----------- --------- ----------- Series A................................... 1,620,000 1,620,000 1,620,000 1,620,000 Series B................................... 3,600,000 3,600,000 3,556,772 3,556,772 Series C................................... -- 7,280,811 -- 7,280,811 Series D................................... -- 4,520,000 -- 4,081,633 Undesignated............................... -- 479,189 -- -- --------- ---------- --------- ---------- Total convertible preferred stock.......... 5,220,000 17,500,000 5,176,772 16,539,216 ========= ========== ========= ==========
Each share of Series A, B, C and D convertible preferred stock is, at the option of the holder, convertible into one share of common stock, subject to certain adjustments for dilution, if any, resulting from future stock issuances. The outstanding shares of Series A, B, C and D convertible preferred stock automatically convert into common stock immediately prior to the closing of an underwritten public offering of common stock under the Securities Act of 1933 in which the Company receives at least $20,000,000 in gross proceeds at a per share offering price of at least $15.44. Series A, B, C and D convertible preferred stockholders are entitled to noncumulative dividends of $0.040, $0.115, $0.050 and $0.926 per share per annum if and when declared by the board of directors. No dividends have been declared as of January 31, 2000. The Series A, B, C and D convertible preferred stockholders are entitled to receive, upon liquidation, an amount per share equal to the issuance price, plus all declared but unpaid dividends. Thereafter, the remaining assets and funds, if any, shall be distributed pro rata among the common stockholders. The Series A, B, C and D convertible preferred stockholders have voting rights equal to the common shares issuable upon conversion of their preferred shares. COMMON STOCK eGroups has sold 11,490,340 shares of common stock to founders of eGroups and ONElist for $0.005 - $0.032 per share. Certain of these shares are subject to repurchase by eGroups at the price paid by the stockholder, in the event of termination of services by the stockholder to eGroups. For 3,512,475 of these shares, the repurchase option lapses ratably over a 36-month period. For 4,685,880 of these shares, the repurchase option lapses ratably over a 36-month period beginning on the one-year anniversary. Additionally, the repurchase option of certain shares will lapse upon the occurrence of certain defined events. At July 31, 1999 and January 31, 2000, 6,637,256 and 5,921,679 shares were subject to repurchase (see Note 11). eGroups has sold 522,427 and 527,425 shares of common stock to consultants for cash at $0.005 - $0.349 per share and services rendered at July 31, 1999 and January 31, 2000, respectively. F-19 87 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) 337,500 of these shares were subject to repurchase by eGroups at the price paid by the stockholder, in the event of termination of services by the consultant to eGroups. The repurchase option lapses ratably over a 48-month period. Additionally, the repurchase option lapses upon the occurrence of certain defined events. At July 31, 1999 and January 31, 2000, 232,500 and 85,312 shares were subject to repurchase. eGroups has reserved shares of common stock for issuance as follows:
JANUARY 31, 2000 ----------- Warrants.................................................... 445,830 Stock options............................................... 2,744,767 Conversion of convertible preferred stock................... 16,539,216 ---------- 19,729,813 ==========
STOCK WARRANTS In conjunction with a debt agreement (see Note 6), eGroups issued warrants to purchase 8,330 shares of eGroups' Series B preferred stock at $7.20 per share to a lender. The warrants vested immediately and are exercisable over a period of five years or three years from the effective date of eGroups' initial public offering, whichever is earlier. The value of the warrants, based on a Black- Scholes calculation using a volatility factor of 0.5, and a life of five years, was $51,498, which is being amortized to interest expense over the one-year life of the agreement. As of July 31, 1999, and January 31, 2000, all of these warrants are exercisable. SUBORDINATED DEBT CONVERSION OPTION In conjunction with a subordinated loan and security agreement (see Note 6), the lender purchased an option to convert 45% of the notes taken out under the loan into shares of eGroups' convertible preferred stock with an aggregate purchase value of 45% of the total amount advanced against the loan. The exercise price of the convertible preferred stock is equal to 70% of the Series D convertible preferred stock price, or $7.20 per share. At January 31, 2000, the lender has the option to purchase 437,500 shares under the agreement (see Note 11). The value of the option, based on a Black-Scholes calculation, using a volatility factor of 0.5, and a life of three years, was $2,327,500 which is being amortized to interest expense over the three-year life of the loan. 1998 STOCK OPTION PLAN In June 1998, eGroups adopted the 1998 Stock Option Plan and on November 30, 1999, eGroups assumed the ONElist, Inc. 1998 Stock Plan (collectively the "Plan"). Options under the Plan are generally for periods not to exceed ten years, and must be issued at prices not less than 100% and 85% for incentive and non-statutory stock options, respectively, of the estimated fair value of the underlying shares of common stock on the date of grant as determined by the board of directors. Options granted to stockholders who own greater than 10% of the outstanding stock are for periods not to exceed five years, and must be issued at prices not less than 110% of the estimated fair F-20 88 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) value of the underlying shares of common stock on the date of grant. The Plan provides for grants of immediately exercisable options; however, eGroups has the right to repurchase any unvested common stock upon termination of employment at the original exercise price. As of July 31, 1999, and January 31, 2000, eGroups had 327,348 and 3,895,056 shares of common stock outstanding subject to repurchase under the Plan. Options become exercisable at such times and under such conditions as determined by the board of directors. Options generally vest over four years and are immediately exercisable. Information with respect to stock option activity from inception (June 5, 1998) to January 31, 2000, is summarized as follows:
WEIGHTED- OPTIONS AVERAGE AVAILABLE FOR OPTIONS PRICE EXERCISE GRANT OUTSTANDING PER SHARE PRICE ------------- ----------- ------------ --------- Shares authorized................... 5,539,376 Options granted................... (3,726,744) 3,726,744 $0.02 - $0.30 $0.14 Options exercised................. -- (647,737) $0.02 - $0.30 $0.05 Options canceled.................. 262,172 (262,172) $0.06 - $0.30 $0.11 ---------- ---------- Balance at July 31, 1999............ 2,074,804 2,816,835 $0.02 - $0.30 $0.16 Additional shares authorized...... 3,914,965 -- -- -- Authorized shares canceled........ (1,346,474) -- -- -- Options granted................... (4,122,518) 4,122,518 $0.06 - $5.00 $1.11 Options exercised................. -- (4,001,489) $0.06 - $5.00 $0.58 Options canceled.................. 272,800 (986,674) $0.03 - $4.50 $0.56 ---------- ---------- Balance at January 31, 2000......... 793,577 1,951,190 $0.02 - $5.00 $1.09 ========== ==========
Exercise prices for options outstanding as of January 31, 2000, and the weighted-average remaining contractual life are as follows:
OPTIONS OUTSTANDING AND EXERCISABLE ------------------------------------- WEIGHTED- AVERAGE WEIGHTED- REMAINING AVERAGE NUMBER CONTRACTUAL EXERCISE EXERCISE OF SHARES LIFE PRICE PRICE --------- ----------- --------- (IN YEARS) $0.02 - 0.06................................. 1,091,701 9.26 $0.05 0.30 - 0.35................................. 437,132 9.51 0.33 4.50 - 5.00................................. 422,357 9.87 4.58 --------- 1,951,190 9.45 1.09 =========
For the period from inception (June 5, 1998) to July 31, 1999, and for the six-month periods ended January 31, 1999 and 2000, eGroups recorded deferred compensation expense of $5,290,081, $720,718, and $11,875,565, respectively, representing the difference between the exercise prices and F-21 89 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) the deemed fair values of eGroups' common stock on the dates these stock options were granted. These amounts are being amortized by charges to operations over the vesting periods of the individual stock options using a graded vesting method. The unamortized deferred stock compensation balance at January 31, 2000, will be amortized as follows: $4,553,899 in the six months ending July 31, 2000, $4,808,181 in the year ending July 31, 2001, $2,119,283 in the year ending July 31, 2002, $693,009 in the year ending July 31, 2003, and $21,893 in the year ending July 31, 2004. Subsequent terminations of the employment of option holders may reduce future stock-based compensation. See Note 11. Amortization of deferred stock compensation relates to the following operating expenses:
PERIOD FROM SIX MONTHS ENDED INCEPTION JANUARY 31, (JUNE 5, 1998) TO ------------------------- JULY 31, 1998 1999 2000 ----------------- ----------- ---------- (UNAUDITED) Product development................... $332,295 $ 44,318 $1,120,695 Sales and marketing................... 531,652 93,586 1,533,921 General and administrative............ 110,807 390 1,340,011 -------- -------- ---------- Total............................... $974,754 $138,294 $3,994,627 ======== ======== ==========
In the period from inception (June 5, 1998) to July 31, 1999, and in the six-month period ended January 31, 2000, eGroups issued options to purchase 18,750 and 22,550 shares of common stock, respectively, to several third-party consultants in exchange for services rendered. In connection with these options, eGroups recorded noncash charges of $20,392 and $64,042 in these periods. ACCOUNTING FOR STOCK-BASED COMPENSATION UNDER SFAS 123 As discussed in Note 1, eGroups has elected to follow APB 25 and related interpretations in accounting for its employee stock awards. The alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock awards. Under APB 25, when the exercise price of eGroups' employee stock awards equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The fair value for eGroups' stock awards was estimated at the date of grant using the minimum value options pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because eGroups' stock-based awards have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards. The fair value of awards granted during the period from inception (June 5, 1998) to July 31, 1999, and the six months ended January 31, 2000, F-22 90 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) were determined using a risk-free interest rate of 6.0%, an expected life of four years, and a dividend yield of zero. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. eGroups' pro forma information follows:
PERIOD FROM SIX MONTHS INCEPTION ENDED (JUNE 5, 1998) TO JANUARY 31, JULY 31, 1999 2000 ----------------- ------------ Net loss attributable to common stockholders: As reported...................................... $(6,857,237) $(12,902,983) Pro forma........................................ $(6,863,101) $(12,949,039) Basic and diluted net loss per share attributable to common stockholders: As reported...................................... $ (1.25) $ (1.61) Pro forma........................................ $ (1.26) $ (1.62)
STOCK SPLIT In December 1998, the board of directors approved a 2-for-1 stock split of the outstanding shares of eGroups' common and preferred stock. All of the share information contained in these financial statements and footnotes has been retroactively adjusted to reflect the stock split. 9. NOTES RECEIVABLE During the period from inception (June 5, 1998) to July 31, 1999, and for the six-month period ended January 31, 2000, eGroups issued $14,330 and $2,148,153, respectively, of full recourse notes receivable from employees which bear interest at rates ranging from 4.5% to 6.2% per annum in consideration for the exercise of stock options. The notes are collateralized by the underlying shares of common stock and mature on various dates through fiscal 2004. 10. INCOME TAXES As of July 31, 1999 and January 31, 2000, eGroups had federal net operating loss carryforwards of approximately $5,000,000 and $12,600,000, respectively. The Company also had federal research and development credit carryforwards of approximately $100,000 as of January 31, 2000. The net operating loss and credit carryforwards will expire at various dates beginning in 2019, if not utilized. Utilization of the net operating losses and credits may be subject to substantial annual limitation due to the ownership change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for F-23 91 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 10. INCOME TAXES (CONTINUED) financial reporting and the amounts used for income tax purposes. Significant components of eGroups' deferred tax assets and liabilities for federal and state income taxes are as follows:
JULY 31, JANUARY 31, 1999 2000 ----------- ----------- Deferred tax assets: Net operating loss carryforwards................... $ 2,000,000 $ 5,000,000 Research credit carryforwards...................... 100,000 200,000 Other.............................................. 100,000 100,000 ----------- ----------- Total deferred tax assets.................. 2,200,000 5,300,000 Valuation allowance.................................. (2,200,000) (5,300,000) ----------- ----------- Net deferred tax assets.............................. $ -- $ -- =========== ===========
Based upon the weight of available evidence, which includes eGroups' historical operating performance and the reported cumulative net losses in all prior periods, eGroups has provided a full valuation allowance against its net deferred tax assets. The valuation allowance increased by $2,200,000 in the period from inception (June 5, 1998) to July 31, 1999. 11. SUBSEQUENT EVENTS (UNAUDITED) REPURCHASE OF FOUNDERS STOCK In March 2000, eGroups repurchased 600,478 shares of its common stock from one of its founders under a repurchase right for $3,003. INITIAL PUBLIC OFFERING In March 2000, eGroups' board of directors authorized management to file a registration statement with the Securities and Exchange Commission to permit eGroups to sell shares of its common stock to the public. Upon completion of the initial public offering as described in the registration statement, all outstanding convertible preferred stock will be converted into 16,539,216 shares of common stock. SUBORDINATED DEBT CONVERSION In March 2000, a lender gave notice to eGroups of its intention to exercise its option to purchase 437,500 shares of preferred stock upon the conversion of $3,150,000 of subordinated debt. This conversion and the conversion of such shares into common stock will occur upon the closing of eGroups' initial public offering. DEFERRED STOCK COMPENSATION In February and March 2000, eGroups granted to its employees options to purchase a total of 1,773,991 shares of common stock at prices between $5.00 and $6.00 per share. In connection with F-24 92 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 11. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) these grants, eGroups estimates that it will record additional deferred stock compensation of approximately $15,912,000. EGROUPS 2000 EMPLOYEE STOCK PURCHASE PLAN In March 2000, the board of directors adopted the eGroups 2000 Employee Stock Purchase Plan, subject to stockholder approval, and reserved 500,000 shares of common stock for issuance under this plan. On each August 1, beginning in 2001, the aggregate number of shares reserved for issuance under this plan will increase automatically by the lesser of (i) 420,000 shares, (ii) 1.2% of the average number of shares outstanding as used to calculate the previous year's fully diluted earnings per share, or (iii) a lesser amount determined by the board. 2000 STOCK INCENTIVE PLAN In March 2000, the board of directors adopted the 2000 Stock Incentive Plan, subject to stockholder approval, and reserved 5,400,000 shares of common stock for issuance under the plan, plus any shares reserved but not granted under the 1998 Stock Option Plan or returned to the 1998 Stock Option Plan upon termination of options. On each August 1, beginning in 2001, the aggregate number of shares reserved for issuance under this plan will increase automatically by the lesser of (i) 2,000,000 shares, (ii) 5% of the average number of shares outstanding used to calculate the previous year's fully diluted earnings per share, or (iii) a lesser number determined by the board. Simultaneous with effectiveness of eGroups' initial public offering, no further grants may be made under the 1998 Stock Option Plan. GRANT PROGRAM FOR NON-EMPLOYEE DIRECTORS In March 2000, the board of directors adopted a stock option grant program for non-employee directors. The program will be administered under the 2000 Stock Incentive Plan. Each non-employee director will receive a non-qualified stock option to purchase 50,000 shares of common stock upon initial election or appointment to the board. Beginning with the annual meeting of stockholders in 2001, each non-employee director will automatically receive an additional option to purchase 12,500 shares of common stock immediately following each year's annual meeting of stockholders. The exercise price for all options granted under the program will be the fair market value of the common stock on the date of grant. F-25 93 [Inside Back Cover] The top of the page has the following header: AN EXPANDING GLOBAL PRESENCE The following three sub-headers are located across the page directly under the above header: "Members generate their own content for group communications in their native languages." "Over 20% of our members come from international domains." "The eGroups web site will be available in 14 languages in April 2000." Below these sub-headers is a centered rendering of planet earth. Domain names for eGroups' international web sites are arrayed around this photograph. 94 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 2000 LOGO SHARES OF COMMON STOCK ------------------------- PROSPECTUS ------------------------- DONALDSON, LUFKIN & JENRETTE CHASE H&Q ROBERTSON STEPHENS - -------------------------------------------------------------------------------- We have not authorized any dealer, sales person or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of eGroups, Inc., have not changed since the date hereof. - -------------------------------------------------------------------------------- Until , 2000 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- 95 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses to be paid by the Registrant in connection with this offering are as follows. All amounts are estimates other than the SEC registration fee and the NASD filing fees. Securities and Exchange Commission registration fee......... $ 19,800 NASD filing fee............................................. 8,000 Nasdaq National Market listing fee.......................... 95,000 Printing fees............................................... 200,000 Legal fees and expenses..................................... 500,000 Accounting fees and expenses................................ 400,000 Blue sky fees and expenses.................................. 10,000 Transfer agent and registrar fees........................... 7,500 Miscellaneous fees.......................................... * -------- Total.................................................. $ * ========
- ------------------------------ * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended ("Securities Act"). Article VIII of our Amended and Restated Certificate of Incorporation (Exhibit 3.2 hereto), which will be effective upon the closing of this offering, and Article XI of our current Bylaws (Exhibit 3.3 hereto) provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by Delaware law. In addition, we have entered into Indemnification Agreements (Exhibit 10.1 hereto) with our officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification among us and the Underwriters with respect to certain matters, including matters arising under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since our inception in June 1998, we have sold and issued the following securities: 1. On June 5, 1998, we issued 5,242,500 shares of common stock to three founders for an aggregate consideration of $26,212.50 paid by cash, check, or assignment of intellectual property rights and other assets. 2. On June 5, 1998, we issued 337,500 shares of common stock to three advisors for an aggregate purchase price of $1,687.50. 3. On June 22, 1998, we issued an aggregate of 1,620,000 shares of Series A preferred stock to two accredited investors for an aggregate purchase price of $810,000. 4. On December 17, 1998, we issued an aggregate of 3,556,772 shares of Series B preferred stock to nine accredited investors for an aggregate purchase price of $5,120,151.13. II-1 96 5. On June 22, 1999, we issued a warrant to purchase up to 8,330 shares of Series B preferred stock to one accredited investor in connection with a certain lease financing. 6. On October 8, 1999, we granted a right to purchase up to 437,500 shares of Series D preferred stock to one investor in connection with issuance of debt. The purchase right was exercised by the investor on March 16, 2000, and we issued 437,500 shares of Series D preferred stock to such investor in consideration of cancellation of debt in the principal amount of $3,150,000. 7. On November 30, 1999, in connection with our acquisition by merger of ONElist, Inc., we issued an aggregate of 8,318,629 shares of common stock to twenty shareholders of ONElist and 7,280,811 shares of Series C preferred stock to seven accredited investors of ONElist. 8. On December 14, 1999, we issued an aggregate of 4,081,633 shares of Series D preferred stock to twenty-four accredited investors for an aggregate consideration of $42,000,003.36. 9. Since our incorporation, we have entered into an aggregate of 291 stock option agreements to purchase our common stock to employees, directors and consultants with exercise prices ranging from $0.02 to $6.00. No underwriters were involved in the foregoing sales of securities. The issuance of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering, or Rule 701 of the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
EXHIBIT NUMBER DESCRIPTION 1.1 Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization among eGroups, Inc., EG Acquisition Corporation and ONElist, Inc., dated as of November 9, 1999. 3.1 Fifth Amended and Restated Certificate of Incorporation. 3.2 Form of Amended and Restated Certificate of Incorporation, to be effective upon completion of this offering. 3.3 Amended and Restated Bylaws. 4.1 Form of Common Stock Certificate. 4.2 Second Amended and Restated Investors Rights Agreement, dated as of December 14, 1999, among eGroups, Inc., and the investors listed on the exhibits thereto. 4.3 Warrant Agreement to purchase shares of the Series B Preferred Stock, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 4.4* Letter to Purchasers of Preferred Stock regarding Registration Rights in the Proposed Initial Public Offering. 5.1* Opinion of Perkins Coie LLP regarding the legality of the common stock being registered. 10.1* Form of Indemnification Agreement between eGroups, Inc., and each of its officers and directors. 10.2 Form of Lockup Agreement.
II-2 97
EXHIBIT NUMBER DESCRIPTION 10.3 eGroups 1998 Stock Option Plan. 10.4* eGroups 2000 Stock Incentive Plan. 10.5 ONElist 1998 Option Plan. 10.6* eGroups 2000 Employee Stock Purchase Plan. 10.7 Form of Stock Option Agreement. 10.8 Form of Early Exercise Notice and Restricted Stock Purchase Agreement. 10.9 Form of Notice of Stock Option Grant. 10.10 Employment Offer Letter with Michael B. Klein, dated as of October 11, 1999. 10.11 Employment Offer Letter with Richard J. Carey, dated as of September 16, 1999. 10.12 Employment Offer Letter with Marjorie T. Sennett, dated as of June 7, 1999. 10.13 Employment Offer Letter with Steven T. Comfort, dated as of April 8, 1999. 10.14 Employment Offer Letter with Jacqueline A. Maartense, dated as of September 1, 1999. 10.15 Form of eGroups Proprietary Information and Inventions Assignment Agreement. 10.16* Form of ONElist Employment, Confidential Information and Invention Assignment Agreement. 10.17 Series A Preferred Stock Purchase Agreement, dated as of December 28, 1998, among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.18 Series A Preferred Stock Purchase Agreement, dated as of June 22, 1998, among FindMail Communications, Inc., and the purchasers listed on the exhibits thereto. 10.19 Series B Preferred Stock Purchase Agreement, dated as of December 17, 1998 among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.20 Series D Preferred Stock Purchase Agreement, dated as of December 14, 1999, among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.21 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Scott Hassan, amended as of December 15, 1998. 10.22 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Martin Roscheisen, amended as of December 15, 1998. 10.23 First Amended and Restated Common Stock Purchase Agreement, dated as of December 24, 1998 among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.24 Employment Agreement, dated as of December 28, 1998, between eGroups, Inc., and Mark Fletcher. 10.25 Form of Promissory Note between eGroups, Inc., as lender, and certain executive officers, as borrowers. 10.26* Promissory Note, dated as of July , 1999, between eGroups, Inc., as lender, and Marjorie T. Sennett, as borrower. 10.27* Lease for 350 Brannan Street, San Francisco, dated May 3, 1999. 10.28* Lease for 2688 Middlefield Road, Redwood City, dated June 9, 1999. 10.29 Subordinated Promissory Note, dated as of March 16, 2000, between Comdisco, Inc., as lender, and eGroups, Inc., as borrower. 10.30** Software License and Service Agreement, dated as of March 3, 2000, between eGroups, Inc. and E.piphany, Inc. 10.31 Form of Advertising Insertion Order and standard advertising terms and conditions. 10.32 Advertising Insertion Order, dated as of December 6, 1999, between eGroups, Inc., and X.com, Inc. 10.33** Advertising Insertion Order, dated as of February 9, 2000, between eGroups, Inc., and X.com, Inc. 10.34** Advertising Sales Agreement, dated as of March 1, 2000, between eGroups, Inc., and beMANY!, Inc.
II-3 98
EXHIBIT NUMBER DESCRIPTION 10.35 Master Services Agreement, dated as of February , 2000 between eGroups, Inc., and Global Center, Inc. 10.36 Loan and Security Agreement, dated as of May 19, 1999, between ONElist, Inc., and Silicon Valley Bank. 10.37 Master Lease Agreement, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 10.38 Subordinated Loan Agreement, dated as of October 8, 1999, between eGroups, Inc., and Comdisco, Inc. 10.39 Notice of Exercise of Purchase Option by Comdisco, Inc., dated as of March 16, 2000. 21.1* List of Subsidiaries. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Perkins Coie LLP (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-6 of the Registration Statement). 27.1 Financial Data Schedule for the period from inception (June 5, 1998) to July 31, 1999. 27.2 Financial Data Schedule for the six-month period ended January 31, 2000.
- ------------------------------ * To be filed by amendment ** Confidential treatment requested as to certain portions of this Exhibit. (b) FINANCIAL STATEMENT SCHEDULES No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation, or the Bylaws of the Registrant, the Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-4 99 (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 100 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on this 23rd day of March, 2000. eGROUPS, INC. By: /s/ MICHAEL B. KLEIN ------------------------------------ Michael B. Klein President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that each individual whose signature appears below constitutes and appoints Michael B. Klein and Marjorie T. Sennett, and each of them, such individual's true and lawful attorneys-in-fact and agents with full power of substitution, for such individual and in such individual's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such individual might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or such individual's or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE /s/ MICHAEL B. KLEIN President, Chief Executive March 23, 2000 - -------------------------------------------------------- Officer and Director Michael B. Klein (Principal Executive Officer) /s/ MARJORIE T. SENNETT Chief Financial Officer March 23, 2000 - -------------------------------------------------------- (Principal Financial and Marjorie T. Sennett Accounting Officer) /s/ GAYLE A. CROWELL Director March 23, 2000 - -------------------------------------------------------- Gayle A. Crowell /s/ PETER MILLS Director March 23, 2000 - -------------------------------------------------------- Peter Mills /s/ MICHAEL J. MORITZ Director March 23, 2000 - -------------------------------------------------------- Michael J. Moritz /s/ DANIEL D. SPRINGER Director March 23, 2000 - -------------------------------------------------------- Daniel D. Springer
II-6 101 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION 1.1 Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization among eGroups, Inc., EG Acquisition Corporation and ONElist, Inc., dated as of November 9, 1999. 3.1 Fifth Amended and Restated Certificate of Incorporation. 3.2 Form of Amended and Restated Certificate of Incorporation, to be effective upon completion of this offering. 3.3 Amended and Restated Bylaws. 4.1 Form of Common Stock Certificate. 4.2 Second Amended and Restated Investors Rights Agreement, dated as of December 14, 1999, among eGroups, Inc., and the investors listed on the exhibits thereto. 4.3 Warrant Agreement to purchase shares of Series B Preferred Stock, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 4.4* Letter to Purchasers of Preferred Stock regarding Registration Rights in the Proposed Initial Public Offering. 5.1* Opinion of Perkins Coie LLP regarding the legality of the common stock being registered. 10.1* Form of Indemnification Agreement between eGroups, Inc., and each of its officers and directors. 10.2 Form of Lockup Agreement. 10.3 eGroups 1998 Stock Option Plan. 10.4* eGroups 2000 Stock Incentive Plan. 10.5 ONElist 1998 Option Plan. 10.6* eGroups 2000 Employee Stock Purchase Plan. 10.7 Form of Stock Option Agreement. 10.8 Form of Early Exercise Notice and Restricted Stock Purchase Agreement. 10.9 Form of Notice of Stock Option Grant. 10.10 Employment Offer Letter with Michael B. Klein, dated as of October 11, 1999. 10.11 Employment Offer Letter with Richard J. Carey, dated as of September 16, 1999. 10.12 Employment Offer Letter with Marjorie T. Sennett, dated as of June 7, 1999. 10.13 Employment Offer Letter with Steven T. Comfort, dated as of April 8, 1999. 10.14 Employment Offer Letter with Jacqueline A. Maartense, dated as of September 1, 1999. 10.15 Form of eGroups Proprietary Information and Inventions Assignment Agreement. 10.16* Form of ONElist Employment, Confidential Information and Invention Assignment Agreement. 10.17 Series A Preferred Stock Purchase Agreement, dated as of December 28, 1998, among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.18 Series A Preferred Stock Purchase Agreement, dated as of June 22, 1998, among FindMail Communications, Inc., and the purchasers listed on the exhibits thereto. 10.19 Series B Preferred Stock Purchase Agreement, dated as of December 17, 1998 among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.20 Series D Preferred Stock Purchase Agreement, dated as of December 14, 1999, among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.21 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Scott Hassan, amended as of December 15, 1998. 10.22 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Martin Roscheisen, amended as of December 15, 1998.
102
EXHIBIT NUMBER DESCRIPTION 10.23 First Amended and Restated Common Stock Purchase Agreement, dated as of December 24, 1998, among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.24 Employment Agreement, dated as of December 28, 1998, between eGroups, Inc., and Mark Fletcher. 10.25 Form of Promissory Note between eGroups, Inc., as lender, and certain executive officers, as borrowers. 10.26* Promissory Note, dated as of July , 1999, between eGroups, Inc., as lender, and Marjorie T. Sennett, as borrower. 10.27* Lease for 350 Brannan Street, San Francisco, dated May 3, 1999. 10.28* Lease for 2688 Middlefield Road, Redwood City, dated June 9, 1999. 10.29 Subordinated Promissory Note, dated as of March 16, 2000, between Comdisco, Inc., as lender, and eGroups, Inc., as borrower. 10.30** Software License and Service Agreement, dated as of March 3, 2000, between eGroups, Inc., and E.piphany, Inc.] 10.31 Form of Advertising Insertion Order and standard advertising terms and conditions. 10.32 Advertising Insertion Order, dated as of December 6, 1999, between eGroups, Inc., and X.com, Inc. 10.33** Advertising Insertion Order, dated as of February 9, 2000, between eGroups, Inc., and X.com, Inc. 10.34** Advertising Sales Agreement, dated as of March 1, 2000, between eGroups, Inc., and BeMANY!, Inc. 10.35 Master Services Agreement, dated as of February , 2000 between eGroups, Inc., and Global Center, Inc. 10.36 Loan and Security Agreement, dated as of May 19, 1999, between ONElist, Inc., and Silicon Valley Bank. 10.37 Master Lease Agreement, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 10.38 Subordinated Loan Agreement, dated as of October 8, 1999, between eGroups, Inc., and Comdisco, Inc. 10.39 Notice of Exercise of Purchase Option by Comdisco, Inc., dated as of March 16, 2000. 21.1* List of Subsidiaries. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Perkins Coie LLP (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-6 of the Registration Statement). 27.1 Financial Data Schedule for the period from inception (June 5, 1998) to July 31, 1999. 27.2 Financial Data Schedule for the six-month period ended January 31, 2000.
- ------------------------------ * To be filed by amendment ** Confidential treatment requested as to certain portions of this Exhibit. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 ___________ Shares eGROUPS, INC. Common Stock UNDERWRITING AGREEMENT _______, 2000 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. FLEETBOSTON ROBERTSON STEPHENS INC. As representatives of the several Underwriters named in Schedule I hereto c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Dear Sirs: eGroups, Inc. a Delaware corporation (the "COMPANY"), proposes to issue and sell _______ shares of common stock (par value $.001 per share) (the "FIRM SHARES") to the several underwriters named in Schedule I hereto (the "UNDERWRITERS"). The Company also proposes to issue and sell to the several Underwriters not more than an additional share of its common stock ($.001 per share) (the "ADDITIONAL SHARES") if requested by the Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter referred to collectively as the "Shares". The shares of common stock of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock". SECTION 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "COMMISSION") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "ACT"), a registration statement on Form S-1, including a prospectus, relating to the Shares. The registration statement, as amended at the time it became effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT"; and the prospectus in the form first used to confirm sales of Shares is 1 2 hereinafter referred to as the "PROSPECTUS". (1)(2) If the Company has filed or is required pursuant to the terms hereof to file a registration statement pursuant to Rule 462(b) under the Act registering additional shares of Common Stock (a "RULE 462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462(b) Registration Statement. SECTION 2. Agreements to Sell land Purchase and Lock- Up Agreements. (3) On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell, and each Underwriter agrees, severally and not jointly, to purchase from the Company at a price per Share of $____ (the "Purchase Price") the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto, On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell the Additional Shares and the Underwriters shall have the right to purchase, severally and not jointly, up to _____ Additional Shares from the Company at the Purchase Price. Additional Shares may be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. The Underwriters may exercise their right to purchase Additional Shares in whole or in part from time to time by giving written notice thereof to the Company within 30 days after the date of this Agreement. You shall give any such notice on behalf of the Underwriters and such notice shall specify the aggregate number of Additional Shares to be purchased pursuant to such exercise and the date for payment and delivery thereof, which date shall be a business day (i) no earlier than two business days after such notice has been given (and, in any event, no earlier than the Closing Date (as hereinafter defined)) and (ii) no later than ten business days after such notice has been given. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) which bears the same proportion to the total number of Additional Shares to be purchased from the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I bears to the total number of Firm Shares. The Company hereby agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock (regardless of whether any of the transactions described in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such other securities, in cash or otherwise), except to the Underwriters pursuant to this Agreement, for a period of 180 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during such period (i) the Company may grant stock options pursuant to the Company's existing stock option plan and (ii) the Company may issue shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof. The Company also agrees not to file any registration statement with respect to any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 180 days after the date of the Prospectus without the prior written consent of 2 3 Donaldson, Lufkin & Jenrette Securities Corporation. The Company shall, prior to or concurrently with the execution of this Agreement, deliver an agreement in the form of Exhibit A hereto executed by (i) each of the directors and officers of the Company an (ii) each stockholder listed on Annex I hereto. SECTION 3. Terms of Public Offering. The Company is advised by you that the Underwriters propose (i) to make a public offering of their respective portions of the Shares as soon after the execution and delivery of this Agreement as in your judgment is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. Delivery and Payment. The Shares shall be represented by definitive certificates and shall be issued in such authorized denominations and registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation shall request no later than two business days prior to the Closing Date or the applicable Option Closing Date (as defined below), as the case may be. The Company shall deliver the Shares, with any transfer taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of The Depository Trust Company ("DTC"), for the respective accounts of the several Underwriters, against payment to the Company of the Purchase Price therefore by wire transfer of Federal or other funds immediately available in New York City. The certificates representing the Shares shall be made available for inspection not later than 9:30 A.M., New York City time, on the business day prior to the Closing Date or the applicable Option Closing Date, as the case may be, at the office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time and date of delivery and payment for the Finn Shares shall be 9:00 A.M., New York City time, on _________, 2000 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery for the Finn Shares are hereinafter referred to as the "CLOSING DATE." The time and date of delivery and payment for any Additional Shares to be purchased by the Underwriters shall be 9:00 A.M., New York City time, on the date specified in the applicable exercise notice given by you pursuant to Section 2 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery for any Additional Shares are hereinafter referred to as an "OPTION CLOSING DATE". The documents to be delivered on the Closing Date or any Option Closing Date on behalf of the parties hereto pursuant to Section 8 of this Agreement shall be delivered at the offices of Pillsbury Madison & Sutro LLP, 50 Fremont Street, San Francisco, California 94105 and the Shares shall be delivered at the Designated Office, all on the Closing Date or such Option Closing Date, as the case may be. SECTION 5. Agreements of the Company. The Company agrees with you: (a) To advise you promptly and, if requested by you, to confirm such advice in writing, (i) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, (iii) when any amendment to the Registration 3 4 Statement becomes effective, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, when the Rule 462(b) Registration Statement has become effective and (v) of the happening of any event during the period referred to in Section 5(d) below which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you four signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits, and to furnish to you and each Underwriter designated by you such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits, as you may reasonably request. (c) To prepare the Prospectus, the form and substance of which shall be satisfactory to you, and to file the Prospectus in such form with the Commission within the applicable period specified in Rule 424(b) under the Act; during the period specified in Section 5(d) below, not to file any further amendment to the Registration Statement and not to make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall reasonably object after being so advised; and, during such period, to prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or amendment or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Shares by you, and to use its best efforts to cause any such amendment to the Registration Statement to become promptly effective. (d) Prior to 10:00 A.M., New York City time, on the first business day after the date of this Agreement and from time to time thereafter for such period as in the opinion of counsel for the Underwriters a prospectus is required by law to be delivered in connection with sales by an Underwriter or a dealer, to famish in New York City to each Underwriter and any dealer as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) as such Underwriter or dealer may reasonably request. (e) If during the period specified in Section 5(d), any event shall occur or condition shall exist as a result of which, in the opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with applicable law, and to famish to each Underwriter and to any dealer as many copies thereof as such Underwriter or dealer may reasonably request. 4 5 (f) Prior to any public offering of the Shares, to cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request, to continue such registration or qualification in effect so long as required for distribution of the Shares and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that the Company shall not be required in connection therewith to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation other than as to matters and transactions relating to the Prospectus, the Registration Statement, any preliminary prospectus or the offering or sale of the Shares, in any jurisdiction in which it is not now so subject. (g) To mail and make generally available to its stockholders as soon as practicable an earnings statement covering the twelve-month period ending _______, 2001 that shall satisfy the provisions of Section 11(a) of the Act, and to advise you in writing when such statement has been so made available. (h) During the period of three years after the date of this Agreement, to furnish to you as soon as available copies of all reports or other communications furnished to the record holders of Common Stock or furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed and such other publicly available information concerning the Company and its subsidiaries as you may reasonably request. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Act and all other fees and expenses in connection with the preparation, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), any preliminary prospectus, the Prospectus and all amendments and supplements to any of the foregoing, including the mailing and delivering of copies thereof to the Underwriters and dealers in the quantities specified herein, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) all costs of printing or producing this Agreement and any other agreements or documents in connection with the offering, purchase, sale or delivery of the Shares, (iv) all expenses in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in connection therewith (including the filing fees and fees and disbursements of counsel for the Underwriters in connection with such registration or qualification and memoranda relating thereto), (v) the filing fees and disbursements of counsel - -------- (1) Insert date one year after the end of the Company's fiscal quarter in which the closing will occur. 5 6 for the Underwriters in connection with the review and clearance of the offering of the Shares by the National Association of Securities Dealers, Inc., (vi) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8 -A relating to the Common Stock and all costs and expenses incident to the listing of the Shares on the Nasdaq National Market, (vii) the cost of printing certificates representing the Shares, (viii) the costs and charges of any transfer agent, registrar and/or depositary, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. (j) To use its best efforts to list for quotation the Shares on the Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq National Market for a period of three years. (k) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date or any Option Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Shares. (l) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the Shares, to file a Rule 462(b) Registration Statement with the Commission registering the Shares not so covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of this Agreement and to pay to the Commission the filing fee for such Rule 462(b) Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111 (b) under the Act. SECTION 6. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) The Registration Statement has become effective (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement); any Rule 462(b) Registration Statement filed after the effectiveness of this Agreement will become effective no later than 10: 00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) The Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement), when it became effective, did not contain and, as amended, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement) and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Act, (iii) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement and any amendments thereto, when they become effective (A) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (B) will comply in all material respects with the 6 7 Act and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in any preliminary prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (d) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (e) There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens granted or issued by the Company or any of its subsidiaries relating to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of the Company or any of its subsidiaries, except as otherwise disclosed in the Registration Statement. (f) All the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; and the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (g) All of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. (h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. 7 8 (i) Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound. (j) The execution, delivery and performance of this Agreement by the Company, the compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (iv) result in the suspension, termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization. (k) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject that are required to be described in the Registration Statement or the Prospectus and are not so described; nor are there any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required. (l) Neither the Company nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement Income Security Act of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act, or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole. (m) Each of the Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "AUTHORIZATION") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of 8 9 the Company and its subsidiaries, taken as a whole. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (n) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (o) This Agreement has been duly authorized, executed and delivered by the Company. (p) Ernst & Young LLP are independent public accountants with respect to the Company and its subsidiaries as required by the Act. (q) The consolidated financial statements included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), together with related schedules and notes, present fairly the consolidated financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; the supporting schedules, if any, included in the Registration Statement present fairly in accordance with generally accepted accounting principles the information required to be stated therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (r) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 9 10 (s) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (t) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, in management or operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. (u) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 10 11 SECTION 7. Indemnification.(a) The Company agrees to indemnify and hold harmless each Underwriter, its directors, its officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished in writing to the Company by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter who failed to deliver a Prospectus, as then amended or supplemented, (so long as the Prospectus and any amendments or supplements thereto was provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages, liabilities or judgments caused by any untrue statement or alleged untrue statement of a material fact contained in such preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in the Prospectus, as so amended or supplemented, and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to such Underwriter but only with reference to information relating to such Underwriter furnished in writing to the Company by such Underwriter through you expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume the defense of such action pursuant to this Section 7(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of such Underwriter). Any indemnified party shall have the right to employ separate counsel in any such 11 12 action and participate in the defense thereof, but `he fees and expenses of such counsel shall be at the expense of the indemnified party unless the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case of parties indemnified pursuant to Section 7(a), and by the Company, in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. To the extent the indemnification provided for in this Section 7 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(d)(i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (after deducting underwriting 12 13 discounts and commissions, but before deducting expenses) received by the Company, and the total underwriting discounts and commissions received by the Underwriters, bear to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such ,statement or omission. (d) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person which was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective number of Shares purchased by each of the Underwriters hereunder and not joint. (e) The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. SECTION 8. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Shares under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) If the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or contemplated by the Commission. 13 14 (c) You shall have received on the Closing Date a certificate dated the Closing Date, signed by Michael Klein and Marjorie T. Sennett in their capacities as the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer of the Company, confirming the matters set forth in Sections 6(t), 8(a) and 8(b) and that the Company has complied with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by the Company on or prior to the Closing Date. (d) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause 8(d)(i), 8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus.(7) (e) You shall have received on the Closing Date an opinion (satisfactory to you and counsel for the Underwriters), dated the Closing Date, of Perkins Coie LLP counsel for the Company in the form of Exhibit B hereto. The opinion of Perkins Coie LLP described in Exhibit B above shall be rendered to you at the request of the Company and shall so state therein. (f) You shall have received on the Closing Date an opinion, dated the Closing Date, of Pillsbury Madison & Sutro LLP counsel for the Underwriters, as to the matters referred to in Sections 8(e)(iv), 8(e)(vi), 8(e)(ix) (but only with respect to the statements under the caption "Description of Capital Stock"' and "Underwriting") and 8(e)(xvii) In giving such opinions with respect to the matters covered by Section 8(e)(xvii) counsel for the Company and counsel for the Underwriters may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. (g) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from Ernst & Young, independent public accountants, containing the information and statements of the type ordinarily included in accountants' comfort letters" to Underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (h) The Company shall have delivered to you the agreements specified in Section 2 hereof which agreements shall be in full force and effect on the Closing Date. 14 15 (i) The Shares shall have been duly listed for quotation on the Nasdaq National Market. (j) The Company shall not have failed on or prior to the Closing Date to perform or comply with any of the agreements herein contained and required to be performed or complied with by the Company on or prior to the Closing Date. The several obligations of the Underwriters to purchase any Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of such Additional Shares and other matters related to the issuance of such Additional Shares. SECTION 9. Effectiveness of Agreement and Termination. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. This Agreement may be terminated at any time on or prior to the Closing Date by you by written notice to the Company if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation on prices for securities or other instruments on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. If on the Closing Date or on an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase the Finn Shares or Additional Shares, as the case may be, which it has or they have agreed to purchase hereunder on such date and the aggregate number of Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the total number of Firm Shares or Additional Shares, as the case may be, to be purchased on such date by all Underwriters, each non-defaulting Underwriter shall be obligated severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I bears to the total number of Finn Shares which all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as you may specify, to purchase the Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or 15 16 Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Firm Shares or Additional Shares, as the case may be, which any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Finn Shares or Additional Shares, as the case may be, without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Finn Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased by all Underwriters and arrangements satisfactory to you and the Company for purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter and the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase such Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase on such date in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. SECTION 10. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) If to the Company, to eGroups, Inc. and (ii), if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10 172, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company and the several Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the officers or directors of any Underwriter, any person controlling any Underwriter, the Company, the officers or directors of the Company or any person controlling the Company, (ii) acceptance of the Shares and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Shares are not delivered by or on behalf of the Company as provided herein (other than as a result of any termination of this Agreement pursuant to Section 9), the Company agrees to reimburse the several Underwriters for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Company shall be liable for all expenses which it has agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the several Underwriters, their directors and officers and any persons controlling any of the Underwriters for any and all fees and expenses (including, without limitation, the fees disbursements of counsel) 16 17 incurred by them in connection with enforcing their rights hereunder (including, without limitation, pursuant to Section 7 hereof). Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriters, the Underwriters' directors and officers, any controlling persons referred to herein, the Company's directors and the Company's officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, eGROUPS, INC. By: --------------------------------- Title: DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. FLEETBOSTON ROBERTSON STEPHENS INC. Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto By DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By --------------------------------- 17 18 SCHEDULE I
Number of Firm Shares Underwriters to be Purchased - ------------ --------------------- Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities Inc. FleetBoston Roberston Stephens Inc. Total
19 Annex I The Company, its executive officers, directors, stockholders and all option holders stockholders 20 EXHIBIT A Form of Lock-Up Agreement 21 EXHIBIT B Company Counsel Opinion EX-2.1 3 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG EGROUPS, INC., EG ACQUISITION CORPORATION AND ONELIST, INC. Dated as of November 9, 1999 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER .................................................................. 1 1.1 The Merger ................................................................ 1 1.2 Effective Time ............................................................ 2 1.3 Effect of the Merger ...................................................... 2 1.4 Articles of Incorporation; Bylaws ......................................... 2 1.5 Directors and Officers .................................................... 2 1.6 Merger Consideration ...................................................... 3 1.7 Dissenting Shares ......................................................... 7 1.8 Surrender of Certificates ................................................. 7 1.9 No Further Ownership Rights in ONElist Common Stock ....................... 8 1.10 Lost, Stolen or Destroyed Certificates ................................... 9 1.11 Tax and Accounting Consequences .......................................... 9 1.12 Taking of Necessary Action; Further Action ............................... 9 ARTICLE II REPRESENTATIONS AND WARRANTIES OF ONELIST .................................. 9 2.1 Organization of ONElist ................................................... 9 2.2 ONElist Capital Structure ................................................. 9 2.3 Subsidiaries .............................................................. 10 2.4 Authority ................................................................. 10 2.5 Financial Statements ...................................................... 11 2.6 No Undisclosed Liabilities ................................................ 11 2.7 No Changes ................................................................ 12 2.8 Tax and Other Returns and Reports ......................................... 13 2.9 Restrictions on Business Activities ....................................... 14 2.10 Title to Properties; Absence of Liens and Encumbrances ................... 15 2.11 Intellectual Property .................................................... 15 2.12 Agreements, Contracts and Commitments .................................... 17 2.13 Interested Party Transactions ............................................ 19 2.14 Compliance with Laws ..................................................... 19 2.15 Litigation ............................................................... 19 2.16 Insurance ................................................................ 20 2.17 Minute Books ............................................................. 20 2.18 Environmental Matters .................................................... 20 2.19 Brokers' and Finders' Fees ............................................... 20 2.20 Employee Matters and Benefit Plans ....................................... 20 2.21 Accounting and Regulatory Matters ........................................ 24 2.22 Year 2000 Compliance ..................................................... 25 2.23 Representations Complete ................................................. 25 ARTICLE III REPRESENTATIONS AND WARRANTIES OF EGROUPS AND MERGER
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- SUB ........................................................................... 25 3.1 Organization of eGroups and Merger Sub. ................................... 25 3.2 eGroups and Merger Sub Capital Structure .................................. 26 3.3 Subsidiaries .............................................................. 26 3.4 Authority ................................................................. 27 3.5 Financial Statements ...................................................... 27 3.6 No Undisclosed Liabilities ................................................ 28 3.7 No Changes ................................................................ 28 3.8 Tax and Other Returns and Reports ......................................... 29 3.9 Restrictions on Business Activities ....................................... 31 3.10 Title to Properties; Absence of Liens and Encumbrances ................... 31 3.11 Intellectual Property .................................................... 31 3.12 Agreements, Contracts and Commitments .................................... 33 3.13 Interested Party Transactions ............................................ 35 3.14 Compliance with Laws ..................................................... 35 3.15 Litigation ............................................................... 35 3.16 Insurance ................................................................ 35 3.17 Minute Books ............................................................. 36 3.18 Environmental Matters .................................................... 36 3.19 Brokers' and Finders' Fees ............................................... 36 3.20 Employee Matters and Benefit Plans ....................................... 36 3.21 Accounting and Regulatory Matters ........................................ 40 3.22 Year 2000 Compliance ..................................................... 40 3.23 Representations Complete ................................................. 40 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME ........................................ 40 4.1 Conduct of Business of ONElist and eGroups ................................ 40 4.2 No ONElist Solicitation ................................................... 46 4.3 No eGroups or Merger Sub Solicitation ..................................... 46 ARTICLE V ADDITIONAL AGREEMENTS ....................................................... 47 5.1 ONElist Shareholder and eGroups Stockholder Approvals ..................... 47 5.2 Restrictions on Transfer .................................................. 48 5.3 Access to Information ..................................................... 49 5.4 Confidentiality ........................................................... 50 5.5 Expenses .................................................................. 50 5.6 Public Disclosure ......................................................... 50 5.7 Consents .................................................................. 50 5.8 FIRPTA Compliance ......................................................... 51 5.9 Reasonable Efforts ........................................................ 51
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 5.10 Notification of Certain Matters .......................................... 51 5.11 Certain Benefit Plans .................................................... 51 5.12 Accounting and Tax Treatment ............................................. 51 5.13 Additional Documents and Further Assurances .............................. 52 5.14 ONElist's Auditors ....................................................... 52 5.15 eGroups' Auditors ........................................................ 52 5.16 Agreement of Affiliates .................................................. 52 5.17 Voting Agreements ........................................................ 52 5.18 Indemnification .......................................................... 53 ARTICLE VI CONDITIONS TO THE MERGER ................................................... 53 6.1 Conditions to Obligations of Each Party to Effect the Merger .............. 53 6.2 Additional Conditions to Obligations of ONElist ........................... 55 6.3 Additional Conditions to the Obligations of eGroups and Merger Sub. ....... 57 ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES; COVENANTS OF MAJOR SHAREHOLDERS .................................................................. 58 7.1 Non-Survival of Representations and Warranties ............................ 58 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................................ 59 8.1 Termination ............................................................... 59 8.2 Effect of Termination ..................................................... 59 8.3 Amendment ................................................................. 60 8.4 Extension; Waiver ......................................................... 60 ARTICLE IX GENERAL PROVISIONS ......................................................... 60 9.1 Notices ................................................................... 60 9.2 Interpretation ............................................................ 61 9.3 Counterparts .............................................................. 61 9.4 Entire Agreement; Assignment .............................................. 61 9.5 Severability .............................................................. 61 9.6 Other Remedies ............................................................ 62 9.7 Governing Law ............................................................. 62 9.8 Rules of Construction ..................................................... 62 9.9 Specific Performance ...................................................... 62
-iii 5 INDEX OF EXHIBITS
EXHIBIT DESCRIPTION ------- ----------- EXHIBIT A List of eGroups Major Stockholders EXHIBIT B List of ONElist Major Shareholders EXHIBIT C Form of Agreement of Merger EXHIBIT D Form of Fourth Amended and Restated Certificate of Incorporation of eGroups, Inc. EXHIBIT E ONElist Schedules EXHIBIT F eGroups and Merger Sub Schedules EXHIBIT G Form of eGroups Affiliate Agreement EXHIBIT H Form of ONElist Affiliate Agreement EXHIBIT I Form of Amendment to First Amended and Restated Investor Rights Agreement EXHIBIT J Form of Amendment to First Amended and Restated Co-Sale Agreement EXHIBIT K Form of eGroups Voting Agreement EXHIBIT L Form of ONElist Voting Agreement EXHIBIT M Letter Agreement Between ONElist and eGroups dated October 14, 1999
iv 6 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of November 9, 1999 among eGroups, Inc., a Delaware corporation ("eGroups"), EG Acquisition Corporation, a California corporation and a wholly-owned subsidiary of eGroups ("Merger Sub"), and ONElist, Inc., a California corporation ("ONElist"). RECITALS A. The Boards of Directors of each of ONElist and eGroups and the sole shareholder of Merger Sub believe it is in the best interests of each company and their respective shareholders that eGroups acquire ONElist through the statutory merger of Merger Sub with and into ONElist (the "Merger") and, in furtherance thereof, have approved the Merger. B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding shares of capital stock of ONElist and all outstanding options, warrants and other rights to acquire or receive shares of capital stock of ONElist shall be converted into the right to receive shares of capital stock of eGroups. C. It is the intention of the parties to this Agreement that the Merger for federal income tax purposes shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and for accounting purposes shall qualify for treatment as a pooling of interests. D. ONElist, eGroups and Merger Sub desire to make certain representations, warranties, covenants and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the California Corporations Code (the "California Code"), Merger Sub shall be merged with and into ONElist, the separate corporate existence of Merger Sub shall cease, and ONElist shall continue as the surviving corporation and as a wholly-owned subsidiary of eGroups. ONElist as the surviving corporation after the Merger is sometimes referred to hereinafter as the "Surviving Corporation." The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of Directors of ONElist and eGroups, and by eGroups, as the sole shareholder of Merger Sub. 7 1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Wilson Sonsini Goodrich & Rosati ("WSGR"), 975 Page Mill Road, Palo Alto, California, unless another place, time or date is agreed to by eGroups and ONElist. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On or before the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger in substantially the form attached hereto as Exhibit C (the "Agreement of Merger") with the Secretary of State of the State of California, in accordance with the relevant provisions of applicable law (the time of acceptance by the Secretary of State of the State of California of such filing being referred to herein as the "Effective Time"). The parties currently intend that the Closing Date will occur on or prior to November 30, 1999. The parties hereto shall also take such further actions as may be required by the State of California in connection with the consummation of the Merger. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the California Code. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of ONElist and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of ONElist and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Articles of Incorporation; Bylaws. (a) Unless otherwise determined by eGroups and ONElist prior to the Effective Time, at the Effective Time, the Articles of Incorporation of ONElist shall be amended and restated in full as set forth in Exhibit 1 to the Agreement of Merger until thereafter amended in accordance with the California Code and as provided in such Articles of Incorporation. (b) Unless otherwise determined by eGroups and ONElist prior to the Effective Time, at the Effective Time, the Bylaws of ONElist shall be amended and restated in full such that the Bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall become the Bylaws of ONElist as the Surviving Corporation until thereafter amended in accordance with the California Code and as provided in the Articles of Incorporation of the Surviving Corporation and such Bylaws. 1.5 Directors and Officers. (a) Surviving Corporation. Unless otherwise determined by eGroups and ONElist prior to the Effective Time, the directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold the office of a director of the Surviving Corporation in accordance with the provisions of the California Code and the Articles of Incorporation and Bylaws of the Surviving Corporation until their successors are duly elected and qualified. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the provisions of the Bylaws of the Surviving Corporation. 2 8 (b) eGroups. At the Effective Time, the directors of eGroups shall be as follows:. Eric Archambeau Jan Buettner Mark Fletcher Martin Roscheisen Michael Klein Peter Mills Michael Moritz 1.6 Merger Consideration. (a) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings: "Comdisco Securities" shall mean: (i) that certain warrant dated June 23, 1999, issued by eGroups to Comdisco, Inc. ("Comdisco") for the purchase of eGroups Series B Preferred Stock; and (ii) that right of Comdisco to purchase up to $1,800,000 worth of preferred stock sold by eGroups in its next round of equity financing. "Consideration Shares" shall mean those shares of eGroups Common Stock and eGroups Series C Preferred Stock to be received by ONElist Shareholders pursuant to Section 1.6. "eGroups Capital Stock" shall mean shares of eGroups Common Stock, eGroups Preferred Stock and any shares of other capital stock of eGroups. "eGroups Common Stock" shall mean shares of common stock of eGroups. "eGroups Convertible Securities" shall mean all issued and outstanding rights (other than eGroups Preferred Stock and eGroups Options) to acquire or receive shares of eGroups Capital Stock. "eGroups Fully-Diluted Capitalization Number" shall mean all of the issued and outstanding shares of eGroups Common Stock as of the Effective Time calculated on a fully-diluted basis as if all outstanding eGroups Preferred Stock had been fully converted, all outstanding eGroups Options had been fully exercised and the Comdisco Securities had been fully exercised and/or converted immediately prior to such issuance (and the resulting securities fully converted into eGroups Common Stock) as of such date. The foregoing calculation shall be performed in accordance with Section 1.6(b) hereof. "eGroups Options" shall mean all issued and outstanding options to purchase or otherwise acquire eGroups Common Stock (whether or not vested) held by officers, employees or directors of or consultants to eGroups or other persons. -3- 9 "eGroups Preferred Stock" shall mean shares of Series A Preferred Stock and Series B Preferred Stock of eGroups. "eGroups Series C Preferred Stock" shall mean the Series C Preferred Stock of eGroups with the rights, preferences, privileges and restrictions set forth in eGroups' Fourth Amended and Restated Certificate of Incorporation in the form attached as Exhibit D hereto (the "Fourth Amended and Restated Certificate"). "Exchange Ratio" shall mean the product of (A) the quotient of (x) the eGroups Fully-Diluted Capitalization Number divided by (y) ONElist Fully-Diluted Capitalization Number multiplied by (B) the quotient of (a) 57 divided by (b) 43 (with the result rounded to five decimal places). "GAAP" shall mean U.S. generally accepted accounting principles. "Knowledge" shall mean, with respect to ONElist or eGroups, what is within the actual knowledge of any of the officers or directors of ONElist or eGroups, as the case may be. "Material Adverse Effect" shall mean any change, event or effect that is materially adverse to the business, assets (including intangible assets), financial condition or results of operations of ONElist or eGroups, as applicable. "Michael Klein Option" shall mean, assuming the completion of the Merger and the next round of equity financing of eGroups, the stock option to be granted to Michael Klein for that number of shares of eGroups Common Stock that, upon the completion of such equity financing, would bring his total ownership of eGroups stock to 3.42% of the total outstanding stock on a fully diluted basis. "ONElist Capital Stock" shall mean shares of ONElist Common Stock, ONElist Preferred Stock and any shares of other capital stock of ONElist. "ONElist Common Stock" shall mean shares of common stock of ONElist. "ONElist Fully-Diluted Capitalization Number" shall mean all of the issued and outstanding shares of ONElist Common Stock as of the Effective Time calculated on a fully-diluted basis as if all outstanding ONElist Preferred Stock had been fully converted, all outstanding ONElist Options had been fully exercised and the Michael Klein Option had been fully exercised as of such date. The foregoing calculation shall be performed in accordance with Section 1.6(b) hereof. "ONElist Options" shall mean all issued and outstanding options to purchase or otherwise acquire ONElist Common Stock (whether or not vested) held by officers, employees, directors of or consultants to ONElist or other persons. "ONElist Preferred Stock" shall mean shares of Series A Preferred Stock of ONElist. -4- 10 "ONElist Shareholders" shall mean holders of any shares of ONElist Capital Stock immediately prior to the Effective Time. (b) Calculation Methodology. The parties have agreed to a method for estimating the Comdisco Securities and the shares issuable upon exercise of the Michael Klein Option. Such method is defined in a spreadsheet separately initialed by ONElist and eGroups. Based upon such method and the agreed upon formulae and methodology in such spreadsheet ONElist and eGroups have jointly calculated the Exchange Ratio. Shortly before the Effective Time, ONElist and eGroups agree to jointly recalculate the Exchange Ratio in accordance with such method after giving effect to any changes in the eGroups Fully-Diluted Capitalization Number and/or the ONElist Fully-Diluted Capitalization Number that occur between the date hereof and the Effective Time. (c) Effect on ONElist Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of ONElist or the ONElist Shareholders, each share of ONElist Capital Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares, as defined in Section 1.7 hereof and any shares owned by eGroups, Merger Sub or ONElist or any direct or indirect wholly owned subsidiary thereof) shall be canceled and extinguished and shall be converted automatically into the right to receive, upon surrender of the certificate representing such shares of ONElist Capital Stock and upon the terms and subject to conditions set forth below and throughout this Agreement, including, without limitation, Sections 1.6(f), (g) and (h) hereof (i) in the case of each share of ONElist Common Stock, a number of shares of eGroups Common Stock equal to the Exchange Ratio and (ii) in the case of each share of ONElist Preferred Stock, a number of Shares of eGroups Series C Preferred Stock equal to the Exchange Ratio. (d) Assumption of ONElist Options. At the Effective Time, each outstanding ONElist Option issued pursuant to ONElist's 1998 Stock Plan (the "ONElist Option Plan") or otherwise, whether vested or unvested, will be assumed by eGroups in connection with the Merger. Each ONElist Option so assumed by eGroups under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the ONElist Option Plan and/or as provided in the respective option agreements immediately prior to the Effective Time (including, without limitation, any vesting schedule or repurchase rights), except that (i) each ONElist Option will be exercisable, subject to the same terms and conditions set forth in the ONElist Option Plan and/or as provided in the respective option agreements immediately prior to the Effective Time (including, without limitation, any vesting schedule or repurchase rights), for that number of whole shares of eGroups Common Stock equal to the product of the number of shares of ONElist Common Stock that were issuable upon exercise of such ONElist Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of eGroups Common Stock, (ii) the per share exercise price for the shares of eGroups Common Stock issuable upon exercise of such assumed ONElist Option will be equal to the quotient determined by dividing the exercise price per share of ONElist Capital Stock at which such ONElist Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent and (iii) eGroups and its Board of Directors shall be substituted for ONElist and the Committee -5- 11 of ONElist's Board of Directors (including, if applicable, the entire Board of Directors of ONElist) administering the ONElist Option Plan. (e) Option Status. It is the intention of the parties hereto that the ONElist Options assumed by eGroups following the Closing pursuant to this Section 1.6 will, to the extent permitted by applicable law, qualify as incentive stock options as defined in Section 422 of the Code, to the extent any such ONElist Options qualified as incentive stock options immediately prior to the Effective Time. (f) Adjustments to Exchange Ratio. The Exchange Ratio shall be equitably adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into eGroups Capital Stock or ONElist Capital Stock), reorganization, recapitalization or other like change with respect to eGroups Capital Stock or ONElist Capital Stock occurring after the date hereof and prior to the Effective Time. Any such change for which a record date is established shall be deemed for the purposes of this Section 1.6(f) to have occurred on the record date. (g) Fractional Shares. No fractional share of eGroups Common Stock or eGroups Series C Preferred Stock shall be issued in the Merger. In lieu thereof, any fractional share shall be rounded to the nearest whole share (with 0.5 being rounded up) of eGroups Common Stock or eGroups Series C Preferred Stock, as the case may be. (h) Cancellation of eGroups-owned and ONElist-owned Stock. At the Effective Time, by virtue of the Merger and without any action on the part of any of the parties hereto, each share of ONElist Capital Stock owned by eGroups, Merger Sub, ONElist or any direct or indirect wholly-owned subsidiary thereof immediately prior to the Effective Time, shall be cancelled and extinguished without any conversion thereof. (i) Capital Stock of Merger Sub. At the Effective Time, by virtue of the Merger and without any action on the part of any of the parties hereto, each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. 1.7 Dissenting Shares. "Dissenting Shares" shall mean any shares of ONElist Capital Stock held by a holder who has demanded and perfected appraisal rights for such shares in accordance with the California Code and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal rights. Any Dissenting Shares shall be converted into the right to receive from the Surviving Corporation such consideration as may be determined to be due with respect to each such Dissenting Share pursuant to Chapter 13 of the California Code; provided, however, that shares of ONElist Capital Stock that are Dissenting Shares at the Effective Time of the Merger and are held by a holder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal as provided in the California Code, shall be -6- 12 deemed to be converted, as of the Effective Time of the Merger, into the right to receive consideration in accordance with the procedures specified in Section 1.6(c). ONElist shall give eGroups (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to the California Code received by ONElist and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under the California Code. ONElist will not voluntarily make any payment with respect to any demands for appraisal and will not, except with the prior written consent of eGroups, settle or offer to settle any such demands. It is understood and agreed that the obligation to make any payment in connection with Dissenting Shares under Chapter 13 of the California Code shall be exclusively that of the Surviving Corporation and that eGroups shall be under no obligation to perform and discharge any such obligation or to reimburse or make any contribution to the capital of the Surviving Corporation to enable it to perform and discharge any such obligation. eGroups shall give ONElist prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to the California Code received by eGroups. 1.8 Surrender of Certificates. (a) Exchange Agent. WSGR shall serve as the exchange agent (the "Exchange Agent") in the Merger. (b) eGroups to Provide Common Stock and Series C Preferred Stock. Immediately prior to the Effective Time, eGroups shall make available to the Exchange Agent for exchange in accordance with this Article I, certificates representing the shares of eGroups Common Stock and eGroups Series C Preferred Stock issuable to ONElist Shareholders pursuant to Section 1.6 in exchange for outstanding shares of ONElist Capital Stock. (c) Exchange Procedures. As soon as practicable after the Closing Date, the Surviving Corporation shall cause to be mailed to each ONElist Shareholder, (i) a letter of transmittal (which shall be in such form and have such other provisions as eGroups may reasonably specify and shall specify that delivery shall be effected, and risk of loss and title to the certificates (the "Certificates") which immediately prior to the Effective Time represent outstanding shares of ONElist Capital Stock whose shares are converted into the right to receive such ONElist Shareholder's pro rata portion of the Consideration Shares pursuant to Section 1.6, shall pass, only upon delivery of the Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing such ONElist Shareholder's pro rata portion of the Consideration Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by eGroups, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive, and the Exchange Agent shall promptly deliver in exchange therefor, a certificate bearing the legend set forth in Section 5.2 hereof representing the number of whole Consideration Shares to which such holder is entitled pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of ONElist Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the -7- 13 payment of dividends, to evidence the ownership of the number of full shares of eGroups Common Stock and/or eGroups Series C Preferred Stock, as the case may be, into which such shares of ONElist Capital Stock shall have been so converted. (d) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to eGroups Common Stock or eGroups Series C Preferred Stock, as the case may be, with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of eGroups Common Stock and/or eGroups Series C Preferred Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of eGroups Common Stock and/or eGroups Series C Preferred Stock issued in exchange therefor, at the time of such surrender, the amount of dividends or other distributions (without interest) with a record date after the Effective Time theretofore paid with respect to such whole shares of eGroups Common Stock and/or eGroups Series C Preferred Stock. (e) Transfers of Ownership. If any certificate for shares of eGroups Common Stock and/or eGroups Series C Preferred Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to eGroups or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of eGroups Common Stock and/or eGroups Series C Preferred Stock, as the case may be, in any name other than that of the registered holder of the Certificate surrendered. (f) No Liability. Notwithstanding anything to the contrary in this Section 1.8, neither the Exchange Agent, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of eGroups Capital Stock or ONElist Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9 No Further Ownership Rights in ONElist Common Stock. All shares of eGroups Common Stock and eGroups Series C Preferred Stock issued in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to shares of ONElist Capital Stock outstanding prior to the Effective Time, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of ONElist Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates evidencing shares of ONElist Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making and delivery of an affidavit of that fact by the holder thereof, such shares of eGroups Common Stock and/or eGroups Series C Preferred Stock as may be required pursuant to Section 1.6; provided, however, that eGroups may, in its discretion and as a condition precedent to the issuance thereof, require the owner -8- 14 of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against eGroups or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.11 Tax and Accounting Consequences. It is intended by the parties hereto that the Merger shall (i) constitute a reorganization within the meaning of Section 368 of the Code and (ii) qualify for accounting treatment as a pooling of interests. The parties hereto adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. Each party has consulted with its own tax advisers and accountants with respect to the tax and accounting consequences of the Merger. 1.12 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of ONElist and Merger Sub, the officers and directors of ONElist and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF ONELIST As of the date hereof, ONElist hereby represents and warrants to eGroups and Merger Sub, subject to such exceptions as are specifically disclosed in the disclosure schedules supplied by ONElist to eGroups dated as of the date hereof and attached hereto as Exhibit E (the "ONElist Schedules"), as follows: 2.1 Organization of ONElist. ONElist is a corporation duly organized, validly existing and in good standing under the laws of the State of California. ONElist has the corporate power to own its properties and to carry on its business as now being conducted. ONElist is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on ONElist. ONElist has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to eGroups. 2.2 ONElist Capital Structure. (a) The authorized capital stock of ONElist consists of 10,000,000 shares of authorized Common Stock, no par value, of which 2,457,429 shares are issued and outstanding; 2,400,000 shares of authorized Series A Preferred Stock, no par value, of which 2,330,665 are issued and outstanding. The ONElist Capital Stock is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.2(a). All outstanding shares of ONElist Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of ONElist or any material agreement to which ONElist is a party or by which it is bound. -9- 15 (b) ONElist has reserved 1,665,000 shares of ONElist Common Stock for issuance to directors, employees and consultants pursuant to the ONElist Option Plan, of which 819,322 shares are subject to outstanding, unexercised options and 444,928 shares remain available for future grant. All of the ONElist Options have been duly authorized and validly issued, as applicable, in accordance with the applicable terms of the ONElist Option Plan and Blue Sky laws. Schedule 2.2(b) sets forth for each outstanding ONElist Option (i) the name of the holder of such security, (ii) the number of shares of capital stock subject to such security, (iii) the exercise price of such security, (iv) the date of grant of such security, (v) the date on which such security expires, and (vi) whether the exercisability of such security will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except as set forth in Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which ONElist is a party or by which it is bound obligating ONElist to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of ONElist or obligating ONElist to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. The holders of ONElist Options have been or will be given, or shall have properly waived, any required notice prior to the Merger, and all such rights will be terminated at or prior to the Effective Time. As a result of the Merger, eGroups will be the record and sole beneficial owner of all ONElist Capital Stock and all rights to acquire or receive ONElist Capital Stock. 2.3 Subsidiaries. Except as set forth on Schedule 2.3, ONElist does not have any subsidiaries and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 2.4 Authority. Subject only to the requisite approval of the Merger and this Agreement by ONElist's shareholders, ONElist has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of ONElist, subject only to the approval of the Merger by ONElist's shareholders. ONElist's Board of Directors has unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by ONElist and constitutes the valid and binding obligation of ONElist, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Except as set forth on Schedule 2.4, subject only to the approval of the Merger and this Agreement by ONElist's shareholders, the execution and delivery of this Agreement by ONElist does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "ONElist Conflict") (i) any provision of the Articles of Incorporation or Bylaws of ONElist or (ii) any material mortgage, indenture, lease, contract or -10- 16 other material agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to ONElist or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("Governmental Entity") or any third party (so as not to trigger any ONElist Conflict) is required by or with respect to ONElist in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Agreement of Merger with the California Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (iii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 2.4. 2.5 Financial Statements. Schedule 2.5 sets forth ONElist's unaudited balance sheet as of December 31, 1998, and the related unaudited statements of operations and cash flow for the twelve month period ended December 31, 1998 (the "ONElist Year-End Financials") and ONElist's unaudited balance sheet as of September 30, 1999 and the related unaudited statements of operations and cash flows for the nine months then ended (the "ONElist Interim Financials") (collectively, such financial statements are sometimes referred to herein as "ONElist Financial Statements"). The ONElist Financial Statements have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The ONElist Financial Statements present fairly the financial condition, operating results and cash flows of ONElist as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which will not be material in amount or significance. ONElist's unaudited balance sheet dated as of September 30, 1999, shall be referred to as the "ONElist Current Balance Sheet". 2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, ONElist does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the ONElist Current Balance Sheet, or (ii) has not arisen in the ordinary course of ONElist's business since the date of the ONElist Current Balance Sheet, consistent with past practices. 2.7 No Changes. Except as set forth in Schedule 2.7, since the date of the ONElist Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by ONElist except in the ordinary course of business as conducted as of the date of the ONElist Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Articles of Incorporation or Bylaws of ONElist; (c) capital expenditure or commitment by ONElist, either individually or in the aggregate, exceeding $50,000; -11- 17 (d) destruction of, damage to or loss of any material assets, business or customer of ONElist (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by ONElist; (g) revaluation by ONElist of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of ONElist, or any direct or indirect redemption, purchase or other acquisition by ONElist of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of its officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement or in the ordinary course of business and consistent with past practices; (j) sale, lease, license or other disposition of any of the assets or properties of ONElist, except in the ordinary course of business and consistent with past practices; (k) material amendment or termination of any material contract, agreement or license to which ONElist is a party or by which it is bound; (l) loan by ONElist to any person or entity, incurring by ONElist of any indebtedness, guaranteeing by ONElist of any indebtedness, issuance or sale of any debt securities of ONElist or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (m) waiver or release of any right or claim of ONElist, including any write-off or other compromise of any account receivable of ONElist other than in the ordinary course of business; (n) change in pricing or royalties set or charged by ONElist to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to ONElist; (o) event or condition of any character that has or could be reasonably expected to have a Material Adverse Effect on ONElist; or -12- 18 (p) negotiation or agreement by ONElist or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (o) (other than negotiations with eGroups and its representatives regarding the transactions contemplated by this Agreement). 2.8 Tax and Other Returns and Reports. (a) Definition of Taxes. For the purpose of this Agreement, "Tax" or "Taxes" means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.8: (i) ONElist as of the Effective Time will have prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("Returns") due on or before the Effective Time relating to any and all Taxes concerning or attributable to ONElist or its operations and such Returns are or will be prior to filing true and correct in all material respects and have been completed in accordance with applicable law. (ii) ONElist as of the Effective Time: (A) will have paid or accrued on the ONElist Interim Financials all Taxes it is required to pay or which are attributable to the period ending September 30, 1999 and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) ONElist has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, assessed, or to its Knowledge proposed against ONElist, nor has ONElist executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of ONElist is currently in progress, nor has ONElist been notified of any request for such an audit or other examination. (v) ONElist does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved for in accordance with GAAP on the ONElist Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and ONElist has no Knowledge of any basis for the assertion of any such liability attributable to ONElist, its assets or operations. (vi) ONElist has provided to eGroups or has made available to representatives of eGroups for inspection copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of ONElist's incorporation. -13- 19 (vii) There are (and as of immediately following the Effective Date there will be) no liens, pledges, charges, claims, security interests or other encumbrances of any sort on the assets ("Liens") of ONElist relating to or attributable to Taxes. (viii) Except as set forth in Schedule 2.8(b)(viii), as of the Effective Time, there will not be any contract, agreement, plan or arrangement, excluding any arrangement to which eGroups or any of its employees is a party, covering any employee or former employee of ONElist that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code as a result of the Merger. (ix) ONElist has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by ONElist. (x) ONElist is not a party to a tax sharing or allocation agreement nor does ONElist owe any amount under any such agreement. (xi) ONElist is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xii) Except as may be required as a result of the Merger, ONElist has not been and will not be required to include any adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing. (xiii) Since September 30, 1999 no Taxes have been incurred except in the ordinary course of business. 2.9 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which ONElist is a party or otherwise binding upon ONElist which has or reasonably could be expected to have the effect of materially prohibiting or impairing any business practice of ONElist, any acquisition of property (tangible or intangible) by ONElist or the conduct of business by ONElist. Without limiting the foregoing, ONElist has not entered into any agreement under which ONElist is restricted from developing, selling, licensing, marketing, promoting or otherwise distributing any products, services or technology to any class of customers, or entering into any strategic alliances, in any geographic area, during any period of time or in any segment of the market. 2.10 Title to Properties; Absence of Liens and Encumbrances. (a) ONElist owns no real property, nor has it ever owned any real property. All such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a default). -14- 20 (b) ONElist has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the ONElist Financial Statements or in Schedule 2.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.11 Intellectual Property. (a) For purposes of this Agreement, the following terms have the following definitions: "Intellectual Property" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, URLs, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; (vii) all moral and economic rights of authors and inventors, however denominated, throughout the world and (viii) any similar or equivalent rights to any of the foregoing anywhere in the world. "ONElist Intellectual Property" shall mean any Intellectual Property that is used in the ONElist business as currently conducted and as currently proposed to be conducted. "Registered Intellectual Property" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered copyrights and applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any state, government or other public legal authority. "ONElist Registered Intellectual Property" means all of the Registered Intellectual Property owned by, or filed in the name of, ONElist. (b) No material ONElist Intellectual Property or product or service of ONElist is subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation restricting in any manner the use, transfer, or licensing thereof by ONElist, or which may affect the validity, use or enforceability of such ONElist Intellectual Property. -15- 21 (c) Each material item of ONElist Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (d) ONElist owns and has good and exclusive title to, or has license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to, each material item of ONElist Intellectual Property or other Intellectual Property used by ONElist free and clear of any lien or encumbrance (excluding licenses and related restrictions); and, to the Knowledge of ONElist, ONElist is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of the business of ONElist, including the sale of any products or the provision of any services by ONElist. (e) ONElist owns exclusively, and has good title to, all copyrighted works that are ONElist products or which ONElist otherwise expressly purports to own. (f) To the extent that any material Intellectual Property has been developed or created by a third party for ONElist, ONElist has a written agreement with such third party with respect thereto and ONElist thereby either (i) has obtained ownership of, and is the exclusive owner of or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment, except to the extent restricted by applicable law. (g) ONElist has not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material to ONElist Intellectual Property, to any third party. (h) Schedule 2.11(h) lists all material contracts, licenses and agreements to which ONElist is a party as of the date hereof (i) with respect to ONElist Intellectual Property licensed or transferred to any third party (other than end-user licenses in the ordinary course); or (ii) pursuant to which a third party has licensed or transferred any material Intellectual Property to ONElist. (i) All material contracts, licenses and agreements relating to ONElist Intellectual Property are in full force and effect. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such contracts, licenses and agreements. ONElist is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements and, to the Knowledge of ONElist, all other parties to such contracts, licenses and agreements are in compliance with, and have not materially breached any term of, such contracts, licenses and agreements. Following the Closing Date, the Surviving Corporation will be permitted to exercise all of ONElist's rights under such contracts, licenses and agreements to the same extent ONElist would have been able to had the transactions contemplated by this Agreement not occurred and without the payment -16- 22 of any additional amounts or consideration other than ongoing fees, royalties or payments which ONElist would otherwise be required to pay. (j) To the Knowledge of ONElist, the operation of the business of ONElist as such business currently is conducted, including ONElist's design, development, manufacture, marketing and sale of the products or services of ONElist (including with respect to products and services currently under development) has not, does not and will not infringe or misappropriate the Intellectual Property of any third party in any respect adverse to such party or constitute unfair competition or trade practices under the laws of any jurisdiction in which ONElist currently conducts business. (k) ONElist has not received notice from any third party that the operation of the business of ONElist or any act, product or service of ONElist, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction in which ONElist currently conducts business. (l) To the Knowledge of ONElist, no person has or is infringing or misappropriating, in any respect materially adverse to ONElist, any ONElist Intellectual Property. (m) ONElist has taken reasonable steps to protect ONElist's rights in ONElist's confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to ONElist, and, without limiting the foregoing, ONElist has and enforces a policy requiring each employee and contractor to execute a proprietary information/confidentiality and invention assignment agreement and all current and former employees and contractors of ONElist have executed such an agreement, except where the failure to do so is not reasonably expected to be material to ONElist. 2.12 Agreements, Contracts and Commitments. (a) Except as set forth on Schedule 2.12(a), ONElist does not have, is not a party to nor is it bound by: (i) any collective bargaining agreements; (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations; (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (iv) any material employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any material consulting or sales agreement, contract or commitment under which any firm or other organization provides services to ONElist; -17- 23 (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (vi) any fidelity or surety bond or completion bond; (vii) any lease of personal property having a value individually in excess of $50,000; (viii) any agreement of indemnification or guaranty; (ix) any agreement, contract or commitment containing any covenant limiting the freedom of ONElist to engage in any line of business or to compete with any person; (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $50,000; (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of ONElist's business; (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof; (xiii) any purchase order or contract for the purchase of raw materials involving $50,000 or more; (xiv) any construction contracts; (xv) any distribution, joint marketing or development agreement; (xvi) any agreement pursuant to which ONElist has granted or may be required to grant in the future, to any party, a source-code license or option or other right to use or acquire source-code; or (xvii) any other agreement, contract or commitment that involves $50,000 or more or is not cancelable without penalty within thirty (30) days. (b) Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are noted in Schedule 2.12(b), ONElist has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.12(a) or Schedule 2.11(h) (any such -18- 24 agreement, contract or commitment, a "ONElist Contract"). Each ONElist Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any default thereunder of which ONElist has Knowledge by any party obligated to ONElist pursuant thereto. 2.13 Interested Party Transactions. Except as set forth on Schedule 2.13, (i) no officer, director or, to the Knowledge of ONElist (without any duty to investigate), any ONElist Shareholder has, directly or indirectly, an economic interest worth greater than $25,000 in any entity which furnished or sold, or furnishes or sells, services or products that ONElist furnishes or sells, or proposes to furnish or sell, (ii) no officer or director, or to the Knowledge of ONElist (without any duty to investigate), any ONElist Shareholder has, directly or indirectly, an economic interest worth greater than $25,000 in any entity that purchases from or sells or furnishes to, ONElist, any goods or services or (iii) no officer, director or ONElist Shareholder has, directly or indirectly, a beneficial interest in any contract or agreement worth greater than $25,000 set forth in Schedule 2.12(a) or Schedule 2.11(h); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.13. For the purposes of this subsection, "officer" and "director" shall include any parent, child, sibling or spouse of any of such persons, or any trust, partnership or corporation in which such officer or director has a controlling interest. 2.14 Compliance with Laws. ONElist has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 2.15 Litigation. Except as set forth in Schedule 2.15, there is no action, suit or proceeding of any nature pending or to ONElist's Knowledge threatened against ONElist, its properties or any of its officers or directors in their respective capacities as such. Except as set forth in Schedule 2.15, to ONElist's Knowledge, there is no investigation pending or threatened against ONElist, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 2.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of ONElist to manufacture, offer or sell any of its products in the present manner or style thereof. 2.16 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of ONElist, there is no claim by ONElist pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid or will be paid when due and ONElist is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). ONElist has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.17 Minute Books. The minute books of ONElist made available to counsel for eGroups are the only minute books of ONElist and contain a reasonably accurate summary of all meetings of -19- 25 directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of ONElist. 2.18 Environmental Matters. ONElist is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its Knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.19 Brokers' and Finders' Fees. ONElist has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.20 Employee Matters and Benefit Plans. (a) Definitions. For purposes of this Section 2.20 and Section 3.20 of this Agreement, the following terms shall have the meanings set forth below: (i) "ONElist Affiliate" shall mean any other corporation, partnership, limited liability company, trade, business, person or other entity that, together with ONElist, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code; (ii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (iii) "ONElist Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which (A) is or has been sponsored, maintained, contributed to, or required to be contributed to, by ONElist or any ONElist Affiliate for the benefit of any "ONElist Employee" (as defined below), or (B) with respect to which ONElist or any ONElist Affiliate has or could have any material liability or obligation, contingent or otherwise; (iv) "ONElist Employee" shall mean any current, former, or retired employee, officer, or director of ONElist or any ONElist Affiliate; (v) "ONElist Employee Agreement" shall refer to each written management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between ONElist or any ONElist Affiliate and any ONElist Employee or consultant. Except as set forth on Schedule 2.20(a)(v), ONElist represents and warrants that there are no oral agreements between ONElist or any Affiliate and any ONElist Employee or consultant pertaining to management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar matters or arrangements; -20- 26 (vi) "IRS" shall mean the Internal Revenue Service; (vii) "Multiemployer Plan" shall mean any Pension Plan (as defined below) which is a "multiemployer plan," as defined in Section 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code; (viii) "Multiple Employer Plan" means any Pension Plan (as defined below) which is a "multiple employer plan," within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code; and (ix) "Pension Plan" shall mean any "employee pension benefit plan," as defined in Section 3(2) of ERISA. (b) Schedule. Schedule 2.20(b) contains an accurate and complete list of each ONElist Employee Plan and each ONElist Employee Agreement. ONElist does not have any plan or commitment, whether legally binding or not, to establish any new ONElist Employee Plan or ONElist Employee Agreement, to modify any ONElist Employee Plan or ONElist Employee Agreement (except to the extent required by law or to conform any such ONElist Employee Plan or ONElist Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to eGroups in writing, or as required by this Agreement), or to enter into any ONElist Employee Plan or ONElist Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. There has been no amendment, interpretation or other announcement (written or oral) by ONElist or, to the Knowledge of ONElist, any other Person relating to, or change in participation or coverage under, any ONElist Employee Plan or ONElist Employee Agreement that, either alone or together with other such items or events, could materially increase the expense of maintaining the ONElist Employee Plans and ONElist Employee Agreements above the level of expense incurred with respect thereto for the most recent fiscal year included in the ONElist Financial Statements. (c) Documents. ONElist has provided, or will provide within three (3) days following the execution of this Agreement, to eGroups (i) correct and complete copies of all documents embodying or materially affecting the interpretation or application of each ONElist Employee Plan and each ONElist Employee Agreement including all amendments thereto; (ii) the most recent annual actuarial valuations, if any, prepared for each ONElist Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each ONElist Employee Plan or related trust; (iv) if the ONElist Employee Plan is funded, the most recent annual and periodic accounting of ONElist Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each ONElist Employee Plan which has a material adverse effect on such ONElist Employee Plan; (vi) the most recent IRS determination, opinion, notification or advisory letters as applicable, and rulings relating to ONElist Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any ONElist Employee Plan or ONElist Employee Agreement; (vii) all material written agreements and contracts relating to each ONElist Employee Plan and ONElist Employee Agreement, including, but not limited to, trust agreements, -21- 27 administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material distributed to any ONElist Employee or ONElist Employees relating to any ONElist Employee Plan or ONElist Employee Agreement and any proposed ONElist Employee Plan or ONElist Employee Agreement, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to ONElist; and (ix) all registration statements and prospectuses prepared in connection with each ONElist Employee Plan not otherwise publicly available on the SEC website. (d) Employee Plan Compliance. Except as set forth on Schedule 2.20(d): (i) ONElist and, to the Knowledge of ONElist, all other Persons have properly performed in all material respects all obligations required to be performed by them under each ONElist Employee Plan and ONElist Employee Agreement; (ii) each ONElist Employee Plan and ONElist Employee Agreement is, and at all times since inception has been, established, maintained, administered, operated and funded in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (iii) each ONElist Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is, and at all times since inception has been, so qualified, and has either received a favorable determination letter from the IRS with respect to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination; (iv) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, has occurred with respect to any ONElist Employee Plan for which an exemption is not applicable; (v) there are no actions, suits or claims pending, or, to the Knowledge of ONElist, threatened or anticipated (other than routine claims for benefits) against any ONElist Employee Plan or against the assets of any ONElist Employee Plan; and (vi) each ONElist Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to ONElist, eGroups or any ONElist Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vii) there are no audits, inquiries or proceedings pending or, to the Knowledge of ONElist, threatened by the IRS or DOL with respect to any ONElist Employee Plan or ONElist Employee Agreement; (viii) all contributions, premiums and other payments due or required to be paid to (or with respect to) each ONElist Employee Plan have been timely paid, or if not yet due, have been properly accrued on ONElist's books consistent with past practice; and (ix) neither ONElist nor any ONElist Affiliate has incurred, and to the Knowledge of ONElist there exists no condition or set of circumstances in connection with which either ONElist or any ONElist Affiliate could incur, a material liability or expense (except for benefit claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law, statute, order, rule or regulation with respect to any ONElist Employee Plan or ONElist Employee Agreement. (e) Pension Plans. At no time has ONElist or any ONElist Affiliate sponsored, maintained, participated in, or contributed to (or been required to contribute to), any Pension Plan -22- 28 which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has ONElist or any ONElist Affiliate contributed to or been requested (or obligated) to contribute to any Multiemployer Plan or Multiple Employer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 2.20(g), neither ONElist nor any ONElist Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any ONElist Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and ONElist has never represented, promised or contracted (whether in oral or written form) to any ONElist Employee (either individually or to ONElist Employees as a group) or any other person that such ONElist Employee(s) or other person would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. The term "other employee welfare benefits" means those benefits traditionally provided under an "employee benefit welfare plan" as defined in ERISA Section 3(1). (h) Health Care Compliance. Neither the ONElist nor any ONElist Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such Act, or any similar provisions of state law applicable to its Employees. (i) Effect of Transaction. Except as set forth on Schedule 2.20(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any ONElist Employee Plan, ONElist Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any ONElist Employee. (j) Employment Matters. ONElist (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to ONElist Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to ONElist Employees; (iii) is not liable for any arrears of wages, other than arrears normally included in its payroll schedule and system, or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for ONElist Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against ONElist under any worker's compensation policy or long-term disability policy. -23- 29 To ONElist's Knowledge, no employee of ONElist has violated any employment contract, nondisclosure agreement or noncompetition agreement by which such employee is bound due to such employee being employed by ONElist and disclosing to ONElist or using trade secrets or proprietary information of any other person or entity. (k) Labor. To the Knowledge of ONElist, no work stoppage or labor strike against ONElist is pending or threatened. Except as set forth in Schedule 2.20(k), ONElist is not involved in or, to the Knowledge of ONElist, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any ONElist Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in a material liability to ONElist. To the Knowledge of ONElist, neither ONElist nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to ONElist. Except as set forth in Schedule 2.20(k), ONElist is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to ONElist Employees and no collective bargaining agreement is being negotiated by ONElist. 2.21 Accounting and Regulatory Matters. (a) For purposes of this Agreement, the following terms have the following meanings: An "Affiliate" of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 5% or greater equity or voting interest of such Person; or (iii) any other Person for which a Person described in clause (ii) acts in any such capacity. Notwithstanding the foregoing, the terms "ONElist Affiliate" and "eGroups Affiliate" as used in Sections 2.20 and 3.20 hereof, respectively, shall have the meanings assigned to them in said sections. "Person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. (b) ONElist has no Knowledge of any action taken or agreed to be taken by ONElist or any Affiliate of ONElist nor has any Knowledge of any fact or circumstance that is reasonably likely to (a) prevent the Merger from qualifying for pooling-of-interests accounting treatment, or (b) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 6.1(j). 2.22 Year 2000 Compliance. All of ONElist's products and services (including products and services currently under development) to the extent they record, store, process, calculate and present dates, if at all, will record, store, process, calculate and present dates falling on and after January 1, 2000, will calculate any information dependent on or relating to such dates in the same manner and with the same functionality, data integrity and performance as the products record, store, -24- 30 process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates (collectively "Year 2000 Compliant"). All of ONElist's material products and services will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. To the Knowledge of ONElist, all of ONElist's internal computer systems, including without limitation, its accounting systems, are Year 2000 Compliant. 2.23 Representations Complete. None of the representations or warranties made by ONElist (as modified by the ONElist Schedules), nor any statement made in any schedule or certificate furnished by ONElist pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of ONElist in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF EGROUPS AND MERGER SUB As of the date hereof, eGroups and Merger Sub hereby represent and warrant to ONElist, subject to such exceptions as are specifically disclosed in the disclosure schedule supplied by eGroups and Merger Sub to ONElist dated as of the date hereof and attached hereto as Exhibit F (the "eGroups and Merger Sub Schedules"), as follows: 3.1 Organization of eGroups and Merger Sub. eGroups is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. eGroups has the corporate power to own its properties and to carry on its business as now being conducted. eGroups is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on eGroups. eGroups has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to ONElist. Merger Sub has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to ONElist. 3.2 eGroups and Merger Sub Capital Structure. (a) The authorized capital stock of eGroups consists of 20,000,000 shares of authorized Common Stock, of which 7,255,624 shares are issued and outstanding, 1,620,000 shares of authorized Series A Preferred Stock, of which 1,620,000 shares are issued and outstanding, and 3,600,000 shares of authorized Series B Preferred Stock, of which 3,556,772 are issued and outstanding. The shares of the capital stock of eGroups are held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 3.2(a). All outstanding shares of eGroups Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not -25- 31 subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of eGroups or any agreement to which eGroups is a party or by which it is bound. (b) The authorized capital stock of Merger Sub consists of 1,000 shares of authorized Common Stock, all of which are issued and outstanding and held of record by eGroups. All outstanding shares of the capital stock of Merger Sub are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of Merger Sub or any agreement to which the Merger Sub is a party or by which it is bound. (c) eGroups has reserved 2,900,000 shares of Common Stock for issuance to directors, employees and consultants pursuant to eGroups' 1998 Stock Plan ("eGroups Stock Plan"), of which 873,850 shares are subject to outstanding, unexercised options ("eGroups Options") and 82,250 shares remain available for future grant. Schedule 3.2(c) sets forth for each outstanding eGroups Option and eGroups Convertible Security, (i) the name of the holder of such security, (ii) the number of shares of capital stock subject to such security, (iii) the exercise price of such security, (iv) the date of grant of such security, (v) the date on which such security expires, and (vi) whether the exercisability of such security will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except for the eGroups Convertible Securities described in Schedule 3.2(c), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which eGroups is a party or by which it is bound obligating eGroups to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of eGroups or obligating eGroups to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. 3.3 Subsidiaries. Other than Merger Sub and except as set forth on Schedule 3.3, eGroups does not have any subsidiaries and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 3.4 Authority. Subject only to the requisite approval of the Merger and this Agreement by eGroups' shareholders and Merger Sub's shareholder, each of eGroups and Merger Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of eGroups and Merger Sub, subject only to the approval of the Merger by eGroups' stockholders and Merger Sub's shareholder. Each of eGroups' Board of Directors and Merger Sub's Board of Directors have unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by eGroups and Merger Sub and constitutes the valid and binding obligation of eGroups and Merger Sub, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific -26- 32 performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Except as set forth on Schedule 3.4, subject only to the approval of the Merger and this Agreement by eGroups' stockholders and Merger Sub's shareholder, the execution and delivery of this Agreement by eGroups and Merger Sub does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "eGroups Conflict") (i) any provision of the Third Amended and Restated Certificate of Incorporation (the "Third Amended and Restated Certificate") or Bylaws of eGroups, (ii) any provision of the Articles of Incorporation or Bylaws of Merger Sub, or (iii) any material mortgage, indenture, lease, contract or other material agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to eGroups or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any third party (so as not to trigger any eGroups Conflict) is required by or with respect to eGroups or Merger Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Agreement of Merger with the California Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (iii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 3.4. eGroups, as the sole shareholder of Merger Sub, has voted prior to the Effective Time the shares of Merger Sub's Common Stock in favor of approval of this Agreement, as and to the extent required by applicable law. 3.5 Financial Statements. Schedule 3.5 sets forth eGroups' unaudited balance sheet as of July 31, 1999, and the related unaudited statement of income and cash flow for the twelve month period ended July 31, 1999 (the "eGroups Year-End Financials"), and eGroups' unaudited balance sheet as of September 30, 1999 and the related unaudited statements of income and cash flows for the two months then ended (the "eGroups Interim Financials") (collectively, such financial statements are sometimes referred to herein as "eGroups Financial Statements"). The eGroups Financial Statements have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The eGroups Financial Statements present fairly the financial condition, operating results and cash flows of eGroups as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which will not be material in amount or significance. eGroups' unaudited balance sheet dated as of September 30, 1999 shall be referred to as the "eGroups Current Balance Sheet." 3.6 No Undisclosed Liabilities. Except as set forth in Schedule 3.6, eGroups does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the eGroups Current Balance Sheet, or (ii) has not arisen in the ordinary course of eGroups' business since the date of the eGroups Current Balance Sheet, consistent with past practices. -27- 33 3.7 No Changes. Except as set forth in Schedule 3.7, since the date of the eGroups Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by eGroups except in the ordinary course of business as conducted as of the date of the eGroups Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Third Amended and Restated Certificate or Bylaws of eGroups; (c) capital expenditure or commitment by eGroups, either individually or in the aggregate, exceeding $50,000; (d) destruction of, damage to or loss of any material assets, business or customer of eGroups (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by eGroups; (g) revaluation by eGroups of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of eGroups, or any direct or indirect redemption, purchase or other acquisition by eGroups of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of eGroups' officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement or in the ordinary course of business and consistent with past practices; (j) sale, lease, license or other disposition of any of the assets or properties of eGroups, except in the ordinary course of business as conducted on that date and consistent with past practices; (k) material amendment or termination of any material contract, agreement or license to which eGroups is a party or by which it is bound; (l) loan by eGroups to any person or entity, incurring by eGroups of any indebtedness, guaranteeing by eGroups of any indebtedness, issuance or sale of any debt securities of eGroups or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; -28- 34 (m) waiver or release of any right or claim of eGroups, including any write-off or other compromise of any account receivable of eGroups other than in the ordinary course of business; (n) change in pricing or royalties set or charged by eGroups to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to eGroups; (o) event or condition of any character that has or could be reasonably expected to have a Material Adverse Effect on eGroups; or (p) negotiation or agreement by eGroups or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (o) (other than negotiations with ONElist and its representatives regarding the transactions contemplated by this Agreement). 3.8 Tax and Other Returns and Reports. (a) Tax Returns and Audits. Except as set forth in Schedule 3.8: (i) eGroups as of the Effective Time will have prepared and filed all required Returns relating to any and all Taxes concerning or attributable to eGroups or its operations and such Returns are true and correct in all material respects and have been completed in accordance with applicable law. (ii) eGroups as of the Effective Time: (A) will have paid or accrued on the eGroups Interim Financials all Taxes it is required to pay or which are attributable to the period ending September 30, 1999 and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) eGroups has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, assessed, or to its Knowledge proposed against eGroups, nor has eGroups executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of eGroups is currently in progress, nor has eGroups been notified of any request for such an audit or other examination. (v) eGroups does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against in accordance with GAAP on the eGroups Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and eGroups has no Knowledge of any basis for the assertion of any such liability attributable to ONElist, its assets or operations. (vi) eGroups has provided to ONElist copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of eGroups' incorporation. -29- 35 (vii) There are (and as of immediately following the Effective Date there will be) no Liens on the assets of eGroups relating to or attributable to Taxes. (viii) Except as set forth in Schedule 3.8(a)(viii), as of the Effective Time, there will not be any contract, agreement, plan or arrangement, excluding any arrangement to which ONElist or any of its employees are a party, covering any employee or former employee of eGroups that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code as a result of the Merger. (ix) eGroups has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by eGroups. (x) eGroups is not a party to a tax sharing or allocation agreement nor does eGroups owe any amount under any such agreement. (xi) eGroups is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xii) Except as may be required as a result of the Merger, eGroups has not been and will not be required to include any adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing. (xiii) Since September 30, 1999, no Taxes have been incurred except in the ordinary course of business. 3.9 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which eGroups is a party or otherwise binding upon eGroups which has or reasonably could be expected to have the effect of materially prohibiting or impairing any business practice of eGroups, any acquisition of property (tangible or intangible) by eGroups or the conduct of business by eGroups. Without limiting the foregoing, eGroups has not entered into any agreement under which eGroups is restricted from developing, selling, licensing, marketing, promoting or otherwise distributing any products, services or technology to any class of customers, or entering into any strategic alliances, in any geographic area, during any period of time or in any segment of the market. 3.10 Title to Properties; Absence of Liens and Encumbrances. (a) eGroups owns no real property, nor has it ever owned any real property. All such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a default). -30- 36 (b) eGroups has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the eGroups Financial Statements or in Schedule 3.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 3.11 Intellectual Property. (a) For purposes of this Agreement, the following terms have the following definitions: "eGroups Intellectual Property" shall mean any Intellectual Property that is used in eGroups business as currently conducted and as currently proposed to be conducted. "eGroups Registered Intellectual Property" means all of the Registered Intellectual Property owned by, or filed in the name of, eGroups. (b) No material eGroups Intellectual Property or product or service of eGroups is subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation restricting in any manner the use, transfer, or licensing thereof by eGroups, or which may affect the validity, use or enforceability of such eGroups Intellectual Property. (c) Schedule 3.11(c) sets forth a complete and accurate list of all eGroups Registered Intellectual Property as of the date hereof and specifies, where applicable, the jurisdictions in which each such item of eGroups Registered Intellectual Property has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers. Each material item of eGroups Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (d) eGroups owns and has good and exclusive title to, or has license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to, each material item of eGroups Intellectual Property or other Intellectual Property used by eGroups free and clear of any lien or encumbrance (excluding licenses and related restrictions); and, to the Knowledge of eGroups, eGroups is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of the business of eGroups, including the sale of any products or the provision of any services by eGroups. -31- 37 (e) eGroups owns exclusively, and has good title to, all copyrighted works that are eGroups products or which eGroups otherwise expressly purports to own. (f) To the extent that any material Intellectual Property has been developed or created by a third party for eGroups, eGroups has a written agreement with such third party with respect thereto and eGroups thereby either (i) has obtained ownership of, and is the exclusive owner of or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment, except to the extent restricted by applicable law. (g) eGroups has not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material to eGroups Intellectual Property, to any third party. (h) Schedule 3.11(h) lists all material contracts, licenses and agreements to which eGroups is a party as of the date hereof (i) with respect to eGroups Intellectual Property licensed or transferred to any third party (other than end-user licenses in the ordinary course); or (ii) pursuant to which a third party has licensed or transferred any material Intellectual Property to eGroups. (i) All material contracts, licenses and agreements relating to eGroups Intellectual Property are in full force and effect. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such contracts, licenses and agreements. eGroups is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements and, to the Knowledge of eGroups, all other parties to such contracts, licenses and agreements are in compliance with, and have not materially breached any term of, such contracts, licenses and agreements. Following the Closing Date, eGroups will be permitted to exercise all of eGroups' rights under such contracts, licenses and agreements to the same extent eGroups would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which eGroups would otherwise be required to pay. (j) To the Knowledge of eGroups, the operation of the business of eGroups as such business currently is conducted, including eGroups' design, development, manufacture, marketing and sale of the products or services of eGroups (including with respect to products and services currently under development) has not, does not and will not infringe or misappropriate the Intellectual Property of any third party in any respect adverse to such party or constitute unfair competition or trade practices under the laws of any jurisdiction in which eGroups currently conducts business. (k) eGroups has not received notice from any third party that the operation of the business of eGroups or any act, product or service of eGroups, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction in which eGroups currently conducts business. -32- 38 (l) To the Knowledge of eGroups, no person has or is infringing or misappropriating, in any respect materially adverse to eGroups, any eGroups Intellectual Property. (m) eGroups has taken reasonable steps to protect eGroups' rights in eGroups' confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to eGroups, and, without limiting the foregoing, eGroups has and enforces a policy requiring each employee and contractor to execute a proprietary information/confidentiality and invention assignment agreement and all current and former employees and contractors of eGroups have executed such an agreement, except where the failure to do so is not reasonably expected to be material to eGroups. 3.12 Agreements, Contracts and Commitments. (a) Except as set forth on Schedule 3.12(a), eGroups does not have, is not a party to nor is it bound by: (i) any collective bargaining agreements; (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations; (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (iv) any material employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any material consulting or sales agreement, contract or commitment under which any firm or other organization provides services to eGroups; (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (vi) any fidelity or surety bond or completion bond; (vii) any lease of personal property having a value individually in excess of $50,000; (viii) any agreement of indemnification or guaranty; (ix) any agreement, contract or commitment containing any covenant limiting the freedom of eGroups to engage in any line of business or to compete with any person; -33- 39 (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $50,000; (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of eGroups' business; (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof; (xiii) any purchase order or contract for the purchase of raw materials involving $50,000 or more; (xiv) any construction contracts; (xv) any distribution, joint marketing or development agreement; (xvi) any agreement pursuant to which eGroups has granted or may grant in the future, to any party, a source-code license or option or other right to use or acquire source-code; or (xvii) any other agreement, contract or commitment that involves $50,000 or more or is not cancelable without penalty within thirty (30) days. (b) Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 3.12(b), eGroups has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 3.12(a), Schedule 3.11(c) or Schedule 3.11(h) (any such agreement, contract or commitment, a "eGroups Contract"). Each eGroups Contract is in full force and effect and, except as otherwise disclosed in Schedule 3.12(b), is not subject to any default thereunder of which eGroups has Knowledge by any party obligated to eGroups pursuant thereto. 3.13 Interested Party Transactions. Except as set forth on Schedule 3.13, (i) no officer, director or, to the Knowledge of eGroups (without any duty to investigate), any stockholder of eGroups has, directly or indirectly, an economic interest worth greater than $25,000 in any entity which furnished or sold, or furnishes or sells, services or products that eGroups furnishes or sells, or proposes to furnish or sell, (ii) no officer, director or, to the Knowledge of eGroups (without any duty to investigate), any stockholder of eGroups has, directly or indirectly, an economic interest worth greater than $25,000 in any entity that purchases from or sells or furnishes to, eGroups, any goods or services or (iii) no officer, director or stockholder of eGroups has, directly or indirectly, a beneficial interest worth greater than $25,000 in any contract or agreement set forth in Schedule 3.12(a), Schedule 3.11(c) or Schedule 3.11(h); provided, that ownership of no more than -34- 40 one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 3.13. For the purposes of this subsection, "officer" and "director" shall include any parent, child, sibling or spouse of any of such persons, or any trust, partnership or corporation in which such officer or director has a controlling interest. 3.14 Compliance with Laws. eGroups has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 3.15 Litigation. Except as set forth in Schedule 3.15, there is no action, suit or proceeding of any nature pending or to eGroups' Knowledge threatened against eGroups, its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 3.15, to eGroups' Knowledge, there is no investigation pending or threatened against eGroups, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 3.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of eGroups to manufacture, offer or sell any of its products in the present manner or style thereof. 3.16 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of eGroups, there is no claim by eGroups pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and eGroups is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). eGroups has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 3.17 Minute Books. The minute books of eGroups made available to counsel for ONElist are the only minute books of eGroups and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of eGroups. 3.18 Environmental Matters. eGroups is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its Knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 3.19 Brokers' and Finders' Fees. eGroups has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. -35- 41 3.20 Employee Matters and Benefit Plans. (a) Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "eGroups Affiliate" shall mean any other corporation, partnership, limited liability company, trade, business, person or other entity that, together with eGroups, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code; (ii) "eGroups Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA, (A) which is or has been sponsored, maintained, contributed to, or required to be contributed to, by eGroups or any eGroups Affiliate for the benefit of any "eGroups Employee" (as defined below), or (B) with respect to which eGroups or any eGroups Affiliate has or could have any material liability or obligation, contingent or otherwise; (iii) "eGroups Employee" shall mean any current, former, or retired employee, officer, or director of eGroups or any eGroups Affiliate; (iv) "eGroups Employee Agreement" shall refer to each written management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between eGroups or any eGroups Affiliate and any eGroups Employee or consultant. Except as set forth on Schedule 3.20(a)(iv), eGroups represents and warrants that there are no oral agreements between eGroups or any Affiliate and any eGroups Employee or consultant pertaining to management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar matters or arrangements; (b) Schedule. Schedule 3.20(b) contains an accurate and complete list of each eGroups Employee Plan and each eGroups Employee Agreement together with a schedule of all liabilities, whether or not accrued, under each such eGroups Employee Plan or eGroups Employee Agreement only to the extent not reflected on the eGroups Current Balance Sheet. eGroups does not have any plan or commitment, whether legally binding or not, to establish any new eGroups Employee Plan or eGroups Employee Agreement, to modify any eGroups Employee Plan or eGroups Employee Agreement (except to the extent required by law or to conform any such eGroups Employee Plan or eGroups Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to eGroups in writing, or as required by this Agreement), or to enter into any eGroups Employee Plan or eGroups Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. There has been no amendment, interpretation or other announcement (written or oral) by eGroups or, to the Knowledge of eGroups, any other Person relating to, or change in participation or coverage under, any eGroups Employee Plan or eGroups Employee Agreement that, either alone or together with other such items or events, could materially increase the expense of maintaining the eGroups Employee Plans and eGroups Employee -36- 42 Agreements above the level of expense incurred with respect thereto for the most recent fiscal year included in the eGroups Financial Statements. (c) Documents. eGroups has provided, or will provide within three (3) days following the execution of this Agreement, to ONElist (i) correct and complete copies of all documents embodying or materially affecting the interpretation or application of each eGroups Employee Plan and each eGroups Employee Agreement including all amendments thereto; (ii) the most recent annual actuarial valuations, if any, prepared for each eGroups Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each eGroups Employee Plan or related trust; (iv) if the eGroups Employee Plan is funded, the most recent annual and periodic accounting of eGroups Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each eGroups Employee Plan which has a material adverse effect on such eGroups Employee Plan; (vi) the most recent IRS determination, opinion, notification or advisory letters as applicable, and rulings relating to eGroups Employee Plans and copies of all applications and correspondence to or from the IRS or the DOL with respect to any eGroups Employee Plan or eGroups Employee Agreement; (vii) all material written agreements and contracts relating to each eGroups Employee Plan and eGroups Employee Agreement, including, but not limited to, trust agreements, administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material distributed to any eGroups Employee or eGroups Employees relating to any eGroups Employee Plan or eGroups Employee Agreement and any proposed eGroups Employee Plan or eGroups Employee Agreement, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to eGroups; and (ix) all registration statements and prospectuses prepared in connection with each eGroups Employee Plan not otherwise publicly available on the SEC website. (d) Employee Plan Compliance. Except as set forth on Schedule 3.20(d), (i) eGroups and, to the Knowledge of eGroups, all other Persons have properly performed in all material respects all obligations required to be performed by them under each eGroups Employee Plan and eGroups Employee Agreement; (ii) each eGroups Employee Plan and eGroups Employee Agreement is, and at all times since inception has been, established, maintained, administered, operated and funded in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (iii) each eGroups Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is, and at all times since inception has been, so qualified, and has either received a favorable determination letter from the IRS with respect to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination; (iv) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, has occurred with respect to any eGroups Employee Plan for which an exemption is not applicable; -37- 43 (v) there are no actions, suits or claims pending, or, to the Knowledge of eGroups, threatened or anticipated (other than routine claims for benefits) against any eGroups Employee Plan or against the assets of any eGroups Employee Plan; and (vi) each eGroups Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to ONElist, eGroups or any eGroups Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vii) there are no audits, inquiries or proceedings pending or, to the Knowledge of eGroups, threatened by the IRS or DOL with respect to any eGroups Employee Plan or eGroups Employee Agreement; (viii) all contributions, premiums and other payments due or required to be paid to (or with respect to) each eGroups Employee Plan have been timely paid, or if not yet due, have been properly accrued on eGroups's books consistent with past practice; and (ix) neither eGroups nor any eGroups Affiliate has incurred, and to the Knowledge of eGroups there exists no condition or set of circumstances in connection with which either eGroups or any eGroups Affiliate could incur, a material liability or expense (except for benefit claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law, statute, order, rule or regulation with respect to any eGroups Employee Plan or eGroups Employee Agreement. (e) Pension Plans. At no time has eGroups or any eGroups Affiliate sponsored, maintained, participated in, or contributed to (or been required to contribute to), any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has eGroups or any eGroups Affiliate contributed to or been requested (or obligated) to contribute to any Multiemployer Plan or Multiple Employer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 3.20(g), neither eGroups nor any eGroups Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any eGroups Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and eGroups has never represented, promised or contracted (whether in oral or written form) to any eGroups Employee (either individually or to eGroups Employees as a group) or any other person that such eGroups Employee(s) or other person would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. The term "other employee welfare benefits" means those benefits traditionally provided under an "employee benefit welfare plan" as defined in ERISA Section 3(1). (h) Health Care Compliance. Neither eGroups nor any eGroups Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such Act, or any similar provisions of state law applicable to its Employees. -38- 44 (i) Effect of Transaction. Except as set forth on Schedule 3.20(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any eGroups Employee Plan, eGroups Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any eGroups Employee. (j) Employment Matters. eGroups (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to eGroups Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to eGroups Employees; (iii) is not liable for any arrears of wages, other than arrears normally included in its payroll schedule and system, or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for eGroups Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against eGroups under any worker's compensation policy or long-term disability policy. To eGroups' Knowledge, no employee of eGroups has violated any employment contract, nondisclosure agreement or noncompetition agreement by which such employee is bound due to such employee being employed by eGroups and disclosing to eGroups or using trade secrets or proprietary information of any other person or entity. (k) Labor. To the Knowledge of eGroups, no work stoppage or labor strike against eGroups is pending or threatened. Except as set forth in Schedule 3.20(k), eGroups is not involved in or, to the Knowledge of eGroups, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any eGroups Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to eGroups. To the Knowledge of eGroups, neither eGroups nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a material liability to eGroups. Except as set forth in Schedule 3.20(k), eGroups is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to eGroups Employees and no collective bargaining agreement is being negotiated by eGroups. 3.21 Accounting and Regulatory Matters. eGroups has no Knowledge of any action taken by eGroups or any Affiliate of eGroups or agreed to be taken nor has any Knowledge of any fact or circumstance that is reasonably likely to (a) prevent the Merger from qualifying for pooling-of-interests accounting treatment, or (b) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 6.1(j). -39- 45 3.22 Year 2000 Compliance. All of eGroups' products and services (including products and services currently under development) to the extent they record, store, process, calculate and present dates, if at all, are Year 2000 Compliant. All of eGroups' material products and services will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. To the Knowledge of eGroups, all of eGroups' internal computer systems, including without limitation, its accounting systems, are Year 2000 Compliant. 3.23 Representations Complete. None of the representations or warranties made by eGroups or Merger Sub (as modified by the eGroups and Merger Sub Schedules), nor any statement made in any schedule or certificate furnished by eGroups or Merger Sub pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the stockholders of eGroups or Merger Sub in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 Conduct of Business of ONElist and eGroups. (a) ONElist Conduct. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, ONElist agrees (except to the extent that eGroups shall otherwise consent in writing or as expressly contemplated herein) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. ONElist shall promptly notify eGroups of any material event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting ONElist or its business. Except as expressly contemplated by this Agreement and except as set forth on Schedule 4.1(a), ONElist shall not, without the prior written consent of eGroups: (i) Enter into any commitment, activity or transaction not in the ordinary course of business; (ii) Transfer to any person or entity any rights to any ONElist Intellectual Property (other than pursuant to end-user licenses in the ordinary course of business); -40- 46 (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of ONElist; (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the ONElist Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of ONElist, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock (or options, warrants or other rights exercisable therefor); (vii) Except as may be required for the issuance of shares of ONElist Capital Stock upon exercise or conversion of presently outstanding ONElist Options and except pursuant to agreements previously entered into and agreements that ONElist will enter into in the ordinary course of business and consistent with past practice in connection with the employment of non-officer employees, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (viii) Cause or permit any amendments to its Articles of Incorporation or Bylaws; (ix) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of ONElist; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice, or create any security interest in such assets or properties; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of ONElist or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments (a) required by law or, (b) with respect to non-officer -41- 47 employees and consultants (i) made pursuant to written agreements outstanding on the date hereof (which such agreements are disclosed on Schedule 4.1(a)(xii)), or (ii) pursuant to ONElist policy in effect on the date hereof and that has been disclosed to eGroups; (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees other than in the ordinary course of business and consistent with past practice; (xiv) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; (xv) Take any action, including the acceleration of vesting of any options, warrants, restricted stock or other rights to acquire shares of the capital stock of ONElist which would be reasonably likely to interfere with eGroups' ability to account for the Merger as a pooling of interests or any other action that could jeopardize the tax-free reorganization hereunder; (xvi) Pay, discharge or satisfy, in an amount in excess of $25,000, in any one case, or $100,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the ONElist Financial Statements or incurred in the ordinary course of business since September 30, 1999; (xvii) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xviii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xix) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (xx) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xxi) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (xxii) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which ONElist directly or indirectly holds any interest on the date hereof; or -42- 48 (xxiii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a)(i) through (xxii) above, or any other action that would prevent ONElist from performing or cause ONElist not to perform its covenants hereunder. (b) eGroups Conduct. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, eGroups agrees (except to the extent that ONElist shall otherwise consent in writing or as expressly contemplated herein) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. eGroups shall promptly notify ONElist of any material event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting eGroups or its business. Except as expressly contemplated by this Agreement and except as set forth on Schedule 4.1(b), eGroups shall not, without the prior written consent of ONElist: (i) Enter into any commitment, activity or transaction not in the ordinary course of business; (ii) Transfer to any person or entity any rights to any eGroups Intellectual Property (other than pursuant to end-user licenses in the ordinary course of business); (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of eGroups; (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the eGroups and Merger Sub Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of eGroups, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock (or options, warrants or other rights exercisable therefor); (vii) Except for the issuance of shares of eGroups capital stock upon exercise or conversion of presently outstanding eGroups Convertible Securities and except pursuant to agreements previously entered into and agreements that eGroups will enter into in the ordinary -43- 49 course of business and consistent with past practice in connection with the employment of non-officer employees, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (viii) Cause or permit any amendments to its Third Amended and Restated Certificate or Bylaws; (ix) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of eGroups; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice, or create any security interest in such assets or properties; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of eGroups or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments (a) required by law or, (b) with respect to non-officer employees and consultants (i) made pursuant to written agreements outstanding on the date hereof (which such agreements are disclosed on Schedule 4.1(b)(xii)), or (ii) pursuant to eGroups policy in effect on the date hereof and that has been disclosed to ONElist; (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees other than in the ordinary course of business and consistent with past practice; (xiv) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; (xv) Take any action, including the acceleration of vesting of any options, warrants, restricted stock or other rights to acquire shares of the capital stock of eGroups which would be reasonably likely to interfere with eGroups' ability to account for the Merger as a pooling of interests or any other action that could jeopardize the tax-free reorganization hereunder; -44- 50 (xvi) Pay, discharge or satisfy, in an amount in excess of $25,000, in any one case, or $100,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the eGroups Financial Statements or incurred in the ordinary course of business since September 30, 1999; (xvii) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xviii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xix) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (xx) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xxi) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (xxii) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which eGroups directly or indirectly holds any interest on the date hereof; or (xxiii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(b)(i) through (xxii) above, or any other action that would prevent eGroups from performing or cause eGroups not to perform its covenants hereunder. 4.2 No ONElist Solicitation. (a) Until the earlier of (i) the Effective Time or (ii) the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, ONElist will not (nor will ONElist permit any of ONElist's employees, officers, directors, advisors, stockholders, agents, representatives or Affiliates to) directly or indirectly, take any of the following actions with any party other than eGroups and its designees: (A) solicit, initiate, entertain, respond to or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of ONElist or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or -45- 51 otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries, (B) provide information with respect to it to any person, other than eGroups, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of ONElist (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries, (C) enter into an agreement with any person, other than eGroups, providing for the acquisition of ONElist (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries, or (D) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of ONElist or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries by any person, other than by eGroups. ONElist shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if ONElist receives prior to the Effective Time or the termination of this Agreement any offer or proposal relating to any of the above, ONElist shall immediately notify eGroups thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as eGroups may reasonably request. Except as contemplated by this Agreement, disclosure by ONElist of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.2. (b) Notwithstanding anything to the contrary contained herein, in the event that the Closing has not occurred on or before November 30, 1999, ONElist may engage in the activities set forth in clauses (A) through (D) of Section 4.2(a) solely for the purpose of effecting a private equity or debt financing. 4.3 No eGroups or Merger Sub Solicitation. (a) Until the earlier of (i) the Effective Time or (ii) the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, eGroups and Merger Sub will not (nor will eGroups or Merger Sub permit any of their employees, officers, directors, advisors, stockholders, agents, representatives or Affiliates to) directly or indirectly, take any of the following actions with any party other than ONElist and its designees: (A) solicit, initiate, entertain, respond to or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of eGroups or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries, (B) provide information with respect to it to any person, other than ONElist, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of eGroups (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries, (C) enter into an agreement with any person providing for the acquisition of eGroups (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries, or (D) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of eGroups or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its -46- 52 or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries by any person. eGroups shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if eGroups receives prior to the Effective Time or the termination of this Agreement any offer or proposal relating to any of the above, eGroups shall immediately notify ONElist thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as ONElist may reasonably request. Except as contemplated by this Agreement, disclosure by eGroups of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.3. (b) Notwithstanding anything to the contrary contained herein, in the event that the Closing has not occurred on or before November 30, 1999, eGroups may engage in the activities set forth in clauses (A) through (D) of Section 4.3(a) solely for the purpose of effecting a private equity or debt financing. ARTICLE V ADDITIONAL AGREEMENTS 5.1 ONElist Shareholder and eGroups Stockholder Approvals. (a) As promptly as practicable, ONElist shall submit this Agreement and the transactions contemplated hereby, including without limitation the Merger, to ONElist's shareholders for approval as provided by California law and ONElist's Articles of Incorporation and Bylaws. The materials submitted to ONElist's shareholders shall be subject to review and approval by eGroups and include information regarding eGroups and ONElist, the terms of the Merger and this Agreement and the unanimous recommendation of the Board of Directors of ONElist in favor of the Merger, this Agreement and the transactions contemplated hereby. (b) As promptly as practicable, eGroups shall submit this Agreement and the transactions contemplated hereby, including without limitation the Merger, to eGroups' stockholders for approval and adoption as provided by California law, Delaware law and eGroups' Third Amended and Restated Certificate and Bylaws. The materials submitted to eGroups' stockholders shall include the unanimous recommendation of the Board of Directors of eGroups in favor of the Merger, this Agreement and the transactions contemplated hereby. 5.2 Restrictions on Transfer. (a) All certificates representing Consideration Shares deliverable to any ONElist Shareholder pursuant to this Agreement and in connection with the Merger and any certificates subsequently issued with respect thereto or in substitution therefor (including any shares issued or issuable in respect of any such shares upon any stock split stock dividend, recapitalization, conversion or similar event) shall be stamped or otherwise imprinted with legends in the following form: -47- 53 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THE TRANSFER RESTRICTIONS APPLICABLE TO THESE SHARES ARE BINDING ON TRANSFEREES OF THESE SHARES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED DIRECTLY OR INDIRECTLY FOR SUCH PERIOD OF TIME NOT TO EXCEED ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE EFFECTIVE DATE OF ANY REGISTRATION STATEMENT OF THE ISSUER FILED UNDER THE SECURITIES ACT IN CONNECTION WITH THE INITIAL PUBLIC OFFERING OF THE ISSUER'S COMMON STOCK. (b) The certificates evidencing the Consideration Shares shall also bear any legend required by the Commissioner of Corporations of the State of California or such as are required pursuant to any state, local or foreign law governing such securities. (c) The Consideration Shares will not be registered under the Securities Act in connection with the Merger. (d) No ONElist Shareholder shall be permitted to sell, transfer or otherwise dispose of any Consideration Shares received in the Merger, unless (i) such sale, transfer or other disposition is made in conformity with Rule 145(d) promulgated under the Securities Act, (ii) such sale, transfer or other disposition has been registered under the Securities Act or (iii) eGroups receives a written opinion of counsel reasonably acceptable to it stating that the proposed transfer of the Consideration Shares may be effected without registration under the Securities Act. (e) Each ONElist Shareholder agrees that, during the period of duration (up to, but not exceeding, one hundred eighty (180) days) specified by eGroups and an underwriter of common stock or other securities of eGroups, following the effective date of a registration statement of eGroups filed under the Securities Act of 1933, as amended, it shall not, to the extent requested by eGroups and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of eGroups held by it at any time during such period except Common Stock included in such registration; provided, however that (i) such agreement shall be applicable only to the first such registration statement of eGroups which covers common stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and -48- 54 (ii) all officers and directors of eGroups, all one percent security holders, and all other persons with registration rights (whether or not pursuant to the Investors Rights Agreement (as defined below)) enter into similar agreements. In order to enforce the foregoing covenant, eGroups may impose stop-transfer instructions with respect to any registrable securities (and the shares of securities of every other person subject to the foregoing restriction) until the end of such period, and each holder of registrable securities shall execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 5.2(e) Notwithstanding the foregoing, the obligations described in this Section 5.2(e) shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 5.3 Access to Information. Each party shall afford the others and its accountants, counsel and other representatives, and with respect to clause (b) below, shall cause its accountants to afford, reasonable access during normal business hours during the period prior to the Effective Time to: (a) all of its properties, books, personnel, contracts, commitments and records; (b) the accountants of the other party, the audit work papers and other records of the accounts of such party; and (c) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of it as the others may reasonably request. No information or knowledge obtained in any investigation pursuant to this Section 5.3 shall affect or be deemed to modify any representation or warranty contained herein. 5.4 Confidentiality. Each of the parties hereto hereby agrees to keep the terms of this Agreement (except to the extent contemplated hereby) and such information or knowledge obtained in any investigation pursuant to Section 5.3, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, confidential; provided, however, that the foregoing shall not apply to information or knowledge which: (a) a party can demonstrate, through its written records in existence prior to the date hereof, was already lawfully in its possession prior to the disclosure thereof by the other party; (b) is generally known to the public and did not become so known through any violation of law; (c) became known to the public through no fault, action or inaction of the party receiving the information; (d) is later lawfully acquired by the receiving party without confidentiality restrictions from other sources; (e) is required to be disclosed by order of court or government agency with subpoena powers (provided that such party shall have provided the other party with prior notice of such order or subpoena and an opportunity to object or take other available action); or (f) which is disclosed in the course of any litigation between any of the parties hereto. In the event that this Agreement is terminated in accordance with Section 8.1 hereof, the parties agree that that certain letter agreement by and between ONElist and eGroups dated October 14, 1999 (a true and complete copy of which is attached hereto as Exhibit M and is hereby incorporated by reference and made a part hereof) (the "Letter Agreement") shall remain in full force and effect. In the event of any conflict between the terms of the Letter Agreement and this Agreement, the terms of the Letter Agreement shall control. -49- 55 5.5 Expenses. (a) Third Party Expenses. In the event the Merger is not consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. (b) Brokers' or Finders' Fees. Each party hereto shall indemnify and hold the other party harmless from any claim for brokers' fees or finders' fees arising out of the transactions contemplated hereby by any Person claiming to have been engaged by the indemnifying party. 5.6 Public Disclosure. Unless otherwise required by law (including, without limitation, federal and state securities laws) prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto unless approved by eGroups and ONElist prior to release, provided that such approval shall not be unreasonably withheld. The parties will mutually agree in advance on the form, timing and contents of announcements and disclosures regarding the Merger. 5.7 Consents. eGroups and ONElist shall use commercially reasonable efforts to obtain the consents, waivers and approvals under any of the eGroups Contracts and ONElist Contracts as may be required in connection with the Merger (all of such consents, waivers and approvals are set forth in the ONElist Schedules and eGroups and Merger Sub Schedules) so as to preserve all rights of and benefits to eGroups and ONElist thereunder. 5.8 FIRPTA Compliance. On or prior to the Closing Date, ONElist shall deliver to eGroups a properly executed statement in a form reasonably acceptable to eGroups for purposes of satisfying eGroups' obligations under Treasury Regulation Section 1.1445-2(c)(3). 5.9 Reasonable Efforts. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use commercially reasonable efforts to ensure that its representations and warranties remain true and correct in all material respects, and to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement. 5.10 Notification of Certain Matters. ONElist shall give prompt notice to eGroups, and eGroups shall give prompt notice to ONElist, of (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of ONElist, eGroups or Merger Sub, respectively, contained in this Agreement to be untrue or -50- 56 inaccurate at or prior to the Effective Time and (ii) any failure of ONElist or eGroups, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.10 shall not limit or otherwise affect any remedies available to the party receiving such notice. No disclosure pursuant to this Section 5.10 shall be deemed to amend or supplement the ONElist Schedules or the eGroups and Merger Sub Schedules, as the case may be, or prevent or cure any misrepresentation, breach of warranty or breach of covenant. 5.11 Certain Benefit Plans. Subject to compliance with pooling-of-interest accounting treatment of the Merger, eGroups shall take such reasonable actions as are necessary to allow eligible employees of ONElist to participate in the benefit programs of eGroups provided to similarly situated employees of eGroups, or alternative benefits programs substantially comparable to those provided to similarly situated employees of eGroups, as soon as reasonably practicable after the Effective Time. For purposes of participation and vesting under eGroups' employee benefit plans, the service with ONElist of the employees of ONElist prior to the Effective Time shall be treated as service with eGroups. eGroups shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance, consulting and other compensation contracts or agreements disclosed in the ONElist Schedules between ONElist and any current or former director, officer or employee thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the ONElist Benefit Plans. 5.12 Accounting and Tax Treatment. Each of the parties undertakes and agrees to use its reasonable efforts to cause the Merger, and to take no action which would cause the Merger not, to qualify for treatment as a pooling of interests for accounting purposes and each of the parties agrees to take no action which would cause the Merger not to qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes. 5.13 Additional Documents and Further Assurances. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. 5.14 ONElist's Auditors. ONElist will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any ONElist audit work papers for up to the past three years, including selected interim financial statements and data and (ii) the delivery of such representations from ONElist's independent accountants as may be reasonably requested by eGroups or its accountants in order for eGroups' accountants to render the opinion called for by Section 6.1(m) hereof. 5.15 eGroups' Auditors. eGroups will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any eGroups audit or review work papers for up to the past three years, including the examination of selected interim financial statements and data and (ii) the delivery of such representations from eGroups' independent accountants as may be reasonably requested by ONElist or its accountants in order for ONElist's accountants to render the opinion called for by Section 6.1(m) hereof. -51- 57 5.16 Agreement of Affiliates. ONElist and eGroups have disclosed in Schedule 5.16 of the ONElist Schedules and the eGroups and Merger Sub Schedules, respectively, each Person whom such party reasonably believes is an Affiliate of such party. If the Merger is accounted for using the pooling-of-interests method of accounting, shares of eGroups Common Stock held by such Persons shall not be transferable until such time as financial results covering at least 30 days of combined operations of eGroups and ONElist have been published within the meaning of Section 201.01 of the SEC's Codification of Financial Reporting Policies (and eGroups shall be entitled to place restrictive legends upon certificates for shares of eGroups Common Stock issued to Affiliates of ONElist pursuant to this Agreement to enforce the provisions of this Section 5.16). 5.17 Voting Agreements. (a) Concurrently with the execution of this Agreement, eGroups shall cause those of its stockholders listed on Exhibit A hereto to execute Voting Agreements in the form attached hereto as Exhibit K, whereby each such stockholder agrees to vote, whether at a meeting of stockholders or pursuant to a written consent, all shares of eGroups Capital Stock held by such stockholder and by affiliates controlled by such stockholder in favor of the Merger, this Agreement and the transactions contemplated by this Agreement. (b) Concurrently with the execution of this Agreement, ONElist shall cause those of its shareholders listed on Exhibit B hereto to execute Voting Agreements in the form attached hereto as Exhibit L, whereby each such shareholder agrees to vote, whether at a meeting of shareholders or pursuant to a written consent, all shares of ONElist Capital Stock held by such shareholder and by affiliates controlled by such shareholder in favor of the Merger, this Agreement and the transactions contemplated by this Agreement. 5.18 Indemnification. (a) For a period of three years after the Effective Time, eGroups shall, and shall cause the Surviving Corporation to, indemnify, defend and hold harmless the present and former directors, officers, employees and agents of ONElist (each, an "Indemnified Party") against all liabilities arising out of actions or omissions arising out of the Indemnified Party's service or services as directors, officers, employees or agents of ONElist occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the fullest extent permitted under California law and by ONElist's Articles of Incorporation and Bylaws as in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any litigation and whether or not eGroups is insured against any such matter. Without limiting the foregoing, in any case in which approval by the Surviving Corporation is required to effectuate any indemnification, the Surviving Corporation shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually and reasonably agreed upon between eGroups and the Indemnified Party. (b) This Section 5.18 shall survive the Effective Time and is intended to benefit ONElist, the Surviving Corporation and each of the Indemnified Parties and shall be binding upon -52- 58 all successors and assigns (whether by operation of law or by contract) of eGroups and the Surviving Corporation for the period specified above. ARTICLE VI CONDITIONS TO THE MERGER 6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) ONElist Shareholder Approval. This Agreement and the Merger shall have been approved by the ONElist Shareholders by the requisite vote under applicable law and ONElist's Articles of Incorporation and Bylaws. (b) eGroups Stockholder Approval. This Agreement, the Merger and the Fourth Amended and Restated Certificate of eGroups shall have been approved and adopted by the stockholders of eGroups by the requisite vote under applicable law and eGroups' Third Amended and Restated Certificate and Bylaws. (c) eGroups Fourth Amended and Restated Certificate. The Fourth Amended and Restated Certificate of eGroups shall have been filed with the Secretary of State of the State of Delaware. (d) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. (e) Dissenters Rights. Holders of more than ten percent (10%) of the outstanding shares of ONElist Capital Stock and eGroups Capital Stock, on an aggregate basis, shall not have exercised, nor shall they have any continued right to exercise, appraisal rights under applicable law with respect to their shares by virtue of the Merger. (f) Tax Opinions. eGroups and ONElist shall each have received written opinions from their respective tax counsel (Perkins Coie LLP ("Perkins Coie") and WSGR, respectively), in form and substance reasonably satisfactory to them, to the effect that the Merger will constitute a tax-free reorganization within the meaning of Section 368(a) of the Code and such opinions shall not have been withdrawn. The parties to this Agreement agree to make reasonable representations (and to cause their Affiliates to make reasonable representations) as requested by counsel for the purpose of rendering the opinions discussed herein. -53- 59 (g) Investors Rights Agreement. The First Amended and Restated Investors Rights Agreement, dated as of December 17, 1998 (the "Investors Rights Agreement"), by and among eGroups and certain holders of eGroups' securities shall have been amended, in substantially the form attached hereto as Exhibit I, and executed by eGroups, the shareholders of ONElist who possess registration rights pursuant to written agreements existing on the date hereof with respect to certain securities of ONElist, and a sufficient number of the existing holders of registration rights with respect to eGroups' securities in order to permit the granting of such rights to such ONElist shareholders under the Investors Rights Agreement. (h) Co-Sale Agreement. The First Amended and Restated Co-Sale Agreement, dated as of December 17, 1998 (the "Co-Sale Agreement"), by and among eGroups and certain holders of eGroups' securities shall have been amended, in substantially the form attached hereto as Exhibit J, and executed by eGroups, the shareholders of ONElist who possess co-sale rights pursuant to written agreements existing on the date hereof with respect to certain securities of ONElist, and a sufficient number of the existing holders of co-sale rights with respect to eGroups' securities in order to permit the granting of such rights to such ONElist shareholders under the Co-Sale Agreement. (i) Termination of Prior Agreements. ONElist shall have terminated its: (i) Rights Agreement by and among ONElist and certain holders of its capital stock, dated as of December 28, 1998 and amended as of February 26, 1999; and (ii) Right of First Refusal and Co-Sale Agreement by and among ONElist and certain holders of its capital stock, dated as of December 28, 1998 and amended as of February 26, 1999. (j) Governmental Approvals. All approvals from Governmental Entities, including without limitation any requisite Blue Sky approvals, which are appropriate or necessary for the consummation of the Merger, shall have been obtained. (k) Litigation. There shall be no bona fide action, suit, claim or proceeding of any nature pending, or overtly threatened, against eGroups or ONElist, their respective properties or any of their officers or directors, arising out of, or in any way connected with, the Merger or other transactions contemplated by the terms of this Agreement. (l) Consents and Approvals. Each party hereto shall have obtained any and all consents required for consummation of the Merger or for the preventing of any breach of or default under any ONElist Contract or eGroups Contract, as the case may be, or any other contract or agreement to which either party is a party or to which it is bound, which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on either ONElist or eGroups, as applicable. No consent so obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of either party would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such party would not, in its reasonable judgment, have entered into this Agreement. (m) Pooling Letters. -54- 60 (i) eGroups shall have received from Ernst & Young LLP ("Ernst & Young"), independent auditors for eGroups, a letter dated as of the Closing Date (which may contain customary qualifications and assumptions), to the effect that Ernst & Young concurs with eGroups' management's conclusion that eGroups may account for the Merger as a pooling of interests under Accounting Principles Board Opinion No. 16, and ONElist shall have received a copy of said letter. (ii) ONElist shall have received from PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), independent auditors for ONElist, a letter dated as of the Closing Date (which may contain customary qualifications and assumptions), to the effect that PricewaterhouseCoopers concurs with ONElist's management's conclusion that no conditions exist related to ONElist that would preclude eGroups from accounting for the Merger as a pooling of interests under Accounting Principles Board Opinion No. 16. (n) Affiliate Agreements. Each of the persons and entities listed as Affiliates of eGroups on Schedule 5.16 shall have executed and delivered Affiliate Agreements in substantially the form of Exhibit G, and each of the persons and entities listed as Affiliates of ONElist on Schedule 5.16 shall have executed and delivered Affiliate Agreements in substantially the form of Exhibit H, and all such Affiliate Agreements shall be in full force and effect. 6.2 Additional Conditions to Obligations of ONElist. The obligations of ONElist to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by ONElist: (a) Representations and Warranties. The representations and warranties of eGroups and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties that are qualified by references to "material" or "Material Adverse Effect" which all shall be true and correct in all respects, and except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on eGroups; and ONElist shall have received a certificate to such effect signed on behalf of eGroups by the chief executive officer and chief financial officer of eGroups. (b) Agreements and Covenants. eGroups and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time, and ONElist shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of eGroups. (c) Third Party Consents. ONElist shall have been furnished with evidence satisfactory to it that eGroups has obtained the consents, approvals and waivers set forth in Schedule 6.2(c) to the eGroups and Merger Sub Schedules. -55- 61 (d) Exchange Agent Certification. The Exchange Agent shall have delivered to ONElist a certificate, dated as of the Effective Time, to the effect that the Exchange Agent has received from eGroups appropriate instructions and authorization for the Exchange Agent to issue a sufficient number of shares of eGroups Common Stock and eGroups Series C Preferred Stock in exchange for outstanding shares of ONElist Capital Stock. (e) Legal Opinion. ONElist shall have received a legal opinion from Perkins Coie, counsel to eGroups, in form and substance mutually agreed upon with WSGR. (f) Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial conditions or results of operations of eGroups since the date of the eGroups Current Balance Sheet. (g) Indemnification. The Articles of Incorporation of Merger Sub shall contain officer and director indemnification provisions that are substantially similar to the officer and director indemnification provisions contained in ONElist's Articles of Incorporation in the form delivered to eGroups on the date of this Agreement. (h) Due Diligence Investigation. ONElist shall have completed its due diligence investigation of eGroups to ONElist's reasonable satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of eGroups contained herein. In this regard, ONElist's due diligence investigation shall be conclusively deemed to have been completed to ONElist's reasonable satisfaction in the event that the preliminary eGroups Schedules attached hereto are not subsequently modified, or otherwise do not require subsequent modification in order to make eGroups' representations and warranties true and correct in all material respects on and as of the Closing Date. (i) Termination of 401(k) Plan. If agreed to in writing by both ONElist and eGroups at least three (3) days prior to the Closing Date, eGroups and its Affiliates, if applicable, shall terminate its or their 401(k) plan(s) immediately prior to Closing. If the parties so agree, eGroups shall provide to ONElist evidence that the eGroups' and each Affiliate's (if applicable) 401(k) plans have been terminated pursuant to resolutions of each such entity's Board of Directors (the form and substance of which resolutions shall be subject to review and approval by both ONElist and eGroups, effective immediately preceding the Closing. (j) Amendment to Comdisco Agreement. ONElist shall have received evidence satisfactory to it that eGroups and Comdisco have amended Section 1.33 of that certain Subordinated Loan and Security Agreement dated as of October 8, 1999 between eGroups and Comdisco to read as follows: "`Preferred Stock' means the Borrower's Series D Preferred Stock." 6.3 Additional Conditions to the Obligations of eGroups and Merger Sub. The obligations of eGroups and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by eGroups: -56- 62 (a) Representations and Warranties. The representations and warranties of ONElist contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties that are qualified by references to "material" or "Material Adverse Effect" which all shall be true and correct in all respects, and except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on ONElist or eGroups; and eGroups and Merger Sub shall have received a certificate to such effect signed on behalf of ONElist by the chief executive officer and chief financial officer of ONElist. (b) Agreements and Covenants. ONElist shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and eGroups and Merger Sub shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of ONElist. (c) Third Party Consents. eGroups shall have been furnished with evidence satisfactory to it that ONElist has obtained the consents, approvals and waivers set forth in Schedule 6.3(c) to the ONElist Schedules. (d) Legal Opinion. eGroups shall have received a legal opinion from WSGR, in form and substance mutually agreed upon with Perkins Coie. (e) Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial conditions or results of operations of ONElist since the date of the eGroups Current Balance Sheet. (f) Due Diligence Investigation. eGroups shall have completed its due diligence investigation of ONElist to eGroups' reasonable satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of ONElist contained herein. In this regard, eGroups' due diligence investigation shall be conclusively deemed to have been completed to eGroups' reasonable satisfaction in the event that the preliminary ONElist Schedules attached hereto are not subsequently modified, or otherwise do not require subsequent modification, in order to make ONElist's representations and warranties true and correct in all material respects on and as of the Closing Date. (g) Termination of 401(k) Plan. If agreed to in writing by both ONElist and eGroups at least three (3) days prior to the Closing Date, ONElist and its Affiliates, if applicable, shall terminate its or their 401(k) plan(s) immediately prior to Closing. If the parties so agree, ONElist shall provide to eGroups evidence that the ONElist's and each Affiliate's (if applicable) 401(k) plans have been terminated pursuant to resolutions of each such entity's Board of Directors (the form and substance of which resolutions shall be subject to review and approval by both ONElist and eGroups, effective immediately preceding the Closing. -57- 63 (h) Proprietary Information and Inventions Agreements. Each of ONElist's employees, including Ed Struzenberg, Scott Shambarger, Marcus Riecke, Frank Mara and Mark Fletcher, will have executed the ONElist form proprietary information and inventions agreement. ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES 7.1 Non-Survival of Representations and Warranties. All of the representations and warranties of ONElist, eGroups and Merger Sub contained in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the corresponding schedules thereto) shall terminate at the Effective Time. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. Except as provided in Section 8.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) by mutual consent of ONElist and eGroups; (b) by eGroups or ONElist if: (i) the Effective Time has not occurred before 5:00 p.m. (Pacific time) on December 31, 1999 (provided that the right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party whose failure to use its commercially reasonable efforts to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any governmental entity that would make consummation of the Merger illegal; (c) by eGroups or ONElist if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit eGroups' or ONElist's ownership or operation of all or any portion of the business of ONElist or (ii) compel eGroups or ONElist to dispose of or hold separate all or a portion of the business or assets of ONElist or eGroups as a result of the Merger; (d) by eGroups if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of ONElist and (i) such breach has not been cured within fifteen (15) days after written notice to ONElist (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied; or -58- 64 (e) by ONElist if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of eGroups or Merger Sub and (i) such breach has not been cured within fifteen (15) days after written notice to eGroups (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied. Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of eGroups, Merger Sub or ONElist, or their respective officers, directors or shareholders, provided that each party shall remain liable for any breaches of this Agreement prior to its termination; and provided further that, the provisions of Sections 5.4, 5.5 and 8.2 and Article IX of this Agreement shall remain in full force and effect and survive any termination of this Agreement. 8.3 Amendment. Except as is otherwise required by applicable law after the shareholders of ONElist and the stockholders of eGroups approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 8.4 Extension; Waiver. At any time prior to the Effective Time, eGroups and Merger Sub, on the one hand, and ONElist, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): -59- 65 (i) if to ONElist, to: ONElist, Inc. 2688 Middlefield Road, Unit C Redwood City, California 94063 Attention: Michael B. Klein Telephone No.: (650) 216-3379 Facsimile No.: (650) 216-3399 with a copy to: Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California 94304 Attention: Henry P. Massey, Jr., Esq. Michael S. Russell, Esq. Telephone No.: (650) 493-9300 Facsimile No.: (650) 493-6811 (ii) if to eGroups or Merger Sub, to: eGroups, Inc. 350 Brannan Street San Francisco CA 94107 Attention: Chief Executive Officer Telephone No.: (415) 546-2700 Facsimile No.: (415) 546-2801 with a copy to: Perkins Coie LLP 135 Commonwealth Drive Menlo Park, CA 94025 Attention: Buddy Arnheim, Esq. Telephone No.: (650) 752-6000 Facsimile No.: (650) 752-6050 9.2 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more -60- 66 counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 9.4 Entire Agreement; Assignment. This Agreement, the Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder (except with respect to Section 5.18); and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that eGroups and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective Affiliates. 9.5 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.6 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 9.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.9 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. -61- 67 IN WITNESS WHEREOF, eGroups, Merger Sub, and ONElist have caused this Agreement to be signed by their duly authorized respective officers and representatives, all as of the date first written above. ONELIST, INC. EGROUPS, INC. By: By: --------------------------- --------------------------------- Name: Name: Title: Title: EG ACQUISITION CORPORATION By ---------------------------------- Name: Title: SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION EX-3.1 4 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EGROUPS, INC. The undersigned, Michael Klein and Margaret Nibbi hereby certify that: 1. They are the duly elected and acting Chief Executive Officer and Secretary, respectively, of eGroups, Inc., a Delaware corporation (the "Corporation"). 2. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of Delaware on June 5, 1998 under the name Findmail Communications, Inc. 3. The Certificate of Incorporation of the Corporation shall be amended and restated to read in full as follows: ARTICLE I "The name of this corporation is eGroups, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) CLASSES OF STOCK. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is Sixty Million Five Hundred Thousand (60,500,000) each with a par value of $0.001 per share. Forty Three Million (43,000,000) shall be Common Stock and Seventeen Million Five Hundred Thousand (17,500,000) shall be Preferred Stock. (B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized by this Fifth Amended and Restated Certificate of Incorporation may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated "Series A Preferred Stock" and shall consist of One Million Six Hundred Twenty Thousand 2 (1,620,000) shares. The second series of Preferred Stock shall be designated "Series B Preferred Stock" and shall consist of Three Million Six Hundred Thousand (3,600,000) shares. The third series of Preferred Stock shall be designated "Series C Preferred Stock" and shall consist of Seven Million Two Hundred Eighty Thousand Eight Hundred Eleven (7,280,811) shares. The fourth series of Preferred Stock shall be designated "Series D Preferred Stock" and shall consist of Four Million Five Hundred Twenty Thousand (4,520,000) shares. The remaining shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the corporation (the "Board of Directors") is expressly authorized to provide for the issue of all or any of the remaining shares of Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares (a "Preferred Stock Designation") and as may be permitted by the General Corporation Law of the State of Delaware. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series other than the Series A, Series B, Series C or Series D Preferred Stock subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock are as set forth below in this Article IV(B). 1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, contemporaneously as to each other and prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock of the Corporation, at the rate as follows: (a) holders of the Series A Preferred Stock shall be entitled to receive dividends at an annual rate of $0.04 per share of Series A Preferred Stock; (b) holders of the Series B Preferred Stock shall be entitled to receive dividends at an annual rate of $0.115 per share of Series B Preferred Stock; (c) holders of the Series C Preferred Stock shall be entitled to receive dividends at an annual rate of $0.04994 per share of Series C Preferred Stock; and (d) holders of the Series D Preferred Stock shall be entitled to receive dividends at an annual rate of $ 0.9261 per share (in each case adjusted to reflect subsequent stock dividends, stock splits or recapitalizations) when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. 2. LIQUIDATION. (a) PREFERENCE. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be -2- 3 entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to $0.50, $1.43955, $0.55626 and $10.29, respectively, per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus declared but unpaid dividends on such shares. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the preferential amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) REMAINING ASSETS. Upon the completion of the distribution required by Section 2(a) above, the remaining assets of the Corporation available for distribution to stockholders shall be distributed on a pro rata basis to the holders of Common Stock based on the number of shares of Common Stock held by each. (c) CERTAIN ACQUISITIONS. (i) DEEMED LIQUIDATION. For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (B) a sale of all or substantially all of the assets of the Corporation, unless the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity in approximately the same relative percentages after such acquisition or sale as before such acquisition or sale. (ii) VALUATION OF CONSIDERATION. In the event of a deemed liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and -3- 4 (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (iii) NOTICE OF TRANSACTION. The Corporation shall give each holder of record of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock written notice of such impending transaction not later than ten (10) days prior to the stockholders' meeting called to approve such transaction, or ten (10) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than ten (10) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of each class of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such series of Preferred Stock. (iv) EFFECT OF NONCOMPLIANCE. In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2(c)(iii) hereof. 3. REDEMPTION. The Preferred Stock is not redeemable. 4. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Subject to Section 4(c), each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) $0.50, in the case of the Series A Preferred Stock; (ii) $1.43955, in the case of the Series B Preferred -4- 5 Stock; (iii) $0.55626 in the case of the Series C Preferred Stock; and (iv) $10.29 in the case of the Series D Preferred Stock, by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Series A Conversion Price shall be $0.50 per share, the initial Series B Conversion Price shall be $1.43955 per share, the initial Series C Conversion Price shall be $0.55626 per share and the initial Series D Conversion Price shall be $10.29. The Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall each be subject to adjustment as set forth in Section 4(d). (b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall automatically be converted into shares of Common Stock at the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price, as applicable, at the time in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, resulting in aggregate gross offering proceeds to the Corporation (before expenses, discounts or commissions) of at least $20,000,000 and an offering price of not less than $15.44 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock voting together as a single class. (c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be), and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. In the event of an automatic conversion pursuant to Section 4(b), the outstanding shares of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall be converted automatically without any further action by the holder of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or the transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be); and the Corporation shall not be obliged to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing the shares of Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D -5- 6 Preferred Stock are either delivered to the Corporation or the transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be) as provided above, or the holder notifies the Corporation or the transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be) that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable thereafter, issue and deliver to such address as the holder may direct, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. If the conversion is in connection with a public offering of securities described in Section 4(b), the conversion shall be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, and the conversion shall not be deemed to have occurred until immediately prior to the closing of such sale of securities. (d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN SPLITS AND COMBINATIONS. The Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall be subject to adjustment from time to time as follows: (i) In the event the Corporation should at any time or from time to time after the date on which the Fifth Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware (the "Purchase Date") fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. -6- 7 (e) OTHER DISTRIBUTIONS. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(i), then, in each such case for the purpose of this Section 4(e), the holders of Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) RECAPITALIZATIONS. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2), provision shall be made so that the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (g) NO IMPAIRMENT. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. (h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock the holder -7- 8 is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (i) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. -8- 9 (k) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 5. VOTING RIGHTS. (a) GENERAL. The holder of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) VOTING FOR THE ELECTION OF DIRECTORS. The Board of Directors will consist of seven (7) members, two (2) of which will be elected by the holders of a majority of the shares of the Common Stock, voting as a separate class, one (1) of which will be elected by the holders of a majority of the shares of the Series A Preferred Stock, voting as a separate class, one (1) of which will be elected by the holders of a majority of the shares of the Series B Preferred Stock, voting as a separate class, two (2) of which will be elected by the holders of a majority of the shares of the Series C Preferred Stock, voting as a separate class, and one (1) of which will be elected by the holders of a majority of the Common Stock and Preferred Stock, voting together as one class. Any vacancy in the Board of Directors occurring because of the death, resignation or removal of a Director shall be filled by the vote or written consent of the holders of the class entitled to fill such seat as provided in this Section 5(b). 6. PROTECTIVE PROVISIONS. (a) Subject to the rights of series of Preferred Stock which may from time to time come into existence, so long as greater than 4,375,000 shares of Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at a majority of the then outstanding shares of Preferred Stock, voting together as a single class: (i) sell, convey or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty (50%) of the voting power of this Corporation is disposed of; -9- 10 (ii) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on parity with, the outstanding Preferred Stock; (iii) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (iv) amend this Corporation's Fifth Amended and Restated Certificate of Incorporation or Bylaws; (v) increase the authorized number of directors of this Corporation; or (vi) declare or pay dividends on shares of the Corporation's Common Stock. (b) So long as at least 405,000 shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series A Preferred Stock then outstanding, voting as a single class: (i) alter or change the rights, preferences and privileges of the shares of Series A Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series A Preferred Stock. (c) So long as at least 900,000 shares of Series B Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series B Preferred Stock then outstanding, voting as a single class: (i) alter or change the rights, preferences and privileges of the shares of Series B Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series B Preferred Stock. (d) So long as at least 1,800,000 shares of Series C Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series C Preferred Stock then outstanding, voting as a single class: -10- 11 (i) alter or change the rights, preferences and privileges of the shares of Series C Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series C Preferred Stock. (e) So long as at least 1,130,000 shares of Series D Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series D Preferred Stock then outstanding, voting as a single class: (i) alter or change the rights, preferences and privileges of the shares of Series D Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series D Preferred Stock. 7. STATUS OF CONVERTED STOCK. In the event any shares of Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. The Fifth Amended and Restated Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. (C) COMMON STOCK. 1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Division (B) of this Article IV. 3. REDEMPTION. The Common Stock is not redeemable. 4. VOTING RIGHTS. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE V Except as otherwise provided in this Fifth Amended and Restated Certificate of Incorporation in furtherance and not in limitation of the powers conferred by statute, the Board of -11- 12 Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation. ARTICLE VI Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation. ARTICLE VII (A) To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation. (C) Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of the Corporation's Fifth Amended and Restated Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision." * * * -12- 13 The foregoing Fifth Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at San Francisco, California, on December ___, 1999. ---------------------------------------- Michael Klein President and Chief Executive Officer ---------------------------------------- Margaret Nibbi Secretary EX-3.2 5 FORM OF CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EGROUPS, INC. The undersigned, Michael Klein and Margaret Nibbi, certify that: 1. They are the duly elected President and Secretary, respectively, of eGroups, Inc., a Delaware corporation. 2. The corporation was originally incorporated in Delaware, and the original certificate of incorporation (the "Original Certificate") was filed with the Secretary of State of Delaware on June 5, 1998. 3. Pursuant to Sections 228, 242 and 245 of the Delaware General Corporation Law, this Amended and Restated Certificate of Incorporation amends and restates the provisions of the Original Certificate. 4. The Certificate of Incorporation of this corporation is hereby amended and restated to read in full as follows: ARTICLE I The name of this corporation is "eGroups, Inc." ARTICLE II The address of the corporation's registered office in the State of Delaware is 15 East North Street, in the city of Dover, county of Kent, 19909. The name of its registered agent at such address is Incorporating Services, Ltd. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law. ARTICLE IV A. CLASSES OF STOCK The corporation is authorized to issue two classes of stock, to be designated as "Preferred Stock," $0.001 par value, and "Common Stock," $0.001 par value, respectively. The total number of shares that the corporation is authorized to issue is 160,000,000 shares. The number of shares of Preferred Stock authorized is 10,000,000 shares, and the number of shares of Common Stock authorized is 150,000,000 shares. 2 B. RIGHTS AND RESTRICTIONS OF COMMON STOCK (a) The Common Stock is not redeemable. (b) The holder of each share of Common Stock shall have the right to one vote and shall be entitled to notice of any stockholders' meeting in accordance with the Amended and Restated Bylaws of the corporation, and shall be entitled to vote upon such matters and in such manner as provided by law. C. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the corporation's Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. D. AUTHORITY OF BOARD OF DIRECTORS WITH RESPECT TO STOCK MATTERS The authority of the Board of Directors with respect to each class or series of stock shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of any such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation; -2- 3 (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible or not, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the corporation, acting in accordance with this Amended and Restated Certificate of Incorporation, may deem advisable and are not inconsistent with law and the provisions of this Amended and Restated Certificate of Incorporation. ARTICLE V The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE VI The corporation is to have perpertual existence. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. ARTICLE VIII 1. Limitation on Directors' Liability. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. -3- 4 2. Indemnification. The corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the corporation, or any predecessor of the corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. 3. Amendments. Neither any amendment nor repeal of this Article VIII. nor the adoption of any provision of the corporation's Amended and Restated Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent position. ARTICLE IX In the event any shares of Preferred Stock shall be redeemed or converted, the shares so converted or redeemed shall not revert to the status of authorized but unissued shares, but instead shall be canceled and shall not be re-issuable by the corporation. ARTICLE X Holders of stock of any class or series of the corporation shall not be entitled to cumulate their votes for the election of directors or any other matter submitted to a vote of the stockholders, unless such cumulative voting is required pursuant to the Delaware General Corporation Law, in which event each such holder shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) such holder would be entitled to cast for the election of directors with respect to such holder's shares of stock multiplied by the number of directors to be elected by such holder, and the holder may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as such holder may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. 1. Number of Directors. The number of directors which constitutes the whole Board of Directors of the corporation shall be designated in the Amended and Restated Bylaws of the corporation. Each director shall serve until the next annual meeting of the stockholders or until his successor is duly elected. 2. Election of Directors. Elections of directors need not be by written ballot unless the Amended and Restated Bylaws of the corporation shall so provide. ARTICLE XI -4- 5 No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Amended and Restated Bylaws and no action shall be taken by the stockholders by written consent. The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article X or Article XI of this Amended and Restated Certificate of Incorporation. ARTICLE XII Any meeting of stockholders may be held within or without the State of Delaware, as the Amended and Restated Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Amended and Restated Bylaws of the corporation. -5- 6 We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in this certificate are true and correct of our own knowledge. Executed at San Francisco, California this ______ day of __________, 2000. ----------------------------------- Michael B. Klein Chief Executive Officer ----------------------------------- Margaret E. Nibbi Secretary EX-3.3 6 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.3 AMENDED AND RESTATED BYLAWS OF EGROUPS, INC. ARTICLE I OFFICES Section 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL Section 3. CORPORATE SEAL. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS Section 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. 1 2 Section 5. ANNUAL MEETING. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (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 the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in 2 3 accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine he shall so declare at the meeting, and the defective nomination shall be disregarded. (d) For purposes of this Section 5, "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 Exchange Act. 3 4 Section 6. SPECIAL MEETINGS. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix. (b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than as specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 7. NOTICE OF MEETINGS; WAIVER OF NOTICE. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of' the outstanding shares 4 5 of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series. Section 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. Section 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members 5 6 of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. Section 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 13. ACTION WITHOUT MEETING. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having 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 thereon were present and voted. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. 6 7 (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of the State of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. (d) Notwithstanding the foregoing, no such action by written consent may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock of the corporation (the "Initial Public Offering"). Section 14. ORGANIZATION. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. 7 8 ARTICLE IV DIRECTORS Section 15. NUMBER AND TERM OF OFFICE. The number of directors that shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting of the stockholders, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. Section 17. ELECTION, QUALIFICATION AND TERM OF OFFICE. Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for director may be prescribed. Each director, including a directors elected to fill a vacancy, shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 18. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. Section 19. RESIGNATION. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold 8 9 office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. Section 20. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock, no director shall be removed without cause. Subject to any limitations imposed by law, the Board of Directors or any individual director may be removed from office at any time with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the "Voting Stock"). Section 21. MEETINGS. (a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors. (c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the President or any two (2) of the directors. (d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (e) NOTICE OF MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of 9 10 objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (f) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. QUORUM AND VOTING. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time by the Board of Directors in accordance with Section 15 hereof, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. Section 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation therefor. 10 11 Section 25. COMMITTEES. (a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation. (b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (c) TERM. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 25 may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in 11 12 addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. Section 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS Section 27. OFFICERS DESIGNATED. The officers of the corporation shall be a Chief Executive Officer, a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and any such officers as it shall deem necessary. Any number of offices may be held by the same person. 12 13 Section 28. TENURE AND DUTIES OF OFFICERS. (a) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) CHIEF EXECUTIVE OFFICER. Subject to such provisionary powers, if any, as may be given by the Board of Directors to the Chairman of the Board of Directors, if any, the Chief Executive Officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board of Directors, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of Chief Executive Officer of a corporation and shall have such powers and duties as may be prescribed by the Board of Directors or these Bylaws. (c) PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board of Directors, if any, or the Chief Executive Officer, the President shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of President of a corporation and such other powers and duties as we may be prescribed by the Board of Directors or these Bylaws. (d) VICE PRESIDENTS. In the absence or disability of the Chief Executive Officer and President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as form time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of these Board of Directors (e) SECRETARY. The Secretary shall keep or cause to be kept, at the the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all 13 14 stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. (f) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President, the Chief Executive Officer, or the directors, upon request, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 30. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. Section 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION 14 15 Section 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chief Executive Officer, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors or the Chief Executive Officer, or the President or any 15 16 Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 36. TRANSFERS. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more 16 17 classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. Section 37. FIXING RECORD DATES. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) Prior to the Initial Public Offering, in order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. 17 18 (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman or Vice Chairman of the Board of Directors, or the Chief Executive Officer, or the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the 18 19 person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS Section 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR Section 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. 19 20 ARTICLE XI INDEMNIFICATION Section 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its directors to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d). (b) OTHERS. The corporation shall have power to indemnify its officers, employees and other agents as set forth in the Delaware General Corporation Law. (c) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer or officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal 20 21 counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers and officers under this Section 43 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer or officer. Any right to indemnification or advances granted by this Section 43 to a director or executive officer or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation. (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official 21 22 capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Section 43 shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) INSURANCE. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43. (h) AMENDMENTS. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Section 43 in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) SAVING CLAUSE. If this Section 43 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. (j) CERTAIN DEFINITIONS. For the purposes of this Section 43, the following definitions shall apply: (i) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (ii) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so 22 23 that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section 43. ARTICLE XII NOTICES Section 44. NOTICES. (a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. 23 24 (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two (2) consecutive annual meetings, or (ii) all, and at least two (2), payments (if sent by first class mail) of dividends or interest on securities 24 25 during a twelve-(12) month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENT Section 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. The Board of Directors shall also have the power to adopt, amend or repeal Bylaws. ARTICLE XIV LOANS TO OFFICERS Section 46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE XV MISCELLANEOUS Section 47. ANNUAL REPORT. 25 26 (a) Subject to the provisions of paragraph (b) of this Section 47, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than one hundred (100) stockholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the Exchange Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than one hundred (100) holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 26 EX-4.1 7 FORM OF STOCK CERTIFICATE 1 EXHIBIT 4.1 EGROUPS, INC. A DELAWARE CORPORATION NUMBER <> *<>* SHARES COMMON STOCK This certifies that <> is the record holder of <> shares of COMMON STOCK of EGROUPS INC. transferable only on the books of said corporation by the holder, in person, or by duly authorized attorney, upon surrender of this certificate properly endorsed or assigned. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation and the Bylaws of the corporation and any amendments thereto, a copy of which is on file at the officer of the corporation and made part hereof as fully as though the provisions of the Certificate of Incorporation and Bylaws were imprinted in full on this certificate, to all of which the holder of this certificate, by acceptance hereof, assents. The corporation will furnish without charge to each stockholder who so requests, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. WITNESS, the Seal of the corporation and the signatures of its duly authorized officers this <> day of <>, 2000. - ----------------------------------- ----------------------------------- Marjorie Sennett, Chief Financial Michael Klein, President Officer EX-4.2 8 INVESTORS RIGHTS AGREEMENT 1 EXHIBIT 4.2 EGROUPS, INC. SECOND AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT This Second Amended and Restated Investors Rights Agreement (the "Agreement") is made as of the 14th day of December, 1999, by and among eGroups, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit A hereto, each of which is herein referred to as an "Investor," and Eric Archambeau, Mark Fletcher, Scott Hassan, Carl Page, Martin Roscheisen, and Scott Schamberger, each of whom is herein referred to as a "Founder." RECITALS WHEREAS, certain of the Investors (the "Existing Investors") hold the Company's Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock and possess certain registration rights, information rights and other rights pursuant to a First Amended and Restated Investors' Rights Agreement dated as of December 17, 1998, as amended on November 9, 1999, by and among the Company and such Existing Investors (the "Prior Agreement"); WHEREAS, the Existing Investors are holders of more than 50% of the "Registrable Securities" of the Company (as defined in the Prior Agreement) and desire to terminate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; WHEREAS, the Company and the purchasers of the Series D Preferred Stock (the "Series D Investors") have entered into a Series D Preferred Stock Purchase Agreement (the "Series D Purchase Agreement") of even date herewith pursuant to which the Company desires to sell to the Series D Investors and the Series D Investors desire to purchase from the Company shares of the Company's Series D Preferred Stock; WHEREAS, a condition to the Series D Investors obligations under the Series D Purchase Agreement is that the Company, the Founders and the Investors enter into this Agreement in order to provide the Investors with (i) certain rights to register shares of the Company's Common Stock issuable upon conversion of the Series D Preferred Stock held by the Investors, (ii) certain rights to receive or inspect information pertaining to the Company, and (iii) a right of first offer with respect to certain issuances by the Company of its securities; WHEREAS, the Company, the Existing Investors and the Founders each desire to induce the Series D Investors to purchase shares of Series D Preferred Stock pursuant to the Series D Purchase Agreement by agreeing to the terms and conditions set forth herein; AGREEMENT NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the Existing Investors hereby agree that the Prior Agreement shall be terminated and be 2 superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows: 1. REGISTRATION RIGHTS. The Company and the Investors covenant and agree as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means (i) the shares of Common Stock issuable or issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock (such shares of Common Stock are collectively referred to hereinafter as the "Stock"), (ii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Stock, and (iii) the shares of Common Stock issued to the Founders (the "Founders' Stock"), provided, however, that for the purposes of Section 1.2 or 1.4 the Founders' Stock shall not be deemed Registrable Securities and the Founders shall not be deemed Holders and provided, further, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which his or her rights under this Agreement are not assigned. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof; (e) The term "Form S-3" means such form under the Act as in effect on the date hereof or any successor form under the Act; and (f) The term "SEC" means the Securities and Exchange Commission. -2- 3 1.2 REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) June 19, 2002, or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration covering shares of Common Stock to be sold by the Company having an aggregate offering price of at least $15,000,000, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use its reasonable best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.5. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder. (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; -3- 4 provided, however, that the Company may not utilize this right more than once in any twelve (12)-month period. (d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date (A) one hundred eighty (180) days after the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (B) ninety (90) days after the effective date of a registration subject to Section 1.3; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below. 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and -4- 5 (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 1.4; (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (vi) during the period one hundred eighty (180) days after the effective date of a registration statement subject to Section 1.3. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such -5- 6 registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Use its reasonable best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters -6- 7 in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.6 FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(ii), whichever is applicable. 1.7 EXPENSES OF REGISTRATION. (a) DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. (b) COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.11), including (without limitation) all registration, filing, and qualification fees, printers' and accounting fees relating or apportionable thereto and the reasonable fees and disbursements of one counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, but excluding underwriting discounts and commissions relating to Registrable Securities. (c) REGISTRATION ON FORM S-3. All expenses incurred in connection with a registration requested pursuant to Section 1.4, including (without limitation) all registration, filing, qualification, printers' and accounting fees and the reasonable fees and -7- 8 disbursements of counsel for the selling Holder or Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders), but in no event shall (a) the amount of securities (not including Founders' Stock) of the selling Holders included in the offering be reduced unless the securities of all other selling stockholders (including Founders) are excluded entirely, and (b) the amount of securities (not including Founders' Stock) of the selling Holders included in the offering be reduced below twenty-five percent (25%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities, in which case, the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder's securities are included. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Selling Stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.9 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations -8- 9 (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.9(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be -9- 10 represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided, that, in no event shall any contribution by a Holder under this Subsection 1.9(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to -10- 11 utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of at least one hundred fifty thousand (150,000) shares of such securities (as adjusted to reflect stock dividends, stock splits and recapitalizations); provided however, that no transfer will be made to a competitor of the Company (as determined by the Board of Directors); and provided further, that the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. The provisions of this Section 1.11 shall not apply to (a) a transfer of any Registrable Securities not involving a change in beneficial ownership, or (b) transactions involving the distribution without consideration of Registrable Securities by the Holders to any of its affiliated funds or entities, partners or members, or retired partners or members, or to the estate of any of its partners or members or retired partners or members. 1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, excluding Registrable Securities held by the Founders, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. -11- 12 1.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company's initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock of the Company (whether such shares or any such securities are then owned by the Holder or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering provided that such registration statement is declared effective; and (b) all officers and directors of the Company, all two-percent security holders, and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and each Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 1.13. Notwithstanding the foregoing, the obligations described in this Section 1.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 1.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (a) three (3) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (b) with respect to any Holder of Registrable Securities (i) such time as Rule 144 or another similar exemption under the Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration or (ii) at such time as such Holder holds Registrable Securities constituting less than one percent (1%) of the outstanding voting stock of the Company. -12- 13 2. COVENANTS OF THE COMPANY. 2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each Investor holding, and to transferees of, at least three hundred thousand (300,000) shares of Registrable Securities (as adjusted to reflect stock dividends, stock splits and recapitalizations) (each a "Major Investor"): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP") and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; (c) with respect to the financial statements called for in subsection (b) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors determines that it is in the best interest of the Company to do so; and (d) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Major Investor or any assignee of the Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this subsection (d) or any other subsection of Section 2.1 to provide information which it deems in good faith to be a trade secret or similar confidential information. 2.2 INSPECTION. The Company shall permit each Major Investor, at such Major Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.3 SBA REGULATORY COMPLIANCE COOPERATION. In the event that Bank of America Ventures determines that it has a Regulatory Problem (as defined below), it -13- 14 shall have the right to transfer its Registrable Securities without regard to any restrictions on transfer set forth in this Agreement or the Purchase Agreement (provided that the transferee agrees to become a party to each such agreement), and the Company shall take all such actions as are reasonably requested by Bank of America Ventures in order to (i) effectuate and facilitate any transfer by it of any securities of the Company then held by it to any person designated by Bank of America Ventures, (ii) permit Bank of America Ventures (or any of its affiliates) to exchange all or any portion of any voting security then held by it on a share-for-share basis for shares of a nonvoting security of the Company, which nonvoting security shall be identical in all respects to the voting security exchanged for it, except that it shall be nonvoting and shall be convertible into a voting security on such terms as are requested by it in light of regulatory considerations then prevailing, and (iii) amend this Agreement, as amended from time to time, to effectuate and reflect the foregoing. The parties to this Agreement agree to vote all of the Company's securities held by them in favor of such amendments and actions. For purposes of this Agreement, a "Regulatory Problem" means any set of facts or circumstances wherein it has been asserted by any governmental regulatory agency that Bank of America Ventures is not entitled to hold, or exercise any significant right with respect to, the underlying securities into which the Series D Preferred Stock are convertible. 2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, "Major Investor" includes any partners and affiliates of an Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) Within fifteen (15) calendar days after delivery of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Major Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). The Company shall promptly, in writing, inform each Major Investor that purchases all the shares available to it (each, a "Fully-Exercising Investor") of any other Major Investor's failure to do likewise. During the ten (10)-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or -14- 15 exercisable securities then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). (c) The Company may, during the forty-five (45)-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. (d) The right of first offer in this paragraph 2.4 shall not be applicable (i) to the issuance or sale of shares of Common Stock (or options therefor) to employees, consultants and directors, pursuant to plans or agreements approved by the Board of Directors for the primary purpose of soliciting or retaining their services, or (ii) to or after consummation of a bona fide, firmly underwritten public offering of shares of Common Stock, or (iii) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, or (iv) to the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or (v) to the issuance of securities to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, or similar transactions other than for primarily equity financing purposes, or (vi) to the issuance or sale of the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock. 2.5 TERMINATION OF INFORMATION, INSPECTION AND SBA COVENANTS. The covenants set forth in Section 2.1, Section 2.2 and Section 2.3 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, whichever event shall first occur. 3. MISCELLANEOUS. 3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or any Common Stock issued upon conversion thereof). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. -15- 16 3.2 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of laws. 3.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 3.5 NOTICES. Unless otherwise provided, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram, or confirmed fax or email, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto or as subsequently modified by written notice. 3.6 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement, including the rights of Major Investors set forth in Section 2, may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding, not including the Founders' Stock; provided that if such amendment has the effect of affecting the Founders' Stock (a) in a manner different than securities issued to the Investors and (b) in a manner adverse to the interests of the holders of the Founders' Stock, then such amendment shall require the consent of the holder or holders of a majority of the Founders' Stock. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 3.8 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (x) such provision shall be excluded from this Agreement, (y) the balance of the Agreement shall be interpreted as if such provision were so excluded and (z) the balance of the Agreement shall be enforceable in accordance with its terms. 3.9 AGGREGATION OF STOCK. All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. -16- 17 [Signature Pages Follow] -17- 18 The parties have executed this SECOND AMENDED INVESTORS RIGHTS AGREEMENT as of the date first above written. COMPANY: EGROUPS, INC. ---------------------------------------- Name: Michael Klein Title: President and Chief Executive Officer Address: 350 Brannan Street San Francisco, CA 94107 INVESTORS: SIGNATURE PAGE TO INVESTORS RIGHTS AGREEMENT 19 FOUNDERS: ---------------------------------------- Eric Archambeau ---------------------------------------- Mark Fletcher ---------------------------------------- Scott Hassan ---------------------------------------- Carl Page ---------------------------------------- Martin Roscheisen ---------------------------------------- Scott Schamberger SIGNATURE PAGE TO INVESTORS RIGHTS AGREEMENT EX-4.3 9 WARRANT AGREEMENT 1 EXHIBIT 4.3 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT To Purchase Shares of the Series B Preferred Stock of EGROUPS, INC. Dated as of June 23,1999 (the "Effective Date") WHEREAS, eGroups, Inc., a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of June 23, 1999, Equipment Schedule No. VL-1 and VL-2 dated as of June 23, 1999, and related Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Series B Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, such number of fully paid and non-assessable shares of the Company's Series B Preferred Stock ("Preferred Stock") equal to $60,000 divided by the Exercise Price. The Exercise Price shall be the price per share of the Next Round of financing, provided such financing is completed on or before December 1, 1999. In the event the Next Round is completed after December 1, 1999, the Exercise Price shall be $1.43955 per share. Next Round shall be defined as (i) preferred stock financing of at least $2,000,000, (ii) the sale, conveyance disposal, or encumbrance of all or substantially all of the Company's property or business or Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation).or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of Company is disposed of ("Merger Event"), provided that a Merger Event shall not apply to a merger effected exclusively for the purpose of changing the domicile of the company or (iii) an initial public offering of the Company's Common Stock which such public offering has been declared effective by the SEC. Notwithstanding the foregoing, in the event the Next Round is a transaction as defined in (ii) or (iii) above, the Exercise Price shall be the greater of (a) a 30% discount to the price per share in such 2 financing or (b) $1.43955, The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) five (5) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is earlier. Notwithstanding the term of this Warrant Agreement fixed pursuant to the above paragraph, the right to purchase Preferred Stock as granted herein shall expire, if not previously exercised immediately upon the closing of a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (the "Merger") provided in which Warrantholder realizes a value for its shares equal to or greater than $4.31865 per share. The Company shall notify the Warrantholder if the Merger is proposed in accordance with the terms of 8(f) hereof, and if the Company fails to deliver such written notice, then notwithstanding anything to the contrary in this Warrant Agreement, the rights to purchase the Company's Preferred Stock shall not expire until the Company complies with such notice provisions. Such notice shall also contain such details of the proposed Merger as are reasonable in the circumstances. If such closing does not take place, the Company shall promptly notify the Warrantholder that such proposed transaction has been terminated, and the Warrantholder may rescind any exercise of its purchase rights promptly after such notice of termination of the proposed transaction If the exercise of Warrants has occurred after the Company notified the Warrantholder that the Merger was proposed. In the event of such rescission, the Warrants will continue to be exercisable on the same terms and conditions contained herein. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) - ---------- -2- 3 A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering,and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. -3- 4 Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the -4- 5 Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit IV (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. -5- 6 (f) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least ten (10) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least ten (10) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least ten (10) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (g) Timely Notice. Failure to timely provide such notice required by subsection (f) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholders rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to -6- 7 Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 20,000,000 shares of Common Stock, of which 5,812,399 shares are issued and outstanding; (B) 1,620,000 shares of Series A Preferred Stock, of which 1,620,000 shares are issued and outstanding and are convertible into 1,620,000 shares of Common Stock at $0.50 per share; and (C) 3,600,000 shares of Series B Preferred Stock, of which 3,556,772 shares are issued and outstanding and convertible into 3,556,772 shares of Common Stock at $1.43955 per share. (ii) The Company has reserved (A) 1,900,000 shares of Common Stock for issuance under its 1998 Stock Option Plan, under which 768,450 options are outstanding. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) Except as set forth in the First Amended and Restated Investors Rights Agreement dated December 17, 1998 (the "Rights Agreement"), no shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock. (e) Insurance. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. M Other Commitments to Register Securities. Except as set forth in the Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. -7- 8 (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if -8- 9 such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "l 934 Act" ), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the 'Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MARKET STANDOFF. Warrantholder hereby agrees that, during the period of duration (up to, but not exceeding, one hundred eighty (180) days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell(including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: -9- 10 (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company, all one-percent security holders, and all other persons with registration rights enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop - -transfer instructions with respect to the securities of each shareholder until the end of such period, and Warrantholder agrees that, if so requested, Warrantholder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 12. Notwithstanding the foregoing, the obligations described in this Section 12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 13. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Goveminq Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease Administration, cc: Legal Department, Attention: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088) and (ii) to the Company at 520 Third Street, Suite 225, San Francisco, CA 94107, Attention: Carl Page (and/or if by facsimile, (415) 449-3594) cc: Perkins Coie, 135 Commonwealth Drive, Menlo Park, CA, 94025, Attention: Ralph L Arnheim, III or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for -10- 11 any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase price for the Leases referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion from the Company's counsel with respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. Company: EGROUPS, INC. By: Title: Warrantholder: COMDISCO, INC. By: Title: -11- EX-10.2 10 FORM OF LOCK - UP AGREEMENT 1 EXHIBIT 10.2 Exhibit A LOCK-UP AGREEMENT March ___, 2000 eGroups, Inc. 350 Brannan Street San Francisco, CA 94107 Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities Inc. FleetBoston Robertson Stephens Inc. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: The undersigned understands that Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities, Inc. and FleetBoston Robertson Stephens Inc., as Representatives of the several underwriters (the "UNDERWRITERS"), propose to enter into an Underwriting Agreement with eGroups, Inc. (the "COMPANY"), providing for the initial public offering (the "INITIAL PUBLIC OFFERING") of common stock, par value $.001 per share (the "COMMON STOCK"), of the Company. To induce the Underwriters that may participate in the Initial Public Offering to continue their efforts in connection with the Initial Public Offering, the undersigned, form the date hereof and through the end of the 180-day period after the date of the final prospectus relating to the Initial Public Offering (the "FINAL PROSPECTUS"): (i) agrees not to (x) offer , pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, other wise transfer or dispose of, directly or indirectly, any shares of Common Stock (other than shares of common stock purchased in the open market by the undersigned on or after the closing of the Initial Public Offering) or any securities convertible into or exercisable or exchangeable for Common Stock (including, without limitation, shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange 2 Commission) (collectively, "COMPANY SECURITIES") or (y) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Company Securities (regardless of whether any of the transactions described in clause (x) or (y) is to be settled by the delivery of Company Securities, in cash or otherwise), without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation; (ii) agrees not to make any demand for, or exercise any right with respect to, the registration of any Company Securities, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation; and (iii) authorizes the Company to cause the transfer agent to decline to transfer and/or to note stop transfer restrictions on the transfer books and records of the Company with respect to any Company Securities for which the undersigned is the record holder and, in the case of any such shares or securities for which the undersigned is the beneficial but not the record holder, agrees to cause the record holder to cause the transfer agent to decline to transfer and/or to note stop transfer restrictions on such books and records with respect to such shares or securities; provided further, that the restrictions in clause (i) above shall cease to apply to (A) 25% of the Company Securities beneficially owned by the undersigned on the date of the Final Prospectus upon the later to occur of (I) the end of the 90-day period after the date of the Final Prospectus or (II) the second trading day following the first public release of the Company's quarterly results after the date of the Final Prospectus, and (B) an additional 25% of the Company Securities beneficially owned by the undersigned on the date of the Final Prospectus, upon the end of the 135-day period after the date of the Final Prospectus if, in the case of both clauses (A) and (B), (X) the reported last sale price of the Common Stock on the Nasdaq National Market is at least twice the price per share in the Initial Public Offering for 20 of the 30 trading days ending on (a) in the case of clause (A) above, the later of (1) the last trading day of the 90-day period after the date of the Final Prospectus or (2) the second trading day following the first public release of the Company's quarterly results after the date of the Final Prospectus and (b) in the case of clause (B) above, the last trading day of the 135-day period after the date of the Final Prospectus and (Y) the undersigned is not, and has not been since the date of the Final Prospectus, an officer of the Company; provided further , that the undersigned agrees to give Donaldson, Lufkin & Jenrette Securities Corporation and the Company written notice three business days prior to taking any of the actions set forth in clause (i) above pursuant to the preceding proviso and to execute any such action only through Donaldson, Lufkin & Jenrette Securities Corporation or any of its affiliates acting as broker, unless otherwise agreed in writing by of Donaldson, Lufkin & Jenrette Securities Corporation. The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into the agreements set forth herein, and that, upon request, the undersigned will execute any additional documents necessary or desirable in connection with the enforcement 3 hereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors, and assigns of the undersigned. Very truly yours, ------------------------------------ Name: (Please Print or type) Address: Social Security or Taxpayer Identification No.: Number of shares of Common Stock owned: Number and name of securities that are convertible into, or exercisable or exchangeable for, Common Stock: Number of shares of Common Stock issuable upon conversion, exercise or exchange of such securities: EX-10.3 11 1998 STOCK OPTION PLAN 1 EXHIBIT 10.3 EXHIBIT A EGROUPS, INC. 1998 STOCK OPTION PLAN EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT This Agreement ("Agreement") is made as of ______________, by and between eGroups, Inc., a Delaware corporation (the "Company"), and <> ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the 1998 Stock Option Plan. 1. EXERCISE OF OPTION. Subject to the terms and conditions hereof, Purchaser hereby elects to exercise his or her option to purchase ______________ shares of the Common Stock (the "Shares") of the Company under and pursuant to the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement dated <> (the "Option Agreement"). Of these Shares, Purchaser has elected to purchase _______________ of those Shares which have become vested as of the date hereof under the Vesting Schedule set forth in the Notice of Stock Option Grant (the "Vested Shares") and _____________ Shares which have not yet vested under such Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares shall be $<> per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, (d) subject to Section 153 of the Delaware General Corporation Law, delivery of a promissory note in the form attached as Exhibit C to the Option Agreement (or in any form acceptable to the Company), or (e) a combination of the foregoing. If Purchaser delivers a promissory note as partial or full payment of the purchase price, Purchaser will also deliver a Pledge and Security Agreement in the form attached to Exhibit D to the Option Agreement (or in any form acceptable to the Company). 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below). After any Shares have been released from such Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) REPURCHASE OPTION. (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including death or disability), 2 with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days from such date to repurchase all or any portion of the Unvested Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock dividends and the like). (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company, by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) One hundred percent (100%) of the Unvested Shares shall initially be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting Schedule set forth in the Notice of Stock Option Grant until all Shares are released from the Repurchase Option. Fractional shares shall be rounded to the nearest whole share. (b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(b) (the "Right of First Refusal"). (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(b) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), -2- 3 or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(b), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(b) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (c) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(b)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the Fair Market Value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(c)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (d) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the Parent or a 100% -3- 4 owned Subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment. (e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (f) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(c) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). (g) MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Attachment A executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or the Secretary's designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. -4- 5 (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this -5- 6 Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. (d) REMOVAL OF LEGEND. When all of the following events have occurred, the Shares then held by Purchaser will no longer be subject to the legend referred to in Section 6(a)(ii): (i) the termination of the Right of First Refusal; (ii) the expiration or termination of the market standoff provisions of Section 3(g) (and of any agreement entered pursuant to Section 3(g)); and (iii) the expiration or exercise in full of the Repurchase Option. After such time, and upon Purchaser's request, a new certificate or certificates representing the Shares not repurchased shall be issued without the legend referred to in Section 6(a)(ii), and delivered to Purchaser. 7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income for a Nonstatutory Stock Option and as alternative minimum taxable income for an Incentive Stock Option the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income and alternative minimum tax treatment under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he or she will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto as Attachment B. Purchaser further agrees that he or she will execute and submit with the Acknowledgment a copy of the 83(b) Election attached hereto as Attachment C (for income tax purposes in connection with the early exercise of a Nonstatutory Stock Option) or Attachment D (for alternative minimum tax purposes in connection with the early exercise of an incentive stock option) if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. -6- 7 9. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] -7- 8 The parties have executed this Agreement as of the date first set forth above. COMPANY: EGROUPS, INC. By: ----------------------------------------- Marjorie Sennett, Chief Financial Officer Address: 350 Brannan Street San Francisco, CA 94107 PURCHASER: <> -------------------------------------------- (Signature) Address: <
> I, ______________________, spouse of <>, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. -------------------------------------------- Spouse of <> EX-10.5 12 ONELIST 1998 OPTION PLAN 1 EXHIBIT 10.5 ONELIST, INC. 1998 STOCK PLAN (AMENDED AS OF DECEMBER 17, 1998) 1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means ONElist, Inc., a California corporation. (h) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity. (i) "Director" means a member of the Board of Directors of the Company. 2 (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. -2- 3 (p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. (r) "Option Agreement" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions' of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (s) "Option Exchange Program" means a program whereby outstanding Options are exchanged for Options with a lower exercise price. (t) "Optioned Stock" means the Common Stock subject to an Option or a Stock Purchase Right. (u) "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (v) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (w) "Plan" means this 1998 Stock Plan. (x) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (y) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (z) "Service Provider" means an Employee, Director or Consultant. (aa) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (bb) "Stock Purchase Right" means a right to purchase Common Stock pursuant to Section 11 below. (cc) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the -3- 4 Plan is 1,165,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Administrator. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; -4- 5 (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (viii) to initiate an Option Exchange Program; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. Eligibility. (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a -5- 6 Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. -6- 7 (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise, Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (I) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. -7- 8 Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and -8- 9 conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options and Stock Purchase Rights. The Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase. (c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. -9- 10 12. Adjustments upon Changes in Capitalization, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a -10- 11 merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the. Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. -11- 12 (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Share. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. 19. Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -12- EX-10.7 13 FORM OF STOCK OPTION AGREEMENT 1 EXHIBIT 10.7 EGROUPS, INC. 1998 STOCK OPTION PLAN STOCK OPTION AGREEMENT 1. GRANT OF OPTION. eGroups, Inc., a Delaware corporation (the "Company"), hereby grants to <> ("Optionee") an option (the "Option") to purchase a total number of shares of Common Stock (the "Shares") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to the terms, definitions and provisions of the eGroups, Inc. 1998 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. If the aggregate Fair Market Value of the shares with respect to which the Option first becomes exercisable during any calendar year (under the Option and all other Incentive Stock Options you hold) exceeds $100,000, the excess portion will be treated as a nonstatutory stock option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for Incentive Stock Options. 2. EXERCISE OF OPTION. This Option shall be exercisable during its Term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Section 9 of the Plan as follows: (a) RIGHT TO EXERCISE. (i) This Option may be exercised in whole or in part at any time after the Date of Grant, as to Shares which have not yet vested under the vesting schedule indicated on the Notice of Stock Option Grant; provided, however, that Optionee shall execute as a condition to such exercise of this Option, the Early Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If Optionee chooses to exercise this Option solely as to Shares which have vested under the vesting schedule indicated on the Notice of Stock Option Grant, Optionee shall complete and execute the form of Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit B ( the "Exercise Agreement"). Notwithstanding the foregoing, the Company may in its discretion prescribe or accept a different form of notice of exercise and/or stock purchase agreement if such forms are otherwise consistent with this Agreement, the Plan and then-applicable law. (ii) This Option may not be exercised for a fraction of a share. (iii) In the event of Optionee's death, disability or other termination of employment or consulting relationship, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(iv) below. (iv) In no event may this Option be exercised after the Expiration Date of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. This Option shall be exercisable by execution and delivery of the Early Exercise Agreement or the Exercise Agreement, whichever is applicable, or of any other 2 written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee: (a) cash; (b) check; (c) surrender of other shares of Common Stock of the Company which (i) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by Optionee for more than 6 months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (d) if there is a public market for the Shares and they are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the Exercise Price. (e) subject to Section 153 of the Delaware General Corporation Law, a promissory note in the form attached to this Agreement as Exhibit C, or in any other form approved by the Company. 4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set forth in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at such Termination Date, or if Optionee does not exercise this Option within the Termination Period, the Option shall terminate. -2- 3 6. DISABILITY OF OPTIONEE. (a) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), exercise this Option to the extent he or she was entitled to exercise it at such Termination Date. To the extent that Optionee was not entitled to exercise the Option on the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(a), the Option shall terminate. (b) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's consulting relationship or Continuous Status as an Employee as a result of a disability not constituting a total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), exercise the Option to the extent Optionee was entitled to exercise it as of such Termination Date; provided, however, that if this is an Incentive Stock Option and Optionee fails to exercise this Incentive Stock Option within three months from the Termination Date, this Option will cease to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will be treated for federal income tax purposes as having received ordinary income at the time of such exercise in an amount generally measured by the difference between the Exercise Price for the Shares and the Fair Market Value of the Shares on the date of exercise. To the extent that Optionee was not entitled to exercise the Option at the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(b), the Option shall terminate. 7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during the Term of this Option and while an Employee or Consultant of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, or (b) within 30 days after Optionee's Termination Date, the Option may be exercised at any time within six months following the date of death (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the Termination Date. 8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 9. TERM OF OPTION. This Option may be exercised only within the Term set forth in the Notice of Stock Option Grant, subject to the limitations set forth in Section 7 of the Plan. 10. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of certain of the federal and California tax consequences of exercise of this Option and disposition of the Shares under the laws in effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. -3- 4 (a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies as an Incentive Stock Option, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax (up to a maximum of 28%) in the year of exercise. (b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not qualify as an Incentive Stock Option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock Option, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. In either case, the long-term capital gain will be taxed for federal income tax and alternative minimum tax purposes at a maximum rate of 28% if the Shares are held more than one year but less than 18 months after exercise and at 20% if the Shares are held more than 18 months after exercise. If Shares purchased under an Incentive Stock Option are disposed of within one year after exercise or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. (d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION SHARES. If the Option granted to Optionee herein is an Incentive Stock Option, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee acknowledges and agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee. 11. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon exercising a Nonstatutory Stock Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares over the Exercise Price. However, the timing of this income recognition may be deferred for up to six months if Optionee is subject to Section 16 of the Exchange Act. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option by one or some combination of the following methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (i) in the case of Shares previously acquired from the Company, have been owned by Optionee for more than six months on the date of surrender, and (ii) have a Fair Market Value on the date -4- 5 of surrender equal to or greater than Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. For this purpose, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). If Optionee is subject to Section 16 of the Exchange Act (an "Insider"), any surrender of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"). All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. 12. MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Optionee agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. [Signature Page Follows] -5- 6 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one document. EGROUPS, INC. By: -------------------------------------- Marjorie Sennett, Chief Financial Officer OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Dated: --------------------- -------------------------------------- <> EX-10.8 14 FORM OF EARLY EXERCISE AGREEMENT 1 EXHIBIT 10.8 EXHIBIT B EGROUPS, INC. 1998 STOCK OPTION PLAN EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT This Agreement ("Agreement") is made as of ______________, by and between eGroups, Inc., a Delaware corporation (the "Company"), and ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the 1998 Stock Option Plan. 1. EXERCISE OF OPTION. Subject to the terms and conditions hereof, Purchaser hereby elects to exercise his or her option to purchase __________ shares of the Common Stock (the "Shares") of the Company under and pursuant to the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement dated <>, (the "Option Agreement"). The purchase price for the Shares shall be $<> per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, (d) subject to Section 153 of the Delaware General Corporation Law, delivery of a promissory note in the form attached as Exhibit C to the Option Agreement (or in any form acceptable to the Company), or (e) a combination of the foregoing. If Purchaser delivers a promissory note as partial or full payment of the purchase price, Purchaser will also deliver a Pledge and Security Agreement in the form attached to Exhibit D to the Option Agreement (or in any form acceptable to the Company). 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws. (a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the "Right of First Refusal"). (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or 2 otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(a), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(a) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (b) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(a)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of -2- 3 the purchase price paid by Purchaser pursuant to this Agreement or the Fair Market Value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(b)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (c) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the Parent or a 100% owned Subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment. (d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (e) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). (f) MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. -3- 4 (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this -4- 5 Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. (d) REMOVAL OF LEGEND. When all of the following events have occurred, the Shares then held by Purchaser will no longer be subject to the legend referred to in Section 5(a)(ii): (i) the termination of the Right of First Refusal; and (ii) the expiration or termination of the market standoff provisions of Section 3(f) (and of any agreement entered pursuant to Section 3(f)). After such time, and upon Purchaser's request, a new certificate or certificates representing the Shares not repurchased shall be issued without the legend referred to in Section 5(a)(ii), and delivered to Purchaser. 6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 7. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and -5- 6 obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] -6- 7 The parties have executed this Agreement as of the date first set forth above. COMPANY: EGROUPS, INC. By: -------------------------------------- Marjorie Sennett, Chief Financial Officer Address: 350 Brannan Street San Francisco, CA 94107 PURCHASER: ----------------------------------------- (Signature) Address: <
> I, ______________________, spouse of <>, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. ---------------------------------------- Spouse of<> EX-10.9 15 NOTICE OF STOCK OPTION GRANT 1 EXHIBIT 10.9 EGROUPS, INC. 1998 STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT <> <
> You have been granted an option to purchase Common Stock ("Common Stock") of eGroups, Inc. (the "Company") as follows: Board Approval Date: <> Date of Grant (Later of Board <> Approval Date or Commencement of Employment/Consulting): Vesting Commencement Date: <> Exercise Price Per Share: $<> Total Number of Shares Granted: <> Total Exercise Price: $<> Type of Option: <> Incentive Stock Option -------- ("ISO") <> Nonstatutory Stock Option -------- ("NSO") Term/Expiration Date: <> Vesting Schedule: This Option may be exercised immediately, in whole or in part and shall vest in accordance with the following schedule: 25% of the Shares subject to the Option shall vest on the twelve (12) month anniversary of the Vesting Commencement Date and 1/48 of the total number of Shares subject to the Option shall vest on the <>day of each month thereafter. 2 Termination Period: This Option may be exercised for 45 days after termination of employment or consulting relationship except as set out in Sections 6 and 7 of the Stock Option Agreement (but in no event later than the Expiration Date). By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the 1998 Stock Option Plan and the Stock Option Agreement, both of which are attached and made a part of this document. <> EGROUPS, INC.: By: - ------------------------------ ---------------------------------- Signature Marjorie Sennett, Chief Financial Officer - ------------------------------ Print Name -2- EX-10.10 16 EMPLOYMENT LETTER WITH MICHAEL KLEIN 1 EXHIBIT 10.10 www.onelist.com October 11, 1999 Michael B. Klein 1475 Terminal Way Suite E Reno, NV 89502 Dear Michael: We feel that you have what it takes to help ONElist, Inc. ("ONElist" or the "Company") achieve its future goals and maintain its success as the world's leading e-mail community service and would like you to join our team. I am pleased to offer you the position of President and CEO of ONElist. This letter (together with the Company's standard form of Employment, Confidential Information and Invention Assignment Agreement, the execution and delivery of which will be a condition of your employment) will confirm the terms of your employment with the Company. Your annual salary will be $150,000, paid bi-monthly. Additionally, you will be paid $15,000 for one year for travel expenses between Northern and Southern California. You are eligible to participate in the ONElist Incentive Stock Option (ISO) plan and will receive an option grant (in a separate document) to purchase 330,000 shares of ONElist common stock at $0.18 per share, subject to the vesting schedule and the terms and conditions of the Company Stock Option Plan and option agreement. The 330,000 shares equal 6% of ONElist's outstanding shares on a fully-diluted basis. Additionally, you will be granted a number of options after the close of the Company's Series B round of funding, with an exercise price equal to the then-current fair market value of the Company's common stock, that will bring your total number of granted shares to 6% of the total outstanding shares on a fully-diluted basis. These grants are subject to approval by the Company's Board of Directors. The terms of the Company's standard form of Stock Option Agreement allow for the exercise of unvested options. If you elect to exercise unvested options, the shares obtained upon such exercise shall be subject to a right of repurchase on behalf of the Company. Additionally, in the event you exercise unvested options you may choose to file an election with the Internal Revenue Service, within 30 days of the purchase of the shares, electing pursuant to Section 83(b) of the Internal Revenue Code to be taxed currently on any difference between the purchase price of the shares and their fair market value on the date of purchase. You should review the Company's form of Stock Option Agreement for the specific terms relating to the early exercise of stock options, and consult with your tax advisor regarding the advisability of an early exercise and the filing of an 83(b) election. ONElist agrees to use commercially reasonable efforts to obtain Directors and Officers insurance prior to your start date. ONElist agrees to make you a member of its Board of Directors. You will be reporting directly to the Board of Directors. As the President and CEO of ONElist, you will be expected to achieve the following objectives: 1) Close the next round of financing within 90 days from your start date, raising a minimum of $20,000,000 at a valuation acceptable to the Board of Directors. 2) Hire a CFO with IPO and public company experience within 90 days from your start date. 2 3) Meet quarterly revenue objectives for calendar year 2000 as approved by the Board. Projections will be approved at the first Board meeting after you become CEO. In the event that your employment is involuntarily terminated other than for "cause" or is "constructively terminated" (as such terms are defined below), twelve additional months of options will become vested and exercisable and you will be entitled to exercise your vested options for a period of three (3) months from the date of employment termination; provided, however, that if any such termination occurs more than eighteen (18) months from the date your employment commences with the Company (the "Effective Date") and is after a Change of Control (as defined below), the provisions set forth in the following paragraph shall control. If after a Change of Control (as defined below) of the Company, your employment with the Company is involuntary terminated other than for "cause" or is "constructively terminated" (as such terms are defined below) more than eighteen (18) months after the Effective Date, all of your unvested options will become vested and exercisable and you will be entitled to exercise your vested options for a period of three (3) months from the date of employment termination. For purposes of the foregoing: (a) Termination for "cause" means (i) the failure by you to substantially perform your material duties after a written demand for substantial performance is delivered to you by the Board of Director that specifically identifies the manner in which the Board of Directors believes that you have not substantially performed your duties, (ii) the failure (in material respect) by you to follow reasonable policies or directives established by the Board of Directors after written notice to you by the Board of Directors that you are not following such policies or directives, (iii) bad faith conduct that is materially detrimental to the Company, or (iv) the conviction of you of a felony. (b) Your employment with the Company will be deemed to have been "constructively terminated" if there shall occur (i) a reduction in your base salary other than a reduction that is part of a general reduction of officer salaries, (ii) a material change in your responsibility or authority, or (iii) an office relocation requiring a commute of greater than 50 miles. (c) For purposes of the foregoing, a "Change of Control" shall be deemed to have occurred if (i) the Company sells or otherwise disposes all of substantially all of its assets; (ii) there is a merger or consolidation of the Company with any other corporation or corporations, provided that the shareholders of the Company, as a group, do not hold, immediately after such event, more than 50% of the voting power of the surviving or successor corporation; or (iii) a person or entity, including any "person" as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but other than any of the investors in the Company as of the Effective Date, becomes the "beneficial owner" (as defined in the Exchange Act) of Common Stock of the Company representing 50% or more of the combined voting power of the voting securities of the Company (exclusive of persons who are now officers or directors of the Company). The company shall require any successor or assignee, in connection with any sale, transfer or other disposition of all substantially all of the Company's assets or business, whether by purchase, merger, consolidation or otherwise, expressly to assume and agree to perform the Company's obligations hereunder in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. You are also eligible for the following standard Company benefits: medical/ dental/ vision, life insurance, LTD, vacation, and holidays. You will receive more detailed information about these during your new employee orientation. 3 Benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc. TriNet is an employer services organization contracted by the Company to perform selected employer responsibilities on our behalf. As a result of ONElist's arrangement with TriNet, TriNet will be considered your employer of record for payroll, benefits, and other functions involving employer related administration, including your new hire enrollment processing. However, as ONElist is the company for which you will perform service, we will retain the right to control and direct your work, its results, and the manner and means by which your work is accomplished With the exception of the provision for at will employment described below, ONElist and/or TriNet may modify, revoke, suspend or terminate any of the terms, plans, policies and/or procedures described in the employee handbook or as otherwise communicated to you, in whole or in part, at any time, with or without notice, and ONElist may change or terminate the TriNet relationship at any time. As with all employees, your employment with ONElist is at will. This means that your terms and conditions of employment, including but not limited to termination, demotion, promotion, transfer, compensation, benefits, duties and location of work may be changed with or without cause, for any or no reason, and with or without notice. Your status as an at-will employee cannot be changed by any statement, promise, policy, course of conduct, writing or manual unless except through a written agreement signed by an officer authorized by the Board of Directors. Michael, we are looking forward to your joining the team and contributing to this exciting venture. We expect your start date to be 10/13/99. You may indicate your acceptance of this offer by signing the acknowledgment below and returning it to me by within five (5) days from the date of this letter, at which time this offer expires if not previously accepted. If you have any questions or concerns please do not hesitate to call. Sincerely, - ------------------------------ Mark Fletcher President/ CEO I accept the offer of employment as stated in this letter. - ------------------------------- 10/12/99 Addressee's Signature Date Enclosures: Duplicate Letter (for your files) EX-10.11 17 EMPLOYMENT LETTER WITH RICHARD CAREY 1 EXHIBIT 10.11 www.onelist.com SEPTEMBER 16, 1999 RICHARD CAREY 1230 PAYNE DRIVE LOS ALTOS, CA 94024 DEAR RICHARD: Congratulations! We feel that you have what it takes to help ONElist achieve its future goals and maintain its success as the world's leading e-mail community service and would like you to join our team. I am pleased to offer you the position of VICE PRESIDENT OF ENGINEERING at ONElist. Your salary will be based on an annual salary of $175,000, paid bi-monthly and you will receive a $5,000 signing bonus. You are eligible to participate in the ONElist Incentive Stock Option (ISO) plan and will receive an option grant (in a separate document) to purchase 82,000 shares of ONElist common stock, subject to the vesting schedule, terms and conditions of the Company' Stock Option Plan, option agreement. This grant is subject to approval by the Company's Board of Directors. In the event that within one year from the effective date of your employment with the company is involuntarily terminated other than for "cause" or is "constructively terminated" (as such terms are defined below), the first 25% of the option shares (20,500 shares) will become vested and exercisable and you will be entitled to exercise such portion of the Option for a period of three (3) months form the date of employment termination; provided, however, that if any such provisions of paragraph 6(a) below shall control. For purposes of the foregoing: Termination for "cause" means (A) the failure by you substantially to perform your material duties after a written demand for substantial performance is delivered to you by the Board of Director that specifically identifies the manner in which the Board of Directors believes that you have not substantially performed your duties, (B) the failure (in material respect) by you to follow reasonable policies or directives established by the board of Directors after written notice to you by the Board of Directors that you are not following such policies or directives, (C) bad faith conduct that is materially detrimental to the Company, or (D) the conviction of you of a felony. Your employment with the Company will be deemed to have been "constructively terminated" if there shall occurs (A) a reduction in your base salary other than a reduction that is part 2 of a general reduction of officer salaries, (B) a material change in your responsibility or authority, or (C) an office relocation requiring a commute greater than 50 miles. In addition, if within six (6) months after the Change of Control (as defined below) of the Company, your employment with the Company is involuntary terminate other than for "cause" of is "constructively terminated" (as such terms are defined above), a portion of the Option shares equivalent to an additional one (1) year of vesting (20,500 shares) from the date of portion of the option for a period of three (3) months from the date of employment termination; provided, however, that in no event shall such accelerated vesting permit you to exercise more than Change of Control occurred 18 months after the Effective Date and your employment were terminated under the circumstances set forth in this paragraph 20 months after the Effective Date, an additional four (4) months of vesting would occur. For purposes of the foregoing, a "Change of Control of the Company" shall be deemed to have occurred if (i) the Company sells or otherwise disposes all of substantially all of its assets; (ii) there is a merger or consolidation of the Company with any other corporation or corporations, provided that the shareholders of the Company, as a group, do not hold, immediately after such event, more than 50% of the voting power of the surviving or successor corporation; or (iii) a person or entity, including any "person" as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but other than any of the investors in the Company as of the Effective Date, becomes the "beneficial owner" (as defined in the Exchange Act) of Common Stock of the Company representing 50% or more of the combined voting power of the voting securities of the Company (exclusive of persons who are now officers or directors of the Company). The company shall require any successor of assignee, in connection with any sale, transfer or other disposition of all substantially all of the Company's assets or business, whether by purchase, merger, consolidation or otherwise, expressly to assume and agree to perform the Company's obligations hereunder in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. You are also eligible for the following standard Company benefits: medical/ dental/ vision, life insurance, LTD, vacation, and holidays. You will receive more detailed information about these during your new employee orientation. Benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc. TriNet is an employer services organization contracted by The Company to perform selected employer responsibilities on our behalf. As a result of ONElist's arrangement with TriNet, TriNet will be considered your employer of record for payroll, benefits, and other functions involving employer related administration, including your new hire enrollment processing. However, as ONElist is the company for which you will perform service, we will retain the right to control and direct your work, its results, and the manner and means by which your work is accomplished. With the exception of the provision for at will employment described below, ONElist and/or TriNet may modify, revoke, suspend or terminate any of the terms, plans, policies and/or procedures described in the employee handbook or as otherwise communicated to you, in whole or part, at any -2- 3 time, with or without notice, and ONElist may change or terminate the TriNet relationship at any time. As with all employees, your employment with ONElist is at will. This means that your terms and conditions of employment, including but not limited to termination, demotion, promotion, transfer, compensation, benefits, duties and location of work may be changed with or without cause, for any or no reason, and with or without notice. Your status as an at-will employee cannot be changed by any statement, promise, policy, course of conduct, writing or manual unless except through a written agreement signed by the President/CEO of the company. RICHARD, we are looking forward to your joining the team and contributing to this exciting venture. Your start date is SEPTEMBER 27, 1999. You may indicate your acceptance of this offer by signing the acknowledgment below and returning it to me by within five (5) days from the date of this letter, at which time this offer expires if not previously accepted. If you have any questions or concerns please do not hesitate to call. Sincerely, Mark Fletcher President/ CEO I accept the offer of employment as stated in this letter. Addressee's Signature Enclosures: Duplicate Letter (for your files) -3- EX-10.12 18 EMPLOYMENT LETTER WITH MARJORIE SENNETT 1 EXHIBIT 10.12 June 7th, 1999 Marjorie Sennett 13251 Denara Rd. San Diego, CA 92130 Dear Marjorie, It is my pleasure to offer you a position at eGroups Inc., working with us to make our Internet group communication service pervasive world-wide. Title: Senior Vice President and Chief Financial Officer Salary: $200K per annum Loan: $100K forgiven over 4 years Stock options: 232,000 The terms of your new position with the Company are as set forth below: 1. POSITION (a) You will take on the responsibilities of Chief Financial Officer. You will report to the CFO. (b) You agree to the best of your ability and experience that you will at all times conscientiously perform the duties and obligations required of and from you pursuant to the extent and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote substantially all of your business time and attention to the business of the Company, you will not render commercial or professional services of any nature to any person or organization for compensation, without the prior written consent of the Company's Chief Executive Officer or Board of Directors, and you will not directly or indirectly engage or participate in any business that is directly competitive in any, manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on July 5th, 1999. 3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you will be required to provide the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 4. COMPENSATION. (a) Salary. Your annual salary will be $200,000.00, paid every two weeks pursuant to the Company's regular payroll policy (or in the same manner as other employees of the Company). (b) Loan. You will receive an interest-free loan of $100,000.00, on your Start Date. This loan is to be paid back within 120 days upon termination of your employment with the Company, but the amount to be paid back will be reduced by 1/48th of 100,000 per month of your full time employment with the Company. 2 (b) Benefits. You will be eligible to Participate in the health, medical, dental or life insurance programs and the 401(k) and employee stock purchase programs established by the Company, on the same basis as other similarly compensated employees. (c) Vacation. You will be entitled to twenty-one (21) days of paid vacation after one (1) year of employment with the Company, accruing at a rate of 1.75 days of vacation per month of service. Your manager may also grant additional vacation time. (d) Moving Expenses. The Company will cover reasonable expenses for moving to the Bay Area, including packing and moving of household goods, up to three month temporary housing, up to three house hunting trips for the family, and weekly travel for you to and from San Diego until your family is relocated. In addition the Company will gross up year end W-2 income to cover nondeductible relocation expenses. (e) Termination. Separate from the case of a Merger of the Company, if your employment is terminated by the Company without Cause, a reasonable severance package shall be worked out. If Your employment is terminated before the first anniversary of the commencement of your employment, the Company's right of repurchase shall immediately lapse with respect to 1/48th of the total number of Shares or each month of employment completed. 5. OPTION TO PURCHASE COMMON STOCK. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase 232,000 shares of the Company's Common Stock ("Shares") under the Company's 1998 Employee Stock Option Plan established by the Board of Directors. The option shall have an exercise purchase price equal to the fair market value on the date of the grant as determined in good faith by the Board of Directors of the Company. These Shares issued upon the exercise of the option will be subject to the Company's right of repurchase in the event of the termination of your employment with the Company. This repurchase right will lapse as to 1/4th of the total number of Shares on the first anniversary of the commencement of your employment, and shall lapse as to 1/48th of the total number of Shares each month thereafter. The Company's repurchase, right will continue to lapse only so long as you continue to be employed by the Company. The option will be an incentive stock option to the maximum extent allowed by applicable law and will be subject to the terms of the stock option agreement between you and the Company. Notwithstanding the foregoing, the Company's right of repurchase shall immediately lapse with respect to 50% of the then unvested Shares and a reasonable severance package shall be worked out if, in connection with or following the completion of Merger (as defined below), your employment with the Company (or its successor entity) is terminated by the Company or its successor without cause (as defined below) or you terminate your employment voluntarily as a result of a Constructive Termination (as defined below). - - "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. - - "Cause" for the termination of your employment with the Company or its successor will exist at any time upon one or more of the following events. (i) Your willful misconduct in performance of the duties of your position with the Company or its successor, including your refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not inconsistent with your position and duties, and such refusal to comply is not remedied within 15 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (ii) your conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude. 3 - - "Constructive Termination" shall be deemed to occur if there is (i) an adverse change in your position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility; or (ii) a reduction of your compensation, taken as a whole. 6. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Proprietary Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement") prior to or on your Start Date. 7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 8. AT-WILL EMPLOYMENT. Your employment with the Company will be on an "at Will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability, We are all delighted to be able to extend you this offer until 5 pm PST on June 7th, 1999, and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. If you have any questions about this offer, please call me at 415-284-5245. We look forward to a favorable reply and to a rewarding and productive association with you. Sincerely, Martin Roscheisen, CEO Agreed and Accepted Marjorie Sennett Date Enclosure: Proprietary Formation and Invention Assignment Agreement EX-10.13 19 EMPLOYMENT LETTER WITH STEVEN COMFORT 1 EXHIBIT 10.13 April 8th, 1999 Steven Comfort 1144 Treat Street San Francisco, CA 94110 415-282-7597 Dear Steven, It is my pleasure to offer you a position at eGroups Inc., working with us on our next-generation Internet group communication and application service. Title: Vice President of Sales Salary: $100,000 per annum Bonus A: $75,000 per annum for reaching 80-100% of target Bonus B: $75,000 per annum for 100-150% Stock options: 100,000 Vesting period: 4 years The terms of your new position with the Company are as set forth below: 1. POSITION. (a) You will be part of the company's management team as Vice President of Sales, taking responsibility to spearhead our efforts in building an advertising sales team, define the company's advertising and direct marketing products and price points, and convert inventory into revenue according to target plans agreed upon. You will report to the CEO. You will have a sliding budget that scales with available inventory. (b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on April 26th, 1999. 3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 2 4. COMPENSATION. (a) Salary. Your annual base salary will be $100,000.00. Your salary will be paid every two weeks in pursuant to the Company's regular payroll policy (or in the same manner as other employees of the Company). (b) Bonus. You will be eligible to receive a bonus of $75,000 per year for reaching 100% of the target plan. If you reach less than 100% but more than a minimum of 80%, you will be eligible for a bonus that scales linearly upward from the 80% minimum to the 100% the target. There will be no bonus for reaching less than 80% of the target. If you reach more than 100%, you will be eligible to receive another $75,000 for reaching up to 150% of the target, scaling in the same way as the other bonus. The target plan will be agreed upon in detail after you start working with us, but the overall goal will be to reach a revenue of $500K per month by the end of 1999. Bonus payments will be assessed on a quarterly basis in each case. (c) Benefits. You will be eligible to participate in the health, medical, dental or life insurance programs and the 401(k) and employee stock purchase programs established by the Company, on the same basis as other similarly compensated employees. (d) Vacation. You will be entitled to twenty-one (21) days of paid vacation after one (1) year of employment with the Company, accruing at a rate of 1.75 days of vacation per month of service. Your manager may also grant additional vacation time. 5. OPTION TO PURCHASE COMMON STOCK. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase One-Hundred Thousand (100,000) shares of the Company's Common Stock ("Shares") under the Company's 1998 Employee Stock Option Plan established by the Board of Directors. The option shall have an exercise purchase price equal to the fair market value on the date of the grant as determined in good faith by the Board of Directors of the Company. These Shares issued upon the exercise of the option will be subject to the Company's right of repurchase in the event of the termination of your employment with the Company. This repurchase right will lapse as to 1/4th of the total number of Shares on the first anniversary of the commencement of your employment, and shall lapse as to 1/48th of the total number of Shares each month thereafter. The Company's repurchase right will continue to lapse only so long as you continue to be employed by the Company. The option will be an incentive stock option to the maximum extent allowed by applicable law and will be subject to the terms of the stock option agreement between you and the Company. (a) Notwithstanding the foregoing, the Company's right of repurchase shall immediately lapse with respect to the Shares if, in connection with or following the completion of Merger (as defined below), your employment with the Company (or its successor entity) is terminated by the Company or its successor without Cause (as defined below) or you terminate your employment voluntarily as a result of a Constructive Termination (as defined below). (b) "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. (c) "Cause" for the termination of your employment with the Company or its successor will exist at any time upon one or more of the following events: (i) Your willful misconduct in performance of the duties of your position with the Company or its successor, including your refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not 3 inconsistent with your position and duties, and such refusal to comply is not remedied within 10 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (ii) your conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude. (d) "Constructive Termination" shall be deemed to occur if there is (i) an adverse change in your position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility (it being understood that your operating responsibilities, title and reporting relationships may be changed in connection with integration of the Company's operations with those of an acquiror following a Merger); or (ii) a reduction of your compensation, taken as a whole. 6. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Proprietary Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date. 7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 8. AT-WILL EMPLOYMENT Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. We are all delighted to be able to extend you this offer until 2pm on Monday April 12th, 1999, and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the* Confidentiality Agreement, sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. If you have any questions about this offer, please call me at 415.284.5245. We look forward to a favorable reply and to a rewarding and productive association with you. Sincerely, Martin Roscheisen, CEO Agreed and Accepted: - ------------------------------ ------------------------------ Steven Comfort Date Enclosure: Proprietary Information and Invention Assignment Agreement EX-10.14 20 EMPLOYMENT LETTER WITH JACQUELINE A. MAARTENSE 1 EXHIBIT 10.14 September 1st, 1999 Jacqueline Maartense 31 Hancock Street San Francisco, CA 94114 Jacqueline: It is my pleasure to offer you a position at eGroups, Inc. working with us to make our group communication service pervasive worldwide. Title: VP Marketing Salary: $150,000 Stock Options: 200,000 shares Sign-on Bonus: $10K Vesting Period: 4 years, with one-year cliff and monthly vesting thereafter Start Date: 9/27/99
The terms of your new position with the Company are as set forth below: 1. POSITION. (a) We are very pleased to offer you a position as VP Marketing reporting to the CEO. A description is attached to clarify the scope of this position. (b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on the above start date. 3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 4. COMPENSATION. (a) Salary. Your salary will be payable pursuant to the Company's regular payroll policy (or in the same manner as other employees of the Company) currently every two weeks. 2 (b) Benefits. You will be eligible to participate in the health, medical, dental or life insurance programs and the 401(k) and employee stock purchase programs established by the Company, on the same basis as other similarly compensated employees, as those policies may change from time to time. (c) Sign-on bonus. We will pay you a sign-on bonus of $10,000.00 on the Start Date of your employment. Eight tenth of this bonus are to be fully repaid in the event that you terminate your employment with the Company before the completion of six months of employment with the Company. (c) Vacation. You will be entitled to twenty-one (21) days of paid personal leave per year, accruing on a monthly basis according to the Company's policy, to use for vacation, personal illness, and family illness. (d) Severance. In the event you are terminated without cause or have Good Reason, you will receive a lump-sum severance payment iZon the termination date or date you have Good Reason equal to three months of salary plus our prorated bonus for the year. In addition, you will receive 3 months of continuing company benefits. If your employment is terminated before the first anniversary of the commencement of your employment, the Company's right of repurchase shall immediately lapse with respect to 1/48th of the total number of Shares for each month of employment completed. "Good Reason" means (i) the material reduction or material modification of your authority, duties, title, salary, employee benefits or responsibilities without your prior written consent, or (ii) any requirement that you move your principal place of employment from the San Francisco Bay Area. 5. OPTION TO PURCHASE COMMON STOCK. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase shares of the Company's Common Stock as stated above ("Shares") under the Company's 1998 Employee Stock Option Plan established by the Board of Directors. The option shall have an exercise purchase price equal to the fair market value on the date of the grant as determined in good faith by the Board of Directors of the Company. These Shares issued upon the exercise of the option will be subject to the Company's right of repurchase in the event of the termination of your employment with the Company. This repurchase right will lapse as to 1/4th of the total number of Shares on the first anniversary of the commencement of your employment, and shall lapse as to 1/48th of the total number of Shares each month thereafter. The Company's repurchase right will continue to lapse only so long as you continue to be employed by the Company. The option will be an incentive stock option to the maximum extent allowed by applicable law and will be subject to the terms of the stock option agreement between you and the Company. Notwithstanding the foregoing, the Company's right of repurchase shall immediately lapse with respect to 25% of the Shares if, in connection with or following the completion of Merger (as defined below), your employment with the Company (or its successor entity) is terminated by the Company or its successor without Cause (as defined below) or you terminate your employment voluntarily as a result of a Constructive Termination (as defined below). "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. "Cause" for the termination of your employment with the Company or its successor will exist at any time upon one or more of the following events: (i) Your willful misconduct in performance of the duties of your position with the Company or its successor, including your refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not inconsistent 2 3 with your position and duties, and such refusal to comply is not remedied within 15 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (ii) your conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude. "Constructive Termination" shall be deemed to occur if there is (i) an adverse change in your position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility; or (ii) a reduction of your compensation, taken as a whole; or (iii) you are required to move your principal place of employment from the San Francisco Bay Area. 6. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Proprietary Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date. 7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 8. AT-WILL EMPLOYMENT. Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further liability. This at-will nature of your employment may be changed only by a written agreement signed by you and the Chief Executive Officer of the Company that refers expressly to the at-will nature of your employment. We are delighted to extend you this offer until 8pm PST on August __, 1999 and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. If you have any questions about this offer, please call me. We look forward to a favorable reply and to a rewarding and productive association with you. Sincerely, Martin Roscheisen CEO Agreed and Accepted: - ------------------------------- ------------------------------- Employee Name Date 3 4 Enclosure: Proprietary Information and Invention Assignment Agreement 4 EX-10.15 21 INVENTIONS ASSIGNMENT AGREEMENT 1 EXHIBIT 10.15 EGROUPS, INC. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed (or my employment being continued) by or retained as a consultant (or my consulting relationship being continued eGroups, Inc., a Delaware corporation, with any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the "Company", and in consideration of my employment or consulting relationship with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following: 1. EMPLOYMENT OR CONSULTING RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or in a consulting relationship with, or the duration of my employment or consulting relationship with, the Company under any existing agreements between the Company and me or under applicable law. Any employment or consulting relationship between the Company and me, whether commenced prior to or upon the date of this Agreement, shall be referred to herein as the "Relationship." 2. AT-WILL EMPLOYMENT. I understand and acknowledge that my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability. 3. PROPRIETARY INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Proprietary Information of the Company which I obtain or create. I further agree not to make copies of such Proprietary Information except as authorized by the Company. I understand that "Proprietary Information" means any Company proprietary information, technical. data, trade secrets or know how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "Proprietary Information" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Proprietary Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee or consultant of the Company have not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in' carrying out my work for the Company consistent with the Company's agreement with such third party. 4. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as Exhibit A a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "Prior Inventions"), 2 which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use,' sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or' its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by or a consultant of the Company (collectively referred to as "Inventions"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "works made for hire" (to the greatest extent permitted by applicable law) and are compensated by my salary (if I am an employee) or by such amounts paid to me under any applicable consulting agreement or consulting arrangements (if I am a consultant), unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of. all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. (e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any. invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company promptly in writing of any inventions that I believe meet such provisions and are not otherwise disclosed on Exhibit A. 5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to 3 inspection by-Company personnel at any time with or without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "Termination Certification" attached hereto as Exhibit C. 6. NOTIFICATION TO OTHER PARTIES. (a) EMPLOYEES. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. (b) CONSULTANTS. I hereby grant consent to notification by the Company to any other parties besides the Company with whom I maintain a consulting relationship, including parties with whom such relationship commences after the effective date of this Agreement, about my rights and obligations under this Agreement. 7. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES. I agree that during the term of my Relationship with the Company, and for a period of twenty-four (24) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason, with or without cause, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. 8. REPRESENTATIONS AND COVENANTS. (a) FACILITATION OF AGREEMENT. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) CONFLICTS. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. (c) VOLUNTARY EXECUTION. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. 9. GENERAL PROVISIONS. (a) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. (c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in fall force and effect. (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) SURVIVAL. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. 4 [Signature Page Follows] 5 The parties have executed this Agreement on the respective dates set forth below: COMPANY: EGROUPS, INC. Signature By: Title: Address: 350 Brannan Street San Francisco, CA 94107 EMPLOYEE: ________________, an Individual: Signature Name Date: Address: EX-10.17 22 PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.17 ONElist, Inc. SERIES A PREFERRED STOCK PURCHASE AGREEMENT First Closing: December 28, 1998 Second Closing: April 29, 1999 2 ONElist, Inc. SERIES A PREFERRED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made as of December 28,1998, by and between ONElist, Inc., a California corporation, with headquarters at 951 Old County Road #107, Belmont, CA 94002, and its predecessor (the "Company"), and each of the investors listed on Schedule 1.2 hereto (as such Schedule may be updated from time to time) (collectively, the "Purchasers"). In consideration of mutual promises, covenants and conditions hereinafter set forth, the parties hereby agree as follows: 1. Authorization and Sale of the Shares. 1.1 Authorization, Filing of Restated Articles of Incorporation. On or prior to the Closing (as defined below), the Company shall have authorized the issuance and sale at the Closing (as defined below) pursuant to the terms and conditions hereof of up to 2,316,289 shares of its Series A Preferred Stock (the "Preferred Shares"), having the rights, restrictions, privileges and preferences as set forth in the form of the Amended and Restated Articles of Incorporation of the Company (the "Restated Articles") attached hereto as Exhibit A. The Company shall adopt and file the Restated Articles with the Secretary of State of California on or before the Closing. 1.2 Sale and Issuance of the Preferred Shares. Subject to the terms and conditions hereof, at the Closing the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company the number of Preferred Shares set forth opposite such Purchaser's name on Schedule 1.2 attached hereto for a consideration of $1.7377 per share (the "Purchase Price"). 2. Closing, Delivery. 2.1 Closing Date. (a) Closing. The closing (the "Closing") of the purchase and sale of the Preferred Shares to the Purchasers shall take place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 at 10:00 a.m., on December 28, 1998, or at such other time and place as the Company and the Purchasers may agree. The date of the Closing shall be referred to as the "Closing Date." 2.2 Delivery. Subject to the terms of this Agreement, at the Closing, the Company shall deliver to each of the Purchasers a certificate (or certificates) registered in such Purchaser's name representing the number of Preferred Shares purchased against payment of the Purchase Price therefor by check payable to the Company, wire transfer per the Company's instructions, or any combination of the foregoing payable to the Company. 2.3 Use of Proceeds. The Company shall use the proceeds upon the sale of the Preferred Shares for general working capital purposes. 3. Representations and Warranties of the Company. In order to induce the Purchasers to purchase the Preferred Shares, the Company makes the following representations and warranties which are true, correct and complete in all respects on the date hereof and shall be true, correct and complete in all respects as of the 3 Closing, subject to the exceptions set forth on the Disclosure Schedule attached hereto as Exhibit B (the "Disclosure Schedule"). 3.1 Organization, Good Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own its properties and to carry on its business as currently conducted. The Company is duly licensed or qualified to do business as a foreign corporation in each jurisdiction where the failure to do so would constitute a Material Adverse Change (as defined in Section 3.6 below). 3.2 Authorization. The Company has all necessary corporate power and has taken or will take prior to the Closing all necessary corporate action required for the due authorization, execution, delivery and performance by the Company of this Agreement, the Rights Agreement (the "Rights Agreement") referred to in Section 5.1 and the Right of First Refusal and Co-Sale Agreement (the "Co-Sale Agreement") referred to in Section 5.1 (collectively, the "Related Agreements") and any other agreements or instruments to be executed by the Company in connection herewith or therewith and the consummation of the transactions contemplated herein or therein, and for the due authorization, issuance and delivery of the Preferred Shares. The issuance of the Preferred Shares does not require any further corporate action and is not and will not, except as provided in the Related Agreements, be subject to any preemptive right, right of first refusal or the like. This Agreement, the Related Agreements and the other agreements and instruments to be executed by the Company in connection herewith or therewith will each, when executed by the Company, be a valid and binding obligation of the Company enforceable in accordance with its respective terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors, (ii) rules of law governing specific performance, injunctive relief or other equitable remedies (whether considered in a proceeding at law or in equity) or (iii) indemnification provisions to the extent limited by statutes, judicial decisions or public policy considerations. 3.3 Government Approvals. No consent, approval, license or authorization of, or designation, declaration or filing with, any court or governmental authority is or will be required on the part of the Company in connection with the execution, delivery and performance by the Company of this Agreement, any of the Related Agreements and any other agreements or instruments executed by the Company in connection herewith or therewith, or in connection with the issuance of the Preferred Shares the failure of which would cause a Material Adverse Change except for (i) those which have already been made or granted, (ii) those required to be made pursuant to (A) Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder (the "Law"), or (b) the securities laws of any other state in which the Preferred Shares will be issued or sold hereunder and (iii) any applicable state securities commissions as specifically provided for in the Rights Agreement described in Section 5. 1 (f). 3.4 Capitalization. The authorized capital stock of the Company as of the Closing Date and immediately prior to the Closing Date is 10,000,000 shares of Common Stock and 2,400,000 shares of Preferred Stock, all of which have been designated Series A Preferred Stock (the "Series A Shares"). There are issued and outstanding 2,000,000 shares of the Company's Common Stock. There are no issued and outstanding shares of Series A Preferred Stock immediately prior to the Closing. The holders of record of the currently issued and outstanding shares of Common Stock immediately prior to the Closing are as set forth in Section 3.4 of the Disclosure Schedule. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable state and federal laws concerning the issuance of securities. Except as set forth in the Related Agreements and in Section 3.4 of the Disclosure Schedule, there are no other outstanding rights, options, warrants, conversion rights or agreements 4 for the purchase or acquisition from the Company of any shares of its capital stock (and a list of holders of such outstanding rights, options, warrants, conversion rights and agreements for the purchase or acquisition from the Company of any shares of its capital stock is set forth in Section 3.4 of the Disclosure Schedule), except that the Company has (i) reserved 1,165,000 shares of its Common Stock for issuance under the Company's 1998 Stock Option Plan to its employees, consultants, directors or officers and (ii) reserved 2,316,279 shares of its Common Stock for issuance upon conversion of the Series A Shares of the Company to Common Stock of the Company. Except as set forth in Section 3.4 of the Disclosure Schedule, the Company is not a party or subject to any agreement or understanding between any persons or entities which affects or relates to the voting or giving of written consents with respect to any securities or by any director of the Company, except as provided for in the Related Agreements. 3.5 Subsidiaries. The Company has neither any subsidiaries nor any joint venture relationships nor any investment or other equity or equity-like interest in, or any outstanding loan or advance to or from, any person, including, without limitation, any officer, director or shareholder of the Company except travel, meal and similar reimbursement obligations created in the ordinary course of business. 3.6 Financial Information. The Company has attached hereto as Schedule 3.6 to the Disclosure Schedule the unaudited financial statements of the Company for the period ended December 15, 1998 (the "Unaudited Financial Statements"). The Unaudited Financial Statements are in accordance with the books and records of the Company and present fairly in accordance with generally accepted accounting principles applied on a basis consistent with prior periods the financial condition and results of operations of the Company as of the dates and for the periods shown, subject to year end adjustments which will not be material, and subject to the absence of footnotes otherwise required. The Company has no liability, contingent or otherwise, that is not adequately reflected in or reserved against in the Unaudited Financial Statements that could materially and adversely affect the financial condition of the Company. Since the date of the Unaudited Financial Statements, (i) there has been no Material Adverse Change (as defined below) in the business, assets, liabilities, condition (financial or otherwise) or operations of the Company or its predecessor except for changes in the ordinary course of business which, individually or in the aggregate, have not been materially adverse and (ii) none of the business, financial condition, operations, property or affairs of the Company has been materially adversely affected by any occurrence or development, individually or in the aggregate, whether or not insured against. "Material Adverse Change" means any change in, or effect on, the business, conditions, affairs or operations of the Company (including all subsidiaries, if any) or in any of its properties or assets, or any material impairment of the right or ability of the Company (including all subsidiaries, if any) to carry on its business as now conducted or as proposed to be conducted in the future (the "Business") (x) that is, or is reasonably likely to be, materially adverse to the results of the operations or the financial condition of the Company (or any subsidiary) or the Business or (y) that requires or is reasonably likely to require the expenditure of Ten Thousand Dollars ($10,000) or more, individually or in the aggregate. 3.7 Events Subsequent to the Date of the Financial Statements. Since November 30, 1998, the Company has not (i) issued any capital interest, stock, bond or other security, (ii) borrowed any amount or incurred or become subject to any liability (absolute, accrued or contingent), except liabilities under contracts entered into in the ordinary course of business except travel, meal and similar reimbursement obligations created in the ordinary course of business, (iii) discharged or satisfied any lien or encumbrance or incurred or paid any obligation or liability (absolute, accrued or contingent) other than current liabilities shown on the Unaudited Financial Statements and current liabilities incurred since November 30, 1998, in the ordinary course of business, (iv) declared or made any payment or distribution to shareholders or purchased or redeemed any shares of its capital stock, capital interest or other securities, (v) mortgaged, pledged or subjected to lien any of 5 its assets, tangible or intangible, other than liens of current real property taxes not yet due and payable or mechanics' or materialmen's or similar inchoate liens relating to amounts not yet due and payable, (vi) sold, assigned or transferred any of its tangible assets except in the ordinary course of business, or canceled any debt or claim, except in the ordinary course of business, (vii) sold, assigned, transferred or granted any license with respect to any patent, trademark, trade name, service mark, copyright, trade secret or other intangible asset, except pursuant to license or other agreements entered into in the ordinary course of business, (viii) suffered any loss of property or waived any right of substantial value whether or not in the ordinary course of business, (ix) made any change in officer compensation other than in the ordinary course of business, (x) made any material change in the manner of business or operations of the Company, its predecessor or any of their respective subsidiaries, (xi) entered into any transaction except in the ordinary course of business or as otherwise contemplated hereby or (xii) entered into any commitment (contingent or otherwise) to do any of the foregoing. 3.8 Litigation . There is no litigation or governmental proceeding pending or, to the knowledge of the Company, threatened against the Company or its predecessor or affecting any of the Company's properties or assets, or against any officer, key employee or shareholder of the Company or its predecessor in his capacity as such, nor, to the knowledge of the Company, has there occurred any event which questions the validity of this Agreement and the Related Agreements or any action taken or to be taken in connection herewith, including in each case, without limitation, actions pending or, to the knowledge of the Company, threatened, involving the prior employment of any of the Company's employees, the use in connection with the Business of any information or techniques allegedly proprietary to any of its former employees, or their obligations under any agreements with prior employers. There is no governmental investigation pending or, to the best knowledge of the Company, threatened against the Company or its predecessor or affecting any of the Company's properties or assets, or against any officer, key employee or shareholder of the Company or its predecessor in his capacity as such. Neither the Company, nor, to the best of its knowledge, any officer, key employee or shareholder of the Company or its predecessor, in his capacity as such, is in default with respect to any order, writ, injunction, decree, ruling or decision of any court, commission, board or other government agency which may materially and adversely affect the Business or assets of the Company. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company currently intends to initiate. 3.9 Compliance with Laws and Other Instruments. The Company is as of the Closing Date in compliance with all of the provisions of this Agreement and of its Restated Articles and in all material respects with the provisions of (i) each judgment, decree and judicial order by which it is bound or to which it or any of its properties are subject and to its knowledge, each statute, rule or regulation applicable to the Company and (ii) each mortgage, indenture, lease, license, other agreement or instrument by which it is bound or to which it or any of its properties are subject. Neither the execution, delivery or performance of this Agreement and the Related Agreements, nor the offer, issuance, sale or delivery of the Preferred Shares in accordance with the provisions of this Agreement and the Restated Articles, with or without the giving of notice or passage of time, or both, will violate, or result in any breach of, or constitute a default under, or result in the imposition of any encumbrance in any material respect upon any asset of the Company pursuant to any provision of the Company's Restated Articles, or, to the best knowledge of the Company, any statute, rule or regulation applicable to the Company, or any judgment, decree, judicial order, mortgage, indenture, lease, license or other agreement or instrument by which the Company is bound or to which the Company or any of its properties are subject, or, to the best knowledge of the Company, will cause the Company to lose the benefit of any material right or privilege it currently enjoys or cause any person who is expected to normally do business with the Company to discontinue to do so on substantially the same basis. 6 3.10 Taxes. The Company has filed all tax returns (including statements of estimated taxes owed) required to be filed within the applicable periods for such filings and has paid all taxes required to be paid (other than those contested in good faith for which adequate reserves have been established), and has established adequate reserves (net of estimated tax payments already made) for the payment of all taxes payable in respect of the period subsequent to the last periods covered by such returns. There is no pending dispute with any taxing authority relating to any of such returns and the Company has not received notice of any proposed liability for any tax to be imposed upon the properties or assets of the Company. No deficiencies for any tax are currently assessed against the Company, and no tax returns of the Company have ever been audited, and, to the actual knowledge of the Company, there is no such audit pending or threatened. There is no tax lien, whether imposed by any federal, state or local taxing authority, outstanding against the assets, properties or business of the Company or its predecessor, except such liens for taxes not yet due and payable as may accrue in the ordinary course of business and for which the Company has established reasonable reserves and as would not, in any case, constitute a Material Adverse Change. For the purposes of this Agreement, the term "tax" shall include all federal, state and local taxes, including income, franchise, property, sales, withholding, payroll and employment taxes. 3.11 Real Property. (a) Schedule 3.11 to the Disclosure Schedule sets forth the addresses and uses of all real property that the Company owns, leases or subleases, and any material lien or encumbrance on any such owned real property or the Company's leasehold interest therein, specifying in the case of each such lease or sublease, the name of the lessor or sublessor, as the case may be, and the lease term. Copies of all leases have been provided to special counsel to the Purchasers. (b) The Company has good and marketable title to, and owns free and clear of all liens and encumbrances, all property listed as owned by the Company on Schedule 3.11, and, to the knowledge of the Company, there is no material violation of any law, regulation or ordinance (including without limitation laws, regulations or ordinances relating to zoning, environmental, city planning or similar matters) relating to any real property owned, leased or subleased by the Company. (c) There are no defaults by the Company or, to the knowledge of the Company, by any other party thereto, which might curtail in any material respect the current use of the Company's property listed on Schedule 3.11. The performance by the Company of this Agreement and the Related Agreements will not result in the termination of, or in any increase of any amounts payable under, any lease listed on Schedule 3.11. 3.12 Personal Property. Except for property sold or otherwise disposed of in the ordinary course of business since September 30, 1998, the Company owns free and clear of any liens or encumbrances, all of the personal property reflected as owned by the Company in the balance sheet contained in the Unaudited Financial Statements, and all other material items of personal property acquired by the Company through the date hereof. All material items of such personal property are in good operating condition, normal wear and tear excepted. 3.13 Patents, Trademarks, etc. (a) Set forth on Schedule 3.13 is a list of all patents, patent rights, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names and registered copyrights, and all applications for such that are in the process of being prepared, owned by or registered in the 7 name of the Company, or of which the Company is a licensor or licensee or in which the Company has any right, except licenses to commercially available software legally in the possession of the Company and having a purchase price of less than $2,000 per copy. The Company owns and possesses sufficient right, title and interest in and to, or has obtained licenses to use, all software, software tools, works of authorship, copyrights, know-how, trade secrets and registered trade names (and to its best knowledge owns and possesses sufficient right, title and interest in and to, or has obtained licenses to use, all patentable inventions and common law tradenames) used in or necessary for the conduct of its Business, free and clear of all liabilities, charges, liens, pledges, mortgages, restrictions, adverse claims, security interests, rights of others and encumbrances (including, without limitation, distribution rights) (all of which are referred to as "Proprietary Rights"), except, in each case, where such failure would not constitute a Material Adverse Change. The foregoing representation as it relates to Third Party Technology (as defined herein) is limited to the Company's interest pursuant to the Third Party Licenses (as defined herein), all of which are, to the best knowledge of the Company, valid and enforceable and in full force and effect and which grant the Company such rights to Third Party Technology as are employed in or necessary to the Business. Schedule 3.13 contains (i) an accurate and complete description of all registered and unregistered trademarks and trade names owned or licensed to the Business, and a list of all licenses and other agreements relating thereto and (ii) a list of all licenses and other agreements with third parties (the "Third Party Licenses") relating to any software, copyrights, works of authorship, technology, know-how or processes that the Company is licensed or otherwise authorized by such third parties to use, market, distribute or incorporate into products distributed by the Company, except licenses to commercially available software legally in the possession of the Company and having a purchase price of less than $2,000 per copy (such software, technology, know-how and processes are collectively referred to as the "Third Party Technology"). All of the copyrights in any of the Company Products (including but not limited to any works of authorship incorporated in or distributed with such products) used by the Company in connection with the Business are owned by the Company, or licensed to the Company, and are in full force and effect, and the consummation of the transactions contemplated hereby will not alter or impair any such rights. No claims have been asserted against the Company, and to the best knowledge of the Company (actual knowledge in the case of common law trademarks and tradenames and patents) there are no claims which are reasonably likely to be asserted against the Company or which have been asserted against others by any person challenging the Company's use or distribution of any trademarks, tradenames, copyrights, works of authorship, trade secrets, software, technology, know-how or processes utilized by the Company (including, without limitation, the Third Party Technology) or challenging or questioning the validity or effectiveness of any license or agreement relating thereto (including, without limitation, the Third Party Licenses). The use of any trademarks, tradenames, copyrights, works of authorship, software, technology, know-how or processes by the Company in its Business does not infringe on the rights of, constitute misappropriation of, or in any way involve unfair competition with respect to, any proprietary information or intangible property right of any third person or entity, including, without limitation, any patent, trade secret, copyright, trademark or tradename; provided, however, that such representation is made only to the Company's actual knowledge with respect to common law trademarks and tradenames, technology, patent or similar intangible property right where infringement is possible without wrongful taking and where no readily accessible and exhaustive search process would serve to have warned the Company. (b) To the best knowledge of the Company, all designs, drawings, specifications, source code, object code, documentation, flow charts and diagrams incorporated in any of the Company's Proprietary Rights (the "Company Components") constitute original creations of and were written, developed and created solely and exclusively by employees of the Company without the assistance of any third party or entity or were created by, or with the assistance of, third parties who assigned ownership of or licensed their rights to the Company in valid and enforceable agreements. The Company has at all times used commercially 8 reasonable efforts to treat its trade secrets as confidential and has not disclosed or otherwise dealt with such items in such a manner as to cause the loss of such trade secrets by release into the public domain. (c) To the best knowledge of the Company, no employee of the Company is in violation of any term of any employment contract, patent disclosure agreement, confidentiality agreement or any other contract or agreement relating to the relationship of any such employee with the Company or, to the best knowledge of the Company, any other party because of the nature of the Business. 3.14 Agreements of Directors, Officers and Employees. To the best knowledge of the Company, no director, officer or employee of or consultant to the Company is in violation of any restrictive covenants contained in any employment contract, non-competition agreement, non-disclosure agreement, patent disclosure or assignment agreement or other contract or agreement relating to the right of any such director, officer, employee or consultant to be employed or engaged by the Company because of the nature of the Business, or relating to the use of trade secrets or proprietary information of others. 3.15 Governmental Approvals. The Company has all the permits, licenses, orders, franchises and other rights and privileges of all federal, state, local or foreign governmental or regulatory bodies necessary for the Company to conduct its business as presently conducted, except, in each case, where such failure would not constitute a Material Adverse Change. All such permits, licenses, orders, franchises and other rights and privileges are in full force and effect except, in each case, where such failure would not constitute a Material Adverse Change and, to the best knowledge of the Company, no suspension or cancellation of any of them is threatened, and none of such permits, licenses, orders, franchises or other rights and privileges will be adversely affected by the Closing. 3.16 Contracts and Commitments. All contracts, obligations or commitments to which the Company is a party or by which it is bound (including purchase orders to the Company or placed by the Company) which involve obligations of, or payments to, the Company in excess of Five Thousand Dollars ($5,000) and all agreements between the Company and its officers, directors, consultants and employees are set forth on the list attached hereto as Schedule 3.17 (the "Contracts"), copies of which have been delivered to special counsel to the Purchasers. All of the Contracts are valid and binding obligations of the Company and in full force and effect in all material respects and enforceable by the Company in accordance with their respective terms in all material respects, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors, (ii) rules of law governing specific performance, injunctive relief or other equitable remedies (whether considered in a proceeding at law or in equity) or (iii) indemnification provisions to the extent limited by statutes, judicial decisions or public policy considerations. The Company is not in material default under any of such Contracts. To the best knowledge of the Company, no other party to any of the Contracts is in material default thereunder. 3.17 Securities Act. The Company has complied and will comply with all applicable federal or state securities laws in connection with the issuance and sale of the Preferred Shares, and, in reliance on the representations and warranties of the Purchasers in Section 4 hereof, the Company hereby asserts that (i) the offer, sale and issuance of the Preferred Shares in conformity with the terms of this Agreement will not result in a violation of the requirements of Section 5 of the Securities Act of 1933, as amended (the "Act"), or the qualification or registration requirements of the Law or other applicable blue sky laws and (ii) neither the Company nor, to the best knowledge of the Company, anyone acting on its behalf has offered any of the Preferred Shares, or similar securities, or solicited any offers to purchase any of such securities, in such a manner as to bring the issuance and sale of the Preferred Shares under the registration provisions of the Act. 9 3.18 Registration Rights. The Company has not granted or agreed to grant any rights relating to registration of its capital stock under the Act or state securities laws other than those contained in this Agreement or the Related Agreements. 3.19 Insurance Coverage. Schedule 3.20 to the Disclosure Schedule contains an accurate summary of the insurance policies currently maintained by the Company. There are currently no claims in excess of Ten Thousand Dollars ($10,000) in the aggregate pending against the Company under any insurance policies currently in effect and covering the property, business or employees of the Company, and all premiums due and payable with respect to the policies maintained by the Company have been paid to date. 3.20 Employee Matters. Except as set forth in Schedule 3.21 hereof, the Company does not have in effect, and its assets are not subject to, any employment agreements, consulting agreements, deferred compensation, pension or retirement agreements or arrangements, bonus, incentive or profit-sharing plans or arrangements, or labor or collective bargaining agreements, written or oral. The Company is in compliance, and its predecessor was in compliance, in all material respects, with all applicable laws and regulations relating to labor, employment, fair employment practices, terms and conditions of employment, and wages and hours. Each officer, director, employee and consultant of the Company has executed an agreement regarding confidentiality and proprietary information, the form of which is attached hereto as Exhibit C. Except as set forth in Schedule 3.21 hereof, the Company is not aware that any officer, director or employee is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere in any material way with the use of his or her best efforts to promote the interests of the Company, conflict with the Company's Business or prevent any such employee from assigning inventions to the Company. Neither the execution nor delivery of this Agreement or the Related Agreements, nor the carrying on of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. Furthermore, the Company does not believe that it will be necessary for the Company to utilize any inventions of any of its employees made prior to their employment by the Company except in cases where obtaining a license to do such is expected to be routine and license fees are not material to the Business. 3.21 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its assets or properties are bound by or subject to) any contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which could constitute a Material Adverse Change, nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate his, her or its employment with the Company, nor does the Company have a current intention to terminate the employment of any of the foregoing. Subject to general principles related to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 3.22 No Brokers or Finders. No person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or claim against or upon the Company for any commission, fee or other compensation as a finder or broker because of any act or omission by the Company. - 10 3.23 Transactions with Affiliates. There are no loans, leases or other continuing transactions involving more than $10,000 (in the aggregate) annually between the Company, any officer or director of the Company or any person owning five percent (5%) or more of the voting power of the Company on the one hand and any respective family member or affiliate of such officer, director or shareholder on the other hand. 3.24 Assumptions, Guarantees, etc. of Indebtedness of Other Persons. The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on or for any indebtedness of any other person, except guarantees by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. 3.25 Disclosures. Neither this Agreement, any Schedule or Exhibit to this Agreement, the Related Agreements, the Unaudited Financial Statements, nor any other agreement, document or written statement made by the Company and furnished by the Company to the Purchasers or the Purchasers' special counsel in connection with the transactions contemplated hereby, contains any untrue statement of material fact or, when taken as a whole, omits to state any material fact necessary to make the statements contained herein or therein not misleading. There is no fact known to the Company that has not been disclosed herein or in any other agreement, document or written statement furnished by the Company to the Purchasers or their special counsel in connection with the transactions contemplated hereby which is specific to the Company, as opposed to the industry in which the Company operates, and which materially adversely affects or is reasonably likely to materially and adversely affect the business, properties, assets or financial condition of the Company. 4. Representations and Warranties of Purchasers and Restrictions on Transfer Imposed by the Securities Act. 4.1 Representations and Warranties by the Purchasers. Each of the Purchasers, severally and not jointly, represents and warrants to the Company as follows: (a) Investment Intent. This Agreement is made with each Purchaser in reliance upon such Purchaser's representations to the Company, evidenced by such Purchaser's execution of this Agreement, that such Purchaser is acquiring the Preferred Shares and the Common Stock issuable upon conversion of the Preferred Shares (collectively the "Securities") for investment for such Purchaser's own account and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Act and the Law (or other applicable blue sky laws). Each Purchaser has the full right, power and authority to enter into and perform this Agreement and the Related Agreements, and this Agreement and the Related Agreements constitute valid and binding obligations upon it enforceable in accordance with their terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors, (ii) rules of law governing specific performance, injunctive relief or other equitable remedies (whether considered in a proceeding at law or in equity) or (iii) indemnification provisions to the extent limited by statutes, judicial decisions or public policy considerations. (b) Shares Not Registered . Each Purchaser understands and acknowledges that the offering of the Preferred Shares pursuant to this Agreement will not be registered under the Act or qualified under the Law (or other applicable blue sky laws) on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration under the Securities Act and exempt from qualification pursuant to the applicable provisions of the Law (and the relevant provisions of other applicable blue sky laws), and that the Company's reliance upon such exemptions is predicated upon such Purchaser's 11 representations set forth in this Agreement. Each Purchaser acknowledges and understands that the Securities must be held indefinitely unless the Securities are subsequently registered under the Act and qualified under the Law (or other applicable blue sky laws) or an exemption from such registration and such qualification is available. (c) No Transfer . Each Purchaser covenants that in no event will it dispose of any of the Securities (other than in conjunction with an effective registration statement for the Securities under the Act) unless and until (i) such Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition and (ii) if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel reasonably satisfactory in form and substance to the Company to the effect that (X) such disposition will not require registration under the Act and (y) appropriate action necessary for compliance with the Act, the Law and any other applicable state, local or foreign law has been taken. It is agreed that the Company will not require opinions of counsel for transactions by a Purchaser made pursuant to Rule 144. (d) Permitted Transfers. Notwithstanding the provisions of subsection (b) above, no registration statement or opinion of counsel shall be necessary for a transfer by such Purchaser, if it is a partnership, to a partner of such partnership or a former partner of such partnership who leaves such partnership after the date hereof, or to the estate of any such partner or former partner or the transfer by gift, will or intestate succession of any partner to his spouse or lineal descendants or ancestors, if the transferee agrees in writing to be bound by the terms of this Agreement and the Related Agreements to the same extent as if he were an original Purchaser hereunder provided that the Company shall receive written notice of such transfer within thirty (30) days of its completion. (e) Knowledge and Experience. Each Purchaser (i) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of such Purchaser's prospective investment in the Securities, (ii) has the ability to bear the economic risks of such Purchaser's prospective investment, (iii) has been furnished with and has had access to such information as such Purchaser has considered necessary to make a determination as to the purchase of the Securities together with such additional information as is necessary to verify the accuracy of the information supplied, (iv) has had all questions which have been asked by such Purchaser satisfactorily answered by the Company and (v) has not been offered the Securities by any form of advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any such media. (f) Accredited Investor . Each Purchaser is an "accredited investor" within the meaning of Rule 501 promulgated by the Securities and Exchange Commission ("SEC") under the Act. (g) Authorization. All action on the part of each of the Purchaser's partners, board of directors, and shareholders, as applicable, necessary for the authorization, execution, delivery and performance of this Agreement and the Related Agreements by each Purchaser, the purchase of and payment for the Preferred Shares and the performance of all of each Purchaser's obligations hereunder and under the Related Agreements has been taken or will be taken prior to the Closing. This Agreement and the Related Agreements, when executed and delivered by each Purchaser, shall constitute valid and binding obligations of the Purchasers, enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other 12 equitable remedies; provided, however, that the Purchaser makes no representation as to the enforceability of the indemnification provisions contained in the Rights Agreement. (h) Holding Requirements. Each Purchaser understands that if the Company does not (i) register its Common Stock with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), (ii) become subject to Section 15(d) of the Exchange Act, (iii) supply information pursuant to Rule 15c2-11 thereunder or (iv) have a registration statement covering the Securities (or a filing pursuant to the exemption from registration under Regulation A of the Act covering the Securities) under the Securities Act in effect when it desires to sell the Securities, such Purchaser may be required to hold the Securities for an indeterminate period. Each Purchaser also understands that any sale of the Securities that might be made by such Purchaser in reliance upon Rule 144 under the Act may be made only in limited amounts in accordance with the terms and conditions of that rule. 4.2 Legends. Each certificate representing the Securities shall be endorsed with the following legends: (a) Federal Legend. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR DISTRIBUTION. (b) Other Legends. Any other legends required by the Law or other applicable state blue sky laws. The Company need not register a transfer of legended Securities, and may also instruct its transfer agent not to register the transfer of the Securities, unless the conditions specified in each of the foregoing legends are satisfied. Removal of Legend and Transfer Restrictions. Any legend endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer instructions with respect to such legend Securities shall be removed, and the Company shall issue a certificate without such legend to the holder of such Securities if such Securities are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is available or if such holder satisfies the requirements of Rule 144(k) and, where reasonably deemed necessary by the Company, the holder of the Securities provides the Company with an opinion of counsel for such holder, reasonably satisfactory to the Company, to the effect that (i) such holder meets the requirements of Rule 144(k) or (ii) a public sale, transfer or assignment of such Securities may be made without registration. 4.4 Rule 144. Each Purchaser is aware of the adoption of Rule 144 by the SEC promulgated under the Act, which permits limited public resales of securities acquired in a nonpublic offering, subject to the satisfaction of certain conditions. Each Purchaser understands that under Rule 144, the conditions include, among other things, the availability of certain current public information about the issuer and the resale occurring not less than one (1) year after the party has purchased and paid for the securities to be sold. 5. Conditions to Closing 13 5.1 Conditions to Each Purchaser's Obligations at the Closing. The obligation of each Purchaser to purchase the Preferred Shares at the Closing is subject to the fulfillment to each Purchaser's satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived in accordance with the provisions of Section 7.3 hereof. (a) Representations and Warranties, Correct Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof, when read together with Exhibit B, shall be true and correct when made, and shall be true and correct in all respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Company's Business and assets shall not have been subject to any Material Adverse Change prior to the Closing Date. The Company shall have performed in all respects all obligations and conditions herein required to be performed or observed by it on or prior to the Closing Date. (b) Consents and Waivers. The Company shall have obtained in a timely fashion any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement. (c) Board of Directors; Board Committees. Effective on the Closing (i) the Board of Directors of the Company shall initially be set at five (5). The holders of Common Stock, voting together as a single class, shall be entitled to elect two (2) directors. The holders of Series A Preferred Stock, voting together as a single class, shall be entitled to elect two (2) directors, which shall include one CMG@Ventures director and one Bertlesmann Ventures director. The holders of Common Stock and the holders of Preferred Stock voting together shall elect the remaining director. The members of the Compensation Committee of the Board of Directors of the Company shall include a CMG@Ventures director, an outside director and the Chief Executive Officer, and the members of the Audit Committee of the Board of Directors of the Company shall include a CMG@Ventures director and two outside directors. (d) No Material Adverse Change. The business, properties, assets or condition (financial or otherwise) of the Company and its respective subsidiaries, if any, shall not have been materially adversely affected since the date of this Agreement, whether by fire, casualty, act of God or otherwise, and there shall have been no other changes in the Business, properties, assets, condition (financial or otherwise), management or prospects of the Company or any of its respective subsidiaries, if any, that would have a Material Adverse Change. (e) Filing of the Restated Articles. The Restated Articles shall have been filed with the Secretary of State of the State of California. (f) Rights Agreement. The Company and each Purchaser shall have executed the Rights Agreement attached hereto as Exhibit D. (g) Co-Sale Agreement. The Company, each Purchaser and each Founder (as defined in the Co-Sale Agreement) shall have executed the Co-Sale Agreement attached hereto as Exhibit E. (h) Compliance Certificate. The Company shall have delivered a Certificate, executed by the President of the Company and dated the Closing Date, certifying to the fulfillment of the conditions specified in subsections (a) and (b) of this Section 5.1. 14 (i) Opinion of Counsel. The Purchasers shall have received an opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation, the Company's counsel, in substantially the form attached hereto as Exhibit F. 5.2 Conditions to Obligations of the Company at the Closing. The Company's obligation to sell and issue the Preferred Shares at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived in accordance with the provisions of Section 7.3 hereof. (a) Representations and Warranties Correct. The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of said date. (b) Conditions Fulfilled. The conditions set forth in subsections (b), (d), (e), (f) and (g) of Section 5.1 shall have been fulfilled. (c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing). 6. Termination. 6.1 Termination by Mutual Written Consent. This Agreement may be terminated, and the transactions contemplated hereby abandoned, at any time prior to the Closing by the written agreement of the Company and the Purchasers. 6.2 Termination for Breach. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time before the Closing (or any date to which the Closing may have been extended by the written agreement of the parties obligated to perform on such Closing) by any party obligated to perform on the Closing if the conditions for its benefit set forth in Sections 5.1 and 5.2, as the case may be, have not been satisfied on or prior to the Closing and if the conditions for the benefit of the other parties have been satisfied or waived, and if such performing party shall have given written notice of termination to the non-performing party. 6.3 Termination for Delay. Unless earlier terminated in accordance with Section 6.1 or 6.2, this Agreement may be terminated and the transactions contemplated hereby may be abandoned by the Company or the Purchasers if the Closing does not occur by January 15, 1999; provided, however, that the right to terminate this Agreement under this Section 6.3 shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date. 6.4 Rights After Termination. Upon termination of this Agreement under this Section 6, the parties shall be released from all obligations arising hereunder, except as to any liability for misrepresentations, breach or default in connection with any warranty, representation, covenant, duty or obligation given, occurring or arising prior to the date of termination if the non-breaching party has detrimentally relied thereon. 15 7. Miscellaneous. 7.1 Survival of Representations. The representations, warranties, covenants and agreements made herein or in any certificates or documents executed in connection herewith shall survive the execution and delivery hereof and the closing of the transaction contemplated hereby. 7.2 Parties in Interest. Except as otherwise set forth herein, all covenants, agreements, representations, warranties and undertakings contained in this Agreement shall be binding on and shall inure to the benefit of the respective successors and assigns of the parties hereto (including transferees of any of the Preferred Shares). 7.3 Amendments and Waivers. Amendments or additions to this Agreement may be made, agreements with any decision of the Company may be made, and compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively) upon the written consent of the Company and the holders of a majority of the Preferred Shares (or Common Stock issued upon conversion of the Preferred Shares). Prompt notice of any such amendment or waiver shall be given to any person who did not consent thereto. This Agreement (including the Schedules and Exhibits annexed hereto, which are an integral part of this Agreement) constitutes the full and complete agreement of the parties with respect to the subject matter hereof. 7.4 Notices. All notices, requests, consents, reports and demands shall be in writing and shall be hand delivered, sent by facsimile or other electronic medium, or mailed, postage prepaid, to the Company or to the Purchasers at the address set forth below each party's signature to this Agreement or to such other address as may be furnished in writing to the other parties hereto. 7.5 Expenses. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby; provided, however, that if and only if the acquisition of the Preferred Shares is consummated, the Company shall pay all reasonable costs and expenses of the Purchasers in connection with the investigation, preparation, execution and delivery of this Agreement (and due diligence related thereto) and the other instruments and documents to be delivered hereunder and the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of special counsel to the Purchasers, not to exceed $10,000 in the aggregate for all such costs and expenses. 7.6 Counterparts. This Agreement and any Exhibit hereto may be executed in multiple counterparts, each of which shall constitute an original but all of which shall constitute but one and the same instrument. One or more counterparts of this Agreement or any Exhibit hereto may be delivered via telecopier, with the intention that they shall have the same effect as an original counterpart hereof. 7.7 Effect of Headings. The article and section headings herein are for convenience only and shall not affect the construction hereof. 7.8 Adjustments. All provisions of this Agreement shall be automatically adjusted to reflect any split of capital interests (in the nature of a stock split), distribution of additional capital interests to the existing holders of capital interests (in the nature of a stock dividend) or other such form of recapitalization. 16 7.9 Governing Law. This Agreement shall be deemed a contract made under the laws of California and together with the rights and obligations of the parties hereunder, shall be construed under and governed by the laws of California. 7.10 Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and they supersede, merge and render void every other prior written and/or oral understanding or agreement among or between the parties hereto. 7.11 Severability. In case any provision of this Agreement shall be found by a court of law to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Series A Preferred Stock Purchase Agreement as of the date first written above. ONELIST, INC. a California Corporation Name: Mark Fletcher Title: Chief Executive Officer and President Address: 951 Old County Road # 107 Belmont, CA 94002 Signature Page to Series A Preferred Stock Purchase Agreement EX-10.18 23 PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.18 FINDMAIL COMMUNICATIONS, INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT This Series A Preferred Stock Purchase Agreement (the "Agreement") is made as of the 22nd day of June, 1998, by and between FindMail Communications, Inc., a Delaware corporation (the "Company"), and the investors listed on Exhibit A attached hereto (each a "Purchaser" and together, if more than one, the "Purchasers"). The parties hereby agree as follows: 1. Purchase and Sale of Preferred Stock. 1.1 Sale and Issuance of Series A Preferred Stock. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the First Amended and Restated Certificate of Incorporation, in the form attached hereto as Exhibit B (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to each Purchaser at the Closing that number of shares of Series A Preferred Stock set forth opposite each such Purchaser's name on Exhibit A attached hereto at a purchase price of $1.00 per share. The shares of Series A Preferred Stock issued to the Purchaser pursuant to this Agreement shall be hereinafter referred to as the "Stock." 1.2 Closing; Delivery. (a) The purchase and sale of the Stock shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at 10:00 a.m., on June 22, 1998, or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the "Closing"). (b) At the Closing, the Company shall deliver to each Purchaser a certificate representing the Stock being purchased thereby against payment of the purchase price therefor by check or by wire transfer to the Company's bank account. 2. Representations, Warranties and Covenants of the Company. The Company hereby represents, warrants and covenants to each Purchaser that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and 2 a proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so- to qualify would have a material adverse effect on its business or properties. 2.2 Capitalization. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of: (a) Eight Hundred Fifty Thousand (850,000) shares of Preferred Stock, all of which have been designated Series A Preferred Stock, none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate. (b) Four Million Five Hundred Forty Thousand (4,540,000) shares of Common Stock, Two Million Seven Hundred Ninety Thousand (2,790,000) shares of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. The Company has reserved (i) Eight Hundred Fifty Thousand (850,000) shares of Common Stock for issuance upon conversion of the Preferred Stock and (ii) Nine Hundred Thousand (900,000) shares of Common Stock for issuance to officers, directors, employees and consultants of the Company under the Company's 1998 Stock Option Plan. 2.3 Subsidiaries. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Investors Rights Agreement, in the form attached hereto as Exhibit D (the "Investors Rights Agreement"), the Co-Sale Agreement in the form attached hereto as Exhibit E (the "Co-Sale Agreement"), and the Voting Agreement in the form attached hereto as Exhibit F (the "Voting Agreement" and collectively with this Agreement, the Investors Rights Agreement and the Co-Sale Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Stock and the Common Stock issuable upon conversion of the Stock (together, the "Securities") has been taken or will be taken prior to the Closing, and the Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by -2- 3 applicable federal or state securities laws. The issuance of the Stock is not subject to any pre-emptive rights or rights of first refusal. 2.5 Valid Issuance of Securities. The Stock that is being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors Rights Agreement and applicable state and federal securities laws. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Stock will be issued in compliance with all applicable federal and state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. The Common Stock issuable upon conversion of the Stock has been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Restated Certificate, shall be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors Rights Agreement and applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the "Securities Act"). 2.7 Litigation. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that questions the validity of the Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition or affairs of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. -3- 4 2.8 Patents and Trademarks. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, domain names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of, the rights of others, which conflict or infringement would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. 2.9 Compliance with Other Instruments. (a) The Company is not in violation or default of any provisions of its Restated Certificate or Bylaws or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of federal or state statute, rule or regulation applicable to the Company which would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or of its assets or properties. (b) The Company has avoided every condition, and has not performed any act, the occurrence of which would result in the Company's loss of any right granted under any -4- 5 license, distribution agreement or other agreement which would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. 2.10 Agreements; Action. (a) Except for the Agreements, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) Except for agreements explicitly contemplated by the Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of, $10,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company's exclusive fight to develop, manufacture, assemble, distribute, market or sell its products. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $10,000 or in excess of $25,000 in the aggregate, (iii) made any loans or advances to any person, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (e) The Company is not a party to and is not bound by any contract agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws, that materially and adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. 2.11 Disclosure. The Company has provided the Purchasers with all the information which the Purchasers have requested for deciding whether to acquire the Stock and all information which the Company believes is reasonably necessary to enable the Purchasers to make such a decision, including certain of the Company's projections describing its proposed business (collectively, the "Business Plan"). The representations and warranties of the Company contained in this Agreement and the exhibits attached hereto and in any certificate furnished or to be furnished to Purchasers at the Closing do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements -5- 6 contained herein or therein not misleading in light of the circumstances under which they were made. To the extent the Business Plan was prepared by management of the Company, the Business Plan and the financial and other projections contained in the Business Plan were prepared in good faith and the Company reasonably believes there is a reasonable basis for such projections. 2.12 No Conflict of Interest. The Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business. None of the Company's officers; or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, except that officers, directors and/or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded companies that may compete with the Company. To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families are, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 2.13 Rights of Registration and Voting. Except as contemplated in the Investors Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. Except as contemplated in the Voting Agreement, no stockholders of the Company have entered into any agreements with respect to the voting of capital shares of the Company. 2.14 Title to Program and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.15 Manufacturing and Marketing Rights. The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.16 No Financial Statements. The Company has not prepared any historical balance sheet, income statement, statement of cash flows or stockholders' equity or other financial statement. The Company has no material liability or obligation, absolute or contingent (individually or in the aggregate), except (a) obligations and liabilities incurred after the date of incorporation in the ordinary course of business that are not material, individually or in the -6- 7 aggregate, and (b) obligations under contracts made in the ordinary course of business that would not be required to be reflected in financial statements prepared in accordance with generally accepted accounting principles. 2.17 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.18 Tax Returns and Payments. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due. 2.19 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which would have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company is terminable at the will of the Company. To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 2.20 Proprietary Information and Inventions Agreements. Each employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the counsel for the Purchasers. The Company, after reasonable investigation, is not aware that any of its employees or consultants is in violation thereof, and the Company will use its best efforts to prevent any such violation. All consultants to or vendors of the Company with access to confidential information of the Company are parties to a written agreement substantially in the form or forms provided to counsel for the Purchasers under which, among other things, each such consultant or vendor is obligated to maintain the confidentiality of confidential information of the Company. The Company, after reasonable investigation, is not aware that any of its consultants or vendors are in violation thereof, and the Company will use its best efforts to prevent any such violation. 2.21 Permits. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would materially and adversely affect the business, properties, prospects, or financial condition of the Company, and believes that it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The -7- 8 Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.22 Corporate Documents. The Restated Certificate and Bylaws of the Company are in the form provided to counsel for the Purchasers. The copy of the minute books of the Company provided to the Purchasers' counsel contains minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and reflects all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes accurately in all material respects. 2.23 Real Property Holding Corporation. The Company is not a United States real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. 2.24 Qualified Small Business Stock. The Company represents and warrants to the Purchasers that, to the Company's knowledge, the Stock should qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the Internal Revenue Code of 1986, as amended as of the date hereof. 3. Representations and Warranties of the Purchasers. Each Purchaser hereby represents and warrants to the Company that: 3.1 Authorization. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by the Purchaser's execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. The Purchaser represents that it has full power and authority to enter into this Agreement. The Purchaser has not been formed for the specific purpose of acquiring the Securities. -8- 9 3.3 Disclosure of Information. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Stock with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Purchaser to rely thereon. 3.4 Restricted Securities. The Purchaser understands that the Securities have not been, and will not be, registered, under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as set forth in the Investors Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under, no obligation and may not be able to satisfy. 3.5 No Public Market. The Purchaser understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. 3.6 Legends. The Purchaser understands that the Securities and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (b) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. -9- 10 3.7 Accredited Investor. The Purchaser is an "accredited investor" as defined in Rule 501 (a) of Regulation D promulgated under the Securities Act. 3.8 Foreign Investors. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe: for the Stock or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Stock, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's subscription and payment for and continued beneficial ownership of the Stock, will not violate any applicable securities or other laws of the Purchaser's jurisdiction. 4. Conditions of the Purchasers' oblations at Closing. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 4.2 Performance. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Compliance Certificate. The President of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 4.5 Opinion of Company Counsel. The Purchasers shall have received from Venture Law Group, counsel for the Company, an opinion, dated as of the Closing, in substantially the form of Exhibit G. 4.6 Board of Directors. The Bylaws of the Company shall provide that the Board of Directors of the Company shall consist of five (5) persons. As of the Closing, the Board shall be comprised of Eric Archambeau, Scott Hassan, Carl Page, and Martin Roscheisen, with one -10- 11 vacancy to be filled by an independent industry executive approved by the Purchasers and a majority of Scott Hassan, Carl Page and Martin Roscheisen (collectively, the "Founders"). 4.7. Proceedings and Documents. All corporate and other proceedings in connection with the transactions, contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchasers' counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. This may include, without limitation, good standing certificates and certification by the Company's Secretary regarding the Restated Certificate and Bylaws and Board of Director and stockholder resolutions approving the transactions contemplated by this Agreement. 4.8 Proprietary Information and Employee Stock Purchase Agreements. Each employee of and consultant to the Company shall have entered into a Proprietary Information and Inventions Agreement in the form previously provided to counsel for the Purchasers. Each holder of Common Stock of the Company shall have entered into a Common Stock Purchase Agreement in the form previously provided to counsel for the Purchasers. 4.9 Investors Rights Agreement. The Company, each Purchaser and the Founders shall have executed and delivered the Investors Rights Agreement. 4.10 Co-Sale Agreement. The Company, each Purchaser and the Founders shall have executed and delivered the Co-Sale Agreement. 4.11 Voting Agreement. The Company, each Purchaser and the Founders shall have executed and delivered the Voting Agreement. 4.12 Restated Certificate. The Company shall have filed the Restated Certificate with the Secretary of State of Delaware on or prior to the Closing Date, which shall continue to be in full force and effect as of the Closing Date. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived. 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Performance. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or compiled with in all material respects. -11- 12 5.3 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 5.4 Investors Rights Agreement. Each Purchaser shall have executed the Investors Rights Agreement. 5.5 Co-Sale Agreement. Each Purchaser shall have executed the Co-Sale Agreement. 5.6 Voting Agreement. Each Purchaser shall have executed the Voting Agreement. 6. Miscellaneous. 6.1 Survival of Warranties. The warranties, representations and covenants of the Company and Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement for a period of one (1) year, and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Purchasers or the Company. 6.2 Transfer; Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 6.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram, confirmed fax or email, or forty-eight (48) hours after being deposited in the U.S. mail; as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto, or as subsequently modified by written notice, and (a) if to the Company, with a copy to Venture -12- 13 Law Group, 2800 Sand Hill Road, Menlo Park, CA 94025, fax (650) 233-8386, Attn: Robert V. W. Zipp or (b) if to the Purchasers, with a copy to Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304, fax (650) 493-6811, Attn: Anton Commissaris. 6.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which each Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 Fees and Expenses. The Company shall pay the reasonable fees and expenses of counsel for the Purchasers, incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby (such fees and expenses not to exceed $10,000.00). 6.9 Attorney's Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.10 Amendments and Waivers. Any term of this Agreement may be amended with the written consent of the Company and the holders of at least a majority of the Common Stock issued or issuable upon conversion of the Stock. Any amendment or waiver effected in accordance with this Section 6.10 shall be binding upon the Purchasers and each transferee of the Stock (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 6.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 6.12 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any holder of any of the Stock, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter -13- 14 occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 6.13 Entire Agreement. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled. 6.14 Cooperate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHT'S OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 6.15 Confidentiality. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of Stock purchased hereunder. The provisions of this Section 6.15 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 6.16 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Securities. [Signature Pages Follow] -14- 15 The parties have executed this Series A Preferred Stock Purchase Agreement as of the date first written above. COMPANY: FINDMAIL COMMUNICATIONS, INC. By: ------------------------------------ Name: ---------------------------------- (print) Title: --------------------------------- Address: 961 Duncan Street San Francisco, CA 94131 PURCHASERS: ATLAS VENTURE FUND III, L.P. By: Atlas Venture Associates III, LLC Its: General Partner By: ------------------------------------ Member Manager Name: ---------------------------------- (print) Address: 222 Berkeley Street Boston, MA 02116 ATLAS VENTURE ENTREPRENEURS' FUND III, L.P. By: Atlas Venture Associates III, LLC Its: General Partner By: ------------------------------------ Member Manager Name: ---------------------------------- (print) Address: 222 Berkeley Street Boston, MA 02116 -15- 16 The parties have executed this Series A Preferred Stock Purchase Agreement as of the date first written above. FINDMAIL COMMUNICATIONS, INC. By: ------------------------------------ Name: ---------------------------------- (print) Title: --------------------------------- Address: 961 Duncan Street San Francisco, CA 94131 PURCHASERS: ATLAS VENTURE FUND III, L.P. By: Atlas Venture Associates III, LLC Its: General Partner By: ------------------------------------ Member Manager Name: ---------------------------------- (print) Address: 222 Berkeley Street Boston, MA 02116 ATLAS VENTURE ENTREPRENEURS' FUND III, L.P. By: Atlas Venture Associates III, LLC Its: General Partner By: ------------------------------------ Member Manager Name: ---------------------------------- (print) Address: 222 Berkeley Street Boston, MA 02116 -16- EX-10.19 24 PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.19 EGROUPS, INC. SERIES B PREFERRED STOCK PURCHASE AGREEMENT This Series B Preferred Stock Purchase Agreement (the "Agreement") is made as of the 17th day of December 1998, by and between eGroups, Inc. (formerly FindMail Communications, Inc.), a Delaware corporation (the "Company"), and the investors listed on Exhibit A attached hereto (each a "Purchaser" and together, if more than one, the "Purchasers"). The parties hereby agree as follows: 1. Purchase and Sale of Preferred Stock. 1.1 Sale and Issuance of Series B Preferred Stock. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Second Amended and Restated Certificate of Incorporation, in the form attached hereto as Exhibit B (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to each Purchaser at the Closing that number of shares of Series B Preferred Stock set forth opposite each such Purchaser's name on Exhibit A attached hereto at a purchase price of $2.8791 per share. The shares of Series B Preferred Stock issued to the Purchaser pursuant to this Agreement shall be hereinafter referred to as the "Stock." 1.2 Closing; Delivery. (a) The purchase and sale of the Stock shall take place at the offices of Perkins Coie, LLP, 250 Montgomery Street, 16th Floor, San Francisco, California, at 10:00 a.m., on December 17, 1998, or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the "Closing"). (b) At the Closing, the Company shall deliver to each Purchaser a certificate representing the Stock being purchased thereby against payment of the purchase price therefor by check or by wire transfer to the Company's bank account. 2. Representations, Warranties and Covenants of the Company. The Company hereby represents, warrants and covenants to each Purchaser that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. 2.2 Capitalization. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of: (a) Two Million Six Hundred Ten Thousand (2,610,000) shares of preferred stock (the "Preferred Stock"), of which (i) Eight Hundred Ten Thousand (810,000) have been designated Series A Preferred Stock, all of which are issued and outstanding immediately prior to the Closing (the "Series A Preferred Stock"); and (ii) One Million Eight Hundred Thousand (1,800,000) have been designated Series B Preferred Stock (the "Series B Preferred Stock"), none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate. (b) Ten Million (10,000,000) shares of Common Stock, Three Million Thirty Thousand Five Hundred (3,030,500) shares of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. The Company has reserved (i) Two Million Six Hundred Ten Thousand (2,610,000) shares of Common Stock for issuance upon conversion of the Preferred Stock and (ii) Nine Hundred Fifty Thousand (950,000) shares of Common Stock for issuance to officers, directors, employees and consultants of the Company under the Company's 1998 Stock Option Plan, of which (A) Two Hundred Forty Thousand Five Hundred (240,500) shares have been issued and are outstanding upon the exercise of options granted, (B) Eighteen Thousand Two Hundred (18,200) shares are issuable upon the exercise of options currently outstanding, and (C) Six Hundred Ninety One Thousand Three Hundred (691,300) shares are available for future grants. Except for (i) conversion privileges of the Preferred Stock, and (ii) outstanding options under the Company's 1998 Stock Option Plan and except as set forth in the Agreements and the Restated Certificate, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, oral or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. 2.3 Subsidiaries. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. -2- 3 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the First Amended and Restated Investors Rights Agreement, in the form attached hereto as Exhibit D (the "Investors Rights Agreement"), the First Amended and Restated Co-Sale Agreement in the form attached hereto as Exhibit E (the "Co-Sale Agreement"), and the First Amended and Restated Voting Agreement in the form attached hereto as Exhibit F (the "Voting Agreement" and collectively with this Agreement, the Investors Rights Agreement and the Co-Sale Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Stock and the Common Stock issuable upon conversion of the Stock (together, the "Securities") has been taken or will be taken prior to the Closing, and the Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by applicable federal or state securities laws. The issuance of the Stock is not subject to any pre-emptive rights or rights of first refusal. 2.5 Valid Issuance of Securities. The Stock that is being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors Rights Agreement and applicable state and federal securities laws. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Stock will be issued in compliance with all applicable federal and state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. The Common Stock issuable upon conversion of the Stock has been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Restated Certificate, shall be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors Rights Agreement and applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as -3- 4 amended, and the rules thereunder, other applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the "Securities Act"). 2.7 Litigation. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that questions the validity of the Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition or affairs of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 2.8 Patents and Trademarks. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, domain names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of, the rights of others, which conflict or infringement would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary -4- 5 to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. 2.9 Compliance with Other Instruments. (a) The Company is not in violation or default of any provisions of its Restated Certificate or Bylaws or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of federal or state statute, rule or regulation applicable to the Company which would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or of its assets or properties. (b) The Company has avoided every condition, and has not performed any act, the occurrence of which would result in the Company's loss of any right granted under any license, distribution agreement or other agreement which would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. 2.10 Agreements; Action. (a) Except for the Agreements, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof (b) Except for agreements explicitly contemplated by the Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of, $10,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $ 10,000 or in excess of $25,000 in the aggregate, (iii) made any loans or -5- 6 advances to any person, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (e) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws, that materially and adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. 2.11 Disclosure. The Company has provided the Purchasers with all the information which the Purchasers have requested for deciding whether to acquire the Stock and all information which the Company believes is reasonably necessary to enable the Purchasers to make such a decision, including certain of the Company's projections describing its proposed business (collectively, the "Business Plan"). The representations and warranties of the Company contained in this Agreement and the exhibits attached hereto and in any certificate furnished or to be furnished to Purchasers at the Closing do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. To the extent the Business Plan was prepared by management of the Company, the Business Plan and the financial and other projections contained in the Business Plan were prepared in good faith and the Company reasonably believes there is a reasonable basis for such projections. 2.12 No Conflict of Interest. The Company is riot indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business. None of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, except that officers, directors and/or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded companies that may compete with the Company. To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families are, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. -6- 7 2.13 Rights of Registration and Voting. Except as contemplated in the Investors Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. Except as contemplated in the Voting Agreement, no stockholders of the Company have entered into any agreements with respect to the voting of capital shares of the Company. 2.14 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens, which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.15 Manufacturing and Marketing Rights. The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.16 Financial Statements. The Company has made available to each Purchaser its unaudited balance sheet for the period from inception to October 31, 1998 and its unaudited income statement and statement of cash flows and stockholders' equity from the period from inception to October 31, 1998 (collectively, the "Financial Statements"). The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no material liability or obligation, absolute or contingent (individually or in the aggregate), except (a) obligations and liabilities incurred after October 31, 1998 in the ordinary course of business that are not material, individually or in the aggregate, and (b) obligations under contracts made in the ordinary course of business that would not be required to be reflected in financial statements prepared in accordance with generally accepted accounting principles. 2.17 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.18 Tax Returns and Payments. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due. 2.19 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor -7- 8 dispute involving the Company pending, or to the knowledge of the Company threatened, which would have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company is terminable at the will of the Company. To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 2.20 Proprietary Information and Inventions Agreements. Each employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the counsel for the Purchasers. The Company, after reasonable investigation, is not aware that any of its employees or consultants is in violation thereof, and the Company will use its best efforts to prevent any such violation. All consultants to or vendors of the Company with access to confidential information of the Company are parties to a written agreement substantially in the form or forms provided to counsel for the Purchasers under which, among other things, each such consultant or vendor is obligated to maintain the confidentiality of confidential information of the Company. The Company, after reasonable investigation, is not aware that any of its consultants or vendors are in violation thereof, and the Company will use its best efforts to prevent any such violation. 2.21 Permits. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would materially and adversely affect the business, properties, prospects, or financial condition of the Company, and believes that it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.22 Corporate Documents. The Restated Certificate and Bylaws of the Company are in the form provided to counsel for the Purchasers. The copy of the minute books of the Company provided to the Purchasers' counsel contains minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and reflects all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes accurately in all material respects. 2.23 Real Property Holding Corporation. The Company is not a United States real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. -8- 9 2.24 Qualified Small Business Stock. The Company represents and warrants to the Purchasers that, to the Company's knowledge, the Stock should qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the Internal Revenue Code of 1986, as amended as of the date hereof. 3. Representations and Warranties of the Purchasers. Each Purchaser hereby represents and warrants to the Company that: 3.1 Authorization. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by the Purchaser's execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. The Purchaser represents that it has full power and authority to enter into this Agreement. The Purchaser has not been formed for the specific purpose of acquiring the Securities. 3.3 Disclosure of Information. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Stock with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Purchaser to rely thereon. 3.4 Restricted Securities. The Purchaser understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's -9- 10 representations as expressed herein. The Purchaser understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as set forth in the Investors Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. 3.5 No Public Market. The Purchaser understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. 3.6 Legends. The Purchaser understands that the Securities and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 3.7 Accredited Investor. The Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 3.8 Foreign Investors. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Stock or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Stock, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, -10- 11 sale, or transfer of the Stock. Such Purchaser's subscription and payment for and continued beneficial ownership of the Stock, will not violate any applicable securities or other laws of the Purchaser's jurisdiction. 4. Conditions of the Purchasers' Obligations at Closing. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 4.2 Performance. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Compliance Certificate. The President of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 4.5 Opinion of Company Counsel. The Purchasers shall have received from Perkins Coie LLP, counsel for the Company, an opinion, dated as of the Closing, in substantially the form of Exhibit G. 4.6 Board of Directors. The Bylaws of the Company shall provide that the Board of Directors of the Company shall consist of five (5) persons. As of the Closing, the Board shall be comprised of Eric Archambeau, Scott Hassan, Michael Moritz and Martin Roscheisen, with one vacancy to be filled in accordance with the terms of the Voting Agreement. 4.7 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchasers' counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. This may include, without limitation, good standing certificates and certification by the Company's Secretary regarding the Restated Certificate and Bylaws and Board of Director and stockholder resolutions approving the transactions contemplated by this Agreement. -11- 12 4.8 Proprietary Information and Employee Stock Purchase Agreements. Each employee of and consultant to the Company shall have entered into a Proprietary Information and Inventions Agreement in the form previously provided to counsel for the Purchasers. Each holder of Common Stock of the Company shall have entered into a Common Stock Purchase Agreement in the form previously provided to counsel for the Purchasers. 4.9 Investors Rights Agreement. The Company, each Purchaser and the Founders shall have executed and delivered the Investors Rights Agreement. 4.10 Co-Sale Agreement. The Company, each Purchaser and the Founders shall have executed and delivered the Co-Sale Agreement 4.11 Voting Agreement. The Company, each Purchaser and the Founders shall have executed and delivered the Voting Agreement. 4.12 Restated Certificate. The Company shall have filed the Restated Certificate with the Secretary of State of Delaware on or prior to the Closing Date, which shall continue to be in full force and effect as of the Closing Date. 4.13. Amendments to Founders' Agreements. The Company and each of the Founders shall have executed an Amendment to that certain Common Stock Purchase Agreement dated June 5, 1998, between each Founder and the Company, in substantially the form attached hereto as Exhibit H. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Performance. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. -12- 13 5.4 Investors Rights Agreement. Each Purchaser shall have executed the Investors Rights Agreement. 5.5 Co-Sale Agreement. Each Purchaser shall have executed the Co-Sale Agreement. 5.6 Voting Agreement. Each Purchaser shall have executed the Voting Agreement. 6. Miscellaneous. 6.1 Survival of Warranties. The warranties, representations and covenants of the Company and Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement for a period of one (1) year, and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Purchasers or the Company. 6.2 Transfer; Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 6.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram, confirmed fax or email, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto, or as subsequently modified by written notice, and if to the Company, with a copy to Perkins Coie LLP, c/o 188 The Embarcadero, Third Floor, San Francisco, CA 94105, fax (415) 704-3152, Attn.: Robert v. W. Zipp . -13- 14 6.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which each Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 Fees and Expenses. The Company shall pay the reasonable fees and expenses of counsel for the Purchasers, incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby (such fees and expenses not to exceed $ 10,000.00). 6.9 Attorney's Fees, If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.10 Amendments and Waivers. Any term of this Agreement may be amended with the written consent of the Company and the holders of at least a majority of the Common Stock issued or issuable upon conversion of the Stock. Any amendment or waiver effected in accordance with this Section 6. 10 shall be binding upon the Purchasers and each transferee of the Stock (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 6.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 6.12 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any holder of any of the Stock, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the -14- 15 part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 6.13 Entire Agreement. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled. 6.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 6.15 Confidentiality. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of Stock purchased hereunder. The provisions of this Section 6.15 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 6.16 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Securities. [Signature Pages Follow] -15- 16 The parties have executed this Series B Preferred Stock Purchase Agreement as of the date first written above. COMPANY: EGROUPS, INC. By: Martin Roescheisen, Chief Executive Officer Address: 520 Third Street, Suite 225 San Francisco, CA 94107 PURCHASERS: Sequoia Capital VIII Sequoia International Technology Partners VIII Sequoia International Technology Partners VM (Q) By: SC VIII Management, LLC A California Limited Liability Company its General Partner By: Managing Member CMS Partners LLC Sequoia 1997 By: Address: 3000 Sand Hill Road Building 4, Suite 280 Menlo Park, CA 94025 SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT -16- EX-10.20 25 PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.20 EGROUPS, INC. SERIES D PREFERRED STOCK PURCHASE AGREEMENT This Series D Preferred Stock Purchase Agreement (the "Agreement") is made as of the 14th day of December, 1999, by and between eGroups, Inc., a Delaware corporation (the "Company"), and the investors listed on Exhibit A attached hereto (each a "Purchaser" and together, if more than one, the "Purchasers"). The parties hereby agree as follows: 1. PURCHASE AND SALE OF PREFERRED STOCK. 1.1 SALE AND ISSUANCE OF SERIES D PREFERRED STOCK. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Fifth Amended and Restated Certificate of Incorporation, in the form attached hereto as Exhibit B (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Purchaser severally agrees to purchase at the Closing and the Company agrees to sell and issue to each Purchaser at the Closing that number of shares of Series D Preferred Stock set forth opposite each such Purchaser's name on Exhibit A attached hereto at a purchase price of $10.29 per share. The shares of Series D Preferred Stock issued to the Purchaser pursuant to this Agreement shall be hereinafter referred to as the "Stock." 1.2 CLOSING; DELIVERY. (a) The purchase and sale of the Stock shall take place at the offices of Perkins Coie, LLP, 250 Montgomery Street, 16th Floor, San Francisco, California, at 10:00 a.m., on December 14th, 1999, or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the "Closing"). (b) At the Closing, the Company shall deliver to each Purchaser a certificate representing the Stock being purchased thereby against payment of the purchase price therefor by check or by wire transfer to the Company's bank account, inclusive of any fees for delivery or receipt thereof. (c) The Company may sell up to the balance of the authorized number of shares of Series D Preferred Stock not sold at the Closing to such purchasers as it shall select, provided the agreement for sale is executed not later than January 31, 2000. Any such purchaser shall become a party to this Agreement and the other Agreements (as defined below), by and among the Company and the Investors, and shall have the rights and obligations hereunder and thereunder. 2 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company hereby represents, warrants and covenants to each Purchaser that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. 2.2 CAPITALIZATION. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of: (a) Seventeen Million Five Hundred Thousand (17,500,000) shares of preferred stock (the "Preferred Stock"), of which (i) One Million Six Hundred Twenty Thousand (1,620,000) have been designated Series A Preferred Stock, all of which are issued and outstanding immediately prior to the Closing (the "Series A Preferred Stock"); (ii) Three Million Six Hundred Thousand (3,600,000) have been designated Series B Preferred Stock (the "Series B Preferred Stock"), Three Million Five Hundred Fifty Six Thousand Seven Hundred Seventy Two (3,556,772) of which are issued and outstanding immediately prior to the Closing; (iii) Seven Million Two Hundred Eighty Thousand Eight Hundred Eleven (7,280,811) have been designated Series C Preferred Stock, Seven Million Two Hundred Eighty Thousand Eight Hundred Eleven (7,280,811) of which are issued and outstanding immediately prior to the Closing; and (iv) Four Million Five Hundred Twenty Thousand (4,520,000) have been designated Series D Preferred Stock, none of which are issued and outstanding prior to the Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate. (b) Forty Three Million (43,000,000) shares of Common Stock, Fifteen Million Seven Hundred Sixty Two Thousand One Hundred Eighty Nine (15,762,189) shares of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock and Preferred Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. The Company has reserved Seventeen Million Twenty Thousand Eight Hundred Eleven (17,020,811) shares of Common Stock for issuance upon conversion of the Preferred Stock. Two Million Three Hundred Thirty Four Thousand Seven Hundred Sixty Two (2,334,762) shares are issuable upon the exercise of options currently outstanding, and Nine Hundred Thirty Thousand Three Hundred Forty (930,340) shares are available for future grants under the Company's 1998 Stock Option Plan. Except for (i) conversion privileges of the Preferred Stock, and (ii) outstanding options under the Company's 1998 Stock Option Plan and except as set forth in the Agreements and the Restated Certificate, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or -2- 3 agreements, oral or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. 2.3 SUBSIDIARIES. Except for a subsidiary incorporated under the laws of each of Japan (eGroups KK), Germany (ONElist Europe GmbH), and California (ONElist, Inc.) the Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. 2.4 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Second Amended and Restated Investors Rights Agreement, in the form attached hereto as Exhibit D (the "Investors Rights Agreement"), the Second Amended and Restated Co-Sale Agreement in the form attached hereto as Exhibit E (the "Co-Sale Agreement"), and the Second Amended and Restated Voting Agreement in the form attached hereto as Exhibit F (the "Voting Agreement" and collectively with this Agreement, the Investors Rights Agreement and the Co-Sale Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Stock and the Common Stock issuable upon conversion of the Stock (together, the "Securities") has been taken or will be taken prior to the Closing, and the Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by applicable federal or state securities laws. The issuance of the Stock is not subject to any pre-emptive rights or rights of first refusal. 2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors Rights Agreement and applicable state and federal securities laws. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Stock will be issued in compliance with all applicable federal and state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. The Common Stock issuable upon conversion of the Stock has been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Restated Certificate, shall be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors Rights Agreement and applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local -3- 4 governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by the Agreements, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the "Securities Act"). 2.7 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that questions the validity of the Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition or affairs of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 2.8 PATENTS AND TRADEMARKS. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, domain names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of, the rights of others, which conflict or infringement would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. -4- 5 2.9 COMPLIANCE WITH OTHER INSTRUMENTS. (a) The Company is not in violation or default of any provisions of its Restated Certificate or Bylaws or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of federal or state statute, rule or regulation applicable to the Company which would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or of its assets or properties. (b) The Company has avoided every condition, and has not performed any act, the occurrence of which would result in the Company's loss of any right granted under any license, distribution agreement or other agreement which would have a material adverse effect on the assets, condition or affairs of the Company, financially or otherwise. 2.10 AGREEMENTS; ACTION. (a) Except for the Agreements and salary and stock option arrangements negotiated and executed in the ordinary course of business, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) Except for agreements explicitly contemplated by the Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of, $50,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000 or in excess of $500,000 in the aggregate, (iii) made any loans or advances to any person in excess of $25,000, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to -5- 6 believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (e) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws, that materially and adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. 2.11 DISCLOSURE. The Company has provided the Purchasers with all the information which the Purchasers have requested for deciding whether to acquire the Stock and all information which the Company believes is reasonably necessary to enable the Purchasers to make such a decision. The representations and warranties of the Company contained in this Agreement and the exhibits attached hereto and in any certificate furnished or to be furnished to Purchasers at the Closing do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 2.12 NO CONFLICT OF INTEREST. The Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business. None of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a material business relationship, or any firm or corporation which competes with the Company, except that officers, directors and/or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded companies that may compete with the Company. To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families are, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 2.13 RIGHTS OF REGISTRATION AND VOTING. Except as contemplated in the Investors Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. Except as contemplated in the Voting Agreement, no stockholders of the Company have entered into any agreements with respect to the voting of capital shares of the Company. 2.14 TITLE TO PROPERTY AND ASSETS. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens, which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.15 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person -6- 7 and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.16 FINANCIAL STATEMENTS. Section 2.16 to Exhibit C sets forth the Company's unaudited balance sheet as of September 30, 1999, and the related unaudited statements of operations and cash flow for the nine month period ended September 30, 1999 (the "Company's Interim Financials") (collectively, such financial statements are sometimes referred to herein as "Company's Financial Statements"). The Company's Financial Statements are true and correct in all material respects and have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The Company's Financial Statements present fairly the financial condition, operating results and cash flows of Company as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which are not expected to be material in amount or significance. Company's unaudited balance sheet dated as of September 30, 1999, shall be referred to as the "Company's Current Balance Sheet". 2.17 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due. 2.18 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which would have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company is terminable at the will of the Company. To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 2.19 PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS. Each employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality/proprietary information and invention assignment substantially in the form or forms delivered to the counsel for the Purchasers. The Company, after reasonable investigation, is not aware that any of its employees, consultants or officers is in violation thereof, and the Company will use its best efforts to prevent any such violation. All consultants to or vendors of the Company with access to confidential information of the Company are parties to a written agreement substantially in the form or forms provided to counsel for the Purchasers under which, among other things, each such consultant or vendor is obligated to maintain the confidentiality of confidential information of the Company. The Company, after reasonable investigation, is not aware that any of its consultants or vendors are in violation thereof, and the Company will use its best efforts to prevent any such violation. -7- 8 2.20 NO UNDISCLOSED LIABILITIES. Except as set forth in the Schedule of Exceptions, the Company does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, or unmatured (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate exceeds $100,000 and (i) has not been reflected in the Company's Current Balance Sheet, or (ii) has not arisen in the ordinary course of the Company's business since the date of the Company's Current Balance Sheet. 2.21 PERMITS. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would materially and adversely affect the business, properties, prospects, or financial condition of the Company, and believes that it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.22 CORPORATE DOCUMENTS. The Restated Certificate and Bylaws of the Company are in the form provided to counsel for the Purchasers. The copy of the minute books of the Company provided to the Purchasers' counsel contains minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and reflects all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes accurately in all material respects. 2.23 REAL PROPERTY HOLDING CORPORATION. The Company is not a United States real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. 2.24 YEAR 2000 COMPLIANCE. All of the Company's products and services (including products and services currently under development) to the extent they record, store, process, calculate and present dates, if at all, are Year 2000 Compliant. All of the Company's material products and services will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. To the knowledge of the Company, all of the Company's internal computer systems, including without limitation, its accounting systems, are Year 2000 Compliant. Any breach of this representation can be cured within a 15-day period ending January 15, 2000. 2.25 SMALL BUSINESS INVESTMENT ACT. The Company, together with its "affiliates" (as that term is defined in Section 121.103 of Title 13 of the Code of Federal Regulations (the "Federal Regulations")), is a "small business concern" within the meaning of the Small Business Investment Act of 1958, as amended (the "Small Business Act"), and the regulations thereunder, including Section 121.301 of Title 13 of the Federal Regulations (a "Small Business Concern"). The information delivered to Bank of America Ventures on SBA Forms 480, 652 and 1031 delivered in connection herewith is true and correct. The Company -8- 9 acknowledges that Bank of America Ventures is a Federal licensee under the Small Business Investment Act of 1958, as amended. 2.26 QUALIFIED SMALL BUSINESS STOCK. The Company is a "qualified small business" within the meaning of Section 1202(d) of the Internal Revenue Code of 1986, as amended (the "Code") as of the date hereof and the Series D Preferred Stock should qualify as "qualified small business stock" as defined in Section 1202(c) of the Code as of the date hereof. The Company further represents and warrants that, as of the date hereof, it meets the "active business requirement" of Section 1202(e) of the Code and it has made no "significant redemptions" within the meaning of Section 1202(c)(3)(B) of the Code. 2.27 ACTIVITIES SINCE DECEMBER 1, 1999. Since December 1, 1999, there has not been: (a) any material change or amendment to any contract or arrangement (involving obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000) by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement; (b) to the Company's knowledge, any other event or condition of any character which would materially and adversely affect the assets, properties, financial condition, operating results or business of the Company; (c) any change in the assets, liabilities, financial condition or operations of the Company from that reflected in the Company Financial Statements, other than changes in the ordinary course of business, none of which individually or in the aggregate has had or is expected to have a material adverse effect on such assets, liabilities, financial condition, operations or prospects of the Company; or (d) any arrangement or commitment by the Company to do any of the acts described in subsection (a) through (c) above. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser hereby severally represents and warrants to the Company that: 3.1 AUTHORIZATION. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by applicable federal or state securities laws. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by the Purchaser's execution of this Agreement, the Purchaser hereby confirms, that the Securities to be -9- 10 acquired by the Purchaser will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. The Purchaser represents that it has full power and authority to enter into this Agreement. The Purchaser has not been formed for the specific purpose of acquiring the Securities. 3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Stock with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Purchaser to rely thereon. 3.4 RESTRICTED SECURITIES. The Purchaser understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as set forth in the Investors Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. 3.5 NO PUBLIC MARKET. The Purchaser understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. 3.6 LEGENDS. The Purchaser understands that the Securities and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR -10- 11 DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 3.7 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 3.8 FOREIGN INVESTORS. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Stock or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Stock, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's subscription and payment for and continued beneficial ownership of the Stock, will not violate any applicable securities or other laws of the Purchaser's jurisdiction. 4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 4.2 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. -11- 12 4.5 OPINION OF COMPANY COUNSEL. The Purchasers shall have received from Perkins Coie LLP, counsel for the Company, an opinion, dated as of the Closing, in substantially the form of Exhibit G. 4.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchasers' counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. This may include, without limitation, good standing certificates and certification by the Company's Secretary regarding the Restated Certificate and Bylaws and Board of Director and stockholder resolutions approving the transactions contemplated by this Agreement. 4.7 INVESTORS RIGHTS AGREEMENT. The Company, each Purchaser and the Founders shall have executed and delivered the Investors Rights Agreement. 4.8 CO-SALE AGREEMENT. The Company, each Purchaser and the Founders shall have executed and delivered the Co-Sale Agreement. 4.9 VOTING AGREEMENT. The Company, each Purchaser and the Founders shall have executed and delivered the Voting Agreement. 4.10 RESTATED CERTIFICATE. The Company shall have filed the Restated Certificate with the Secretary of State of Delaware on or prior to the Closing Date, which shall continue to be in full force and effect as of the Closing Date. 4.11 SBA FORMS. The Company shall have executed and delivered to Bank of America Ventures a "Size Status Declaration" on SBA Form 480 and an "Assurance of Compliance" on SBA Form 652, and shall have provided to Bank of America Ventures information necessary for the preparation of a "Portfolio Financing Report" on SBA Form 1031. 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in -12- 13 connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 5.4 INVESTORS RIGHTS AGREEMENT. Each Purchaser shall have executed the Investors Rights Agreement. 5.5 CO-SALE AGREEMENT. Each Purchaser shall have executed the Co-Sale Agreement. 5.6 VOTING AGREEMENT. Each Purchaser shall have executed the Voting Agreement. 6. ADDITIONAL COVENANTS OF THE COMPANY. 6.1 CERTAIN COVENANTS RELATING TO SBA MATTERS. (a) USE OF PROCEEDS. The proceeds from the issuance and sale of the Stock (the "Proceeds") shall be used by the Company for working capital and other general corporate purposes. The Company shall provide Bank of America Ventures and the Small Business Administration (the "SBA") reasonable access to the Company's books and records for the purpose of confirming the use of the Proceeds. (b) BUSINESS ACTIVITY. For a period of one (1) year after the date hereof the Company shall not change the nature of its business activity if such change would render the Company ineligible to be a small business concern as provided in 13 C.F.R. Section 107.720. (c) COMPLIANCE. So long as Bank of America Ventures holds any securities of the Company, the Company will at all times comply with the non-discrimination requirements of 13 C.F.R. Parts 112, 113 and 117. (d) INFORMATION. Within forty-five (45) days after the end of each fiscal year and at such other times as Bank of America Ventures may reasonably request, the Company shall deliver to Bank of America Ventures a written assessment, in form and substance satisfactory to Bank of America Ventures, of the economic impact of Bank of America Ventures' financing specifying the full-time equivalent jobs created or retained in connection with such investment, and the impact of the financing on the Company's business in terms of profits and on taxes paid by the Company and its employees. Upon request, the Company agrees to promptly provide Bank of America Ventures with sufficient information to permit such Investor to comply with their obligations under the Small Business Investment Act of 1958, as amended, and the regulations promulgated thereunder and related thereto. Any submission of financial information to Bank of America Ventures pursuant to this section 6.1(d) shall include a certificate of the Company's president, chief executive officer, treasurer or chief financial officer. 6.2 QUALIFIED SMALL BUSINESS STOCK. The Company will use its best efforts to comply with the reporting and recordkeeping requirements of Section 1202 of the Code, any regulations promulgated thereunder and any similar state laws and regulations, and agrees not to -13- 14 repurchase any stock of the Company if such repurchase would cause the Shares not to so qualify as "Qualified Small Business Stock." The Company further covenants to submit to its shareholders and to state and federal taxation authorities such form and filings as may be required to document such compliance, with its franchise or income tax return for the current income year. 6.3 PERMITTED TRANSFERS. In the event Bank of America Ventures decides to transfer all (but not less than all) of the Series D Preferred Stock or (Common Stock issued upon conversion thereof) then held by Bank of America Ventures to Bank of America Ventures II L.P., the Company shall take all necessary actions, including amending any or all of the Agreements, to effect such transfer; provided that the terms and conditions of all of the Agreements shall inure to the benefit of and be binding upon Bank of America Ventures II L.P. upon the effective date of such transfer. In the event that CMG@Ventures III, LLC, @Ventures III, L.P., @Ventures Foreign Fund III, L.P. or @Ventures Investors, LLC (collectively "@Ventures") decides to transfer any or all of the Series D Preferred Stock or (Common Stock issued upon conversion thereof) then held by such Purchaser to affiliated funds or entities of @Ventures, the Company shall take all necessary actions, including amending any or all of the Agreements, to effect such transfer; provided that the terms and conditions of all of the Agreements shall inure to the benefit of and be binding upon the transferee upon the effective date of such transfer. 6.4 TERMINATION OF COVENANTS. The covenants set forth in Section 6.1, Section 6.2 and Section 6.3 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, whichever event shall first occur. 7. MISCELLANEOUS. 7.1 SURVIVAL OF WARRANTIES. The warranties, representations and covenants of the Company and Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement for a period of one (1) year after the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Purchasers or the Company. 7.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. -14- 15 7.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 7.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.6 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram, confirmed fax or email, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto, or as subsequently modified by written notice, and if to the Company, with a copy to Perkins Coie LLP, 250 Montgomery Street, 16th Floor, San Francisco, CA 94104, fax (415) 781-2525, Attn.: John S. Wills. 7.7 FINDER'S FEE. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which each Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.8 FEES AND EXPENSES. The Company shall pay the reasonable fees and expenses of one counsel for the Purchasers, incurred with respect to the negotiation of this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby (such fees and expenses not to exceed $15,000.00). 7.9 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 7.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended with the written consent of the Company and the holders of at least a majority of the Common Stock issued or issuable upon conversion of the Stock. Any amendment or waiver effected in accordance with this Section 7.10 shall be binding upon the Purchasers and each transferee of the Stock (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 7.11 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. -15- 16 In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 7.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any holder of any of the Stock, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 7.13 ENTIRE AGREEMENT. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled. 7.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 7.15 CONFIDENTIALITY. Each party hereto agrees that, except as required by law or with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of Stock purchased hereunder. The provisions of this Section 7.15 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 7.16 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or -16- 17 employees of any Purchaser shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Securities. [SIGNATURE PAGES FOLLOW] -17- 18 The parties have executed this SERIES D PREFERRED STOCK PURCHASE AGREEMENT as of the date first written above. COMPANY: EGROUPS, INC. By: ------------------------------------- Michael Klein President and Chief Executive Officer Address: 350 Brannan Street San Francisco, CA 94107 PURCHASERS: SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT EX-10.21 26 COMMON STOCK PURCHASE AGREEMENT 1 Exhibit 10.21 FINDMAIL COMMUNICATIONS, INC. AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT This Amendment to Common Stock Purchase Agreement (the "Agreement") is made as of December 15, 1998 to the Common Stock Purchase Agreement dated June 5, 1998 (the "Purchase Agreement") by and between FindMail Communications, Inc., a Delaware corporation (the "Company") and Scott Hassan (the "Purchaser"). Unless specifically designated otherwise, the capitalized terms herein shall have the same meanings given them in the Purchase Agreement. RECITAL The Purchase Agreement provides for the sale and issuance of 1,344,321 shares of the Company's Common Stock to Purchaser, which sale took place on June 5, 1998. The Company and the Purchaser desire to amend the Purchase Agreement to modify the terms of the Company's repurchase option under Sections 3(a) and 3(f) of the Purchase Agreement. AMENDMENT In consideration of the mutual promises and covenants hereinafter set forth, the parties hereto mutually agree as follows: A. Section 3(a)(iii) of the Purchase Agreement shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(iii) Subject to Section 3(a)(iv) below, the Repurchase Option shall be in effect with respect to sixty-seven percent (67%) of the Shares and shall lapse as to 1/36th of such Shares on each monthly anniversary of the Vesting Commencement Date (as set forth on the signature page of this Agreement), until all Shares are released from the Repurchase Option (provided in each case that Purchaser's employment or consulting relationship with the Company has not been terminated prior to the date of any such release). The remaining thirty-three percent (33%) shall not be subject to the Repurchase Option. Fractional shares shall be rounded to the nearest whole share. Shares as to which the Repurchase Option has not lapsed are referred to as "Unvested Shares." (iv) Notwithstanding the foregoing, the Repurchase Option shall immediately lapse with respect to all remaining Unvested Shares if, in connection with or following the completion of Merger (as defined below), Purchaser's employment with the Company (or its successor entity) is terminated by the Company or its successor without Cause (as defined below) or Purchaser terminates his employment voluntarily as a result of a Constructive Termination (as defined below). (v) "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a 2 sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. (vi) "Cause" for the termination of Purchaser's employment with the Company or its successor will exist at any time one or more of the following events: (A) Purchaser's willful misconduct in performance of the duties of his position with the Company or its successor, including Purchaser's refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not inconsistent with the Purchaser's position and duties, and such refusal to comply is not remedied within 10 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (B) conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude." (vii) "Constructive Termination" shall be deemed to occur if there is (A) an adverse change in the Purchaser's position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility (it being understood that Purchaser's operating responsibilities, title and reporting relationships may be changed in connection with integration of the Company's operations with those of an acquiror following a Merger); or (B) a reduction of the Purchaser's compensation, taken as a whole." B. Section 3(f) of the Purchase Agreement shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(f) Termination of Rights. The right of first refusal granted the Company by Section 3(b) above and the option to repurchase the Shares in the event of an involuntarily transfer granted the Company by Section 3(c) above shall terminate upon the first sale of Common Stock of the Company pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act. Upon termination of the right of first refusal described in Section 3(b) and the expiration or exercise of the Repurchase Option, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to the Purchaser." Except as specifically amended herein, the Purchase Agreement shall remain in full force and effect. This Amendment may be executed in counterparts, each of which shall constitute an original and all of which together constitute one instrument. This Amendment shall be governed by California law. 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year above first written. COMPANY: PURCHASER: FindMail Communications, Inc. Scott Hassan By: ___________________________________ ____________________________________ Martin Roscheisen, (Signature) Chief Executive Officer 4 FINDMAIL COMMUNICATIONS, INC. COMMON STOCK PURCHASE AGREEMENT This Common Stock Purchase Agreement (the "Agreement") is made as of June 5, 1998, by and between FindMail Communications, Inc., a Delaware corporation (the "Company"), and Scott Hassan ("Purchaser"). 1. SALE OF STOCK. Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, 1,344,321 shares of the Company's Common Stock (the "Shares") at a purchase price of $0.01 per Share for a total purchase price of $13,443.21. The term "Shares" refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. PURCHASE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution of this Agreement or at such other time and place as the Company and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by cash, check or an assignment of certain assets as set forth in the Bill of Sale and Instrument of Assignment in the form attached to this Agreement as Exhibit A. 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below), except as provided below. After any Shares have been released from the Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) REPURCHASE OPTION. (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including death or disability), with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days from such date to repurchase all or any portion of the Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted 5 for any stock splits, stock dividends and the like); provided, however, that the Repurchase Option shall continue for a period of up to one year from the Termination Date to the extent that the Company reasonably determines that such an extension of time is necessary to prevent the repurchase of Purchaser's Shares from causing other capital stock of the Company to not qualify as "small business stock" under Section 1202 of the Internal Revenue Code of 1986, as amended. (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company, by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) The Repurchase Option shall be in effect with respect to sixty- seven percent (67%) of the Shares and shall lapse as to 1/36 of such Shares on each monthly anniversary of the Vesting Commencement Date (as set forth on the signature page of this Agreement), until all Shares are released from the Repurchase Option (provided in each case that Purchaser's employment or consulting relationship with the Company has not been terminated prior to the date of any such release). The remaining thirty-three percent (33%) shall not be subject to the Repurchase Option. Fractional shares shall be rounded to the nearest whole share. (b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(b) (the "Right of First Refusal"). (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the -2- 6 Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(b) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(b), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(b) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (c) INVOLUNTARY TRANSFER. -3- 7 (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including death or divorce, but excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have an option to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the fair market value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(c)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (d) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the parent or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and fair market value, if the original purchase price is less than the fair market value of the Shares subject to the assignment. (e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Company's Shares shall be void unless the provisions of this Agreement are met. (f) TERMINATION OF RIGHTS. The rights granted the Company in this Section 3 shall terminate upon the earlier to occur of (i) the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act, or (ii) the completion of a "Change of Control Transaction." Upon such termination, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to Purchaser. As used herein, the term "Change of Control Transaction" shall include: (x) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which -4- 8 is to change the State of the Company's incorporation; (y) the sale, transfer or other disposition of all or substantially all of the assets of the Company in complete liquidation or dissolution of the Company; (z) any reverse merger in which the Company is the surviving entity but in which all of the Company's outstanding voting stock is transferred to the acquiring entity or its wholly-owned subsidiary. 4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Exhibit B executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or the Secretary's designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser further acknowledges and understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Shares. Purchaser understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer -5- 9 of the Shares unless they are registered or such registration is not required in the opinion of counsel for the Company. (d) Purchaser is familiar with the provisions of Rules 144 and 701, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of issuance of the securities, such issuance will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), the securities exempt under Rule 701 may be resold by Purchaser 90 days thereafter, subject to the satisfaction of certain of the conditions specified by Rule 144, including, among other things: (1) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is-defined under the Exchange Act); and (2) in the case of an affiliate, the availability of certain public information about the Company, and the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), if applicable. Notwithstanding this Section 5(d), Purchaser acknowledges and agrees to the restrictions set forth in Section 5(f) hereof. In the event that the Company does not qualify under Rule 701 at the time of purchase, then the Shares may be resold by Purchaser in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (1) the availability of certain public information about the Company; (2) the resale occurring not less than one year after the party has purchased, and made full payment of (within the meaning of Rule 144), the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than two years, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as such term is defined under the Exchange Act) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable. (e) Purchaser further understands that at the time he or she wishes to sell the Shares there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144 or 701, and that, in such event, Purchaser would be precluded from selling the Shares under Rule 144 or 701 even if the one-year minimum holding period had been satisfied. (f) Purchaser further understands that in the event all of the applicable requirements of Rule 144 or 701 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule -6- 10 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. (g) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. RESTRICTIVE LEGENDS AND STOP TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (iii) Any legend required to be placed thereon by the California Commissioner of Corporations. (b) STOP TRANSFER. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay -7- 11 dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser's employment, for any reason, with or without cause. 8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the amount paid for the Shares and the fair market value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the fair market value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as Exhibit C. Purchaser further agrees that Purchaser will execute and submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit D if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. 9. MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering. -8- 12 10. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED -9- 13 WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE.OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] The parties have executed this Agreement as of the date first set forth above. FINDMAIL COMMUNICATIONS, INC. By: --------------------------------- Title: ------------------------------ Address: 961 Duncan Street San Francisco, CA 94131 PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE. PURCHASER: SCOTT HASSAN ------------------------------------ (Signature) -10- EX-10.22 27 COMMON STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.22 FINDMAIL COMMUNICATIONS, INC. AMENDMENT TO COMMON STOCK PURCHASE AGREEMENT This Amendment to Common Stock Purchase Agreement (this "Amendment") is made as of December 15, 1998, to the Common Stock Purchase Agreement dated June 5, 1998 (the "Purchase Agreement") by and between FindMail Communications, Inc., a Delaware corporation (the "Company") and Martin Roscheisen (the "Purchaser"). Unless specifically designated otherwise, the capitalized terms herein shall have the same meanings given them in the Purchase Agreement. RECITAL The Purchase Agreement provides for the sale and issuance of 607,582 shares of the Company's Common Stock to Purchaser, which sale took place on June 5, 1998. The Company and the Purchaser desire to amend the Purchase Agreement to modify the terms of the Company's repurchase option under Sections 3(a) and 3(f) of the Purchase Agreement. AMENDMENT In consideration of the mutual promises and covenants hereinafter set forth, the parties hereto mutually agree as follows: A. Section 3(a)(iii) of the Purchase Agreement shall be deleted in its entirety and the following shall be inserted in lieu thereof: (iii) Subject to Section 3(a)(iv) below, the Repurchase Option shall be in effect with respect to sixty-seven percent (67%) of the Shares and shall lapse as to 1/36th of such Shares on each monthly anniversary of the Vesting Commencement Date (as set forth on the signature page of this Agreement), until all Shares are released from the Repurchase Option (provided in each case that Purchaser's employment or consulting relationship with the Company has not been terminated prior to the date of any such release). The remaining thirty-three percent (33%) shall not be subject to the Repurchase Option. Fractional shares shall be rounded to the nearest whole share. Shares as to which the Repurchase Option has not lapsed are referred to as "Unvested Shares." (iv) Notwithstanding the foregoing, the Repurchase Option shall immediately lapse with respect to all remaining Unvested Shares if, in connection with or following the completion of Merger (as defined below), Purchaser's employment with the Company (or its successor entity) is terminated by 2 the Company or its successor without Cause (as defined below) or Purchaser terminates his employment voluntarily as a result of a Constructive Termination (as defined below). (v) "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. (vi) "Cause" for the termination of Purchaser's employment with the Company or its successor will exist at any time upon one or more of the following events: (A) Purchaser's willful misconduct in performance of the duties of his position with the Company or its successor, including Purchaser's refusal to comply in any material respect with legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not inconsistent with the Purchaser's position and duties, and such refusal to comply is not remedied within 10 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (B) conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude." (vii) "Constructive Termination" shall be deemed to occur if there is (A) an adverse change in Purchaser's position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility (it being understood that Purchaser's operating responsibilities, title and reporting relationships may be changed in connection with integration of the Company's operations with those of an acquiror following a Merger); or (B) a reduction of the Purchaser's compensation, taken as a whole." B. Section 3(f) of the Purchase Agreement shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(f) Termination of Rights. The right of first refusal granted the Company by Section 3(b) above and the option to repurchase the Shares in the event of an involuntary transfer granted the Company by Section 3(c) above shall terminate upon the first sale of Common Stock of the Company pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act. Upon termination of the right of first refusal described in Section 3(b) and the expiration or exercise of the Repurchase Option, a 3 new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to the Purchaser." Except as specifically amended herein, the Purchase Agreement shall remain in full force and effect. This Amendment may be executed in counterparts, each of which shall constitute an original and all of which together shall constitute one instrument. This Amendment shall be governed by California law. 4 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year above first written. COMPANY: PURCHASER: FINDMAIL COMMUNICATIONS, INC. MARTIN ROSCHEISEN By: ---------------------------------- ---------------------------------------- Martin Roscheisen, (Signature) Chief Executive Officer 5 FINDMAIL COMMUNICATIONS, INC. COMMON STOCK PURCHASE AGREEMENT This Common Stock Purchase Agreement (the "Agreement") is made as of June 5, 1998, by and between FindMail Communications, Inc., a Delaware corporation (the "Company"), and Martin Roscheisen ("Purchaser"). 1 . SALE OF STOCK. Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, 607,582 shares of the Company's Common Stock (the "Shares") at a purchase price of $0.01 per Share for a total purchase price of $6,075.82. The term "Shares" refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. PURCHASE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution of this Agreement or at such other time and place as the Company and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by cash, check or an assignment of certain assets as set forth in the Bill of Sale and Instrument of Assignment in the form attached to this Agreement as Exhibit A. 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below), except as provided below. After any Shares have been released from the Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) REPURCHASE OPTION. (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including 6 death or disability), with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days from such date to repurchase all or any portion of the Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock dividends and the like); provided, however, that the Repurchase Option shall continue for a period of up to one year from the Termination Date to the extent that the Company reasonably determines that such an extension of time is necessary to prevent the repurchase of Purchaser's Shares from causing other capital stock of the Company to not qualify as "small business stock" under Section 1202 of the Internal Revenue Code of 1986, as amended. (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company, by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) The Repurchase Option shall be in effect with respect to sixty-seven percent (67%) of the Shares and shall lapse as to 1/36 of such Shares on each monthly anniversary of the Vesting Commencement Date (as set forth on the signature page of this Agreement), until all Shares are released from the Repurchase Option (provided in each case that Purchaser's employment or consulting relationship with the Company has not been terminated prior to the date of any such release). The remaining thirty-three percent (33%) shall not be subject to the Repurchase Option. Fractional shares shall be rounded to the nearest whole share. (b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") May be sold or otherwise transferred (including transfer by gift or operation of law), -2- 7 the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(b) (the "Right of First Refusal"). (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price, determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(b) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(b), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if -3- 8 the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(b) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (c) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including death or divorce, but excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have an option to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the fair market value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(c)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. -4- 9 (d) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the parent or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and fair market value, if the original purchase price is less than the fair market value of the Shares subject to the assignment. (e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Company's Shares shall be void unless the provisions of this Agreement are met. (f) TERMINATION OF RIGHTS. The rights granted the Company in this Section 3 shall terminate upon the earlier to occur of (i) the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act, or (ii) the completion of a "Change of Control Transaction." Upon such termination, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to Purchaser. As used herein, the term "Change of Control Transaction" shall include: (x) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (y) the sale, transfer or other disposition of all or substantially all of the assets of the Company in complete liquidation or dissolution of the Company; (z) any reverse merger in which the Company is the surviving entity but in which all of the Company's outstanding voting stock is transferred to the acquiring entity or its wholly-owned subsidiary. 4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Exhibit B executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or the Secretary's designee, -5- 10 is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser further acknowledges and understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Shares. Purchaser understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel for the Company. (d) Purchaser is familiar with the provisions of Rules 144 and 701, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of issuance of the securities, such issuance will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the -6- 11 "Exchange Act"), the securities exempt under Rule 701 may be resold by Purchaser 90 days thereafter, subject to the satisfaction of certain of the conditions specified by Rule 144, including, among other things: (1) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act); and (2) in the case of an affiliate, the availability of certain public information about the Company, and the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), if applicable. Notwithstanding this Section 5(d), Purchaser acknowledges and agrees to the restrictions set forth in Section 5(f) hereof. In the event that the Company does not qualify under Rule 701 at the time of purchase, then the Shares may be resold by Purchaser in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (1) the availability of certain public information about the Company; (2) the resale occurring not less than one year after the party has purchased, and made full payment of (within the meaning of Rule 144), the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than two years, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as such term is defined under the Exchange Act) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable. (e) Purchaser further understands that at the time he or she wishes to sell the Shares there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144 or 701, and that, in such event, Purchaser would be precluded from selling the Shares under Rule 144 or 701 even if the one-year minimum holding period had been satisfied. (f) Purchaser further understands that in the event all of the applicable requirements of Rule 144 or 701 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. -7- 12 (g) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (iii) Any legend required to be placed thereon by the California Commissioner of Corporations. (b) STOP-TRANSFER NOTICE. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. -8- 13 7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser's employment, for any reason, with or without cause. 8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the amount paid for the Shares and the fair market value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the fair market value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as Exhibit C. Purchaser further agrees that Purchaser will execute and submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit D, if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. 9. MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the -9- 14 purchase of, or otherwise dispose of any Shares (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering. 10. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. -10- 15 (f) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall ensure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] -11- 16 The parties have executed this Agreement as of the date first set forth above. FINDMAIL COMMUNICATIONS, INC. By: ------------------------------------ Title: --------------------------------- Address: 961 Duncan Street San Francisco, CA 94131 PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE. PURCHASER: MARTIN ROSCHEISEN ---------------------------------------- (Signature) Address: 961 Duncan Street San Francisco, CA 94131 Vesting Commencement Date: ---------------------------- -12- EX-10.23 28 COMMON STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.23 ONELIST, INC. FIRST AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of December 24, 1998, at Palo Alto, California, by and among ONElist, Inc., a California corporation (the "Company"), and the individuals set forth on the Schedule of Purchasers attached hereto as Schedule I (collectively, the "Purchasers" and individually a "Purchaser"). WHERE AS, the Purchasers purchased shares of the Company's Common Stock in exchange for cash or the contribution of assets to the Company pursuant to that certain Common Stock Purchase Agreement by and among the Company and the Purchasers dated as of July 10, 1998 (the "Prior Agreement"). WHEREAS, the Purchasers are employees of the Company, and the Purchaser's continued participation is considered by the Company to be important for the Company's continued growth. NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: 1. Sale of Stock. Subject to the terms and conditions hereof, the Company hereby agrees to issue and sell to the Purchasers, and Purchasers hereby agree to purchase from the Company, up to Two Million (2,000,000) shares of Common Stock, $0.001 par value (the "Shares"), for the price of Ten Cents ($0.10) per share, to be allocated among the Purchasers and for the aggregate consideration set forth on Schedule I attached hereto across from each Purchaser's name. 2. Repurchase Option (a) Subject to the provisions of Section 3, below, in the event the Purchaser's continuous status as an employee terminates for any or no reason (including death or disability) before all of the Shares are released from the Company's repurchase option (see Section 3), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unreleased Shares (as defined in Section 3) at the original purchase price per share (the "Repurchase Price"). Said option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 5)) AND, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company. (b) Whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or apart of the Company's purchase rights under this Agreement and purchase all or a part of such Shares. If the Fair Market Value of the Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of such Shares. 3. Release of Shares From Repurchase Option. (a) Twenty Five percent (25%) of the Shares shall be released from the Company's repurchase option as of the date of this Agreement. 1/48th of the Shares shall be released on the first day of each month commencing on the thirteenth month after the date of this Agreement and each month thereafter, provided in each case that the Purchaser's continuous status as an employee has not terminated prior to the date of any such release. Any of the Shares which have not yet been released from the Company's repurchase option are referred to herein as "Unreleased Shares." (b) In addition, if the Employee's employment with the Company terminates as a result of Involuntary Termination (as that terms is defined in that certain Employment Agreement between the Company and the Purchaser of even date 2 herewith), within one year of a Change in Control (as defined below), the Unreleased Shares, if any, shall be automatically released. For purposes of this Agreement, the term "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing seventy five percent (75%) or more of the total voting power represented by the Company's then outstanding voting securities; provided, however, that a Change in Control shall be deemed to occur in the event any one individual becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing seventy percent (70%) or more of the voting power represented by the Company's then outstanding voting securities; or (ii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy percent (70%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (c) In addition, if the Purchaser's employment with the Company terminates as a result of Involuntary Termination (as that terms is defined in that certain Employment Agreement between the Company and the Purchaser of even date herewith), then that number of shares as would have been released from the Company's repurchase option had the Purchaser remained an employee of the Company for a period of ninety (90) days from the date of termination shall be immediately released from the Company's repurchase option. (d) The Shares which have been released from the Company's repurchase option shall be delivered to the Purchaser at the Purchaser's request (see Section 5). 4. Restriction on Transfer. Except for the escrow described in Section 5 or transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's repurchase option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution. 5. Escrow of Shares. (a) To ensure the availability for delivery of the Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the Company's repurchase option under Section 2 above, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit A-3 hereto, until such time as the Company's repurchase option expires. As a further condition to the Company's obligations under this Agreement, the spouse of Purchaser, if any, shall execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A4. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow and while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises its repurchase option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the repurchase option has been exercised or expires unexercised or a portion of the Shares has been released from such repurchase option, upon Purchaser's request the Escrow Holder shall promptly cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's repurchase option, there is (i) any stock dividend, stock split 3 or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's repurchase option. 6. Closing. The closing of the purchase and sale of the Shares pursuant to Section I hereof (the "Closing") shall be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California at 1:00 p.m. local time, on July 10, 1998 or at such other time and place as the Company and the Purchasers shall agree (the "Closing Date"). 7. Delivery. At the Closing, the Company will deliver to each Purchaser a certificate or certificates, registered in such Purchaser's name as set forth on the Schedule of Purchasers, representing the number of Shares designated in the Schedule of Purchasers to be purchased by such Purchaser at the Closing, against payment of the purchase price therefor, by check payable to the Company or contribution of assets, as described in the Schedule of Purchasers. 8. Representations and Warranties of the Company. In connection with the issuance and sale of Shares, the Company represents to the Purchasers the following: (a) Corporate Existence. Seller is a corporation duly incorporated and validly existing under the laws of the State of California. (b) Corporate Authority. The execution, delivery and performance of this Agreement, and all other instruments or documents required in connection herewith are authorized, are within the corporate powers of the Company and are not in contravention of law, of the Articles of Incorporation of the Company, or its By Laws, or any amendment thereto, or of any indenture, agreement, or undertaking to which the Company is a party or may otherwise be bound. (c) Binding Obligations. This Agreement and each other instrument or document required in connection herewith are valid and binding obligations of the Company and each is fully enforceable in accordance with its terms and conditions, except as limited by applicable bankruptcy, insolvency, reorganization and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. (d) Section 351 Filings. The Company shall comply with the tax filing requirements which are necessary to qualify the transfer of assets to the Company by Mark Fletcher under Section 351 of the I.R.C. 9. Investment Representations. In connection with the purchase of the Shares, each Purchaser represents to the Company the following (except with respect to 5(f)): (a) Information. Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. The Purchaser is purchasing the Shares for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) RU. Purchaser recognizes that the investment in the Shares involves substantial risks, among other matters: (i) the speculative nature of the investment in the Shares; (ii) the fact that no public market now exists for any of the securities issued by Company and that a public market may never exist for the same; (iii) the financial hazards involved; (iv) the lack of liquidity of the Shares and the restrictions upon transferability thereof; and (v) tax consequences of the investment. (c) Financial Ability. Purchaser has adequate means for providing for Purchaser's current needs and possible contingencies and Purchaser has no need for liquidity in this investment. Purchaser can, for an indefinite period of time, bear the economic risks of this investment in the Shares. (d) Registration. Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. In this connection, Purchaser understands that, in view of the Securities and Exchange Commission ("Commission"), the statutory basis for such exemption may not be present if Purchaser's representations meant that Purchaser's present intention was to hold the Shares for a minimum capital gains period under applicable tax statutes, for a deferred sale, for a market rise, for a sale if the market does not rise, or for a year or any other fixed period in the future. 4 (e) Liquidity; Restriction on Transfer. Purchaser further acknowledges and understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Shares. Purchaser understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company. (f) Title to Property and Assets. Mark Fletcher has good and marketable title to all of the properties and assets listed on Schedule II attached hereto, free and clear of all mortgages, liens and encumbrances. Such properties and assets are in good condition and repair in all material respects. (g) Section 351. Mark Fletcher shall comply with the tax filing requirements which are necessary to qualify his transfer of assets to the Company under Section 351 of the I.R.C. 10. Closing Conditions. The Company's obligation to sell and issue the Shares at the Closing is, at the option of the Company, subject to the assignment by Mark Fletcher of any and all rights held by him to the property listed on Schedule II attached hereto. 11. Stock Certificate Legends. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT." (b) "SALE, TRANSFER OR HYPOTHECATION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY CERTAIN PROVISIONS OF THE COMPANY'S BYLAWS, A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY, AND ALL OF SUCH PROVISIONS ARE HEREBY INCORPORATED BY REFERENCE." (c) Any legend required by any applicable state securities laws. 12. Market Stand Off Agreement. Each Purchaser agrees in connection with any registration of the Company's securities (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, pledge (or otherwise encumber or hypothecate), grant any option for the purchase of, or otherwise dispose of any shares (other than those included in the registration) without the prior written consent of the managing underwriter of such offering (for a period not to exceed 180 days) from the effective date of such registration. 13. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, reverse stock split or stock dividend or other similar change in the Shares which may be made by the Company after the date of this Agreement. 14. Tax Consequences. Each Purchaser has reviewed with such Purchaser's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Each Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. 15. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA 5 CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 16. General Provisions. (a) Governing law. This Agreement shall be governed by the laws of the State of California. (b) Notices. Any notice, demand or request required or permitted to be given by either the Company or a Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed, if to the Company, then to the address below and if to the Purchasers at the addresses of the Purchasers set forth in the Schedule of Purchasers or such other address as the Purchasers may request by notifying the Company in writing. Onelist, Inc. Attn: Mark Fletcher 374 Genoa Drive Redwood City, CA 94065 with a copy to: Wilson. Sonsini Goodrich & Rosati Professional Corporation Attn: Henry P. Massey, Jr., Esq. 650 Page Mill Road Palo Alto, California 94304 (c) Successors and Assigns. The rights and benefits of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchasers under this Agreement may only be assigned with the prior written consent of the Company and any purported transfer otherwise shall be null and void. (d) Waive. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. (e) Further Documents. Each Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. (f) Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the holders of a majority of the Shares purchased hereunder. (g) Expenses. The Company and each Purchaser shall each bear his, her or its own expenses and legal fees incurred on his, her or its behalf with respect to this Agreement and the transactions contemplated hereby. (h) Counterparts. This Agreement may be executed in any number of Counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. (i) Termination of Prior Agreement. This Agreement terminates the Prior Agreement, supersedes the Prior Agreement and the Prior Agreement is hereby rendered void. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first set forth above. Onelist INC. a California corporation 6 By: Mark Fletcher, Chief Executive Officer PURCHASERS: By: -------------------------------------- Mark Fletcher By: -------------------------------------- 7 SCHEDULE SCHEDULE OF PURCHASERS Name and Address of Purchaser Shares Purchase Price Mark A. Fletcher 1,500,000 $150,000* 374 Genoa Drive Redwood City, CA 94065 Scott M. Shambarger 500,000 $50,000 811 Lombardi Lane Hillsborough, CA 94010 Totals 2,000,000 $200,000 * Purchaser transferred property and assets to the Company as consideration for the shares. EX-10.24 29 EMPLOYMENT AGREEMENT, MARK FLETCHER 1 EXHIBIT 10.24 ONELIST, INC. EMPLOYMENT AGREEMENT This Agreement is entered into as of December 28, 1998, by and between ONElist, Inc., a California corporation (the "Company") and Mark Fletcher (the "Employee"). WHEREAS the parties hereto desire and agree to enter into an employment relationship by means of this Agreement; NOW THEREFORE in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. Position and Duties. The Employee shall be employed as President and Chief Executive Officer of the Company, reporting to the Board of Directors of the Company (the "Board") and assuming and discharging such responsibilities as are commensurate with the Employee position. The employee shall perform his duties faithfully and to the best of his ability and shall devote his full business time and effort to the performance of his duties hereunder, provided, however, that the foregoing shall not preclude the Employee from engaging in civic, charitable or religious activities, from devoting a reasonable amount of time to private investments, or from being employed by, rendering services to or serving on the boards of directors of other entities, so long as such activities, employment and/or service do not materially interfere or conflict with his responsibilities to the Company. 2. Employment Relationship. The Company and the Employee acknowledge that the Employee's employment is and shall continue to be at Employee's employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and policies at the time of termination. 3. Compensation. (a) Base Salary. For all services to be rendered by the Employee pursuant to this Agreement, the Employee shall receive a minimum annual base salary of $86,000, payable monthly in accordance with the Company's normal payroll practices, increased from time to time by the Board consistent with past practices. (b) Bonus. Beginning with the Company's current fiscal year, and for each fiscal year thereafter during the term of this Agreement the Employee shall be eligible to receive a target bonus of up to fifty percent of Employee's base salary based on performance of the Company 2 as set forth in the Company's annual operating plan established by the Chief Executive officer of the Company and the Board (the "Target Bonus"). (c) Repurchase Option. The Employee shall execute an Amended and Restated Stock Purchase Agreement (the "Purchase Agreement") of even date herewith whereby the Employee shall grant to the Company a right of repurchase on 1,500,000 shares of the Company's Common Stock owned by Employee (the "Shares"). Subject to the provisions of Section 6, below, Twenty-Five percent (25%) of the Shares shall be released from the Company's repurchase option as of the date of this Agreement. 1/48th of the Shares shall be released on the first day of each month commencing on the thirteenth month after the date of this Agreement and each month thereafter, provided in each case that the Purchaser's continuous status as an employee has not terminated prior to the date of any such release. 4. Other Benefits. The Employee shall be entitled to participate in the employee benefit plans and programs of the Company, if any, to the extent that his position, tenure, salary, age, herewith and other qualifications make him eligible to participate in such plans or programs, subject to the rules and regulations applicable thereto. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 5. Expenses. The Company shall reimburse the Employee for reasonable travel entertainment or other expenses incurred by the Employee in the furtherance of or in connection with the performance of the Employee's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 6. Termination. (a) Involuntary Termination. If the Employee's employment with the Company terminates as a result of Involuntary Termination (as defined below), then: (i) the Employee shall be entitled to receive a severance payment equal to ninety (90) days of the Employee's Current Compensation, and (ii) the Company's repurchase option shall immediately lapse as to that number of shares as would be released from the repurchase option had the Employee remained employed by the Company for a period of ninety (90) days from the date of the termination of Employee's employment with the Company. Any severance payments to which the Employee is entitled pursuant to this Section 7(a) shall be paid in lieu of any other severance or severance-type benefits to which the Employee may be entitled under any other company-sponsored plan, and shall be paid to the Employee in a lump sum within fifteen (15) days of the Employee's Involuntary Termination. (b) Termination Following a Change In Control. In addition, if the Employee's employment with the Company terminates as a result of Involuntary Termination (as defined below), within one year of a Change in Control (as defined below), the Unreleased Shares, if any, shall be automatically released. For purposes of this Agreement, the term "Change of Control" shall mean the occurrence of any of the following events: -2- 3 (1) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing seventy five percent (75%) or more of the total voting power represented by the Company's then outstanding voting securities; provided, however, that a Change in Control shall be deemed to occur in the event any one individual becomes the "beneficial owner" (as defined in Rule l3d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing seventy percent (70%) or more of the voting power represented by the Company's then outstanding voting securities; or (2) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy percent (70%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (c) Other Termination. If the Employee's employment terminates other than in an Involuntary Termination, or upon the Employee's Death or Disability, then the Employee shall not be entitled to receive severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established under the Company's severance and benefits plans and policies existing at the time of such termination. 7. Definitions. (a) Cause. "Cause" shall mean the occurrence of any one or more of the following: (i) the Employee's conviction by, or entry of a plea of guilty or nolo contendere in, a court of final jurisdiction for any crime which constitutes a felony in the jurisdiction involved (other than a felony traffic offense), which felony materially injures the Company, its prospects or its reputation; (ii) the Employee's misappropriation of funds or commission of a material act of fraud, whether prior or subsequent to the date hereof, upon the Company; (iii) gross negligence by the Employee in the scope of the Employee's services to the Company; (iv) a willful breach by the Employee of a material provision of this Agreement; or (v) a willful failure of the Employee to substantially perform his duties hereunder. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause under clause (iii), (iv) or (v) of this Section 7(a) unless the Board delivers a written notice to the Employee setting forth the reasons for the Company's intention to terminate for Cause and specifically identifying the manner in which the Board believes that the Employee has engaged in such conduct, which conduct is not substantially corrected by the Employee within 10 days following his receipt of such notice, and provides the Employee with an opportunity, together with his counsel, if any, to be heard before the Board. -3- 4 (b) Current Compensation. "Current Compensation" shall mean an amount equal to the sum of (i) the Employee's average annual (or annualized) base salary over the three preceding fiscal years (or such lesser number of years as may be applicable to the Employee); and (ii) the Employee's average annual (or annualized) bonus over the three preceding fiscal years; provided, however that if there are fewer than three years of actual bonus history, the Employee's average bonus shall be calculated by including the Employee's Target Bonus for the fiscal year in which the termination occurs. For example, if the termination occurs in 2000, average bonus shall be calculated based on actual bonuses earned for 1999 and 1999 and Target Bonus for 1999. (c) Disability. The Employee shall be considered to have suffered a "Disability" for purposes of this Agreement if, at the end of any calendar month during the term of this Agreement, the Employee is and has been for the four consecutive full calendar months then ending, or for fifty percent or more of the normal working days during the eight consecutive full calendar months then ending, unable due to mental or physical illness or injury to perform his duties under this Agreement in his normal and regular manner. (d) Involuntary Termination. "Involuntary Termination" shall mean (i) without the Employee's express written consent, a reduction of the Employee's duties, position or responsibilities relative to the Employee's duties, position Or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee's express written consent, a reduction of the Employee's base salary or Target Bonus (as set forth in Section 3) in effect immediately prior to such reduction; (iii) a reduction in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (iv) without the Employee's express written consent, the relocation of the Employee to a facility or a location more than fifty (50) miles from his current location; (v) any purported termination of the Employee which is not effected for Cause or for which the grounds relied upon are not valid; or (vi) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 9 below; provided, however, that an event described above shall not constitute Involuntary Termination unless it is communicated by the Employee to the Company in writing and is not corrected by the Company in a manner that is reasonably satisfactory to the Employee (including full retroactive correction with respect to any monetary matter) within ten days of the Company's receipt of such written notice from the Employee. 8. Right to Advice of Counsel. The Employee acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 9. Successors. (a) Company's Successors Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or -4- 5 substantially all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company," shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (b) Employee's Successors Without the written consent of the Company, the Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 10. Notice Clause. (a) Manner. Any notice hereby required or permitted to be given shall be sufficiently given if in writing and upon mailing by registered or certified mail, postage prepaid, to either party at the address of such party or such other address as shall have been designated by written notice by such party to the other party. (b) Effectiveness. Any notice or other communication required or permitted to be given under this Agreement will be deemed given on the day when delivered in person, or the third business day after the day on which such notice was mailed in accordance with Section 12(a). 11. Disputes. In the event that a dispute arises over the terms or enforcement of this Agreement, the parties agree to submit such dispute to binding arbitration in San Jose, California by a single arbitrator engaged through JAMS-Endispute, Inc., its successor firm or another private dispute resolution firm acceptable to both parties. The arbitrator shall be selected as follows: the arbitration firm shall present its panel of available arbitrators, and each party shall sign rank of preference to each of such panel with number 1 being the highest rank. The person on the panel with the lowest total score shall be the arbitrator for a dispute. The arbitrator shall have absolute discretion or authority to limit discovery relevant to the matter and the length of the proceeding before the arbitrator. The parties may not submit written briefs. The arbitrator shall rule on the dispute in writing within ten (10) days after the close of hearings. The time specified in this Section may be extended upon mutual agreement of the parties. The decision of the arbitrator may be entered or registered in any court of competent jurisdiction for execution and enforcement. The arbitrator shall have the power to allocate between the parties the costs of the proceeding and the attorneys' fees incurred in the proceeding as he or she deem appropriate. 12. Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the state of California. -5- 6 13. Severability. The invalidity or unenforceability of any provision of this Agreement, or any terms hereof, shall not affect the validity or enforceability of any other provision or term of this Agreement. 14. Integration. This Agreement represents the entire agreement and undemanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. 15. Taxes. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year first above written. ONELIST, INC. By: ---------------------------------- Title: ------------------------------- EMPLOYER - -------------------------------------- -6- EX-10.25 30 FORM OF PROMISSORY NOTE 1 EXHIBIT 10.25 PROMISSORY NOTE $_________.00 San Francisco, California _____________, 2000 For value received, the undersigned promises to pay eGroups, Inc., a Delaware corporation (the "Company"), at its principal office the principal sum of $___________ (representing the total exercise price minus the par value of the total number of shares) with interest from the date hereof at a rate of ____% per annum, compounded annually, on the unpaid balance of such principal sum. Such principal and interest shall be due and payable on __________________. If the undersigned's employment or consulting relationship with the Company is terminated prior to payment in full of this Note, this Note shall be immediately due and payable. Principal and interest are payable in lawful money of the United States of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT INTEREST OR PENALTY. Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. The makers and endorsers have severally waived presentment for payment, protest, notice of protest and notice of nonpayment of this Note. This Note, which is full recourse, is secured by a pledge of certain shares of Common Stock of the Company and is subject to the terms of a Pledge and Security Agreement between the undersigned and the Company of even date herewith. The undersigned, however, shall remain personally liable for payment of this Note, and assets of the undersigned, in addition to the collateral under the Pledge and Security Agreement, may be applied to the satisfaction of the undersigned's obligations hereunder. --------------------------------- --------------------- EX-10.29 31 SUBORDINATED PROMISSORY NOTE 1 EXHIBIT 10.29 SUBORDINATED PROMISSORY NOTE $862,833.33 Date: March 16, 2000 Maturity Date: October 1, 2002 FOR VALUE RECEIVED, eGroups, Inc, a Delaware corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender"), at P.O. Box 91744, Chicago, IL 60693, or such other place of payment as the holder of this Subordinated Promissory Note (the "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of Eight Hundred, Sixty Two Thousand, Eight Hundred and Thirty Three and 33/100 Dollars ($862,833.33) together with interest at Eight and One Quarter percent (8.25%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such amounts to be paid as follows: 1 monthly installment of interest only of $3,163.72 commencing April 1, 2000, followed by 18 monthly installments of interest only of $5,931.98 each, commencing May 1, 2000, and on the same day of each month thereafter to and including October 1, 2001, followed by twelve (12) equal monthly installments of principal and interest of $75,156.29 payable on the first day of each month thereafter to and including October 1, 2002, such latter installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Subordinated Loan and Security Agreement dated October 8, 1999 by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: EGROUPS, INC. 2 Signature: Print Name: Title: eGroups, Inc. Prepared by Nancy Talarski Loan Amount: 862,833.33 Interest Rate 8.250% Payment 75,156.29
Payment No. Date Principal Interest Payment Balance 03/16/00 862,833.33 1 04/01/00 0.00 3,163.72 3,163.72 862,833.33 2 05/01/00 0.00 5,931.98 5,931.98 862,833.33 3 06/01/00 0.00 5,931.98 5,931.98 862,833.33 4 07/01/00 0.00 5,931.98 5,931.98 862,833.33 5 08/01/00 0.00 5,931.98 5,931.98 862,833.33 6 09/01/00 0.00 5,931.98 5,931.98 862,833.33 7 10/01/00 0.00 5,931.98 5,931.98 862,833.33 8 11/01/00 0.00 5,931.98 5,931.98 862,833.33 9 12/01/00 0.00 5,931.98 5,931.98 862,833.33 10 01/01/01 0.00 5,931.98 5,931.98 862,833.33 11 02/01/01 0.00 5,931.98 5,931.98 862,833.33 12 03/01/01 0.00 5,931.98 5,931.98 862,833.33 13 04/01/01 0.00 5,931.98 5,931.98 862,833.33 14 05/01/01 0.00 5,931.98 5,931.98 862,833.33 15 06/01/01 0.00 5,931.98 5,931.98 862,833.33 16 07/01/01 0.00 5,931.98 5,931.98 862,833.33 17 08/01/01 0.00 5,931.98 5,931.98 862,833.33 18 09/01/01 0.00 5,931.98 5,931.98 862,833.33 19 10/01/01 0.00 5,931.98 5,931.98 862,833.33 20 11/01/01 69,224.31 5,931.98 75,156.29 793,609.02 21 12/01/01 69,700.23 5,456.06 75,156.29 723,908.79 22 01/01/02 70,179.42 4,976.87 75,156.29 653,729.38 23 02/01/02 70,661.90 4,494.39 75,156.29 583,067.48 24 03/01/02 71,147.70 4,008.59 75,156.29 511,919.78 25 04/01/02 71,636.84 3,519.45 75,156.29 440,282.94 26 05/01/02 72,129.34 3,026.95 75,156.29 368,153.59 27 06/01/02 72,625.23 2,531.06 75,156.29 295,528.36 28 07/01/02 73,124.53 2,031.76 75,156.29 222,403.83 29 08/01/02 73,627.26 1,529.03 75,156.29 148,776.57 30 09/01/02 74,133.45 1,022.84 75,156.29 74,643.12 31 10/01/02 74,643.12 513.17 75,156.29 0.00
3 EGROUPS CONVERT SCHEDULE PREPARED: 3/15/00 INTEREST THRU 3/15/00 Principal Balance: 4,000,000.00
Interest Started Accruing CONVERT DATE # of Days Int Rate Interest Due Per Diem 3/1/00 3/15/00 14 8.250% $ 12,833.33 $916.67
24 MOS. OF INTEREST ONLY PAID INTEREST THRU 2/29/00 ORIGINAL NOTE $ 4,000,000.00 CONVERT AMOUNT $ (3,150,000.00) REMAINING PRINCIPAL $ 850,000.00 INTEREST THRU 3/15/00 $ 12,833.33 REMAINING NOTE $ 862,833.33
EX-10.30 32 SOFTWARE LICENSE & SERVICE AGREEMENT 1 EXHIBIT 10.30 SOFTWARE LICENSE AND SERVICES AGREEMENT This Software License and Services Agreement ("Agreement") is between E.piphany, Inc., a Delaware corporation ("E.piphany") and eGroups, Inc., a Delaware corporation ("Customer.") The terms of this Agreement shall apply to each Application license granted and to all services provided by E.piphany under this Agreement, which will be identified on one or more Order Forms. I. DEFINITIONS 1.1. "APPLICATION" means the software application(s) in object code form distributed by E.piphany for which Customer is granted a license pursuant to this Agreement, and Updates therefore. 1.2. "COMMENCEMENT DATE" means the date on which the Applications are delivered by E.piphany to Customer, or if no delivery is necessary, the Effective Date set forth on the relevant Order Form. 1.3 "DESIGNATED SYSTEM" means the computer hardware and operating system designated on the relevant Order Form 1.4 "DOCUMENTATION" means the user guides and manuals for installation and use of the Application. 1.5 "ORDER FORM" means the document attached as Exhibit A in hard copy or electronic form by which Customer orders Application licenses and services, and which is agreed to and signed by the parties. Each Order Form shall reference the Effective Date of this Agreement. 1.6 "SOLUTION" means the Technical Support and consulting services. 1.7 "TECHNICAL SUPPORT" means the application support services provided under E.piphany's policies in effect on the date Technical Support is ordered. 1.8. "UPDATE" means a subsequent release of the Application that E.piphany generally makes available for Application licensees at no additional license fee other than media and handling charges provided Customer has ordered Technical Support for such licenses for the relevant time period. Update shall not include any release, option or future product that E.piphany licenses separately II. LICENSE 2.1. RIGHTS GRANTED We have requested confidential treatment of this exhibit pursuant to Rule 406, promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. 2 A. E.piphany grants to Customer a nonexclusive license to use the Application(s) specified on an Order Form under this Agreement and Documentation as follows: i. to use the Applications solely for Customer's operations on the Designated System and on a backup system which may run simultaneously with the Designated System, consistent with the use limitations specified or referenced in this Agreement, an Order Form, or the Documentation; ii. to use the Documentation provided with the Applications in support of Customer's use of the Applications as authorized under this Agreement; iii. to copy the Applications for archival or backup purposes, and to make a sufficient number of copies for the use specified in the Order Form. All titles, trademarks, and copyright and restricted rights notices shall be reproduced in such copies; and iv. to allow third parties to use the Applications for Customers operations so long as Customer ensures that use of the Applications is in accordance with the terms of this Agreement. B. Customer shall not copy or use the Applications or Documentation except as specified in this Agreement or an Order Form. Customer shall have no right to use any other software applications that may be delivered with ordered Application(s). Customer agrees not to cause or permit the reverse engineering, disassembly or decompilation of Applications, except to the extent required to obtain interoperability with other independently created software or as specified by law. Customer may not relicense, rent or lease the Applications or use Applications for third-party training, commercial time-sharing or service bureau use. C. E.piphany shall retain all title, copyright and other proprietary rights in the Applications. Customer does not acquire any rights, express or implied, in the Applications, other than those specified in this Agreement. 2.2. TRANSFER AND ASSIGNMENT A. Customer may transfer an Application license within its organization provided Customer gives reasonable prior notice to E.piphany. B. Neither party may assign this Agreement, in whole or in part, without the prior written consent of the other (which will not be unreasonably withheld or -2- 3 delayed), provided however that either party may assign this Agreement: (1) to a transferee of substantially all of the business operations of such party (whether by asset sale, stock sale, merger, reorganization, operation of law, or otherwise) unless such entity is a competitor of the other party, or (2) to any entity that is controlled by, or is under common control with, such party. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, executors, administrators, personal representatives, successors and permitted assigns of any of the parties to this Agreement. Any attempt to assign this Agreement other than as permitted above will be null and void. 2.3. VERIFICATION At E.piphany's written request, not more frequently than annually, Customer shall furnish E.piphany with a signed certification verifying that the Applications are being used pursuant to the provisions of this Agreement and applicable Order Forms. E.piphany may audit Customer's use of the Applications. Any such audit shall be conducted during regular business hours at Customer's facilities and shall not unreasonably interfere with Customer's business activities. If an audit reveals that Customer has underpaid fees to E.piphany, Customer shall be invoiced for such underpaid fees and shall also pay E.piphany for the cost of the audit if the underpayment exceeds 5% of fees due during the audited period. Audits shall be conducted no more than once annually. III. TECHNICAL SERVICES 3.1. TECHNICAL SUPPORT SERVICES Technical Support services may be ordered by Customer in the Order Form and will be provided under E.piphany's Technical Support terms and conditions in effect on the date Technical Support is ordered. A copy of E.piphany's current Technical Support terms and conditions are attached hereto as Exhibit B and incorporated herein. 3.2. CONSULTING AND TRAINING SERVICES E.piphany will provide consulting and training services agreed to by the parties under the terms of this Agreement. All consulting services shall be billed on a time and materials basis unless the parties expressly agree otherwise in writing. 3.3. INCIDENTAL EXPENSES For any on-site services requested by Customer, Customer shall reimburse E.piphany for actual, reasonable travel and out-of-pocket expenses approved in advance by Customer. -3- 4 IV. TERM AND TERMINATION 4.1. TERM If not otherwise specified on the Order Form, this Agreement and each Application license granted under this Agreement shall continue perpetually unless terminated under this Article IV. 4.2. TERMINATION BY CUSTOMER Customer may terminate any Application license at any time; however, termination shall not relieve Customers obligations specified in Section 4.4. 4.3. TERMINATION BY E.PIPHANY E.piphany may terminate this Agreement or any Application license upon written notice if Customer materially breaches this Agreement and fails to correct the breach within thirty (30) days following written notice specifying the breach. 4.4. EFFECT OF TERMINATION Termination of this Agreement or any license shall not limit either party from pursuing other remedies available to it, including injunctive relief, nor, shall such termination relieve Customer's obligation to pay all fees that have accrued or are otherwise owed by Customer under any Order Form. The parties' rights and obligations under Sections 2.1.B, 2.1.C, and 2.2.B, and Articles IV, V, VI, and VII (excluding Section 7.3) shall survive termination of this Agreement. Upon termination, Customer shall cease using, and shall return or destroy, all copies of the applicable Applications. V. INDEMNITY, WARRANTIES, REMEDIES 5.1. INFRINGEMENT INDEMNITY E.piphany will defend and indemnify Customer against any, cost, expense (including reasonable attorneys fees incurred as a result of any third party claim that the Applications infringe a copyright, patent, trade secret or other intellectual property right, provided that: (a) Customer notifies E.piphany in writing within thirty (30) days of the claim; (b) E.piphany has sole control of the defense and all related settlement negotiations; and (c) Customer provides E.piphany with the assistance, information and authority necessary to perform E.piphany's obligations under this Section. E.piphany will reimburse Customer's reasonable out-of-pocket expenses incurred in providing such assistance. E.piphany shall have no liability for any claim of infringement based on use of a superseded or altered release of the Applications if the infringement would have been avoided by the use of a current unaltered release of the Applications provided that E.piphany has provided such release prior to the date of alleged infringement without charge to Customer. -4- 5 If the Applications are held or believed by E.piphany to infringe, E.piphany shall have the option, at its expense, to (a) modify the Applications to be noninfringing; or (b) obtain for Customer a license to continue using the Applications. If it is not commercially reasonable to perform either of the above options, (then E.piphany may terminate the license for the infringing Applications and refund the license fees paid for the Applications, prorated over a five (5) year term from the date of this Agreement). THIS SECTION 5.1 STATES E.PIPHANY'S ENTIRE LIABILITY AND CUSTOMER'S EXCLUSIVE REMEDY FOR INFRINGEMENT. 5.2. WARRANTIES AND DISCLAIMERS A. APPLICATION WARRANTY E.piphany warrants for a period of one (1) year from the Commencement Date that each Application licensed will perform substantially as described in the Documentation (unless modified by a party other than E.piphany in which case this warranty is void.) E.piphany warrants for a period of one (1) year from the delivery of any Upgrade, Patch or Enhancement (as defined in this Agreement and the Technical Services Agreement) that such Upgrade, Patch or Enhancement will perform substantially as described in the Documentation therefore if any. B. MEDIA WARRANTY E.piphany warrants the tapes, diskettes or other media to be free of material defects in materials and workmanship under normal use for ninety (90) days from the Commencement Date. C. SERVICES WARRANTY E-piphany warrants that its Technical Support, training and consulting services will be performed consistent with generally accepted industry standards. This warranty shall be valid for ninety (90) days from performance of service. D. YEAR 2000 WARRANTY E.piphany warrants that Applications will be Year 2000 Compliant. "Year 2000 Compliant" means that Applications will perform without error, loss of data or loss of functionality arising from any failure to process, calculate, compare or sequence date data accurately if all associated products, such as hardware, software and firmware, used in combination with Applications properly exchange date data with Applications. In addition, Year 2000 Compliant Applications will not cause any associated products or systems in which they may be used to fail in any of the ways described above. THIS WARRANTY SHALL NOT APPLY TO ANY THIRD PARTY PRODUCTS USED IN COMBINATION WITH APPLICATIONS. -5- 6 E. DISCLAIMERS THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF AND E.PIPHANY DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. E.PIPHANY DOES NOT WARRANT THAT THE APPLICATIONS WILL OPERATE IN COMBINATIONS OTHER THAN AS SPECIFIED IN THE DOCUMENTATION OR THAT THE OPERATION OF THE APPLICATIONS WILL BE UNINTERRUPTED OR ERROR-FREE. PRE-PRODUCTION RELEASES OF APPLICATIONS, COMPUTER-BASED TRAINING PRODUCTS ARE DISTRIBUTED "AS IS." 5.3. EXCLUSIVE REMEDIES For any breach of the warranties contained in Section 5.2, Customers exclusive remedy, and E.piphany's entire liability, shall be: A. FOR APPLICATIONS The correction of Application errors that cause breach of the warranty, or if E.piphany is unable to make the Application operate as warranted, Customer shall be entitled to terminate the Application license and recover the fees paid to E.piphany for the Application license. B. FOR MEDIA The replacement of defective media returned within ninety (90) days of the Commencement Date. C. FOR SERVICES The reperformance of the services, or if E.piphany is unable to perform the services as warranted, Customer shall be entitled to recover the fees paid to E.piphany for the unsatisfactory services. 5.4 ACKNOWLEDGEMENT Customer acknowledges that: (i) Customer has requested that E.piphany integrate the Applications with software and systems owned or licensed by Customer; (ii) Customer has valid existing rights to any and all such third party software and systems; (iii) E.piphany is not an agent or otherwise acting on behalf of any such third party licensor; and (iv) except pursuant to the indemnification provided above, Customer will not sue or seek to hold E.piphany liable for any third party claim that such integration activities violate such third party's patent, copyright or other right in such software or systems. VI. PAYMENT PROVISIONS 6.1. INVOICING AND PAYMENT -6- 7 All undisputed fees shall be due and payable thirty (30) days from receipt invoice date. Any amounts payable by Customer hereunder which remain unpaid after the due date shall be subject to a late charge equal to 1% per month from the due date until such amount is paid. Customer agrees to pay applicable media and shipping charges. Customer shall issue a purchase order, or alternative document acceptable to E.piphany, on or before the Effective Date of the applicable Order Form. 6.2. TAXES The fees listed in this Agreement do not include taxes; if E.piphany is required to pay sales, use, property, value-added or other taxes based on the licenses or services granted in this Agreement or on Customer's use of the Solutions or training, then such taxes shall be billed to and paid by Customer. This Section shall not apply to taxes based on E.piphany's income. E.piphany shall deliver the Applications and Documentation in electronic form. VII. GENERAL TERMS 7.1. NONDISCLOSURE By virtue of this Agreement, the parties may have access to information that is confidential to one another ("Confidential Information"). Confidential Information shall be limited to the Applications, Documentation, the terms and pricing under this Agreement, all information clearly identified as confidential, a parties' code, processes, architecture and any other information that may be accessed by a party hereunder that should reasonably be deemed as confidential. A party's Confidential Information shall not include information that: (a) is or becomes a part of the public domain through no act or omission of the other party; (b) was in the other party's lawful possession prior to the disclosure and had not been obtained by the other party either directly or indirectly from the disclosing party; (c) is lawfully disclosed to the other party by a third party without restriction on disclosure; or (d) is independently developed by the other party without reference to the Confidential Information. Customer shall not disclose the results of any benchmark tests of the Applications to any third party without E.piphany's prior written approval. The parties agree to hold each others Confidential Information in confidence for a period of five years after disclosure of the Confidential Information or for a period of two years after termination of this Agreement, whichever is earlier. The parties agree, unless required by law, not to make each other's Confidential Information available in any form to any third party for any purpose other than the implementation of this Agreement. Each party agrees to take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents in violation of the terms of this Agreement. 7.2. GOVERNING LAW AND JURISDICTION -7- 8 This Agreement, and all matters arising out of or relating to this Agreement, shall be governed by the laws of the State of California without reference to conflicts of laws principles. Any legal action or proceeding relating to this Agreement shall be instituted in a state or federal court in San Francisco or San Mateo County, California. E.piphany and Customer agree to submit to the jurisdiction of, and agree that venue is proper in, these courts in any such legal action or proceeding. 7.3 PUBLICITY. Upon execution of the Agreement, E.piphany shall be entitled to represent that Customer is a customer, disclose that the parties have entered into an Agreement to the extent necessary to comply with SEC requirements and issue a press release mutually acceptable to the parties. 7.4. NOTICES All notices, including notices of address change, required to be sent hereunder shall be in writing and shall be deemed to have been given when mailed by first class mail to the first address listed in the relevant Order Form (if to Customer) or to the E.piphany address on the Order Form (if to E.piphany). To expedite order processing, Customer agrees that both parties may treat documents faxed one to the other as original documents; nevertheless, either party may require the other to exchange original signed documents. 7.5. LIMITATION OF LIABILITY EXCEPT FOR E.PIPHANY'S OBLIGATIONS UNDER SECTION 5.1 (INFRINGEMENT INDEMNITY), IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, REVENUE, DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NEITHER PARTY'S LIABILITY FOR DAMAGES HEREUNDER SHALL EXCEED THE AMOUNT OF FEES PAID BY CUSTOMER UNDER THIS AGREEMENT. The provisions of this Agreement allocate the risks between E.piphany and Customer. E.piphany's pricing reflects this allocation of risk and the limitation of liability specified herein. 7.6. SEVERABILITY If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions of this Agreement will remain in full force. 7.7. WAIVER -8- 9 The waiver by either party of any default of breach of this Agreement shall not constitute a waiver of any other or subsequent default or breach. Except for actions for nonpayment or breach of E.piphany's proprietary rights in the Applications, no action, regardless of form, arising out of this Agreement may be brought by either party more than two years after the cause of the action has accrued. 7.8. EXPORT ADMINISTRATION Customer agrees to comply fully with all relevant export laws and regulations of the United States ("Export Laws") to assure that neither the Applications nor any direct product thereof are (1) exported, directly or indirectly, in violation of Export Laws; or (2) are intended to be used for any purposes prohibited by the Export Laws, including, without limitation, nuclear, chemical, or biological weapons proliferation. 7.9. ENTIRE AGREEMENT This Agreement constitutes the complete agreement between the parties and supercedes all prior or contemporaneous agreements or representations, written or oral, concerning the subject matter of this Agreement. This Agreement may not be modified or amended except in writing signed by a duly authorized representative of each party; no other act, document, usage or custom shall be deemed to amend or modify this Agreement. It is expressly agreed that the terms of this Agreement and any Order Form shall supersede the terms in any Customer purchase order or other ordering document. This Agreement shall also supersede all terms of any unsigned or "shrinkwrap" license included in any package, media, or electronic version of E.piphany-furnished software and any such software shall be licensed under the terms of this Agreement, provided that the use limitations contained in an unsigned ordering document shall be effective for the specified licenses. 7.10. FORCE MAJEURE Neither party shall be liable to the other for any delay or failure to perform any obligation under this Agreement if the delay or failure is due to circumstances beyond the reasonable control of the non-performing party. THE EFFECTIVE DATE OF THIS AGREEMENT SHALL BE MARCH 3, 2000. Executed by eGroups, Inc.: Executed by E.piphany, Inc.: Authorized Signature: Authorized Signature: -------------- -------------- Name: Name: ----------------------------- ----------------------------- Title: Title: ----------------------------- ----------------------------- Address: 2688 Middlefield Road Address: 1900 Norfolk Street San Mateo, CA 94403 Ste. 310 Redwood City, CA 94063 -9- 10 EXHIBIT A Order Form This Order Form to the Software License and Services Agreement ("Order Form") is made between E.piphany, Inc. ("E.piphany") and eGroups, Inc. ("Customer.") This Order Form is part of the Software License and Services Agreement between the parties dated March 3, 2000 ("Agreement"). It is expressly agreed that the terms of the Agreement and the Order Form shall supersede the terms in any Customer purchase order or other ordering document. The Agreement and the Order Form shall also supersede all terms of any unsigned or "shrinkwrap" license included in any package, media, or electronic version of E.piphany furnished software and any such software shall be licensed under the terms of this Agreement, provided that the use limitations contained in an unsigned ordering document shall be effective for the specified licenses. 1. Agreement Effective Date: March 3, 2000 2. Order Form Effective Date: March 3, 2000 3. Licenses/Services Support:
- -------------------------------------------------------------------------------- ITEM PRICE - -------------------------------------------------------------------------------- Current E.4 Tier 1 Reporting and Analysis Program BBB - Sales Reporting Analysis & application Channel Sell Through Management application Call Center Reporting & Analysis application Customer Profitability application Current E.4 Tier 1 Distributed Database Marketing Programs Loyalty Program Management application Campaign Performance Measurement application Current E.4 Tier 2 Distributed Database Marketing Programs Cross-Sell/Up-Sell application Attrition Management application Customer Acquisition application Current E.4 Tier 3 E-Commerce Programs E-Commerce Campaigns application Current E.4 Tier 4 E-Mailer application Subtotal [ * ] Name Users - 15 Names Users for Tier 1-4 applications [ * ] Extractors (unlimited) [ * ] Current Realtime Personalization Campaign Management
An * indicates that information has been redacted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. -10- 11 Programs RTM Server (4CPUs) included Web Point (4CPUs) Control Center (5 Users) Campaign Workshop (5 Users) Subtotal License and Per Seat $[*] Less Discount $[*] Total License $[*] First Year Enterprise Support (at 18%) $[*] Training (2 persons for 5 days at $500 each) included Professional Services (Phase 1 implementation services described in attached Statement of Work) $[*] Total $[*]
Unless otherwise specified, all Software Licenses listed above are licensed for UNIX Applications and the application release generally available as of the Order Form Effective Date. 3.1. Technical Services. Technical Support Services fees shall be subject to change by E.piphany from time to time upon ninety (90) days' written notice to Customer; provided, however, for the second, third and fourth year terms of the Agreement, E.piphany shall not increase the Technical Support Fees payable by Customer in excess of nine percent (9%) over the prior year's fees. After the first year term of the Agreement, Technical Services fees shall be due net thirty (30) days from the first day of the applicable Technical Services term. 3.2 Expenses. The professional services fees are exclusive of actual, reasonable travel and out-of-pocket expenses for which Customer shall reimburse E.piphany. 4.0 Designated System: 1 server with Oracle UNIX Database Server, MS ISS Application Server; 2688 Middlefield Road, Redwood City, CA 94063 4. Notice Addresses: Customer Contact E.piphany, Inc. Jiff Winner & Rikk Carey Director of Legal Affairs VP, Engineering E.piphany, Inc. eGroups, Inc. 1900 S. Norfolk St., Suite 310 2688 Middlefield Road San Mateo, CA 94403 Redwood City, CA 94063 650-356-3800 (phone) 650-868-3158 (phone) 650-356-3907 (fax) 650-303.8260 (phone) __________ 650-216-3999 (fax) An * indicates that information has been redacted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. -11- 12 Technical Technical Rikk Carey Director, Technical Support VP, Engineering E.piphany, Inc. eGroups, Inc. 1900 S. Norfolk St., Suite 310 2688 Middlefiled Road San Mateo, CA 94403 Redwood City, CA 94063 650-356-3800 (phone) 650-303-8260 (phone) 650-356-3801 (fax) 650-216-3399 (fax) 6. Technical Support. Notwithstanding anything to the contrary in Exhibit B, E.piphany shall provide 7 x 24 support for Realtime Personalization and respond with in two (2) hours for Critical Errors for such programs. 7. Payment Terms: all fees set forth above are due and payable in three equal installments of $[*] as follows: Net 30 days from Effective Date of the Agreement Net 60 days from Effective Date of the Agreement Net 90 days from Effective Date of the Agreement 8. Marketing. As a partial consideration for the license and net fees charged to Customer, Customer agrees that, immediately upon execution of the Agreement, Customer will participate in a joint release with E.piphany regarding the Agreement which shall not be released prior to obtaining written approval from Customer (such approval not to be unreasonably withheld or delayed); and thereafter, Customer will allow E.piphany to use it as a reference account for marketing purposes, including (i) allowing E.piphany to reference Customer on its reference account customer lists in print and on its website; (ii) providing quotes for E.piphany's press releases and website, subject to Customer's prior review and approval of text; and (iii) participating in four (4) pre-approved reference conference calls and one (1) site visit per month. Executed by eGroups, Inc.: Executed by E.piphany, Inc.: Authorized Signature: Authorized Signature: -------------- -------------- Name: Name: ----------------------------- ----------------------------- Title: Title: ----------------------------- ----------------------------- Address: 2688 Middlefield Road Address: 1900 Norfolk Street San Mateo, CA 94403 Ste. 310 Redwood City, CA 94063 An * indicates that information has been redacted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. -12- 13 EXHIBIT B Technical Support Services Terms and Conditions These Technical Support Terms and Conditions ("Terms") are referenced in and incorporated into the Software License and Service Agreement ('Agreement") between E.piphany, Inc. ("E.piphany") and eGroups, Inc. ("Licensee.") Upon reasonable notice, E.piphany reserves the right to modify the Terms under which it provides Support Services to reflect current market conditions. 1.0. DEFINITIONS. Unless otherwise defined in the Terms, the capitalized terms used herein shall have the same meaning as set forth in the Agreement and applicable Schedule. 1. 1. "Critical" means an Error that: (1) renders the Software inoperative; or (2) causes the Software to fail catastrophically. 1.2. "Dial In Access" means direct connection to the designated System, via PPTP, SLIP/PPP, direct TCP/IP, or other such point-to-point network access. 1.3. "Enhancement" means technical or functional additions to the Software to improve software functionality and/or operations. Enhancements are delivered with new releases of the Software. 1.4. "Error" means a malfunction in the Software that degrades the use of the Software. 1.5. "Major" means an Error that seriously affects performance of the Software, but does not prohibit Licensee's use of the Software. 1.6. "Minor" means an Error that causes only minor impact to the use of the Software. 1.7. "Patch" means the repair or replacement of source or object or executable code versions of the Software to remedy an Error. 1.8. "Previous Sequential Release" means a release of the Software for use in a particular operating environment that has been replaced by a subsequent release of the Software in the same operating environment. E.piphany will support a Previous Sequential Release for a period of one hundred eighty (180) days after the release of the subsequent release. Multiple Previous Subsequent Releases may be supported at any given time. 1.9. "Schedule" means the schedule set forth in the Order Form that describes when the Services will be provided. 1.10. "Site" means the single centralized location set forth in the Schedule where E.piphany will provide the Support Services. 1.11 "Software" means the application software programs licensed to Licensee under the Agreement. -13- 14 1.12. "Support Services" means the maintenance and support services described herein. 1.13. "System" means the computer running the E.piphany application server and E.piphany database server. 1.14. "Update" means all published revisions to the Documentation and one (1) copy of the new release of the Software that are not designated by E.piphany as new products for which it charges separately 1.15. "Workaround" means a change in the procedures followed or data supplied, to avoid an Error without significantly impairing performance of the Software. 2.0. COVERAGE. In consideration for Licensee's payment of the applicable Support Services fees to E.piphany, E.piphany will provide Licensee with the Support Services for the Software for the Site. Only designated Licensee employees may contact E.piphany to receive the Support Services. Licensee may acquire Support Services for additional Licensee sites by paying to E.piphany the applicable annual fee. 3.0. E.PIPHANY SOFTWARE MAINTENANCE AND SUPPORT SERVICE OFFERINGS. E.piphany offers the following two (2) levels of Annual Support Services for its Products: Enterprise Support Priority Enterprise Support 2 named contacts, 2 backup contacts Hot Line 6AM - 6PM Pacific 1st call log via web only Down System Hot Line 7 x 24 Patches 4 named contacts, 2 backup contacts Updates and Enhancements 1st call log phone or web Priority Levels: Urgent, Major and Minor Patches Updates and Enhancements Priority Levels: All Regardless of the level of support, E.piphany will periodically issue Patches, Updates, and Enhancements to improve the operation of Software. All Patches, Updates and Enhancements provided to Licensee are subject to the terms and conditions of the Agreement. 4.0. PRIORITY LEVEL OF ERRORS. E.piphany shall reasonably determine the priority level of Error in accordance with the following protocols: Critical: 4 Hour Response Time. E.piphany promptly initiates the following procedures: (1) assign E.piphany specialist(s) to correct the Error; (2) provide ongoing communication on the status of the correction; and (3) immediately begin to provide a Workaround or Patch. Urgent: 8 Hour Response Time. E.piphany will: -14- 15 (1) assign a specialist to commence correction of the Error; and (2) provide escalation procedures as reasonably determined by E.piphany Support staff. E.piphany exercises all commercially reasonable efforts to include the Patch for the Error in the next Software Update release. Major: 2 Day Response: E.piphany will: (1) assign a specialist to commence correction of the Error; and (2) provide escalation procedures as reasonably determined by E.piphany support staff. E.piphany may include the Patch for the Error in the next Update. Minor: 5 Day Initial Response Time/ Monthly Update Response. E.piphany may include the Patch for the Error in the next major Software release. 5.0. TELEPHONE SUPPORT. E.piphany provides telephone support concerning installation and use of the Software. Except for designated holidays, Priority Enterprise telephone support hours are Monday through Friday, 6:OOAM to 6:OOPM, Pacific Time. Telephone support is also available for Priority Enterprise customers 24 hours a day, 7 days a week for in-production customers who need to resolve downs problems outside of normal support hours. 6.0. DIAL IN ACCESS. To provide timely service, E.piphany requires that Licensee provide Dial-in Access to all systems covered under the Agreement. In the event Licensee does not provide Dial-in Access, E.piphany will not be held liable for failure to meet the response times set forth in Section 4 above. If Licensee does not provide Dial-in Access, E.piphany may, at its sole discretion, elect to provide on-Site support to Licensee for Errors reported by Licensee. In such case, Licensee will reimburse E.piphany for the reasonable travel and living expenses related to on-Site support activity. 7.0. ACCOUNT MANAGER. E.piphany may assign an Account Manager to assist with the on-going support relationship between E.piphany and Licensee. Licensee will reimburse E.piphany for the reasonable travel and living expenses of the Account Manager for on-Site support activity. 8.0. ECSWEB. ECSWeb is an on-line, self-service system that features postings by E.piphany and E.piphany Software users regarding technical and non- technical topics of interest. Licensee may access ECSWeb via the Internet. At Licensee's expense, Licensee is responsible for independently acquiring appropriate Internet access. a. All Software maintenance releases and Patches may be delivered to Licensee through ECSWeb or by mail from E.piphany upon Licensee's written request. All information provided by E.piphany in ECSWeb is confidential and proprietary to E.piphany and shall only be used in connection with Licensee's use of the Software and informational communications with other ECSWeb participants. E.piphany reserves the right to modify -15- 16 information posted to ECSWeb. E.piphany shall have the right to publish and distribute only through ECSWeb in all languages and in association with Licensee's name any material or Software Applications provided by Licensee to ECSWeb. Licensee shall not use ECSWeb for advertising or public relations purposes and shall only submit information to ECSWeb which is owned by Licensee or which Licensee has third party permission to submit to ECSWeb for use by all other ECSWeb users, b. In the interest of diminishing the exposure to software viruses, E.piphany tests and scans for software viruses all information entered by E.piphany prior to posting information to ECSWeb. Licensee shall also use a reliable virus detection system on any software or information posted to ECSWeb, utilize backup procedures, monitor access to ECSWeb, promptly notify E.piphany of any virus detected within Licensee's systems associated with ECSWeb and generally exercise a reasonable degree of caution when utilizing information from ECSWeb. E.piphany provides the ECSWeb "AS IS" and does not warrant that ECSWeb will operate without interruption or without errors. E.piphany reserves the right to modify or suspend ECSWeb service in connection with E.piphany's provision for Support Services. 9.0. FEES. The initial period of Support Services for the Site is included in the Agreement; thereafter, in the event Licensee elects to continue to receive Support Services, Licensee shall pay E.piphany the annual Support Services fee, as set forth in the Schedule. Support Services are billed on an annual basis, payable in advance. Licensee shall be responsible for all taxes associated with Support Services, exclusive of taxes based on E.piphany's income. Licensee's payment shall be due within thirty (30) days of receipt of the E.piphany invoice. In the event Licensee elects not to renew Support Services and subsequently requests Support Services, E.piphany shall reinstate Support Services only after Licensee pays E.piphany the then-current annual fee plus all cumulative fees that would have been payable had Licensee not suspended Support Services. 10. 0. TERM AND TERMINATION. Support Services shall be provided for the Initial Support Services Term as set forth in the Schedule, and shall be extended each additional year unless terminated by either party. Each one (1) year term shall commence on the anniversary of the Schedule Effective Date. Licensee may terminate the Support Services provisions at the end of the original term or at the end of any renewal term by giving E.piphany written notice at least ninety (90) days prior to the end of any term. In the event Licensee fails to make payment pursuant to the section titled "Fees", or in the event Licensee breaches the Support Services provisions and such breach has not been cured within thirty (30) days of written receipt of notice of breach, E.piphany may suspend or cancel Support Services without further notice. 11.0. EXCLUSIONS. E.piphany shall have no obligation to support: A. Altered, damaged or substantially modified software; B. Software that is not the then-current release, or a Previous Sequential Release; -16- 17 C. Errors caused by Licensee's gross negligence, hardware malfunction, or other causes beyond the reasonable control of E.piphany; D. Software installed in a hardware or operating environment not supported by E.piphany; or E. Third party software not licensed through E.piphany. -17- 18 EXHIBIT C Statement of Work -18- EX-10.31 33 FORM OF ADERTISING INSERTION ORDER 1 EXHIBIT 10.31 [GRAPHIC OMITTED] Advertising Insertion Order HTTP:WWW.EGROUPS.COM - ------------------------------------------------------------------------------------------------------------------ Sales Contact: ______________ e-mail: ___________ Phone: (415) 546-2793 Fax: (415) 546-2801 - ------------------------------------------------------------------------------------------------------------------ ORDER INFORMATION Order Date: ____________________ Order #: ______________ - ---------------- ------------------------------------------- -------------------- -------------------------------- ADVERTISER AGENCY FAX FAX ADDRESS ADDRESS CONTACT CONTACT PHONE PHONE EMAIL EMAIL - ---------------- -------------- ------------- -------------- -------------------- -------------------------------- START DATE END DATE CONTRACT LENGTH - ---------------- -------------- ------------- -------------- -------------------- -------------------------------- - ------------------------------------------------------------------------------------------------------------------ Bill To: __ Advertiser __ Agency - ------------------------------------------------------------------------------------------------------------------ AD PLACEMENT - ----------------- ------------ ------------------------------------- ------------------------ -------------------- Ad Type Position Target Total Insertions Total Amount ------- -------- ------ ---------------- ------------ COST: - ------------------------------------------------------------------------------------------------------------------
DELIVERY: All materials must be delivered at least 4 business days in advance to the e-mail address below ____________________. In all correspondence, an eGroups insertion order number and flight dates must be referenced. Insertion orders are subject to the approval of eGroups, Inc., which retains sole discretion to accept or reject any order. Once accepted, the Insertion Order may not be cancelled by Advertiser. Acceptance does not obligate eGroups to accept subsequent orders. This insertion order is subject to and incorporates eGroups Standard Terms and Conditions for Advertisers which are attached hereto. AUTHORIZED BY: ______________________________________ PHONE: ______________ DATE: _________ PRODUCTION CONTACT: __________________________________ PHONE: ______________ DATE: _________ - ---------------------------------------------------------- PLEASE RETURN TO EGROUPS SALES DEPT. FAX # (415) 546-2801 - ---------------------------------------------------------- 2 ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: EGROUPS, INC. BY: -------------------------------- NAME: ------------------------------ DATE: ------------------------------ 3 EGROUPS, INC. STANDARD TERMS AND CONDITIONS FOR ADVERTISERS THE FOLLOWING TERMS AND CONDITIONS ("STANDARD TERMS AND CONDITIONS FOR ADVERTISERS") ARE DEEMED TO BE INCORPORATED INTO EACH ADVERTISING INSERTION ORDER ACCEPTED BY EGROUPS ("INSERTION ORDER"): 1. TERMS OF PAYMENT. The Advertiser (as defined in the Insertion Order) will be invoiced on the first day of the contract period set out in the Insertion Order. Unless otherwise expressly agreed by the parties in writing, the Advertiser must ensure that payment is made to eGroups, Inc. ("eGroups") in U.S. dollars within thirty days after the date of the invoice, subject to credit policies that may be in effect with respect to an individual Advertiser. Advertising agencies are responsible for payment of all advertising ordered on behalf of their clients, and by signing an Insertion Order acknowledge that they are jointly and severally liable with their clients for payment. Advertiser's default in payment entitles eGroups to cancel any advertising run remaining under the Insertion Order. 2. CREATION, DELIVERY AND RUNNING OF ADVERTISING MATERIALS. Advertiser is solely responsible for the creation of all advertising materials (including GIF or JPEG files), and for the content of such advertising including compliance with all applicable international, federal, state, or local laws and regulations that may apply to the subject advertising. Advertiser will deliver the materials to eGroups in electronic form at least four (4) business days before the scheduled run date, or as otherwise instructed. Advertiser hereby grants eGroups a non-exclusive, worldwide, fully paid right and license to use, reproduce, publish, publicly perform and publicly display all such materials on the eGroups Site. Advertiser acknowledges that positioning of advertisements on the eGroups Site will be determined by eGroups in its sole discretion. eGroups does not warrant the date or dates of insertion of the advertisement(s) and does not warrant that the advertisement(s) will not be displayed after the end date specified. However, eGroups will use reasonable efforts to comply with Advertiser's request in this regard. 3. RIGHT TO REJECT ADVERTISEMENTS. All contents of advertisements are subject to eGroups' approval. eGroups does not undertake to review the content of any advertisement and any such review or approval shall not be deemed to constitute an acceptance by eGroups that such advertisement is provided in accordance with these Standard Terms and Conditions for Advertisers nor will it constitute a waiver of eGroups' rights hereunder. eGroups reserves the right, in its sole discretion, to reject or remove any advertisement, insertion order, URL link, space reservation or position commitment at any time in its absolute discretion. 4. RATES. eGroups reserves the right to revise its advertising rate card at any time. Rate card changes will not apply to Insertion Orders already signed by eGroups. 5. USAGE STATISTICS. Notwithstanding the provisions of the Insertion Order, the Advertiser acknowledges that eGroups makes no guarantees with respect to the usage statistics or levels of impressions for any advertisement. eGroups provides the Advertiser with estimated usage statistics as a courtesy to Advertiser and eGroups will not be held liable for any claims relating to any usage statistics however supplied. 6. ADVERTISER'S REPRESENTATIONS AND WARRANTIES. Advertiser represents and warrants to eGroups that 1) it has the right to publish all of the content of the advertisements provided under the Insertion Order and that such publication will not infringe the rights of any third party, including without limitation, intellectual property rights and rights of privacy or violate any applicable law or regulation; and 2) the advertisements do not contain anything that is defamatory, obscene, false or 4 misleading. 7. INDEMNITY. Advertiser agrees to indemnify, defend and hold harmless eGroups, and its employees, representatives and agents, from and against any and all losses, damages, suits, judgments, costs and expenses, including reasonable attorney's fees, arising out of or in connection with any claims, suits, actions, or other proceedings actual or threatened based on or arising from: (a) advertisements or other content supplied by Advertiser, including any claim that it infringes any copyright, trademark or other intellectual property right of a third party or contains any material that is obscene, defamatory, violates any law or regulation, or breaches the rights of any person or entity, including, without limitation, rights of publicity, privacy or personality, or is otherwise actionable; (b) Advertiser's products or services, including any claim that they are illegal or harm or may harm a third party in any manner; (c) a breach by Advertiser of any representation or warranty contained in Paragraph 6; or (d) the development, operation, maintenance or content contained on Advertiser's web site. 8. LIMITATION OF LIABILITY. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE SERVICES PROVIDED BY EGROUPS HEREUNDER ("ADVERTISING SERVICES") ARE PROVIDED "AS IS" AND "AS AVAILABLE." EGROUPS DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, REGARDING THE ADVERTISING SERVICES AND THE EGROUPS SITE OR ANY OTHER ITEMS OR SERVICES IT MAY PROVIDE, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING, COURSE OF PERFORMANCE OR USAGE OF TRADE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EGROUPS DOES NOT WARRANT THAT ITS SITE WILL BE FREE FROM BUGS, DEFECTS OR ERRORS, OR THAT IT WILL BE ACCESSIBLE WITHOUT INTERRUPTION. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT, EXEMPLARY, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR COSTS, SUFFERED BY THE OTHER, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS OR REVENUES, LOSS OF USE OR GOODWILL, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9. LIMITATION OF DAMAGES. If eGroups fails to publish any advertisement or deliver the number of impressions as provided in the Insertion Order (or in the event of any other failure, technical or otherwise, of such advertisement to appear as provided in the Insertion Order), eGroups' liability will be limited (at the option of eGroups) to either: (a) publishing the advertisement (or a replacement advertisement if provided by the Advertiser) as soon as is reasonably practicable in the period following the period during which the advertisement was scheduled to run and for such time as is necessary to generate a number of substitute impressions equal to the shortfall, or (b) refund to the Advertiser that proportion of the amounts paid which relate to those advertisements and/or impressions which were not provided, or, if the relevant amounts were not paid by the Advertiser, agree that such amounts will not be due or payable. 10. GENERAL. (a) These Standard Terms and Conditions for Advertisers together with the Insertion Order ("Agreement"), constitute the entire agreement between the parties and supersede any prior agreements and representations between the parties, whether written or oral, regarding the subject matter contained herein; (b) Advertiser may not assign, resell or otherwise transfer, any rights or obligations under these Standard Terms and Conditions for Advertisers or the Insertion Order, without the prior written consent of eGroups; (c) this agreement shall be construed and interpreted according to the laws of the State of California without regard to choice of law principles, and all disputes arising under these terms shall be heard exclusively in the state courts of California in the county of San Francisco or in the federal courts of the Northern District of California, to which the parties consent to jurisdiction and venue; (d) the prevailing party in any action or proceeding arising under the Agreement shall be entitled to reasonable attorney's fees and costs; (e) the waiver of a breach or right under the 5 Agreement shall not constitute a waiver of any other or subsequent breach or right; (f) if any provision of the Agreement is found to be invalid or unenforceable by a court of competent jurisdiction, such provision shall be severed from the remainder of the Agreement, which shall remain in full force and effect; (g) eGroups shall not be in default or otherwise liable for any delay in or failure of its performance under the Agreement arising by reason of any Act of God, disruptions of the Internet, telecommunications facilities or public utilities, or any government or any governmental body, acts of war, the elements, strikes or labor disputes, or other causes beyond its control; and (h) Advertiser shall keep the terms of the Insertion Order confidential. EX-10.32 34 ADVERTISING INSERTION ORDER 1 EXHIBIT 10.32 Advertising Insertion Order HTTP:WWW.EGROUPS.COM - ---------------------------------------------------------------------------------------------------------- Sales Contact: Jill Benloff e-mail jillb@egroups.net Phone: (415) 546-2813 Fax: (415) 546-2801 - ---------------------------------------------------------------------------------------------------------- ORDER INFORMATION Order Date: December 6, 1999 - ---------------------------------------------------------------------------------------------------------- Advertiser X.Com Agency Fax (650) 833-5470 Fax 394 University Avenue Address Palo Alto, CA 94301 Address Contact Julie Anderson Contact Phone (650) 833-5460 Phone Email ja@x.com Email - ---------------------------------------------------------------------------------------------------------- Start Date 12/15/99 End Date 1/15/00 Contract Length 12/15-1/15 Bill To: [X] Advertiser [ ] Agency - ---------------------------------------------------------------------------------------------------------- AD PLACEMENT - ---------------------------------------------------------------------------------------------------------- Ad Type Position Target Total Clicks Total Amount - ------- -------- ------ ------------ ------------ See Attached COST: $225,000 - ----------------------------------------------------------------------------------------------------------
DELIVERY: All materials must be delivered at least 4 business days in advance to the email address allsond@egroups.net. In all correspondence, a eGroups insertion order number and flight dates must be referenced. This agreement is non-cancelable. AUTHORIZED BY: PHONE: DATE: ----------------------------- ----------- -------- PRODUCTION CONTACT: PHONE: DATE: ------------------------ ----------- -------- - ------------------------------------------------------------- Please return to eGroups Sales Dept. Fax # (415) 546-2801 - ------------------------------------------------------------- EGROUPS, INC. 350 BRANNAN SAN FRANCISCO, CA 94107 EX-10.33 35 ADVERTISING INSERTION ORDER 1 EXHIBIT 10.33 eGroups Advertising Insertion Order http:www.eGroups.com Sales Contact: Jill Benioff e-mail: jillb@egroups.net Phone: (415) 546-2813 Fax: (415) 546-2601 ORDER INFORMATION Order Date: February 9, 2000 Advertiser X.Com Agency Fax (650) 752-6960 Fax Address 394 University Avenue Address Palo Alto, CA 94301 Contact Julie Anderson Contact Phone (650) 752-6900 Phone Email ja@x.com Email Start Date 2/10/00 End Date 3/8100 Contract Length 2/8/00-3/8/00 Bill To: [X] Advertiser [ ] Agency AD PLACEMENT
Ad Type Position Target CPM Total Impressions Total Amount ------- -------- ------ --- ----------------- ------------ Collectables Elerts (2) Feb 10th and Collectables [*] [*] $4,000 21 st Business & Finance: [*] [*] impressions Buying & Trading Merchandise, Auctions, Bartering, 120x440's Collecting, Fantasy text WEB Sports: [*] impressions [*] $46,500 Electronic Commerce/Shopping Purchasing Goods: [*] impressions Cultures & Lifestyles: [*] impressions Cost: $50,500
DELIVERY: All materials must be delivered at least 4 business days in advance to the e-mail address jamess@egroups.net. In all correspondence, a eGroups Insertion order number and flight dates must be referenced. This agreement Is non-cancelable. Authorized By: Phone: 650-752-6907 Date: 02/08/2000 ---------------------- We have requested confidential treatment of this exhibit pursuant to Rule 406, promulgated by the Securities and Exchange Commission, under the Securities and Exchange Act of 1933, as amended. An * indicates that information has been redacted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. EX-10.34 36 ADVERTISING SALES AGREEMENT 1 EXHIBIT 10.34 Advertising Insertion Order http:www.eGroups.com - ------------------------------------------------------------------------------------------------ Sales Contact: _________ e-mail:_________ Phone: (212) 229-9599 Fax: (212) 229-9913 - ------------------------------------------------------------------------------------------------
ORDER INFORMATION Order Date:_________________ Order #_______________ - -------------------------------------------------------------------------------- Advertiser EVulkan (BeMany.com) Agency N/A Fax Fax Address Address Contact Bill Robinson Contact Phone Phone Email bill@evulkan.com Email - -------------------------------------------------------------------------------- Start Date 3/1/00 End Date 2/28/01 Contract Length 12 Months - -------------------------------------------------------------------------------- Bill To: [x] Advertiser [ ] Agency - -------------------------------------------------------------------------------- Ad Placement - --------------------------------------------------------------------------------
TOTAL TOTAL AD TYPE POSITION TARGET INSERTIONS CPM AMOUNT - ------- -------- ------ ---------- --- ------ HTML Email 468x60 Students, News, [*] [*] $42,000 Regional, Small Business, Expatriates, Regional Cooking, Nationalities, Ethnic Groups, Fraternities & Sororities Text Email 3 Lines "" [*] [*] $52,500 + Link Vault Sponsorship 468x60 "" [*] [*] $19,500
We have requested confidential treatment of this exhibit pursuant to Rule 406, promulgated by the Securities and Exchange Commission, under the Securities and Exchange Act of 1933, as amended. An * indicates that information has been redacted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. 2 Chat Sponsorship 468x60 "" [*] [*] $3000 Database Sponsorship 468x60 "" [*] [*] $3000 Links Sponsorship 468x60 "" [*] [*] $3000 Poll Sponsorship 468x60 "" [*] [*] $3000 Category Sponsorship 120x240 Education & Alumni, News [*] [*] $105,000 & Publications, Regions & Languages Group Info Page 120x90 All Groups [*] [*] $420,000 Sponsorship Mgr. Newsletter 468x60 All Group Managers [*] [*] $35,000 Sponsorship User Newsletter 468x60 All Subscribed Users [*] [*] $131,250 Sponsorship Opt-In Email Stand Categories and Mailing [*] [*] $187,500 Alone Dates to Be Determined Email Throughout the lifespan Msg. of the campaign Total: [*] $1,004,750
DELIVERY: All materials must be delivered at least 4 business days in advance to the e-mail address below ______________. In all correspondence, an eGroups insertion order number and flight dates must be referenced. Insertion orders are subject to the approval of eGroups, Inc., which retains sole discretion to accept or reject any order. Once accepted, the Insertion Order may not be cancelled by Advertiser. Acceptance does not obligate eGroups to accept subsequent orders. This insertion order is subject to and incorporates eGroups Standard Terms and Conditions for Advertisers which are attached hereto. Authorized By: Phone: Date: ------------------------ ----------- ----------- Production Contact: Phone: Date: ------------------- ----------- ----------- Please return to eGroups Sales Dept. Fax (212) 229-9913 An * indicates that information has been redacted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. -2- 3 ACCEPTED AND AGREED TO: EGROUPS, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- -3- EX-10.35 37 MASTER SERVICE AGREEMENT 1 EXHIBIT 10.35 GLOBAL CENTER, INC., A GLOBAL CROSSING COMPANY MASTER SERVICE AGREEMENT NO. ================================================================================ This Master Service Agreement (this "Agreement") is entered into on the ________ day of ___________, 2000 ("Effective Date") by and between ___________________, on behalf of itself and the subsidiary, affiliate, division and/or business unit ("Client") indicated on the Service Order Form attached hereto, with an office at the address listed on the Service Order Form, and Global Center, Inc., a Delaware Corporation with offices at 141 Caspian Court, Sunnyvale, CA 94089, to set forth the terms and conditions pursuant to which Global Center, Inc. shall provide to Client certain Services (as defined in the Service Order). The entire contract between the parties shall consist of this Agreement and one or more Service Order(s). Unless otherwise agreed to by both parties, all future Service Orders entered into between the Client and Global Center, Inc. will be bound by this Agreement. In consideration of the mutual promises and upon the terms and conditions set forth below, the parties agree as follows: 1. NATURE OF AGREEMENT Pursuant to this Agreement, Global Center, Inc. shall sell and provide to Client, in consideration for the applicable fees as set forth in a Service Order the following: (i) Internet connectivity services (the "Bandwidth"); (ii) the lease (if so indicated on the Service Order) or purchase by Client of equipment to provide such services (the "Hardware") and the installation of such equipment; (iii) the lease of space to store and operate such Hardware ("Space"); (iv) management, planning and consulting resources to support these services, including maintenance and operation of the Hardware ("Support"), (v) the licensing of software to provide such Services (the "Software"), including, without limitation, monitoring software, billing software, trouble ticketing software, data collection and process control software, which together, including all telecommunication and digital transmission connections and links, all electrical and physical requirements, comprise an Internet connectivity and co-location package to support Client's web site(s) ("Client's Web Sites") under this Agreement and are referred to hereinafter as the "Services". The Services will be provided in accordance with the specifications set forth in the Service Specification attached to this Agreement and in the Service Order(s) hereto and made a part hereof. 2. SERVICE ORDERS 2.1. ORDERS. Client and Global Center, Inc. may execute one or more Service Orders describing the Services that Client desires to purchase from Global Center, Inc. Each Service Order shall set forth the Services to be provided by Global Center, Inc., the specifications applicable to each item, the prices and payment schedule, the initial term of such Services (the "Initial Service Term") and other information the parties may mutually agree upon. No Service Order shall be effective until executed by Global Center, Inc. All Service Orders will be subject to the terms and conditions of this Agreement, provided however, that in the event of conflict between the terms contained in any Service Order and terms in this Agreement, the terms contained in the Service Order shall control. 2.2. In the event of conflict between terms in this Agreement and Service Order, and any terms contained in client-issued order form or purchase order, the terms of this Agreement and Service Order shall supersede any terms and conditions that may appear in such client-issued order form or purchase order. 2.3. CANCELLATION. In the event that Client cancels or terminates a Service Order at any time for any reason, other than expiration of a Service Order or a Service Interruption (as defined below), Client agrees to pay Global Center, Inc. all Monthly Recurring Charges specified in the Service Order for the balance of the term therefore, which shall become due and owing as of the effective date of cancellation or termination. Upon the cancellation or termination of a Service Order by Client, Global Center, Inc., shall upon Client's written request and at no additional cost, give full cooperation and assistance to Client to assure an orderly and efficient transition. 2.4. IP ADDRESSES. Global Center, Inc. will assign on a temporary basis a reasonable number of Internet Protocol Addresses ("IP Addresses") from the address space assigned to the Global Center, Inc. by InterNIC. Client acknowledges that the IP Addresses are the sole property of Global Center, Inc., are assigned to Client as part of the Service, and are not "portable," as such term is used by InterNIC. Global Center, Inc., reserves the right to change the IP Address assignments at any time; however, Global Center, Inc. shall use reasonable efforts to avoid any disruption to Client resulting from such renumbering requirement. Global Center, Inc., will give Client reasonable notice of any such renumbering. Client agrees that it will have no right to IP Addresses upon termination of this Agreement, and that any renumbering required of Client after termination shall be the sole responsibility of Client. 2.5. STAFFING. Except as otherwise agreed in any Service Order, Global Center, Inc. shall be responsible for staffing decisions with respect to its personnel and the provision of any Services under this Agreement, and shall have the right to remove or replace any of its personnel assigned to perform Services under this Agreement. Global Center, Inc., shall use reasonable efforts to maintain the continuity of its personnel assigned to perform Services under this Agreement. 3. SOFTWARE LICENSE AND RIGHTS 3.1. LICENSE. During the term of the applicable Service Order, Global Center, Inc., grants Client a non-transferable, nonexclusive license to use the Software in object code form only, solely on the Hardware, or Global Center, Inc., equipment, in conjunction with the Services. 3.2. PROPRIETARY RIGHTS. This Agreement transfers to Client neither title nor any proprietary or intellectual property rights to the Software, documentation, or any copyrights, patents, or trademarks, embodied or used in connection therewith, except for the rights expressly granted herein. 3.3. LICENSE RESTRICTIONS. Client agrees that it will not itself, or through any parent, subsidiary, affiliate, agent or other third party. 3.3.1. Copy the Software except as expressly allowed under this Agreement. In the event Client makes any copies of the Software, Client shall reproduce all proprietary notices of Global Center, Inc., on any such copies; 3.3.2. reverse, engineer, decompile, disassemble, or otherwise attempt to derive source code from the software; 3.3.3. sell, lease, license or sublicense the Software or the documentation; 3.3.4. write or develop any derivative software or any other software program based upon the Software or any Confidential Information (as defined below); or 3.3.5. use the Software to provide processing services to third parties, or otherwise use the Software on a 'service bureau' basis. 3.4. SOFTWARE REPRESENTATIONS AND WARRANTIES. Global Center, Inc., represents and warrants that: (i) it has the right, power and authority to license the Software to Client pursuant to this Agreement free of all liens, encumbrances and other restrictions; (ii) the Software shall operate and run in accordance with the Service Specifications indicated in the Agreement or referenced in the Service Order, (iii) the license furnished by Global Center, Inc., hereunder and/or the use of the Software by Client in accordance with the terms and conditions herein or in any Service Order, will not infringe upon nor violate any patent, copyright, trade secret, or other proprietary right of any third party; (iv) Client's use and possession of the Software consistent with the terms of this Agreement, shall not be adversely affected, interrupted or disturbed Page 1 of 6 2 GLOBAL CENTER, INC., A GLOBAL CROSSING COMPANY Master Service Agreement No. ================================================================================ by Global Center, Inc., or any entity asserting a claim under or through Global Center, Inc.; (v) the installation and use of the Software and any Upgrades shall not degrade, impair or otherwise adversely affect the performance or operation of the Hardware. 4. HARDWARE TERMS AND CONDITIONS 4.1. INSTALLATION. If so indicated on the Service Order, Global Center, Inc., will use commercially reasonable efforts to install the Hardware as the Hardware is shipped to Global Center, Inc., Global Center, Inc., will work with the Client on an installation plan to define installation time frame and requirements. 4.2. PURCHASE AND TITLE OF HARDWARE. If so indicated on the Service Order, Client shall purchase the Hardware and deliver, at Client's expense, the Hardware to the Space. Client agrees that the Hardware shall reside at the Space during the term of this Agreement. 4.3. LEASE OF HARDWARE. If so indicated on the Service Order, Client shall lease the Hardware, and Global Center, Inc., shall obtain and deliver the Hardware to the Space. In the event Client leases the Hardware, the following terms and conditions shall apply: The Hardware is and shall remain the property of Global Center, Inc. Client shall not have taken, or attempt to take, any right, title or interest therein or permit any third party to take any interest therein. Client will not transfer, sell, assign, sublicense, pledge, or otherwise dispose of, encumber or suffer a lien or encumbrance upon or against the Hardware or any interest in the Hardware. Client will use the Hardware only at the Space. Client will not move the Hardware from that facility without Global Center, Inc.'s prior written permission. Client shall be responsible for any damage to the Hardware caused by Client negligent or willful acts or omissions. Client will use the Hardware only for the purpose of exercising its rights under this Agreement. 4.4. RENT TO OWN. If so indicated on the Service Order, Client shall lease the Hardware on a "rent to own" plan. In such event, all of the terms and conditions in Section 4.3 shall apply, and the following terms and conditions shall also apply. At the end of the term of the Service Order, providing Client is not in breach of this Agreement, Client shall have the option to purchase the Hardware. The purchase price shall be as indicated on the Service Order. Upon payment by Client of the purchase price, title of the Hardware shall pass to Client at the Space. Unless the Service Order is extended by mutual Agreement, Client shall immediately delete, or shall allow Global Center, Inc., to delete all copies of the Software and associated documentation owned by Global Center, Inc., or any other materials of Global Center, Inc., resident on the Hardware. 5. SPACE 5.1. Global Center, Inc., represents and warrants that (i) it has obtained all necessary approvals to lease the Space to Client and to allow Client to occupy and have access to the Space for the purpose of receiving the Services set forth in the Service Order, (ii) it has the authority to grant Client a royalty-free, non-transferable, non-exclusive license to occupy and have access to the Space, and that the grant of such license shall not constitute a violation of the lease or separate Agreement to which Global Center, Inc., is a party and/or by which it is bound, and (iii) the Space shall conform with the Service Specifications set forth in this Agreement or any Service Order. 5.2. LICENSE TO OCCUPY. Global Center, Inc. grants to Client a non-exclusive license to occupy the Space. Client acknowledges that it has been granted only a license to occupy the Space and that it has not been granted any real property interests in the Space. Global Center, Inc., represents and warrants that it has obtained all approvals necessary, including but not limited to, permissions from the landlord and any regulatory authorities, to operate the facility in this manner contemplated by this Agreement. 5.3. MATERIAL AND CHANGES. Client shall not make any construction changes or material alterations to the interior or exterior portions of the Space, including any material alteration to cabling or power supplies for the Hardware, without obtaining Global Center, Inc.'s prior written approval for Client to have the work performed. Alternatively, Client may request Global Center, Inc. to perform the work. Global Center, Inc., reserves the right to perform and manage any construction or alterations within the Space areas at rates to be negotiated between the Parties hereto, so long as the rates are commercially reasonable. Client agrees not to erect any signs or devices to the exterior portion of the Space without submitting the request to Global Center, Inc. and obtaining Global Center, Inc.'s prior written approval. 5.4. DAMAGE. Client agrees to reimburse Global Center, Inc., for all reasonable repair or restoration costs associated with damage or destruction in the Space directly caused by the negligence or willful misconduct of Client's personnel, Client's agents, Client's suppliers/contractors, or Client's visitors to the Space during the term or as a consequence of Client's removal of the Hardware or property installed in the Space, provided that Client shall not be liable for any damage or destruction occurring from or out of any negligent act or omission of Global Center, Inc., its officers, directors, agents and employees. 5.5. INSURANCE. Unless otherwise agreed, Client agrees to maintain, at Client's expense, for each Space, (i) Comprehensive General Liability Insurance in an amount not less than One Million Dollars ($1,000,000) per occurrence for bodily injury or property damage, (ii) Employer's Liability in an amount not less than Five Hundred Thousand Dollars ($500,000) per occurrence, and (iii) Worker's Compensation in an amount not less than that prescribed by statutory limits. Upon reasonable request of Global Center, Inc., Client shall furnish Global Center, Inc., with certificates of insurance, which evidence these minimum levels of insurance. 5.6. REGULATIONS. Client shall use its best efforts to comply with and not violate Global Center, Inc.'s Safety, Health and Operation Rules and regulations relating to use of it's premises and facilities, so long as those regulations are provided to client in writing. Client's failure to comply materially with Global Center, Inc. 's rules and regulations shall constitute a material default under this Agreement. Global Center, Inc., may, in its sole discretion, limit Client's access to a reasonable number of authorized Client employees or designees. Client shall not interfere with any other clients of Global Center, Inc., or such other clients' use of the Space. 5.7. DISCLAIMER. Except as expressly stated herein, Global Center, Inc., does not make any representation or warranty as to the fitness of the Space for Client's use. 6. SERVICE INTERRUPTIONS 6.1. 99% NETWORK UPTIME GUARANTEE. In the event of Network Downtime (as defined below), the monthly fee payable for the Bandwidth, defined in the Service Order, shall be reduced as follows: 6.1.1. if the total Downtime in the calendar month is more than seven and two tenths (7.2) hours, but does not exceed fourteen and four tenths (14.4) hours, the monthly Bandwidth fee for that month shall be reduced by one-third (33.3%); and 6.1.2. if the total Downtime in the calendar month is more than fourteen and four tenth hours (14.4) hours, but does not exceed twenty-one and six tenths (21.6) hours, the monthly Bandwidth fee for that month shall be reduced by two-thirds (66.6%); and 6.1.3. If the total Downtime in the calendar month is more than twenty-one and six-tenths (21.6) hours the monthly Bandwidth fee for that month shall be reduced by three-quarters (75%). 6.2. DOWNTIME DEFINED. For the purposes of this Section, Downtime shall mean any interruption of sixty (60) seconds or more in the availability of, (i) the connection between the Client's equipment and the Global Center, Inc. switch fabric, (ii) the internetwork that connects the Global Center, Inc. switch fabric with the Internet. For purposes of this Section, the Internet is deemed to consist of services that commence where Global Center, Inc. transmits a Client's content to Global Center, Page 2 of 6 3 GLOBAL CENTER, INC., A GLOBAL CROSSING COMPANY Master Service Agreement No. ================================================================================ Inc.'s carrier(s) at the Global Center, Inc., border router port(s). Such carriers provide Global Center, Inc., with private and dedicated bandwidth. Global Center, Inc., undertakes no obligation for the circuit or link between Global Center, Inc.'s facilities and such carrier's services. If router packet loss is in excess of fifty percent (50%) and is sustained for sixty (60) seconds or more, Global Center, Inc., will classify this as an "outage." If an "outage" continues for a time period of more than two (2) minutes, then such outage will be deemed Downtime. If the latency across the Global Center, Inc. national IP backbone exceeds one hundred twenty (120) milliseconds, Global Center, Inc., will classify this as Downtime. 6.3. MAINTENANCE WINDOWS. Global Center, Inc., reserves three (3) regularly scheduled maintenance windows per week, of three hour duration, in order to maintain and upgrade the Global Center, Inc. IP Backbone infrastructure. Outages or performance degradation during scheduled maintenance windows as a result of router, switch or server maintenance, are not considered Downtime for purposes of this section. Global Center, Inc. shall make all commercially reasonable efforts to provide the client with prior notification of all scheduled and emergency maintenance procedures. 6.4. 100% FACILITY UPTIME GUARANTEE. In the event of Facility Downtime (as defined below), the Monthly Fee payable for the Co-location Services as set forth in the applicable Service Order shall be reduced as follows: 6.4.1. If the total Facility Downtime in the calendar month is less than, or equal to four minutes and thirty-two seconds (4.32) the monthly Co-location service fee for that month shall be reduced by one-third (33.3%); 6.4.2. If the total Facility Downtime in the calendar month is more than four minutes and thirty-two seconds (4.32) the monthly Co-location service fee for that month shall be reduced by two-thirds (66.6%). 6.4.3. DOWNTIME DEFINED. For the purposes of this Section, Facility Downtime shall mean any service interruption, only if such interruption is either due to a facility power failure or environmental control failure. 6.5. INVESTIGATION OF SERVICE INTERRUPTIONS. At Client's request, Global Center, Inc. will investigate any report of Downtime, and attempt to remedy any Downtime expeditiously. If Global Center, Inc. reasonably determines that all facilities, systems and equipment furnished by Global Center, Inc. are functioning properly, and that Downtime arose from some other cause, Global Center, Inc. can continue to investigate the Downtime cause at the client's request and expense for labor and materials cost for services actually performed at the usual and customary rates for similar services provided by Global Center, Inc. to clients in the same locality. 6.6. TERMINATION. Client may terminate a Service Order in the event of Downtime of either twenty-four (24) hours of cumulative time during any continuous twelve (12) month period, or any continuous downtime of eight (8) or more hours. 6.7. SOLE REMEDY. The terms and conditions of this Section shall be Client's sole remedy and Global Center, Inc.'s sole obligation for any Downtime. 7. USER CONTENT 7.1. Client is solely responsible for the content of any postings, data, or transmissions using the Services ("Content"), or any other use of the Services by Client or by any person or entity Client permits to access the Services (a "User"). Client represents and warrants that it and any User will not use the services for unlawful purposes (including without limitation infringement of copyright or trademark, misappropriation of trade secrets, wire fraud, invasion of privacy, pornography, obscenity and libel), or to interfere with or disrupt other network users, network services or network equipment. Disruptions include without limitation distribution of unsolicited advertising or chain letters, repeated harassment of other network users, wrongly impersonating another such user, falsifying one's network identity for improper or illegal purposes, sending unsolicited mass e-mailings, propagation of computer worms and viruses, and using the network to make unauthorized entry to any other machine accessible via the network. If Global Center, Inc. has reasonable grounds to believe that Client or a User is utilizing the Services for any such illegal or disruptive purpose, Global Center, Inc. may suspend or terminate Services immediately upon notice to Client. Client shall defend, indemnify, hold harmless Global Center, Inc. from and against all liabilities and costs (including reasonable attorney's fees) arising from any and all claims by any person arising out of Client's use of the Services, including without limitation any content. 7.2. ACCEPTABLE USE POLICY. All Global Center, Inc. clients are responsible for reviewing and complying with this Acceptable Use Policy. Global Center Inc.'s clients who provide services to their own users must take steps to ensure compliance by their users with this Acceptable Use Policy. This Policy is subject to change without notice by publication at http://www.globalcenter.net/aup. Clients are responsible for monitoring this web site for changes. Global Center, Inc. customers may not use Global Center, Inc.'s data distribution network, machines, or services in any manner that violates any applicable law, regulation, treaty, or tariffs. Also customers are prohibited from activity that includes, but is not limited to unauthorized use (or attempted unauthorized use) of any machines or networks, denial of service attacks, falsifying header information or user identification information, monitoring or scanning the networks of others without prior written permission from Global Center, Inc. 7.2.1. EMAIL. Sending unsolicited bulk email is prohibited. Sending unsolicited bulk email from another provider advertising or implicating the use of any service hosted by Global Center Inc., including without limitation email, web, FTP, and DNS services, is prohibited and is grounds for termination of those services to users who engage in the practice. Users who send unsolicited bulk email from Global Center Inc., accounts will be charged the cost of labor to respond to complaints. Continuing to send someone email after being asked to stop is considered harassment and is prohibited. Using email to disrupt (e.g., mail bombing, "flashing," etc.) is prohibited. Sending email with falsified header information is prohibited. Chain letters, pyramid schemes, and hoaxes are prohibited. 7.2.2. USENET NEWSGROUPS. Global Center, Inc. places no content restrictions on newsgroup postings by its users except that (a) no illegal content, including pyramid/Ponzi schemes, is permitted and (b) all postings should conform to the various conventions, guidelines and local culture found in each respective newsgroup and Usenet as a whole. 7.2.3. Posting 20 or more copies of the same article in a 45-day period ("spamming") or continued posting of off-topic articles after being warned is prohibited. Users who engage in spamming using Global Center, Inc. accounts will be charged the cost of labor to issue cancellations and respond to complaints. Users who engage in spamming from another provider advertising or implicating the use of any service hosted by Global Center, Inc., including without limitation email, web, FTP, and DNS services, is prohibited and is grounds for termination of those services to those users. 7.2.4. Excessive crossposting (Breidbart Index of 20 or greater in a 45-day period) is prohibited. The Breidbart Index (BI) is calculated by taking the sum of the square roots of the number of newsgroups each copy of an article is crossposted to. If two articles are posted, one crossposted to 9 newsgroups and the other crossposted to 16 newsgroups, the BI = sqrt(9)+sqrt(16)=3+4=7. Crossposting articles to newsgroups where they are off-topic is prohibited. 7.2.5. Posting articles with falsified header information is prohibited. "Munging" header information to foil email address harvesting by "spammers" is acceptable provided that a reasonable means of replying to the message originator is given. Use of anonymous remailers is acceptable, so long as the use is not otherwise a violation of this policy. Page 3 of 6 4 GLOBAL CENTER, INC., A GLOBAL CROSSING COMPANY Master Service Agreement No. ================================================================================ 7.2.6. Users may not issue cancellations for postings except those, which they have posted themselves, those which have headers falsified so as to appear to come from them or in newsgroups where they are the official moderators. 8. PRICING AND PAYMENT TERMS 8.1. PAYMENT TERMS. Client shall pay the fees set forth in the Services Order Form according to the terms set forth therein. Client agrees to pay a late charge of two percent (2%) above the prime rate as reported by the Wall Street Journal at the time of assessment or the maximum lawful rate, whichever is less, for all undisputed amounts not paid within thirty (30) days of receipt of invoice. 8.2. LATE PAYMENTS. In the event of non-payment by Client of sums over-due hereunder for more than forty-five (45) days, Global Center, Inc. may upon written notice to Client either retain any equipment or other assets of Client then in Global Center, Inc.'s possession and sell them in partial satisfaction of such unpaid sums, or request Client to remove equipment from Global Center, Inc.'s premises within ten (10) days. If Client fails to so remove, Global Center, Inc. may deliver the equipment to Client at the latter's address for notices at Client's expense for shipment and insurance, and Client shall be obligated to accept such delivery. 8.3. PRICE INCREASES. Global Center, Inc. shall not increase the prices for services during the initial term of any Service Order, but may thereafter change prices upon sixty(60) days written notice. 9. MAINTENANCE AND SUPPORT Global Center, Inc. shall provide Client with maintenance and support of the Software and Hardware, if any ("Maintenance and Support") as specified in the Service Specification. 9.1 EXCLUSIONS. Maintenance and Support shall not include services for problems arising out of (a) modification, alteration or addition or attempted modification, alteration or addition of the Hardware or Software undertaken by persons other than Global Center, Inc. or Global Center, Inc.'s authorized representatives; or (b) programs or hardware supplied by Client. 9.2. CLIENT DUTIES. Client shall document and promptly report all errors or malfunctions of the Hardware or Software to Global Center, Inc. Client shall take all steps necessary to carry out procedures for the rectification of errors or malfunctions within a reasonable time after such procedures have been received from Global Center, Inc. Client shall maintain a current backup copy of all programs and data. Client shall properly train its personnel in the use and application of the Hardware and Software. 10. TERM AND TERMINATION 10.1. TERM. The term of this Agreement shall commence on the Effective Date and continue indefinitely unless terminated in accordance with this Section 10 or the provisions contained in Section 6.6 The initial term of each Service Order shall be as indicated therein. 10.2. TERMINATION UPON DEFAULT. Either party may terminate this Agreement in the event that the other party materially defaults in performing any obligation under this Agreement and such default continues unremedied for a period of thirty (30) days following written notice of default. In the event this Agreement is terminated due to Global Center, Inc.'s breach, Global Center, Inc., shall refund to Client any Services fees on a straight-line prorated basis. 10.3. TERMINATION UPON INSOLVENCY. This Agreement shall terminate, effective upon delivery of written notice by a party, (i) upon the institution of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of debts of the other party; (ii) upon the making of an assignment for the benefit of creditors by the other party; or (iii) upon the dissolution of the other party. 10.4. EFFECT OF TERMINATION. The provisions of Sections 1, 2.3, 3.2, 3.4, 7, 10.4, 11, 12, 13 and 14 shall survive termination of this Agreement. All other rights and obligations of the parties shall cease upon termination of this Agreement. The term of any license granted hereunder shall expire upon expiration or termination of this Agreement. 11. CONFIDENTIAL INFORMATION All information identified disclosed by either party ("Disclosing Party") to the other party ("Receiving Party"), if disclosed in writing, labeled as proprietary or confidential, or if disclosed orally, reduced to writing within thirty (30) days and labeled as proprietary or confidential ("Confidential Information") shall remain the sole property of Disclosing Party. Except for the specific rights granted by this Agreement, Receiving Party shall not use any Confidential Information of Disclosing Party for its own account. Receiving Party shall use the highest commercially reasonable degree of care to protect Disclosing Party's Confidential Information. Receiving Party shall not disclose Confidential Information to any third party without the express written consent of Disclosing Party (except solely for Receiving Party's internal business needs, to employees or consultants who are bound by a written Agreement with Receiving Party to maintain the confidentiality of such Confidential Information in a manner consistent with this Agreement). Confidential Information shall exclude information (i) available to the public other than by a breach of this Agreement; (ii) rightfully received from a third party not in breach of an obligation of confidentiality; (iii) independently developed by Receiving Party without access to Confidential Information; (iv) known to Receiving Party at the time of disclosure; or (v) produced in compliance with applicable law or a court order, provided Disclosing Party is given reasonable notice of such law or order and an opportunity to attempt to preclude or limit such production. Subject to the above, Receiving Party agrees to cease using any and all materials embodying Confidential Information, and to promptly return such materials to Disclosing Party upon request. 12. LIMITATION OF LIABILITY GLOBAL CENTER, INC.'S LIABILITY FOR ALL CLAIMS ARISING OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNT OF FEES PAID BY CLIENT TO GLOBAL CENTER, INC. UNDER THIS AGREEMENT. IN NO EVENT SHALL GLOBAL CENTER, INC. BE LIABLE FOR ANY LOSS OF DATA, LOSS OF PROFITS, COST OF COVER OR OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING FROM OR IN RELATION TO THIS AGREEMENT OR THE USE OF THE SERVICES, HOWEVER CAUSED AND REGARDLESS OF THEORY OF LIABILITY. THIS LIMITATION WILL APPLY EVEN IF GLOBAL CENTER, INC. HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES. 13. DISCLAIMER OF WARRANTIES EXCEPT AS OTHERWISE STATED HEREIN, GLOBAL CENTER, INC. SPECIFICALLY DISCLAIMS ALL WARRANTIES EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT OF THE SYSTEM OR SERVICES PROVIDED BY GLOBAL CENTER, INC. HEREUNDER. 14. MISCELLANEOUS 14.1. INDEPENDENT CONTRACTOR. The relationship of Global Center, Inc. and Client established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to (i) give either party the power to direct and control the day-to-day activities of the other; (ii) constitute the parties as partners, joint ventures, co-owners or otherwise as participants in a joint Page 4 of 6 5 GLOBAL CENTER, INC., A GLOBAL CROSSING COMPANY Master Service Agreement No. ================================================================================ undertaking; or (iii) allow either party to create or assume any obligation on behalf of the other party for any purpose whatsoever. 14.2. NOTICES. Any notice required or permitted hereunder shall be in writing and shall be given by registered or certified mail addressed to the addresses first written above. Such notice shall be deemed to be given upon the earlier of actual receipt or three (3) days after it has been sent, properly addressed and with postage prepaid. Either party may change its address for notice by means of notice to the other party given in accordance with this Section. 14.3. ASSIGNMENT. Neither party may assign this Agreement, in whole or in part, either voluntarily or by operation of law without express written consent of the other party, and any attempt to do so shall be a material default of this Agreement and shall be void. 14.4. GOVERNING LAW. This Agreement shall be interpreted according to the laws of the State of California without regard to or application of choice-of-law rules or principles. 14.5. ENTIRE AGREEMENT AND Waiver. This Agreement, including all appendices, attachments and Service Orders, shall constitute the entire Agreement between Global Center, Inc. and Client with respect to the subject matter hereof and all prior Agreements, representations, and statement with respect to such subject matter are superseded hereby. This Agreement may be changed only by written Agreement signed by both Global Center, Inc. and Client. No failure of either party to exercise or enforce any of its rights under this Agreement shall act as a waiver of subsequent breaches; and the waiver of any breach shall not act as a waiver of subsequent breaches. 14.6. SEVERABILITY. In the event any provision of this Agreement is held by a court of other tribunal of competent jurisdiction to be unenforceable, that provision will be enforced to the maximum extent permissible under applicable law, and the other provisions of this Agreement will remain in full force and effect. 14.7. NON-SOLICITATION. During the term of this Agreement and for a period of one (1) year thereafter, client shall not directly solicit, nor directly attempt to solicit the services, of any employee or subcontractor of Global Center, Inc. without the prior written consent of the other party. 14.8. SUBSTITUTION. Global Center, Inc. may substitute, change or modify the Software or Hardware at any time, but shall not thereby alter the technical parameters of the Services. 141 Caspian Court Sunnyvale, CA 94089 BY ------------------------------------------ TITLE --------------------------------------- DATE ---------------------------------------- CLIENT: ------------------------------------- - -------------------------------------------- BY ------------------------------------------ TITLE --------------------------------------- DATE ---------------------------------------- Page 5 of 6 6 SERVICE SPECIFICATION CO-LOCATION SERVICE Global Center, Inc. will provide a level of service, which includes the following features and options: GENERAL FEATURES MAINTENANCE OF THE SPACE (INCLUDING JANITORIAL SERVICES): In connection with the Space made available hereunder, Global Center, Inc. or its landlord shall perform services that support the overall operation of each Space at no additional charge to Client. Those services include the following: - - Janitorial Services - - 24 x 7 Access to the Space - - Authorized Security System Access to Raised Floor Collocation Space - - Primary A/C 110 volt Power to the Space - - Backup Power-UPS Systems & Battery Plant (30 - 60 minute survivability objective) - - Generator Back-up (Sustained backup power) - - HVAC Systems for facility air conditioning - - Fire Control Systems - - Network Monitoring Systems - - Redundant Network Connectivity and Hardware - - 19" Rack Spaces for installation of Hardware - - Custom configurations of space to accommodate cabinets - - Lockable private caged customer areas - - 10-base-T or 100-base-T switched port with direct high speed Internet backbone connection. 24x7 NOC SUPPORT: Will provide proactive site monitoring with ExpressLane(TM) statistics on Client information base; including bandwidth usage, statistics and network availability reporting, host monitoring and management interface, access to Global Center, Inc. incident tracking system to expedite fault resolution and remote server reboot. ESCALATION PLAN AND PROCEDURES: To be provided by Global Center, Inc. in the Welcome Package 5-10 days after the contract is signed. RIGHT-OF-WAY AND ACCESS Global Center, Inc. will allow 24 x 7 access and right-of-way to Client Hardware located in Global Center, Inc. facility at no charge. Clients will be escorted at all times while in the facility. Access to the facilities will not be unreasonably withheld by Global Center, Inc. to Clients for performing appropriate procedures and maintenance of Hardware, facilities, and systems. Page 6 of 6 EX-10.36 38 LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.36 LOAN AND SECURITY AGREEMENT This LOAN AND SECURITY AGREEMENT dated May 19, 1999, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and ONELIST, INC. ("Borrower"), whose address is 951 Old Country Road, Belmont, California 94002 provides the terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows: 1 ACCOUNTING AND OTHER TERMS Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP. The term "financial statements" includes the notes and schedules. The terms "including" and "includes" always mean "including (or includes) without limitation," in this or any Loan document This Agreement shall be construed to impart upon Bank a duty to act reasonably at all times. 2 LOAN AND TERMS OF PAYMENT 2.1 Credit Extensions. Borrower will pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions 2.1.1 Equipment Advances. (a) Subject to the terms and conditions of this Agreement Bank agrees to lend to Borrower, from time to time prior to the Commitment Termination Date, equipment advances (each an "Equipment Advance" and collectively the "Equipment Advances") in an aggregate amount not to exceed the Committed Equipment Line. When repaid, the Equipment Advances may not be re-borrowed. The proceeds of the Equipment Advances will be used solely to reimburse Borrower for the purchase of Eligible Equipment. Each Equipment Advance shall be considered a promissory note evidencing the amounts due hereunder for all purposes. Bank's obligation to lend hereunder shall terminate on the earlier of (i) the occurrence and continuance of an Event of Default, or (ii) the Commitment Termination Date. For purposes of this Section, the minimum amount of each Equipment Advance is $30,000 and the maximum number of Equipment Advances that will be made is 3. (a) (b) To obtain an Equipment Advance, Borrower will deliver to Bank a completed supplement in substantially the form attached as Exhibit C ("Loan Supplement"), and such additional information as Bank may request at least five (5) Business Days before the proposed funding date (the "Funding Date"). On each Funding Date, Bank will specify in the Loan Supplement for each Equipment Advance, the Basic Rate, the Loan Factor, and the Payment Dates. If Borrower satisfies the conditions of each Equipment Advance specified from time to time by Bank, Bank will disburse such Equipment Advance by internal transfer to Borrower's deposit account with Bank. Each Equipment Advance may not exceed 100% of the Original Stated Cost. -3- 2 (c) Bank's obligation to lend the undisbursed portion of the Committed Equipment Line will terminate if, in Bank's sole discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospects of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank prior to the execution of this Agreement. 2.2 Interest Rate, Payments. (a) Principal and Interest Payments On Payment Dates. Borrower will repay the Equipment Advances on the terms provided in the Loan Supplement Borrower will make payments monthly in advance of principal and accrued interest for each Equipment Advance (collectively, "Scheduled Payments"), on the first Business Day of the month following the Funding Date (or commencing on the Funding Date if the Funding Date is the first Business Day of the month) with respect to such Equipment Advance and continuing thereafter during the Repayment Period on the first Business Day of each calendar month (each a "Payment Date"), in an amount equal to the Loan Factor multiplied by the Loan Amount for such Equipment Advance as of such Payment Date. All unpaid principal and accrued interest is due and payable in full on the last Payment Date with respect to such Equipment Advance. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue. An Equipment Advance may only be prepaid in accordance with Sections 2.2 (e) and 2.2 (g). (b) Interest Rate. Borrower will pay interest on the unpaid principal amount of each Equipment Advance from the first Payment Date after the Funding Date of such Equipment Advance until the Equipment Advance has been paid in full, at the per annum rate of interest equal to the Basic Rate determined by Bank as of the Funding Date for each Equipment Advance in accordance with the definition of the Basic Rate. Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to the Basic Rate plus five percent (5%). If any change in the law increases Bank's expenses or decreases its return from the Equipment Advances, Borrower will pay Bank upon request the amount of such increase or decrease. (c) Interim Payment In addition to the Scheduled Payments, on the Funding Date for each Equipment Advance (unless the Funding Date is the first Business Day of the month) Borrower shall pay to Bank, on behalf of Bank, an amount (the "Interim Payment") equal to the initial Equipment Advance multiplied by the product of (i) the quotient derived from dividing the initial Loan Factor with respect to such Equipment Advance by 30, and (ii) the number of days from the Funding Date of the Equipment Advance until the first Payment Date with respect to such Equipment Advance. -4- 3 (d) Final Payment on the Maturity Date with respect to each Equipment Advance, Borrower will pay, in addition to the unpaid principal and accrued interest and all other amounts due on such date with respect to such Equipment Advance, an amount equal to the Final Payment. (e) Prepayment Upon an Event of Loss. If any Financed Equipment is subject to an Event of Loss and Borrower is required to or elects to prepay the Equipment Advance with respect to such Financed Equipment pursuant to Section 6.7, then such Equipment Advance shall be prepaid to the extent and in the manner provided in such section. (f) Mandatory Prepayment Upon an Acceleration. If the Equipment Advances are accelerated following the occurrence of an Event of Default or otherwise (other than following an Event of Loss), then Borrower will immediately pay to Bank (i) all unpaid Scheduled Payments with respect to each Equipment Advance due prior to the date of prepayment (ii) all accrued unpaid interest, including the default rate of interest, to the date of the prepayment, (iii) the Final Payment and (iv) all other sums, if any, that shall have become due and payable with respect to any Equipment Advance. (g) Permitted Prepayment of Loans. With Bank's prior written consent, Borrower shall have the option to prepay all, but not less than all, of the Equipment Advances advanced by Bank under this Agreement, provided Borrower (i) provides written notice to Bank of its election to exercise to prepay the Equipment Advances at least thirty (30) days prior to such prepayment and (ii) pays, on the date of the prepayment (A) all remaining Scheduled Payments (including principal and interest); (B) all unpaid accrued interest to the date of the prepayment (C) the Final Payment, and (D) all other sums, if any, that shall have become due and payable hereunder with respect to this Agreement. 2.3 Fees. Borrower will pay: (a) Facility Fee. A fully earned, non-refundable Facility Fee of $5,000 due on the Closing Date; and (b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when due. 3 CONDITIONS OF LOANS 3.1 Conditions Precedent to Initial Credit Extension. Bank's obligation to make the initial Credit Extension is subject to the condition precedent that it receive the agreements, documents and fees it requires. -5- 4 3.2 Conditions Precedent to all Credit Extensions. Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following: (a) timely receipt of any Payment Advance Form; and (b) the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties of Section 5 remain true. 4 CREATION OF SECURITY INTEREST 4.1 Grant of Security Interest Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower's duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Bank may place a "hold" on any deposit account pledged as Collateral. If this Agreement is terminated, Bank's lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations. 5 REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1 Due Organization and Authorization. Borrower and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower's formation documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could cause reasonably be expected to cause a Material Adverse Change. 5.2 Collateral. Borrower has good title to the Collateral, free of Liens except Permitted Liens. All Inventory is in all material respects of good and marketable quality, free from material defects. 5.3 Litigation. Except as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge or Borrower's Responsible Officers and legal counsel, threatened by or against -6- 5 Borrower or any Subsidiary in which an adverse decision could reasonably be expected to cause a Material Adverse Change. 5.4 No Material Adverse Change In Financial Statements. All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrowers consolidated financial condition and Borrower's consolidated results of operations. There has not been any material deterioration in Borrower's consolidated financial condition since the date of the most recent financial statements submitted to Bank. 5.5 Solvency. The fair salable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 5.6 Regulatory Compliance. Borrower is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act Borrower is not engaged as one of its important activities in extending credit: for margin stock (under Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower's or any Subsidiary's properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 5.7 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. 5.8 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not -7- 6 misleading. It being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. 6 AFFIRMATIVE COVENANTS Borrower will do all of the following: 6.1 Government Compliance. Borrower will maintain its and all Subsidiaries' legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to cause a material adverse effect on Borrower's business or operations. Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change. 6.2 Financial Statements, Reports, Certificates. (a) Borrower will deliver to Bank: (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during the period, in a form and certified by a Responsible Officer acceptable to Bank; (ii) as soon as available, but no later than 90 days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales projections, operating plans or other financial information Bank requests. (b) Bank has the right to audit Borrower's Collateral anytime an Event of Default has occurred and is continuing. 6.3 Inventory; Returns. Borrower will keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower's customary practices as they exist at execution of this Agreement. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $50,000. 6.4 Taxes. -8- 7 Borrower will make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments and will deliver to Bank, on demand, appropriate certificates attesting to the payment. 6.5 Insurance. Borrower will keep its business and the Collateral insured for risks and in amounts, as Bank requests. Insurance policies will be in a form, with companies, and in amounts that are reasonably satisfactory to Bank. All property policies will have a lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies will show the Bank as an additional insured and all policies will provide that the insurer must give Bank at least 20 days notice before canceling its policy. At Bank's request, Borrower will deliver certified copies of policies and evidence of all premium payments. Subject to Section 6.7 (a) below, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy to the replacement or repair of destroyed or damaged property; provided that, after the occurrence and during the continuance of an Event of Default, all proceeds payable under any such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations. 6.6 Primary Accounts. Borrower will maintain its primary depository and operating accounts with Bank. 6.7 Loss; Destruction; or Damage. Borrower will bear the risk of the Financed Equipment being lost stolen, destroyed, or damaged. If during the term of this Agreement any item of Financed Equipment becomes obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason for a period equal to at least the remainder of the term of this Agreement (an "Event of Loss"), then in each case, Borrower (a) prior to the occurrence of an Event of Default, at Borrowers option, will (i) pay to Bank on account of the Obligations all accrued interest to the date of the prepayment plus all outstanding principal, plus the Final Payment; or (ii) repair or replace any Financed Equipment subject to an Event of Loss provided the repaired or replaced Financed Equipment is of equal or like value to the Financed Equipment subject to an Event of Loss and provided further that Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment (b) during the continuance of an Event of Default, on or before the Payment Date after such Event of Loss for each such item of Financed Equipment subject to such Event of Loss, Borrower will, at Bank's option, pay to Bank an amount equal to the sum of. (i) all accrued and unpaid Scheduled Payments (with respect to such Equipment Advance related to the Event of Loss) due prior to the next such Payment Date, (ii) all Regularly Scheduled Payments (including principal and interest), (iii) the Final Payment plus (iv) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts. (c) On the date of receipt by Bank of the amount specified above with respect to each such item of Financed Equipment subject to an Event of Loss, this Agreement shall terminate as to such Financed Equipment. -9- 8 If any proceeds of insurance or awards received from governmental authorities are in excess of the amount owed under this Section, Bank shall promptly remit to Borrower the amount in excess of the amount owed to Bank. 6.8 Further Assurances. Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's security interest in the Collateral or to effect the purposes of this Agreement. 7 NEGATIVE COVENANTS Borrower will not do any of the following without Bank's prior written consent, which will not be unreasonably withheld: 7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) of worn-out or obsolete Equipment. 7.2 Changes in Business, Ownership, Management or Business Locations. Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership (other than the sale of Borrower's equity securities in a public offering or to venture capital investors approved by Bank) of greater than 25%. Borrower will not without at least 30 days prior written notice, relocate its chief executive office or add any new offices or business locations. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement and result in a decrease of more than 25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. 7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 7.5 Encumbrance. -10- 9 Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for-Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens. 7.6 Distributions; Investments. Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock. 7.7 Transactions with Affiliates. Directly or indirectly enter or permit any material transaction with any Affiliate except transactions that are in the ordinary course of Borrower's business, on terms less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person. 7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt except under the terms of the Subordinated Debt, or amend any provision, in any document relating to the Subordinated Debt without Bank's prior written consent. 7.9 Compliance. Become an "investment company" or a company controlled by an "investment company," under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonable be expected to have a material adverse effect on Borrower's business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so. 8 EVENTS OF DEFAULT Any one of the following is an Event of Default. 8.1 Payment Default. If Borrower fails to pay any of the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Credit Extension will be made during the cure period). 8.2 Covenant Default. If Borrower violates any covenant in Section 7 or does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any -11- 10 agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 days or cannot be cured after Borrower's attempts within 10 day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to cure the default During the additional time, the failure to cure the default is not an Event of Default (but no Credit Extensions will be made during the cure period). 8.3 Material Adverse Change. If there (i) occurs a material impairment in the perfection or priority of the Bank's security interest in the Collateral or in the value of such Collateral which is not covered by adequate insurance or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations. 8.4 Attachment. If any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period). 8.5 Insolvency. If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed). 8.6 Other Agreements. If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $100,000 or that could cause a Material Adverse Change. 8.7 Judgments. If a money judgment(s) in the aggregate of at least $50,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied). 8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in -12- 11 any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document. 9 BANK'S RIGHTS AND REMEDIES 9.1 Rights and Remedies. When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: (a) Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); (b) Stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank; (c) Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable; (d) Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises without charge, to exercise any of Bank's rights or remedies; (e) Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower, (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral; and (g) Dispose of the Collateral according to the Code. 9.2 Power of Attorney. Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrowers name on any checks or other forms of payment or security; (ii) sign Borrower's name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower's insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign Borrower's name on -13- 12 any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred. Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates. 9.3 Accounts Collection. When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank's security interest in the funds and verify the amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit. 9.4 Bank Expenses. If Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. 9.5 Bank's Liability for Collateral. If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of the Collateral. 9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one night or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given. 9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment notice of any default nonpayment at maturity, release, compromise, settlement extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 10 NOTICES -14- 13 All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other party written notice. 11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California. BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. 12 GENERAL PROVISIONS 12.1 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights under it without Bank's prior written consent which may be granted or withheld in Bank's discretion. Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits under this Agreement 12.2 Indemnification. Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 Time of Essence. Time is of the essence for the performance of all obligations in this Agreement 12.4 Severability of Provision. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 12.5 Amendments in Writing, Integration. All amendments to this Agreement must be in writing and signed by Borrower and Bank. -15- 14 This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents. 12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 12.7 Survival. All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run. 12.8 Confidentiality. In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank's subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans, (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank's examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement Confidential information does not include information that either (a) is in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. 12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys' fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled. 13 DEFINITIONS 13.1 Definitions. In this Agreement "Accounts" are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrowers Books relating to any of the foregoing. -16- 15 "Affiliate" of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members. "Bank Expense" are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys' fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings). "Basic Rate" is, as of the Funding Date, the per annum rate of interest (based on a year of 360 days) equal to the sum of (a) the U.S. Treasury note yield to maturity for a term equal to the Treasury Note Maturity as quoted in The Wall Street Journal on the day the Loan Supplement is prepared, plus (b) the Loan Margin. "Borrower's Books" are all Borrowers books and records including ledgers, records regarding Borrowers assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information. "Business Day" is any day that is not a Saturday, Sunday or a day on which the Bank is closed. "Closing Date" is the date of this Agreement "Code" is the California Uniform Commercial Code. "Collateral" is the property described on Exhibit . "Committed Equipment Line" is a Credit Extension of up to $200,000. "Commitment Termination Date" is January 19, 2000. "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not , of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or so and with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement interest rate cap or collar agreement or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but -17- 16 the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement. "Credit Extension" is each Equipment Advance or any other extension of credit by Bank for Borrower's benefit. "Eligible Equipment" is general purpose computer equipment, office equipment test and laboratory equipment furnishings, and, subject to the limitations set forth below, Other Equipment that complies with all of Borrower's representations and warranties to Bank and which is acceptable to Bank in all respects. All Equipment financed with the proceeds of Equipment Advances shall be new, provided that Bank, in its sole discretion, may finance used equipment Invoices for Eligible Equipment must be dated within 120 days of the Equipment Advance. "Equipment" is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "Equipment Advance" is defined in Section 2.1.1. "Equipment Availability End Date" is defined in Section 2.1.1. "Equipment Maturity Date" is defined in Section 2.1.1. "ERISA" is the Employment Retirement Income Security Act of 1974, and its regulations. "Final Payment" is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the Maturity Date for such Equipment Advance equal to the Loan Amount for such Equipment Advance at such time multiplied by the Final Payment Percentage. "Final Payment Percentage" is, for each Equipment Advance, 8%. "Financed Equipment" is defined in the Loan Supplement "Funding Date" is any date on which an Equipment Advance is made to or on account of Borrower. "GAAP" is generally accepted accounting principles. "Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations. -18- 17 "Insolvency Proceeding" are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Inventory" is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. "Investment" is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "Lien" is a mortgage, lien, deed of trust charge, pledge, security interest or other encumbrance. "Loan Amount" is the aggregate amount of the Equipment Advance. "Loan Documents" are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower or Guarantor, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement all as amended, extended or restated. "Loan Factor" is the percentage which results from amortizing the Equipment Advance over the Repayment Period, using the Basic Rate as the interest rate. "Loan Margin" is 400 basis points. "Loan Supplement" is attached as Exhibit C "Material Adverse Change" is defined in Section 8.3. "Maturity Date" is, with respect to each Equipment Advance, the last day of the Repayment Period for such Equipment Advance, or if earlier, the date of acceleration of such Equipment Advance by Bank following an Event of Default. "Obligations" are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, including cash management services, letters of credit and foreign -19- 18 exchange contracts, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank. "Original Stated Cost" is (i), the original cost to the Borrower of the item of new Equipment net of any and all freight, installation, tax or (ii) the fair market value assigned to such item of used Equipment by mutual agreement of Borrower and Bank at the time of making of the Equipment Advance. "Other Equipment" is leasehold improvements, intangible property such as computer software and software licenses, equipment specifically designed or manufactured for Borrower, other intangible property, limited use property and other similar property, taxes, shipping and installation expenses. Unless otherwise agreed to by Bank: not more than 25% of the Equipment financed with the proceeds of each Equipment Advance shall consist of Other Equipment. "Permitted Indebtedness" is: (a) Borrower's indebtedness to Bank under this Agreement or any other Loan Document (b) Indebtedness existing on the Closing Date and shown on the Schedule; (c) Subordinated Debt; (d) Indebtedness to trade creditors incurred in the ordinary course of business; and (e) Indebtedness secured by Permitted Liens. "Permitted Investments" are: (a) Investments shown on the Schedule and existing on the Closing Date; and (b)(i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit issued maturing no more than 1 year after issue. "Permitted Liens" are: (a) Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents; (b) Liens for taxes, fees, assessments or other government changes or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank's security interests; (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; -20- 19 (d) Leases or subleases and licenses or sublicenses granted in the ordinary course of the Borrowers business and any interest or title of a lessor, licensor or under any lease or license, if the leases, subleases, licenses and sublicenses permit granting Bank a security interest. (e) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. "Person" is any individuals sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate entity or government agency. "Prime Rate" is Bank's most recently announced "prime rate", even if it is not Bank's lowest rate. "Repayment Period", as to the Equipment Advances, is 24 months. "Responsible Officer" is each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower. "Schedule" is any attached schedule of exceptions. "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's debt to Bank (and identified as subordinated by Borrower and Bank). "Subsidiary" is for any Person, or any other business entity of which more that 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person. "Tangible Net Worth" is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus, (i) any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, Patents, trade and service marks and names, Copyrights and research and development expenses, and (c) reserves not already deducted from assets, and (ii) Total Liabilities. "Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt. "Treasury Note Maturity" is 24 months. -21- 20 BORROWER: ONEList, Inc. By: --------------------------------- Title: ------------------------------ BANK: SILICON VALLEY BANK By: --------------------------------- Title: ------------------------------ -22- 21 EXHIBIT A The Collateral consists of all of Borrower's right, title and interest in and to the following: All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower, All documents, cash, deposit accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for, damages by way of any past, present and future infringement of any of the foregoing; and -23- 22 All Borrower's Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. -24- EX-10.37 39 MASTER LEASE AGREEMENT 1 EXHIBIT 10.37 MASTER LEASE AGREEMENT MASTER LEASE AGREEMENT (the "Master Lease") dated June 23, 1999 by and between COMDISCO, INC. ("Lessor") and EGROUPS, INC. ("Lessee"). IN CONSIDERATION of the mutual agreements described below, the parties agree as follows (all capitalized terms are defined in Section 14.18): 1. Property Leased. Lessor leases to Lessee all of the Equipment described on each Summary Equipment Schedule. In the event of a conflict, the terms of the applicable Schedule prevail over this Master Lease. 2. Term. On the Commencement Date, Lessee will be deemed to accept the Equipment, will be bound to its rental obligations for each item of Equipment and the term of a Summary Equipment Schedule will begin and continue through the Initial Term and thereafter until terminated by either party upon prior written notice received during the Notice Period. No termination may be effective prior to the expiration of the Initial Term. 3. Rent and Payment. Rent is due and payable in advance on the first day of each Rent Interval at the address specified in Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment is not made when due, Lessee will pay a Late Charge on the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay Lessor the Advance specified on the Schedule. The Advance will be credited towards the final Rent payment if Lessee is not then in default. No interest will be paid on the Advance. 4. Selection; Warranty and Disclaimer of Warranties. 4.1 Selection. Lessee acknowledges that it has selected the Equipment and disclaims any reliance upon statements made by the Lessor, other than as set forth in the Schedule. 4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and peaceful possession, and unrestricted use of the Equipment. To the extent permitted by the manufacturer, Lessor assigns to Lessee during the term of the Summary Equipment Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or expense of any kind (including strict liability in tort) caused by the Equipment except for any loss or damage caused by the willful misconduct or negligent acts of Lessor. In no event is Lessor responsible for special, incidental or consequential damages. 5. Title; Relocation or Sublease; and Assignment. 5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and file in Lessee's name precautionary Uniform Commercial Code financing statements showing the interest of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to insert serial numbers in Summary Equipment Schedules as appropriate. Lessee will, at its expense, keep the Equipment free and clear from any liens or encumbrances of any kind (except any caused by Lessor) and will indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless from and against any loss caused by Lessee's failure to do so, except where such is caused by Lessor. 5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate Equipment to any location within the continental United States provided (i) the Equipment will not be used by an entity exempt from federal income tax, and (ii) all additional costs (including any administrative fees, additional taxes and insurance coverage) are reconciled and promptly paid by Lessee. Lessee may sublease the Equipment upon the reasonable consent of the Lessor and the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets the relocation requirements set out above, (ii) the sublease is expressly subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its rights in the sublease to Lessor and the Secured Party as additional collateral and security, (iv) Lessee's obligation to maintain and insure the Equipment is not altered, (v) all financing statements required to continue the Secured Party's prior perfected security interest are filed, and (vi) Lessee executes sublease documents acceptable to Lessor. No relocation or sublease will relieve Lessee from any of its obligations under this Master Lease and the relevant Schedule. 5.3 Assignment by Lessor. The terms and conditions of each Schedule have been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its interest or grant a security interest in each Schedule and/or the Equipment to a Secured Party or Assignee. In that event, the term Lessor will mean the Assignee and any Secured Party. However, any assignment, sale, or other transfer by Lessor will not relieve Lessor of its obligations to Lessee and will not materially change Lessee's duties or materially increase the burdens or risks imposed on Lessee. The Lessee consents to and will acknowledge such assignments in a written notice given to Lessee. Lessee also agrees that: (a) The Secured Party will be entitled to exercise all of Lessor's rights, but will not be obligated to perform any of the obligations of Lessor. The Secured Party will not disturb Lessee's quiet and peaceful possession and unrestricted use of the Equipment so long as Lessee is not in default and the Secured Party continues to receive all Rent payable under the Schedule; and (b) Lessee will pay all Rent and all other amounts payable to the Secured Party, despite any defense or claim which it has against Lessor. Lessee reserves its right to have recourse directly against Lessor for any defense or claim; (c) Subject to and without impairment of Lessee's leasehold rights in the Equipment, Lessee holds the Equipment for the Secured Party to the extent of the Secured Party's rights in that Equipment. 6. Net Lease; Taxes and Fees. 6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease. Lessee's obligation to pay Rent and all other amounts due hereunder is absolute and unconditional and is not subject to any abatement, reduction, set-off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. 6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes, fees or any other charges (together with any related interest or penalties not arising from the negligence of Lessor) accrued for or arising during the term of each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any governmental authority (except only Federal, state, local and franchise taxes on the capital or the net income of Lessor). Lessor will file all personal property tax returns for the Equipment and pay all such property taxes due. Lessee will reimburse Lessor for property taxes within thirty (30) days of receipt of an invoice. 7. Care, Use and Maintenance; Inspection by Lessor. 7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good operating order and appearance, protect the Equipment from deterioration, other than normal wear and tear, and will not use the Equipment for any purpose other than that for which it was designed. If commercially available and considered common business practice for each item of Equipment, Lessee will maintain in force a standard maintenance contract with the manufacturer of the Equipment, or another party acceptable to Lessor, and will provide Lessor with a complete copy of that contract. If Lessee has the Equipment maintained by a party other than the manufacturer or self maintains, Lessee agrees to pay any costs necessary for the manufacturer to bring the Equipment to then current release, revision and engineering change levels, and to re-certify the Equipment as eligible for manufacturer's maintenance at the expiration of the lease term, provided re-certification is available and is required by Lessor. The lease term will continue upon the same terms and conditions until recertification has been obtained. 7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during reasonable business hours and subject to Lessee's security requirements, will make the Equipment and its related log and maintenance records available to Lessor for inspection. 8. Representations and Warranties of Lessee. Lessee hereby represents, warrants and covenants that with respect to the Master Lease and each Schedule executed hereunder: (a) The Lessee is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to do business in each jurisdiction (including the jurisdiction where the Equipment is, or is to be, located) where its ownership or lease of property or the conduct of its business requires such qualification, except for where such lack of qualification would not have a material adverse effect on the Company's business; and has full corporate power and authority to hold property under the Master Lease and each Schedule and to enter into and perform its obligations under the Master Lease and each Schedule. (b) The execution and delivery by the Lessee of the Master Lease and each Schedule and its performance thereunder have been duly authorized by all necessary corporate action on the part of the Lessee, and the Master Lease and each Schedule are not inconsistent with the Lessee's Articles of Incorporation or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Master Lease and each Schedule constitute legal, valid and binding agreements of the Lessee, enforceable in accordance with their terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and rules of law concerning equitable remedies. -1- 2 (c) There are no actions, suits, proceedings or patent claims pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Lessee to perform its obligations under the Master Lease and each Schedule. (d) The Equipment is personal property and when subjected to use by the Lessee will not be or become fixtures under applicable law. (e) The Lessee has no material liabilities or obligations, absolute or contingent (individually or in the aggregate), except the liabilities and obligations of the Lessee as set forth in the Financial Statements and liabilities and obligations which have occurred in the ordinary course of business, and which have not been, in any case or in the aggregate, materially adverse to Lessee's ongoing business. (f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has access to, or can become licensed on reasonable terms under all patents, patent applications, trademarks, trade names, inventions, franchises, licenses, permits, computer software and copyrights necessary for the operations of its business as now conducted, with no known infringement of, or conflict with, the rights of others. (g) All material contracts, agreements and instruments to which the Lessee is a party are in full force and effect in all material respects, and are valid, binding and enforceable by the Lessee in accordance with their respective terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally, and rules of law concerning equitable remedies. 9. DELIVERY AND RETURN OF EQUIPMENT. Lessee hereby assumes the full expense of transportation and in-transit insurance to Lessee's premises and installation thereat of the Equipment. Upon termination (by expiration or otherwise) of each Summary Equipment Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense (including, without limitation, expenses of transportation and in-transit insurance), return the Equipment to Lessor in the same operating order, repair, condition and appearance as when received, less normal depreciation and wear and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road, Rosemont, Illinois 60018 or at such other address within the continental United States as directed by Lessor, provided, however, that Lessee's expense shall be limited to the cost of returning the Equipment to Lessor's address as set forth herein. During the period subsequent to receipt of a notice under Section 2, Lessor may demonstrate the Equipment's operation in place and Lessee will supply any of its personnel as may reasonably be required to assist in the demonstrations. 10. LABELING. Upon request, Lessee will mark the Equipment indicating Lessor's interest with labels provided by Lessor. Lessee will keep all Equipment free from any other marking or labeling which might be interpreted as a claim of ownership. 11. INDEMNITY. With regard to bodily injury and property damage liability only, Lessee will indemnify and hold Lessor, any Assignee and any Secured Party harmless from and against any and all claims, costs, expenses, damages and liabilities, including reasonable attorneys' fees, arising out of the ownership (for strict liability in tort only), selection, possession, leasing, operation, control, use, maintenance, delivery, return or other disposition of the Equipment during the term of this Master Lease or until Lessee's obligations under the Master Lease terminate. However, Lessee is not responsible to a party indemnified hereunder for any claims, costs, expenses, damages and liabilities occasioned by the negligent acts of such indemnified party. Lessee agrees to carry bodily injury and property damage liability insurance during the term of the Master Lease in amounts and against risks customarily insured against by the Lessee on equipment owned by it. Any amounts received by Lessor under that insurance will be credited against Lessee's obligations under this Section. 12. RISK OF LOSS. Effective upon delivery and until the Equipment is returned, Lessee relieves Lessor of responsibility for all risks of physical damage to or loss or destruction of the Equipment. Lessee will carry casualty insurance for each item of Equipment in an amount not less than the Casualty Value. All policies for such insurance will name the Lessor and any Secured Party as additional insured and as loss payee, and will provide for at least thirty (30) days prior written notice to the Lessor of cancellation or expiration, and will insure Lessor's interests regardless of any breach or violation by Lessee of any representation, warranty or condition contained in such policies and will be primary without right of contribution from any insurance effected by Lessor. Upon the execution of any Schedule, the Lessee will furnish appropriate evidence of such insurance acceptable to Lessor. Lessee will promptly repair any damaged item of Equipment unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss, Lessee will provide written notice of that loss to Lessor and Lessee will, at Lessee's option, either (a) replace the item of Equipment with Like Equipment and marketable title to the Like Equipment will automatically vest in Lessor or (b) pay the Casualty Value and after that payment and the payment of all other amounts due and owing with respect to that item of Equipment, Lessee's obligation to pay further Rent for the item of Equipment will cease. 13. DEFAULT, REMEDIES AND MITIGATION. 13.1 DEFAULT. The occurrence of any one or more of the following Events of Default constitutes a default under a Summary Equipment Schedule: (a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if that failure continues for five (5) business days after written notice; or (b) Lessee's failure to perform any other term or condition of the Schedule or the material inaccuracy of any representation or warranty made by the Lessee in the Schedule or in any document or certificate furnished to the Lessor hereunder if that failure or inaccuracy continues for ten (10) business days after written notice; or (c) An assignment by Lessee for the benefit of its creditors, the failure by Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee or the filing against Lessee of any petition under any bankruptcy or insolvency law or for the appointment of a trustee or other officer with similar powers, the adjudication of Lessee as insolvent, the liquidation of Lessee, or the taking of any action for the purpose of the foregoing; or (d) The occurrence of an Event of Default under any Schedule, Summary Equipment Schedule or other agreement between Lessee and Lessor or its Assignee or Secured Party. 13.2 REMEDIES. Upon the occurrence of any of the above Events of Default, Lessor, at its option, may: (a) enforce Lessee's performance of the provisions of the applicable Schedule by appropriate court action in law or in equity; (b) recover from Lessee any damages and or expenses, including Default Costs; (c) with notice and demand, recover all sums due and accelerate and recover the present value of the remaining payment stream of all Rent due under the defaulted Schedule (discounted at the same rate of interest at which such defaulted Schedule was discounted with a Secured Party plus any prepayment fees charged to Lessor by the Secured Party or, if there is no Secured Party, then discounted at 6%) together with all Rent and other amounts currently due as liquidated damages and not as a penalty; (d) with notice and process of law and in compliance with Lessee's security requirements, Lessor may enter on Lessee's premises to remove and repossess the Equipment without being liable to Lessee for damages due to the repossession, except those resulting from Lessor's, its assignees', agents' or representatives' negligence; and (e) pursue any other remedy permitted by law or equity. The above remedies, in Lessor's discretion and to the extent permitted by law, are cumulative and may be exercised successively or concurrently. 13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section 13.2, Lessor will use its best efforts in accordance with its normal business procedures (and without obligation to give any priority to such Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the Equipment at a public or private sale for cash or credit with the privilege of purchasing the Equipment. The proceeds from any sale, lease or other disposition of the Equipment are defined as either: (a) if sold or otherwise disposed of, the cash proceeds less the Fair Market Value of the Equipment at the expiration of the Initial Term less the Default Costs; or (b) if leased, the present value (discounted at 3 percent (3%) over the U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the rentals for a term not to exceed the Initial Term, less the Default Costs. Any proceeds will be applied against liquidated damages and any other sums due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may recover, the amount by which the proceeds are less than the liquidated damages and other sums due to Lessor from Lessee. 14. ADDITIONAL PROVISIONS. 14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to attend Lessee's corporate Board of Directors meetings and Lessee will give Lessor reasonable notice in advance of any special Board of Directors meeting, which notice will provide an agenda of the subject matter to be discussed at such board meeting. Lessee will provide Lessor with a certified copy of the minutes of each Board of -2- 3 Directors meeting within thirty (30) days following the date of such meeting held during the term of this Master Lease. 14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and in any event within thirty (30) days), Lessee will provide to Lessor the same information which Lessee provides to its Board of Directors, but which will include not less than a monthly income statement, balance sheet and statement of cash flows prepared in accordance with generally accepted accounting principles, consistently applied (the "Financial Statements"). As soon as practicable at the end of each fiscal year, Lessee will provide to Lessor audited Financial Statements setting forth in comparative form the corresponding figures for the fiscal year (and in any event within ninety (90) days), and accompanied by an audit report and opinion of the independent certified public accountants selected by Lessee. Lessee will promptly furnish to Lessor any additional information (including, but not limited to, tax returns, income statements, balance sheets and names of principal creditors) as Lessor reasonably believes necessary to evaluate Lessee's continuing ability to meet financial obligations. After the effective date of the initial registration statement covering a public offering of Lessee's securities, the term "Financial Statements" will be deemed to refer to only those statements required by the Securities and Exchange Commission. 14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor will not be obligated to lease any Equipment which would have a Commencement Date after said notice if: (i) Lessee is in default under this Master Lease or any Schedule; (ii) Lessee is in default under any loan agreement, the result of which would allow the lender or any secured party to demand immediate payment of any material indebtedness; (iii) there is a material adverse change in Lessee's credit standing; or (iv) Lessor determines (in reasonable good faith) that Lessee will be unable to perform its obligations under this Master Lease or any Schedule. 14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed Merger at least sixty (60) days prior to the closing date. Lessor may, in its discretion, either (i) consent to the assignment of the Master Lease and all relevant Schedules to the successor entity, or (ii) terminate the Lease and all relevant Schedules. If Lessor elects to consent to the assignment, Lessee and its successor will sign the assignment documentation provided by Lessor. If Lessor elects to terminate the Master Lease and all relevant Schedules, then Lessee will pay Lessor all amounts then due and owing and a termination fee equal to the present value (discounted at 6%) of the remaining Rent for the balance of the Initial Term(s) of all Schedules, and will return the Equipment in accordance with Section 9. Lessor hereby consents to any Merger in which the acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially acceptable equivalent measure of creditworthiness as reasonably determined by Lessor. 14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary Equipment Schedules supersede all other oral or written agreements or understandings between the parties concerning the Equipment including, for example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED. 14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute a waiver of compliance with any representation, warranty or covenant contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach of any provision of this Master Lease or a Schedule will not operate or be construed as a waiver of any subsequent breach. 14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS. 14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not limited to those arising under Section 6.2, representations and warranties contained in this Master Lease, any Schedule, Summary Equipment Schedule or in any document delivered in connection with those agreements are for the benefit of Lessor and any Assignee or Secured Party and survive the execution, delivery, expiration or termination of this Master Lease. 14.9 NOTICES. Any notice, request or other communication to either party by the other will be given in writing and deemed received upon the earlier of (1) actual receipt or (2) three days after mailing if mailed postage prepaid by regular or airmail to Lessor (to the attention of "the Comdisco Venture Group") or Lessee, at the address set out in the Schedule, (3) one day after it is sent by courier or (4) on the same day as sent via facsimile transmission, provided that the original is sent by personal delivery or mail by the sending party. 14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE. 14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or any Schedule is for any reason held invalid, illegal or unenforceable, the remaining provisions of this Master Lease and any such Schedule will be unimpaired, and the invalid, illegal or unenforceable provision replaced by a mutually acceptable valid, legal and enforceable provision that is closest to the original intention of the parties. 14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any number of counterparts, each of which will be deemed an original, but all such counterparts together constitute one and the same instrument. If Lessor grants a security interest in all or any part of a Schedule, the Equipment or sums payable thereunder, only that counterpart Schedule marked "Secured Party's Original" can transfer Lessor's rights and all other counterparts will be marked "Duplicate." 14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which will at all times remain the property of the owner of the Licensed Products. A license from the owner may be required and it is Lessee's responsibility to obtain any required license before the use of the Licensed Products. Lessee agrees to treat the Licensed Products as confidential information of the owner, to observe all copyright restrictions, and not to reproduce or sell the Licensed Products. 14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease, provide Lessor with a secretary's certificate of incumbency and authority. Upon the execution of each Schedule with a purchase price in excess of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel in a form acceptable to Lessor regarding the representations and warranties in Section 8. 14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the other by electronic means under mutually agreeable terms. 14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in a form satisfactory to Lessor. 14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that Lessor shall not, by virtue of its entering into this Master Lease, be required to remit any payments to any manufacturer or other third party until Lessee accepts the Equipment subject to this Master Lease. 14.18 DEFINITIONS. ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of each Schedule. ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as owner and Lessor of Equipment. CASUALTY LOSS - means the irreparable loss or destruction of Equipment. CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid for the balance of the lease term or the Fair Market Value of the Equipment immediately prior to the Casualty Loss. However, if a Casualty Value Table is attached to the relevant Schedule its terms will control. COMMENCEMENT DATE - is defined in each Schedule. DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting from a Lessee default or Lessor's enforcement of its remedies. DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's address. EQUIPMENT - means the property described on a Summary Equipment Schedule and any replacement for that property required or permitted by this Master Lease or a Schedule. EVENT OF DEFAULT - means the events described in Subsection 13.1. FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an arm's-length transaction between an informed and willing buyer/user and an informed and willing seller under no compulsion to sell. INITIAL TERM - means the period of time beginning on the first day of the first full Rent Interval following the Commencement Date for all items of Equipment and continuing for the number of Rent Intervals indicated on a Schedule. INTERIM RENT - means the pro-rata portion of Rent due for the period from the Commencement Date through but not including the first day of the first full Rent Interval included in the Initial Term. LATE CHARGE - means the lesser of five percent (5%) of the payment due or the maximum amount permitted by the law of the state where the Equipment is located. LICENSED PRODUCTS - means any software or other licensed products attached to the Equipment. LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same model, type, configuration and manufacture as Equipment. -3- 4 MERGER - means any consolidation or merger of the Lessee with or into any other corporation or entity, any sale or conveyance of all or substantially all of the assets or stock of the Lessee by or to any other person or entity in which Lessee is not the surviving entity. NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12) months prior to the expiration of the lease term. OWNER - means the owner of Equipment. RENT - means the rent Lessee will pay for each item of Equipment expressed in a Summary Equipment Schedule either as a specific amount or an amount equal to the amount which Lessor pays for an item of Equipment multiplied by a lease rate factor plus all other amounts due to Lessor under this Master Lease or a Schedule. RENT INTERVAL - means a full calendar month or quarter as indicated on a Schedule. SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule which incorporates all of the terms and conditions of this Master Lease. SECURED PARTY - means an entity to whom Lessor has granted a security interest for the purpose of securing a loan. SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing all of the Equipment for which Lessor has received Lessee approved vendor invoices, purchase documents and/or evidence of delivery during a calendar quarter which will incorporate all of the terms and conditions of the related Schedule and this Master Lease and will constitute a separate lease for the equipment leased thereunder. IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as of the day and year first above written. EGROUPS, INC. COMDISCO, INC., as Lessee as Lessor By: By: ------------------------------- ------------------------------------ Title: Title: ---------------------------- --------------------------------- -4- EX-10.38 40 SUBORDINATED LOAN AGREEMENT 1 EXHIBIT 10.38 SUBORDINATED LOAN AND SECURITY AGREEMENT THIS SUBORDINATED LOAN AND SECURITY AGREEMENT (the "AGREEMENT"), dated as of October 8, 1999, is entered into by and between eGROUPS, INC., a Delaware corporation, with its chief executive office and principal place of business located at 350 Brannan Street, San Francisco, California, 94107 (the "BORROWER") and Comdisco, Inc., a Delaware corporation, with its principal place of business located at 6111 North River Road, Rosemont, Illinois 60018 (the "LENDER" or sometimes, "COMDISCO"). In consideration of the mutual agreements contained herein, the parties hereto agree as follows: RECITALS WHEREAS, Borrower has requested Lender to make available to Borrower a loan or loans up to an aggregate principal amount of SEVEN MILLION DOLLARS ($7,000,000.00); FOUR MILLION DOLLARS ($4,000,000.00) available immediately ("LOAN A") and THREE MILLION DOLLARS ($3,000,000.00) available upon Borrower's request as more fully set forth herein ("LOAN B") (as the same may from time to time be amended, modified, supplemented or revised, individually or collectively referred to as the "LOAN(S)"), which would be evidenced by Subordinated Promissory Note(s) executed by Borrower substantially in the form of Exhibit A hereto (as the same may from time to time be amended, modified, supplemented or restated by the mutual written agreement of the parties, the "NOTE(S)"); WHEREAS, Lender is willing to make the Loan(s) on the terms and conditions set forth in this Agreement; WHEREAS, Lender and Borrower agree any Loan(s) hereunder shall be subordinate to Senior Debt (as defined herein) to the extent set forth in the Subordination Agreement (as defined herein); and WHEREAS, Borrower has also given Lender certain rights to purchase the Borrower's Preferred Stock under terms and conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, Borrower and Lender hereby agree as follows: SECTION 1. DEFINITIONS Unless otherwise defined herein, the following capitalized terms shall have the following meanings (such meanings being equally applicable to both the singular and plural form of the terms defined); 1.1 "ACCOUNT" means any "account" as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation, under any trade 2 name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation which may be characterized as an account or contract right under the UCC) and all of Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. 1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9105(1)(a) of the UCC. 1.3 "ADVANCE" means each installment made by the Lender to Borrower pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral. 1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan. 1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance under the Loan, each to be substantially in the form of Exhibit B attached hereto, as submitted by Borrower to Lender from time to time. 1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.7 "CLOSING DATE" means the date hereof. 1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3 of this Agreement. 1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. 1.10 "COPYRIGHTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any state thereof or any other country; (iii) any continuations, renewals or extensions thereof; and (iv) any registrations to be issued in any pending applications. 2 3 1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.12 "DOCUMENTS" means any "documents," as such term is defined in Section 9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.13 "EQUIPMENT" means any "equipment," as such term is defined in Section 9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. 1.14 "EXCLUDED AGREEMENTS" means (i) the Master Lease Agreement dated as of June 23, 1999 between Borrower, as lessee, and Lender, as lessor, including, without limitation, any Equipment Schedules and Summary Equipment Schedules to the Master Lease Agreement executed or delivered by Borrower pursuant thereto and any other modifications or amendments thereof, whereby Borrower (as lessee) leases equipment, software, or goods from Lender (as lessor) to Borrower (as lessee). 1.15 "FACILITY FEE" means one percent (1%) of Loan A and Loan B and due to Lender at the Closing Date. The Commitment Deposit of Ten Thousand Dollars ($10,000.00) previously paid by Borrower less reasonable due diligence expenses of Five Thousand Dollars ($5,000.00) shall be applied towards the Facility Fee due for Loan A. 1.16 "FIXTURES" means any "fixtures," as such term is defined in Section 9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, now or hereafter attached or affixed to or constituting a part of, or located in or upon, real property wherever located, together with all right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all purchases of the security constituted thereby, immediately upon any acquisition or release thereof or any such purchase, as the case may be. 1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in Section 9-106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest which Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill, associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, cash and other forms of money or currency, deposit accounts (including as defined in Section 9105(e) of the UCC), rights to sue for past, present and future 3 4 infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification. 1.18 "INITIAL PUBLIC OFFERING" means an initial public offering of Borrower's securities. 1.19 "INSTRUMENTS" means any "instrument," as such term is defined in Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.20 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents, service marks, tradenames, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials and records. 1.21 "INVENTORY " means any "inventory," as such term is defined in Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to Lender from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Borrower or is held by Borrower or by others for Borrower's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of Borrower or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. 1.22 "LICENSE" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof. 1.23 "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. 1.24 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s), and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Loan Documents shall not include any of the Excluded Agreements. 4 5 1.25 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon the business, operations, properties, prospects, assets or conditions (financial or otherwise) of Borrower that materially hinders the ability of Borrower to perform, or of Lender to enforce, the Secured Obligations. 1.26 "MATURITY DATE" means the date thirty-six (36) months from the Advance Date of each installment of the Loan. 1.27 "MAXIMUM LOAN AMOUNT" means Four Million Dollars ($4,000,000.00) for Loan A and Three Million Dollars ($3,000,000) for Loan B. 1.28 "MERGER EVENT" means a capital reorganization of the shares of the Borrower's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Borrower with or into another corporation whether or not the Borrower is the surviving corporation, or the sale of all or substantially all of the Borrower's properties and assets to any other person or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of Borrower is transferred to parties that were not existing holders of the Borrower's capital stock immediately prior to such transaction, provided that such other corporation or other person shall have cash and cash equivalent assets equal to or greater than ten million dollars ($10,000,000) and provided that the foregoing shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Borrower or an Initial Public Offering. 1.29 "NEXT ROUND" shall be defined as the earliest to occur of (i) a preferred stock financing of at least Ten Million Dollars ($10,000,000), (ii) a Merger Event, or (iii) an Initial Public Offering. 1.30 "PATENT LICENSE" means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.31 "PATENTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) letters patent of, or rights corresponding thereto in, the United States or any other county, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to issue in any such applications. 1.32 "PERMITTED LIENS" means: (i) Liens in favor of Lender; (ii) Liens related to, or arising in connection with, Senior Debt; (iii) Liens for taxes, fees, assessments or other governmental charges or levies either not delinquent or being contested in good faith and for 5 6 which Borrower maintains adequate reserves on its books in accordance with GAAP; (iv) Purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; (v) Leases or subleases and licenses or sublicenses granted in the ordinary course of Borrower's business and any interest or title of a licensor or under any lease or license; (vi) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 9.8; (vii) Liens on assets (including the proceeds thereof and accessions thereto) that existed at the time such assets were acquired by Borrower; provided such liens are not granted in contemplation of or in connection with the acquisition of such asset by Borrower; (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (ix) Liens on insurance proceeds in favor of insurance companies granted solely as security for financed premiums; (x) deposits under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or Environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (xi) Liens arising by operation of law such as mechanics', materialman's, carriers', warehousemen's and landlord's liens incurred in the ordinary course of business; (xii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (ii) and (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (xiii) Liens relating to customary setoffs or bankers liens with respect to amounts on deposit in connection with arrangements with banks in the ordinary course of business. 1.33 "PREFERRED STOCK" means the Borrower's Series C Preferred Stock. 1.34 "PROCEEDS" means "proceeds," as such term is defined in Section 9306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect 6 7 to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 1.35 "PURCHASE OPTION" shall have the meaning assigned to such term in Section 8 of this Agreement. 1.36 "RECEIVABLES" shall mean and include all of the Borrower's accounts, instruments, documents, chattel paper and general intangibles whether secured or unsecured, whether now existing or hereafter created or arising, and whether or not specifically sold or assigned to Lender hereunder. 1.37 "SECURED OBLIGATIONS" shall mean and include all principal, interest, fees, costs, or other liabilities or obligations for monetary amounts owed by Borrower to Lender, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind of nature, present or future, arising under this Agreement, the Note(s), or any of the other Loan Documents, whether or not evidenced by any Note(s), Agreement or other instrument, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Secured Obligations shall not include any indebtedness or obligations of Borrower arising under or in connection with the Excluded Agreements. 1.38 "SENIOR CREDITOR" means a bank, insurance company, pension fund, or other institutional lender to be determined and identified to Lender in accordance with the Subordination Agreement, or a syndication of such institutional lenders that provides Senior Debt financing to Borrower; provided, that Senior Creditor shall not include any officer, director, shareholder, venture capital investor, or insider of Borrower, or any affiliate of the foregoing persons, except upon the express written consent of Lender which consent shall not be unreasonably withheld. 1.39 "SENIOR DEBT" means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Senior Creditor(s) under the applicable Senior Loan Documents, including, but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against Borrower provided, that (i) Borrower may incur Senior Debt without limitation as to amount, without the consent of Lender, so long as such Senior Debt is secured only by Borrower's property, plant and equipment (as defined under GAAP), (ii) if such Senior Debt is unsecured and would exceed three million dollars ($3,000,000) in principal outstanding at any one time, then Lender shall have the right to consent to the incurrence of such Senior Debt, which consent shall not be unreasonably withheld, and (iii) if such Senior 7 8 Debt is secured by (a) non-property plant and equipment (as defined under GAAP) assets and (b) would exceed the greater of (i) three million dollars ($3,000,000) in outstanding principal at any one time or (ii) eighty-five percent (85%) of qualified accounts receivable, then Lender shall have the right to consent to the incurrence of such Senior Debt, which consent shall not be unreasonably withheld. To the extent Lender's consent is required hereunder, Senior Debt shall not include any indebtedness or obligation unless and until such consent has been given. 1.40 "SENIOR LOAN DOCUMENTS" means the loan agreement between Borrower and Senior Creditor and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor pursuant to or in connection with the Senior Debt or the loan agreement, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced. 1.41 "SUBORDINATION AGREEMENT" means the Subordination Agreement to be entered into between Lender and Senior Creditor in such form as to be mutually agreeable to Lender, Borrower and Senior Lender. 1.42 "TRADEMARK LICENSE" means any written agreement granting any right to use any Trademark or Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.43 "TRADEMARKS" means any of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) any and all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) any reissues, extensions or renewals thereof. 1.44 "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Illinois. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC. SECTION 2. THE LOANS 2.1 Lender agrees to lend to Borrower an amount not to exceed Four Million and 00/100 Dollars ($4,000,000.00) in the aggregate at any one time outstanding ("LOAN A") for the purposes and upon the terms and subject to the conditions contained in this Agreement. 2.2 Lender agrees to lend to Borrower an amount not to exceed Three Million and 00/100 Dollars ($3,000,000.00) in the aggregate at any one time outstanding ("LOAN B") for the purposes and upon the terms and subject to the conditions contained in this Agreement. 2.3 The Loan(s) shall be available in minimum Advances of Five Hundred Thousand Dollars ($500,000.00). Each Advance made by Lender to Borrower shall be 8 9 evidenced by a Note in the original principal amount of such Advance. The principal balance of each Note shall bear interest thereon precomputed at the rate of eight and one-quarter percent (8.25%) per annum, and each such Note shall be due and payable in twenty-four (24) equal monthly installments of interest only, payable on the first day of each month, followed by twelve (12) equal monthly installments of principal and interest, payable on the first day of each month, to and including the Maturity Date (each, a "PAYMENT DATE"). If any payment under a Note shall be payable on a day other than a business day, then such payment shall be due and payable on the next succeeding business day. 2.4 In order to obtain an Advance under the Loans, Borrower shall complete, sign and deliver an Advance Request to Lender. Each Advance Request shall identify an Advance Date which is no less than three (3) business days from the date of such notice. Upon receipt of an Advance Request, Lender shall verify the information contained in the Advance Request and so long as no Event of Default exists as of the date of the Advance Request, it shall promptly deliver a Note dated the Advance Date evidencing such Advance to Borrower for signature. Lender will fund the Advance in the manner requested in the Advance Request within three (3) business days of receipt of the Advance Request so long as Lender has received the original signed Note from Borrower on or before such date. Borrower agrees that Lender may rely on any notice given by any Person it reasonably believes to be an authorized officer of Borrower. 2.5 Borrower shall have the option to prepay any Note, in whole or in part, without premium or penalty by paying the principal amount thereon together with all accrued and unpaid interest with respect to such principal amount, as of the date of such prepayment. Notwithstanding the foregoing, any such prepayment by the Borrower shall not affect Lender's right to purchase as described in Section 8 herein. 2.6 (a) Notwithstanding any provision in this Agreement, the Note(s), or any other Loan Document, it is not the parties' intent to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law which a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of interest, chargeable on the total aggregate principal Secured Obligations of Borrower under this Agreement and the Note(s) (as said rate is calculated over a period of time from the date of this Agreement through the end of time that any principal is outstanding on the Note(s)), which amount of interest exceeds interest calculated at the Maximum Rate on said principal chargeable over said period of time, then such excess interest actually paid by Borrower shall be applied first, to the payment of principal outstanding on the Note(s); second, after all principal is repaid, to the payment of Lender's out of pocket costs, expenses, and professional fees which are owed by Borrower to Lender under this Agreement or the Loan Documents; and third, after all principal, costs, expenses, and professional fees owed by Borrower to Lender are repaid, the excess (if any) shall be refunded to Borrower, and the effective rate of interest will be automatically reduced to the Maximum Rate. (b) In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.3. 9 10 (c) Upon and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and reasonable professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.3 plus five percent (5%) per annum ("Default Rate"). (d) If the Borrower has not repaid the outstanding principal amount under the Loan in its entirety by the Maturity Date (as defined in the applicable Note(s)), then for each additional month, or portion thereof, thereafter that the outstanding principal is not paid, Lender shall have the right to purchase from the Borrower at the applicable Purchase Price (as defined in Section 8.1 hereof), an additional number of shares of Preferred Stock which number shall be determined by (i) multiplying the outstanding principal amount which is due but unpaid by three percent (3%) and (ii) dividing the product thereof by the Purchase Price. SECTION 3. SECURITY INTEREST As security for the prompt, complete and indefeasible payment when due (whether at stated payment dates or otherwise) of all the Secured Obligations and in order to induce Lender to make the Loan(s) upon the terms and subject to the conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for security purposes only, and hereby grants to Lender a security interest in, all of Borrower's right, title and interest in, to and under each of the following (all of which being hereinafter collectively called the "Collateral"): (a) All Receivables; (b) All Equipment; (c) All Fixtures; (d) All General Intangibles; (e) All Inventory; (f) All other goods and personal property of Borrower whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; and (g) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. Notwithstanding the foregoing, in no event shall Collateral include any Copyrights, Patents, Trademarks, Licenses, or any Intellectual Property. Such security interest shall be subordinate to any Permitted Liens. SECTION 4. CONDITIONS PRECEDENT TO LOAN 10 11 The obligations of the Lender to make Loans hereunder are subject to the satisfaction by Borrower, or waiver by Lender, of the following conditions: 4.1 Borrower, on or prior to the Closing Date, shall have delivered to Lender the following: (a) executed originals of the Agreement, and any other documents reasonably required by Lender to effectuate the liens of Lender with respect to all Collateral; (b) certified copy of resolutions of Borrower's Board of Directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents; (c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower; (d) certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; and (e) payment of the Facility Fee. 4.2 On each Advance Date: (a) The Lender shall have received (i) an Advance Request for such Advance as required by Section 2.4, and (ii) an executed Note evidencing such Advance. (b) The representations and warranties set forth in Section 5 hereof shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. Each Advance Request shall be deemed to constitute a representation and warranty by the Borrower on the Advance Date as to the matters specified in paragraph (b) of this Section 4.2. 4.3 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused to be taken such actions reasonably requested by Lender to grant Lender a perfected security interest in the Collateral, subject only to Permitted Liens. Such actions shall include, without limitation, the delivery to Lender of all appropriate financing statements, executed by Borrower, as to the Collateral granted by Borrower for all jurisdictions as may be reasonably necessary or desirable to perfect the security interest of Lender in such Collateral. 4.4 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement. 4.5 FUNDING LIMITATION. Notwithstanding anything in this Agreement to the contrary, Lender shall not be obligated to fund any additional Advance to Borrower (i) at any time after six (6) months from the date of this Agreement, or (ii) at any time an Event of Default exists pursuant to Section 9. 11 12 SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER The Borrower represents, warrants and agrees that: 5.1 Borrower owns all right title and interest in and to the Collateral, free of all liens, security interests, encumbrances and claims whatsoever, except for Permitted Liens. 5.2 Borrower has the full power and authority to, and does hereby grant and convey to the Lender, a perfected security interest in the Collateral as security for the Secured Obligations, free of all liens, security interests, encumbrances and claims, other than Permitted Liens and shall execute such Uniform Commercial Code financing statements in connection herewith as the Lender may reasonably request. Except for Permitted Liens, no other lien, security interest, adverse claim or encumbrance has been created by Borrower or is known by Borrower to exist with respect to any Collateral. 5.3 Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified would have a Material Adverse Effect. 5.4 Borrower's execution, delivery and performance of the Note(s), this Agreement, all financing statements, all other Loan Documents, required to be delivered or executed in connection herewith, have been duly authorized by all necessary corporate action of Borrower, the individual or individuals executing the Loan Documents were duly authorized to do so; and the Loan Documents constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors. 5.5 This Agreement and the other Loan Documents do not and will not violate any provisions of Borrower's Certificate of Incorporation, Bylaws or any material contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which the Borrower is subject, or result in the creation or imposition of any lien, security interest or other encumbrance upon the Collateral, other than those (i) created by this Agreement or (ii) relating to Permitted Liens. 5.6 The execution, delivery and performance of this Agreement and the other Loan Documents do not require the consent or approval of any other person or entity including, without limitation, after reasonable inquiry any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. 5.7 No fact or condition exists that would constitute a payment default in excess of $100,000 which remains uncured for thirty (30) days after receipt by Borrower of written notice under the Senior Loan Documents. 5.9 (a) There are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of the Borrower, 12 13 threatened against or affecting the Borrower or any business, property or rights of the Borrower (i) which involve any Loan Document or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could, individually or in the aggregate, result in a Material Adverse Effect. (b) The Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default could result in a Material Adverse Effect. 5.10 No information, report, financial statement, exhibit or schedule furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading. 5.11. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all federal and California state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 20,000,000 shares of Common Stock, of which 5,812,399 shares are issued and outstanding; (B) 1,620,000 shares of Series A Preferred Stock, of which 1,620,000 shares are issued and outstanding and are convertible into 1,620,000 shares of Common Stock at $0.50 per share; and (C) 3,600,000 shares of Series B Preferred Stock, of which 3,556,772 shares are issued and outstanding and convertible into 3,556,772 shares of Common Stock at $1.43955 per share. All of the issued and outstanding shares of Preferred Stock have been duly authorized and validly issued and are fully paid and nonassessable. All of the issued and outstanding shares of Preferred Stock have been duly authorized and validly issued and are fully paid and nonassessable. As of the Closing Date the authorized capital of the Company consists of (A) 20,000,000 shares of Common Stock, of which 6,226,399 shares are issued and outstanding; (B) 1,620,000 shares of Series A Preferred Stock, of which 1,620,000 shares are issued and outstanding and are convertible into 1,620,000 shares of Common Stock at $0.50 per share; and (C) 3,600,000 shares of Series B Preferred Stock, of which 3,556,772 shares are issued and outstanding and convertible into 3,556,772 shares of Common Stock at $1.43955 per share. As of the Closing Date, except for (i) conversion privileges of the Preferred Stock, (ii) outstanding Warrants to purchase Preferred Stock, (iii) outstanding options under the Company's 1998 Stock Option Plan and except as set forth in the Company's Restated Certificate, there are (i) no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company , (ii) no obligations (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such rights or to issue or distribute to holders of a share of its capital stock any evidences of indebtedness or assets of the Company, and (iii) no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend to make any other distribution in respect thereof. All of the issued and outstanding securities or the Company have been offered, issued and sold by the Company is compliance with applicable federal and state securities laws. 13 14 (ii) Except as set forth in the First Amended and Restated Investors Rights Agreement dated December 17, 1998 (the "Rights Agreement"), no shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock. 5.12 Borrower has filed and will file all tax returns, federal, state and local, which it is required to file and for which no filing extension has been granted and has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns or pursuant to any assessment received by Borrower since its inception through the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings). SECTION 6. INSURANCE 6.1 So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained commercial general liability insurance against risks customarily insured against in Borrower's line of business. Such risks shall include, without limitation, the risks of death, bodily injury and property damage. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral and Borrower's business, covering casualty, hazard and such other property risks in amounts equal to the full replacement cost of the Collateral. Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU 438 or equivalent) naming Lender as loss payee and additional insured. Borrower shall use commercially reasonable efforts to cause all policies evidencing such insurance to provide for at least thirty (30) days prior written notice by the underwriter or insurance company to Lender in the event of cancellation or expiration. Such policies shall be issued by such insurers and in such amounts as are reasonably acceptable to Lender. 6.2 Borrower shall and does hereby indemnify and hold Lender, its agents and shareholders harmless from and against any and all claims, costs, expenses, damages and liabilities (including, without limitation, such claims, costs, expenses, damages and liabilities based on liability in tort, including without limitation, strict liability in tort), including reasonable attorneys' fees, arising out of the disposition or utilization of the Collateral, other than claims arising at or caused by Lender's gross negligence or willful misconduct. SECTION 7. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of the Secured Obligations remain outstanding: 7.1 Borrower shall furnish to Lender the financial statements listed hereinafter, each prepared in accordance with generally accepted accounting principles consistently applied (the "Financial Statements"): (a) as soon as practicable and in any event within thirty (30) days after the end of each month: an internally prepared income statement, balance sheet, and cash flow statement, (including the commencement of any material litigation by or against Borrower), each certified by Borrower's Chief Executive or Financial Officer to be true and correct in all material respects; 14 15 (b) As soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, audited Financial Statements, setting forth in comparative form the corresponding figures for the preceding fiscal year, and accompanied by any audit report and opinion of the independent certified public accountants selected by Borrower; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor; and 7.2 Borrower shall permit any authorized representative of Lender and its attorneys and accountants on reasonable notice to inspect, examine and make copies and abstracts of the books of account and records of Borrower at reasonable times during normal business hours. In addition, upon reasonable notice such representative of Lender and its attorneys and accountants shall have the right to meet with management and officers of the Borrower to discuss such books of account and records. 7.3 Borrower will from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements or other documents; procure any instruments or documents as may be reasonably requested by Lender; and take all further action that may be reasonably necessary, or that Lender may reasonably request, to confirm, perfect, preserve and protect the security interests intended to be granted hereby, and in addition, and for such purposes only, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, security agreement and other documents (reasonably necessary to confirm, continue, perfect, preserve and protect the security interests granted hereby) without the signature of Borrower either in Lender's name or in the name of Borrower as agent and attorney-in-fact for Borrower. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 7.4 Borrower shall protect and defend Borrower's title as well as the interest of the Lender against all persons claiming any interest adverse to Borrower or Lender (other than in relation to Senior Debt and Permitted Liens) and shall at all times keep the Collateral free and clear from any legal process, liens or encumbrances whatsoever (except any placed thereon by Lender, or any liens arising by operation of law with respect to any obligations not yet overdue or any other liens consented to in writing by Lender, or relating to Senior Debt and Permitted Liens) and shall give Lender prompt written notice thereof. 7.5 Without Lender's prior written consent, Borrower shall not except in the ordinary course of its business, and except as permitted in relation to Senior Debt and Permitted Liens, (a) grant any material and unnecessary extension of the time of payment of any of the Receivables, (b) to any material extent, compromise, compound or settle the same for less than the full amount thereof, (c) release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of Borrower. 7.6 Borrower shall maintain and protect its properties, assets and facilities, including without limitation, its Equipment and Fixtures, in good order and working repair and condition 15 16 (taking into consideration ordinary wear and tear) and from time to time make or cause to be made all necessary repairs, renewals and replacements thereto and shall competently manage and care for its property in accordance with prudent industry practices. 7.7 Borrower shall not merge with and into any other entity; or sell or convey all or substantially all of its assets or stock to any other person or entity without notifying Lender a minimum of fifteen (15) days prior to the closing date and requesting Lender's consent which consent shall not be unreasonably withheld to the assignment of all of Borrower's Secured Obligations hereunder to the successor entity in form and substance reasonably satisfactory to Lender. In the event Lender does not consent to such assignment the parties agree Borrower shall prepay the Loan in accordance with Section 2.2 hereof. 7.8 Borrower shall not, without the prior written consent of Lender, such consent not to be unreasonably withheld, declare or pay any cash dividend or make a distribution on any class of stock, other than pursuant to employee repurchase plans upon an employee's death or termination of employment or transfer, sell, lease, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of the assets of Borrower other than (i) inventory sold in the normal course of business, (ii) in relation to Senior Debt and Permitted Liens as permitted herein, or (iii) licenses of its Intellectual Property. 7.9 Upon the request of Lender, Borrower shall, during business hours, make the Inventory and Equipment available to Lender for inspection at the place where it is normally located and shall make Borrower's log and maintenance records pertaining to the Inventory and Equipment available to Lender for inspection. Borrower shall take all action reasonably necessary to maintain such logs and maintenance records in a materially correct and complete fashion. 7.10 Borrower covenants and agrees to pay when due, all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Lender or the Collateral or upon Borrower's ownership, possession, use, operation or disposition thereof or upon Borrower's rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor. 7.11 Borrower shall not relocate any item of the Collateral (other than sale of inventory in the ordinary course of business) unless: (i) such relocation shall be within the continental United States and (ii) Borrower shall first cause to be filed and/or delivered to the Lender all Uniform Commercial Code financing statements, certificates or other documents or instruments necessary to continue in effect the perfected security interest of the Lender in the Collateral, and (ii) have given the Lender no less than fifteen (15) days prior written notice of such relocation. 7.12 Borrower shall not grant a security interest in, hypothecate or otherwise encumber its Intellectual Property other than (i) Permitted Liens, and (ii) licenses in the ordinary course of business including exclusive licenses with geographical or time limitations, without Lender's prior written consent, which consent will not be unreasonably withheld. 16 17 7.13 Borrower shall consider a request by Lender to purchase shares of Borrower's Preferred Stock in the next preferred round of equity financing (anticipated to be a Series C Preferred) in an amount equal to a minimum of Five Hundred Thousand Dollars ($500,000) and a maximum of Seven Hundred Fifty Thousand Dollars ($750,000). 7.14 Subsequent to the date of this Agreement, Borrower may incur Senior Debt, without limitation as to amount, provided, (i) Borrower may incur Senior Debt without limitation as to amount, without the consent of Lender, so long as such Senior Debt is secured only by Borrower's property, plant and equipment (as defined under GAAP), (ii) if such Senior Debt is unsecured and would exceed three million dollars ($3,000,000) in principal outstanding at any one time, then Lender shall have the right to consent to the incurrence of such Senior Debt, which consent shall not be unreasonably withheld, and (iii) if such Senior Debt is secured by (a) non-property, plant and equipment (as defined under GAAP) assets and (b) would exceed the greater of (i) three million dollars ($3,000,000) in outstanding principal at any one time or (ii) eighty-five percent (85%) of qualified accounts receivable, then Lender shall have the right to consent to the incurrence of such Senior Debt, which consent shall not be unreasonably withheld. To the extent Lender's consent is required hereunder, Senior Debt shall not include any indebtedness or obligation unless and until such consent has been given. SECTION 8. PURCHASE OPTION 8.1 In addition to any opportunity granted pursuant to Section 7.13 hereof, Lender shall have the right at any time, at Lender's sole and absolute discretion (the "Purchase Option"), to purchase shares of Borrower's Preferred Stock with an aggregate purchase value (subject to increase as provided in Section 8.2) determined as follows: (i) If amounts have been advanced against both Loan A or Loan B: (a) forty-five percent (45%) of the Maximum Loan Amount for Loan A; plus (b) forty-five percent (45%) of the Maximum Loan Amount for Loan B. (ii) If amounts have been advanced against Loan A and not Loan B: (a) forty-five percent (45%) of the Maximum Loan Amount for Loan A; plus (b) seventeen and one-half percent (17.5%) of the Maximum Loan Amount for Loan B. (iii) no amounts have been advanced against either Loan A or Loan B: (a) thirty-five percent (35%) of the Maximum Loan Amount for Loan A; plus (b) seventeen and one-half percent (17.5%) of the Maximum Loan Amount for Loan B. The purchase price per share under the Purchase Option (the "PURCHASE PRICE") shall be determined upon the earliest to occur of (i) the closing date of the preferred equity financing with net proceeds to the Borrower in excess of Ten Million Dollars ($10,000,000.00); (ii) the 17 18 date that the initial price per share to the public is determined for purposes of printing of the final prospectus for an Initial Public Offering; or (iii) the closing date of a Merger Event. The "Purchase Price" shall be the lesser of: (i) the price per share equivalent of a Three Hundred Million 00/100 Dollar ($300,000,000.00) fully diluted pre-money valuation of Borrower if the participants in the Next Round include at least one financial investor/venture capital/mezzanine investor; (ii) the price per share equivalent of a Two Hundred Fifty Million 00/100 Dollar ($250,000,000.00) fully-diluted pre-money valuation of Borrower if the participants in the Next Round include only strategic corporate investor(s); or (iii) the price per share determined as follows: (a) If Borrower closes the Next Round on or before November 9, 1999, ninety percent (90%) of the purchase price per share of the securities issued or exchanged in the Next Round. (b) If Borrower closes the Next Round after November 9, 1999 but on or before December 9, 1999, eighty-five percent (85%) of the price per share of the securities issued or exchanged in the Next Round. (c) If Borrower closes the Next Round after December 9, 1999, but on or before February 9, 2000, seventy percent (70%) of the price per share of the securities issued or exchanged in the Next Round. (d) If Borrower closes the Next Round after February 9, 1999, but prior to March 1, 2000, sixty-five percent (65%) of the price per share of the securities issued or exchanged in the Next Round. (e) If Borrower closes the Next Round on or after March 1, 2000 the price per share equivalent of a One Hundred Million and 00/100 Dollar ($100,000,000.00) pre-money fully diluted valuation; Provided, that in the case of a Merger Event the price per share shall be determined under this subsection (iii) as follows: (i) if the Borrower is acquired in the Merger Event for cash or other consideration other than equity securities, the price per share shall be determined by dividing the aggregate value of such consideration by the number of shares of capital stock of Borrower eligible to receive such consideration at the time of the Merger Event; (ii) if the consideration in the Merger Event is equity securities, then the price per share shall be the per-share value assigned in the Merger Event to the Borrower's most senior class of stock that is eligible to be exchanged in the Merger Event. 18 19 The Purchase Option will terminate upon the date fifteen (15) days after receipt by Lender of notice from Borrower of its Board of Directors' approval of definitive plans to initiate an Initial Public Offering or Merger Event, subject to the terms set forth in Section 8.9 hereof. The number and purchase price of such shares are subject to adjustment as provided in this Section 8. 8.2 If the Borrower has not repaid the outstanding principal amount under a Note in its entirety by the Maturity Date (as defined in the applicable Note(s)), then for each additional month, or portion thereof, thereafter that the outstanding principal is not paid, Lender shall have the right to purchase from the Borrower, at the Purchase Price (adjusted, as set forth and defined in Section 8.3 herein), an additional amount of Preferred Stock with a value equal to the product of (x) the outstanding principal amount which is due but unpaid and (y) three percent (3%). 8.3 The Purchase Price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) If the Borrower at any time shall, by combination, reclassification, exchange or subdivision of the securities as to which purchase rights under this Purchase Option exist into the same or a different number of securities of any other class or classes, this Purchase Option shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Purchase Option immediately prior to such classification, exchange, subdivision or other change. (b) If the Borrower at any time shall combine or subdivide its Preferred Stock, the Purchase Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (c) If the Borrower at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Borrower's stock, then the Purchase Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Borrower's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Borrower's stock outstanding immediately after such dividend or distribution. The Lender shall thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Purchase Price resulting from such adjustment. (d) Additional antidilution rights applicable to the authorized and outstanding Series A and Series B Preferred Stock are as set forth in the Borrower's Certificate of Incorporation, as amended through the Closing Date, a true and complete copy of which is 19 20 attached hereto as Exhibit C (the "CHARTER"). The Borrower shall promptly provide the Lender with any restatement, amendment, modification or waiver of the Charter. The Preferred Stock purchasable hereunder shall have the benefit of the same antidilution rights applicable to such Preferred Stock when authorized and issued pursuant to Borrower's Charter, as amended, and Borrower shall provide Lender with all notices and information at the time and to the extent it is required to do so to the holders of Preferred Stock. (e) If: (i) the Borrower shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) there shall be any Merger Event; (iii) there shall be an Initial Public Offering; or (iv) there shall be any voluntary dissolution, liquidation or winding up of the Borrower; then, in connection with each such event, the Borrower shall send to the Lender: (A) at least fifteen (15) days' prior written notice of the date on which the books of the Borrower shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such dissolution, liquidation or winding up, at least fifteen (15) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon dissolution, liquidation or winding up); and (C) in the case of a Initial Public Offering or Merger Event, the Borrower shall give the Lender at least fifteen (15) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Purchase Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Lender, at the address as shown herein, or at such other address as Lender may subsequently designate by written notice to Borrower. (f) Failure to timely provide such notice required by subsection (e) above shall entitle Lender to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Lender. The notice period shall begin on the date Lender actually receives a written notice containing all the information specified above. 8.5 The Purchase Option is exercisable by the Lender, in whole or in part, at any time, or from time to time, prior to the earlier of fifteen (15) days after receipt of notice from Borrower of the Board of Directors' approval of definitive plans to initiate (i) an Initial Public Offering, or (ii) a Merger Event. Lender may exercise its Purchase Option by tendering to the Borrower at its principal office a notice of exercise in the form attached hereto as Exhibit D (the "NOTICE OF PURCHASE"), duly completed and executed together with payment in an amount equal to the Purchase Price for that portion of the Purchase Option so exercised, in cash or by bank cashier's or certified check; provided that Lender may satisfy all or a portion of the Purchase Price by tender of one or more Note(s), the outstanding principal and interest of which shall be credited against the Purchase Price, with the balance, if any, of the Purchase Price payable in cash or by check as provided above. In such event, the Note(s) so tendered will be deemed satisfied in full and will be cancelled by the Lender and the Borrower will have no further obligation to the Lender under such Note(s). 20 21 Promptly upon receipt of the Notice of Purchase and the payment of the Purchase Price in accordance with the terms set forth below, Borrower shall execute the acknowledgment of exercise in the form attached hereto as Exhibit E (the "ACKNOWLEDGMENT OF PURCHASE") indicating the number of shares which remain subject to future purchases, if any. Subject to Lender's right of withdrawal, no later than twenty-one (21) days thereafter, the Borrower shall issue to the Lender a certificate for the number of shares of Preferred Stock purchased. 8.6 (a) During the term of this Purchase Option, the Borrower will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such purchase), or listing on any domestic securities exchange, before such shares may be issued upon purchase, the Borrower will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 8.7 No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Purchase Option, but in lieu of such fractional shares the Borrower shall make a cash payment therefor upon the basis of the Purchase Price then in effect. 8.8 This Purchase Option does not entitle the Lender to any voting rights or other rights as a shareholder of the Borrower prior to the exercise of the Purchase Option. 8.9 Borrower shall give Lender at least fifteen (15) days notice of a Board of Directors' approval of definitive plans to initiate a Merger Event or an Initial Public Offering of its capital stock pursuant to a registration statement filed with the Securities and Exchange Commission. In either such event, Lender shall have the right to exercise its Purchase Option subject to the successful completion of such Merger Event or Initial Public Offering. If such closing does not take place, the Borrower shall promptly notify the Lender that such proposed transaction has been terminated, and the Lender may rescind any exercise of its Purchase Option promptly after such notice of termination of the proposed transaction if the exercise of this Purchase Option has occurred after the Borrower notified the Lender that the Merger Event was proposed. SECTION 9. DEFAULT The occurrence of any one or more of the following events (herein called "EVENTS OF DEFAULT") shall constitute a default hereunder and under the Note(s) and other Loan Documents: 9.1 Borrower defaults in the payment of any principal, interest or other Secured Obligation involving the payment of money under this Agreement, the Note(s) or any of the 21 22 other Loan Documents, and such default continues for more than five (5) days after Lender has given written notification thereof; or 9.2 Borrower defaults in the performance of any other covenant or Secured Obligation of Borrower hereunder or under the Note(s) or any of the other Loan Documents, and such default continues for more than twenty (20) days after Lender has given written notice to Borrower of such default. 9.3 Any representation or warranty made herein by Borrower shall prove to have been false or misleading in any material respect on the date it was made; or 9.4 Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (33-1/3% or more) of the properties of Borrower; or Borrower or its directors or majority shareholders shall take any action initiating the dissolution or liquidation of Borrower; or 9.5 Sixty (60) days shall have expired after the commencement of an action by or against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or 9.6 Sixty (60) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or 9.7 The occurrence of any payment default in excess of $100,000 under any Senior Loan Documents, Excluded Agreements, lease or other promissory note, agreement for borrowed money or obligation of Borrower which remains uncured for more than thirty (30) days after Borrower receives written notification thereof. SECTION 10. REMEDIES Upon the occurrence and continuance of any one or more Events of Default, Lender, at its option, may declare the Note and all of the other Secured Obligations to be accelerated and immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Sections 9.4 or 9.5, the Note(s) and all of the other Secured Obligations shall automatically be accelerated and made due and payable without any further act), whereupon the unpaid principal of and accrued interest on such Note(s) and all other outstanding Secured Obligations shall become immediately due and payable, and shall thereafter bear interest at 22 23 the Default Rate set forth in, and calculated according to, Section 2.3 (c) of this Agreement. Lender may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under applicable law, including the right to release, hold or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. After any one or more Events of Default has remained uncured for more than fifteen (15) days after Lender has given written notice to Borrower of failure to cure any Event of Default Lender may then, or at any time thereafter and from time to time, apply, collect, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Lender may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon five (5) calendar days' prior written notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender which is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by Lender in the following order of priorities: First, to Lender in an amount sufficient to pay in full Lender's reasonable costs and professionals' and advisors' reasonable fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. Lender shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under Section 9207 of the UCC. Lender's rights and remedies hereunder are subject to the terms of the Subordination Agreement. SECTION 11. MISCELLANEOUS 11.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Lender hereunder shall continue to exist until the Secured Obligations are paid in full as the same become due and payable and until Lender has executed a written termination statement (which Lender shall promptly execute after full payment of the Secured Obligations hereunder), reassigning to Borrower, without recourse, the Collateral and all rights conveyed hereby and returning possession of the Collateral to Borrower. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The Purchase of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Lender. 23 24 11.2 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.3 NOTICE. Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: (a) IF TO LENDER: COMDISCO, INC./COMDISCO VENTURES Attention: Jill Hanses 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5465 WITH A COPY TO: COMDISCO, INC./COMDISCO VENTURES Attention: Documentation Group 100 Hamilton Avenue, Suite 104A Palo Alto, CA 94301 Facsimile: (650) 473-0204 (b) IF TO BORROWER: EGROUPS, INC. Attention: Chief Executive Officer 520 Third Street, Suite 225 San Francisco, CA 94107 Facsimile: (415) 284-6900 Phone: (415) 449-3482 or to such other address as each party may designate for itself by like notice. 11.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including, without limitation, Lender's proposal letter dated August 26, 1999, all of which are merged herein and therein. None of the terms of this Agreement, the Note(s) or any of the other Loan Documents may be amended except by an instrument executed by each of the parties hereto. 24 25 11.5 HEADINGS. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof. 11.6 NO WAIVER. The powers conferred upon Lender by this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. No omission, or delay, by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter. 11.7 SURVIVAL. All agreements, representations and warranties contained in this Agreement, the Note(s) and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement. 11.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Note(s) or any of the other Loan Documents without Lender's express written consent which consent shall not be unreasonably withheld, and any such attempted assignment without consent shall be void and of no effect. Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents without prior notice to Borrower, and all of such rights shall inure to the benefit of Lender's successors and assigns. 11.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. 11.10 GOVERNING LAW. This Agreement, the Note(s) and the other Loan Documents have been negotiated and delivered to Lender in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the State of Illinois. This Agreement, the Note(s) and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 11.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising in or under or related to this Agreement, the Note(s) or any of the other Loan Documents may be brought in any state or federal court of competent jurisdiction located in the State of Illinois. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Cook County, State of Illinois; (b) waives any objection as to jurisdiction or venue in Cook County, State of Illinois; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Note(s) or the 25 26 other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.3, above and shall be deemed effective and received as set forth in Section 11.3, above. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. 11.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including, without limitation, Claims which involve persons or entities other than Borrower and Lender; Claims which arise out of or are in any way connected to the relationship between Borrower and Lender; and any Claims for damages, breach of contract arising out of this Agreement, any other Loan Document or any of the Excluded Agreements, specific performance, or any equitable or legal relief of any kind. 11.13 CONFIDENTIALITY. Lender acknowledges that certain items of Collateral, including, but not limited to trade secrets, source codes, customer lists and certain other items of Intellectual Property, and any Financial Statements provided pursuant to Section 7 hereof, constitute proprietary and confidential information of the Borrower (the "Confidential Information"). Accordingly, Lender agrees that any Confidential Information it may obtain in the course of acquiring, perfecting or foreclosing on the Collateral or otherwise provided under this Agreement, provided such Confidential Information is marked as confidential by Borrower at the time of disclosure, shall be received in the strictest confidence and will not be disclosed to any other person or entity in any manner whatsoever, in whole or in part, without the prior written consent of the Borrower, unless and until Lender has acquired indefeasible title thereto. 11.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument. [SIGNATURE PAGE FOLLOWS] 26 27 IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered this Agreement as of the day and year first above written. BORROWER: EGROUPS, INC. Signature: -------------------------- Print Name: ------------------------- Title: ------------------------------ ACCEPTED IN ROSEMONT, ILLINOIS: LENDER: COMDISCO, INC. Signature: -------------------------- Print Name: ------------------------- Title: ------------------------------ 27 EX-10.39 41 NOTICE OF EXERCISE OF PURCHASE OPTION 1 EXHIBIT 10.39 NOTICE OF EXERCISE OF PURCHASE OPTION TO: eGroups, Inc. ("Borrower") (1) Subject to the successful completion of an Initial Public Offering, as set forth in the Loan Agreement, the undersigned Lender hereby elects to exercise its Purchase Option with respect to 437,500 shares of the Series D Preferred Stock of Borrower, pursuant to the terms of the Subordinated Loan and Security Agreement dated the 8th day of October, 1999, as amended pursuant to the letter dated November 17, 1999 between Borrower and the Lender (the "Loan Agreement"), and tenders herewith payment of the purchase price for such shares, together with all applicable transfer taxes, if any, by converting and cancelling debt outstanding in the amount of $3,150,000.00 which represents a portion of the outstanding debt under that certain Subordinated Promissory Note dated October 13, 1999. (2) In exercising its rights with respect to the Purchase Option, the undersigned hereby represents and warrants to Borrower as follows: (a) The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Lender's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Lender has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) The Lender understands (i) that the Preferred Stock issuable upon exercise of its Purchase Option is not registered under the 1933 Act nor qualified under applicable state securities laws on the ground that the issuance contemplated by its Purchase Option will be exempt from the registration and qualifications requirements thereof, and (ii) that the Borrower's reliance on such exemption is predicated on the representations set forth in this notice. (c) The Lender has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (d) The Lender understands that if the Borrower does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this its Purchase Option, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Lender also understands that any sale of its rights of the Lender to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (e) Lender is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 2 (3) Subject to our review and acceptance of your Acknowledgement Certificate with respect to this Notice, please issue a certificate or certificates representing said shares of Series D Preferred Stock in the name of the undersigned or in such other name as is specified below. COMDISCO, INC. (Name) Attn: Ms. Jill Hanses 6111 N. River Rd. Rosemont, IL 60018 (Address) Lender: COMDISCO, INC. By: Title: JILL R HANSES SENIOR VICE PRESIDENT Date: ACKNOWLEDGMENT OF RECEIPT OF NOTICE OF EXERCISE OF PURCHASE OPTION The undersigned eGroups, Inc. ("Borrower") hereby acknowledges receipt of the "Notice of Purchase" from Comdisco, Inc. ("Lender") to exercise its Purchase Option with respect to 437,500 shares of the Series D Preferred Stock of eGroups, Inc., pursuant to the terms of the Subordinated Loan and Security Agreement dated October 8, 1999, as amended pursuant to the letter dated November 17, 1999 (the "Agreement"). Borrower further acknowledges that such shares remain subject to purchase under the terms of the Agreement. In connection with such Purchase Option the undersigned hereby represents, warrants and agrees as follows: (a) All representations and warranties of the Borrower made pursuant to the Agreement are true and correct in all material respects on and as of the date of this Acknowledgment with the same effect as though made on and as of this date (except as set forth in Schedule 1 to this Acknowledgment) (b) The Preferred Stock issuable upon exercise of the Lender's rights has been duly and validly reserved and, when issued in accordance with the provisions of the Purchase Option, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to the Purchase Option may be subject to restrictions on transfer under state and/or federal securities laws. The Borrower has made available to the Lender true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock following exercise of the Purchase Option shall be made without charge to the Lender for any issuance tax in respect thereof, or other cost incurred by the Borrower in connection with such purchase and the related issuance of shares of Preferred Stock. The Borrower shall not be required to pay any tax which may 3 be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Lender. (c) The issuance to Lender of the right to acquire the shares of Preferred Stock, has been duly authorized by all necessary corporate action on the part of the Borrower, and the Purchase Option is not inconsistent with the Borrower's Charter or Bylaws, does not contravene any law or governmental rule, regulation or order applicable to it, does not and will not contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Purchase Option constitutes a legal, valid and binding agreement of the Borrower, enforceable in accordance with its terms. (d) No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Borrower of its obligations under the Purchase Option, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (e) The Borrower is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (f) Subject to the accuracy of the Lender's representations in its Notice, the issuance of the Preferred Stock upon exercise of the Purchase Option will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (g) If Lender proposes to sell Preferred Stock issuable upon the exercise of the Purchase Option in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Borrower shall furnish to the Lender, within five (5) days after receipt of a written request, a written statement confirming the Borrower's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. Borrower acknowledges that Lender has the right to review Schedule 1 to this Certificate and that Lender may in its sole discretion withdraw its notice of exercise of Purchase Option within the ten (10) business days after Lender's receipt of this Acknowledgment. Borrower: EGROUPS, INC. By: Title: Date: EX-23.1 42 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 25, 2000, in the Registration Statement (Form S-1) and related Prospectus of eGroups, Inc., for the registration of shares of its common stock. /s/ ERNST & YOUNG LLP Palo Alto, California March 23, 2000 EX-27.1 43 FINANCIAL DATA SCHEDULE - 06/05/1998 - 07/31/1999
5 YEAR JUL-31-1999 JUN-05-1998 JUL-31-1999 4,957,231 0 339,127 10,000 0 5,587,762 1,038,828 88,234 6,755,951 1,534,662 304,500 4,236,723 5,177 12,454 743,227 6,755,951 488,700 488,700 221,832 221,832 7,070,621 10,000 22,730 (6,644,612) 0 (6,644,612) 0 0 0 (6,857,237) (1.25) (0.49)
EX-27.2 44 FINANCIAL DATA SCHEDULE - PERIOD ENDED 31, 2000
5 6-MOS JUL-31-2000 AUG-01-1999 JAN-31-2000 44,586,059 0 2,307,805 150,000 0 47,084,661 3,136,935 439,512 52,211,255 2,506,822 7,347,487 0 16,539 16,244 41,522,345 52,211,255 3,463,636 3,463,636 324,471 324,471 15,743,858 140,000 373,840 (12,774,049) 0 (12,774,049) 0 0 0 (12,902,983) (1.61) (0.56)
-----END PRIVACY-ENHANCED MESSAGE-----