-----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, LpUp9r1DBUsKjh08kDbHj62mm7GXsiCrdhjMkCNwySNBy0BSox8y+MznJQ0eXIu0 DQlk5M4vW3EgrK8GnhUAlQ== 0001047469-08-011923.txt : 20081110 0001047469-08-011923.hdr.sgml : 20081110 20081110164700 ACCESSION NUMBER: 0001047469-08-011923 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081110 DATE AS OF CHANGE: 20081110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED ONLINE INC CENTRAL INDEX KEY: 0001142701 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 770575839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-33367 FILM NUMBER: 081176370 BUSINESS ADDRESS: STREET 1: 21301 BURBANK BOULEVARD CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8182873000 MAIL ADDRESS: STREET 1: 21301 BURBANK BOULEVARD CITY: WOODLAND HILLS STATE: CA ZIP: 91367 10-Q 1 a2189034z10-q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2008
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 000-33367

UNITED ONLINE, INC.
(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or other Jurisdiction of Incorporation or Organization)		77-0575839 (I.R.S. Employer Identification No.)
21301 Burbank Boulevard, Woodland Hills, California (Address of Principal Executive Office)		91367 (Zip Code)
(818) 287-3000 (Registrant's Telephone Number, Including Area Code)
Not applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

There were 81,973,095 shares of the Registrant's common stock outstanding at October 31, 2008.

UNITED ONLINE, INC.
INDEX TO FORM 10-Q
For the Quarter Ended September 30, 2008



PART I.		FINANCIAL INFORMATION
	Item 1.	Unaudited Condensed Consolidated Balance Sheets at September 30, 2008 and December 31, 2007	4
		Unaudited Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended September 30, 2008 and 2007	5
		Unaudited Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2008 and 2007	6
		Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2008	7
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007	8
		Notes to Unaudited Condensed Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4.	Controls and Procedures	53
PART II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	55
	Item 1A.	Risk Factors	56
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
	Item 6.	Exhibits	71
SIGNATURES			74

In this document, except where otherwise defined, "United Online," the "Company," "we," "us" and "our" refer to United Online, Inc. and its subsidiaries.

the Company's inability to acquire and retain florist members; the Company's inability to increase or maintain its advertising revenues; failure to achieve expanded marketing opportunities and efficiencies and other benefits associated with FTD, or to implement any or all planned marketing initiatives; the effects of seasonality; changes in stock-based compensation due to future equity issuances; changes in amortization or depreciation due to a variety of factors; potential write down, reserve against or impairment of assets including receivables, goodwill, intangibles or other assets; changes in tax laws, the Company's business or other factors that would impact anticipated tax benefits; that restructuring and related charges will be greater than anticipated; risks associated with the commercialization of new services; the Company's ability to enforce or defend its ownership and use of intellectual property; problems associated with the Company's operations, systems or technologies; the Company's ability to retain key customers and key personnel; risks associated with litigation and governmental regulation; changes in general economic and marketing conditions and laws; changes in the floral industry; inability to successfully integrate the financial, accounting and administrative functions of United Online and FTD; the impact of, and restrictions associated with, the Company's indebtedness; as well as the risk factors disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, the Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

			September 30, 2008			December 31, 2007

Assets
Current assets:
	Cash and cash equivalents		$	69,670		$	149,507
	Short-term investments			—			68,800
	Accounts receivable, net of allowance for doubtful accounts of $11,172 and $2,378 at September 30, 2008 and December 31, 2007, respectively			58,136			28,765
	Deferred tax assets, net			9,914			7,050
	Other current assets			31,003			19,992

		Total current assets		168,723			274,114
Property and equipment, net				60,451			39,570
Deferred tax assets, net				—			57,559
Goodwill				609,737			132,352
Intangible assets, net				393,748			40,915
Other assets				22,953			7,883

		Total assets	$	1,255,612		$	552,393

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	72,390		$	38,095
	Accrued liabilities			40,594			30,586
	Member redemption liability			21,106			19,499
	Deferred revenue			75,859			63,086
	Short-term borrowings and current portion of long-term debt			21,750			—
	Capital leases			—			13

		Total current liabilities		231,699			151,279
Member redemption liability				5,242			5,061
Deferred revenue				5,045			4,691
Long-term debt, net of discounts				401,323			—
Deferred tax liabilities, net				70,314			—
Other liabilities				13,622			10,734

		Total liabilities		727,245			171,765

Commitments and contingencies
Stockholders' equity:
	Common stock			8			7
	Additional paid-in capital			520,873			414,841
	Accumulated other comprehensive income (loss)			(1,018	)		182
	Retained earnings (accumulated deficit)			8,504			(34,402	)

		Total stockholders' equity		528,367			380,628

		Total liabilities and stockholders' equity	$	1,255,612		$	552,393

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

			Quarter Ended September 30,						Nine Months Ended September 30,

			2008			2007			2008			2007
Revenues			$	169,157		$	126,825		$	413,241		$	388,093
Operating expenses:
	Cost of revenues (including stock-based compensation, see Note 8)			54,844			27,865			109,513			87,521
	Sales and marketing (including stock-based compensation, see Note 8)			42,376			38,410			114,966			127,147
	Technology and development (including stock-based compensation, see Note 8)			14,983			12,276			40,406			38,812
	General and administrative (including stock-based compensation, see Note 8)			23,096			21,887			66,754			54,276
	Amortization of intangible assets			4,966			3,090			9,824			9,789
	Restructuring charges			93			34			656			428

		Total operating expenses		140,358			103,562			342,119			317,973

Operating income				28,799			23,263			71,122			70,120
Interest income				1,053			1,979			4,037			5,184
Interest expense				(3,751	)		(1	)		(3,751	)		(3	)
Other income (expense), net				492			(332	)		718			(686	)

Income before income taxes				26,593			24,909			72,126			74,615
Provision for income taxes				10,427			10,940			29,220			31,410

Net income			$	16,166		$	13,969		$	42,906		$	43,205

Basic net income per share			$	0.22		$	0.21		$	0.61		$	0.65

Diluted net income per share			$	0.21		$	0.20		$	0.60		$	0.63

Shares used to calculate basic net income per share				74,108			67,207			70,382			66,512

Shares used to calculate diluted net income per share				75,674			69,525			71,978			68,991

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

			Quarter Ended September 30,					Nine Months Ended September 30,

			2008			2007		2008			2007
Net income			$	16,166		$	13,969	$	42,906		$	43,205
	Change in unrealized gains (losses) on short-term investments, net of tax of $(10) and $34 for the quarter and nine months ended September 30, 2008, respectively, and $77 and $125 for the quarter and nine months ended September 30, 2007, respectively			(366	)		118		(293	)		191
	Foreign currency translation			(704	)		234		(907	)		223

		Comprehensive income	$	15,096		$	14,321	$	41,706		$	43,619

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands)

	Common Stock							Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)

	Common Stock				Additional Paid-In Capital									Total Stockholders' Equity
	Shares		Amount		Additional Paid-In Capital									Total Stockholders' Equity
Balance at January 1, 2008		68,019	$	7	$	414,841		$	182		$	(34,402	)	$	380,628
Issuance of common stock in connection with the acquisition of FTD Group, Inc.		12,260		1		126,150			—			—			126,151
Exercises of stock options		216		—		1,661			—			—			1,661
Issuance of common stock through employee stock purchase plan		284		—		2,576			—			—			2,576
Vesting of restricted stock units		1,006		—		—			—			—			—
Repurchases of common stock		—		—		(8,381	)		—			—			(8,381	)
Dividends paid on shares outstanding and restricted stock units		—		—		(44,326	)		—			—			(44,326	)
Dividends payable on restricted stock units		—		—		(140	)		—			—			(140	)
Stock-based compensation		—		—		28,106			—			—			28,106
Change in unrealized gains (losses) on short-term investments, net of tax		—		—		—			(293	)		—			(293	)
Foreign currency translation		—		—		—			(907	)		—			(907	)
Tax benefits from equity awards		—		—		386			—			—			386
Net income		—		—		—			—			42,906			42,906

Balance at September 30, 2008		81,785	$	8	$	520,873		$	(1,018	)	$	8,504		$	528,367

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

				Nine Months Ended September 30,

				2008			2007
Cash flows from operating activities:
	Net income			$	42,906		$	43,205
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			25,497			24,789
		Stock-based compensation			28,106			12,604
		Accretion of discounts and amortization of debt issue costs			447			—
		Provision for doubtful accounts receivable			988			2,360
		Deferred taxes, net			3,924			5,566
		Tax benefits from equity awards			386			4,231
		Excess tax benefits from equity awards			(339	)		(2,732	)
		Other			(17	)		737
	Changes in operating assets and liabilities (net of effects of acquisition):
		Accounts receivable			4,066			2,206
		Other assets			5,073			(4,558	)
		Accounts payable and accrued liabilities			(20,411	)		(9,120	)
		Member redemption liability			1,787			3,535
		Deferred revenue			9,916			11,980
		Other liabilities			(1,748	)		(188	)

			Net cash provided by operating activities		100,581			94,615

Cash flows from investing activities:
	Purchases of property and equipment				(11,438	)		(17,771	)
	Purchases of short-term investments				(120,378	)		(205,351	)
	Proceeds from maturities of short-term investments				82,765			51,645
	Proceeds from sales of short-term investments				106,364			181,599
	Cash paid for acquisitions, net of cash acquired				(307,160	)		—

			Net cash provided by (used for) investing activities		(249,847	)		10,122

Cash flows from financing activities:
	Proceeds from term loans and revolver				421,041			—
	Payments on term loans and revolver				(302,280	)		—
	Payments on capital leases				(13	)		(12	)
	Payments for debt issue costs				(249	)		—
	Proceeds from exercises of stock options				1,661			7,389
	Proceeds from employee stock purchase plan				2,576			3,485
	Repurchases of common stock				(8,381	)		(4,672	)
	Payments for dividends				(44,326	)		(42,566	)
	Excess tax benefits from equity awards				339			2,732

			Net cash provided by (used for) financing activities		70,368			(33,644	)

Effect of foreign currency exchange rate changes on cash and cash equivalents					(939	)		167
Change in cash and cash equivalents					(79,837	)		71,260
Cash and cash equivalents, beginning of period					149,507			19,252

Cash and cash equivalents, end of period				$	69,670		$	90,512

Supplemental disclosure of non-cash investing and financing activities:
	Issuance of common stock in connection with the acquisition of FTD Group, Inc.			$	126,151		$	—
	Dividends payable on restricted stock units			$	140		$	—

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

United Online, Inc. ("United Online", "UOL" or the "Company") is a leading provider of consumer products and services over the Internet through a number of brands, including FTD, Interflora, Classmates, MyPoints, NetZero, and Juno. On August 26, 2008, we completed our previously announced acquisition of 100% of the capital stock of FTD Group, Inc. (along with its subsidiaries, "FTD"). The Company reports its business in three reportable operating segments: FTD, Classmates Media and Communications. The Company's FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations offering floral and related products and services. The Company's Classmates Media services are online social networking and online loyalty marketing. The Company's primary Communications services are Internet access and email. On a combined basis, the Company's Web properties attract a significant number of Internet users and the Company offers a broad array of Internet marketing services for advertisers.

Basis of Presentation

The accompanying condensed consolidated financial statements for the quarters and nine months ended September 30, 2008 and 2007, which include United Online and its subsidiaries, are unaudited except for the condensed consolidated balance sheet information at December 31, 2007, which is derived from the Company's audited consolidated financial statements, filed on February 20, 2008 with the Securities and Exchange Commission ("SEC"), in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, but which does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). The Company's unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, including those for interim financial information, and with the instructions for Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for any future periods.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2007 included in the Company's Annual Report on Form 10-K filed on February 20, 2008 with the SEC.

The most significant areas of the unaudited condensed consolidated financial statements that require management judgment and which are susceptible to possible change in the near term include the Company's revenue recognition, allocation of purchase price in business combinations, goodwill, intangible assets and other long-lived assets, member redemption liability, income taxes, and legal contingencies.

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

Reclassifications—Certain prior year amounts have been reclassified to conform to the current year presentation. These changes had no impact on the previously reported consolidated results of operations or stockholders' equity.

Significant Accounting Policies

Segments—The Company complies with the reporting requirements of Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information. In August 2008, the Company completed the acquisition of FTD. FTD's operating results are now reported as the FTD segment, which is aligned with how management measures and reviews segment performance for internal reporting purposes in accordance with the "management approach" defined in SFAS No. 131. Management has determined that segment income from operations, which excludes depreciation and amortization of intangible assets, is the appropriate measure for assessing performance of its segments and for allocating resources among its segments.

The following significant accounting policies relate to the Company's FTD segment:

FTD Segment Revenue Recognition—Product revenues and the related cost of goods sold are generally recognized when products are delivered to the customers. Shipping and service fees charged to customers are recognized at the time the product revenue is recognized and are included in product revenue. Shipping costs are included in cost of goods sold. FTD's consumer businesses generally recognize revenue on a gross basis as FTD bears the risks and rewards associated with the revenue generating activities by: (1) acting as a principal in the transaction; (2) establishing prices; (3) being responsible for fulfillment of the order; (4) taking the risk of loss for collection, delivery and returns; and (5) marketing the products and services.

FTD also sells computer systems to its florist members and recognizes revenue in accordance with Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition, with Respect to Certain Transactions". FTD recognizes revenue on hardware which are sold without software at the time of delivery. For hardware sales that include software, revenue is recognized when delivery, installation and customer acceptance have all occurred.

Service revenues based on orders are recognized in the period in which the orders are delivered. Monthly, recurring fees and other service-based fees are recognized in the period in which the service has been provided.

Software to be Sold, Leased or Marketed—The Company follows the provisions of SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SFAS No. 86 requires that all costs relating to the purchase or internal development and production of computer software products to be sold, leased or otherwise marketed be expensed in the period incurred unless the requirements for technological feasibility have been established. The Company capitalizes all eligible computer software costs incurred once technological feasibility is established. The Company amortizes these costs using the greater of the straight-line method over a period of three to five years or the revenue method prescribed by SFAS No. 86.

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

Recent Accounting Pronouncements

Business Combinations

In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS No. 141(R) requires prospective application for all acquisitions after the date of adoption. The Company expects SFAS No. 141(R) to have an impact on its consolidated financial statements when effective, but the timing, nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions the Company consummates after the effective date.

Additionally, for business combinations in which the acquisition date is prior to the effective date of SFAS No. 141(R), the acquirer is required to apply the requirements of SFAS No. 109, Income Taxes, as amended by SFAS No. 141(R), prospectively. After the effective date of SFAS No. 141(R), changes in the valuation allowance for acquired deferred tax assets must be recognized as an adjustment to income tax expense, and changes in acquired income tax positions must be recognized in accordance with FASB Interpretation No. 48.

The Company will continue to evaluate the impact of the adoption of SFAS No. 141(R).

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company is currently evaluating the impact of the adoption of SFAS No. 160 on its consolidated financial statements, if any.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3, Determination of the Useful Life of Intangible Assets. This guidance is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R when the underlying arrangement includes renewal or extension of terms that would require substantial costs or result in a material modification to the asset upon renewal or extension. Companies estimating the useful life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension as adjusted for SFAS No.142's entity-specific factors. FSP FAS 142-3 is effective for the Company beginning January 1, 2009. The Company

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

is currently evaluating the potential impact of the adoption of FSP FAS 142-3 on its consolidated financial statements, if any.

Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities

In June 2008, the FASB issued FSP EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"), in which the FASB concluded that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends (such as restricted stock units granted by the Company) are considered participating securities. Because the awards are considered participating securities, the issuing entity is required to apply the two-class method of computing basic and diluted earnings per share. The provisions of FSP EITF 03-6-1 will be effective for the Company on January 1, 2009 and will be applied retroactively to all prior-period earnings per share computations. The Company is currently evaluating the impact of the adoption of FSP EITF 03-6-1 on its earnings per share amounts.

Fair Value Measurements

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, to clarify how an entity would determine fair value in an inactive market. FSP FAS 157-3 is effective immediately and applies to the Company's condensed consolidated financial statements for the quarter ended September 30, 2008. The application of the provisions of FSP FAS 157-3 did not materially impact the Company's condensed consolidated financial statements.

2. ACQUISITION OF FTD GROUP, INC.

On August 26, 2008 (the "Closing Date"), the Company completed the acquisition of FTD, a leading provider of floral and related products and services to consumers and retail florists, as well as for other retail locations offering floral products and services, in the United States, Canada, the United Kingdom, and The Republic of Ireland. The acquisition was accounted for under the purchase method in accordance with SFAS No. 141, Business Combinations. The primary reasons for the acquisition were as follows:

•: Significant Increase in Scale resulting in significantly higher consolidated and diversified revenues and consolidated operating income and expanded business opportunities.
•: Diversification of Revenue and Cash Flow Streams, resulting in the Company's mature Communications segment representing a smaller percentage of consolidated revenues and cash flows. FTD will provide additional revenue and cash flow streams (either directly or in FTD's capacity as a provider of products and services to retail florists) in addition to the existing Communications and Classmates Media businesses.
•: Expansion into an Attractive Market Segment and FTD's Dominant Market Position, enabling the Company to participate in a large domestic and international floral market that is experiencing growth in the Internet sector.
•: Expanded Marketing Opportunities and Efficiencies resulting from the Company's marketing expertise to attract consumers to FTD's Web sites and thousands of florist members while cross-

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACQUISITION OF FTD GROUP, INC. (Continued)

selling FTD products and services to the Company's existing member base of over 50 million registered consumer accounts that have similar demographic characteristics as FTD's customer base.

The Company believes that these primary factors support the amount of goodwill recorded as a result of the purchase price paid for FTD, in relation to other acquired tangible and intangible assets.

Each share of FTD common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the FTD acquisition was canceled and converted into the right to receive $10.15 in cash and 0.4087 of a share of United Online common stock, subject to the payment of cash in lieu of fractional shares of United Online common stock. The total merger consideration was approximately $307 million in cash and approximately 12.3 million shares of United Online common stock.

The FTD acquisition was financed in part with the net proceeds of term loan borrowings under a $425 million credit facility, which includes a $50 million revolving credit facility that was undrawn at the closing of the transaction, with Wells Fargo Bank, National Association, as lead arranger, and a $60 million credit facility with Silicon Valley Bank. The remaining cash consideration in the transaction was paid from the Company's and FTD's existing cash on hand.

The total cost of the FTD acquisition was approximately $444.8 million, including expenses incurred in connection with the transaction. The following table summarizes the components of the purchase price (in thousands):


Cash consideration		$	306,557
Stock consideration (12.3 million shares of United Online common stock valued at $10.29)			126,151
Transaction costs			12,065

	Total	$	444,773

The Company's common stock was valued at $10.29 for purposes of determining the total purchase price, based on the average of the Company's closing stock price for the period from two days prior to through two days after the announcement of the receipt of the commitment from Silicon Valley Bank for the $60 million credit facility, and in connection with that commitment, the Company's election to substitute additional cash in lieu of seller notes as merger consideration.

The purchase price for the acquisition was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the Closing Date. The Company believes that the fair values assigned to the assets acquired and the liabilities assumed were based on reasonable

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACQUISITION OF FTD GROUP, INC. (Continued)

assumptions. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in thousands):

Description				Estimated Fair Value			Estimated Amortizable Life

Net liabilities assumed:
	Cash and cash equivalents			$	12,358
	Accounts receivable				34,441
	Other current assets				11,405
	Property and equipment				25,284
	Other assets				18,131
	Accounts payable				(37,377	)
	Accrued liabilities				(28,483	)
	Deferred revenue				(3,212	)
	Debt				(302,280	)
	Deferred tax liabilities, net				(121,218	)
	Other liabilities				(4,496	)

		Total net liabilities assumed			(395,447	)

Intangible assets acquired:
	Trademarks and trade names				217,300		Indefinite
	Customer contracts				103,600		2-6 years
	Technology				41,800		5 years

		Total intangible assets acquired			362,700

Goodwill					477,520

			Total purchase price	$	444,773

The weighted-average amortizable life of the definite-lived acquired intangible assets is 5.6 years. The goodwill is not deductible for tax purposes. The purchase price allocation for the acquisition is preliminary. The Company's fair value estimates for the purchase price allocation may change during the allowable allocation period if additional information becomes available. The Company does not currently expect any material changes to the purchase price allocation.

The results of FTD's operations have been included in the Company's condensed consolidated financial statements since the Closing Date. The following unaudited pro forma information assumes the acquisition of FTD occurred at the beginning of the respective periods presented (in thousands, except per share amounts):

	Quarter Ended September 30,					Nine Months Ended September 30,

	2008			2007		2008		2007
Revenues	$	242,303		$	250,570	$	853,279	$	864,539
Net income	$	(1,119	)	$	15,002	$	33,750	$	51,805
Basic net income per share	$	(0.01	)	$	0.19	$	0.42	$	0.66
Diluted net income per share	$	(0.01	)	$	0.18	$	0.41	$	0.64

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACQUISITION OF FTD GROUP, INC. (Continued)

The unaudited pro forma information is presented for illustrative purposes only and does not purport to be indicative of the results of future operations of the Company or of the results that would have actually been attained had the operations been combined during the periods presented. The pro forma net income and net income per share amounts for the quarter and nine months ended September 30, 2008 include the following items recorded in FTD's pre-acquisition results of operations (in thousands):

		Quarter Ended September 30, 2008		Nine Months Ended September 30, 2008

Expenses related to the early repayment of FTD's existing debt		$	10,463	$	10,463
Transaction-related expenses			13,226		16,171

	Total	$	23,689	$	26,634

3. SEGMENT INFORMATION

Revenues and income from operations by segment are as follows (in thousands):

		Quarter Ended September 30, 2008

		FTD		Classmates Media		Communications		Total
Products		$	35,158	$	—	$	—	$	35,158
Services			13,122		36,386		53,208		102,716
Advertising			—		22,360		8,923		31,283

	Total revenues	$	48,280	$	58,746	$	62,131	$	169,157

Segment income from operations		$	8,184	$	12,158	$	18,771	$	39,113

		Quarter Ended September 30, 2007

		FTD		Classmates Media		Communications		Total
Products		$	—	$	—	$	—	$	—
Services			—		28,455		66,131		94,586
Advertising			—		21,517		10,722		32,239

	Total revenues	$	—	$	49,972	$	76,853	$	126,825

Segment income from operations		$	—	$	7,682	$	23,692	$	31,374

		Nine Months Ended September 30, 2008

		FTD		Classmates Media		Communications		Total
Products		$	35,158	$	—	$	—	$	35,158
Services			13,122		101,761		168,763		283,646
Advertising			—		65,882		28,555		94,437

	Total revenues	$	48,280	$	167,643	$	197,318	$	413,241

Segment income from operations		$	8,184	$	28,048	$	60,387	$	96,619

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SEGMENT INFORMATION (Continued)

		Nine Months Ended September 30, 2007

		FTD		Classmates Media		Communications		Total
Products		$	—	$	—	$	—	$	—
Services			—		76,314		211,717		288,031
Advertising			—		63,832		36,230		100,062

	Total revenues	$	—	$	140,146	$	247,947	$	388,093

Segment income from operations		$	—	$	18,125	$	76,784	$	94,909

Segment assets are not reported to, or used by, the chief operating decision maker to allocate resources to, or assess performance of, the segments. Therefore, pursuant to SFAS No. 131, total segment assets have not been disclosed.

A reconciliation of segment income from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income, is as follows for each period presented (in thousands):

		Quarter Ended September 30,						Nine Months Ended September 30,

		2008			2007			2008			2007
Segment income from operations:
	FTD	$	8,184		$	—		$	8,184		$	—
	Classmates Media		12,158			7,682			28,048			18,125
	Communications		18,771			23,692			60,387			76,784

Total segment income from operations			39,113			31,374			96,619			94,909
	Depreciation		(5,348	)		(5,021	)		(15,673	)		(15,000	)
	Amortization of intangible assets		(4,966	)		(3,090	)		(9,824	)		(9,789	)

Consolidated operating income		$	28,799		$	23,263		$	71,122		$	70,120

International revenues are generated from our operations located in Europe. International revenues totaled $18.5 million and $26.3 million for the quarter and nine months ended September 30, 2008, respectively. International revenues totaled $1.9 million and $4.6 million for the quarter and nine months ended September 30, 2007, respectively.

4. BALANCE SHEET COMPONENTS

Short-Term Investments

In connection with the FTD acquisition, the Company liquidated its short-term investments portfolio and recognized gains of $0.3 million in the quarter and nine months ended September 30, 2008. At September 30, 2008, the Company had no short-term investments.

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. BALANCE SHEET COMPONENTS (Continued)

Other Current Assets

Other current assets consisted of the following (in thousands):

		September 30, 2008		December 31, 2007

Prepaid expenses		$	13,793	$	8,198
Income taxes receivable			6,978		4,878
Gift cards related to member redemption liability			3,215		3,653
Floral-related inventories, net			4,454		—
Interest receivable			3		1,448
Other			2,560		1,815

	Total	$	31,003	$	19,992

Property and Equipment

Property and equipment consisted of the following (in thousands):

		September 30, 2008			December 31, 2007

Computer software and equipment		$	140,585		$	124,637
Land and buildings			17,837			—
Furniture and fixtures			15,577			13,644

			173,999			138,281
Less: accumulated depreciation and amortization			(113,548	)		(98,711	)

	Total	$	60,451		$	39,570

Goodwill and Intangible Assets

The changes in goodwill for the nine months ended September 30, 2008 were as follows (in thousands):


Balance at January 1, 2008		$	132,352
	Goodwill recorded in connection with the FTD acquisition		477,520
	Impact of foreign currency exchange rate changes		(135	)

Balance at September 30, 2008		$	609,737

Goodwill by reportable operating segment was as follows (in thousands):

		September 30, 2008		December 31, 2007

FTD		$	477,520	$	—
Classmates Media			124,728		124,863
Communications			7,489		7,489

	Total	$	609,737	$	132,352

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. BALANCE SHEET COMPONENTS (Continued)

Intangible assets consisted of the following (in thousands):

		September 30, 2008

		Cost		Accumulated Amortization			Net
Pay accounts and free accounts		$	100,038	$	(84,754	)	$	15,284
Customer contracts and relationships			111,500		(7,132	)		104,368
Trademarks and trade names			243,086		(11,547	)		231,539
Advertising contracts and related relationships			7,229		(7,229	)		—
Software and technology			47,115		(5,779	)		41,336
Patents, domain names and other			4,601		(3,380	)		1,221

	Total	$	513,569	$	(119,821	)	$	393,748

		December 31, 2007

		Cost		Accumulated Amortization			Net
Pay accounts and free accounts		$	100,058	$	(81,550	)	$	18,508
Customer contracts and relationships			7,900		(3,563	)		4,337
Trademarks and trade names			25,786		(9,528	)		16,258
Advertising contracts and related relationships			7,229		(7,226	)		3
Software and technology			5,348		(5,115	)		233
Patents, domain names and other			4,609		(3,033	)		1,576

	Total	$	150,930	$	(110,015	)	$	40,915

The Company's acquired trademarks and trade names related to the FTD acquisition of $217.3 million at September 30, 2008 are indefinite-lived, and accordingly are reflected at cost at September 30, 2008; and, these intangible assets do not have any associated accumulated amortization.

Estimated future intangible asset amortization expense at September 30, 2008 is as follows (in thousands):

					Year Ending December 31,

	Total		Q4 2008		2009		2010		2011		2012		2013		Thereafter
Estimated amortization of intangible assets	$	176,448	$	8,509	$	34,440	$	32,298	$	30,403	$	29,192	$	26,403	$	15,203

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. BALANCE SHEET COMPONENTS (Continued)

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

		September 30, 2008		December 31, 2007

Employee compensation and related expenses		$	23,769	$	25,902
Income taxes payable			2,346		767
Non-income taxes payable			4,176		1,886
Customer deposits			3,562		—
Other			6,741		2,031

	Total	$	40,594	$	30,586

5. CREDIT AGREEMENTS

UOL Credit Agreement

In connection with the FTD acquisition, in August 2008, United Online entered into a $60 million senior secured credit agreement (the "UOL Credit Agreement") and borrowed $60 million thereunder. The net proceeds of the term loans were used to finance, in part, the acquisition of FTD.

The term loans under the UOL Credit Agreement bear interest at either LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%) or the prime rate plus 2% per annum. The UOL Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants (which impose restrictions and limitations on, among other things, dividends, investments, asset sales, and the ability to incur additional debt and liens) that, among other things, impose the maintenance of a maximum consolidated leverage ratio and the maintenance of a minimum consolidated fixed charge coverage ratio and minimum consolidated adjusted EBITDA.

The obligations under the UOL Credit Agreement are guaranteed by the Company's domestic wholly-owned subsidiaries, other than UNOL Intermediate, Inc. (the direct parent of FTD Group, Inc.) and its subsidiaries. In addition, the obligations under the UOL Credit Agreement are secured by a lien on substantially all of the assets of the guarantors, including a pledge of all of the outstanding capital stock of the guarantors' direct subsidiaries (except with respect to foreign subsidiaries, in which case such pledge is limited to 66% of the outstanding capital stock), excluding the capital stock of UNOL Intermediate, Inc.

FTD Credit Agreement

In connection with the FTD acquisition, in August 2008, UNOLA Corp., then an indirect wholly-owned subsidiary of United Online, Inc., which subsequently merged into FTD Group, Inc., entered into a $425 million senior secured credit agreement (the "FTD Credit Agreement"), consisting of (i) a term loan A facility of up to $75 million, (ii) a term loan B facility of up to $300 million, and (iii) a revolving credit facility of up to $50 million. The interest rate set forth in the FTD Credit Agreement for loans made under the revolving credit facility and term loan A facility is either the prime rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%), in each case, with step-downs in the interest rate depending on FTD's leverage ratio. The interest rate set forth in the

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. CREDIT AGREEMENTS (Continued)

FTD Credit Agreement for loans made under the term loan B facility is either the prime rate plus 3.5% per annum, or LIBOR plus 4.5% per annum (with a LIBOR floor of 3.0%), in each case, with a step-down in the interest rate depending on FTD's leverage ratio. In addition, there is a commitment fee equal to 0.50% per annum (with step-downs in the commitment fee depending on FTD's leverage ratio) on the unused portion of the revolving credit facility. The FTD Credit Agreement is guaranteed by UNOL Intermediate, Inc. and substantially all of the domestic subsidiaries of FTD and is secured by substantially all of the assets of FTD and such subsidiaries, including a pledge of all of the outstanding capital stock owned by FTD and such guarantors (provided that no more than 66% of the capital stock of any foreign subsidiary is pledged or otherwise secures the FTD Credit Agreement). On the date of the FTD acquisition, term loan A and term loan B under the FTD Credit Agreement were funded and FTD and its subsidiaries undertook UNOLA Corp.'s obligations under the FTD Credit Agreement. The FTD Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants that, among other things, require FTD and its subsidiaries not to exceed a maximum leverage ratio and to maintain a minimum fixed charge coverage ratio and imposes restrictions and limitations on, among other things, capital expenditures, investments, dividends, asset sales, and the incurrence of additional debt and liens.

Summary of Indebtedness

The following table indicates the repayment of FTD debt assumed in connection with the acquisition (in thousands):



Repayment of FTD debt assumed in connection with the acquisition:
Long-term debt reclassified to current maturities		$	290,575
Current maturities			1,242
Premium for early debt repayment			10,463

	Total repayment of FTD debt	$	302,280

The changes in the Company's debt balances for the quarter and nine months ended September 30, 2008 were as follows (in thousands):

		Drawn Downs of Debt		Discounts			Repayments of Debt		Accretion of Discounts		Balance at September 30, 2008

UOL Credit Agreement		$	60,000	$	(1,630	)	$	—	$	100	$	58,470
FTD Credit Agreement, term loan A			75,000		(2,458	)		—		59		72,601
FTD Credit Agreement, term loan B			300,000		(13,233	)		—		235		287,002
FTD Credit Agreement, revolving credit facility			5,000		—			—		—		5,000

	Total	$	440,000	$	(17,321	)	$	—	$	394	$	423,073

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. CREDIT AGREEMENTS (Continued)

Future minimum principal payments based upon the Company's outstanding and scheduled debt payments per the Credit Agreements were as follows at September 30, 2008 (in thousands):

						Year Ending December 31,

		Total		Q4 2008		2009		2010		2011		2012		2013		Thereafter
UOL Credit Agreement		$	60,000	$	3,750	$	15,000	$	15,000	$	15,000	$	11,250	$	—	$	—
FTD Credit Agreement, term loan A			75,000		938		4,219		6,094		7,500		7,969		48,280		—
FTD Credit Agreement, term loan B			300,000		750		3,000		3,000		3,000		3,000		3,000		284,250
FTD Credit Agreement, revolving credit facility			5,000		—		—		—		—		—		5,000		—

	Total	$	440,000	$	5,438	$	22,219	$	24,094	$	25,500	$	22,219	$	56,280	$	284,250

At September 30, 2008, the borrowing capacity under the FTD revolving credit facility, which was further reduced by $8.0 million in outstanding standby letters of credit, was $37.0 million.

Subject to certain exceptions, the Company is required to make quarterly prepayments of a portion of the term loans under the UOL Credit Agreement from excess cash flow (commencing in the second quarter of 2009). Subject to certain exceptions, FTD is required to make annual prepayments of a portion of the term loans and/or commitments under the FTD Credit Agreement from excess cash flow (commencing in the first quarter of 2010).

6. FAIR VALUE MEASUREMENTS

On January 1, 2008, the Company adopted certain provisions of SFAS No. 157, Fair Value Measurements, which establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. The provisions of SFAS No. 157 relate to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis and did not have a material impact on the Company's condensed consolidated financial statements. The provisions of SFAS No. 157 related to nonfinancial assets and liabilities will be effective for the Company on January 1, 2009 in accordance with FSP FAS 157-2, Effective Date of FASB Statement No. 157 and will be applied prospectively. The Company is currently evaluating the impact that these additional provisions will have on the Company's consolidated financial statements. In accordance with FSP FAS 157-2, the Company will apply the provisions of SFAS No. 157 to property and equipment, goodwill and intangible assets at January 1, 2009.

SFAS No. 157 establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. FAIR VALUE MEASUREMENTS (Continued)

presents information about assets required to be carried at fair value on a recurring basis at September 30, 2008 (in thousands):

Description	Level 2

Cash equivalents	$	40,466

7. STOCKHOLDERS' EQUITY

Common Stock Subject to Repurchase Rights

At December 31, 2007, there were 350,000 shares of common stock that were subject to repurchase related to unvested shares under restricted stock agreements. The 350,000 restricted shares outstanding at December 31, 2007 vested entirely at the end of a four-year vesting period in January 2008, at which time 142,000 shares were withheld and employee withholding taxes of $1.5 million were paid.

Common Stock Repurchases

The Company's Board of Directors authorized a common stock repurchase program (the "program") that allows the Company to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through December 31, 2008. From August 2001 through September 30, 2008, the Company had repurchased $139.2 million of its common stock under the program. The Company has not repurchased any shares of its common stock under the program since February 2005, and at September 30, 2008, the remaining amount available under the program was $60.8 million.

Shares withheld upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards to pay applicable employee withholding taxes are considered common stock repurchases, but are not counted as purchases against the program. Upon vesting, the Company currently does not collect the applicable employee withholding taxes from employees. Instead, the Company automatically withholds, from the restricted stock units and restricted stock awards that vest and from the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in cash. The amounts remitted in the nine months ended September 30, 2008 and 2007 were $8.4 million and $4.7 million, respectively, for which the Company withheld 734,000 and 334,000 shares of common stock, respectively, that were underlying the restricted stock units and restricted stock awards which vested and stock awards that were issued.

Dividends

Dividends are paid on shares of common stock and unvested restricted stock units outstanding as of the record date.

In January, April and July 2008, the Company's Board of Directors declared quarterly cash dividends of $0.20 per share of common stock. The dividends were paid on February 29, 2008, May 30, 2008 and August 29, 2008 and totaled $14.6 million, $14.9 million and $14.9 million, respectively.

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

Following the closing of the FTD acquisition, as previously disclosed, the Board of Directors decreased the Company's quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock. In October 2008, the Company's Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend is November 14, 2008, and the dividend is payable on November 28, 2008.

The payment of future dividends is discretionary and is subject to determination by the Company's Board of Directors each quarter following its review of the Company's financial performance and other factors. Dividends are declared and paid out of the Company's surplus, as defined and computed in accordance with the General Corporation Law of the State of Delaware.

8. STOCK-BASED COMPENSATION PLANS

The following table summarizes the stock-based compensation that has been included in the following captions within the unaudited condensed consolidated statements of operations for each of the periods presented (in thousands):

		Quarter Ended September 30,				Nine Months Ended September 30,

		2008		2007		2008		2007
Operating expenses:
Cost of revenues		$	381	$	247	$	775	$	695
Sales and marketing			2,135		1,128		5,528		2,963
Technology and development			2,664		1,358		5,263		3,814
General and administrative			4,775		3,050		16,540		5,132

	Total stock-based compensation	$	9,955	$	5,783	$	28,106	$	12,604

Classmates Media Corporation Equity Awards

In connection with the preparation for the potential initial public offering ("IPO") by the Company's Classmates Media Corporation ("CMC") subsidiary, employment agreements were signed with certain employees, which guaranteed such employees an aggregate $13.0 million of value in restricted stock units in CMC. Because the IPO was not effective by April 30, 2008, certain of these employment agreements were modified and the related equity awards were issued as restricted stock units in the Company based on prices set forth in the employment agreements. In connection with the modification of these agreements, 0.5 million restricted stock units were issued and no additional compensation expense was recognized in connection with the modifications. If the remaining employment agreement is not modified, because the IPO was not effective by April 30, 2008, the associated equity award will be issued as restricted stock units in the Company based on prices set forth in the employment agreement. Stock-based compensation associated with these equity awards has been recorded in the Company's consolidated financial statements from the execution dates of these agreements. In the quarter and nine months ended September 30, 2008, certain of the employment agreements with guaranteed values totaling $1.3 million and $5.3 million in restricted stock units in CMC, respectively, were canceled and $0.3 million and $0.6 million of stock-based compensation was reversed and reflected in general and administrative expenses in the Company's unaudited condensed

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. STOCK-BASED COMPENSATION PLANS (Continued)

consolidated statements of operations for the quarter and nine months ended September 30, 2008, respectively.

Recent Awards

Effective February 15, 2008, the Compensation Committee of the Board of Directors of United Online, Inc. (the "Compensation Committee") approved grants of 0.3 million restricted stock units with a fair value equal to $3.9 million to certain members of the Company's senior management. Each restricted stock unit entitles the recipient to receive one share of the Company's common stock upon vesting. The restricted stock units vest one-third annually over the three-year period beginning February 15, 2008.

Effective February 15, 2008, the Company approved grants of 1.2 million restricted stock units with a fair value equal to $14.2 million to the Company's employees. The restricted stock units vest twenty-five percent on February 15, 2009 and quarterly thereafter for three years.

Effective February 15, 2008, 0.2 million shares of common stock with a fair value equal to $2.4 million were issued to certain members of senior management and certain of the Company's employees.

On March 14, 2008, the Compensation Committee awarded Mark. R. Goldston, the Company's Chairman, President and Chief Executive Officer, a restricted stock unit award covering a minimum of 200,000 shares of the Company's common stock and a maximum of 600,000 shares under the Company's 2001 Stock Incentive Plan. The 200,000-share minimum will vest and become issuable upon Mr. Goldston's continuation in the Company's service through February 28, 2011. The number of shares above that minimum that may vest and become issuable pursuant to the restricted stock unit award will depend on the Company's highest 30-day volume-weighted average closing share price for any consecutive 30-day period between December 1, 2010 and February 28, 2011. However, if, beginning July 1, 2009, the Company's closing share price is at least equal to the share price necessary to earn the maximum shares, and the volume-weighted average closing share price for the subsequent six months is at least equal to such share price, 600,000 shares of the restricted stock unit award will vest and become immediately issuable. Upon vesting, Mr. Goldston would be entitled to any dividend equivalents that are accrued with respect to any shares that vest.

The Compensation Committee also awarded Mr. Goldston a restricted stock unit award effective as of August 26, 2008, covering 650,000 shares of the Company's common stock, contingent on the closing on August 26, 2008 of the Company's acquisition of FTD Group, Inc., which occurred on such date. The restricted stock units will vest in three successive equal annual installments on each of August 15, 2009, August 15, 2010 and August 15, 2011.

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the quarters and nine months ended September 30, 2008 and 2007 (in thousands, except per share amounts):

		Quarter Ended September 30,					Nine Months Ended September 30,

		2008		2007			2008			2007
Numerator:
Net income		$	16,166	$	13,969		$	42,906		$	43,205

Denominator:
Weighted-average common shares—basic			74,108		67,557			70,415			66,943
	Less: weighted-average common shares subject to repurchase rights		—		(350	)		(33	)		(431	)

Shares used to calculate basic net income per share			74,108		67,207			70,382			66,512

	Add: Dilutive effect of stock options, restricted stock units, restricted stock awards, and stock awards		1,566		2,318			1,596			2,479

Shares used to calculate diluted net income per share			75,674		69,525			71,978			68,991

Basic net income per share		$	0.22	$	0.21		$	0.61		$	0.65

Diluted net income per share		$	0.21	$	0.20		$	0.60		$	0.63

The diluted net income per share computations exclude stock options, restricted stock units and stock awards which are antidilutive. The number of antidilutive shares at September 30, 2008 and 2007 was 3.3 million and 2.4 million, respectively.

10. RESTRUCTURING CHARGES

In the quarter and nine months ended September 30, 2008, the Company recorded restructuring charges totaling $0.1 million and $0.7 million, respectively, primarily associated with the closure of its Orem, Utah facility. In the quarter and nine months ended September 30, 2007, the Company recorded restructuring charges of $0.4 million primarily for termination benefits paid to certain employees associated with our Web hosting and photo sharing businesses.

11. POTENTIAL SUBSIDIARY INITIAL PUBLIC OFFERING OF CLASSMATES MEDIA CORPORATION

CMC was formed in August 2007 for the purposes of consolidating the Company's Classmates, The Names Database and MyPoints business units in preparation of an IPO by CMC. The businesses were contributed to CMC by the Company on August 9, 2007. In August 2007, CMC filed a Form S-1 registration statement with the SEC for the IPO of its common stock.

In December 2007, the Company determined that proceeding with the IPO under then-current market conditions was not in the best interests of its stockholders and CMC withdrew its Form S-1 registration statement previously filed with the SEC. Approximately $0.5 million of transaction costs were determined not to have continuing value after the withdrawal of the IPO and were expensed in

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. POTENTIAL SUBSIDIARY INITIAL PUBLIC OFFERING OF CLASSMATES MEDIA CORPORATION (Continued)

the quarter ended December 31, 2007. Because it remained the Company's strategy to complete an IPO of CMC during 2008, certain IPO transaction-related costs incurred during 2007 and the first quarter of 2008 totaling $3.9 million were deferred and were included in other assets on the Company's condensed consolidated balance sheet at March 31, 2008. While it remains the Company's strategy to complete an IPO of CMC, because the Company believes that capital markets have not improved significantly since the CMC Form S-1 registration statement was withdrawn in December 2007 and there is limited visibility as to when capital markets might improve significantly, the Company has concluded that it is unlikely that an IPO will be completed before 2009. As such, the Company determined, on June 23, 2008, that the $3.9 million in deferred transaction-related costs relating to the IPO would be expensed in the quarter ended June 30, 2008, and the Company's financial results and the financial results of its Classmates Media segment for the nine months ended September 30, 2008 were negatively impacted.

12. SUBSEQUENT EVENT

In the fourth quarter of 2008, the Company reached a favorable settlement of approximately $3.1 million plus interest of a non-income tax dispute related to prior periods.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance; operating expenses; operating and marketing efficiencies; revenues; dividends; capital expenditures; depreciation and amortization; tax payments; stock-based compensation; restructuring charges; our ability to repay indebtedness, pay dividends and invest in growth initiatives; and statements regarding the anticipated impact or benefits associated with the acquisition of FTD Group, Inc. ("FTD"). Potential factors that could affect the matters about which the forward-looking statements are made include, among others: the effect of competition; our inability to retain or grow our free and pay accounts; our inability to acquire and retain florist members; our inability to increase or maintain our advertising revenues; failure to achieve expanded marketing opportunities and efficiencies and other benefits associated with FTD, or to implement any or all planned marketing initiatives; the effects of seasonality; changes in stock-based compensation due to future equity issuances; changes in amortization or depreciation due to a variety of factors; potential write down, reserve against or impairment of assets including receivables, goodwill, intangibles or other assets; changes in tax laws, our business or other factors that would impact anticipated tax benefits; that restructuring and related charges will be greater than anticipated; risks associated with the commercialization of new services; our ability to enforce or defend our ownership and use of intellectual property; problems associated with our operations, systems or technologies; our ability to retain key customers and key personnel; risks associated with litigation and governmental regulation; changes in general economic and marketing conditions and laws; changes in the floral industry; inability to successfully integrate the financial, accounting and administrative functions of United Online and FTD; the impact of, and restrictions associated with, our indebtedness; as well as the risk factors disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview

We are a leading provider of consumer products and services over the Internet through a number of brands including FTD, Interflora, Classmates, MyPoints, NetZero, and Juno. Our FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations offering floral and related products and services. Our Classmates Media segment services are online social networking and online loyalty marketing. Our primary Communications segment services are Internet access and email. On a combined basis, our Web properties attract a significant number of Internet users, and we offer a broad array of Internet marketing services for advertisers.

Acquisition of FTD Group, Inc.

On August 26, 2008, we completed the acquisition of 100% of the capital stock of FTD Group, Inc. (along with its subsidiaries, "FTD"). FTD is a leading provider of floral and related products and services. We paid a combination of (i) $10.15 in cash, without interest, and (ii) 0.4087 of a share of United Online common stock, for each outstanding share of FTD common stock. The total merger consideration was approximately $307 million in cash and approximately 12.3 million shares of United Online common stock.

The FTD acquisition was financed, in part, with the net proceeds of term loan borrowings under a $425 million credit facility, which includes a $50 million revolving credit facility that was undrawn at the closing of the transaction, with Wells Fargo Bank, National Association, as lead arranger, and a $60 million credit facility with Silicon Valley Bank. The remaining cash consideration in the transaction was paid from United Online's and FTD's existing cash on hand.

As a result of the FTD acquisition, the results of operations of FTD have been included in the consolidated statements of operations and cash flows since the date of the acquisition.

Segment Definitions

We report our businesses in three reportable operating segments:

Segment		Products and Services

FTD		Floral and related products and services for consumers, retail florists and other retail locations
Classmates Media		Social networking and loyalty marketing
Communications		Internet access, email, Internet security, and Web hosting

Segment Services

FTD

FTD is a leading provider of floral and related products and services to consumers and retail florists, as well as to other retail locations offering floral and related products and services, in the United States, Canada, the United Kingdom, and The Republic of Ireland. The business uses the highly recognized FTD and Interflora brands, both supported by the Mercury Man logo. FTD's consumer and florist businesses are highly complementary, as certain floral orders generated by the consumer business are delivered by FTD's network of florist members.

Consumer Products. FTD is an Internet and telephone marketer of flowers and specialty gift items to consumers. FTD operates in the United States and Canada primarily through the www.ftd.com Web site, in addition to the 1-800-SEND-FTD toll-free telephone number and in the United Kingdom and The Republic of Ireland through the Interflora brand and the www.interflora.co.uk Web site and a similar toll-free telephone number. While floral arrangements and plants are FTD's primary offerings, FTD also markets and sells other specialty gift items, including, but not limited to, gourmet food, holiday gifts, bath and beauty products, jewelry, wine and gift baskets, dried flowers, and stuffed animals.

Consumers place orders at the www.ftd.com or www.interflora.co.uk Web sites or over the telephone, which are then transmitted to florists or third-party specialty gift providers for processing and delivery or which are fulfilled by direct shipment to the consumer by third-parties with whom FTD contracts. The majority of consumer orders are delivered by FTD's network of florist members and the remainder are shipped by third-parties. In general, FTD does not maintain physical inventory or bear

the cost of warehousing and distribution facilities. In addition, consumers generally pay for floral and specialty gift orders before FTD pays florists and specialty gift providers to deliver them.

Florist Products and Services. FTD provides a comprehensive suite of products and services that enable florist members to send and deliver floral orders and to promote revenue growth and enhance the operating efficiencies of its members. FTD provides these services to its network of independent florist members located primarily in the United States, Canada, the United Kingdom, and The Republic of Ireland, which includes traditional retail florists as well as other retailers offering floral products and services.

FTD provides its members with access to the FTD and Interflora brands and the Mercury Man logo, supported by various advertising campaigns, order clearinghouse services (which eliminate counterparty credit risks between sending and receiving florist members), a directory publication of florist members, credit card processing services, e-commerce Web sites, online advertising tools, and a 24-hour telephone answering and order-taking service. In addition, FTD provides the Floral Selections Guide, a counter display featuring FTD floral arrangements for all occasions. FTD provides point-of-sale systems and other technology to its florist members for transmitting and receiving orders. FTD also acts as a national wholesaler to florist members, providing FTD-branded and non-branded hard goods and cut flowers as well as packaging, promotional products and a wide variety of other floral-related supplies.

For additional information regarding our FTD segment, see Note 3—"Segment Information" of the notes to unaudited condensed consolidated financial statements, which appears in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Classmates Media

Our Classmates Media services include online social networking, primarily under the Classmates brand, and online loyalty marketing under the MyPoints brand. Our social networking Web sites enable users to locate and interact with acquaintances from high school, college, work, and the military. Led by our flagship Classmates Web site in the United States (www.classmates.com), we serve more than 50 million registered consumer accounts across our social networking Web sites, including 4.1 million pay accounts as of September 30, 2008. We also operate four international social networking Web sites including StayFriends in Austria (www.stayfriends.at), StayFriends in Germany (www.stayfriends.de), StayFriends in Sweden (www.stayfriends.se), and Trombi in France (www.trombi.com). Members have contributed to our social networking Web sites a substantial amount of distinct, relevant pieces of content that we believe helps attract new social networking members and returning Web site visits from existing members.

Our online loyalty marketing service, MyPoints (www.mypoints.com), provides advertisers with an effective means to reach a large online audience with targeted marketing campaigns. MyPoints also enables consumers to earn points-based rewards by responding to email offers, completing online surveys, shopping online and engaging in other online activities. Rewards points are redeemable in the form of third-party gift cards and other benefits from over 60 merchants, including retailers, theaters, restaurants, airlines, and hotels.

For additional information regarding our Classmates Media segment, see Note 3—"Segment Information" of the notes to unaudited condensed consolidated financial statements, which appears in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Communications

Our Communications pay services principally include consumer dial-up Internet access and email under the NetZero and Juno brands. We offer consumers a variety of choices to meet their Internet

access needs, including accelerated dial-up Internet access, standard dial-up Internet access, a free dial-up Internet access service that is subject to hourly and other limitations, and digital subscriber line ("DSL") Internet access services. Accelerated dial-up Internet access services can significantly reduce the time for certain Web pages to load when compared to basic dial-up services, and also include antivirus software, pop-up blocking and enhanced email storage. We also offer several additional pay services that do not require an Internet access subscription, such as Internet security services and premium email.

Our dial-up Internet access services are available in over 10,000 cities nationwide. By comparison, our DSL Internet access services are purchased from third-parties and currently have a more limited coverage area. We also offer Web hosting and related services for consumers and businesses.

For additional information regarding our Communications segment, see Note 3—"Segment Information" of the notes to unaudited condensed consolidated financial statements, which appears in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Key Business Metrics

We review a number of key business metrics to help us monitor our performance and trends affecting our businesses, and to develop forecasts and budgets. These measures include:

FTD Segment Metrics

Consumer Orders. We closely monitor the number of consumer orders for floral and gift products received during a given period. Consumer orders are orders delivered during the period that originated from FTD consumers in the United States and Canada (primarily through the www.ftd.com Web site and the 1-800-SEND-FTD telephone number) as well as orders originated from Interflora consumers in the United Kingdom and The Republic of Ireland (primarily through the www.interflora.co.uk Web site and a toll-free telephone number). Orders originating with a florist or other retail location for delivery to consumers are not included. The number of consumer orders received may fluctuate significantly from period to period due to seasonality resulting from the timing of key holidays, fluctuations in marketing spending on initiatives designed to attract new and retain existing customers, potential changes in pricing for our floral and gift products or competitive offerings, changing consumer preferences, and general economic conditions, among other factors.

Average Order Value. We closely monitor the average value for consumer orders received in a given period, which we refer to as the average order value. Average order value represents the average U.S. Dollar amount paid to us for consumer orders delivered during the period. This average U.S. Dollar amount is determined after translating the British Pound amounts received for orders delivered in the United Kingdom into U.S. Dollars. Average order value includes merchandise revenue, and shipping and service fees, less discounts, payable by the consumer. Average order values will fluctuate between periods based on the relative proportion of direct ship orders and orders fulfilled through florists since florist-fulfilled orders generally have a higher value; changes in merchandise values; shipping and service fees; discounts; and the foreign currency exchange rate between the U.S. Dollar and British Pound.

Classmates Media and Communications Segments Metrics

Pay Accounts. Our pay accounts generate a significant portion of our revenues and represent one of the most important drivers of our business model. A pay account is defined as a member who has subscribed to, and paid for, our Classmates Media or Communications services, and whose subscription has not expired. In general, the key metrics that drive revenues from our pay accounts base include the number of pay accounts and the average monthly revenue per pay account. In general, a pay account becomes a free account following the expiration or termination of the related subscription.

ARPU. We monitor the average monthly revenue per pay account ("ARPU"). ARPU is calculated by dividing services revenues for a period by the average number of pay accounts for that period, divided by the number of months in that period. The average number of pay accounts is the simple average of the number of pay accounts at the beginning and end of a period. ARPU may fluctuate from period to period as a result of a variety of factors, including, but not limited to: changes in the mix of pay services and the related subscription pricing plans; the use of promotional or retention pricing to attract new, or retain existing, paying subscribers; increases or decreases in the price of our services; a greater percentage of social networking pay accounts represented by international pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts; and the timing of pay accounts being added or removed during a period.

Churn. To evaluate the retention characteristics of our membership base, we also monitor the percentage of pay accounts that terminate or expire, which we refer to as our average monthly churn rate. Our average monthly churn rate is calculated as the total number of pay accounts that terminated or expired in a period divided by the average number of pay accounts for the same period, divided by the number of months in that period. Our average monthly churn percentage may fluctuate from period to period due to our mix of subscription terms, which affects the timing of subscription expirations, and other factors. We make certain normalizing adjustments to the calculation of our churn percentage for periods in which we add a significant number of pay accounts due to acquisitions. Except with respect to our social networking pay accounts, we do not include in our churn calculation those accounts canceled during the first 30 days of service unless the accounts have upgraded from free accounts, although a number of such accounts will be included in our account totals at any given measurement date. Subscribers who cancel one pay service but subscribe to another pay service are not necessarily considered to have canceled a pay account depending on the services and, as such, our overall churn rate is not necessarily indicative of the percentage of subscribers cancelling any particular service.

Active Accounts. We monitor the number of active accounts among our membership base. Active Classmates Media segment accounts are defined as: all segment pay accounts as of the date presented; the monthly average for the reporting period of all free social networking accounts who have visited our domestic or international social networking Web sites (excluding The Names Database) at least once during the reporting period; and the monthly average for the reporting period of all loyalty marketing members who have earned or redeemed points during such period. Active Communications segment accounts include all segment pay accounts as of the date presented and the number of free Internet access and email accounts that logged on to our services at least once during the preceding 31 days.

In general, we count and track pay accounts and free accounts by unique member identifiers. Users have the ability to register for separate services under separate brands and member identifiers independently. We do not track whether a pay account has purchased more than one of our services unless the account uses the same member identifier. As a result, total active accounts may not represent total unique users. At any point in time, our pay account base includes a number of accounts receiving a free period of service as either a promotion or retention tool and a number of accounts that have notified us that they are terminating their service but whose service remains in effect.

The following table sets forth, for the dates or three-month periods presented, as applicable, our consolidated revenues, segment revenues, consumer orders, average order value, pay accounts (at the

end of the period), segment churn (monthly average for the period), ARPU (monthly average for the period), and segment active accounts.

				September 30, 2008			June 30, 2008			March 31, 2008			December 31, 2007			September 30, 2007

Consolidated:
	Revenues			$	169,157		$	122,273		$	121,811		$	125,410		$	126,825
FTD:
	Segment revenues(c) (in thousands)			$	48,280
		% of Total revenues(c)			28.5	%
	Consumer orders(c) (in thousands)				467
	Average order value(c)			$	63.00
Classmates Media:
	Segment revenues (in thousands)			$	58,746		$	57,013		$	51,884		$	53,273		$	49,972
		% of Total revenues			34.7	%		46.6	%		42.6	%		42.5	%		39.4	%
	Pay accounts (in thousands)				4,087			3,809			3,521			3,199			2,983
	Segment churn				4.1	%		4.2	%		4.3	%		4.7	%		4.6	%
	ARPU			$	3.07		$	3.10		$	3.10		$	3.26		$	3.33
	Segment active accounts(b) (in millions)				15.5			15.1			13.9			12.6	(b)		12.8
Communications:
	Segment revenues (in thousands)			$	62,131		$	65,260		$	69,927		$	72,137		$	76,853
			% of Total revenues		36.7	%		53.4	%		57.4	%		57.5	%		60.6	%
	Pay accounts(a) (in thousands):
		Access			1,468			1,560			1,682			1,786			1,886
		Other			353			356			361			364			370

			Total pay accounts		1,821			1,916			2,043			2,150			2,256
	Segment churn(a)				4.4	%		4.5	%		4.8	%		4.4	%		4.9	%
	ARPU			$	9.49		$	9.45		$	9.45		$	9.28		$	9.45
	Segment active accounts (in millions)				2.8			2.9			3.1			3.3			3.5

(a): Growth in pay accounts during the quarter ended September 30, 2007 includes a loss of 18,000 pay accounts resulting from our decision to exit our photo sharing business. Growth in pay accounts during the quarter ended December 31, 2007 includes a loss of 6,000 pay accounts resulting from our decision to exit our VoIP business. Excluding the loss of photo sharing and VoIP customers related to our decisions to exit these businesses, Communications segment churn would have been 4.7% in the quarter ended September 30, 2007 and 4.3% in the quarter ended December 31, 2007.
(b): We believe the actual number of Classmates Media segment active accounts for the quarter ended December 31, 2007 was approximately 12.8 million, although a technical reporting issue interfered with our ability to collect certain visit data for a brief period.
(c): The quarter ended September 30, 2008 reflects the results of FTD from August 26, 2008 (date of acquisition).

Critical Accounting Policies, Estimates and Assumptions

FTD Segment Revenue Recognition—Product revenues and related cost of goods sold are generally recognized when products are delivered to the customers. Shipping and service fees charged to customers are recognized at the time the product revenue is recognized and are included in product revenue. Shipping costs are included in cost of goods sold. FTD's consumer businesses generally recognize revenue on a gross basis as FTD bears the risks and rewards associated with the revenue

generating activities by: (1) acting as a principal in the transaction; (2) establishing prices; (3) being responsible for fulfillment of the order; (4) taking the risk of loss for collection, delivery and returns; and (5) marketing the products and services.

Potential Subsidiary Initial Public Offering of Classmates Media Corporation

Classmates Media Corporation ("CMC") was formed in August 2007 for the purposes of consolidating our Classmates, The Names Database and MyPoints business units in preparation of an initial public offering, or IPO, by CMC. The businesses were contributed to CMC by us on August 9, 2007. In August 2007, CMC filed a Form S-1 registration statement with the Securities and Exchange Commission ("SEC") for the IPO of its common stock.

In December 2007, we determined that proceeding with the IPO under then-current market conditions was not in the best interests of our stockholders and CMC withdrew its Form S-1 registration statement previously filed with the SEC. Approximately $0.5 million of transaction costs were determined not to have continuing value after the withdrawal of the IPO and were expensed in the quarter ended December 31, 2007. Because it remained our strategy to complete an IPO of CMC during 2008, certain IPO transaction-related costs incurred during 2007 and the first quarter of 2008 totaling $3.9 million were deferred and were included in other assets on our condensed consolidated balance sheet at March 31, 2008. While it remains our strategy to complete an IPO of CMC, because we believe that capital markets have not improved significantly since the CMC Form S-1 registration statement was withdrawn in December 2007 and there is limited visibility as to when capital markets might improve significantly, we have concluded that it is unlikely that an IPO will be completed before 2009. As such, we determined, on June 23, 2008, that the $3.9 million in deferred transaction-related costs relating to the IPO would be expensed in the quarter ended June 30, 2008, and our financial results and the financial results of our Classmates Media segment for the nine months ended September 30, 2008 were negatively impacted.

Financial Statement Presentation

Revenues

Products Revenues

Products revenues consist of merchandise revenue and related shipping and service fees for FTD consumer orders as well as revenues generated from sales of containers, software and hardware systems, cut flowers, packaging and promotional products and a wide variety of other floral-related supplies to florist members.

Services Revenues

Classmates Media services revenues consist of amounts charged to pay accounts for social networking services. Communications services revenues consist of amounts charged to pay accounts for Internet access, email, Web hosting, Internet security, and other services, with substantially all of such

revenues generated from Internet access. FTD services revenues consist of fees charged to FTD members for order clearinghouse services, directory publications, Mercury network access and transmissions, and other services.

Advertising Revenues

We provide advertising solutions to marketers with both brand and direct response objectives through a full suite of display, search, email, and text-link opportunities across our various properties. We also use targeting technologies, Web site sponsorships and Web site integrations in order to provide effective solutions for advertisers.

Our social networking services generate advertising revenues primarily from display advertisements and from post-transaction sales. Advertising inventory on our social networking Web sites includes text and graphic placements on the user home page, profile page, class list page, and most other pages on our Web sites. We are able to target the advertising delivered to most of our members based on a wide variety of factors, including age, gender, demographic data, affiliations, profile data, and zip code. We also sell a portion of our advertising inventory through third-party advertising resellers. Post-transaction sales are generated when a Classmates pay account is provided a third-party offer at the end of the pay account registration process.

Our loyalty marketing service revenues are derived almost entirely from advertising fees, consisting primarily of fees generated when emails are transmitted to members, when members respond to emails and when members complete online transactions. We sell marketing solutions to advertisers with both direct response and brand objectives through a full suite of email, display and other advertising opportunities. We also use targeting technologies and Web site integrations in order to provide effective solutions for advertisers.

Our Communications services generate advertising revenues from our search agreement with Yahoo!, display advertisements, referring members to third-party Web sites or services, and online market research. Substantially all of our Communications advertising revenues are generated from our Internet access services. We host and customize the initial Web site displayed to users of our Internet access services. This Web site, or "start page," displays sponsored links to a variety of content, products and services, including Internet search. We also display a toolbar on Internet access users' screens throughout their online access sessions that is generally visible regardless of the particular Web site they visit. The toolbar contains Internet search functionality and a variety of buttons, icons and drop-down menus. A variety of advertising opportunities also exist through our email platforms.

Cost of Revenues

Cost of revenues includes product costs; shipping costs; costs associated with taking orders; printing and postage costs; costs related to FTD's product quality guarantee; systems installation, training and support costs; costs of points earned by members of our loyalty marketing service; telecommunications and data center costs; costs of providing rewards to members of our loyalty marketing service; personnel- and overhead-related costs associated with operating our networks and data centers; depreciation of network computers and equipment; email technical support and license fees; costs related to providing telephone technical support; customer billing and billing support for our pay accounts and florist members; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name registration fees.

Sales and Marketing

Sales and marketing expenses include expenses associated with promoting our products, services and brands and generating advertising revenues. Expenses associated with promoting our products and services include advertising and promotion expenses; fees paid to distribution partners, third-party advertising networks and co-registration partners to acquire new pay accounts and free accounts; direct marketing and retention campaigns; customer incentives; personnel- and overhead-related expenses for marketing and sales personnel; and telemarketing costs. Expenses associated with generating advertising revenues include sales commissions and personnel-related expenses. We have expended significant amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, Internet, radio, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote our products and services are expensed in the period incurred. Advertising and promotion expenses include media, agency and promotion expenses. Media production costs are expensed the first time the advertisement is run. Media and agency costs are expensed over the period the advertising runs.

Technology and Development

Technology and development expenses include expenses for product development, maintenance of existing software and technology and development of new or improved software and technology, including personnel-related expenses for the software engineering department and the costs associated with operating our facility in India. Costs incurred by us to manage and monitor our technology and development activities are expensed as incurred. Costs relating to the acquisition and development of internal-use software are capitalized and depreciated over their estimated useful lives, generally three years.

General and Administrative

General and administrative expenses include personnel-related expenses for executive, finance, legal, human resources, facilities, and internal customer support personnel. In addition, general and administrative expenses include, among other costs, professional fees for legal, accounting and financial services; non-income taxes; insurance; occupancy and other overhead-related costs; and expenses incurred and credits received as a result of certain legal settlements.

Amortization of Intangible Assets

Amortization of intangible assets principally includes amortization of: acquired pay accounts and free accounts; certain acquired trademarks and trade names; certain purchased software and technology; acquired customer and advertising contracts and related relationships; acquired patents and domain names; and other identifiable intangible assets. In accordance with the provisions set forth in SFAS No. 142, goodwill and indefinite-lived intangible assets are not being amortized but are tested for impairment at a reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would indicate the fair value of a reporting unit is below its carrying value.

Interest Income

Interest income consists of earnings on our cash, cash equivalents and short-term investments, net of the amortization of premiums on certain of our short-term investments held from time to time.

Interest Expense

Interest expense consists of interest expense on our debt, including accretion of discounts and amortization of debt issue costs, and interest expense relating to capital leases.

Other Income (Expense), Net

Other income (expense), net, consists of realized gains and losses recognized in connection with the sale of short-term investments, equity earnings on investments in subsidiaries and foreign currency exchange rate gains and losses. Additionally, other income (expense), net consists of imputed interest expense on the acquired member redemption liability related to our acquisition of MyPoints in April 2006, which was amortized through the quarter ended September 30, 2007.

Results of Operations

The following tables set forth, for the periods presented, selected historical statements of operations data. The information contained in the tables below should be read in conjunction with Liquidity and Capital Resources, Contractual Obligations, and Other Commitments included in this Item 2 as well as the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Condensed consolidated information was as follows (in thousands):

			Quarter Ended September 30,						Nine Months Ended September 30,

			2008			2007			2008			2007
Revenues			$	169,157		$	126,825		$	413,241		$	388,093
Operating expenses:
	Cost of revenues			54,844			27,865			109,513			87,521
	Sales and marketing			42,376			38,410			114,966			127,147
	Technology and development			14,983			12,276			40,406			38,812
	General and administrative			23,096			21,887			66,754			54,276
	Amortization of intangible assets			4,966			3,090			9,824			9,789
	Restructuring charges			93			34			656			428

		Total operating expenses		140,358			103,562			342,119			317,973

Operating income				28,799			23,263			71,122			70,120
Interest income				1,053			1,979			4,037			5,184
Interest expense				(3,751	)		(1	)		(3,751	)		(3	)
Other income (expense), net				492			(332	)		718			(686	)

Income before income taxes				26,593			24,909			72,126			74,615
Provision for income taxes				10,427			10,940			29,220			31,410

Net income			$	16,166		$	13,969		$	42,906		$	43,205

Information for our three reportable operating segments was as follows (in thousands):

			FTD				Classmates Media				Communications

			Quarter Ended September 30,				Quarter Ended September 30,				Quarter Ended September 30,
			2008		2007		2008		2007		2008		2007
Revenues:
	Products		$	35,158	$	—	$	—	$	—	$	—	$	—
	Services			13,122		—		36,386		28,455		53,208		66,131
	Advertising			—		—		22,360		21,517		8,923		10,722

		Total revenues		48,280		—		58,746		49,972		62,131		76,853

Operating expenses:
	Cost of revenues			28,154		—		10,364		9,482		14,177		16,248
	Sales and marketing			7,224		—		21,495		19,615		13,532		18,704
	Technology and development			861		—		5,837		4,015		6,649		6,865
	General and administrative			3,857		—		8,892		9,178		8,909		11,310
	Restructuring charges			—		—		—		—		93		34

		Total operating expenses		40,096		—		46,588		42,290		43,360		53,161

Segment income from operations			$	8,184	$	—	$	12,158	$	7,682	$	18,771	$	23,692

			FTD				Classmates Media				Communications

			Nine Months Ended September 30,				Nine Months Ended September 30,				Nine Months Ended September 30,
			2008		2007		2008		2007		2008		2007
Revenues:
	Products		$	35,158	$	—	$	—	$	—	$	—	$	—
	Services			13,122		—		101,761		76,314		168,763		211,717
	Advertising			—		—		65,882		63,832		28,555		36,230

		Total revenues		48,280		—		167,643		140,146		197,318		247,947

Operating expenses:
	Cost of revenues			28,154		—		30,279		28,132		44,453		53,167
	Sales and marketing			7,224		—		61,957		60,819		45,447		66,019
	Technology and development			861		—		16,289		11,448		18,499		23,375
	General and administrative			3,857		—		31,070		21,622		27,876		28,174
	Restructuring charges			—		—		—		—		656		428

		Total operating expenses		40,096		—		139,595		122,021		136,931		171,163

Segment income from operations			$	8,184	$	—	$	28,048	$	18,125	$	60,387	$	76,784

		Quarter Ended September 30,						Nine Months Ended September 30,

		2008			2007			2008			2007
Segment income from operations:
	FTD	$	8,184		$	—		$	8,184		$	—
	Classmates Media		12,158			7,682			28,048			18,125
	Communications		18,771			23,692			60,387			76,784

Total segment income from operations			39,113			31,374			96,619			94,909
	Depreciation		(5,348	)		(5,021	)		(15,673	)		(15,000	)
	Amortization of intangible assets		(4,966	)		(3,090	)		(9,824	)		(9,789	)

Consolidated operating income		$	28,799		$	23,263		$	71,122		$	70,120

Quarter and Nine Months Ended September 30, 2008 compared to
Quarter and Nine Months Ended September 30, 2007

Consolidated Results

Revenues. Consolidated revenues increased $42.3 million, or 33%, to $169.2 million for the quarter ended September 30, 2008, compared to $126.8 million for the quarter ended September 30, 2007. The increase in consolidated revenues was primarily related to $48.3 million of revenues associated with our FTD segment, which are included in consolidated revenues from August 26, 2008 (date of acquisition) and, to a lesser extent, an increase in revenues from our Classmates Media segment, partially offset by a decrease in revenues from our Communications segment. Consolidated revenues related to our FTD, Classmates Media and Communications segments constituted 28.5%, 34.7% and 36.7%, respectively, of our consolidated revenues for the quarter ended September 30, 2008, compared to 0%, 39.4% and 60.6%, respectively, for the quarter ended September 30, 2007.

Consolidated revenues increased by $25.1 million, or 6%, to $413.2 million for the nine months ended September 30, 2008, compared to $388.1 million for the nine months ended September 30, 2007. The increase in consolidated revenues was primarily related to $48.3 million of revenues associated with our FTD segment, which are included in consolidated revenues from August 26, 2008 (date of acquisition) and, to a lesser extent, an increase in revenues from our Classmates Media segment, partially offset by a decrease in revenues from our Communications segment. Consolidated revenues related to our FTD, Classmates Media and Communications segments constituted 11.7%, 40.6% and 47.7%, respectively, of our consolidated revenues for the nine months ended September 30, 2008, compared to 0%, 36.1% and 63.9%, respectively, for the nine months ended September 30, 2007.

Cost of Revenues. Consolidated cost of revenues increased by $27.0 million, or 97%, to $54.8 million for the quarter ended September 30, 2008, compared to $27.9 million for the quarter ended September 30, 2007. The increase was primarily related to $28.2 million of cost of revenues associated with our FTD segment, which are included in consolidated cost of revenues from August 26, 2008 (date of acquisition) and, to a lesser extent, a slight increase in cost of revenues associated with our Classmates Media segment, partially offset by a decrease in cost of revenues associated with our Communications segment. Cost of revenues related to our FTD, Classmates Media and Communications segments constituted 53.4%, 19.7% and 26.9%, respectively, of our total segment cost of revenues for the quarter ended September 30, 2008, compared to 0%, 36.9% and 63.1%, respectively, for the quarter ended September 30, 2007.

Consolidated cost of revenues increased by $22.0 million, or 25%, to $109.5 million for the nine months ended September 30, 2008, compared to $87.5 million for the nine months ended September 30, 2007. The increase was primarily related to $28.2 million of cost of revenues associated with our FTD segment, which are included in consolidated cost of revenues from August 26, 2008 (date of acquisition) and, to a lesser extent, an increase in cost of revenues associated with our Classmates Media segment, partially offset by a decrease in cost of revenues associated with our Communications segment. Cost of revenues related to our FTD, Classmates Media and Communications segments constituted 27.4%, 29.4% and 43.2%, respectively, of our total segment cost of revenues for the nine months ended September 30, 2008, compared to 0%, 34.6% and 65.4%, respectively, for the nine months ended September 30, 2007.

Sales and Marketing Expenses. Consolidated sales and marketing expenses increased by $4.0 million, or 10%, to $42.4 million, or 25.1% of consolidated revenues, for the quarter ended September 30, 2008, compared to $38.4 million, or 30.3% of consolidated revenues, for the quarter ended September 30, 2007. The increase was primarily related to $7.2 million of sales and marketing expenses associated with our FTD segment, which are included in consolidated sales and marketing expenses from August 26, 2008 (date of acquisition) and, to a lesser extent an increase in marketing expenses associated with our Classmates Media segment, partially offset by a reduction in marketing expenses related to our Communications segment. Sales and marketing expenses related to our FTD, Classmates Media and Communications segments constituted 17.1%. 50.9% and 32.0%, respectively, of total segment sales and marketing expenses for the quarter ended September 30, 2008, compared to 0%, 51.2% and 48.8%, respectively, for the quarter ended September 30, 2007.

Consolidated sales and marketing expenses decreased by $12.2 million, or 10%, to $115.0 million, or 27.8% of consolidated revenues, for the nine months ended September 30, 2008, compared to $127.1 million, or 32.8% of consolidated revenues, for the nine months ended September 30, 2007. The decrease was attributable to a reduction in marketing expenses related to our Communications segment. The decrease was partially offset by a $7.2 million increase in sales and marketing expenses associated with our FTD segment, which are included in consolidated sales and marketing expenses from August 26, 2008 (date of acquisition) and, to a lesser extent, an increase in sales and marketing expenses associated with our Classmates Media segment. Sales and marketing expenses related to our FTD, Classmates Media and Communications segments constituted 6.3%, 54.1% and 39.6%, respectively, of total segment sales and marketing expenses for the nine months ended September 30, 2008, compared to 0%, 48.0% and 52.0%, respectively, for the nine months ended September 30, 2007.

Technology and Development Expenses. Consolidated technology and development expenses increased by $2.7 million, or 22%, to $15.0 million, or 8.9% of consolidated revenues, for the quarter ended September 30, 2008, compared to $12.3 million, or 9.7% of consolidated revenues, for the quarter ended September 30, 2007. The increase was largely attributable to an increase in expenses in the Classmates Media segment and, to a lesser extent, $0.9 million in expenses associated with our FTD segment, which are included in consolidated technology and development expenses from August 26, 2008 (date of acquisition), partially offset by a slight decrease in technology and development expenses in the Communications segment. Technology and development expenses related to our FTD, Classmates Media and Communications segments constituted 6.5%, 43.7% and 49.8%, respectively, of total segment technology and development expenses for the quarter ended September 30, 2008, compared to 0%, 36.9% and 63.1%, respectively, for the quarter ended September 30, 2007.

Consolidated technology and development expenses increased by $1.6 million, or 4%, to $40.4 million, or 9.8% of consolidated revenues, for the nine months ended September 30, 2008, compared to $38.8 million, or 10.0% of consolidated revenues, for the nine months ended September 30, 2007. The increase was largely attributable to an increase in expenses in the Classmates Media segment and, to a lesser extent, $0.9 million in expenses associated with our FTD segment,

which are included in consolidated technology and development expenses from August 26, 2008 (date of acquisition) and a $0.8 million increase in depreciation, partially offset by a decrease in expenses in the Communications segment. Technology and development expenses related to our FTD, Classmates Media and Communications segments constituted 2.4%, 45.7% and 51.9%, respectively, of total segment technology and development expenses for the nine months ended September 30, 2008, compared to 0%, 32.9% and 67.1%, respectively, for the nine months ended September 30, 2007.

General and Administrative Expenses. Consolidated general and administrative expenses, in the aggregate and as a percentage of revenues, increased in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. A significant amount of the increase was due to stock-based compensation which has increased as a result of several factors, including: forecasted bonuses for certain members of senior management for the year ending December 31, 2008 (the "2008 Bonuses") that will be paid primarily in shares of our common stock whereas such bonuses were historically paid primarily in cash; the effect of shares of common stock and restricted stock units awarded in the first quarter of fiscal 2008; and the effect of restricted stock units awarded in 2007 to members of senior management in connection with the renewal of employment agreements or in connection with initial employment agreements. Also, the resignation of an executive officer in 2007 resulted in the reversal in 2007 of certain stock-based compensation recorded in prior periods which reduced stock-based compensation associated with general and administrative expenses in 2007. The payment of the 2008 Bonuses in shares of common stock as opposed to cash, while increasing stock-based compensation, is not anticipated to have a significant impact on general and administrative expenses in 2008.

Consolidated general and administrative expenses increased by $1.2 million, or 6%, to $23.1 million, or 13.7% of consolidated revenues, for the quarter ended September 30, 2008, compared to $21.9 million, or 17.3% of consolidated revenues, for the quarter ended September 30, 2007. The increase was related to $3.9 million of general and administrative expenses associated with our FTD segment, which are included in consolidated general and administrative expenses from August 26, 2008 (date of acquisition), partially offset by decreases in general and administrative expenses associated with our Communications and Classmates Media segments. General and administrative expenses related to our FTD, Classmates Media and Communications segments constituted 17.8%, 41.1% and 41.1%, respectively, of total segment general and administrative expenses for the quarter ended September 30, 2008, compared to 0%, 44.8% and 55.2%, respectively, for the quarter ended September 30, 2007.

Consolidated general and administrative expenses increased by $12.5 million, or 23%, to $66.8 million, or 16.2% of consolidated revenues, for the nine months ended September 30, 2008, compared to $54.3 million, or 14.0% of consolidated revenues, for the nine months ended September 30, 2007. The increase was due to an increase in expenses associated with our Classmates Media segment and, to a lesser extent, $3.9 million of general and administrative expenses associated with our FTD segment, which are included in consolidated general and administrative expenses from August 26, 2008 (date of acquisition), partially offset by a $0.5 million decrease in depreciation and a slight decrease in expenses associated with our Communications segment. General and administrative expenses related to our FTD, Classmates Media and Communications segments constituted 6.1%, 49.5% and 44.4%, respectively, of total segment general and administrative expenses for the nine months ended September 30, 2008, compared to 0%, 43.4% and 56.6%, respectively, for the nine months ended September 30, 2007.

General and administrative expenses will be positively impacted in the fourth quarter of 2008 by a credit of approximately $3.6 million as a result of a favorable settlement in the fourth quarter of 2008 of a non-income tax dispute relating to prior periods. We are presently evaluating re-investment of certain of these funds in various operating expenses across the segments of our business.

Amortization of Intangible Assets. Consolidated amortization of intangible assets increased by $1.9 million, or 61%, to $5.0 million for the quarter ended September 30, 2008, compared to $3.1 million for the quarter ended September 30, 2007. The increase was associated with increased amortization related to intangible assets acquired in connection with our FTD acquisition in August 2008, partially offset by a decrease in amortization of intangible assets in our Classmates Media segment attributable to the accelerated amortization of intangible assets in earlier years associated with our Classmates acquisition in November 2004.

Consolidated amortization of intangible assets remained relatively flat at $9.8 million for the nine months ended September 30, 2008 and 2007. Amortization of intangible assets related to intangible assets acquired in connection with our acquisition of FTD in August 2008 was partially offset by a decrease in amortization of intangible assets attributable to the accelerated amortization of intangible assets in earlier years associated with our Classmates acquisition in November 2004 and, to a lesser extent, a decrease in amortization in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 as a result of certain assets from the acquisition of Web hosting assets in April 2004 becoming fully amortized in March 2007. We anticipate amortization of intangible assets will increase in the near term as a result of the FTD acquisition.

Restructuring Charges. In the quarter and nine months ended September 30, 2008, we recorded restructuring charges totaling $0.1 million and $0.7 million, respectively, primarily associated with the closure of our Orem, Utah facility. In the nine months ended September 30, 2007, we recorded restructuring charges of $0.4 million primarily for termination benefits paid to certain employees associated with our Web hosting and photo sharing businesses.

Interest Income. Interest income decreased by $0.9 million, or 47%, to $1.1 million for the quarter ended September 30, 2008, compared to $2.0 million for the quarter ended September 30, 2007. Interest income decreased by $1.1 million, or 22%, to $4.0 million for the nine months ended September 30, 2008, compared to $5.2 million for the nine months ended September 30, 2007. These decreases were the result of lower average interest rates, partially offset by higher average combined cash, cash equivalents and short-term investments balances in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007.

Interest Expense. Interest expense increased by $3.8 million to $3.8 million for the quarter ended September 30, 2008, compared to $1,000 for the quarter ended September 30, 2007. Interest expense increased by $3.7 million to $3.8 million for the nine months ended September 30, 2008, compared to $3,000 for the nine months ended September 30, 2007. The increase in interest expense was a result of the indebtedness incurred in connection with the FTD acquisition, which closed on August 26, 2008.

Other Income (Expense), Net. Other income, net was $0.5 million for the quarter ended September 30, 2008, compared to other expense, net of $0.3 million for the quarter ended September 30, 2007. Other income, net was $0.7 million for the nine months ended September 30, 2008, compared to other expense, net of $0.7 million for the nine months ended September 30, 2007. The increase in other income, net was primarily due to foreign currency exchange rate gains and a $0.3 million net realized gain on sales of our short-term investments recognized in the quarter and nine months ended September 30, 2008 in connection with the liquidation of our short-term investments portfolio during the quarter ended September 30, 2008.

Provision for Income Taxes. For the quarter and nine months ended September 30, 2008, we recorded a provision for income taxes of $10.4 million and $29.2 million, respectively, on pre-tax income of $26.6 million and $72.1 million, respectively, resulting in a year-to-date effective income tax rate of 40.5%. For the quarter and nine months ended September 30, 2007, we recorded a provision for income taxes of $10.9 million and $31.4 million, respectively, on pre-tax income of $24.9 million and $74.6 million, respectively, resulting in a year-to-date effective income tax rate of 42.1%. The lower effective income tax rate was due to: (1) the benefits of a lower state income tax rate, net of a federal

income tax benefit, in 2008 as a result of changes to our state nexus profile; (2) the release of a portion of the deferred tax valuation allowance in the quarter and nine months ended September 30, 2008 attributable to the utilization of certain foreign net operating loss carryforwards; and (3) the release of a portion of the reserve for uncertain tax positions in 2008 due to the expiration of the statute of limitations. These benefits were partially offset by (1) an increase in compensation, including stock-based compensation, in the quarter and nine months ended September 30, 2008 versus the prior-year comparable periods that is limited under Section 162(m) of the Internal Revenue Code and (2) lower amounts of tax-free interest income generated in the quarter and nine months ended September 30, 2008 compared to the prior-year comparable periods. The effective income tax rate is subject to fluctuation due to discrete items.

FTD Segment Results

See "Consolidated Results" for information related to the FTD segment results for the period from August 26, 2008 (date of acquisition) through September 30, 2008.

Classmates Media Segment Results

Classmates Media Revenues. Classmates Media revenues increased by $8.8 million, or 18%, to $58.7 million for the quarter ended September 30, 2008, compared to $50.0 million for the quarter ended September 30, 2007. The increase in Classmates Media revenues was primarily due to a $7.9 million increase in services revenues as a result of a 39% increase in our average number of pay accounts from 2.8 million for the quarter ended September 30, 2007 to 3.9 million for the quarter ended September 30, 2008, partially offset by an 8% decrease in ARPU from $3.33 for the quarter ended September 30, 2007 to $3.07 for the quarter ended September 30, 2008. The decrease in ARPU was primarily attributable to limited-time promotional subscription offerings in the fourth quarter of 2007 which negatively impacted ARPU in the quarter ended September 30, 2008 compared to the prior year and, to a lesser extent, a greater percentage of pay accounts represented by international social networking pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts. The increase in Classmates Media revenues was also due to a $0.8 million increase in advertising revenues as a result of increased advertising revenues associated with our loyalty marketing and international social networking services, partially offset by decreased advertising revenues associated with post-transaction sales. We anticipate that our Classmates Media pay accounts and revenues will continue to grow, at least in the near term.

Classmates Media revenues increased by $27.5 million, or 20%, to $167.6 million for the nine months ended September 30, 2008, compared to $140.1 million for the nine months ended September 30, 2007. The increase in Classmates Media revenues was primarily due to a $25.4 million increase in services revenues as a result of a 41% increase in our average number of pay accounts from 2.6 million for the nine months ended September 30, 2007 to 3.6 million for the nine months ended September 30, 2008, partially offset by a 6% decrease in ARPU from $3.29 for the nine months ended September 30, 2007 to $3.10 for the nine months ended September 30, 2008. The decrease in ARPU was primarily attributable to limited-time promotional subscription offerings in the fourth quarter of 2007 which negatively impacted ARPU in the nine months ended September 30, 2008 compared to the prior year and, to a lesser extent, a greater percentage of pay accounts represented by international social networking pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts. The increase in Classmates Media revenues was also due to a $2.0 million increase in advertising revenues as a result of increased advertising revenues associated with our loyalty marketing and international social networking services, partially offset by decreased advertising revenues associated with post-transaction sales.

Classmates Media Cost of Revenues. Classmates Media cost of revenues increased by $0.9 million, or 9%, to $10.4 million, or 17.6% of Classmates Media revenues, for the quarter ended September 30, 2008, compared to $9.5 million, or 19.0% of Classmates Media revenues, for the quarter ended

September 30, 2007. The increase in costs was primarily related to a $0.8 million increase in overhead, personnel- and customer support-related costs associated with our social networking services.

Classmates Media cost of revenues increased by $2.1 million, or 8%, to $30.3 million, or 18.1% of Classmates Media revenues, for the nine months ended September 30, 2008, compared to $28.1 million, or 20.1% of Classmates Media revenues, for the nine months ended September 30, 2007. The increase in costs was primarily related to a $2.1 million increase in overhead, personnel- and customer support-related costs associated with our social networking services.

Classmates Media Sales and Marketing Expenses. Classmates Media sales and marketing expenses increased by $1.9 million, or 10%, to $21.5 million, or 36.6% of Classmates Media revenues, for the quarter ended September 30, 2008, compared to $19.6 million, or 39.3% of Classmates Media revenues, for the quarter ended September 30, 2007. The increase was primarily the result of a $1.5 million net increase in marketing costs related to acquiring new social networking and loyalty marketing members.

Classmates Media sales and marketing expenses increased by $1.1 million, or 2%, to $62.0 million, or 37.0% of Classmates Media revenues, for the nine months ended September 30, 2008, compared to $60.8 million, or 43.4% of Classmates Media revenues, for the nine months ended September 30, 2007. The increase was the result of a $1.1 million net increase in marketing costs related to acquiring new social networking and loyalty marketing members and, to a lesser extent, a $0.6 million increase in stock-based compensation, partially offset by a $0.5 million decrease in personnel- and overhead-related expenses.

Classmates Media Technology and Development Expenses. Classmates Media technology and development expenses increased by $1.8 million, or 45%, to $5.8 million, or 9.9% of Classmates Media revenues, for the quarter ended September 30, 2008, compared to $4.0 million, or 8.0% of Classmates Media revenues, for the quarter ended September 30, 2007. The increase was primarily due to a $1.4 million increase in personnel-related expenses due to increased headcount.

Classmates Media technology and development expenses increased by $4.8 million, or 42%, to $16.3 million, or 9.7% of Classmates Media revenues, for the nine months ended September 30, 2008, compared to $11.4 million, or 8.2% of Classmates Media revenues, for the nine months ended September 30, 2007. The increase was primarily due to a $3.8 million increase in personnel-related expenses due to increased headcount and, to a lesser extent, a $0.8 million increase in overhead-related expenses.

Classmates Media General and Administrative Expenses. Classmates Media general and administrative expenses decreased by $0.3 million, or 3%, to $8.9 million, or 15.1% of Classmates Media revenues, for the quarter ended September 30, 2008, compared to $9.2 million, or 18.4% of Classmates Media revenues, for the quarter ended September 30, 2007. The decrease was primarily related to $2.2 million in consulting fees related to audit and executive search fees incurred in the quarter ended September 30, 2007 related to our potential IPO of CMC. The decrease was partially offset by a $1.0 million increase in stock-based compensation and a $0.6 million increase in personnel-related expenses due to increased headcount.

Classmates Media general and administrative expenses increased by $9.4 million, or 44%, to $31.1 million, or 18.5% of Classmates Media revenues, for the nine months ended September 30, 2008, compared to $21.6 million, or 15.4% of Classmates Media revenues, for the nine months ended September 30, 2007. The increase was primarily related to a $5.5 million increase in stock-based compensation, the expensing of $3.9 million in deferred transaction-related costs relating to the potential IPO of CMC in the quarter ended June 30, 2008, a $1.9 million increase in personnel-related expenses due to increased headcount, and a $0.8 million increase in facilities and other overhead-related costs. These increases were partially offset by a $2.6 million decrease in consulting expenses related to audit and executive search fees incurred in the nine months ended September 30, 2007 related to our potential IPO of CMC.

Communications Segment Results

Communications Revenues. Communications revenues decreased by $14.7 million, or 19%, to $62.1 million for the quarter ended September 30, 2008, compared to $76.9 million for the quarter ended September 30, 2007. The decrease in Communications revenues was primarily due to a $12.9 million decrease in services revenues as a result of a 24% decrease in our average number of dial-up Internet access pay accounts from 1.9 million for the quarter ended September 30, 2007 to 1.5 million for the quarter ended September 30, 2008, partially offset by an increase in revenues from our DSL services in the quarter ended September 30, 2008, compared to the quarter ended September 30, 2007. The decrease in Communications revenues was also due to a $1.8 million decrease in advertising revenues as a result of the decrease in pay accounts. We anticipate continued declines in our Communications pay accounts, which will result in continued declines in Communications revenues.

Communications revenues decreased by $50.6 million, or 20%, to $197.3 million for the nine months ended September 30, 2008, compared to $247.9 million for the nine months ended September 30, 2007. The decrease in Communications revenues was primarily due to a $43.0 million decrease in services revenues as a result of a 23% decrease in our average number of dial-up Internet access pay accounts from 2.1 million for the nine months ended September 30, 2007 to 1.6 million for the nine months ended September 30, 2008 and, to a lesser extent, a $1.3 million decrease in revenues associated with our VoIP business, which we exited in the third quarter of 2007, partially offset by an increase in revenues from our DSL services in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. The decrease in Communications revenues was also due to a $7.7 million decrease in advertising revenues as a result of a decrease in pay accounts.

Communications Cost of Revenues. Communications cost of revenues decreased by $2.1 million, or 13%, to $14.2 million, or 22.8% of Communications revenues, for the quarter ended September 30, 2008, compared to $16.2 million, or 21.1% of Communications revenues, for the quarter ended September 30, 2007. The decrease was due to a $1.4 million decrease in telecommunications costs associated with our dial-up Internet access business primarily due to a decrease in the number of pay accounts and a decrease in hourly usage per pay account. In addition, Communications costs of revenues decreased as a result of a $1.0 million decrease in customer support- and billing-related costs in the quarter ended September 30, 2008, compared to the quarter ended September 30, 2007, as a result of a decrease in the number of dial-up Internet access pay accounts and a decrease in the hourly rate charged by our third-party vendor, and a $1.0 million decrease in costs associated with our VoIP and photo sharing services as a result of our decision to exit these businesses in the third quarter of 2007. These decreases were partially offset by a $1.0 million increase in costs associated with our DSL services.

Communications cost of revenues decreased by $8.7 million, or 16%, to $44.5 million, or 22.5% of Communications revenues, for the nine months ended September 30, 2008, compared to $53.2 million, or 21.4% of Communications revenues, for the nine months ended September 30, 2007. The decrease was due to a $7.8 million decrease in telecommunications costs associated with our dial-up Internet access business primarily due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account as well as slightly lower average hourly telecommunications costs. In addition, Communications costs of revenues decreased as a result of a $2.9 million decrease in costs associated with our VoIP and photo sharing services as a result of our decision to exit these businesses in the third quarter of 2007, a $2.7 million decrease in customer support- and billing-related costs in the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, as a result of a decrease in the number of dial-up Internet access pay accounts and a decrease in the hourly rate charged by our third-party vendor, and a $0.5 million decrease in overhead-related costs. These decreases were partially offset by a $5.1 million increase in costs associated with our DSL services.

Communications Sales and Marketing Expenses. Communications sales and marketing expenses decreased by $5.2 million, or 28%, to $13.5 million, or 21.8% of Communications revenues, for the quarter ended September 30, 2008, compared to $18.7 million, or 24.3% of Communications revenues, for the quarter ended September 30, 2007. This decrease was attributable to a $5.2 million decline in advertising, promotion and distribution costs related to our dial-up Internet access services and a $0.5 million decrease in personnel- and overhead-related expenses as a result of lower headcount, partially offset by a $0.7 million increase in stock-based compensation.

Communications sales and marketing expenses decreased by $20.6 million, or 31%, to $45.4 million, or 23.0% of Communications revenues, for the nine months ended September 30, 2008, compared to $66.0 million, or 26.6% of Communications revenues, for the nine months ended September 30, 2007. This decrease was attributable to a $17.6 million decline in advertising, promotion and distribution costs related to our dial-up Internet access services, a $3.5 million decrease in personnel- and overhead-related expenses as a result of lower headcount, and a $1.2 million decrease in promotion costs related to our DSL services. These decreases were partially offset by a $2.0 million increase in stock-based compensation.

Communications Technology and Development Expenses. Communications technology and development expenses decreased by $0.2 million, or 3%, to $6.6 million, or 10.7% of Communications revenues, for the quarter ended September 30, 2008, compared to $6.9 million, or 8.9% of Communications revenues, for the quarter ended September 30, 2007. The decrease was primarily the result of a $1.5 million decrease in personnel-related expenses as a result of lower headcount, partially offset by a $1.1 million increase in stock-based compensation. We anticipate that Communications technology and development expenses will continue to decline in 2008 when compared to 2007 as a result of a restructuring-related reduction in the number of technology and development employees in this segment in October 2007.

Communications technology and development expenses decreased by $4.9 million, or 21%, to $18.5 million, or 9.4% of Communications revenues, for the nine months ended September 30, 2008, compared to $23.4 million, or 9.4% of Communications revenues, for the nine months ended September 30, 2007. The decrease was primarily the result of a $6.2 million decrease in personnel-related expenses as a result of lower headcount, partially offset by a $1.2 million increase in stock-based compensation.

Communications General and Administrative Expenses. Communications general and administrative expenses decreased by $2.4 million, or 21%, to $8.9 million, or 14.3% of Communications revenues, for the quarter ended September 30, 2008, compared to $11.3 million, or 14.7% of Communications revenues, for the quarter ended September 30, 2007. The decrease was due to a combined $2.4 million decrease in bad debt expense related to a technology partner and a litigation-related allowance recorded in the quarter ended September 30, 2007.

Communications general and administrative expenses decreased by $0.3 million, or 1%, to $27.9 million, or 14.1% of Communications revenues, for the nine months ended September 30, 2008, compared to $28.2 million, or 11.4% of Communications revenues, for the nine months ended September 30, 2007. The decrease was due to a combined $2.4 million decrease in bad debt expense related to a technology partner and a litigation-related allowance recorded in the quarter ended September 30, 2007, a $2.3 million decrease in personnel-related expenses as a result of the 2008 Bonuses being expensed as stock-based compensation as described in the Consolidated Results discussion as well as lower headcount, a $1.4 million decrease in facilities and other overhead-related expenses, and a $0.6 million decrease in recruiting and relocation expenses. The decrease was partially offset by a $5.9 million increase in stock-based compensation and a $0.6 million increase in consulting fees.

Liquidity and Capital Resources

On August 26, 2008, we completed the acquisition of 100% of the capital stock of FTD Group, Inc. We paid a combination of (i) $10.15 in cash, without interest, and (ii) 0.4087 of a share of United Online common stock for each outstanding share of FTD common stock. The total merger consideration was approximately $307 million in cash and approximately 12.3 million shares of United Online common stock, subject to the payment of cash in lieu of fractional shares of United Online common stock.

The FTD acquisition was financed in part with the net proceeds from (i) a $60 million senior secured credit agreement (the "UOL Credit Agreement") and (ii) $425 million of term loan borrowings under senior secured credit facilities (the "FTD Credit Agreement"). The remaining cash consideration in the transaction was paid from United Online's and FTD's existing cash on hand.

The obligations under the UOL Credit Agreement are guaranteed by our domestic wholly-owned subsidiaries, other than UNOL Intermediate, Inc. (the direct parent of FTD Group, Inc.) and its subsidiaries. In addition, the obligations under the UOL Credit Agreement are secured by a lien on substantially all of the assets of the guarantors, including a pledge of all of the outstanding capital stock of the guarantors' direct subsidiaries (except with respect to foreign subsidiaries, in which case such pledge is limited to 66% of the outstanding capital stock), excluding the capital stock of UNOL Intermediate, Inc.

The FTD Credit Agreement consists of (i) a term loan A facility of up to $75 million, (ii) a term loan B facility of up to $300 million, and (iii) a revolving credit facility of up to $50 million. The interest rate set forth in the FTD Credit Agreement for loans made under the revolving credit facility and term loan A facility is either the prime rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%), in each case, with step-downs in the interest rate depending on FTD's leverage ratio. The interest rate set forth in the FTD Credit Agreement for loans made under the term loan B facility is either the prime rate plus 3.5% per annum, or LIBOR plus 4.5% per annum (with a LIBOR floor of 3.0%), in each case, with step-downs in the interest rate depending on FTD's leverage ratio. In addition, there is a commitment fee equal to 0.50% per annum (with step-downs in the commitment fee depending on FTD's leverage ratio) on the unused portion of the revolving credit facility. The FTD Credit Agreement is guaranteed by UNOL Intermediate, Inc. and substantially all of the domestic subsidiaries of FTD and is secured by substantially all of the assets of FTD and such subsidiaries, including a pledge of all of the outstanding capital stock owned by FTD and such guarantors (provided that no more than 66% of the capital stock of any foreign subsidiary is pledged or otherwise secures the FTD Credit Agreement). The FTD Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants that, among other things, require FTD and its subsidiaries not to exceed a maximum leverage ratio and to maintain a minimum fixed charge coverage ratio and will impose restrictions and limitations on, among other things, capital expenditures, investments, dividends, asset sales, and the incurrence of additional debt and liens. On the date of the FTD acquisition, term loan A and term loan B under the FTD Credit Agreement were funded.

In connection with the closing of the FTD acquisition, all of the approximately $122.1 million of outstanding borrowings under FTD's existing credit facilities were repaid. In addition, FTD, Inc., a

Delaware corporation and wholly-owned subsidiary of FTD Group, Inc. ("FTDI"), repurchased approximately $170.0 million aggregate principal amount of its 7.75% Senior Subordinated Notes due 2014 (the "FTDI Notes") tendered pursuant to its offer to repurchase all of the approximately $170.1 million outstanding principal amount of FTDI Notes, which purchased FTDI Notes were canceled. Substantially concurrently with the closing of the FTD acquisition, United Online effected a covenant defeasance with respect to the balance of the FTDI Notes pursuant to the terms of the indenture governing the FTDI Notes.

Our total cash, cash equivalent and short-term investments balances decreased by $148.6 million, or 68%, to $69.7 million at September 30, 2008, compared to $218.3 million at December 31, 2007. Our summary cash flows for the nine months ended September 30, 2008 and 2007 were as follows (in thousands):

	Nine Months Ended September 30,

	2008			2007
Net cash provided by operating activities	$	100,581		$	94,615
Net cash provided by (used for) investing activities	$	(249,847	)	$	10,122
Net cash provided by (used for) financing activities	$	70,368		$	(33,644	)

Net cash provided by operating activities increased by $6.0 million, or 6%, for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Net cash provided by operating activities is driven by our net income adjusted for non-cash items, including, but not limited to, depreciation and amortization, provision for doubtful accounts receivable, stock-based compensation, impairment of goodwill, intangible assets and long-lived assets, deferred taxes, tax benefits from equity awards, and changes in operating assets and liabilities. The increase was primarily due to a $11.4 million increase in non-cash items, partially offset by a $5.2 million unfavorable change in operating assets and liabilities.

Net cash used for investing activities was $249.8 million for the nine months ended September 30, 2008 compared to net cash provided by investing activities of $10.1 million for the nine months ended September 30, 2007. The increase in cash used for investing activities was primarily due to the funding of the FTD acquisition in August 2008. The cash portion of the purchase price, net of cash acquired, was $307.1 million. The cash portion of the purchase price was partially offset by a $40.9 million increase in net proceeds from sales and maturities of short-term investments and a $6.3 million decrease in purchases of property and equipment.

Capital expenditures for the nine months ended September 30, 2008 were $11.4 million. We currently anticipate that our total capital expenditures for 2008 will be in the range of $19 million to $23 million. The actual amount of future capital expenditures may fluctuate due to a number of factors including, without limitation, potential future acquisitions and new business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

Net cash provided by financing activities was $70.4 million for the nine months ended September 30, 2008 compared to net cash used for financing activities of $33.6 million for the nine months ended September 30, 2007. The increase in net cash provided by financing activities was primarily related to net proceeds from the UOL Credit Agreement and the FTD Credit Agreement of $421.0 million, partially offset by the repayment of FTD indebtedness of $302.3 million in connection with the closing of the FTD acquisition. Additionally, the increase was partially offset by a combined $6.6 million decrease in proceeds from exercises of stock options and proceeds from our employee stock purchase plan; a $3.7 million increase in repurchases of common stock in connection with shares withheld upon vesting of restricted stock awards and restricted stock units to pay applicable employee

withholding taxes; a $2.4 million decrease in excess tax benefits from equity awards; and a $1.8 million increase in the payment of dividends.

In January, April and July 2008, our Board of Directors declared quarterly cash dividends of $0.20 per share of common stock, which were paid on February 29, 2008, May 30, 2008 and August 29, 2008 and totaled $14.6 million, $14.9 million and $14.9 million, respectively. Following the closing of the FTD acquisition, our Board of Directors decreased our quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock. In October 2008, our Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend is November 14, 2008, and the dividend is payable on November 28, 2008. In accordance with the terms of the FTD Credit Agreement, cash flows at FTD will, in general, not be available to United Online and its subsidiaries (other than FTD and subsidiaries of FTD). The payment of future dividends is discretionary and is subject to determination by our Board of Directors each quarter following its review of our financial performance and other factors. The payment of dividends will negatively impact cash flows from financing activities. In addition, the UOL Credit Agreement imposes certain limitations on our ability to pay dividends.

Future cash flows from financing activities may also be affected by our repurchases of our common stock. Our Board of Directors authorized a common stock repurchase program (the "program") that allows us to repurchase shares of our common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through December 31, 2008. From August 2001 through September 30, 2008, we had repurchased a total of $139.2 million of our common stock under the program. We have not repurchased any shares of our common stock under the program since February 2005, and at September 30, 2008, the remaining amount available under the program was $60.8 million. Other than pursuant to the program or in connection with the withholding of shares related to the vesting of restricted stock units and the issuance of stock awards as discussed below, the UOL Credit Agreement imposes certain restrictions on our ability to repurchase shares of our common stock.

Cash flows from financing activities may also be negatively impacted by the withholding of a portion of shares underlying the restricted stock units, restricted stock awards and stock awards we award to employees. We currently do not collect the applicable employee withholding taxes upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards from employees. Instead, we automatically withhold, from the restricted stock units that vest and the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the employee withholding taxes due. We then pay the applicable withholding taxes in cash. The withholding of these shares, although accounted for as a common stock repurchase, does not reduce the amount available under the program. Similar to repurchases of common stock under the program, the net effect of such withholding will adversely impact our cash flows from financing activities. The amounts remitted in the nine months ended September 30, 2008 and 2007 were $8.4 million and $4.7 million, respectively, for which we withheld 734,000 shares and 334,000 shares of common stock, respectively, that were underlying the restricted stock units and restricted stock awards which vested and stock awards that were issued. The amount we pay in future quarters will vary based on our stock price and the number of restricted stock units vesting and stock awards being issued during the quarter.

On August 8, 2007, Classmates Online, Inc. and MyPoints.com, Inc. declared a dividend to United Online, which was evidenced by unsecured notes payable in the aggregate principal amount of $50.0 million (the "Notes"). The Notes bear interest at an annual rate of 9.625%, payable quarterly in arrears. No principal is due on the Notes until maturity on August 31, 2013, and the Notes may be repaid in whole or in part at any time prior to maturity without penalty. Historically, our net cash provided by operating activities has been positively impacted by our Classmates and MyPoints businesses which have been transferred to CMC. We attempted to effect an IPO of CMC in the fourth quarter of 2007. However, CMC withdrew its Form S-1 registration statement previously filed with the

SEC for the potential IPO in December 2007 due to then-current market conditions. It remains our strategy to complete an IPO of CMC. If an IPO occurs, the Notes may be repaid in whole or in part from the proceeds from the offering, although there can be no assurance that the IPO will occur or that the Notes will be repaid. If the IPO were to occur, it is likely that the net cash provided by operating, investing and financing activities associated with CMC will remain with CMC and will not be available for our use. As such, cash flows available to us may significantly decrease if an IPO of CMC is consummated. The UOL Credit Agreement provides that, in the event CMC completes an IPO, UOL must repay the term loans under the UOL Credit Agreement in an amount equal to the greater of (i) 50% of the net cash proceeds received by UOL in connection with the IPO and (ii) $30 million.

Based on our current projections, we expect to continue to generate positive cash flows from operations, at least in the near term. We intend to use our existing cash balances and future cash generated from operations to fund, among other things, dividend payments, if declared by our Board of Directors; to develop and acquire other services, businesses or technologies; to repurchase our common stock underlying restricted stock units and stock awards and pay the employee withholding taxes due on vested restricted stock units and stock awards issued; to make optional prepayments on the outstanding balances under the UOL Credit Agreement and FTD Credit Agreement; and to fund future capital expenditures. In accordance with the terms of the UOL Credit Agreement and the FTD Credit Agreement, there are significant limitations on our ability to use cash flows from operations generated by our Communications and Classmates Media segments for the benefit of FTD and, conversely, there are significant limitations on our ability to use cash flows from operations generated by FTD for the benefit of United Online or the Communications and Classmates Media segments. The degree to which our assets are leveraged and the terms of our debt could materially and adversely affect our ability to obtain additional capital as well as the terms at which such capital might be offered to us.

If we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could severely constrain or prevent us from, among other factors, developing new or enhancing existing services or products, repurchasing our common stock, acquiring other services, businesses or technologies or funding significant capital expenditures, and have a material adverse effect on our business, financial position, results of operations, and cash flows as well as impair our ability to pay future dividends. If additional funds were raised through the issuance of equity or convertible debt securities, the percentage of stock owned by the then-current stockholders could be reduced. Furthermore, such equity or debt securities that we issue might have rights, preferences or privileges senior to holders of our common stock. In addition, the extreme volatility and disruption in the securities and credit markets may restrict our ability to raise any such additional funds, at least in the near term.

Contractual Obligations

Contractual obligations at September 30, 2008 were as follows (in thousands):

		Total		Less than 1 Year		1 Year to Less than 3 Years		3 Years to Less than 5 Years		More than 5 Years

Operating leases(1)		$	64,013	$	15,225	$	21,417	$	13,385	$	13,986
Services and promotional contracts			25,160		22,848		2,312		—		—
Telecommunications purchases			3,495		2,303		1,192		—		—
Media purchases			2,725		2,646		79		—		—
Floral-related purchase obligations			5,054		4,710		344		—		—
Debt, including interest			625,031		54,224		113,423		145,871		311,513
Member redemption liability, long-term			5,242		—		5,242		—		—
Other long-term liabilities			3,248		130		2,240		260		618

	Total	$	733,968	$	102,086	$	146,249	$	159,516	$	326,117

(1): The operating lease obligations shown in the table have not been reduced by minimum non-cancelable sublease rentals aggregating $1.8 million. We remain secondarily liable under these leases in the event that any sublessee defaults under the sublease terms. We do not believe that material payments will be required as a result of our secondary responsibilities.

At September 30, 2008, we had gross unrealized tax liabilities of approximately $11.3 million, all of which, if recognized, would impact our effective income tax rate.

Commitments under standby letters of credit at September 30, 2008 are scheduled to expire as follows (in thousands):

		Total			Less than 1 Year			1 Year to Less than 3 Years			3 Years to Less than 5 Years			More than 5 Years

Standby letters of credit		$	10,057		$	8,933		$	882		$	162		$	80

Standby letters of credit are maintained by FTD to secure credit card processing activity. Additionally, standby letters of credit are maintained pursuant to certain of our lease arrangements and remain in effect at declining levels through the terms of the related leases.

Other Commitments

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. We have also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and certain of our officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique

facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

Off-Balance Sheet Arrangements

At September 30, 2008, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

Business Combinations

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS No. 141(R) requires prospective application for all acquisitions after the date of adoption. We expect SFAS No. 141(R) to have an impact on our consolidated financial statements when effective, but the timing, nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions we consummate after the effective date.

We will continue to evaluate the impact of the adoption of SFAS No. 141(R).

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We are currently evaluating the impact of the adoption of SFAS No. 160 on our consolidated financial statements, if any.

Determination of the Useful Life of Intangible Assets

Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities

In June 2008, the FASB issued FSP EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"), in which the FASB concluded that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends (such as restricted stock units granted by us) are considered participating securities. Because the awards are considered participating securities, the issuing entity is required to apply the two-class method of computing basic and diluted earnings per share. The provisions of FSP EITF 03-6-1 will be effective for us on January 1, 2009 and will be applied retroactively to all prior-period earnings per share computations. We are currently evaluating the impact of the adoption of FSP EITF 03-6-1 on our earnings per share amounts.

Fair Value Measurements

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, to clarify how an entity would determine fair value in an inactive market. FSP FAS 157-3 is effective immediately and applies to our condensed consolidated financial statements for the quarter ended September 30, 2008. The application of the provisions of FSP FAS 157-3 did not materially impact our condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with interest rate and foreign currency fluctuations.

Interest Rate Risk

We are exposed to interest rate risk on the outstanding balance of the UOL Credit Agreement and the FTD Credit Agreement. The term loans under the UOL Credit Agreement bear interest at either LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%) or the prime rate plus 2% per annum. The interest rate set forth in the FTD Credit Agreement for loans made under the revolving credit facility and term loan A facility is either the prime rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%), in each case, with step-downs in the interest rate depending on FTD's leverage ratio. The interest rate set forth in the FTD Credit Agreement for loans made under the term loan B facility is either the prime rate plus 3.5% per annum, or LIBOR plus 4.5% per annum (with a LIBOR floor of 3.0%), in each case, with step-downs in the interest rate depending on FTD's leverage ratio.

We also have interest rate risk related to our short-term investments portfolio. As a result, we are exposed to the impact of interest rate changes and changes in the market values of our investments. Our interest income is sensitive to changes in the general level of U.S. interest rates.

We typically maintain a short-term investments portfolio consisting, at times, of U.S. commercial paper, U.S. corporate notes, U.S. Government or U.S. Government agencies obligations, and municipal securities, including auction rate securities. We have not used derivative financial instruments in our short-term investments portfolio. Our primary objective in managing our short-term investments is the preservation of principal and liquidity while maximizing yield without significantly increasing risk. The minimum long-term credit rating is A, and if a long-term credit rating is not available, we require a minimum short-term credit rating of A1 and P1. Furthermore, by policy, we limit the amount of credit exposure to any one issuer. Our short-term investments, at times in both fixed-rate and variable-rate interest-earning instruments, carry a degree of interest rate risk. Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates, while variable-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer

losses in principal by selling securities which have declined in market value due to changes in interest rates.

In the quarter ended September 30, 2008, in connection with our acquisition of FTD, we liquidated our short-term investments portfolio and recognized gains of approximately $0.3 million for the quarter and nine months ended September 30, 2008. Additionally, during 2007, we liquidated, without any losses in principal, our investments in auction rate securities and did not hold any auction rate securities in our portfolio at September 30, 2008. We classify all of our short-term investments as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. At September 30, 2008, we had no short-term investments.

While we have not engaged in interest rate hedging, we intend to establish a hedging program, which may include interest rate caps and/or other derivative financial instruments commonly utilized, if it is determined that such instruments are appropriate to reduce risk.

Foreign Currency Risk

We transact business in different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the British Pound (GBP), the Indian Rupee (INR), the Euro (EUR), and the Canadian Dollar (CAD), which may result in a gain or loss of earnings to us. The volatilities in GBP, INR, EUR, and CAD (and all other applicable foreign currencies) are monitored by us throughout the year. We face two risks related to foreign currency exchange rates: translation risk and transaction risk. Amounts invested in our foreign operations are translated into U.S. Dollars using period-end exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income in stockholders' equity. Our foreign subsidiaries generally collect revenues and pay expenses in currencies other than the U.S. Dollar. When the functional currencies of our foreign operations are denominated in the local currency of our subsidiaries, the foreign currency translation adjustments are reflected as a component of stockholders' equity and do not impact our operating results. Net foreign currency transaction gains or losses arising from transactions in our foreign operations denominated in currencies other than the local functional currency are included in other income (expense), net in the consolidated statements of operations. Revenues and expenses in foreign currencies translate into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against other currencies. Substantially all of the revenue of our United Kingdom subsidiary, Interflora, is received and substantially all expenses are incurred in British Pounds, which increases or decreases the related U.S. Dollar reported revenues and expenses depending on the trend in currency. Therefore, changes in foreign currency exchange rates may negatively affect our consolidated revenues and expenses. The effect of foreign currency exchange rate fluctuations for the quarter and nine months ended September 30, 2008 was not material to our consolidated results of operations. While we have not engaged in foreign currency hedging, we may in the future use hedging programs, including currency forward contracts, currency options and/or other derivative financial instruments commonly utilized, if it is determined that such hedging activities are appropriate to reduce risk.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end

of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

On August 26, 2008, we completed the acquisition of FTD. We are in the process of integrating FTD and will be conducting an evaluation of internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002. Excluding the FTD acquisition, there have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In April 2001 and in May 2001, lawsuits were filed in the United States District Court for the Southern District of New York against NetZero, Inc. ("NetZero"), certain officers and directors of NetZero and the underwriters of NetZero's initial public offering, Goldman Sachs Group, Inc., BancBoston Robertson Stephens, Inc. and Salomon Smith Barney, Inc. A consolidated amended complaint, which is the operative complaint, was filed in April 2002. The complaint alleges that the prospectus through which NetZero conducted its initial public offering in September 1999 was materially false and misleading because it failed to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the restricted number of NetZero shares issued in connection with the offering; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate NetZero shares to those customers in the offering in exchange for which the customers agreed to purchase additional NetZero shares in the aftermarket at pre-determined prices. Plaintiffs are seeking injunctive relief and damages. The case against NetZero was coordinated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998 and 2000, their underwriters and an unspecified number of their individual corporate officers and directors. On October 13, 2004, the district court certified a class in six of the other nearly identical actions (the "focus cases"). The underwriter defendants appealed the decision and the United States Court of Appeals for the Second Circuit vacated the district court's decision granting class certification on December 5, 2006. Plaintiffs filed a petition for rehearing. On April 6, 2007, the Second Circuit denied the petition, but noted that the plaintiffs could ask the district court to certify a more narrow class than the one that was rejected. Prior to the Second Circuit's decision, the majority of issuers, including NetZero, and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could no longer be approved, and on June 25, 2007, the court approved a stipulation filed by the plaintiffs and the issuers which terminated the proposed settlement. On August 14, 2007, the plaintiffs filed Second Amended class action complaints in the focus cases. The issuers' motion to dismiss the Second Amended class action complaints has been granted in part and denied in part. On October 10, 2008, the trial court granted plaintiff's motion to withdraw without prejudice their Motion for Class Certification in the six focus cases.

On March 6, 2006, plaintiff Anthony Piercy filed a purported consumer class action lawsuit in the Superior Court of the State of California, County of Los Angeles, against NetZero claiming that NetZero continues to charge consumers fees after they cancel their Internet access account. On July 27, 2006, plaintiff Donald E. Ewart filed a purported consumer class action lawsuit in the Superior Court of the State of California, County of Los Angeles, against NetZero containing substantially similar allegations to the Piercy case. Plaintiffs in both cases are seeking injunctive and declaratory relief and damages. NetZero filed a response to both lawsuits denying the material allegations of the complaints. Both Messrs. Piercy and Ewart subsequently withdrew from the actions as class representatives. On March 16, 2007, Barbara Rasnake and Robert Du Verger were substituted as purported class representatives. On May 25, 2007, the court consolidated the actions under the caption Rasnake v. NetZero, Inc. On July 13, 2007, the plaintiffs filed a consolidated amended class action complaint at which time Peter Chrisler was also substituted as a purported class representative. A settlement agreement has been entered into by all parties in this case and was granted final approval by the court on November 6, 2008.

The pending lawsuits involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to defend. Although we do not believe the outcome of the above outstanding legal proceedings, claims and litigation will have a material adverse effect on our business, financial position, results of operations or cash flows, the results of legal

proceedings, claims and litigation are inherently uncertain and we cannot assure you that we will not be materially and adversely impacted by the results of such proceedings. At September 30, 2008, we had not established allowances for losses relating to any of the matters described above, with the exception of the Rasnake v. NetZero matter.

We are subject to various legal proceedings, claims and litigation that arise in the ordinary course of business. Based on information at this time, we believe the amount, and ultimate liability, if any, with respect to these actions will not materially affect our business, financial position, results of operations or cash flows. We cannot assure you, however, that such actions will not materially and adversely affect our business, financial position, results of operations, or cash flows.

ITEM 1A. RISK FACTORS

RISKS RELATING TO OUR BUSINESS GENERALLY

Our business is subject to fluctuations.

Our results of operations and changes in our key business metrics from period to period have varied in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and difficult to predict. A number of factors that may impact us are discussed in greater detail in this Quarterly Report on Form 10-Q and in our other filings with the SEC, and these factors may affect us from period to period and may affect our long-term performance. As a result, you should not rely on period-to-period comparisons as an indication of our future or long-term performance. In addition, these factors create difficulties with respect to our ability to forecast our financial performance and business metrics accurately. We believe that these difficulties in forecasting present even greater challenges for financial analysts who publish their own estimates of our future financial results and business metrics. We cannot assure you that we will achieve the expectations or projections made by our management or by the financial analysts. In the event we do not achieve such expectations or projections, our financial results and the price of our common stock could be adversely affected.

We may be unable to maintain or grow our advertising revenues. Reduced advertising revenues may reduce our profits.

Advertising revenues are a critical component of our revenues and profitability. In particular, we derive significant revenues and profits from search and from post-transaction sales, and any termination, change or decrease in revenues from these sources could have a material impact on our advertising revenues and profitability. In addition, substantially all of the revenue generated by our loyalty marketing business is advertising revenue. Our revenues from advertising have in the past fluctuated, and may in the future fluctuate, due to a variety of factors including, without limitation, changes in the economy, the effect of key advertising relationships, competition, changes in our business models, changes in the online advertising market, changes in our advertising inventory, and changes in usage. Post-transaction sales are also dependent on the number of consumers purchasing our products and services. In addition, our advertising initiatives may not be effective, and our advertising revenues may decline in future periods as a result. Advertising revenues in our Communications segment, which includes substantially all of our search revenue, continue to decline as a result of the decrease in our dial-up Internet access accounts, and we anticipate decreased advertising revenues in the Communications segment, which will adversely impact our profitability.

Our marketing efforts may not be successful, which could increase our costs and adversely impact our key metrics.

We spend significant resources marketing our brands, products and services. We rely on relationships with a wide variety of third-parties, including Internet portals, Internet search providers,

Internet advertising networks, co-registration partners, retailers, distributers and direct marketers, to promote or distribute our products and services. In addition, one of our strategies is to cross market our various products and services to our existing customer base. If our marketing, including cross marketing, activities are inefficient or unsuccessful, or if important third-party relationships become more expensive or unavailable, our key metrics and financial results could be materially and adversely impacted.

Significant problems with our key systems or those of our third-party vendors could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The systems underlying the operations of each or our business segments are complex and diverse, and must efficiently integrate with third-party systems, such as credit card processors. Key systems include, without limitation, billing; Web site and database management; order acceptance, fulfillment and processing including the system for fulfilling orders through member florists; customer support; telecommunications network management; advertisement serving and management systems; and internal financial systems. Some of these systems, such as customer support and FTD's Web site and telephone order services, are outsourced to third-parties, and other systems, such as FTD's florist fulfillment system, are not redundant. We have experienced systems problems in the past and may experience problems in the future. A significant problem with our systems or third-parties' systems could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our Classmates Media and Communications businesses outsource a majority of their live technical and billing support functions. These businesses rely on one customer support vendor, and we maintain only a small number of internal customer support personnel for these businesses. We are not equipped to provide the necessary range of customer support functions in the event that this vendor becomes unable or unwilling to provide these services to us.

Our failure to protect our proprietary rights could harm our business.

Our trade names, trademarks, service marks, patents, copyrights, domain names, and trade secrets are important to the success of our business. In particular, we view our primary trademarks as critical to our success. We principally rely upon patent, trademark, copyright, trade secret and contract laws to protect our proprietary rights, all of which provide only limited protection. We also license some of our intellectual property rights, including the Mercury Man logo, to third-parties. The steps we and such third-parties have taken to protect our proprietary rights may not be adequate, and other third-parties may infringe or misappropriate our proprietary rights. The protection of our proprietary rights may require the expenditure of significant financial and internal resources. We cannot assure you that we have taken adequate steps to prevent misappropriation of our proprietary rights. Our failure to adequately protect our proprietary rights could adversely affect our brands and could harm our business.

We may be unsuccessful at acquiring additional businesses, services or technologies. Even if we complete an acquisition (such as our recent acquisition of FTD), it may not improve our results of operations and may adversely impact our business and financial condition.

One of our strategic objectives is to acquire businesses, services or technologies that will provide us with an opportunity to diversify the services we offer, leverage our assets and core competencies, expand our geographic reach or that otherwise may be complementary to our existing businesses. We recently completed the acquisition of FTD, and we may acquire additional businesses, services or technologies in the future. However, acquiring companies is a difficult process with many factors outside of our control. In addition, our credit agreements impose certain restrictions on our ability to

complete acquisitions and there is no assurance that we will be successful in completing additional acquisitions.

We have evaluated and expect to continue to evaluate, a wide variety of potential strategic transactions that we believe may complement our current or future business activities. We routinely engage in discussions regarding potential acquisitions and any of these transactions could be material to our financial condition, results of operations and cash flows. However, we cannot assure you that the anticipated benefits and synergies of an acquisition, including our recent acquisition of FTD, will materialize or that any integration attempts will be successful. Acquiring a business, service or technology involves many operational and financial risks, including risks relating to:

•: disruption of our ongoing business and significant diversion of resources and management time from day-to-day responsibilities;
•: acquisition financings that involve the issuance of potential dilutive equity or the incurrence of debt;
•: reduction of cash and other resources available for operations and other uses;
•: exposure to risks specific to the acquired business, service or technology to which we are not currently exposed;
•: risks of entering markets in which we have little or no direct prior experience;
•: unforeseen obligations or liabilities;
•: difficulty assimilating the acquired customer bases, technologies and operations;
•: difficulty assimilating and retaining employees from the acquired business;
•: potential impairment of relationships with users, customers or vendors as a result of changes in management of the acquired business;
•: potential dilutive issuance of equity, large write-offs either at the time of the acquisition or in the future, the incurrence of restructuring charges, the incurrence of debt, the amortization of identifiable intangible assets, and the impairment of amounts capitalized as goodwill and other intangible assets; and
•: lack of, or inadequate, controls, policies and procedures appropriate for a public company, and the time, cost and difficulties related to the implementation of such controls, policies and procedures or the remediation of any deficiencies.

Any of these risks could harm our business and financial results.

In addition, an acquisition of a foreign business involves risks in addition to those set forth above, including risks associated with foreign currency exchange rates, potentially unfamiliar economic, political and regulatory environments and integration difficulties due to language, cultural and geographic differences.

A security breach or inappropriate access to, or use of, our networks, computer systems or services could expose us to liability, claims and a loss of revenue.

The success of our business depends on the security of our networks and, in part, on the security of the network infrastructures of our third-party vendors. Unauthorized or inappropriate access to, or use of, our networks, computer systems or services could potentially jeopardize the security of confidential information, including credit card information, of our customers and of third-parties. We cannot assure you that the security measures we take will be effective in preventing these types of activities. We also cannot assure you that the security measures of our third-party network providers,

providers of customer and billing support services or other vendors will be adequate. In addition to potential legal liability, these activities may adversely impact our reputation or our revenues and may interfere with our ability to provide our products and services, all of which could adversely impact our business.

Legal actions could subject us to substantial liability and expense and require us to change our business practices.

We are currently, and have been in the past, party to various legal actions. These actions include, without limitation, claims by private parties in connection with consumer protection and other laws, claims that we infringe third-party patents, claims in connection with employment practices, securities laws claims, breach of contract claims, and other business-related claims. The nature of our business could subject us to additional claims for similar matters, as well as a wide variety of other claims including, without limitation, claims for defamation, negligence, trademark infringement, copyright infringement, and privacy matters. Various governmental agencies may also assert claims, institute legal actions, inquiries or investigations, or impose obligations relating to our business practices, such as our marketing, billing, customer retention, renewal, cancellation, refund, or disclosure practices. Defending against lawsuits, inquiries and investigations involves significant expense and diversion of management's attention and resources from other matters. We may not prevail in existing or future claims. The failure to successfully defend against certain types of claims, including claims based on infringement of proprietary rights, could result in significant settlements or require us to change our business practices or obtain licenses from third-parties, which licenses may not be available on acceptable terms, if at all. Lawsuits, inquiries and investigations also involve the risk of significant settlements or judgments against us. Both the cost of defending claims, as well as the effect of settlements and judgments, could cause our results of operations to fluctuate significantly from period to period and could materially and adversely affect our business, financial position, results of operations and cash flows.

Our substantial amount of indebtedness could adversely affect our ability to raise additional capital to fund operations, our flexibility in operating our business and our ability to react to changes in the economy or our industry, and prevent us from satisfying our debt obligations.

We have a substantial amount of indebtedness which could have important consequences for our business and financial condition. For example:

•: if we fail to meet payment obligations or otherwise default under the agreements governing our indebtedness, the lenders under those agreements will have the right to accelerate the indebtedness and exercise other rights and remedies against us;
•: we will be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for working capital, capital expenditures, dividends, acquisitions, and other purposes;
•: our ability to obtain additional financing to fund future working capital, capital expenditures, additional acquisitions, and other general corporate requirements could be limited;
•: the credit agreements impose operating and financial covenants and restrictions on us, including limitations on our ability to use FTD cash flow for the benefit of subsidiaries other than FTD and its subsidiaries, and on our ability to use the cash flow of subsidiaries other than FTD and its subsidiaries for the benefit of FTD and its subsidiaries, and compliance with such covenants and restrictions may adversely affect our ability to adequately finance our operations or capital needs in the future, to pursue attractive business opportunities that may arise in the future, to redeem or repurchase capital stock, to pay dividends, to sell assets, and to make capital expenditures;

•: our failure to comply with the covenants in the credit agreements, including failure as a result of events beyond our control, could result in an event of default under the applicable credit agreement (and any other credit agreement which contains a cross-default provision), which could cause all amounts outstanding with respect to that debt to become immediately due and payable and could materially and adversely affect our operating results, financial condition and liquidity;
•: we will experience increased vulnerability to, and limited flexibility in planning for, changes to our business and adverse economic and industry conditions;
•: our credit ratings could be adversely affected;
•: we could be placed at a competitive disadvantage relative to other companies with less indebtedness;
•: our ability to apply excess cash flows or proceeds from certain types of securities offerings, asset sales and other transactions to purposes other than the repayment of debt could be limited; and
•: the interest rates under the credit agreements will fluctuate and, accordingly, interest expense may increase.

Under the terms of the credit agreements, we will be permitted to incur additional indebtedness subject to certain conditions, and the risks described above may be increased if we incur additional indebtedness.

Our credit agreements include guarantees on a joint and several basis by our existing and future, direct and indirect domestic subsidiaries and are secured by first priority security interests in, and mortgages on, substantially all of our direct and indirect subsidiaries' tangible and intangible assets and first priority pledges of all the equity interests owned by us in our existing and future direct and indirect subsidiaries (except with respect to foreign subsidiaries in which case such pledges are limited to 66% of the outstanding capital stock). The occurrence of an event of default under the credit agreements could permit the lenders to terminate the commitments of such lenders to make further extensions of credit under the credit agreements, to call and enforce the guarantees, and to foreclose on the collateral securing such debt.

We may not realize the benefits associated with our assets and may be required to record a significant charge to earnings if we are required to expense certain costs or impair our assets.

We have capitalized goodwill and other intangible assets in connection with our acquisitions. We evaluate the recoverability of our identifiable intangible assets and other long-lived assets for impairment when events occur or circumstances change that would indicate that the carrying amount of an asset may not be recoverable. In addition, we perform an impairment test of our goodwill and indefinite-lived intangible assets annually during the fourth quarter of our fiscal year or when events occur or circumstances change that would more likely than not indicate that goodwill or any such assets might be permanently impaired. If our acquisitions are not commercially successful, we would likely be required to record impairment charges which would negatively impact our financial condition and results of operations. We have experienced impairment charges in the past, and we cannot assure you that we will not experience such charges in the future. In addition, from time to time, we record assets on our balance sheet that, due to changes in value or in our strategy, may have to be expensed in future periods. Write-downs or impairments of assets, whether tangible or intangible, could adversely and materially impact our financial condition and results of operations.

Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key employees.

Our business is largely dependent on the efforts and abilities of our senior management, particularly Mark R. Goldston, our chairman, president and chief executive officer, and other key personnel. Any of our officers or employees can terminate his or her employment relationship at any time. The loss of any of these key employees or our inability to attract or retain other qualified employees could seriously harm our business and prospects. We do not carry key-person life insurance on any of our employees.

Changes in laws and regulation changes and new laws and regulations may adversely affect our results of operations.

We are subject to a variety of international, federal, state and local laws and regulations, including, without limitation, those relating to taxation, bulk email or "spam," user privacy and data protection, and consumer protection. Compliance with the various laws and regulations, which in many instances are unclear or unsettled, is complex. Any changes in such laws and regulations, the enactment of any additional laws or regulations, failure to comply with, or increased enforcement activity of, such laws and regulations, could significantly impact our products and services, our costs, or the manner in which we conduct business, all of which could adversely impact our results of operations and cause our business to suffer.

The FTC and certain state agencies have investigated Internet companies, including us, in connection with consumer protection and privacy matters. The federal government has also enacted consumer protection laws, including laws protecting the privacy of consumers' nonpublic personal information. Our failure to comply with existing laws, including those of foreign countries in which we operate, the adoption of new laws or regulations or changes in enforcement policies and procedures could increase the costs of operating our business. To the extent that our services and business practices change as a result of changes in regulations or claims or actions by governmental agencies, such as the FTC, or claims or actions by private parties, our business, financial position, results of operations and cash flows could be materially adversely affected.

We face risks relating to operating and doing business internationally that could adversely affect our business and results of operations.

Our businesses operate in a number of countries outside the United States. Conducting international operations involves risks and uncertainties, including:

•: fluctuations in currency exchange rates;
•: potentially adverse tax consequences, including the complexities of foreign value-added taxes and restrictions on the repatriation of earnings;
•: increased financial accounting, tax and reporting burdens and complexities;
•: disruption of our ongoing business and significant diversion of management attention from day-to-day responsibilities;
•: localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements;
•: lack of familiarity with, and unexpected changes in, foreign regulatory requirements;
•: longer accounts receivable payment cycles;
•: difficulties in managing and staffing international operations;

•: the burdens of complying with a wide variety of foreign laws and legal standards;
•: political, social and economic instability abroad, terrorist attacks and security concerns in general; and
•: reduced or varied protection for intellectual property rights.

The occurrence of any one of these risks could negatively affect our international operations, our key business metrics, and our financial results.

Our business could be shut down or severely impacted by a catastrophic event.

Our business could be materially and adversely affected by a catastrophic event. A disaster such as a fire, earthquake, flood, power loss, terrorism, or other similar event, affecting any of our facilities, data centers or computer systems could result in a significant and extended disruption of our operations and services. Any prolonged disruption of our services due to these or other events would severely impact our business. We do not carry earthquake or flood insurance, and the property, business interruption and other insurance we do carry may not be sufficient to cover, if at all, losses that may occur as a result of any events which cause interruptions in our services.

Current economic conditions may have a material and adverse impact on our business, financial condition and results of operations.

Economic conditions in the United States and the European Union have been deteriorating and may remain depressed for the foreseeable future. Certain of our products and services are discretionary and dependent upon levels of consumer spending. If consumer spending decreases as a result of the current economic conditions, demand for our products and services could be materially and adversely affected. Our advertising revenues may decrease as well if a decrease in consumer spending results in a decrease in spending by advertisers. In addition, certain of our products and services are paid for using a credit card. To the extent economic conditions result in an increase in the number of credit cards which cannot be charged, our business, financial condition, and results of operations could be adversely affected.

We are exposed to the credit risk of our advertisers and florist members. Adverse economic conditions could result in an increase in this exposure and could cause us to limit the companies with whom we do business due to credit risks. Adverse economic conditions could also adversely impact our key vendors, which could adversely impact our business.

We cannot predict our future capital needs and we may not be able to secure additional financing.

We may need to raise additional funds in the future to fund our operations, for acquisitions of businesses, services or technologies or for other purposes. Additional financing may not be available in a timely manner, on terms favorable to us, or at all. We incurred substantial indebtedness in connection with the acquisition of FTD. The terms of such indebtedness in addition to the degree to which we are leveraged will adversely affect our ability to obtain additional financing. In addition, the current extreme volatility of, and disruption in, the securities and credit markets may restrict our ability to raise any such additional funds. If adequate funds are not available or not available when required and in sufficient amounts or on acceptable terms, our business and future prospects may suffer.

We may stop paying, or reduce, quarterly cash dividends on our common stock.

The payment of future dividends is discretionary and is subject to determination by our Board of Directors each quarter following its review of our financial condition, results of operations and cash flows and such other factors as are deemed relevant by our Board of Directors. The terms of our indebtedness impose limitations on our ability to pay dividends. Commencing with the third quarter of

2008, we have decreased our quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock. Changes in our business needs, including working capital and funding for acquisitions, or a change in tax laws relating to dividends, among other factors, could cause our Board of Directors to decide to cease the payment of, or further reduce, dividends in the future. We cannot assure you that we will not decrease or discontinue quarterly cash dividends, and if we do, our stock price could be negatively impacted.

We have anti-takeover provisions that may make it difficult for a third-party to acquire us.

Provisions of our certificate of incorporation, our bylaws and Delaware law could make it difficult for a third-party to acquire us, even if doing so might be beneficial to our stockholders because of a premium price offered by a potential acquirer. Our Board of Directors adopted a stockholder rights plan, which is an anti-takeover measure that will cause substantial dilution to a third-party who attempts to acquire our Company on terms not approved by our Board of Directors.

Our stock price has been highly volatile and may continue to be volatile.

The market price of our common stock has fluctuated significantly and it may continue to be volatile with extreme trading volume fluctuations. In addition, The Nasdaq Global Select Market, where most publicly-held Internet companies are traded, has experienced substantial price and trading volume fluctuations. The broad market and industry factors that influence or affect such fluctuations may harm the market price of our common stock, regardless of our actual operating performance. As a result of these or other reasons, we could suffer significant declines in the market price of our common stock.

RISKS RELATING TO OUR FTD SEGMENT

Market competition among our existing and potential competitors could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We compete in the market for flowers and, to a lesser degree, specialty gifts, both direct to the consumer and through retail floral locations. Consumers and retail floral locations are our customers. The market for flowers and specialty gifts is highly competitive, and consumers can purchase the products we offer from numerous sources, including traditional florists, grocery chains, specialty gift retailers and direct marketers, including those that use Web sites, toll-free telephone numbers and catalogs. In the U.S., key competitors include 1-800-FLOWERS.COM, Inc., Proflowers.com, owned by Liberty Media Corporation, and Teleflora. International key competitors include Marks & Spencer, Tesco, John Lewis, Teleflorist, and Flowers Direct.

Competition in our market will likely intensify. In particular, the nature of the Internet as a marketplace facilitates competitive entry and comparative shopping. Some of our existing and potential competitors may have significant competitive advantages over us, including larger customer bases and greater technical expertise, brand recognition or Internet commerce experience. In addition, some of our existing and potential competitors may be able to devote significantly greater resources to marketing campaigns. They also may be able to respond more quickly and effectively than we can to new or changing opportunities, technological developments or customer requirements. We expect competition to continue to increase. Increased competition may result in lower revenues due to price reductions, reduced gross margins and loss of market share. We cannot provide assurance that we will be able to compete successfully or that competitive pressures will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are dependent on third-parties who fulfill orders and deliver goods and services to our customers and their failure to provide our customers with high quality products and customer service may harm our brand and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We believe that our success in promoting and enhancing our brands depends on our ability to provide our customers high quality products and a high level of customer service. Our business depends, in part, on the ability of our network of independent florist members and third-party suppliers who fulfill our orders to do so at high quality levels. We work with our florist members and third-party suppliers to develop best practices for quality assurance; however, we do not directly control or continuously monitor any florist member or third-party supplier. The failure of our network of florist members or third-party suppliers to fulfill orders to our customers' satisfaction, at an acceptable quality level and within the required timeframe, could adversely impact our brand and cause us to lose customers, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Additionally, because we depend upon third-parties for the delivery of our products to customers, strikes or other service interruptions affecting these shippers could have an adverse effect on our ability to deliver our products on a timely basis. If any of our shippers are unable or unwilling to deliver our products, we would have to engage alternative shippers which could increase our costs. A disruption in any of our shippers' delivery of our products could cause us to lose customers or could increase our costs, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The success of our business is dependent on our florist members and on the financial performance of the retail floral industry.

A significant portion of our profitability is dependent on our florist members. We have lost, and may continue to lose, florist members as a result of both our members choosing not to do business with us as well as declines in the number of retail florists as a result of economic factors including competition in the retail floral industry. If we lose key florist members or a significant number of florist members, or if we are not able to maintain or increase revenues from our florist members, our business, financial condition, results of operations and cash flows may be materially and adversely affected.

If the supply of flowers becomes limited, the price of these products could rise or these products may become unavailable, which could result in our not being able to meet consumer demand, which could cause an adverse effect on our business, financial condition, results of operations and cash flows.

Many factors, such as weather conditions, agricultural limitations and restrictions relating to the management of pests and disease, affect the supply of flowers and the price of our floral products. If the supply of flowers available for sale is limited, the wholesale prices of flowers could rise, which would cause us to increase our prices or reduce our profits and gross margins. An increase in our prices could result in a decline in customer demand for our floral products, which would decrease our revenues.

Alternatively, we may not be able to obtain high quality flowers in an amount sufficient to meet customer demand. Even if available, flowers from alternative sources may be of lesser quality and/or may be more expensive than those currently offered by us. A large portion of our supply of flowers is sourced from countries such as Colombia, Ecuador and Holland.

The availability and price of our products could be affected by a number of other factors affecting suppliers, including:

•: severe weather;
•: import duties and quotas;
•: time-consuming import regulations or controls at airports;
•: changes in trading status;
•: economic uncertainties and currency fluctuations, including as a result of the recent volatility and disruptions in the credit markets and general economy;
•: foreign government regulations and political unrest;
•: governmental bans or quarantines; and
•: trade restrictions, including U.S. retaliation against foreign trade practices.

Foreign, state and local governments may attempt to impose additional sales and use taxes, value-added taxes or other taxes on our business activities, including our past sales, which could decrease our ability to compete with traditional retailers, reduce our sales, and have a material adverse effect on our business, financial condition, results of operations and cash flows.

In accordance with current industry practice by domestic floral and specialty gift order gatherers and our interpretation of applicable law, our FTD business collects and remits sales and use taxes on orders that are delivered in states where FTD has a physical presence or other form of jurisdictional nexus, which is a limited number of states. If states successfully challenge this practice and impose sales and use taxes on orders delivered in states where we do not have physical presence, we could incur substantial tax liabilities for past sales and lose future sales as a result of the increased tax cost that would be borne by the customer. In addition, future changes in the operation of our online and telephonic sales channels could result in the imposition of additional sales and use tax obligations. Moreover, a number of states have been considering or instituting policy initiatives, including those regarding nexus by Internet marketers with the states aimed at expanding the reach of existing sales and use tax legislation, that could result in the imposition of additional sales and use taxes on sales over the Internet which, if enacted and legally supported by the courts, could require us to collect additional sales and use taxes.

Additionally, in accordance with current industry practice by international floral and specialty gift direct marketers and our interpretation of applicable law, we collect and remit value-added taxes on certain consumer orders placed through Interflora. Future changes in the operation of our Interflora business could result in the imposition of additional tax obligations. Moreover, if a foreign taxing authority challenges our current practice or implements new legislative initiatives, additional taxes on consumer sales could be due by us. The imposition of additional tax liability for past or future sales could decrease our ability to compete with traditional retailers, which could have a material adverse effect on our business, financial conditions, results of operations and cash flow.

During peak periods, we utilize temporary employees and outsourced staff, who may not be as well-trained or committed to our customers as our permanent employees, and their failure to provide our customers with high-quality customer service may cause our customers not to return, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

During peak periods, we utilize and rely on a significant number of temporary employees and outsourced staff in addition to our permanent employees, to take orders and respond to customer

inquiries. These temporary employees and outsourced staff may not have the same level of commitment to our customers or be as well trained as our permanent employees. In addition, we may not hire enough temporary employees and outsourced staff to adequately handle the increased volume of telephone calls we receive during peak periods. If our customers are dissatisfied with the quality of the customer service they receive, they may not shop with us again, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

RISKS RELATING TO OUR CLASSMATES MEDIA SEGMENT

We expect to face increasing competition that could result in a loss of users and reduced revenues and decreased profitability.

The market for our social networking services is competitive, and we expect competition to significantly increase in the future. We compete with a wide variety of social networking Web sites, including broad social networking Web sites such as MySpace and Facebook; a number of specialty Web sites, including LinkedIn and Reunion.com, that offer online social networking services based on school or work communities; and an increasing number of schools, employers and associations that maintain their own Internet-based alumni information services. We also compete with a wide variety of Web sites that provide users with alternative networks and ways of locating and interacting with acquaintances from various affiliations, including Web portals such as Yahoo!, MSN and AOL, and online services designed to locate individuals such as White Pages and US Search, and Internet search engines that have the ability to locate individuals, including by finding individuals through their profiles on social networking Web sites.

As a result of the growth of the social networking market and minimal barriers to entry, a number of companies have entered or are attempting to enter our market, either directly or indirectly, some of which may become significant competitors in the future. In addition, many existing social networking services are broadening their service offerings to compete with our services. As we broaden our services and also evolve into a service used for meeting new people with similar interests or affiliations, we may compete with the increasing number of social networking Web sites for special niches and areas of interest.

The market for loyalty marketing services is highly competitive, and we expect competition to significantly increase in the future as loyalty marketing programs grow in popularity. We face competition for members from several other online loyalty marketing programs, including Ebates, Upromise, FatWallet, and Inboxdollars. We also face competition from offline loyalty marketing programs that have a significant online presence, such as those operated by credit card, airline and hotel companies.

Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales, and marketing resources, and engage in more extensive research and development than we do. Some of our competitors also have lower customer acquisition costs than we do, offer a wider variety of services, have more compelling Web sites with more extensive user-generated content or offer their services free to their users. If our competitors are more successful than we are in attracting users, our ability to maintain a large and growing user base will be adversely affected. If our social networking competitors provide similar services for free, we may not be able to continue to charge for any of our services. Competition could have a material adverse effect on our subscription revenues from social networking services, as well as on advertising revenues from our social networking and loyalty marketing services. More intense competition could also require us to increase our marketing expenditures. As a result of competition, our revenues and profitability could be adversely affected.

Failure to increase or maintain the number of pay accounts for our social networking services could cause our business and financial results to suffer.

Pay accounts are critical to our business model. Only a small percentage of users initially registering for our social networking services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenue is highly dependent on our ability to attract users to our Web sites and register them as free members, to encourage them to return to our Web sites, and to convince them to become pay accounts in order to access the pay features of our Web sites. If we are not able to attract users to our Web sites and convert a significant portion to pay accounts, we may not be able to increase or maintain the number of pay accounts for our social networking services and our business and financial results would be adversely affected.

A number of our social networking pay account subscriptions each month are not renewed or are cancelled, which, for the Classmates Media segment, we refer to as "churn." The level of churn we experience fluctuates from quarter to quarter due to a variety of factors, including our mix of subscription terms, which affects the timing of subscription expirations. We must continually add new social networking pay accounts both to replace pay accounts who churn and to grow our business beyond our current pay account base. We expect that our churn rate will continue to fluctuate from period to period. A significant majority of our pay accounts are on plans that automatically renew at the end of their subscription period and we have received complaints with respect to our renewal policies. Any change in our renewal policies or practices could have a material impact on our churn rate. If we experience a higher than expected level of churn, it will make it more difficult for us to increase or maintain the number of pay accounts, which could reduce our revenues and adversely affect our financial results.

Failure to increase or maintain the number of members for our social networking and loyalty marketing services or the activity level of these members could cause our business and financial results to suffer.

The success of our social networking and loyalty marketing services depends upon our ability to increase or maintain our base of free members and the level of activity of those members. A decline in the number of registered or active free social networking members, or a decline in the activity of those members, could result in decreased pay accounts, decreased content on our Web sites and decreased advertising revenues. A decline in the number of registered or active loyalty marketing members could result in decreased advertising revenues. The failure to increase or maintain our base of free members, or the failure to convince our free members to actively participate in our Web sites or services, could have a material adverse effect on our business and our financial results.

Our social networking and loyalty marketing businesses rely heavily on email campaigns, and any disruptions or restrictions on the sending of emails or increase in the associated costs could adversely affect our results of operations.

Our emails generate the majority of the traffic on our social networking Web sites and are the most important driver of member activity for our loyalty marketing service. A significant number of our social networking and loyalty marketing members elect to opt-out of receiving certain types of emails. Without the ability to email these members, we have very limited means of inducing members to return to our Web sites and utilize our services. An increase in the number of members who opt-out of receiving our emails could adversely affect our business and results of operations.

Each month, a significant number of email addresses for our social networking and loyalty marketing members become invalid. This disrupts our ability to email these members and prevents social networking members from being able to contact these members, which is a key reason why members use our social networking services. From time to time, Internet service providers block bulk

email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our members. Third-parties may also block, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Due to the importance of email to our businesses, any disruption or restriction on the distribution of emails or increase in the associated costs could materially and adversely affect our revenues and profitability.

RISKS RELATING TO OUR COMMUNICATIONS SEGMENT

Our business will suffer if we are unable to compete successfully.

Our primary Communications service offering is dial-up Internet access, and we compete with other dial-up Internet access providers as well as providers of broadband services. Our key dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers ("ISPs"), such as EarthLink and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services. As a result, dial-up Internet access services are having an increasingly difficult time competing with broadband services and the number of dial-up Internet access accounts in the United States continues to decline. In addition to competition from broadband providers, competition among dial-up Internet access service providers is intense and neither our pricing nor our features provides us with a significant competitive advantage, if any, over certain of our dial-up Internet access competitors. While we also offer broadband services, we do not have a large base of subscribers, do not extensively market our services, and our pricing is not competitive with many other services, particularly those services that are bundled with other services such as phone, data and video services. We expect that competition, particularly with respect to price, both for broadband as well as dial-up Internet access services, will continue, and that our dial-up Internet access subscriber base will continue to decrease, potentially at an increasing rate, and that our broadband services will not experience significant growth.

In order to compete effectively, we may have to make significant revisions to our services, pricing and marketing strategies, and business model. For example, we may have to lower our introductory rates, offer additional free periods of service, offer additional features at little or no additional cost to the consumer, and reduce the standard pricing of our services. Measures such as these could decrease our revenues and our average revenue per dial-up Internet access pay account. We may also have to allocate more marketing resources toward our dial-up Internet access services than we anticipate. All of the foregoing could adversely affect the profitability of our dial-up Internet access services which could materially and adversely impact our financial position, results of operations and cash flows.

Revenues and profitability of our Communications segment are expected to decrease.

Most of our Communications revenues and profits come from our dial-up Internet access services. As a result of expected continued decreases in our dial-up Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications services revenues, advertising revenues, and the profitability of this segment will continue to decline over time. The number of dial-up Internet access pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up for our services as well as the impact of subscribers cancelling their accounts, which, for the Communications segment, we refer to as churn. Churn has increased from time to time and may increase in the future. The rate of decline in Communications services revenues has accelerated in some periods and may continue to accelerate. We also expect that our Communications advertising revenues will continue to decline. Continued declines, particularly if such declines accelerate, in Communications revenues may materially and adversely impact the profitability of this segment.

Our Internet access business is dependent on the availability of telecommunications services.

Our Internet access business substantially depends on the availability, capacity, affordability, reliability, and security of our telecommunications networks. Only a limited number of telecommunications providers offer the network and data services we currently require, and we purchase most of our telecommunications services from a few providers. Some of our telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect not to renew. In addition, some telecommunications providers may cease to offer network services for certain less populated areas, which would reduce the number of providers from which we may purchase services and may entirely eliminate our ability to purchase services for certain areas. If we are unable to maintain, renew or obtain new agreements with telecommunications providers, our business, financial position, results of operations, and cash flows could be materially and adversely affected.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)-(b) Not applicable

(c) Repurchases

In May 2001, our Board of Directors authorized a common stock repurchase program (the "program") that allows us to repurchase shares of our common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time, our Board of Directors has increased the amount authorized for repurchase under this program and has extended the program. In April 2004, our Board of Directors authorized us to purchase up to an additional $100 million of our common stock under the program, bringing the total amount authorized under the program to $200 million. In January 2008, our Board again further extended the program through December 31, 2008. At September 30, 2008, we had repurchased $139.2 million of our common stock under the program, leaving $60.8 million of authorization remaining under the program.

Common stock repurchases through September 30, 2008 were as follows (in thousands, except per share amounts):

Period			Average Price Paid per Share			Maximum Approximate Dollar Value that May Yet be Purchased Under the Program

2001-2005		10,932	$	12.72	10,932	$	60,782
February 15, 2006		129	$	12.77	—	$	60,782
May 15, 2006		26	$	11.87	—	$	60,782
August 15, 2006		38	$	10.92	—	$	60,782
November 15, 2006		22	$	13.88	—	$	60,782
February 15, 2007		194	$	13.72	—	$	60,782
May 15, 2007		71	$	15.89	—	$	60,782
August 15, 2007		69	$	12.82	—	$	60,782
November 15, 2007		56	$	16.66	—	$	60,782
January 27, 2008		142	$	10.71	—	$	60,782
February 15, 2008		404	$	11.49	—	$	60,782
May 15, 2008		81	$	11.81	—	$	60,782
July 20, 2008		2	$	10.45	—	$	60,782
July 31, 2008		1	$	10.86	—	$	60,782
August 15, 2008		104	$	11.79	—	$	60,782

	Total	12,271	$	12.70	10,932

ITEM 6. EXHIBITS

				Incorporated by Reference to

			Filed with this Form 10-Q	Incorporated by Reference to
No.		Exhibit Description	Filed with this Form 10-Q	Form		File No.		Date Filed
	2.1	Stock Purchase Agreement, dated as of April 9, 2006, by and between United Online, Inc. and UAL Corporation			8-K		000-33367		4/13/2006
	2.2	Agreement and Plan of Merger, dated April 30, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc.			S-4/A		333-151998		7/22/2008
	2.3	Amendment No. 1 to Agreement and Plan of Merger, dated July 16, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc.			S-4/A		333-151998		7/22/2008
	3.1	Amended and Restated Certificate of Incorporation			10-K		000-33367		3/1/2007
	3.2	Amended and Restated Bylaws			10-K		000-33367		3/1/2007
	3.3	Certificate of Designation for Series A Junior Participating Preferred Stock (included in Exhibit 4.1 below)			10-K		000-33367		3/1/2007
	4.1	Rights Agreement, dated as of November 15, 2001, between the Company and U.S. Stock Transfer Corporation, which includes the form of Certificate of Designation for the Series A junior participating preferred stock as Exhibit A, and the form of Rights Certificate as Exhibit B			10-K		000-33367		3/1/2007
	4.2	Amendment No. 1 to Rights Agreement, dated as of April 29, 2003, between the Registrant and U.S. Stock Transfer Corporation			10-Q		000-33367		5/1/2003
	10.1	2001 Amended and Restated Employee Stock Purchase Plan			10-Q		000-33367		5/3/2004
	10.2	2001 Stock Incentive Plan			10-Q		000-33367		8/9/2007
	10.3	Form of Option Agreement for 2001 Stock Incentive Plan			10-Q		000-33367		10/27/2004
	10.4	Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan and 2001 Supplemental Stock Incentive Plan			10-Q		000-33367		8/8/2005
	10.5	Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan			10-Q		000-33367		5/12/2008
	10.6	2001 Supplemental Stock Incentive Plan			10-Q		000-33367		8/9/2007
	10.7	Form of Option Agreement for 2001 Supplemental Stock Incentive Plan			10-Q		000-33367		10/27/2004
	10.8	Classmates Online, Inc. Amended and Restated 1999 Stock Plan			S-8		333-121217		2/11/2005

				Incorporated by Reference to

			Filed with this Form 10-Q	Incorporated by Reference to
No.		Exhibit Description	Filed with this Form 10-Q	Form		File No.		Date Filed
	10.9	Classmates Online, Inc. 2004 Stock Plan			10-Q		000-33367		5/10/2005
	10.10	Form of Option Agreement for Classmates Online, Inc. 2004 Stock Plan			10-Q		000-33367		5/10/2005
	10.11	FTD Group, Inc. 2005 Equity Incentive Award Plan, Amended and Restated as of October 29, 2008	X				000-33367		11/10/2008
	10.12	Form of Restricted Stock Unit Issuance Agreement for FTD Group, Inc. 2005 Equity Incentive Award Plan, Amended and Restated as of October 29, 2008	X				000-33367		11/10/2008
	10.13	Employment Agreement between the Registrant and Mark R. Goldston			10-Q		000-33367		5/3/2007
	10.14	First Amendment to Employment Agreement between the Registrant and Mark R. Goldston			10-Q		000-33367		10/30/2007
	10.15	Employment Agreement between Classmates Media Corporation and Mark R. Goldston			10-Q		000-33367		10/30/2007
	10.16	Employment Agreement between the Registrant and Jeremy E. Helfand			10-Q		000-33367		10/30/2007
	10.17	Employment Agreement between the Registrant and Paul E. Jordan			10-Q		000-33367		10/30/2007
	10.18	Amended and Restated Employment Agreement between Classmates Online, Inc. and Steven B. McArthur	X				000-33367		11/10/2008
	10.19	Employment Agreement between the Registrant and Frederic A. Randall, Jr.			10-Q		000-33367		10/30/2007
	10.20	Employment Agreement between the Registrant and Scott H. Ray			10-Q		000-33367		10/30/2007
	10.21	Employment Agreement between the Registrant and Gerald J. Popek			10-Q		000-33367		10/30/2007
	10.22	Employment Agreement between the Registrant and Robert J. Taragan			10-Q		000-33367		10/30/2007
	10.23	Employment Agreement between the Registrant and Matthew J. Wisk			10-Q		000-33367		10/30/2007
	10.24	Employment Agreement between FTD Group, Inc. and Robert S. Apatoff	X				000-33367		11/10/2008
	10.25	Office Lease between LNR Warner Center, LLC and NetZero, Inc.			10-Q		000-33367		5/3/2004
	10.26	Commitment Letter, dated April 30, 2008, from Wells Fargo Bank, National Association, to United Online, Inc.			8-K		000-33367		5/6/2008
	10.27	Commitment Letter, dated July 2, 2008, from Silicon Valley Bank to United Online, Inc.			8-K		000-33367		7/17/2008

				Incorporated by Reference to

			Filed with this Form 10-Q	Incorporated by Reference to
No.		Exhibit Description	Filed with this Form 10-Q	Form		File No.		Date Filed
	10.28	Voting and Support Agreement, dated as of April 30, 2008, by and among Green Equity Investors IV L.P., FTD Co-Investment, LLC and United Online, Inc.			S-4/A		333-151998		7/22/2008
	10.29	United Online, Inc. 2008 Management Bonus Plan			10-Q		000-33367		8/8/2008
	10.30	Credit Agreement, dated as of August 4, 2008, among UNOLA Corp., the financial institutions party thereto from time to time and Wells Fargo Bank, National Association, as sole lead arranger, sole book manager and administrative agent			8-K		000-33367		8/8/2008
	10.31	Credit Agreement, dated as of August 11, 2008, among United Online, Inc., the lenders party thereto from time to time and Silicon Valley Bank, as administrative agent			8-K		000-33367		8/14/2008
	10.32	Form of Indemnification Agreement	X				000-33367		11/10/2008
	10.33	Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan and 2001 Supplemental Stock Incentive Plan	X				000-33367		11/10/2008
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008
	32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008
	32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 10, 2008	UNITED ONLINE, INC. (Registrant)
	By:	/s/ SCOTT H. RAY Scott H. Ray Executive Vice President and Chief Financial Officer
	By:	/s/ NEIL P. EDWARDS Neil P. Edwards Senior Vice President, Finance, Treasurer and Chief Accounting Officer

EXHIBIT INDEX

				Incorporated by Reference to

			Filed with this Form 10-Q	Incorporated by Reference to
No.		Exhibit Description	Filed with this Form 10-Q	Form		File No.		Date Filed
	2.1	Stock Purchase Agreement, dated as of April 9, 2006, by and between United Online, Inc. and UAL Corporation			8-K		000-33367		4/13/2006
	2.2	Agreement and Plan of Merger, dated April 30, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc.			S-4/A		333-151998		7/22/2008
	2.3	Amendment No. 1 to Agreement and Plan of Merger, dated July 16, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc.			S-4/A		333-151998		7/22/2008
	3.1	Amended and Restated Certificate of Incorporation			10-K		000-33367		3/1/2007
	3.2	Amended and Restated Bylaws			10-K		000-33367		3/1/2007
	3.3	Certificate of Designation for Series A Junior Participating Preferred Stock (included in Exhibit 4.1 below)			10-K		000-33367		3/1/2007
	4.1	Rights Agreement, dated as of November 15, 2001, between the Company and U.S. Stock Transfer Corporation, which includes the form of Certificate of Designation for the Series A junior participating preferred stock as Exhibit A, and the form of Rights Certificate as Exhibit B			10-K		000-33367		3/1/2007
	4.2	Amendment No. 1 to Rights Agreement, dated as of April 29, 2003, between the Registrant and U.S. Stock Transfer Corporation			10-Q		000-33367		5/1/2003
	10.1	2001 Amended and Restated Employee Stock Purchase Plan			10-Q		000-33367		5/3/2004
	10.2	2001 Stock Incentive Plan			10-Q		000-33367		8/9/2007
	10.3	Form of Option Agreement for 2001 Stock Incentive Plan			10-Q		000-33367		10/27/2004
	10.4	Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan and 2001 Supplemental Stock Incentive Plan			10-Q		000-33367		8/8/2005
	10.5	Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan			10-Q		000-33367		5/12/2008
	10.6	2001 Supplemental Stock Incentive Plan			10-Q		000-33367		8/9/2007
	10.7	Form of Option Agreement for 2001 Supplemental Stock Incentive Plan			10-Q		000-33367		10/27/2004
	10.8	Classmates Online, Inc. Amended and Restated 1999 Stock Plan			S-8		333-121217		2/11/2005
	10.9	Classmates Online, Inc. 2004 Stock Plan			10-Q		000-33367		5/10/2005
	10.10	Form of Option Agreement for Classmates Online, Inc. 2004 Stock Plan			10-Q		000-33367		5/10/2005

				Incorporated by Reference to

			Filed with this Form 10-Q	Incorporated by Reference to
No.		Exhibit Description	Filed with this Form 10-Q	Form		File No.		Date Filed
	10.11	FTD Group, Inc. 2005 Equity Incentive Award Plan, Amended and Restated as of October 29, 2008	X				000-33367		11/10/2008
	10.12	Form of Restricted Stock Unit Issuance Agreement for FTD Group, Inc. 2005 Equity Incentive Award Plan, Amended and Restated as of October 29, 2008	X				000-33367		11/10/2008
	10.13	Employment Agreement between the Registrant and Mark R. Goldston			10-Q		000-33367		5/3/2007
	10.14	First Amendment to Employment Agreement between the Registrant and Mark R. Goldston			10-Q		000-33367		10/30/2007
	10.15	Employment Agreement between Classmates Media Corporation and Mark R. Goldston			10-Q		000-33367		10/30/2007
	10.16	Employment Agreement between the Registrant and Jeremy E. Helfand			10-Q		000-33367		10/30/2007
	10.17	Employment Agreement between the Registrant and Paul E. Jordan			10-Q		000-33367		10/30/2007
	10.18	Amended and Restated Employment Agreement between Classmates Online, Inc. and Steven B. McArthur	X				000-33367		11/10/2008
	10.19	Amended and Restated Employment Agreement between the Registrant and Frederic A. Randall, Jr.			10-Q		000-33367		10/30/2007
	10.20	Employment Agreement between the Registrant and Scott H. Ray			10-Q		000-33367		10/30/2007
	10.21	Employment Agreement between the Registrant and Gerald J. Popek			10-Q		000-33367		10/30/2007
	10.22	Employment Agreement between the Registrant and Robert J. Taragan			10-Q		000-33367		10/30/2007
	10.23	Employment Agreement between the Registrant and Matthew J. Wisk			10-Q		000-33367		10/30/2007
	10.24	Employment Agreement between FTD Group, Inc. and Robert S. Apatoff	X				000-33367		11/10/2008
	10.25	Office Lease between LNR Warner Center, LLC and NetZero, Inc.			10-Q		000-33367		5/3/2004
	10.26	Commitment Letter, dated April 30, 2008, from Wells Fargo Bank, National Association, to United Online, Inc.			8-K		000-33367		5/6/2008
	10.27	Commitment Letter, dated July 2, 2008, from Silicon Valley Bank to United Online, Inc.			8-K		000-33367		7/17/2008
	10.28	Voting and Support Agreement, dated as of April 30, 2008, by and among Green Equity Investors IV L.P., FTD Co-Investment, LLC and United Online, Inc.			S-4/A		333-151998		7/22/2008

				Incorporated by Reference to

			Filed with this Form 10-Q	Incorporated by Reference to
No.		Exhibit Description	Filed with this Form 10-Q	Form		File No.		Date Filed
	10.29	United Online, Inc. 2008 Management Bonus Plan			10-Q		000-33367		8/8/2008
	10.30	Credit Agreement, dated as of August 4, 2008, among UNOLA Corp., the financial institutions party thereto from time to time and Wells Fargo Bank, National Association, as sole lead arranger, sole book manager and administrative agent			8-K		000-33367		8/8/2008
	10.31	Credit Agreement, dated as of August 11, 2008, among United Online, Inc., the lenders party thereto from time to time and Silicon Valley Bank, as administrative agent			8-K		000-33367		8/14/2008
	10.32	Form of Indemnification Agreement	X				000-33367		11/10/2008
	10.33	Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan and 2001 Supplemental Stock Incentive Plan	X				000-33367		11/10/2008
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008
	32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008
	32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X				000-33367		11/10/2008

QuickLinks

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNITED ONLINE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
UNITED ONLINE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
UNITED ONLINE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
UNITED ONLINE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands)
UNITED ONLINE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
UNITED ONLINE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 6. EXHIBITS

SIGNATURES
EXHIBIT INDEX
EX-10.11 2 a2189034zex-10_11.htm EX-10.11

Exhibit 10.11

FTD GROUP, INC.
2005 EQUITY INCENTIVE AWARD PLAN

AMENDED AND RESTATED AS OF OCTOBER 29, 2008

AND AS

ASSUMED AND ADMINISTERED BY UNITED ONLINE, INC.

ARTICLE 1

PURPOSE

The purpose of the FTD Group, Inc. 2005 Equity Incentive Award Plan, As Amended and Restated as of October 29, 2008 and Assumed by United Online, Inc. (the “Plan”), is to promote the success and enhance the value of United Online, Inc. (the “Company” by linking the personal interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

The Plan was originally implemented by FTD Group, Inc. as an amendment and restatement of the Stock Option Plan of Mercury Man Holdings Corporation, adopted as of September 30, 2004 (the “Original Plan”). The unallocated share reserve existing under the Plan immediately prior to the Company’s acquisition of FTD Group, Inc. pursuant to that certain Agreement and Plan of Merger by and among the Company, UNOLA Corp. and FTD Group, Inc. dated April 30, 2008 (the “Merger Agreement”) was assumed by the Company in connection with such acquisition. However, such share reserve has been adjusted to reflect the exchange ratio established by the Board on August 25, 2008 (the “Exchange Ratio”) in accordance with Nasdaq rules.

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

2.1 “Award” means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Performance Stock Unit award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, an Other Stock-Based Award, or a Performance-Based Award granted to a Participant pursuant to the Plan.

2.2 “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.

2.3 “Board” means the Board of Directors of the Company.

2.4 Change in Control” means a change in ownership or control of the Company effected through either of the following transactions:

(a) the acquisition, directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the

Company), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders, or

(b) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

2.5 “Code” means the Internal Revenue Code of 1986, as amended.

2.6 “Committee” means the committee of the Board described in Article 12.

2.7 “Consultant” means any consultant or adviser if:

(a) The consultant or adviser renders bona fide services to the Company;

(b) The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and

2.8 “Corporate Event” means, as determined by the Committee (or by the Board, in the case of Options granted to Independent Directors) in its sole discretion, any transaction or event described in Section 11.1(a) or any unusual or nonrecurring transaction or event affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate of the Company.

2.9 “Corporate Transaction” means either of the following stockholder approved transactions to which the Company is a party:

(a) a merger, consolidation or reorganization approved by the Company’s stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction, or

(b) any stockholder-approved transfer or other disposition of all or substantially all of the Company’s assets.

2.10 “Covered Employee” means an Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code.

2.11 “Deferred Stock” means a right to receive a specified number of shares of Stock during specified time periods pursuant to Article 8.

2.12 “Disability” means that the Participant qualifies to receive long-term disability payments under the Company’s long-term disability insurance program, as it may be amended from time to time.

2.13 “Dividend Equivalents” means a right granted to a Participant pursuant to Article 8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.

2.14 “Effective Date” shall have the meaning set forth in Section 13.1.

2.15 “Eligible Individual” means any person who is an Employee, a Consultant or a member of the Board, as determined by the Committee, subject, however, to the limitations of Section 4.1.

2.16 “Employee” means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary.

2.17 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

2.18 “Fair Market Value” per share of the Company’s common stock on any relevant date shall be the closing selling price per share of the Company’s common stock at the close of regular hours trading (i.e., before after-hours trading begins) on the date in question on the Stock Exchange serving as the primary market for the Company’s common stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange on which the Company’s common stock is then primarily traded. If there is no closing selling price for the Company’s common stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

2.19 “Hostile Take-Over” means the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which the Board does not recommend such stockholders to accept.

2.20 “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

2.21 “Independent Director” means a member of the Board who is not an Employee of the Company.

2.22 “1934 Act” means the Securities Exchange Act of 1934, as amended.

2.23 “Non-Employee Director” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.

2.24 “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.

2.25 “Option” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. Options granted prior to August 26, 2008 may be either Incentive Stock Options or a Non-Qualified Stock Options. No Incentive Stock Options shall be granted under the Plan on or after August 26, 2008.

2.26 “Other Stock-Based Award” means an Award granted or denominated in Stock or units of Stock pursuant to Section 8.7 of the Plan.

2.27 “Participant” means any Eligible Individual who, as a member of the Board, Consultant or Employee, has been granted an Award pursuant to the Plan.

2.28 “Performance-Based Award” means an Award granted to a selected Eligible Employee pursuant to Articles 6 and 8, but which is subject to the terms and conditions set forth in Article 9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based Compensation.

2.29 “Performance Criteria” means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: net earnings (either before or after interest, taxes, depreciation and amortization), economic value-added (as determined by the Committee), sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee shall, within the time prescribed by Section 162(m) of the Code, define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant.

2.30 “Performance Goals” means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

2.31 “Performance Period” means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance-Based Award.

2.32 “Performance Share” means a right granted to a Participant pursuant to Article 8, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.

2.33 “Performance Stock Unit” means a right granted to a Participant pursuant to Article 8, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.

2.34 “Plan” means this 2005 Equity Incentive Award Plan, Amended and Restated as of October 29, 2008, and Assumed and Administered by the Company, as it may be amended from time to time.

2.35 “Qualified Performance-Based Compensation” means any compensation that is intended to qualify as “qualified performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

2.36 “Restricted Stock” means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.

2.37 “Restricted Stock Unit” means an Award granted pursuant to Section 8.6.

2.38 “Securities Act” shall mean the Securities Act of 1933, as amended.

2.39 “Stock” means the common stock of the Company, par value $0.0001 per share, and such other securities of the Company that may be substituted for Stock pursuant to Article 11.

2.40 “Stock Appreciation Right” or “SAR” means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.

2.41 “Stock Exchange” means the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York Stock Exchange.

2.42 “Stock Payment” means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Article 8.

2.43 “Subsidiary” means any “subsidiary corporation” as defined in Section 424(f) of the Code and any applicable regulations promulgated thereunder or any other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.

ARTICLE 3

SHARES SUBJECT TO THE PLAN

3.1 Number of Shares.

(a) Subject to Article 11 and Section 3.1(b), the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be 1,462,338 shares (as adjusted for the Exchange Ratio and subject to further adjustment pursuant to Section 11.1(a) below). In order that the applicable regulations under the Code relating to Incentive Stock Options be satisfied, the maximum number of shares of Stock that may be delivered upon exercise of Incentive Stock Options shall be the number specified in this Section 3.1(a), and, if necessary to satisfy such regulations, such maximum limit shall apply to the number of shares of Stock that may be delivered in connection with each other type of Award under the Plan (applicable separately to each type of Award); provided, however, that (i) no further Incentive Stock Options shall be granted under the Plan on or after August 26, 2008 and (ii) not more than 1,462,338 shares (subject to further adjustment pursuant to Section 11.1(a) below) may be issued in the aggregate under the Plan from and after August 26, 2008.

(b) To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan. Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by applicable law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan. Cash settlements of Dividend Equivalents in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan.

3.2 Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.

3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, and subject to Article 11, the maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant during a one-year period (measured from the date of any grant made to the

Participant) shall be 1,912,767 shares (as adjusted for the Exchange Ratio and subject to further adjustment pursuant to Section 11.1(a) below).

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

4.1 Eligibility. Each Eligible Individual shall be eligible to be granted one or more Awards pursuant to the Plan. In no event will any Awards be granted to (i) any individuals who were employed on or before August 26, 2008 by the Company or any Subsidiary (other than FTD Group, Inc. or any then-existing subsidiary of FTD Group, Inc.) or (ii) any individuals who were serving on August 26, 2008 as non-employee members of the board of directors of the Company or any Subsidiary (other than FTD Group, Inc. or any then-existing subsidiary of FTD Group, Inc.).

4.2 Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all Eligible Individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No Eligible Individual shall have any right to be granted an Award pursuant to this Plan.

4.3 Foreign Participants. In order to assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Sections 3.1 and 3.3 of the Plan.

ARTICLE 5

STOCK OPTIONS

5.1 General. The Committee is authorized to grant Options to Participants on the following terms and conditions:

(a) Exercise Price. The exercise price per share of Stock subject to an Option shall be determined by the Committee and set forth in the Award Agreement; provided that the exercise price for any Option shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant.

(b) Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten years. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.

(c) Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation: (i) cash, (ii) promissory note bearing interest at a market rate or such higher rate as may be required to preclude the imputation of interest under the Code, (iii) shares of Stock held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, or (iv) other property acceptable to the Committee (including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale), and the methods by which shares of Stock shall be delivered or deemed to be

delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.

(d) Evidence of Grant. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.

5.2 Incentive Stock Options. The terms of any Incentive Stock Options granted pursuant to the Plan must comply with the conditions and limitations contained Section 13.2 and this Section 5.2.

(a) Eligibility. Incentive Stock Options may be granted only to employees of FTD Group, Inc. or any “subsidiary corporation” thereof (within the meaning of Section 424(f) of the Code and the applicable regulations promulgated thereunder). Notwithstanding the foregoing, no Incentive Stock Options will be granted under the Plan on or after August 26, 2008.

(b) Exercise Price. The exercise price per share of Stock shall be set by the Committee; provided that subject to Section 5.2(e) the exercise price for any Incentive Stock Option shall not be less than 100% of the Fair Market Value on the date of grant.

(c) Expiration. Subject to Section 5.2(e), an Incentive Stock Option may not be exercised to any extent by anyone after the tenth anniversary of the date it is granted, unless an earlier time is set in the Award Agreement.

(d) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

(e) Ten Percent Owners. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.

(f) Notice of Disposition. The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such shares of Stock to the Participant.

(g) Right to Exercise. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.

5.3 Substitution of Stock Appreciation Rights. The Committee may provide in the Award Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have the right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option, subject to the provisions of Section 7.2 hereof; provided that such Stock Appreciation Right shall be exercisable with respect to the same number of shares of Stock for which such substituted Option would have been exercisable and shall have the same exercise price per share as the exercise price per share in effect for the Option at the time of such substitution.

5.4 Paperless Exercise. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Options, such as a system using an internet website or interactive voice response, then the paperless exercise of options by a Participant may be permitted through the use of such an automated system.

5.5 Granting of Options to Independent Directors. The Board may from time to time, in its sole discretion, and subject to the limitations of the Plan, including (without limitation) the eligibility provisions of Section 4.1:

(a) Select from among the Independent Directors (including Independent Directors who have previously been granted Options under the Plan) such of them as in its opinion should be granted Options;

(b) Subject to Section 3.3, determine the number of shares of Stock that may be purchased upon exercise of the Options granted to such selected Independent Directors; and

(c) Subject to the provisions of this Article 5, determine the terms and conditions of such Options, consistent with the Plan.

Options granted to Independent Directors shall be Non-Qualified Stock Options.

ARTICLE 6

RESTRICTED STOCK AWARDS

6.1 Grant of Restricted Stock. The Committee is authorized to make Awards of Restricted Stock to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by a written Restricted Stock Award Agreement.

6.2 Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

6.3 Forfeiture. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock; and provided, further, that any such waiver with respect to Restricted Stock intended to be Qualified Performance-Based Compensation shall be subject to the limitations and restrictions of Article 9.

6.4 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

ARTICLE 7

STOCK APPRECIATION RIGHTS

7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Participant selected by the Committee. A Stock Appreciation Right may be granted (a) in connection and simultaneously with the grant of an Option, (b) with respect to a previously granted Option, or (c) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement.

7.2 Coupled Stock Appreciation Rights.

(a) A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable, provided, however, that the exercise price for any CSAR shall not be less than 100% of the Fair Market Value on the date of grant, if granted simultaneously with such Option, or not less than the Option exercise price per share for the coupled Option if granted subsequently; and provided, further, that, the Committee in its sole and absolute discretion may provide that the CSAR may be exercised subsequent to a termination of employment or service, as applicable, or following a Corporate Event, or because of the Participant’s retirement, death or disability, or otherwise.

(b) A CSAR may be granted to a Participant for no more than the number of shares subject to the simultaneously or previously granted Option to which it is coupled.

(c) A CSAR shall entitle the Participant (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company the unexercised portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Stock on the date of exercise of the CSAR by the number of shares of Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose.

7.3 Independent Stock Appreciation Rights.

(a) An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by the Committee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Stock as the Committee may determine. The exercise price per share of Stock subject to each ISAR shall be set by the Committee; provided, however,

that the exercise price for any ISAR shall not be less than 100% of the Fair Market Value on the date of grant; and provided, further, that, the Committee in its sole and absolute discretion may provide that the ISAR may be exercised subsequent to a termination of employment or service, as applicable, or following a Corporate Event, or because of the Participant’s retirement, death or disability, or otherwise.

(b) An ISAR shall entitle the Participant (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Stock on the date of exercise of the ISAR by the number of shares of Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Committee may impose.

7.4 Payment and Limitations on Exercise.

(a) Payment of the amounts determined under Sections 7.2(c) and 7.3(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee.

(b) To the extent any payment under Section 7.2(c) or 7.3(b) is effected in Stock it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options.

ARTICLE 8

OTHER TYPES OF AWARDS

8.1 Performance Share Awards. Any Participant selected by the Committee may be granted one or more Performance Share awards which shall be denominated in a number of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.

8.2 Performance Stock Units. Any Participant selected by the Committee may be granted one or more Performance Stock Unit awards which shall be denominated in units of value, including dollar value of shares of Stock, and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.

8.3 Dividend Equivalents. Any Participant selected by the Committee may be granted Dividend Equivalents based on the dividends (other than in shares of Stock) declared on the shares of Stock that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Committee.

8.4 Stock Payments. Any Participant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter.

8.5 Deferred Stock. Any Participant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock Award has vested and the Stock underlying the Deferred Stock Award has been issued.

8.6 Restricted Stock Units. The Committee is authorized to make Awards of Restricted Stock Units to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. At the time of grant, the Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. At the time of grant, the Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the grantee, subject to compliance with the applicable deferral election requirements of Code Section 409A. On the maturity date, the Company shall, subject to Section 10.5(b), transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited. The Committee shall specify the purchase price, if any, to be paid by the grantee to the Company for such shares of Stock.

8.7 Other Stock-Based Awards. Any Participant selected by the Committee may be granted one or more Awards that provide Participants with shares of Stock or the right to purchase shares of Stock or that have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of Award) the contributions, responsibilities and other compensation of the particular Participant.

8.8 Term. Except as otherwise provided herein, the term of any Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or Other Stock-Based Award shall be set by the Committee in its discretion.

8.9 Exercise or Purchase Price. The Committee may establish the exercise or purchase price, if any, of any Award of Performance Shares, Performance Stock Units, Deferred Stock, Stock Payments, Restricted Stock Units or Other Stock-Based Award; provided, however, that such price shall not be less than the par value of a share of Stock on the date of grant, unless otherwise permitted by applicable state law.

8.10 Exercise Upon Termination of Employment or Service. An Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Deferred Stock, Stock Payments, Restricted Stock Units and Other Stock-Based Award shall only be exercisable or payable while the Participant is an Employee, Consultant or a member of the Board, as applicable; provided, however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or Other Stock-Based Award may be exercised or paid subsequent to a termination of employment or service, as applicable, or following a Corporate Event, or because of the Participant’s retirement, death or disability, or otherwise; provided, however, that any such provision with respect to Awards intended to be Qualified Performance-Based Compensation shall be subject to the requirements of Section 162(m) of the Code that apply to such Qualified Performance-Based Compensation.

8.11 Form of Payment. Payments with respect to any Awards granted under this Article 8 shall be made in cash, in Stock or a combination of both, as determined by the Committee.

8.12 Award Agreement. All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Committee and shall be evidenced by a written Award Agreement.

ARTICLE 9

PERFORMANCE-BASED AWARDS

9.1 Purpose. The purpose of this Article 9 is to provide the Committee the ability to qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a Performance-Based Award to an Eligible Employee, the provisions of this Article 9 shall control over any contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion grant Awards to Eligible Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 9.

9.2 Applicability. This Article 9 shall apply only to those Eligible Employees selected by the Committee to receive Performance-Based Awards. The designation of an Eligible Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of an Eligible Employee as a Participant for a particular Performance Period shall not require designation of such Eligible Employee as a Participant in any subsequent Performance Period and designation of one Eligible Employee as a Participant shall not require designation of any other Eligible Employees as a Participant in such period or in any other period.

9.3 Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 and 8 which may be granted to one or more Eligible Employees. no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Eligible Employees as recipients of the Performance-Based Awards, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Award recipient for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned by each Participant, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.

9.4 Payment of Performance-Based Awards. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company or a Subsidiary on the day a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved.

9.5 Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to an Eligible Employee and is intended to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

ARTICLE 10

PROVISIONS APPLICABLE TO AWARDS

10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

10.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.

10.3 Limits on Transfer. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution. The Committee by express provision in the Award or an amendment thereto may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of employment or service with the Company or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities.

10.4 Beneficiaries. Notwithstanding Section 10.3, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.

10.5 Stock Certificates; Book Entry Procedures.

(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock

certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.

(b) Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company shall not deliver to any Participant certificates evidencing shares of Stock issued in connection with any Award and instead such shares of Stock shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

11.1 Adjustments.

(a) Should any change be made to the Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, or other change affecting the outstanding Stock as a class without the Company’s receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one person may be granted Awards during any rolling one-year period under Section 3.3, (iii) the number and class of securities subject to each outstanding Award under the Plan and (iv) the exercise price or cash consideration payable per share under each such outstanding Award. Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code.

(b) In the event of any transaction or event described in Section 11.1(a) or in the event of a Change in Control, Corporate Transaction or Hostile Take-Over, the Committee, in its sole discretion and on such terms and conditions as it deems appropriate, either by amendment of the terms of any outstanding Awards or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions, as it deems appropriate:

(i) To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 11.1(b) the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;

(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and

(iii) To make adjustments in the number and type of shares of Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise

price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future;

(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and

(v) To provide that the Award cannot vest, be exercised or become payable after such event.

(c) The Committee (or the Board, in the case of Options granted to Independent Directors) may, in its sole discretion, include such further provisions and limitations in any Award Agreement as it may deem equitable and in the best interests of the Company and its Affiliates.

11.2 Outstanding Awards—Other Changes. In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 11, the Committee may, in its absolute discretion, make such adjustments in the number and kind of shares or other securities subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.

11.3 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, 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 of shares of Stock subject to an Award or the grant or exercise price of any Award.

ARTICLE 12

ADMINISTRATION

12.1 Committee. Unless and until the Board delegates administration of the Plan to a Committee as set forth below, the Plan shall be administered by the full Board, and for such purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board. The Board, at its discretion or as otherwise necessary to comply with the requirements of Section 162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any other applicable rule or regulation, shall delegate administration of the Plan to a Committee. The Committee shall consist solely of two or more members of the Board each of whom is both an “outside director,” within the meaning of Section 162(m) of the Code, and a Non-Employee Director. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all Awards granted to Independent Directors and for purposes of such Awards the term “Committee” as used in this Plan shall be deemed to refer to the Board and (b) the Committee may delegate its authority hereunder to the extent permitted by Section 12.5. Appointment of Committee members shall be effective upon acceptance of appointment. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.

12.2 Action by the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

12.3 Authority of Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:

(a) Designate Participants to receive Awards;

(b) Determine the type or types of Awards to be granted to each Participant;

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any Performance-Based Awards;

(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;

(g) Decide all other matters that must be determined in connection with an Award;

(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and

(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.

12.4 Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

12.5 Delegation of Authority. To the extent permitted by applicable law, the Committee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than (a) senior executives of the Company who are subject to Section 16 of the Exchange Act, (b) Covered Employees, (c) non-employee Board members or (d) officers of the Company (or members of the Board) to whom authority to grant or amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation, and the Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Committee.

ARTICLE 13

EFFECTIVE AND EXPIRATION DATE

13.1 Effective Date. The Plan became effective on February 7, 2005 (the “Effective Date”).

13.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after September 29, 2014. Any Awards that are outstanding on the expiration date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

ARTICLE 14

AMENDMENT, MODIFICATION, AND TERMINATION

14.1 Amendment, Modification, And Termination. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) stockholder approval is required for any amendment to the Plan that (i) increases the number of shares available under the Plan (other than any adjustment as provided by Article 11), (ii) permits the Committee to grant Options with an exercise price that is below Fair Market Value on the date of grant, or (iii) permits the Committee to extend the exercise period for an Option beyond ten years from the date of grant or (iv) results in a material increase in benefits or a change in eligibility requirements. Notwithstanding any provision in this Plan to the contrary, absent approval of the stockholders of the Company, no Option may be amended to reduce the per share exercise price of the shares subject to such Option below the per share exercise price as of the date the Option is granted and, except as permitted by Article 11, no Option may be granted in exchange for, or in connection with, the cancellation or surrender of an Option having a higher per share exercise price.

14.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.

ARTICLE 15

GENERAL PROVISIONS

15.1 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Eligible Individuals, Participants or any other persons uniformly.

15.2 No Stockholders Rights. Except as otherwise provided herein, a Participant shall have none of the rights of a stockholder with respect to shares of Stock covered by any Award until the Participant becomes the record owner of such shares of Stock.

15.3 Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six months (or such other period as may be determined by the Committee) after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.

15.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Subsidiary.

15.5 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.

15.6 Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

15.7 Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

15.8 Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.

15.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

15.10 Fractional Shares. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.

15.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

15.12 Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.

15.13 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware.

EX-10.12 3 a2189034zex-10_12.htm EX-10.12

Exhibit 10.12

UNITED ONLINE, INC.

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees and consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).

B. Participant is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s issuance of shares of Common Stock to the Participant under the Plan.

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE, it is hereby agreed as follows:

1. Grant of Restricted Stock Units. The Corporation hereby awards to the Participant, as of the Award Date, Restricted Stock Units under the Plan. Each Restricted Stock Unit represents the right to receive one share of Common Stock on the date that unit vests in accordance with the express provisions of this Agreement. The number of shares of Common Stock subject to the awarded Restricted Stock Units, the applicable vesting schedule for those shares, the dates on which those vested shares shall become issuable to Participant and the remaining terms and conditions governing the award (the “Award”) shall be as set forth in this Agreement.

AWARD SUMMARY

Award Date:		<Award Date>

Number of Shares Subject to Award:		<# of Shares Awarded> shares of Common Stock (the “Shares”)

Vesting Schedule:		The Shares shall vest in a series of installments over the Participant’s continued Service as follows: (i) twenty-five percent (25%) of the Shares shall vest upon the Participant’s completion of one year of Service measured from the Award Date and (ii) the balance of the Shares shall vest in a series of twelve (12) successive equal quarterly installments upon the Participant’s completion of each successive three (3)-month period of Service over the thirty-six (36) month period measured from the first anniversary of the Award Date. Such schedule is hereby designated the Normal Vesting Schedule. However, one or more Shares may be subject to accelerated vesting in accordance with the provisions of Paragraph 5 of this Agreement.

Issuance Schedule

The Shares in which the Participant vests in accordance with the Normal Vesting Schedule shall be issued, subject to the Corporation’s collection of all applicable Withholding Taxes, on the applicable annual or quarterly vesting date specified for those Shares in such schedule or as soon thereafter as administratively practicable, but in no event later than the close of the calendar year in which such vesting date occurs or (if later) the fifteenth day of the third calendar month following such vesting date. The Shares which vest pursuant to Paragraph 5 of this Agreement shall be issued in accordance with the provisions of that paragraph. The applicable Withholding Taxes are to be collected pursuant to the procedures set forth in Paragraph 7 of this Agreement.

2. Limited Transferability. Prior to actual receipt of the Shares which vest hereunder, the Participant may not transfer any interest in the Award or the underlying Shares. Any Shares which vest hereunder but which otherwise remain unissued at the time of the Participant’s death may be transferred pursuant to the provisions of the Participant’s will or the laws of inheritance or to the Participant’s designated beneficiary or beneficiaries of this Award. The Participant may also direct the Corporation to re-issue the stock certificates for any Shares which in fact vest and become issuable under the Award during his or her lifetime to one or more designated family members or a trust established for the Participant and/or his or her family members. The Participant may make such a beneficiary designation or certificate directive at any time by filing the appropriate form with the Plan Administrator or its designee.

3. Cessation of Service. Except as otherwise provided in Paragraph 5 below, should the Participant cease Service for any reason prior to vesting in one or more Shares subject to this Award, then the Award will be immediately cancelled with respect to those unvested Shares, and the number of Restricted Stock Units will be reduced accordingly. The Participant shall thereupon cease to have any right or entitlement to receive any Shares under those cancelled units.

4. Stockholder Rights and Dividend Equivalents

(a) The holder of this Award shall not have any stockholder rights, including voting or dividend rights, with respect to the Shares subject to the Award until the Participant becomes the record holder of those Shares upon their actual issuance following the Corporation’s collection of the applicable Withholding Taxes.

(b) Notwithstanding the foregoing, should any dividend or other distribution, whether regular or extraordinary and whether payable in cash, shares of Common Stock or other property, be declared and paid on the outstanding Common Stock while one or more Shares remain subject to this Award (i.e., those Shares are not otherwise issued and outstanding for purposes of entitlement to the dividend or distribution), then the following provisions shall govern the Participant’s interest in that dividend or distribution:

(i) If the dividend is a regularly-scheduled cash dividend on the Common Stock, then the Participant shall be entitled to a current cash distribution from the Corporation equal to the cash dividend the Participant would have received with respect to the Shares at the time subject to this Award had those Shares actually been issued and outstanding and entitled to that cash dividend. Each cash dividend equivalent payment under this subparagraph (i) shall be paid within five (5) business day following the payment of the actual cash dividend on the outstanding Common Stock, subject to the Corporation’s collection of all applicable federal, state and local income and employment withholding taxes.

(ii) For any other dividend or distribution, a special book account shall be established for the Participant and credited with a phantom dividend equivalent to the actual dividend or distribution which would have been paid on the Shares at the time subject to this Award had they been issued and outstanding and entitled to that dividend or distribution. As the Shares subsequently vest hereunder, the phantom dividend equivalents so credited to those Shares in the book account shall also vest and shall be distributed to the Participant (in the same form the actual dividend or distribution was paid to the holders of the Common Stock entitled to that dividend or distribution) concurrently with the issuance of the vested Shares to which those phantom dividend equivalents relate. However, each such distribution shall be subject to the Corporation’s collection of the Withholding Taxes applicable to that distribution.

5. Change of Control.

(a) Any Restricted Stock Units subject to this Award at the time of a Change in Control may be assumed by the successor entity or otherwise continued in full force and effect or may be replaced with a cash incentive program of the successor entity which preserves the Fair Market Value of the unvested shares of Common Stock subject to the Award at the time of the Change in Control and provides for the subsequent vesting and payout of that value in accordance with the same vesting and issuance schedule that would otherwise be in effect for those shares in the absence of such Change in Control. In the event of such assumption or continuation of the Award or such replacement of the Award with a cash incentive program, no accelerated vesting of the Restricted Stock Units shall occur at the time of the Change in Control.

(b) In the event the Award is assumed or otherwise continued in effect, the Restricted Stock Units subject to the Award shall be adjusted immediately after the consummation of the Change in Control so as to apply to the number and class of securities into which the Shares subject to those units immediately prior to the Change in Control would have been converted in consummation of that Change in Control had those Shares actually been issued and outstanding at that time. To the extent the actual holders of the outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation (or parent entity) may, in connection with the assumption or continuation of the Restricted Stock Units subject to the Award at that time, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in the Change in Control transaction, provided the substituted common stock is readily tradable on an established U.S. securities exchange or market.

(c) Any Restricted Stock Units which are assumed or otherwise continued in effect in connection with a Change in Control or replaced with a cash incentive program under Paragraph 5(a) shall be subject to accelerated vesting in accordance with the following provisions:

· If an Involuntary Termination of the Participant’s Service occurs within twelve (12) months after the Change in Control event, then the Participant shall immediately vest in an additional number of Shares equal to the greater of (i) twenty-five percent (25%) of the total number of Shares subject to the Award or (ii) the additional number of Shares in which the Participant would have been vested at the time of such Involuntary Termination if (A) he or she had completed an additional period of Service equal in duration to the actual period of Service completed by the Participant between the Award Date and the date of such Involuntary Termination and (B) the Shares subject to this Award had vested in forty-eight (48) successive equal monthly installments over the duration of the Normal Vesting Schedule. In no event, however, shall the number of Shares which vest on such an accelerated basis exceed the number of Shares unvested immediately prior to the date of the Participant’s Involuntary Termination. The

Shares that vest upon such Involuntary Termination shall be issued to the Participant, subject to the Corporation’s collection of all applicable Withholding Taxes, on the date of the Participant’s Separation of Service due to such Involuntary Termination or as soon thereafter as administratively practicable, but in no event later than the close of the calendar year in which the date of such Separation from Service occurs or (if later) the fifteenth day of the third calendar month following such date.

(d) If the Restricted Stock Units subject to this Award at the time of the Change in Control are not assumed or otherwise continued in effect or replaced with a cash incentive program in accordance with Paragraph 5(a), then those units shall vest immediately prior to the closing of the Change in Control. The Shares subject to those vested units shall be converted into the right to receive the same consideration per share of Common Stock payable to the other stockholders of the Corporation in consummation of that Change in Control, and such consideration per Share shall be distributed to Participant upon the tenth (10th) business day following the earliest to occur of (i) the date that Share would have otherwise vested and been issued in accordance with the Vesting and Issuance Schedules set forth in Paragraph 1, (ii) the date of Participant’s Separation from Service or (iii) the first date following the Change in Control on which the distribution can be made without contravention of any applicable provisions of Code Section 409A. Such distribution shall be subject to the Corporation’s collection of the applicable Withholding Taxes pursuant to the provisions of Paragraph 7.

(e) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

6. Adjustment in Shares. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to the total number and/or class of securities issuable pursuant to this Award in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

7. Issuance of Shares of Common Stock.

(a) As soon as administratively practicable following each date on which one or more Shares become issuable in accordance with the provisions of this Agreement, the Corporation shall issue to or on behalf of the Participant a certificate (which may be in electronic form) for the shares of Common Stock which become issuable on that date, subject to the Corporation’s collection of the applicable Withholding Taxes. Until such time as the Corporation provides the Participant with notice to the contrary, the Corporation shall collect the Withholding Taxes with respect to the issued Shares through an automatic Share withholding procedure pursuant to which the Corporation will withhold, immediately as the Shares are issued under this Award, a portion of those Shares with a Fair Market Value (measured as of the issuance date) equal to the amount of such Withholding Taxes (the “Share Withholding Method”); provided, however, that the amount of any Shares so withheld shall not exceed the amount necessary to satisfy the Corporation’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to supplemental taxable income. Participant shall be notified in writing in the event such Share Withholding Method is no longer available.

(b) Should any Shares become issuable under the Award at time the Share Withholding Method is not available, then the Withholding Taxes shall be collected from the Participant through either of the following alternatives:

· the Participant’s delivery of his or her separate check payable to the Corporation in the amount of such Withholding Taxes, or

· the use of the proceeds from a next-day sale of the Shares issued to the Participant, provided and only if (i) such a sale is permissible under the Corporation’s trading policies governing the sale of Common Stock, (ii) the Participant makes an irrevocable commitment, on or before the issuance date for those Shares, to effect such sale of the Shares and (iii) the transaction is not otherwise deemed to constitute a prohibited loan under Section 402 of the Sarbanes-Oxley Act of 2002.

(c) Notwithstanding the foregoing provisions of this Paragraph 7, the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the vesting of the Shares or any other amounts hereunder (the “Employment Taxes”) shall in all events be collected from the Participant no later than the last business day of the calendar year in which the Shares or other amounts vest hereunder. Accordingly, to the extent the issuance date for one or more vested Shares or the distribution date for such other amounts is to occur in a year subsequent to the calendar year in which those Shares or other amounts vest hereunder, the Participant shall, on or before the last business day of the calendar year in which the Shares or other amounts vest, deliver to the Corporation a check payable to its order in the dollar amount equal to the Employment Taxes required to be withheld with respect to those Shares or other amounts. The provisions of this Paragraph 7(c) shall be applicable only to the extent necessary to comply with the applicable tax withholding requirements of Code Section 3121(v).

(d) Except as otherwise provided in Paragraph 5 or Paragraph 7(a), the settlement of all Restricted Stock Units which vest under the Award shall be made solely in shares of Common Stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of Common Stock to be issued at the time the Award vests shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.

8. Compliance with Laws and Regulations. The issuance of shares of Common Stock pursuant to the Award shall be subject to compliance by the Corporation and Participant with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such issuance.

9. Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices, and directed to the attention of Stock Plan Administrator. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address on record with the Corporation. An email to the email address of Participant on record with the Corporation shall be deemed to be written notice. All notices shall be deemed effective upon personal delivery, upon sending of an email or upon deposit in the mail, postage prepaid and properly addressed to the party to be notified.

10. Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant, Participant’s assigns, the legal representatives, heirs and legatees of Participant’s estate and any beneficiaries of the Award designated by Participant.

11. Construction. This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.

12. Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

13. Employment at Will. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Participant) or of Participant, which rights are hereby expressly reserved by each, to terminate Participant’s Service at any time for any reason, with or without cause.

14. Deferred Issuance Date.

(a) Notwithstanding any provision to the contrary in this Agreement, no Shares or other amounts which become issuable or distributable by reason of Participant’s Separation from Service shall actually be issued or distributed to Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of such Separation from Service or (ii) the date of Participant’s death, if Participant is deemed at the time of such Separation from Service to be a specified employee under Section 1.409A-1(i) of the Treasury Regulations issued under Code Section 409A, as determined by the Plan Administrator in accordance with consistent and uniform standards applied to all other Code Section 409A arrangements of the Corporation, and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The deferred Shares or other distributable amount shall be issued or distributed in a lump sum on the first day of the seventh (7th) month following the date of Participant’s Separation from Service or, if earlier, the first day of the month immediately following the date the Corporation receives proof of Participant’s death.

(b) It is the intention of the parties that the provisions of this Agreement comply with all applicable requirements of Section 409A of the Code. Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement as so amended would otherwise contravene the applicable requirements or limitations of Code Section 409A, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the applicable requirements or limitations of Code Section 409A and the applicable Treasury Regulations thereunder.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.

		UNITED ONLINE, INC.



		By: Mark R. Goldston

		Title: Chairman, Chief Executive Officer and President

		PARTICIPANT

		Name: <Participant Name>

		Signature: <Signed Electronically>

		Social Security No: <SSN>

APPENDIX A

DEFINITIONS

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Restricted Stock Unit Issuance Agreement.

B. Award shall mean the award of restricted stock units made to the Participant pursuant to the terms of this Agreement.

C. Award Date shall mean the date the restricted stock units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

D. Board shall mean the Corporation’s Board of Directors.

E. Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

(i) a merger or consolidation approved by the Corporation’s stockholders, unless securities possessing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and substantially in the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction,

(ii) the sale, transfer or other disposition of all or substantially all of the Corporation’s assets approved by the Corporation’s stockholders,

(iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders, or

(iv) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination; provided, however, that solely for purposes of determining whether a permissible Section 409A distribution can be made under Paragraph 5(d) in connection with such Change in Control event, the period for measuring a change in the composition of the Board shall be limited to a period of twelve (12) consecutive months or less.

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F. Code shall mean the Internal Revenue Code of 1986, as amended.

G. Common Stock shall mean shares of the Corporation’s common stock.

H. Corporation shall mean United Online, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of United Online, Inc. which shall by appropriate action adopt the Plan.

I. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

J. Employer Group shall mean the Corporation and any other corporation or business controlled by, controlling or under common control with, the Corporation, as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections, and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.4.14(c)-2 of the Treasury Regulations.

K. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock, as such price is reported by the National Association of Securities Dealers. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

L. Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of:

(i) such individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct, or

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(ii) such individual’s voluntary resignation following (A) a material reduction in the scope of his or her day-to-day responsibilities with the Corporation (or any Parent or Subsidiary), it being understood that a change in such individual’s title shall not, in and of itself, be deemed a material reduction, (B) a reduction in his or her base salary or (C) a relocation of such individual’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation (or any Parent or Subsidiary) without the individual’s consent.

M. Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss the Participant or any other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Misconduct.

N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended from time to time.

O. Participant shall mean the person to whom the Award is made pursuant to the Agreement.

P. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Q. Plan shall mean the FTD Group, Inc. 2005 Equity Incentive Award Plan, as amended and restated as of October 29, 2008 and as assumed and administered by the Corporation.

R. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

S. Separation from Service shall mean the Participant’s cessation of Employee status and shall be deemed to occur at such time as the level of the Participant’s bona fide services as an Employee (or as a consultant or other independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services the Participant rendered in Employee status during the immediately preceding thirty-six (36) months (or such shorter period for which the Participant may have rendered such service). Solely for purposes of determining when a Separation from Service occurs, the Participant shall be deemed to continue in “Employee” status for so long as he or she remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Section 409A of the Code.

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T. Service shall mean the Participant’s performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor. For purposes of this Agreement, Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) Participant no longer performs services in any of the foregoing capacities for the Corporation (or any Parent or Subsidiary) or (ii) the entity for which Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though Participant may subsequently continue to perform services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that the following special provisions shall be in effect for any such leave:

(i) Should the period of such leave (other than a disability leave) exceed six (6) months, then Participant shall be deemed to incur a Separation from Service upon the expiration of the initial six (6)-month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary).

(ii) Should the period of a disability leave exceed twenty-nine (29) months, then Participant shall be deemed to incur a Separation from Service upon the expiration of the initial twenty-nine (29)-month period of that leave, unless Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary). For such purpose, a disability leave shall be a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and causes Participant to be unable to perform the duties of his position of employment with the Corporation (or any Parent or Subsidiary) or any substantially similar position of employment.

(iii) Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period Participant is on a leave of absence.

U. Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange.

V. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

W. Withholding Taxes shall mean the federal, state and local income taxes and the employee portion of the federal, state and local employment taxes required to be withheld by the Corporation in connection with the issuance of the shares of Common Stock which vest under of the Award and any phantom dividend equivalents distributed with respect to those shares.

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EX-10.18 4 a2189034zex-10_18.htm EX-10.18

Exhibit 10.18

August 14, 2008

Mr. Steve McArthur

c/o Classmates Online, Inc.

2001 Lind Avenue SW, Suite 500
Renton, WA 98055

Dear Steve,

This letter, effective as of August 14, 2008 (the “Effective Date”) amends and restates the terms and conditions of your employment with Classmates Online, Inc. (the “Company”), as previously set forth in a letter agreement between you and the Company dated August 13, 2007 (the “Initial Agreement”).

1. Position. You will serve as President of the Company and shall have such duties and responsibilities consistent with your position or such other duties and responsibilities as may from time to time be determined by the board of directors of the Company or any committee thereof, or such board of directors or committee of any affiliated entity to which the authority of the board of directors of the Company has been delegated or assigned (the “Board of Directors”) or the Chief Executive Officer of Classmates Media Corporation, a Delaware corporation (“CMC”) to the extent such authority has been delegated or assigned to such Chief Executive Officer. You will report to me as the Chief Executive Officer of CMC, or to such other senior executive officer as may be designated by the Board of Directors or the Chief Executive Officer of CMC. You agree to devote your full-time attention, skill and efforts to the performance of your duties for the Company.

2. Salary and Benefits. You will be paid a salary at the annual rate of $515,000, payable in semi-monthly installments in accordance with the Company’s standard payroll practices, subject to any increases as determined by the Board of Directors from time to time. You will be eligible to participate in the employee benefits plans, including a 401(k) plan, that are provided to similarly situated executives of the Company or that have been made available to you by the Board of Directors or any affiliate of the Company. You will be entitled to a minimum of 4 weeks of paid vacation each year, or such greater amount as determined in accordance with the standard vacation policy applicable to similarly situated executives of the Company.

3. Bonus. You will also be eligible to receive an annual bonus of up to 100% of your annual base salary for each fiscal year in the form of cash or, in the form of common stock of United Online, Inc. (“United Online”) or, following a CMC IPO (as defined below), CMC common stock, as determined by the Company in its sole discretion (the “Annual Bonus”), less withholding required by law, based on performance criteria established by the Board of Directors. Your Annual Bonus will be increased to include any increases in your annual bonus as approved by the Board of Directors. Except as otherwise determined by the Board of Directors or set forth herein, your bonus awards will be paid only if you are employed by and in good standing with the Company at the time of bonus payments. Your bonus awards shall be

paid in no event later than the 15^th day of the third month following the end of the taxable year (of the Company or you, whichever is later) in which such bonus award is earned.

4. Restricted Stock Units. Under the Initial Agreement it was anticipated that if an initial public offering of securities of CMC (the “CMC IPO”), occurred prior to April 30, 2008 that you would be issued $5,500,000 of restricted units of CMC (“CMC Restricted Stock Units”) based on the initial price at which shares of CMC common stock are offered to the public in the CMC IPO (the “CMC IPO Price”). If the CMC IPO did not occur on or prior to April 30, 2008 you would be issued $5,500,000 of restricted stock units of United Online (“UOL Restricted Stock Units”) based on the average closing price of United Online common stock during the month of December 2007, which average closing price was $12.11. Under the Initial Agreement, the CMC Restricted Stock Units or the UOL Restricted Stock Units, as applicable, were to vest according to the following schedule subject to your continued employment with the Company: twenty percent (20%) of the Restricted Stock Units on each of August 15, 2008, August 15, 2009 and August 15, 2010, respectively, and the remaining forty percent (40%) on August 15, 2011. Since the CMC IPO did not occur prior to April 30, 2008, you are entitled to receive 454,170 UOL Restricted Stock Units. However, it remains the objective of United Online to complete the CMC IPO and to provide you with equity in CMC without changing your vesting schedule. As such, you and the Company agree as follows:

(a) Effective as of August 15, 2008, August 15, 2009, August 15, 2010 and August 15, 2011, respectively, subject to your continued employment with the Company through each applicable date, you shall be granted UOL Restricted Stock Units covering, respectively, 90,834, 90,834, 90,834 and 181,668 shares of common stock of United Online, which units will vest immediately upon the effective date of each such grant. In addition, on each of such date you shall receive a cash bonus in an amount equal to the aggregate dividends that you would have been entitled to receive with respect to the UOL Restricted Stock Units vesting on each such date had such UOL Restricted Stock Units been issued as of April 30, 2008. Except as otherwise set forth herein, in all other respects, the UOL Restricted Stock Units will be subject to the terms and conditions set forth in the applicable stock plan and the restricted stock unit agreement.

(b) CMC IPO. In the event the CMC IPO becomes effective prior to any of the dates set forth in the preceding paragraph, then following the effective date of the CMC IPO no further UOL Restricted Stock Units will be issued and no further cash bonuses based on dividends will be paid. In lieu thereof, on the effective date of the CMC IPO you will be issued that number of CMC Restricted Stock Units as is determined by dividing A by B where A is the product of $12.11 multiplied by the number of United Online Restricted Stock Units that have not yet been granted and B is the CMC IPO Price. For example, if the CMC IPO occurs on May 1, 2010, you would have been granted on each of August 15, 2008 and August 15, 2009, 90,834 UOL Restricted Stock Units and you would have received on August 15, 2008 a cash payment equal to the dividends you would have received on 90,834 UOL Restricted Stock Units from April 30, 2008 and on August 15, 2009 a cash payment equal to the dividends you would have received on an additional 90,834 UOL Restricted Stock Units from April 30, 2008. If the CMC IPO Price were $15.00, you would be granted 220,000 CMC Restricted Stock Units (272,502, the number of unissued UOL Restricted Stock Units that have not yet been granted, multiplied by $12.11 and divided by $15.00) on the CMC IPO effective date. The CMC Restricted Stock Units will vest on the same timetable as the UOL Restricted Stock Units (e.g., in the example 73,333 CMC

Restricted Stock Units would vest on August 15, 2010 and 146,667 CMC Restricted Stock Units would vest on August 15, 2011 subject to your continued employment with the Company through such dates.

(c) Except as otherwise set forth herein, in all other respects, the CMC Restricted Stock Units will be subject to the terms and conditions set forth in the applicable stock plan and the restricted stock unit agreement.

(d) Change in Control of Classmates Media Corporation; No CMC IPO; Termination of Employment.

(i) In the event a Change in Control of CMC (as defined in Paragraph B of Appendix A attached hereto) occurs prior to August 15, 2011, and a CMC IPO has not occurred by such date, immediately prior to the closing of such Change in Control, you shall be granted that number of UOL Restricted Stock Units equal to that portion of the 454,170 UOL Restricted Stock Units to be granted hereunder which have not been granted as of such date, which units shall become vested immediately, and you shall be provided with a cash bonus equal to the amount of cash dividends you would have received on such UOL Restricted Stock Units had they been issued on April 30, 2008; provided that, if agreed to by United Online, in lieu of the UOL Restricted Stock Units (but not in lieu of the cash bonus which shall be paid) the acquiring entity may substitute an amount of cash, securities of the acquiring entity, or a combination thereof, having an aggregate value that is equal to the value of such UOL Restricted Stock Units as of the date of closing of such transaction (the “Substitute Award”). The value of the UOL Restricted Stock Units shall be determined by multiplying the number of UOL Restricted Stock Units to be granted by the average closing price of UOL common stock during the ten (10) trading day period ending the day preceding the closing of such transaction.

(ii) The Substitute Award, whether cash, securities or otherwise, will be subject to the same vesting schedule and treatment upon termination of employment as applicable to the UOL Restricted Stock Units, which are set forth in this Section 4.

(iii) Upon the termination of your employment by the Company “without cause” or by you for “good reason” (each such term as defined below) prior to August 15, 2011 and in connection with or within twenty -four (24) months after such Change in Control, the vesting of your Substitute Award will be fully accelerated.

(iv) Upon the termination of your employment by the Company “without cause” or by you for “good reason” prior to August 15, 2011, and prior to and not in connection with, or more than twenty -four (24) months after, such Change in Control, or as a result of your death or Disability (as defined below), the vesting of your Substitute Award will be accelerated by the additional number of shares or other benefit in which you would have been vested at the time of such termination if you had completed an additional twelve (12) months of service, calculated as if such shares or benefits vest on a monthly basis.

(e) Change in Control of United Online; No CMC IPO; Termination of Employment.

(i) In the event a Change in Control of United Online (as defined in Appendix A attached hereto) occurs prior to August 15, 2011, and a CMC IPO has not occurred by such date, immediately prior to the Change of Control you will be granted that number of UOL Restricted Stock Units equal to that portion of the 454,170 UOL Restricted Stock Units to be granted hereunder that have not been granted as of such date and you shall be provided with a cash bonus equal to the amount of cash dividends you would have received on such UOL Restricted Stock Units had they been issued on April 30, 2008. Thereafter, no CMC Restricted Stock Units shall be issued. The UOL Restricted Stock Units shall vest in accordance with the original vesting schedule.

(ii) Upon the termination of your employment by the Company “without cause” or by you for “good reason” (each such term as defined below) prior to August 15, 2011, and in connection with or within twenty-four (24) months after, such Change in Control, you shall fully vest in all your UOL Restricted Stock Units.

(iii) Upon the termination of your employment by the Company “without cause” or by you for “good reason” prior to August 15, 2011, and prior to and not in connection with, or more than twenty-four (24) months after such Change in Control, or as a result of your death or Disability (as defined below), the vesting of your outstanding UOL Restricted Stock Units will be accelerated by the additional number of shares in which you would have been vested at the time of such termination if you had completed an additional twelve (12) months of service, calculated as if such units vest on a monthly basis.

(f) Change in Control of Classmates Media Corporation ; CMC IPO; Termination of Employment. In the event a Change in Control of Classmates Media Corporation occurs prior to August 15, 2011, and a CMC IPO has occurred by such date,

(i) Upon the termination of your employment by the Company “without cause” or by you for “good reason” (each such term as defined below) prior to August 15, 2011, and in connection with or within twenty-four (24) months after such Change in Control, the vesting of your outstanding CMC Restricted Stock Units shall be fully accelerated.

(ii) Upon the termination of your employment by the Company “without cause” or by you for “good reason” prior to August 15, 2011, and prior to and not in connection with, or more than twenty-four (24) months after such Change in Control, or as a result of your death or Disability (as defined below), the vesting of your outstanding CMC Restricted Stock Units will be accelerated by the additional number of shares in which you would have been vested at the time of such termination if you had completed an additional twelve (12) months of service, calculated as if such units vest on a monthly basis.

(g) Termination without cause not in connection with or following a Change of Control. To the extent not covered by (e) or (f) above, upon the termination of your employment by the Company “without cause” or by you for “good reason” prior to August 15, 2011, and prior to and not in connection with, or more than twenty-four (24) months after such Change in Control, or as a result of your death or Disability (as defined below), you will be granted the fully vested UOL Restricted Stock Units that you would have been granted hereunder had you completed an additional twelve (12) months of service, calculated as if such units were awarded

on a monthly basis. In addition, you shall receive a cash bonus equal to the cash dividends you would have received had such UOL Restricted Stock Units been granted on April 30, 2008.

(h) For purposes of this letter, “Disability” means your inability to engage in any substantial gainful activity necessary to perform your duties hereunder by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months.

(i) Should any change be made to the common stock of United Online, by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding common stock of United Online as a class, without the Company’s receipt of consideration, appropriate adjustments shall be made to the total number and/or class of securities issuable pursuant to the awards to be granted pursuant to this letter in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

5. Policies; Procedures; Proprietary Information and Inventions Agreement. As an employee of the Company, you will be expected to abide by all of the policies and procedures applicable to similarly situated executives of the Company, including, without limitation the terms of: the Proprietary Information and Inventions Agreement between you and United Online (or any successor thereto or affiliate thereof), a copy of which you previously executed and is incorporated herein by reference; the Insider Trading Policy; the Code of Ethics; and the Employee Handbook.

6. At Will Employment. Notwithstanding anything to the contrary contained herein, your employment with the Company will be “at will” and will not be for any specified term, meaning that either you or the Company will be entitled to terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by the terms set forth in this paragraph. This is the full and complete agreement between you and the Company on this subject. Although your job duties, title, compensation and benefits, as well as the personnel policies and procedures applicable to you, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Chief Executive Officer of the Company and approved by the Board of Directors.

7. Termination of Employment

(a) Termination by You. If you terminate your employment with the Company for any reason other than for “good reason” as defined below, all obligations of the Company as set forth in this letter will cease, other than the obligation to pay you any accrued base salary for services rendered through the date of termination, to pay you for any accrued but unused vacation days as of the date of termination, and to fulfill its obligations in accordance with the terms of the applicable stock plan or restricted stock unit agreement. If you terminate your employment with the Company for “good reason,” as defined below, in addition to the foregoing, the Company will pay you the Separation Payment (as defined below) subject to the conditions set forth in Section 7(b) below. However, and notwithstanding the termination of

your employment by you, you will continue to be obligated to comply with the terms of the Proprietary Information and Inventions Agreement and the restrictive covenants set forth in Section 9 below.

(b) Termination by the Company. If your employment is terminated by the Company “without cause” as defined below, and subject to your execution (without revocation) of a Release (as defined in Paragraph 4), the Company will pay you a separation payment (the “Separation Payment”) equal to the sum of (i) twenty four (24) months of your then current annual base salary, (ii) your Annual Bonus and (iii) your Annual Bonus, prorated through your termination date. For purposes of Section 7(b)(ii) and Section 7(b)(iii) above, “Annual Bonus” shall mean the lesser of 100% of your then current annual base salary or the Annual Bonus paid to you for the preceding fiscal year. Payment of this Separation Payment will be contingent on your signing (without revocation) the Release. This Separation Payment will be payable monthly on a pro rata basis over twenty four (24) months after such termination with the first such payment commencing upon the expiration of all applicable review and revocation periods applicable to the Release as statutorily required by law. Upon termination of your employment by the Company “without cause,” other than the obligations set forth in the first sentence of Section 7(a) above and the acceleration of vesting provided in Section 4 above, the Company will have no further obligation to you except pursuant to this paragraph.

If your employment is terminated by the Company “with cause” as defined below, the Company will have no further obligation to you under the terms of this letter, other than the obligations set forth in the first sentence of Section 7(a) above. However, and notwithstanding the termination of your employment by the Company “with cause” or “without cause,” or by you for “good reason,” you will continue to be obligated to comply with the terms of the Proprietary Information and Inventions Agreement and the restrictive covenants set forth in Section 9 below.

If any payment or benefit received or to be received by you (including any payment or benefit received pursuant to the this letter or otherwise) would be (in whole or part) subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, or any successor provision thereto, or any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then, the cash payments provided to you under this Agreement shall first be reduced (and thereafter, if necessary, the acceleration of vesting provided to you under this Agreement shall be reduced) to the extent necessary to make such payments and benefits not subject to such Excise Tax, but only if such reduction results in a higher after-tax payment to you after taking into account the Excise Tax and any additional taxes you would pay if such payments and benefits were not reduced.

(c) Definitions.

For purposes of this letter, “good reason” means:

(i) a material reduction in your base salary without your prior written consent;

(ii) a material reduction in your authority, duties or responsibilities in a manner inconsistent with the terms of this agreement, without your prior written consent; or

(iii) any material un-waived breach by the Company of the terms of this letter;

(iv) provided however, that with respect to any of (i) – (iii) above, you shall provide written notice to the Company of the existence of the good reason condition within ninety (90) days of its initial existence and the Company shall have 30 days to cure such condition, and your termination of employment must occur within 180 days following the initial existence of any of (i) – (iii) above.

For purposes of this letter, “with cause” means your commission of any one or more of the following acts:

(i) willfully damaging of the property, business, business relationships, reputation or goodwill of the Company or its parent or any subsidiary thereof;

(ii) commission of a felony or a misdemeanor involving moral turpitude;

(iii) theft, dishonesty, fraud or embezzlement;

(iv) willfully violating any rules or regulations of any governmental or regulatory body that is or is reasonably expected to be injurious to the Company or its parent or any subsidiary thereof;

(v) the use of alcohol, narcotics or other controlled substances to the extent that it prevents you from efficiently performing services for the Company or its parent or any subsidiary thereof;

(vi) willfully injuring any other employee of the Company or its parent or any subsidiary thereof;

(vii) willfully injuring any person in the course of performance of services for the Company or its parent or any subsidiary thereof;

(viii) disclosing to a competitor or other unauthorized persons confidential or proprietary information or secrets of the Company or its parent or any subsidiary thereof;

(ix) solicitation of business on behalf of a competitor or a potential competitor of the Company or its parent or any subsidiary thereof;

(x) harassment of any other employee of the Company or its parent or any subsidiary thereof or the commission of any act which otherwise creates an offensive work environment for other employees of the Company or its parent or any subsidiary thereof;

(xi) failure for any reason within five (5) days after receipt by you of written notice thereof from the Company, to correct, cease or otherwise alter any insubordination, failure

to comply with instructions, inattention to or neglect of the duties to be performed by you or other act or omission to act that in the opinion of the Company does or may adversely affect the business or operations of the Company or its parent or any subsidiary thereof;

(xii) breach of any material term of this letter; or

(xiii) any other act or omission that is determined to constitute “cause” in the good faith discretion of the Board of Directors.

For purposes of this letter, “without cause” means any reason not within the scope of the definition of the term “with cause.”

(d) Code Section 409A Deferral Period. Notwithstanding any provision to the contrary in this letter, no payment or distribution under this letter which constitutes an item of deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and becomes payable by reason of your termination of employment with the Company will be made to you unless your termination of employment constitutes a “separation from service” (as such term is defined in Treasury Regulations issued under Section 409A of the Code). For purposes of this letter, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A of the Code. If you are a “specified employee” as defined in Section 409A of the Code and, as a result of that status, any portion of the payments under this letter would otherwise be subject to taxation pursuant to Section 409A of the Code, you shall not be entitled to any payments upon a termination of your employment until the earlier of (i) the expiration of the six (6)-month period measured from the date of your “separation from service” (as such term is defined in Treasury Regulations issued under Section 409A of the Code) or (ii) the date of your death. Upon the expiration of the applicable Section 409A deferral period, all payments and benefits deferred pursuant to this Section 7(d) (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to you in a lump sum, and any remaining payments due under this letter will be paid in accordance with the normal payment dates specified for them herein.

8. Withholding Taxes. All forms of compensation referred to in this letter are subject to reduction to reflect applicable withholding and payroll taxes including without limitation, the dividends paid on your UOL Restricted Stock Units, provided that the following provisions shall apply to the vesting of your Restricted Stock Units.

(a) As soon as administratively practicable following each date one or more units vest in accordance with the provisions of this letter, the Company shall issue to or on behalf of you a certificate (which may be in electronic form) for the shares of common stock which vest on that date under the award and shall concurrently distribute to you any phantom dividend equivalents with respect to those shares, if any, subject in each instance to the Company’s collection of the applicable withholding taxes. The Company shall collect the withholding taxes with respect to the distributed phantom dividend equivalents by withholding a portion of that distribution equal to the amount of the applicable withholding taxes, with the cash portion of the distribution to be the first portion so withheld. Until such time as the Company provides you with notice to the

contrary, the Company shall collect the withholding taxes with respect to the vested units through an automatic withholding procedure pursuant to which the Company will withhold, immediately as the units vest under the award, a portion of those vested units with a fair market value (measured as of the vesting date) equal to the amount of such withholding taxes (the “Withholding Method”); provided, however, that the amount of any units so withheld shall not exceed the amount necessary to satisfy the Company’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to supplemental taxable income. You shall be notified in writing in the event such Withholding Method is no longer available.

(b) Should any units vest under this letter at time the Withholding Method is not available, then the withholding taxes shall be collected from you through either of the following alternatives:

(i) your delivery of your separate check payable to the Company in the amount of such withholding taxes, or

(ii) the use of the proceeds from a next-day sale of the shares issued to you, provided and only if (i) such a sale is permissible under the Company’s trading policies governing the sale of common stock, (ii) you make an irrevocable commitment, on or before the vesting date for those shares, to effect such sale of the shares and (iii) the transaction is not otherwise deemed to constitute a prohibited loan under Section 402 of the Sarbanes-Oxley Act of 2002.

(c) Except as otherwise provided in this letter, the settlement of all UOL Restricted Stock Units and CMC Restricted Stock Units which vest pursuant to this letter shall be made solely in shares of common stock. In no event, however, shall any fractional shares be issued. Accordingly, the total number of shares of common stock to be issued at the time the award vests shall, to the extent necessary, be rounded down to the next whole share in order to avoid the issuance of a fractional share.

9. Restrictive Covenants. Until twelve (12) months after termination of your employment with the Company for any reason, so long as you are receiving the Separation Payment, you will not, at any place in any county, city or other political subdivision of the United States in which the Company (or its parent or any subsidiary thereof) is engaged in business or providing its services:

(a) directly or indirectly design, develop, manufacture, market or sell any product or service which is in competition with the products or services of the Company (or its parent or any subsidiary thereof); or

(b) directly or indirectly own any interest in, control, be employed by or associated with or render advisory, consulting or other services (including but not limited to services in research) to any person or entity, or subsidiary, subdivision, division or joint venture of such entity in connection with the design, development, manufacture, marketing or sale of a product or service which is in competition with the products or services of the Company (or its parent or

any subsidiary thereof); provided, however, that nothing in this letter will prohibit you from owning less than one percent (1%) of the equity interests of any publicly held entity.

10. Entire Agreement. This letter (including any appendices thereto), together with the Proprietary Information and Inventions Agreement, any handbooks and policies applicable to similarly situated executives of the Company in effect from time to time and the applicable stock option plan and restricted stock unit agreement, contains all of the terms of your employment with the Company and supersedes any prior understandings or agreements, whether oral or written, between you and the Company. If any provision of this letter is held by an arbitrator or a court of competent jurisdiction to conflict with any federal, state or local law, or to be otherwise invalid or unenforceable, such provision shall be construed in a manner so as to maximize its enforceability while giving the greatest effect as possible to the parties’ intent. To the extent any provision cannot be construed to be enforceable, such provision will be deemed to be eliminated from this letter and of no force or effect and the remainder of this letter will otherwise remain in full force and effect and be construed as if such portion had not been included in this letter. This letter is not assignable by you. This letter may be assigned by the Company to its parent or any subsidiary or any affiliate thereof or to successors in interest to the Company or its lines of business.

11. Amendment and Governing Law. This letter may not be amended or modified except by an express written agreement signed by you and the Chief Executive Officer of the Company. The terms of this letter and the resolution of any disputes will be governed by California law, and venue for any disputes will be in Los Angeles, California.

12. Term. This letter will expire on August 15, 2011, except Sections 6, 9, 10, 11, and 12 will survive such expiration. Following the expiration of this letter, your employment with the Company will continue to be “at will.”

We look forward to continuing our successful relationship. You may indicate your agreement with these terms by signing and dating this letter.

If you have any questions, please call the undersigned.

	Very truly yours,

	CLASSMATES ONLINE, INC.


	By:	/s/ Mark R. Goldston
	Name: Mark R. Goldston
	Title: Chairman & Chief Executive Officer

I have read the foregoing and accept the terms set forth in this letter:

/s/ Steve McArthur


Dated:	14 August, 2008

Appendix A

A Change in Control shall be deemed to have occurred (i) if a Change in Control of United Online, Inc. occurs as described in Paragraph A below or (ii) if a Change in Control of Classmates Media Corporation occurs as described in Paragraph B below.

A. If CMC IPO Does Not Become Effective or CMC IPO Becomes Effective and United Online Owns 33 1/3% or More:

In the event a CMC IPO does not become effective, or a CMC IPO becomes effective and United Online, Inc. owns 33-1/3% or more of the total combined voting power of all of Classmates Media Corporation’s outstanding securities, “Change in Control” shall mean a change in ownership or control effected through any of the following transactions:

“Corporation” shall mean United Online, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of United Online, Inc. which shall by appropriate action adopt the Corporation’s 2001 Stock Incentive Plan, as amended and restated.

“Board” shall mean the Corporation’s Board of Directors.

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(i) a merger or consolidation approved by the Corporation’s stockholders, unless securities possessing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and substantially in the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction,

(ii) the sale, transfer or other disposition of all or substantially all of the Corporation’s assets approved by the Corporation’s stockholders,

(iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities, or

elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

B. Change in Control of Classmates Media Corporation

“Change in Control” of Classmates Media Corporation shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

“Corporation” shall mean Classmates Media Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Classmates Media Corporation which shall by appropriate action adopt the 2007 Incentive Compensation Plan of Classmates Media Corporation.

“Board” shall mean the Corporation’s Board of Directors.

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(i) a merger, consolidation or reorganization approved by the Corporation’s stockholders, unless securities representing more than 33-1/3 percent (33.33%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly, by the person or persons who beneficially owned 33-1/3 percent (33.33%) or more of the Corporation’s outstanding voting securities immediately prior to such transaction,

(ii) any stockholder-approved transfer or other disposition of all or substantially all of the Corporation’s assets,

(iii) the closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Corporation) becomes directly or indirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period ending with the most recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of (A) securities possessing (or convertible into or exercisable for securities possessing) 33-1/3 percent (33.33%) or more of the total combined voting power of all of the Corporation’s outstanding securities (as measured in terms of the power to vote with respect to the election of Board members) or (B) securities representing 33-1/3 percent (33.33%) or more of the aggregate market value of all of the Corporation’s outstanding capital stock, measured in each instance immediately after the consummation of such transaction or series of related transactions and whether such transaction or transactions involve a direct issuance from the

Corporation or the acquisition of outstanding securities held by one or more of the Corporation’s existing stockholders; or

(iv) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

In no event, however, shall a Change in Control be deemed to occur as a result of a spin-off distribution by United Online, Inc. of all or any portion of the Corporation’s outstanding securities held by United Online, Inc. to its existing stockholders in proportion to their holdings of United Online, Inc. capital stock.

EX-10.24 5 a2189034zex-10_24.htm EX-10.24

Exhibit 10.24

October 14, 2008

Robert Apatoff

[address]

Dear Rob,

This letter sets forth the terms and conditions of your employment with FTD Group, Inc. (the “Company”).

1. Position. Your employment with the Company will commence on November 3, 2008 (the “Commencement Date”). You will serve as President of the Company and shall have such duties and responsibilities consistent with your position or such other duties and responsibilities as may from time to time be determined by the board of directors of the Company (the “Board of Directors”) or the Chairman and Chief Executive Officer of the Company. You will report to me as the Chairman and Chief Executive Officer of the Company. You agree to devote your full-time attention, skill and efforts to the performance of your duties for the Company.

2. Salary and Benefits. You will be paid a salary at the annual rate of $600,000, payable in semi-monthly installments in accordance with the Company’s standard payroll practices, subject to any increases as determined by the Board of Directors from time to time. You will be eligible to participate in the employee benefits plans, including a 401(k) plan, that are provided to similarly situated executives of the Company or that have been made available to you by the Board of Directors. You will be entitled to a minimum of 4 weeks of paid vacation each year, or such greater amount as determined in accordance with the standard vacation policy applicable to similarly situated executives of the Company.

3. Bonus.

(a) Within fourteen (14) days following the Commencement Date, you will receive a signing bonus equal to $200,000 (the “Signing Bonus”).

(b) You will also be eligible to receive an annual bonus of up to 100% of your annual base salary for each fiscal year in the form of cash or stock as determined by the Company in its sole discretion (the “Annual Bonus”), less withholding required by law, based on performance criteria established by the Board of Directors; provided, however, that your bonus for the year ending December 31, 2008 will not be discretionary and will be fixed at $200,000. Except as otherwise determined by the Board of Directors or as set forth herein, your bonus awards will be paid only if you are employed by and in good standing with the Company at the time of bonus payments. Your bonus awards shall be paid in no event later than the 15^th day of the third

month following the end of the taxable year (of the Company or you, whichever is later) in which such bonus award is earned.

4. Restricted Stock Units.

(a) Effective as of November 15, 2008, subject to your continued employment with the Company through such date, you shall be granted restricted stock units covering 485,000 shares of common stock of United Online (the “UOL Restricted Stock Units”), twenty-five percent (25%) of which units will vest on each of November 15, 2009, 2010, 2011, and 2012, subject to your continued employment with the Company through each such date. The UOL Restricted Stock Units will be subject to the terms and conditions set forth in the applicable stock plan and corresponding restricted stock unit agreement; provided that, in the event of any inconsistency between the terms of the restricted stock unit agreement and this letter, the terms of this letter shall control.

(b) Upon the termination of your employment by the Company “without cause” or by you for “good reason” (each such term as defined below) prior to November 15, 2012, and in connection with or within twenty-four (24) months after a change in control of United Online (as defined in the applicable stock plan or restricted stock unit agreement), you shall fully vest in all your UOL Restricted Stock Units.

(c) Upon the termination of your employment by the Company “without cause” or by you for “good reason” prior to November 15, 2012, and prior to and not in connection with, or more than twenty-four (24) months after a change in control of United Online (as defined in the applicable stock plan or restricted stock unit agreement ), or as a result of your death or Disability (as defined below), the vesting of your outstanding UOL Restricted Stock Units will be accelerated by the additional number of shares in which you would have been vested at the time of such termination if you had completed an additional twelve (12) months of service, calculated as if such units vest on a monthly basis; provided however, that in no event will the number of shares which vest on such an accelerated basis exceed the number of shares unvested immediately prior to the date of such termination.

(d) For purposes of this letter, “Disability” means your inability to engage in any substantial gainful activity necessary to perform your duties hereunder by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months.

5. Policies; Procedures; Confidentiality and Non-Competition Agreement. As an employee of the Company, you will be expected to abide by all of the policies and procedures applicable to employees of the Company, including, without limitation the terms of: the Insider Trading Policy; the Code of Ethics; and the Employee Handbook. You will also be bound by the Confidentiality and Non-Competition Agreement between you and the Company (or any successor thereto or affiliate thereof), a copy of which is attached hereto as Appendix A and is incorporated herein by reference.

7. Termination of Employment

(a) Termination by You. If you terminate your employment with the Company for any reason other than for “good reason” (as defined below), all obligations of the Company as set forth in this letter will cease, other than the obligation to pay you any accrued base salary for services rendered through the date of termination, to pay you for any accrued but unused vacation days as of the date of termination, and to fulfill its obligations in accordance with the terms of the applicable stock plan or restricted stock unit agreement. If you terminate your employment with the Company for “good reason,” in addition to the foregoing, the Company will pay you the Separation Payment (as defined below) subject to the conditions set forth in Section 7(b) below. However, and notwithstanding the termination of your employment by you, you will continue to be obligated to comply with the terms of the Confidentiality and Non-Competition Agreement referenced in Section 5 above.

(b) Termination by the Company. If your employment is terminated by the Company “without cause” (as defined below), and subject to your execution (without revoking) and delivery to the Company of a comprehensive agreement releasing the Company and its officers, directors, employees, stockholders, parents, subsidiaries, affiliates, representatives and other parties and containing such other and additional terms as the Company deems satisfactory (“Release”), which becomes effective after the expiration of any applicable revocation period, the Company will pay you a separation payment (the “Separation Payment”) equal to the sum of (i) twenty-four (24) months of your then current annual base salary, (ii) your Annual Bonus and (iii) your Annual Bonus, prorated through your termination date. For purposes of Section 7(b)(ii) and Section 7(b)(iii) above, “Annual Bonus” shall mean the lesser of 100% of your then current annual base salary or the Annual Bonus paid to you for the preceding fiscal year. This Separation Payment will be payable monthly on a pro rata basis over twenty-four (24) months after such termination with the first such payment commencing upon the expiration of all applicable review and revocation periods applicable to the Release as statutorily required by law. Upon termination of your employment by the Company “without cause,” other than the obligations set forth in the first sentence of Section 7(a) above and the acceleration of vesting provided in Section 4 above, the Company will have no further obligation to you except pursuant to this paragraph.

If your employment is terminated by the Company “with cause” (as defined below), the Company will have no further obligation to you under the terms of this letter, other than the obligations set forth in the first sentence of Section 7(a) above. However, and notwithstanding

the termination of your employment by the Company “with cause” or “without cause,” or by you for “good reason,” you will continue to be obligated to comply with the terms of the Confidentiality and Non-Competition Agreement referenced in Section 5 above.

If any payment or benefit received or to be received by you (including any payment or benefit received pursuant to this letter or otherwise) would be (in whole or part) subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, or any successor provision thereto, or any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then, the cash payments provided to you under this Agreement shall first be reduced (and thereafter, if necessary, the acceleration of vesting provided to you under this Agreement shall be reduced) to the extent necessary to make such payments and benefits not subject to such Excise Tax, but only if such reduction results in a higher after-tax payment to you after taking into account the Excise Tax and any additional taxes you would pay if such payments and benefits were not reduced.

(c) Definitions.

For purposes of this letter, “good reason” means:

(i) a material reduction in your base salary without your prior written consent;

(ii) a material reduction in your authority, duties or responsibilities in a manner inconsistent with the terms of this agreement, without your prior written consent; or

(iii) any material un-waived breach by the Company of the terms of this letter;

For purposes of this letter, “with cause” means your commission of any one or more of the following acts:

(i) willfully damaging of the property, business, business relationships, reputation or goodwill of the Company or any direct or indirect parent, subsidiary or other affiliate thereof (an “Affiliate”);

(ii) commission of a felony or a misdemeanor involving moral turpitude;

(iii) theft, dishonesty, fraud or embezzlement;

(iv) willfully violating any rules or regulations of any governmental or regulatory body that is or is reasonably expected to be injurious to the Company or any Affiliate thereof;

(v) the use of alcohol, narcotics or other controlled substances to the extent that it prevents you from efficiently performing services for the Company or any Affiliate thereof;

(vi) willfully injuring any other employee of the Company or any Affiliate thereof;

(vii) willfully injuring any person in the course of performance of services for the Company or any Affiliate thereof;

(viii) disclosing to a competitor or other unauthorized persons confidential or proprietary information or secrets of the Company or any Affiliate thereof;

(ix) solicitation of business on behalf of a competitor or a potential competitor of the Company or any Affiliate thereof;

(x) harassment of any other employee of the Company or any Affiliate thereof or the commission of any act which otherwise creates an offensive work environment for other employees of the Company or any Affiliate thereof;

(xi) failure for any reason within five (5) days after receipt by you of written notice thereof from the Company, to correct, cease or otherwise alter any insubordination, failure to comply with instructions, inattention to or neglect of the duties to be performed by you or other act or omission to act that in the opinion of the Company does or may adversely affect the business or operations of the Company or any Affiliate thereof;

(xii) breach of any material term of this letter; or

(xiii) any other act or omission that is determined to constitute “cause” in the good faith discretion of the Board of Directors.

For purposes of this letter, “without cause” means any reason not within the scope of the definition of the term “with cause.”

portion of the payments under this letter would otherwise be subject to taxation pursuant to Section 409A of the Code, you shall not be entitled to any payments upon a termination of your employment until the earlier of (i) the expiration of the six (6)-month period measured from the date of your “separation from service” (as such term is defined in Treasury Regulations issued under Section 409A of the Code) or (ii) the date of your death. Upon the expiration of the applicable Section 409A deferral period, all payments and benefits deferred pursuant to this Section 7(d) (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to you in a lump sum, and any remaining payments due under this letter will be paid in accordance with the normal payment dates specified for them herein.

(e) Withholding Taxes. All forms of compensation referred to in this letter are subject to reduction to reflect applicable withholding and payroll taxes. Shares may be withheld on the vesting of your Restricted Stock Units to cover taxes on the terms set forth in the restricted stock unit agreement.

8. Entire Agreement. This letter (including any appendices thereto), together with the Confidentiality and Non-Competition Agreement referenced in Section 5 above, any handbooks and policies applicable to similarly situated executives of the Company in effect from time to time and the applicable stock plan and restricted stock unit agreement, contains all of the terms of your employment with the Company and supersedes any prior understandings or agreements, whether oral or written, between you and the Company. If any provision of this letter is held by an arbitrator or a court of competent jurisdiction to conflict with any federal, state or local law, or to be otherwise invalid or unenforceable, such provision shall be construed in a manner so as to maximize its enforceability while giving the greatest effect as possible to the parties’ intent. To the extent any provision cannot be construed to be enforceable, such provision will be deemed to be eliminated from this letter and of no force or effect and the remainder of this letter will otherwise remain in full force and effect and be construed as if such portion had not been included in this letter. This letter is not assignable by you. This letter may be assigned by the Company to any Affiliate or to successors in interest to the Company or its lines of business.

9. Amendment and Governing Law. This letter may not be amended or modified except by an express written agreement signed by you and the Chief Executive Officer of the Company. The terms of this letter and the resolution of any disputes will be governed by Illinois law, and venue for any disputes will be in Chicago, Illinois.

10. Term. This letter will expire on November 15, 2012, except Sections 5, 6, 7(d) and (e), 8, 9 and 10 will survive such expiration. Following the expiration of this letter, your employment with the Company will continue to be “at will.”

[Signature Page Follows]

We look forward to a successful relationship with you. You may indicate your agreement with these terms by signing and dating this letter.

If you have any questions, please call the undersigned.

Very truly yours,

FTD GROUP, INC.


By:	/s/ Mark R. Goldston
Name:		Mark R. Goldston
Title:		Chairman

I have read the foregoing and accept the terms set forth in this letter:

/s/ Robert Apatoff
Robert Apatoff


Dated: October 14, 2008

Appendix A

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (the “Agreement”) dated and made effective as of October 14, 2008 between FTD Group, Inc. (the “Company”) and Robert Apatoff (the “Executive”).

R E C I T A L S:

A. The Company and the Executive have entered into that certain letter agreement of even date with this Agreement pursuant to which the Executive will serve as President of the Company; and

B. In connection therewith, the Company and the Executive desire to provide for certain additional obligations.

NOW, THEREFORE, in consideration of the offer to and acceptance by the Executive of employment as President of the Company and of other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto additionally agree as follows:

Section 1. Secrecy, Non-Competition, No Interference and Non-Solicitation.

(a) No Competing Employment. The Executive acknowledges that (i) the agreements and covenants contained in this Section 1 are essential to protect the value of the Company’s business and assets and (ii) by virtue of his employment with the Company, the Executive will obtain such knowledge, know-how, training and experience of such a character that there is a substantial probability that such knowledge, know-how, training and experience could be used to the substantial advantage of a competitor of the Company and to the Company’s substantial detriment. Therefore, the Executive agrees that, for the period (the “Restricted Period”) commencing on the date of this Agreement and ending on the date that is twenty-four (24) months after the date on which the Executive is no longer employed by the Company for any reason, the Executive shall not participate, operate, manage, consult, join, control or engage, directly or indirectly, for the benefit of the Executive or on behalf of or in conjunction with any person, partnership, corporation or other entity, whether as an employee, consultant, agent, officer, stockholder, member, investor, agent or otherwise, in any business activity if such activity constitutes the sale or provision of floral products or services that are similar to, or competitive with, floral products or services then being sold or provided by the Company or any of its subsidiaries or affiliated companies, including, without limitation, retail florists’ business services, floral order transmission and related network services, development and distribution of branded floral products on the Internet or other consumer direct segment of the floral industry (including, without limitation, Interflora, Inc., Teleflora LLC., 1-800-FLOWERS.COM, Inc., Proflowers.com, Floral Source, (a “Competitive Activity”), in any of: the City of Downers Grove, Illinois, the County of DuPage, Illinois or any other city or county in the State of Illinois; the District of Columbia or any other state, territory, district or commonwealth of the United States or any county, parish, city or similar political subdivision in

any other state, territory, district or commonwealth of the United States; any other country or territory anywhere in the world or in any city, canton, county, district, parish, province or any other political subdivision in any such country or territory; or anywhere in the world (each city, canton, commonwealth, county, district, parish, province, state, country, territory or other political subdivision or other location in the world shall be referred to as a “Non-competition Area”). The parties to this Agreement intend that the covenant contained in the preceding sentence of this Section 1(a) shall be construed as a series of separate covenants, one for each city, canton, commonwealth, county, district, parish, state, province, country, territory, or other political subdivision or other area of the world specified. Except for geographic coverage, each separate covenant shall be considered identical in terms to the covenant contained in the preceding sentence. The parties further acknowledge the breadth of the covenants, but agree that such broad covenants are necessary and appropriate in the light of the global nature of the Competitive Activity. If, in any judicial or other proceeding, a court or other body declines to enforce any of the separate covenants included in this Section 1(a), the unenforceable covenant shall be considered eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. Notwithstanding the foregoing, the Executive may maintain or undertake purely passive investments on behalf of the Executive, the Executive’s immediate family or any trust on behalf of the Executive or the Exective’s immediate family in companies engaged in a Competitive Activity so long as the aggregate interest represented by such investments does not exceed 1% of any class of the outstanding publicly traded debt or equity securities of any company engaged in a Competitive Activity.

(b) Nondisclosure of Confidential Information. The Executive, except in connection with his employment hereunder, shall not disclose to any person or entity or use, either during the Executive’s employment with the Company or at any time thereafter, any information not in the public domain, in any form, acquired by the Executive while employed by the Company or, if acquired following the Executive’s employment with the Company, such information that, to the Executive’s knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company or any of its affiliates, relating to the Company, United Online, Inc., a Delaware corporation and the parent corporation of the Company (“UOL”), or any of its successors or their subsidiaries or affiliated companies (collectively, the “UOL Group”), including but not limited to trade secrets, technical information, systems, procedures, test data, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company’s products or services), business and product plans, code books, invoices and other financial statements, computer programs, discs and printouts, customer and supplier lists or names, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of information, written or unwritten, that is or was used in the business of the Company, UOL, any predecessor of the Company, UOL or any of the Company’s, or UOL’s subsidiaries, affiliates, successors or assigns. The Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof are and shall remain the sole and exclusive property of the Company or other UOL Group entity, and upon termination of his employment with the Company, the Executive shall return to the Company the originals and all copies (and shall delete all such items in electronic format) of any such information provided to or acquired by the Executive in connection with the performance of the Executive’s duties for the Company, and shall return to the Company all files, correspondence, computer equipment and disks or other communications

(including any such materials in electronic format) received, maintained or originated by the Executive during the course of the Executive’s employment.

(c) No Interference and Non-Solicitation. During the Restricted Period, the Executive shall not, whether for the Executive’s own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), solicit, endeavor to entice away from the Company, UOL, or any of the Company’s or UOL’s subsidiaries or affiliated companies, or otherwise interfere with the relationship of the Company or UOL or any of its or their subsidiaries or affiliated companies with, any person who, to the knowledge of the Executive, is (or has at any time within the preceding three months been) employed by or otherwise engaged to perform services for the Company, UOL or any of the Company’s or UOL’s subsidiaries or affiliated companies (including, but not limited to, any independent sales representatives or organizations) or any entity who is, or was within the then most recent 12-month period, a customer or client of the Company, UOL, any predecessor of the Company or UOL or any of the Company’s or UOL’s subsidiaries or affiliated companies (a “Customer”) or a supplier or vendor of the Company or UOL or any of the Company’s or UOL’s subsidiaries or affiliated companies (a “Supplier”); provided, however, that this Section 1(c) shall not prohibit the Executive from employing, for the Executive’s own account, following a termination of the employment of the Executive, any person employed by a Customer or Supplier, if such employment is not in connection with a Competitive Activity.

Section 2. Calculation of Time Period. The Executive agrees that if the Executive violates the provisions of Section 1(a) of this Agreement, the running of the Restricted Period shall be tolled for the period in which the Executive is in violation of such non-competition provisions. The Executive understands that the foregoing restrictions may limit the Executive’s ability to earn a livelihood in a business engaged in a Competitive Activity, but the Executive nevertheless believes that the Executive has received and will receive sufficient consideration and other benefits as an employee of the Company and as otherwise provided in connection with the Merger to clearly justify restrictions that, in any event, given his education, skills and ability, the Executive does not believe would prevent the Executive from earning a living.

Section 3. Inventions.

(a) Defined. The Executive understands that during the period the Executive previously served as a member of the Company’s Board of Directors and during term of the Executive’s employment, there have been and are certain restrictions on the Executive’s development of technology, ideas, and inventions, referred to in this Agreement as “Invention Ideas.” The term Invention Ideas means all ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents and copyrights relating to any existing or planned service or product of the Company, and all improvements, rights, and claims related to the foregoing, that are conceived, developed, or reduced to practice by the Executive alone or with others. The Executive agrees that all original works of authorship which were or are made by the Executive (solely or jointly with others) as a former member of the Company’s Board of Directors or within the scope of the

Executive’s employment and which are protectable by copyright are “works made for hire,” as the term is defined in the United States Copyright Act (17 USCA, Section 101).

(b) Disclosure. The Executive agrees to maintain adequate and current written records on the development of all Invention Ideas and to disclose promptly to the Company all Invention Ideas and relevant records, which records will remain the sole property of the Company. The Executive further agrees that all information and records pertaining to any idea, process, trademark, service mark, invention, technology, computer program, original work of authorship, design formula, discovery, patent, or copyright that might reasonably be construed to be an Invention Idea, but was, during the period that the Executive served as a member of the Company’s Board of Directors, or is conceived, developed, or reduced to practice by the Executive (alone or with others) during the Executive’s employment or during the one-year period following termination of the Executive’s employment, shall be promptly disclosed to the Company (such disclosure to be received in confidence). Any disclosure pursuant to this Section 3(b) will be received by the Company in confidence so that the Company may examine such information to determine if in fact it constitutes Invention Ideas subject to this Agreement.

(c) Assignment. The Executive agrees to, and does hereby continuously, assign to the Company, without further consideration, all right, title, and interest that the Executive may presently have or acquire (throughout the United States and in all foreign countries), free and clear of all liens and encumbrances, in and to each Invention Idea, which shall be the sole property of the Company, whether or not patentable. In the event any Invention Idea shall be deemed by the Company to be patentable or otherwise registrable, the Executive shall assist the Company (at its expense) in obtaining patent or other applicable registrations, and the Executive shall execute all documents and do all other things (including testifying at the Company’s expense) necessary or proper to obtain patent or other applicable registrations and to vest the Company with full title to them. The Executive’s obligation to assist the Company in obtaining and enforcing patents, registrations or other rights for such inventions in any and all countries, shall continue beyond the termination of my employment, but the Company shall compensate the Executive at a reasonable rate after such termination for the time actually spent by the Executive at the Company’s request for such assistance. Should the Company be unable to secure the Executive’s signature on any document necessary to apply for, prosecute, obtain, or enforce any patent, copyright, or other right or protection relating to any Invention Idea, whether due to the Executive’s mental or physical incapacity or any other cause, the Executive hereby irrevocably designates and appoints the Company and each of its duly authorized officers and agents as the Executive’s agent and attorney-in-fact, to act for and on the Executive’s behalf, to execute and file any such document and to do all other lawfully permitted acts to further the prosecution, issuance, and enforcement of patents, copyrights, or other rights of protections with the same force and effect as if executed and delivered by the Executive. Notwithstanding the foregoing provisions of this Section 3:

This provisions of this Section 3(c) do not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive’s own time, unless (a) the invention relates (i) to the business of the Company or (ii) to the Executive’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the Executive for the Company.

(d) Exclusions. Except as disclosed in Exhibit A attached hereto, there are no ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents, copyrights, or improvements to the foregoing that the Executive wishes to exclude from this Agreement. If nothing is listed on Exhibit A, the Executive represents that the Executive has no such inventions or improvements at the time of signing this Agreement, and that the Executive is not aware of any existing contract in conflict with this Agreement.

(e) Post-Termination Period. The Executive understands and acknowledges that because of the difficulty of establishing when any idea, process, invention, etc., is first conceived or developed by the Executive, or whether it results from access to confidential, trade secret or proprietary information or the Company’s equipment, facilities, and data, the Executive agrees that any idea, process, trademark, service mark, invention, technology, computer program, original work of authorship, design, formula, discovery, patent, copyright, or any improvement, rights, or claims related to the foregoing shall be presumed to be an Invention Idea if it relates to any existing or planned service or product of the Company, subsidiaries or affiliates, and if it is conceived, developed, used, sold, exploited, or reduced to practice by the Executive or with the Executive’s aid within six months after the Executive’s termination of employment with the Company. The Executive may rebut the above presumption if the Executive proves that the invention, idea, process, etc., is not an Invention Idea as defined in Section 3(a).

(f) Illinois Statute. The Executive understands that nothing in this Agreement is intended to expand the scope of protection provided the Executive by Illinois Statute 765 ILCS 1060.

Section 4. Irreparable Injury. It is further expressly agreed that the Company will or would suffer irreparable injury if the Executive were to compete with the Company, UOL or any of its or their subsidiaries or affiliated companies in violation of this Agreement or the Executive were to otherwise breach this Agreement. Any such violation or breach will cause the Company irreparable harm, the amount of which may be extremely difficult to estimate, thus, making any remedy at law or in damages inadequate. Consequently, the Company shall have the right to apply to a court of appropriate jurisdiction for, and the Executive consents and stipulates to the entry of, an order of injunctive relief in prohibiting the Executive from competing with the Company or UOL, its successors or any of its or their subsidiaries or affiliated companies in violation of this Agreement, an order restraining any other breach or threatened breach of this Agreement, and any other relief the Company and such court deems appropriate. This right shall be in addition to any other remedy available to the Company in law or equity. The parties hereby agree that the attorneys’ fees of the prevailing party in any such proceeding or action shall be paid by the non-prevailing party.

Section 5. Representation and Warranties of the Executive. The Executive represents and warrants that the execution of this Agreement and subsequent employment with the Company does not and will not conflict with any obligations that the Executive has to any former employers or any other entity. The Executive further represents and warrants that the Executive

has not brought to the Company, and will not at any time bring to the Company, any materials, documents or other property of any nature of a former employer.

Section 6. Miscellaneous.

(a) Jurisdiction, Choice of Law and Venue. The validity and construction of this Agreement shall be governed by the internal laws of the State of Illinois, excluding the conflicts-of-laws principles thereof. Each party hereto consents to the jurisdiction of, and venue in, any federal or state court of competent jurisdiction located in Chicago, Illinois.

(b) Entire Agreement. This Agreement and any other agreement or document delivered in connection with this Agreement, including the letter agreement dated as of the date hereof, between the Company and the Executive, state the entire agreement and understanding of the parties on the subject matter of this Agreement, and supersede all previous agreements, arrangements, communications and understandings relating to that subject matter.

(c) Counterparts. This Agreement may be signed in two or more counterparts, each of which shall be deemed an original, with the same effect as if all signatures were on the same document.

(d) Amendment; Waiver; etc. This Agreement, and each other agreement or document delivered in connection with this Agreement, may be amended, modified, superseded or canceled, and any of the terms thereof may be waived, only by a written document signed by each party to this Agreement or, in the case of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to exercise any right or require the performance of any duty under this Agreement or any other agreement or document delivered in connection with this Agreement shall in no way affect the right of that party at a later time to exercise that right or enforce that duty or any other right or duty. No waiver by any party of any condition or of any breach of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed or construed to be a further or continuing waiver of any such condition or breach or of the breach of any other term of this Agreement. A single or partial exercise of any right shall not preclude any other or further exercise of the same right or of any other right. The rights and remedies provided by this Agreement shall be cumulative and not exclusive of each other or of any other rights or remedies provided by law.

(e) Severability. If any provision of this Agreement or any other agreement or document delivered in connection with this Agreement, if any, is partially or completely invalid or unenforceable in any jurisdiction, then that provision shall be ineffective in that jurisdiction to the extent of its invalidity or unenforceability, but the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, all of which shall be construed and enforced as if that invalid or unenforceable provision were omitted, nor shall the invalidity or unenforceability of that provision in one jurisdiction affect its validity or enforceability in any other jurisdiction. The Company and the Executive agree that the period of time and the geographical area described in Section 1 are reasonable in view of the nature of the business in which the Company is engaged and proposes to be engaged, and the Executive’s understanding of his prospective future

employment opportunities. However, if the time period or the geographical area, or both, described in Section 1 should be judged unreasonable in any judicial proceeding, then the period of time shall be reduced by that number of months and the geographical area shall be reduced by elimination of that portion, or both, as are deemed unreasonable, so that the restriction covenant of Section 1 may be enforced during the longest period of time and in the fullest geographical area as is adjudged to be reasonable.

(f) Employment “At-Will”

Both the Executive and the Company acknowledge that nothing in this Agreement creates a contract for employment for any specific duration. The Executive’s employment shall be “at-will”, meaning both the Company and the Executive can terminate the relationship at any time, with or without reason or notice.

(g) Survival of Obligations. The obligations of the Executive set forth in this Agreement shall survive the termination of Employee’s employment with the Company and the termination of this Agreement.

(h) Assignment. This Agreement may be freely assigned by the Company, but may not be assigned by the Executive without the prior written consent of the Company which may be withheld at the Company’s sole discretion.

(i) Binding Effect. This Agreement shall inure to the benefit of the Company and its successors and assigns, and shall be binding upon the Executive and the Executive’s heirs, personal representatives and any permitted assigns.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

	FTD GROUP, INC.


	By:	/s/ Mark R. Goldston
		Mark R. Goldston
		Chairman

	/s/ Robert Apatoff
	Robert Apatoff

APPENDIX A

EXHIBIT A
EXECUTIVE’S DISCLOSURE

Except as set forth below, there are no ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents, copyrights, or any claims, rights, or improvements to the foregoing that I wish to exclude from the operation of this Agreement:

Date:
			Robert Apatoff

EX-10.32 6 a2189034zex-10_32.htm EX-10.32

Exhibit 10.32

INDEMNIFICATION AGREEMENT

INDEMNIFICATION AGREEMENT, dated as of (the “Agreement”), by and between United Online, Inc., a Delaware corporation (the “Company”), and (“Indemnitee”).

A. Indemnitee, as a member of the Company’s board of directors (the “Board”) or as an officer of the Company, or both, performs valuable services for the Company.

B. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for corporate directors, officers, employees, controlling persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.

C. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, controlling persons, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.

D. The Company has adopted bylaws (as amended from time to time, the “Bylaws”) providing for the indemnification of the officers, directors, agents and employees of the Company to the maximum extent authorized by Section 145 of the General Corporation Law of the State of Delaware, (as amended from time to time, the “DGCL”).

E. The Bylaws and the DGCL, by their non-exclusive nature, permit contracts between the Company and its directors, officers, employees, controlling persons, agents or fiduciaries with respect to indemnification of such directors, officers, employees, controlling persons, agents or fiduciaries.

F. The Company desires to attract and retain the involvement of highly qualified individuals, such as Indemnitee, to serve the Company and, therefore, wishes to provide for the indemnification and advancement of expenses to Indemnitee to the maximum extent permitted by law.

G. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified.

H. In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein.

NOW, THEREFORE, in consideration of Indemnitee’s service to the Company, the parties hereto, intending to be legally bound, agree as follows:

1. Scope of Indemnity.

(a) Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was, is, becomes or is threatened to become a

party to or witness or other participant in any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, administrative hearing, inquiry, investigation or any other actual, threatened or completed proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), against any and all expenses actually and reasonably incurred by or on behalf of Indemnitee (including attorneys’ fees and all other costs in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such Proceeding), judgments, fines, penalties and amounts paid in settlement of such Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (collectively, “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, by reason of (or arising in part out of) any action taken by Indemnitee or of any inaction of Indemnitee while acting as a director, officer, employee, controlling person, agent or fiduciary of the Company or any subsidiary of the Company, or by reason of the fact that Indemnitee was serving at the request of the Company as a director, officer, employee, controlling person, agent or fiduciary of another corporation, partnership, joint venture, trust or other person or group (an “Indemnification Event”).

(b) Partial Indemnification. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of an Indemnification Event, a party to or a participant in a Proceeding and is successful, on the merits or otherwise, in defense of such Proceeding, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. If Indemnitee is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses incurred in connection with any Proceeding, but not, however, for the total amount of Expenses, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

2. Method for Requesting Indemnity.

(a) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company written notice as soon as practicable of any Proceeding commenced or threatened against Indemnitee for which indemnification will or could be sought under this Agreement.

(b) Notice to Insurers. If, at the time of the receipt by the Company of notice of a Proceeding pursuant to Section 2(a) above, the Company has liability insurance in effect which may cover such Proceeding, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in each of the Company’s applicable policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

3. Advancement of Expenses/Undertaking.

(a) Advancement. The Company shall advance all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding within ten business days after receipt by the Company of a written demand by Indemnitee requesting such advance, whether prior to or after final disposition of the Proceeding. Such written demand shall reasonably evidence the Expenses incurred by Indemnitee and shall include an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it is ultimately determined that Indemnitee is not entitled to be indemnified against such Expenses.

(b) Repayment of Expenses. Notwithstanding the provisions of Section 3(a), the obligation of the Company to advance Expenses shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee is not entitled to be indemnified under applicable law, Indemnitee shall reimburse the Company within thirty days of such determination all such amounts previously paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction or arbitration proceedings as set forth in Section 6(a) to secure a determination that Indemnitee is entitled to be indemnified under applicable law, any determination made by the Company that Indemnitee is not entitled to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted and lapsed).

4. Determining Right to Indemnity.

(a) Procedure. Upon written request by Indemnitee for indemnification pursuant to Section 2(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement to indemnification shall be made as follows: (i) if a Change of Control (as defined in Section 14) has occurred, by Independent Counsel (as defined in Section 14) in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control has not occurred by one of the following, which shall be at the election of Indemnitee, (A) a majority vote of the directors of the Company who are not and were not a party to the Proceeding in respect of which Indemnitee seeks indemnification (the “Disinterested Directors”); or (B) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at the time parties to the Proceeding (the “Disinterested Stockholders”); or (C) Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee (each individually, the “Determining Party”). If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within seven days after such determination. Indemnitee shall cooperate with the Determining Party with respect to Indemnitee’s entitlement to indemnification, including providing to the Determining Party upon request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Determining Party shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to

indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) Independent Counsel. In the event the determination of entitlement to indemnification is to be made by an Independent Counsel pursuant to Section 4(a), the Independent Counsel shall be selected as follows. If a Change of Control has not occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee of the identity of the Independent Counsel selected. If a Change of Control has occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and the Indemnitee shall give written notice to the Company of the identity of the Independent Counsel selected. In either event, Indemnitee or the Company, as the case may be, may, within ten days after written notice of the selection is given, deliver to the Company or to Indemnitee, as the case may be, a written objection to the selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel selected does not meet the requirements of an Independent Counsel, and the objection shall set forth with particularity the factual basis of such assertion. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty days after submission by Indemnitee of a written request for indemnification pursuant to Section 2(a), no Independent Counsel has been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for resolution of any objection which has been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment of an Independent Counsel by the court, and the person with respect to whom all objections are so resolved or appointed by the court shall act as Independent Counsel under Section 4(b). The Company shall pay all reasonable fees and expenses incurred by the Independent Counsel in connection with acting pursuant to Section 4(a), and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 4(b), regardless of the manner in which the Independent Counsel was selected or appointed.

(c) Settlement. The Company is not required to obtain the consent of the Indemnitee to the settlement of any Proceeding that the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential liability. The Company shall not be liable for any amount paid by the Indemnitee in settlement of any Proceeding that is not defended by the Company, unless the Company has consented to such settlement in writing, which consent shall not be unreasonably withheld.

(d) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld, delayed or conditioned) upon the delivery to Indemnitee of written notice of its election to do so. After delivery of notice, approval of counsel by Indemnitee and retention of counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding; provided that Indemnitee shall have the right to employ Indemnitee’s counsel in any

such Proceeding at Indemnitee’s expense and if (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

5. Presumptions.

(a) Presumptions; Burden of Proof. In making a determination with respect to entitlement to indemnification or the advancement of Expenses, the Determining Party shall presume that Indemnitee is entitled to indemnification or advancement of Expenses under this Agreement if Indemnitee has submitted a request for indemnification or the advancement of Expenses in accordance with Sections 2(a) and 3(a), and the Company shall have the burden of proof in connection with any determination contrary to that presumption. For purposes of this Agreement, the termination of any Proceeding by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Determining Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Determining Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Determining Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

(b) Timing. If the Determining Party shall not have made a determination within sixty days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that the foregoing provisions of this Section 5(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the Disinterested Stockholders pursuant to Section 4(a) and if (A) within fifteen days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the Disinterested Stockholders for their consideration at an annual meeting thereof to be held within seventy-five days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by an Independent Counsel pursuant to Section 4(b).

(c) Reliance as Safe Harbor. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s actions are based on the records or books of account of the Company, including financial statements, or on information supplied to Indemnitee by the officers of the Company in the course of their duties, or on the advice of legal counsel for the Company or on information or records given or reports made to the Company by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company. The provisions of this Section 5(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

(d) Actions of Others. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right of indemnification under this Agreement.

6. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 4 that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 3, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 4(b) within sixty days after receipt by the Company of the request for indemnification, or (iv) payment of indemnification is not made within seven days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Court of Chancery of the State of Delaware of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 6(a).

(b) In the event that a determination has been made pursuant to Section 4(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.

(c) If a determination has been made pursuant to Section 4(a) that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 6, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition on such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 6, seeks a judicial adjudication of or an award in arbitration to enforce his or her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and

reasonably incurred by him or her in such judicial adjudication or arbitration, but only if he or she prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. The Company shall indemnify Indemnitee against any and all Expense and, if requested by Indemnitee, shall (within ten days after receipt by the Company of a written request therefor) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any court or before any arbitrator that the Company is bound by all provisions of this Agreement.

7. Contribution.

(a) If the indemnification provided for in Section 1(a) for any reason is held by a court of competent jurisdiction to be unavailable to Indemnitee in respect of any Proceeding and/or in respect of any Expenses in connection therewith, then the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount paid or payable by Indemnitee as a result of such Proceeding (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and Indemnitee with respect to the Indemnification Event, or (ii) if the allocation provided by clause (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 (i) above but also the relative fault of the Company and Indemnitee in connection with the Indemnification Event, as well as any other relevant equitable considerations. In connection with the registration of the Company’s securities, the relative benefits received by the Company and Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the securities so offered. The relative fault of the Company and Indemnitee 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 Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the registration of the Company’s securities, in no event shall an Indemnitee be required to contribute any amount under this Section 7 in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such

registration statement which is being sold by Indemnitee or (ii) the proceeds received by Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act of 1933) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

8. Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company’s certificate of incorporation (as amended from time to time, the “Certificate of Incorporation”), its Bylaws, any agreement, any vote of stockholders or Disinterested Directors, the DGCL, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.

9. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Proceeding commenced or threatened against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, the Certificate of Incorporation, the Bylaws or otherwise) of the amounts otherwise indemnifiable hereunder.

10. Mutual Acknowledgement. The Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise. Each Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s rights under public policy to indemnify Indemnitee.

11. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Proceedings Initiated by Indemnitee. To indemnify or advance Expenses to Indemnitee with respect to Proceedings initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Certificate of Incorporation or Bylaws now or hereafter in effect relating to Indemnification Events, (ii) in specific cases if the Board has approved the initiation or bringing of such Proceeding, or (iii) as otherwise required under Section 145 of the DGCL, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance Expense payment or insurance recovery, as the case may be; or

(b) Proceedings Under Section 16(b). To indemnify Indemnitee for Proceedings arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any similar or successor statute; or

(c) Proceedings Excluded Under Section 145 of the DGCL. To indemnify Indemnitee if (i) Indemnitee did not act in good faith or in a manner reasonably believed by such Indemnitee to be in or not opposed to the best interests of the Company, or (ii) with respect to any criminal or civil enforcement action or proceeding, Indemnitee had reasonable cause to believe Indemnitee’s conduct was unlawful, or (iii) Indemnitee is adjudged to be liable to the Company unless and only to the extent the court in such action permits indemnification as provided in Section 145(b) of the DGCL.

12. Change in Law. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnity a member of its Board or an officer, employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 11(a).

13. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

14. Definitions.

(a) For purposes of this Agreement, references to the “Company” 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, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent, control person, or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner reasonably believed to be in the interests

of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(c) For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his or her beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 20% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of the Company and any new director whose election by the Board of the Company or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve 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 80% 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 (in one transaction or a series of transactions) all or substantially all of the Company’s assets.

(d) For purposes of this Agreement, “Independent Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 4(b), that is experienced in matters of corporate law and who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements) and shall not have otherwise performed services for any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person, who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(e) For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

16. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Proceedings relating to Indemnification Events regardless of whether any Indemnitee continues to serve as a director, officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.

17. Attorneys’ Fees. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action if Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that the Indemnitee’s material defenses to such action were made in bad faith or were frivolous.

18. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five calendar days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at Indemnitee’s address as set forth beneath Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Chief Executive Officer) or at such other address as such party may designate by ten calendar days’ advance written notice to the other party hereto.

19. Consent to Jurisdiction. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 6, the Company and Indemnitee irrevocably consent to the

jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim and waive any objection to the laying of venue of any such action or proceeding in a Delaware court and agree not to plead or to make any claim that any such action or proceeding brought in a Delaware court has been brought in an improper or otherwise inconvenient forum.

20. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

21. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.

22. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

23. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

24. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

25. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ or service of the Company or any of its subsidiaries in Indemnitee’s current capacity or any other capacity.

26. Corporate Authority. The Board of the Company has approved the terms of this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

		INDEMNITEE



		Print Name:


		Address:


		UNITED ONLINE, INC.,
		a Delaware corporation


		By:
			Mark R. Goldston
			Chairman, President and Chief Executive Officer

		Address:

EX-10.33 7 a2189034zex-10_33.htm EX-10.33

Exhibit 10.33

UNITED ONLINE, INC.

RESTRICTED STOCK UNIT ISSUANCE AGREEMENT

RECITALS

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix A.

NOW, THEREFORE, it is hereby agreed as follows:

AWARD SUMMARY

Award Date:		<Award Date>

Number of Shares Subject to Award:		<# of Shares Awarded> shares of Common Stock (the “Shares”)

Vesting Schedule:		The Shares shall vest in a series of installments over the Participant’s continued Service as follows: (i) twenty-five percent (25%) of the Shares shall vest upon the Participant’s completion of one year of Service measured from the Award Date and (ii) the balance of the Shares shall vest in a series of twelve (12) successive equal quarterly installments upon the Participant’s completion of each successive three (3)-month period of Service over the thirty-six (36) month period measured from the first anniversary of the Award Date. Such schedule is hereby designated the Normal Vesting Schedule. However, one or more Shares may be subject to accelerated vesting in accordance with the provisions of Paragraph 5 of this Agreement.

Issuance Schedule

4. Stockholder Rights and Dividend Equivalents

5. Change of Control.

7. Issuance of Shares of Common Stock.

· the Participant’s delivery of his or her separate check payable to the Corporation in the amount of such Withholding Taxes, or

14. Deferred Issuance Date.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.

	UNITED ONLINE, INC.



	By:	Mark R. Goldston

	Title:	Chairman, Chief Executive Officer and President

	PARTICIPANT

	Name: <Participant Name>

	Signature: <Signed Electronically>

	Social Security No: <SSN>

APPENDIX A

DEFINITIONS

The following definitions shall be in effect under the Agreement:

A. Agreement shall mean this Restricted Stock Unit Issuance Agreement.

B. Award shall mean the award of restricted stock units made to the Participant pursuant to the terms of this Agreement.

C. Award Date shall mean the date the restricted stock units are awarded to Participant pursuant to the Agreement and shall be the date indicated in Paragraph 1 of the Agreement.

D. Board shall mean the Corporation’s Board of Directors.

E. Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

(i) a merger or consolidation approved by the Corporation’s stockholders, unless securities possessing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and substantially in the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction,

(ii) the sale, transfer or other disposition of all or substantially all of the Corporation’s assets approved by the Corporation’s stockholders,

(iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders, or

(iv) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination; provided, however, that solely for purposes of determining whether a permissible Section 409A distribution can be made under Paragraph 5(d) in connection with such Change in Control event, the period for measuring a change in the composition of the Board shall be limited to a period of twelve (12) consecutive months or less.

A-1

F. Code shall mean the Internal Revenue Code of 1986, as amended.

G. Common Stock shall mean shares of the Corporation’s common stock.

K. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

L. Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of:

(i) such individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than Misconduct, or

A-2

N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended from time to time.

O. Participant shall mean the person to whom the Award is made pursuant to the Agreement.

Q. Plan shall mean either the Corporation’s 2001 Stock Incentive Plan or the Corporation’s 2001 Supplemental Stock Incentive Plan, as each such plan may be amended and restated from time to time.

R. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

A-3

U. Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange.

A-4

EX-31.1 8 a2189034zex-31_1.htm EX-31.1
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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark R. Goldston, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of United Online, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and to the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.


Date: November 10, 2008				/s/ MARK R. GOLDSTON Mark R. Goldston Chairman, President and Chief Executive Officer

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-31.2 9 a2189034zex-31_2.htm EX-31.2
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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott H. Ray, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of United Online, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.


Date: November 10, 2008				/s/ SCOTT H. RAY Scott H. Ray Executive Vice President and Chief Financial Officer

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Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-32.1 10 a2189034zex-32_1.htm EX-32.1
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Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

I, Mark R. Goldston, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(a) The Quarterly Report on Form 10-Q of United Online, Inc. for the quarter ended September 30, 2008, as filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2008


/s/ MARK R. GOLDSTON Mark R. Goldston Chairman, President and Chief Executive Officer

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Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EX-32.2 11 a2189034zex-32_2.htm EX-32.2
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Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

I, Scott H. Ray, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(b) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2008


/s/ SCOTT H. RAY Scott H. Ray Executive Vice President and Chief Financial Officer

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Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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