-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QrMMUdxznO7mTM+4V5ZwegYazEzY3+xCpv7XTedNxQ2UpgcpPzHyRN+eTgBHp91v MWnBjOgld9oLA5kM9I7iMA== 0000950149-00-000584.txt : 20000324 0000950149-00-000584.hdr.sgml : 20000324 ACCESSION NUMBER: 0000950149-00-000584 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 44 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGROUPS INC CENTRAL INDEX KEY: 0001105102 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943302741 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-33162 FILM NUMBER: 576942 BUSINESS ADDRESS: STREET 1: 350 BRANNAN ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 BUSINESS PHONE: 4155462700 MAIL ADDRESS: STREET 1: 350 BRANNAN ST CITY: SAN FRANCISCO STATE: CA ZIP: 94107 S-1 1 FORM S-1 FOR EGROUPS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 2000. REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 EGROUPS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375 94-3302741 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
350 BRANNAN STREET, SAN FRANCISCO, CA 94107, (415) 546-2700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) MICHAEL B. KLEIN PRESIDENT AND CHIEF EXECUTIVE OFFICER 350 BRANNAN STREET, SAN FRANCISCO, CA 94107, (415) 546-2700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: RALPH L. ARNHEIM III, ESQ. MICHAEL J. HALLORAN, ESQ. CYNTHIA CLARFIELD HESS, ESQ. ROBERT E. SULLIVAN, ESQ. JOHN S. WILLS, ESQ. W. WARREN H. BINFORD, ESQ. PERKINS COIE LLP PILLSBURY MADISON & SUTRO LLP 180 TOWNSEND STREET, 3RD FLOOR 50 FREMONT STREET SAN FRANCISCO, CA 94107 SAN FRANCISCO, CA 94105 (415) 344-7000 (415) 983-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] __________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- Common stock, $0.001 par value.......................... $75,000,000.00 $19,800.00 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 We will amend and complete the information in this prospectus. Although we are permitted by US federal securities laws to offer these securities using this prospectus, we may not sell them or accept your offer to buy them until the documentation filed with the SEC relating to these securities has been declared effective by the SEC. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy these securities in any jurisdiction where that would not be permitted or legal. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS , 2000 [LOGO] SHARES OF COMMON STOCK - -------------------------------------------------------------------------------- EGROUPS, INC.: - We provide the most widely used email group communication platform on the Internet. - eGroups, Inc. 350 Brannan Street San Francisco, CA 94107 (415) 546-2700 PROPOSED SYMBOL AND MARKET: - EGPS/Nasdaq National Market THE OFFERING: - - We are offering shares of our common stock. - - The underwriters have an option to purchase an additional shares from us to cover over-allotments. - - This is our initial public offering. We anticipate that the initial public price will be between $ and $ per share. - - We plan to use the net proceeds from this offering for the development of our services, sales and marketing, and general corporate purposes. - - Closing: , 2000.
------------------------------------------------------------------------------------ Per Share Total ------------------------------------------------------------------------------------ Public Offering Price: $ $ Underwriting Fees: Proceeds to eGroups, Inc.: ------------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. - -------------------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- DONALDSON, LUFKIN & JENRETTE CHASE H&Q ROBERTSON STEPHENS 3 [Inside Front Cover of Prospectus] The top of the page has the following header: THE LEADER IN EMAIL GROUP COMMUNICATION The following four subheaders are located across the page directly under the above header: "eGroups empowers individuals and businesses to communicate and collaborate around common interests." "Our 14 million active members exchange 2 billion emails per month." "The majority of our new members are referred by existing members." "Our members have created 600,000 active email groups." Below these sub-headers, on the right side of the page, there is screen shot of an eGroups web page, including a magnified "My Groups" menu from that page. To the left of this screen shot, and below the sub-headers, there are photographs of an individual and four groups, each arranged on a separate circular pod. The four groups have the following captions: "Music Fans;" "Class of '85;" "Investing Group;" and "Regional Sales Managers." - ------------------------------------------------------------------------ [Inside Front Cover Gatefold] The top of the page has the following centered header: HIGHLY TARGETED ADVERTISING AND DIRECT MARKETING SOLUTIONS The following three sub-headers are located across the page directly under the above header: "eGroups offers advertising inventory of 2 billion email impressions and 163 million web page views each month." "We deliver highly targeted marketing messages to our members based on their self-declared interests." "We have 2.5 million opt-in subscriptions from members who have elected to receive email promotional offers." Below these sub-headers, on the right-center and left-center of the page, there are screen shots of two eGroups web pages, including a magnified message from the group. There are several photographs of individuals arrayed around the gatefold, along with eleven interspersed circles with the following text: "Corvette World;" "Class of '85;" "Tech Investor;" Regional Sales Managers;" "College Intramurals;" "Santana Fans;" "FlightSim Jockeys;" Golf-Pros;" "Parenting;" "Sports Fans Now;" and "Spring Landscapes." The following text is also interspersed among the photographs and circles: "Prominent banner positioning on eGroups' web pages" "Targeted sponsorships" "Opt-in offers in specific categories of interest" "Ad banners embedded within group messages and delivered to the email inbox" 4 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of the prospectus or any sale of the common stock. In this prospectus, unless the context indicates otherwise, the Company, eGroups, we, us and our refer to eGroups, Inc., a Delaware corporation. eGroups, eGroup, email Groups, ONElist and the eGroups logo are our trademarks. This prospectus also contains trademarks and service marks of other companies. Unless otherwise indicated, all information in this prospectus: - gives effect to the conversion of all our outstanding shares of series A, B, C and D convertible preferred stock into shares of common stock upon the closing of this offering and the conversion of approximately $3.2 million in principal amount of subordinated debt into 437,500 shares of our common stock prior to the closing of this offering; - assumes the effectiveness of our amended and restated certificate of incorporation in the State of Delaware upon the completion of this offering; and - assumes no exercise of the underwriters' over-allotment option. TABLE OF CONTENTS
Page Prospectus Summary.................. 3 Risk Factors........................ 7 Use of Proceeds..................... 18 Dividend Policy..................... 18 Corporate Information............... 18 Forward-Looking Statements.......... 18 Capitalization...................... 19 Dilution............................ 20 Selected Consolidated Financial Data.............................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 22 Business............................ 29
Page Management.......................... 43 Relationships and Related Transactions...................... 52 Principal Stockholders.............. 55 Description of Capital Stock........ 57 Shares Eligible for Future Sale..... 60 Underwriting........................ 62 Legal Matters....................... 65 Experts............................. 65 Additional Information.............. 65 Index to Consolidated Financial Statements........................ F-1
5 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before buying shares in the offering. You should read the entire prospectus carefully. EGROUPS OUR BUSINESS eGroups is the most widely used email group communication platform on the Internet. Our service enables our members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members participating in approximately 600,000 member-created groups, with new members joining our service at a rate of approximately 1.5 million per month. During February 2000, our members exchanged email messages at a rate of approximately 2 billion per month, and our web site generated 163 million page views. We derive revenue from permission-based direct marketing programs, sponsorships and other forms of online advertising. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member-designated interests, demographic information and other data. In addition, through our permission-based direct marketing programs, we deliver full-page emails to members who have elected to receive promotional offers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. Our rapid growth in members has been driven by the inherently viral nature of our business and the ease of using our service. The organic growth of our member base occurs as existing members expand their groups by inviting new members, who often form their own groups and invite additional new members. Our member base has expanded rapidly in both the United States and abroad, with over 20% of our members coming from international domains. BENEFITS TO OUR MEMBERS Our easy-to-use and customizable email group communication service provides numerous benefits to our members. Through our service, group members communicate with each other using a single group email address, rather than the individual email addresses of each member. We deliver group email directly to the member's email inbox, allowing the member to read and reply at his or her convenience. In addition, we archive group email communications over the prior six months, enabling prospective and existing members to search our archives for past communications among group members. Each group also has access to a group calendar, an online chat application, a group polling feature, and dedicated storage space to share files such as photographs, documents and digital music. In April 2000, our members will have access to our web-based platform in 14 different languages and will be able to continue sending emails to other group members in any language. We are able to align advertisements more effectively with our members' self-designated interests, providing them with relevant advertisements that they are more likely to find useful. BENEFITS TO ADVERTISERS AND DIRECT MARKETERS We offer advertisers and direct marketers broad reach as well as a variety of targeting capabilities. Because our 14 million active members have segmented themselves across approximately 600,000 groups based on business and personal interests, we enable advertisers and direct marketers 3 6 to deliver highly targeted advertisements to specific audiences. We currently deliver approximately 2 billion emails and 163 million web page views per month, nearly all containing an advertisement. For example, online financial services firms can target advertisements to members of an investment group, while pharmaceutical companies can promote new therapies to a health-related group. Because consumers spend a significant portion of their online time using email, we believe advertisers are better able to reach these consumers by delivering advertisements in email messages. In addition, we currently have approximately 2.5 million subscriptions from our members who have elected to receive promotional offers by email in specific categories of interest. OUR MARKET OPPORTUNITY The Direct Marketing Association estimates that a total of $309 billion was spent on advertising and direct marketing in the United States in 1999. Because the Internet enables precise targeting of consumers through the use of behavioral, demographic and other data, advertisers and direct marketers are increasingly adopting online forms of advertising. Forrester Research estimates that the amount spent on online advertising and direct marketing worldwide will increase ten-fold from $3.3 billion in 1999 to $33.1 billion in 2004. The Internet enables group communications to occur on a global scale and offers efficiencies currently unavailable offline. Because email is the most widely used application on the Internet, we believe that groups will utilize email as a preferred medium for creating and managing their group communications. Given the self-segmented nature of groups, we believe that advertisers and direct marketers will embrace an email-based group communication platform that enables them to deliver highly targeted advertisements to their desired audience. THE EGROUPS STRATEGY Our objective is to maintain our leading position as the most widely used email group communication platform on the Internet. The following are key elements of our strategy: - Continue to develop, acquire and license proprietary products and technology to improve our member experience with enhanced functionality and new features; - Continue to increase the size of our member base and the level of group activity among existing members; - Maximize awareness of our brand among members and advertisers through various marketing channels; - Increase revenue by expanding our direct sales efforts, increasing our inventory of rich-media email advertisements, improving our ability to target our web and email advertising, refining our opt-in direct marketing programs, and introducing new subscription-based services; and - Leverage our email group communication platform to further expand internationally. EGROUPS, INC. We were incorporated in Delaware in June 1998. Our principal office is located at 350 Brannan Street, San Francisco, California, and our telephone number is (415) 546-2700. We maintain a web site at www.egroups.com. Information contained on our web site is not part of this prospectus. 4 7 THE OFFERING Common stock offered by eGroups.......................... shares Common stock to be outstanding after the offering............... shares Use of proceeds.................. We plan to use the net proceeds from this offering for the development of our services, sales and marketing, and general corporate purposes. Proposed Nasdaq National Market symbol........................... EGPS The number of shares to be outstanding after this offering is based on shares outstanding as of March 15, 2000. This number excludes: - 8,817,293 shares of our common stock reserved for issuance under our option and employee stock purchase plans, of which 2,711,453 shares of our common stock are issuable upon the exercise of outstanding stock options; and - 8,330 shares of our common stock issuable upon exercise of an outstanding warrant. See "Capitalization," "Management--Stock Plans," and Notes 8 and 11 of Notes to our Consolidated Financial Statements. 5 8 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes the consolidated statement of operations data for our business. The shares used in calculating our pro forma net loss per share data include the assumed conversion of all shares of convertible preferred stock into shares of our common stock from the date of issuance, but exclude the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some employees through the exercise of stock options. For a more detailed explanation of this financial data, see "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our Consolidated Financial Statements located elsewhere in this prospectus.
PERIOD FROM INCEPTION SIX MONTHS ENDED (JUNE 5, 1998) TO JANUARY 31, JULY 31, ----------------------- 1999 1999 2000 (UNAUDITED) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenue......................................... $ 489 $ 43 $ 3,464 Gross profit (loss)............................. 267 (44) 3,139 Operating loss.................................. (6,804) (1,240) (12,605) Net loss attributable to common stockholders.... $(6,857) $(1,235) $(12,903) Net loss per share attributable to common stockholders Basic and diluted.......................... $ (1.25) $ (0.29) $ (1.61) Shares used in per share calculation....... 5,465 4,303 8,011 Pro forma net loss per share attributable to common stockholders Basic and diluted (unaudited).............. $ (0.49) $ (0.56) Shares used in pro forma per share calculation (unaudited)................. 13,641 22,643
The following table summarizes our consolidated balance sheet data. The pro forma data reflects the assumed conversion of all of our shares of convertible preferred stock into shares of our common stock, the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some employees through the exercise of stock options. The pro forma as adjusted consolidated balance sheet data also gives effect to the sale of shares of common stock at an assumed initial public offering price of $ per share in this offering, after deducting estimated underwriting discounts, commissions and offering expenses payable by us, and the application of the resulting net proceeds.
JANUARY 31, 2000 --------------------------------- PRO PRO FORMA ACTUAL FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................. $44,586 $44,585 $ Working capital....................................... 44,578 44,576 Total assets.......................................... 52,211 51,312 Long-term capital lease obligations and debt.......... (8,149) (4,999) (4,999) Total stockholders' equity............................ 41,555 43,806
6 9 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus before making an investment decision about our common stock. Additional risks and uncertainties that we do not presently know about or that we currently deem immaterial may also impair our business operations. Any of the following risks could harm our business, financial condition or operating results, or cause the trading price of our common stock to decline. As a result, you could lose all or part of the money you paid to buy our common stock. RISKS RELATED TO OUR BUSINESS OUR LIMITED OPERATING HISTORY, UNPROVEN BUSINESS MODEL, RECENT MERGER, AND UNPREDICTABLE OPERATING RESULTS, COMBINED WITH THE UNCERTAINTIES OF OUR RAPIDLY EVOLVING MARKET, MAKE EVALUATING OUR BUSINESS DIFFICULT AND MAY LEAD TO VOLATILITY IN OUR STOCK PRICE. We were incorporated and began providing email group communication services in mid-1998, and have only recently begun to recognize revenue. Our historical financial information offers limited value in projecting our future operating results due to our limited operating history and the frequently changing nature of our market. Our business model is still evolving and could change significantly. In addition, because our merger with ONElist, Inc., was completed only recently in November 1999, we continue to integrate our operations and business activities. For example, we are planning to launch the integrated eGroups and ONElist web site in April 2000. Our operating results have varied during our short operating history and may continue to fluctuate significantly. As a result, we may fail to meet the expectations of investors and securities analysts, causing our stock price to become volatile or decline. Factors that may adversely affect our operating results include: - Failure to convince advertisers and direct marketers to adopt and continue to use our service; - Decreases in the price that advertisers and direct marketers will pay to deliver advertisements through our service; - Inability to increase our advertising response rates and targeting capabilities; - Introduction of new web sites, products or services by our competitors; - Inability to build brand awareness; - Inability to retain an active member base and attract new members; - Inability to increase the size and productivity of our engineering, marketing and sales forces; - Decreases in the rate at which our members opt into our direct marketing programs; - Failure to enhance our services to members and advertisers in a timely and effective manner; - Service interruptions that lead to significant downtime in our services to members or advertisers; - General economic conditions and economic conditions specific to the Internet; and - Seasonal changes in Internet usage and advertising revenues. As a result of all the factors described above, we believe that period-to-period comparisons of our historical operating results do not offer any indicator of our future performance and that 7 10 unfavorable period-to-period comparisons could cause our stock price to become volatile and to decline. WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT INCREASED LOSSES FOR THE FORESEEABLE FUTURE. We have experienced increasing operating losses since we began operations in June 1998. As of January 31, 2000, we had an accumulated deficit of approximately $19.4 million. Although we have experienced revenue growth in recent periods, our revenue may not continue to increase at its current rate and we expect to experience increased losses for the foreseeable future as we: - Increase our marketing activities to members and advertisers; - Continue to expand our product development activities, including enhancing our email-serving and ad-serving technology, developing new service features and increasing our operational infrastructure; - Increase our number of personnel; and - Incur higher general and administrative expenses to support our growing business. We are investing considerable resources in our expansion strategies in advance of anticipated growth, and these expenditures may delay our profitability. We cannot predict when or if we will achieve sustained profitability. Our failure to become and remain profitable would hinder our ability to sustain our business. WE FACE INTENSE AND INCREASING COMPETITION FOR MEMBERS AND ADVERTISERS THAT MAY ADVERSELY AFFECT OUR BUSINESS. Our market is intensely competitive and we expect that competition will persist and intensify in the future. We face competition for members and for advertising and direct marketing customers. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, technical, sales, marketing and other resources. Many of these competitors can devote substantially more resources to the development of their products and services. In addition, our competitors may form strategic alliances or complete acquisitions of businesses, technologies or products that could reduce our competitive advantage. We compete for members with: - Communication services such as Critical Path's RemarQ division, eCircles, Inc., Microsoft Corporation's Listbot Service, Topica, Inc., and Visto Corporation; and - Community and club services of established portals such as Excite@Home Networks, Inc., Lycos, Inc., Microsoft Corporation's MSN, and Yahoo! Inc. We compete for Internet advertising, direct marketing and sponsorship revenues with: - Major web publishers and portals such as America Online, Inc., Excite@Home Networks, Inc., Lycos, Inc., MSN and Yahoo! Inc.; - Internet advertising networks such as DoubleClick, Inc.; and - Opt-in email companies such as LifeMinders.com, Inc., NetCreations, Inc. and yesmail.com, Inc. 8 11 We also compete with traditional advertising channels including television, radio, print and outdoor media for a share of advertisers' and direct marketers' total advertising budgets. Increased competition for advertising and direct marketing spending may result in price reductions and reduced gross margins. WE DEPEND UPON REVENUE FROM ADVERTISERS AND DIRECT MARKETERS, AND IF THEY DO NOT ADOPT AND CONTINUE TO USE OUR SERVICE, OUR OPERATING RESULTS WOULD SUFFER. We derive substantially all of our revenue from the sale of web-based and email-based banner advertising, sponsorships and opt-in direct marketing programs. The sale and deployment of email-based advertising remains a new and unproven business, and we face significant hurdles and potential delays in convincing many advertisers and direct marketers to utilize our platform to reach their desired audiences. Even if we succeed in increasing the number of these customers, a majority of our contracts are purchased on a short-term basis and may be terminated at any time without penalty. The cancellation or deferral of even a small number of advertising contracts could harm our business, and we might not adjust our spending in time to compensate for any unexpected revenue shortfall. Competitive pressures could cause us to decrease the prices we charge advertisers, which would have a negative impact on our revenue. WE RELY ON OUR ABILITY TO ENABLE ADVERTISERS AND DIRECT MARKETERS TO DELIVER TARGETED ADVERTISEMENTS, AND IF WE FAIL TO CONTINUE ENHANCING OUR CAPABILITIES FOR TARGETING ADVERTISING TO INDIVIDUAL MEMBERS, WE MAY LOSE CUSTOMERS. The growth of our business will depend upon our ability to increase our revenue from targeted advertising. We believe that our ability to realize such increases will depend partly on our ability to acquire, develop and refine technologies that better identify the preferences of individual members. For example, we recently licensed technology intended to enable us to develop better information regarding our members' interests and activities. We may fail to implement this technology in a timely fashion or may not achieve the results we expect from this technology. Our ability to analyze and predict accurately the members who are likely to respond to particular advertisements will significantly affect the prices that we can charge advertisers and may influence their willingness to pay for advertisements at all. If we fail to increase our capabilities to provide targeted advertising, our results of operations would be harmed. FAILURE TO REALIZE SUSTAINED OR HIGHER "CLICK THROUGH" RATES ON OUR ADVERTISEMENTS MAY ADVERSELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN ADVERTISING CUSTOMERS. To achieve the high response rates for our advertisers, we need to identify and deliver the types and placement of advertisements that our members find most appealing. Our ability to achieve higher "click through" or response rates on our advertisements may be diminished by factors such as a failure to place advertisements appropriately, a lack of interest in online advertising in general, or a failure to deliver appealing advertising messages, such as those using hyper-text markup language, or HTML. Consequently, advertisers and direct marketers may not adopt, increase or continue their utilization of our service, which would harm our operating results. IF RESPONSE RATES TO OUR ADVERTISEMENTS FALL BELOW ADVERTISERS' EXPECTATIONS, WE MAY NEED TO DELIVER MORE ADVERTISEMENTS THAN PLANNED, REDUCING OUR AVAILABLE ADVERTISEMENT INVENTORY AND HARMING OUR OPERATING RESULTS. Advertisers have demonstrated a keen interest in the level of response to advertisements placed on our service. We base the deployment of advertisements upon the rate of response that we expect. 9 12 However, if we realize lower rates of response to particular advertisements than we anticipated, sometimes we may choose to deliver more of those advertisements than we have guaranteed to advertisers to achieve the desired absolute levels of click-through responses. This could result in the over-delivery of some advertisements, thereby reducing our available web site and email inventory to sell to other advertisers and potentially harming our operating results. IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, IT WILL PLACE SIGNIFICANT STRAIN ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES. We have rapidly expanded our operations and plan to continue this expansion. For example, from June 1998 to March 15, 2000, we grew from three employees to 154 employees. We also recently commenced operations in Japan, Germany, England and France. This recent growth has placed a significant strain on our managerial, operational and financial resources, and we expect this strain to continue. We also may establish additional web sites, acquire additional companies or develop new geographic markets, each of which would create additional managerial, operational and financial challenges. We must expand our procedures and controls to support our operations. If we fail to continue to implement and improve our operational and financial systems or to train our employees adequately, it could disrupt our business or place additional strain on our management team. In addition, nearly all of our management team have joined us in the last nine months and have not worked together previously. This may compound future growth-related strains on our operations. It may also prevent our management team from making decisions rapidly enough to exploit market opportunities for our member and advertiser services. OUR INTERNATIONAL EXPANSION IS SUBJECT TO ADDITIONAL RISKS THAT COULD HARM OUR BUSINESS AND OPERATING RESULTS. A key component to our business strategy is to further expand internationally. Our international operations will continue to be subject to a number of risks. These risks include: - Difficulties in staffing and managing foreign operations; - Compliance with multiple, conflicting and changing laws and regulations; - Uncertainty of acceptance of our services by potential members, advertisers and direct marketers in international markets; and - Costs of customizing our web pages and securing domain names for foreign countries. Our international operations also face foreign currency-related risks, and we have not engaged in any hedging activity to mitigate these risks. Fluctuations in the value of foreign currencies could have an adverse effect on our operating results. ATTEMPTS TO EXPAND BY MEANS OF ACQUISITIONS AND STRATEGIC ALLIANCES MAY FAIL, AND SUCH FAILURES COULD DISRUPT OUR BUSINESS. We anticipate that we will expand our operations and market presence by entering into business combinations, investments, strategic alliances and joint ventures in the United States and internationally. We may have difficulty assimilating the operations, technology and personnel of acquired companies, and other disruptions and costs may arise from these combinations. If our members disapprove of these transactions or feel that they harm our services or reputation, our brand 10 13 and business could suffer. Employees may not wish to continue working for us following any business combination, and duplication of responsibilities between our personnel and that of acquired companies may force us to dismiss some employees. We recently completed a merger with ONElist in November 1999, and we continue to integrate our businesses and technologies. For example, we continue to operate out of two facilities and are continuing the integration of the ONElist and eGroups web sites. This integration process may prove to consume more of management's time and energy and involve greater expense than we currently anticipate and may not ultimately succeed. Although we have not entered into any agreements to acquire other companies, we continually evaluate potential acquisitions. In conjunction with any such business combination, we may need to incur debt or issue equity securities to pay for acquisitions. We also may assume contingent liabilities or amortize expenses related to goodwill. If we are unsuccessful in closing or integrating any business combination, our business and operating results could suffer. THE TERMINATION OF CERTAIN PRE-EXISTING STRATEGIC ALLIANCES MAY DIVERT MANAGEMENT RESOURCES OR RESULT IN LITIGATION THAT COULD HARM OUR BUSINESS. In the past, we have entered into strategic alliances, some of which have diverted engineering and other resources from other efforts or have involved terms that restricted our growth. We are in the process of terminating, and have previously terminated, agreements with third parties that we believe have hindered our business. The termination of these agreements may result in substantial costs and diversion of management and technical resources. In the future, we may decide to terminate other contracts that we feel do not serve the goals of our business. The termination of any contracts may result in litigation or penalties, which could harm our business and operating results. WE DEPEND ON KEY PERSONNEL FOR WHOM INTENSE COMPETITION EXISTS, AND ANY FAILURE TO ATTRACT AND RETAIN THOSE PERSONNEL COULD HARM OUR BUSINESS. Our future performance will depend on our ability to retain and motivate our officers and key employees. The loss of the services of any of our executive officers or other key employees, especially members of our engineering, operations, sales, marketing and business development teams, could harm our business. We intend to purchase a "key person" life insurance policy on our chief executive officer, and the proceeds from that policy could aid us in recruiting his replacement, if needed. However, this policy would not remedy the likely disruption of our business that would be caused by his loss and subsequent efforts to recruit and assimilate new senior management. We do not maintain "key person" life insurance policies on any other employees. We do not have long-term employment agreements with any members of senior management, and losing any of these personnel could significantly harm our business. Competition for talented and experienced personnel is intense, especially in the San Francisco Bay area where our headquarters are located. Our future success will depend on our ability to attract, train, integrate, retain and motivate highly skilled individuals. OUR FAILURE TO EXPAND, UPDATE AND CREATE REDUNDANCIES IN OUR INFRASTRUCTURE COULD MATERIALLY HARM OUR BUSINESS. Our future success will depend on the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our reputation and ability to attract and retain members and advertisers depend on the satisfactory performance, reliability and availability of our web site, email-servers and ad-servers, and operations infrastructure. If the volume of traffic on our web site continues to increase, we will need to expand, upgrade and create redundancies in our technology, systems and operations infrastructure to assure minimal disruptions. We currently house all of our data storage and servers at Global Crossing Ltd.'s Global Center facility in Sunnyvale, 11 14 California, and these systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, vandalism and other events. Any such damage or disruption to Global Crossing's Global Center facility and services could prohibit us from delivering emails, page views and advertisements to members. We may enter into agreements with other third parties that lead us to depend upon their timely and effective performance and delivery of services. If these services are not performed according to our expectations, our business may suffer. IF WE FAIL TO PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE GROWTH OF OUR BUSINESS MAY SUFFER. We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. The steps we have taken to protect our intellectual property may not prevent misappropriation of our technology or deter independent third-party development of similar technologies and services. We pursue the registration of our trademarks and service marks in the United States and internationally. However, effective intellectual property protection may not be available in every country in which our services are made available. Enforcing and protecting our intellectual property rights may require substantial amounts of management's time and resources and may harm our financial results. If we prove unable to protect our intellectual property, our actual and potential competitors could improve their services and detract from our ability to attract and retain members, advertisers and direct marketers. FAILURE TO INTEGRATE AND MAINTAIN TECHNOLOGIES THAT WE LICENSE MAY ADVERSELY AFFECT OUR OPERATIONS AND BUSINESS. We rely on certain technologies that we license from third parties. These third-party technology licenses may not remain available to us on commercially reasonable terms. Our loss of this technology could require us to re-engineer the technology internally, putting an unanticipated strain on our engineering and operations teams, or to obtain substitute technology of lower quality or performance standards, or at greater cost from third parties. Any of these outcomes could harm our ability to maintain and improve our services. For example, we currently license certain database technology from E.piphany, Inc. The failure to integrate and maintain these technologies successfully may adversely affect our operations and business. WE ARE VULNERABLE TO CLAIMS THAT OUR PRODUCTS INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS, AND ANY RESULTING LITIGATION COULD HARM OUR BUSINESS. We may become exposed to future litigation based on claims that our service infringes the intellectual property rights of others. Claims of infringement could require us to obtain licenses from third parties to continue offering our services or cause us to cease offering them. To date, we have not been notified that our technologies infringe the proprietary rights of others. However, third parties may claim infringement by us in the future with respect to our current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. In addition, an adverse legal decision affecting our intellectual property, or the use of significant resources to defend against this type of claim, could significantly strain our financial resources and harm our reputation. We rely on technologies that we license from third parties, and these licenses may not continue to be available to us on commercially reasonable terms. Failure to obtain these licenses may have an adverse affect on our operating results and business. 12 15 WE MAY BECOME SUBJECT TO LIABILITY FOR CONTENT THAT OUR MEMBERS INCLUDE IN THEIR EMAIL MESSAGES OR FOR VIOLATION OF MEMBERS' PRIVACY RIGHTS. We face potential liability for defamation, negligence, copyright infringement or other claims based on the nature and content of materials that our members publish or distribute. In the past, plaintiffs have brought these types of claims and successfully litigated them against other online services. In addition, we plan to collect personal information from our members that we will use internally to improve our services and products. Although we have instituted a policy on member privacy related to such information, and publish that policy on our web site, our policy may not prevent members from claiming that we have infringed their privacy rights. WE MAY REQUIRE ADDITIONAL FINANCING, WHICH WE MAY NOT BE ABLE TO OBTAIN ON FAVORABLE TERMS, IF AT ALL. Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations for the foreseeable future. We currently anticipate that the net proceeds of this offering, together with our available funds, will be sufficient to meet our anticipated needs for development of our services, sales and marketing, and general corporate purposes, including working capital and capital expenditures, for at least 12 months. If we require additional funding, we cannot be certain that it will be available to us on favorable terms, if at all. If we raise additional funds by issuing equity or debt securities, such securities may have rights, preferences or privileges senior to our common stock, and our stockholders may experience additional dilution. Sales of a substantial number of shares of our common stock in the public market following this offering could cause the market price of our common stock to decline. IF WE DO NOT BUILD OUR BRAND RECOGNITION, WE MAY FAIL TO ATTRACT AND RETAIN MEMBERS, ADVERTISERS AND DIRECT MARKETERS. Quickly building recognition of our brand is critical to expanding and retaining our base of members, advertisers and direct marketers. Promoting and positioning our brand will depend largely on the success of our marketing efforts and our ability to provide consistent, high quality member experiences and to meet or exceed the expectations of our advertisers. We anticipate that we will incur significantly greater marketing and promotional expenses than we have previously expended in our efforts to build brand awareness and to attract members, advertisers and direct marketers to our service. Our increased brand-promotion activities may not yield increased revenues, and any increased revenues may not offset the expenses we incur to build our brand. RISKS RELATED TO THE INTERNET IF WE FAIL TO KEEP PACE WITH THE RAPID TECHNOLOGICAL CHANGES THAT CHARACTERIZE THE INTERNET, OUR SERVICES MAY BECOME LESS DESIRABLE TO MEMBERS, ADVERTISERS AND DIRECT MARKETERS. Rapid innovations in technology, markets and business models characterize the Internet. The emerging nature of Internet-based markets and the fact that many other companies will introduce new Internet products and services in the near future amplify these characteristics. For example, the widespread adoption of new communication platforms such as personal digital assistants and digital telephones could affect the nature and viability of our service and advertising solutions. Our future success also will depend on our ability continually to improve our product offerings, technology and services to attract and retain the interest of members and advertisers. 13 16 NEW AND EXISTING REGULATION OF THE INTERNET COULD HINDER OUR BUSINESS. Due to the increasing popularity and use of the Internet and online services, it is likely that the government will adopt new laws and regulations with respect to the Internet or online services. These laws and regulations could cover issues such as online contracts, user privacy, spam, freedom of expression, fraud, content and quality of products and services, advertising, intellectual property rights and information security. For example, recent laws adopted in Europe have restricted our right to use information about our users and have required us to amend some member agreements in order to attempt to maintain compliance with these laws. Applicability to the Internet of existing laws governing issues such as property ownership, copyright and other intellectual property issues, libel, obscenity and user privacy remains uncertain. The vast majority of laws were adopted prior to the advent of the Internet and related technologies and fail to address the unique issues that have emerged. Those laws that do reference the Internet, such as the Digital Millennium Copyright Act, have not yet been extensively interpreted by the courts, and their applicability and reach are therefore uncertain. Current and future laws and regulations could harm our business and have potentially significant adverse effects on our financial and operating results. We may be vulnerable to recently proposed regulations regarding unsolicited email, known as "spam." We do not send unauthorized email, and we have instituted mechanisms to prevent others from sending unauthorized emails to our members. However, negative public perception, press reports or governmental action related to spam could result in claims against us or our members. Although we have instituted mechanisms to reduce the likelihood of a claim, including limiting the addition of large numbers of email addresses to a particular group at one time, we cannot assure you that a claim will not be made. In addition, Internet service providers who misperceive our distribution of email as spam could impede our ability to deliver emails. Any failure or delay in the delivery of such emails would adversely affect our business and operating results. OUR BUSINESS IS SUBJECT TO ONLINE SECURITY RISKS THAT COULD LEAD TO MISAPPROPRIATION OF OUR DATA AND SERVICE INTERRUPTIONS AND COULD HARM OUR REPUTATION WITH MEMBERS. We monitor and collect information regarding member-designated interests, demographics and other data that we obtain from our members' use of our service. Although we do not distribute or sell this information to third parties, our security measures may not prevent security breaches and misappropriation of data that we collect. A party who circumvents our security measures could cause interruptions in our operations. Our reputation and popularity with members could suffer if this misappropriation occurs. We may need to expend significant resources to protect against security breaches or service interruptions or to address problems caused by these breaches. These expenditures could be significant and harm our operating results. UNFORESEEN PROBLEMS WITH CONTINUED YEAR 2000 COMPLIANCE COULD DISRUPT OUR SERVICE. To date, we have not experienced any material disruption in our services as a result of, nor are we aware that any of the third-party vendors on which we depend has been materially affected by, the commencement of the year 2000. In light of our experiences to date, we have not developed any specific contingency plan for year 2000 issues. Although we do not anticipate that our services will be affected by the year 2000, if we, or our third-party providers, fail to remedy any year 2000 issues, the result could be lost revenues, increased operating expenses, the loss of members or advertisers, and other business interruptions, any of which could harm our business. If we fail to address adequately year 2000 compliance issues, we may experience legal claims against us which could be costly and time-consuming to defend. If we did experience significant year 2000 problems and were unable to provide services to our members and advertisers, our business and operating results would suffer. 14 17 RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK THERE HAS BEEN NO PUBLIC MARKET FOR OUR STOCK PRIOR TO THIS OFFERING AND OUR STOCK PRICE COULD BE EXTREMELY VOLATILE. Previously there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market or how liquid any trading market might become. The public market may not agree with or accept the valuation determined in connection with this offering, and the initial public offering price for the shares of our common stock might not reflect prices that will prevail in the trading market. The stock market has experienced extreme price and volume fluctuations, and the market prices of technology-company securities, particularly those related to the Internet, have been highly volatile. After this offering, you might not succeed in reselling your shares at or above the initial public offering price. WE COULD BE NAMED AS A DEFENDANT IN SECURITIES CLASS ACTION LAWSUITS, WHICH COULD DIVERT MANAGEMENT ATTENTION AND HARM OUR BUSINESS. In the past, following periods of volatility in the market price of their stock, many companies have been named in securities class action lawsuits. If we, or our directors or officers, were named in a securities class action lawsuit, it could result in substantial costs and a diversion of management's attention and resources and could cause our stock price to fall. As has been the case for other Internet companies, we expect that the market price of our common stock could fluctuate significantly. These fluctuations could result in a class action lawsuit. Volatility in our stock price may occur as a result of various factors, such as the following, some of which are beyond our control: - Actual or expected variations in our quarterly results from operations; - Initiation of coverage and changes in financial estimates by securities analysts; - Announcements by us or our competitors of significant new ventures, acquisitions, strategic alliances or capital commitments; - Announcements of technological innovations or new products or services by us or our competitors; - Additions or departures of key personnel; - Changes in the operating performance or market valuations of other Internet companies; - Releases of lock-up agreements or other transfer restrictions on our outstanding shares of common stock, or sales or announcements of sales of additional shares of common stock; - Potential or actual litigation; and - Changes in Internet regulation. A SIGNIFICANT NUMBER OF SHARES IS ELIGIBLE FOR SALE AND THE SALE OF THESE SHARES COULD DEPRESS OUR STOCK PRICE. Sales of substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering could depress the market price of our common stock. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Upon completion of this offering, we will have outstanding shares of common stock based upon shares 15 18 outstanding as of March 15, 2000, assuming no exercise of the underwriters' over-allotment option. Of these shares, the shares sold in this offering are freely tradable. All of the holders of our common stock and stock options are subject to agreements that limit their ability to sell common stock. These holders cannot sell or otherwise dispose of any shares of common stock for a period of at least 180 days after the date of this prospectus without the prior written approval of Donaldson, Lufkin & Jenrette. However, 25% of a holder's shares may be sold on the earlier of 90 days after the date of this offering or on the second trading day after the first public release of our quarterly results if the last recorded sale price on the Nasdaq National Market for 20 of the 30 trading days ending on that date is at least twice the price per share in this initial public offering. Under these agreements, an additional 25% of each holder's shares may be sold 135 days after the date of this offering if the price per share of common stock has achieved the same target level. When these agreements expire, all of the shares of common stock and the shares underlying the options will become eligible for sale, in most cases only pursuant to the volume, manner of sale and notice requirements of Rule 144. YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE. The assumed public offering price is substantially higher than the net tangible book value per outstanding share of common stock. Purchasers of our common stock will incur immediate and substantial dilution of approximately $ to $ per share in the net tangible book value of our common stock from the assumed initial public offering price of $ per share. Additional dilution will occur upon the exercise of outstanding options. MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE ALLOCATION OF PROCEEDS FROM THIS OFFERING. The net proceeds to us from the sale of the shares of common stock we are offering are estimated to be approximately $ million after deducting estimated underwriters' discounts, commissions and offering expenses payable by us. We currently have no specific plans for a significant portion of our net proceeds from this offering. Consequently, our management will have the discretion to allocate the net proceeds to uses that stockholders may not deem desirable. Our investment of the proceeds may not yield a significant return. Pending their application, substantially all of our proceeds from the offering will be invested in short-term, interest-bearing, investment-grade securities immediately following the offering. WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WHO MAY MAKE DECISIONS WITH WHICH YOU DISAGREE. Upon completion of this offering, a small number of stockholders and our executive officers and directors and their affiliates will own approximately % of our outstanding common stock. They will have the ability to control our company and direct our affairs and business, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our company and may make some transactions more difficult or impossible without the support of these stockholders. Any of these events could decrease the market price of our common stock. 16 19 PROVISIONS OF OUR CHARTER AND BYLAWS MAY DELAY OR PREVENT TRANSACTIONS THAT MANY STOCKHOLDERS FAVOR. Provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions include: - Authorizing the issuance of "blank check" preferred stock without any need for stockholder action; - Prohibiting the removal of directors without cause; - Limiting the ability of stockholders to call special meetings of stockholders; - Prohibiting stockholders from acting by written consent; - Prohibiting stockholders from filling vacancies on the board of directors; - Requiring a super-majority stockholder vote to amend our bylaws and certain provisions of our certificate of incorporation; and - Establishing advance notice requirements for nominations of directors or other matters to be voted on by stockholders other than by or at the direction of the board of directors. 17 20 USE OF PROCEEDS We estimate that the net proceeds from the sale of the shares of common stock we are selling in this offering will be approximately $ million, at an assumed initial public offering price of $ per share, after deducting estimated underwriters' discounts, commissions and offering expenses payable by us. If the underwriters' option to purchase an additional shares of common stock is exercised in full, we estimate the aggregate net proceeds to be approximately $ million. We expect to use the net proceeds for the development of our services, sales and marketing, and general corporate purposes, including working capital, capital expenditures and possible acquisitions or investments in complementary businesses or technologies. We have no current plans, agreements or commitments relating to any such acquisition or investment. The amounts actually expended for these purposes may vary significantly and will depend on a number of factors, including the amount of our future revenue and the other factors described under "Risk Factors." Accordingly, our management will retain broad discretion in the allocation and use of the net proceeds of this offering. Pending these uses, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all of our earnings to finance our operations and do not anticipate paying cash dividends on our capital stock in the foreseeable future. In addition, our lending facilities contain restrictions on our ability to pay dividends. We may also incur indebtedness in the future that may prohibit or further restrict any payment of dividends. CORPORATE INFORMATION We were incorporated in the State of Delaware as Findmail Communications, Inc., in June 1998 and changed our name to eGroups, Inc., in December 1998. Our principal headquarters is located at 350 Brannan Street, San Francisco, California 94107, and our telephone number is (415) 546-2700. Our fiscal year ends on July 31. We maintain a web site at www.egroups.com. Information contained on our web site is not part of this prospectus. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, the accuracy of which involves risks and uncertainties. We use words such as "anticipates," "continue," "may," "goal," "believes," "plans," "expects," "future," "intends," and similar expressions to identify forward-looking statements. This prospectus also contains forward-looking statements attributed to certain third parties relating to their estimates regarding the growth of the Internet and online advertising. Prospective investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" and elsewhere in this prospectus. 18 21 CAPITALIZATION The following table describes the actual, pro forma and pro forma as adjusted capitalization of eGroups as of January 31, 2000. Our pro forma capitalization gives effect to the automatic conversion of all of our shares of convertible preferred stock into shares of our common stock upon the closing of this offering, the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the treatment of $898,000 of unamortized debt-issuance costs as an offset to additional paid-in capital, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some employees through the exercise of stock options. Our pro forma as adjusted capitalization gives effect to the sale of shares of common stock at an assumed initial public offering price of $ per share in this offering, after deducting estimated underwriting discounts, commissions and offering expenses payable by us, and the application of the resulting net proceeds.
JANUARY 31, 2000 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED (IN THOUSANDS, EXCEPT PER SHARE DATA) Long-term capital lease obligations and debt............. $ 8,149 $ 4,999 $ 4,999 Stockholders' equity: Convertible preferred stock: $0.001 par value; 17,500 shares authorized, 16,539 shares issued and outstanding, actual; 10,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted................................... 17 -- -- Common stock: $0.001 par value; 43,000 shares authorized, 16,244 shares issued and outstanding, actual; 150,000 shares authorized, 33,592 shares issued and outstanding, pro forma; 150,000 shares authorized, shares issued and outstanding, pro forma as adjusted............................... 16 34 Additional paid-in capital............................. 75,297 83,330 Notes receivable from stockholders..................... (2,160) (7,943) (7,943) Deferred stock compensation............................ (12,196) (12,196) (12,196) Accumulated deficit.................................... (19,419) (19,419) (19,419) -------- -------- -------- Total stockholders' equity..................... 41,555 43,806 -------- -------- -------- Total capitalization........................... $ 49,704 $ 48,805 $ ======== ======== ========
19 22 DILUTION Our pro forma net tangible book value as of January 31, 2000, was $43.8 million or approximately $1.30 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the number of shares of common stock outstanding on a pro forma basis. Pro forma net tangible book value gives effect to the automatic conversion of all of our shares of convertible preferred stock into shares of our common stock upon the closing of this offering, the issuance of 437,500 shares of common stock upon the conversion of subordinated debt prior to the closing of this offering, the repurchase of 600,478 shares of our common stock from one of our founders in March 2000 under a repurchase right, and the purchase of 971,946 shares of our common stock from February 1, 2000 to March 15, 2000 by some of our employees through the exercise of stock options. Dilution in pro forma net tangible book value represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma net tangible book value per share of our common stock immediately afterwards. After giving effect to our sale of shares of common stock offered by this prospectus in this offering at an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts, commissions and offering expenses payable by us, our pro forma as adjusted net tangible book value would have been $ million, or approximately $ per share. This represents an immediate increase in net tangible book value per share of $ to existing stockholders and an immediate dilution per share of $ to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of January 31, 2000.................................................. $1.30 Increase per share attributable to new investors............ ----- Pro forma as adjusted net tangible book value per share after this offering....................................... ----- Dilution in pro forma net tangible book value per share to new investors............................................. =====
The following table describes, as of January 31, 2000, on the pro forma basis described above, the differences between the number of shares of common stock purchased from us, the total price and the average price per share paid by existing stockholders and by the new investors in this offering, at an assumed initial public offering price of $ per share, before deducting estimated underwriters' discounts, commissions and offering expenses payable by us.
SHARES PURCHASED TOTAL CONSIDERATION -------------------- --------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE Existing stockholders........ 33,592,379 $63,321,072 $ New investors................ $ ---------- ----- ----------- ----- Total...................... $ ========== ===== =========== =====
The discussion and tables assume no exercise of options and warrants that will remain outstanding upon completion of this offering. As of January 31, 2000, there were options outstanding to purchase a total of 1,951,190 shares of common stock, with a weighted average exercise price of $1.09 per share. As of January 31, 2000, there was a warrant outstanding to purchase 8,330 shares of our common stock at an exercise price of $7.20 per share. If the outstanding options and warrants were exercised in full for cash, the dilution in pro forma net tangible book value per share to new investors in this offering would be $ and shares held by new investors would comprise % of outstanding shares. If the underwriters' over-allotment option is exercised in full, the number of shares held by new public investors will be increased to or approximately % of the total number of shares of our common stock outstanding after this offering. 20 23 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The consolidated statement of operations data for the period from inception (June 5, 1998) to July 31, 1999, and for the six months ended January 31, 2000, and the consolidated balance sheet data at July 31, 1999 and January 31, 2000, are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended January 31, 1999 is derived from unaudited consolidated financial statements included elsewhere in this prospectus, but in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of our operations for the period. The historical results presented below are not necessarily indicative of future results or results to be expected for an entire fiscal year. The following selected consolidated financial data is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements and related Notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this prospectus.
PERIOD FROM SIX MONTHS ENDED INCEPTION JANUARY 31, (JUNE 5, 1998) TO ------------------ JULY 31, 1999 1999 2000 CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue..................................................... $ 489 $ 43 $ 3,464 Cost of revenue............................................. 222 87 325 ------- ------- -------- Gross profit (loss)......................................... 267 (44) 3,139 Operating expenses: Product development.................................... 1,282 204 3,717 Sales and marketing.................................... 2,689 304 4,228 General and administrative............................. 2,125 550 3,804 Amortization of deferred stock compensation(1)......... 975 138 3,995 ------- ------- -------- Total operating expenses.......................... 7,071 1,196 15,744 ------- ------- -------- Operating loss.............................................. (6,804) (1,240) (12,605) Other income (expense)...................................... 159 39 (169) ------- ------- -------- Net loss.................................................... (6,645) (1,201) (12,774) Accretion on redeemable convertible preferred stock......... (212) (34) (129) ------- ------- -------- Net loss attributable to common stockholders................ $(6,857) $(1,235) $(12,903) ======= ======= ======== Basic and diluted net loss per share attributable to common stockholders(2)........................................... $ (1.25) $ (0.29) $ (1.61) ======= ======= ======== Shares used in per share calculation(2)..................... 5,465 4,303 8,011 ======= ======= ======== Pro forma basic and diluted net loss per share attributable to common stockholders (unaudited)(2)..................... $ (0.49) $ (0.56) ======= ======== Shares used in pro forma per share calculation (unaudited)(2)............................................ 13,641 22,643 ======= ========
JULY 31, JANUARY 31, 1999 2000 CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 4,957 $ 44,586 Working capital............................................. 4,053 44,578 Total assets................................................ 6,756 52,211 Long-term capital lease obligations and debt................ 224 8,149 Redeemable convertible preferred stock...................... 4,237 -- Accumulated deficit......................................... (6,645) (19,419) Total stockholders' equity.................................. 761 41,555
- ------------------------------ (1) See Note 8 of Notes to Consolidated Financial Statements for a description of the amortization of deferred stock compensation. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares in the calculation of net loss per share and pro forma net loss per share. 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains forward-looking statements, the accuracy of which involves risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" and elsewhere in this prospectus. You should read the following discussion in conjunction with the "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. OVERVIEW eGroups is the most widely used email group communication platform on the Internet. Our service allows members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members in approximately 600,000 member-created groups, with new members joining our service at a rate of approximately 1.5 million per month. Also, during February 2000, our members exchanged email messages at a rate of approximately 2 billion per month, and our web site generated 163 million page views. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member designated interests, demographic information and other data. We derive substantially all of our revenue from the sale of advertising, including permission-based direct marketing programs, sponsorships and banner advertising. Through our permission-based direct marketing programs, we deliver full-page emails to members who have elected to receive promotional offers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. In a typical sponsorship agreement, we provide sponsors with a variety of additional promotional opportunities, such as the delivery of impressions on our web site through banner, button or text-link advertising, sometimes granting exclusive placement on specific web pages. Under a typical banner advertising agreement, we serve advertisements to web pages and into emails that we deliver through our service. In the past, we have received, and we anticipate that we will continue to receive, higher advertising rates for targeted advertisements than for non-targeted advertisements. Permission-based direct marketing advertisements, for example, are a more highly targeted form of advertising and command much higher rates than non-targeted banner advertisements. If we are able to increase our targeting capabilities and further enhance our ad-serving technology, we believe we will be able to increase revenue generated from the sale of these advertisements. We also aim to increase revenue by expanding our direct sales force, increasing our inventory of rich-media email advertisements, refining our permission-based email direct marketing programs, and introducing new subscription-based services. We were incorporated in June 1998 as a Delaware corporation and our fiscal year ends on July 31. Since inception, our operating activities have focused primarily on developing an easy-to-use, convenient service for members, expanding our member and advertiser base by increasing sales and marketing activities, recruiting personnel, and raising capital. In November 1999, we merged with ONEList, Inc., a privately-held company and leading provider of email group communication services. The merger was treated as a pooling of interests for accounting purposes, and accordingly, all of our historical financial information has been restated to combine the results of the two entities for all periods presented. We have recently opened offices in four foreign countries and expect to release 22 25 web sites in 14 languages in April 2000. No significant revenue has been recognized to date from our international operations. Because of the rapid evolution of our business and our limited operating history, we believe that period-to-period comparisons of our revenue and operating results, including our gross margin and operating expenses as a percentage of total revenue, are not meaningful, and you should not rely upon them as an indication of future performance. REVENUE We derive our revenue principally from short-term advertising contracts that guarantee a minimum number of advertising impressions that are delivered to members in email messages or on web pages. We recognize advertising revenue using either the ratio of impressions delivered to the total guaranteed impressions or on a straight-line basis over the term of the contract, whichever is less, provided that we do not have any significant remaining obligations and collection of the resulting receivable is probable. For advertising contracts that do not involve guaranteed impressions but are tied to members' "click through" or other action, revenue is recognized as services are provided. We provide for bad debts and additional discounts at the time revenue is recognized, based on historical experience and current economic conditions. Through January 31, 2000, the majority of our advertising contracts have ranged from several weeks to two months in duration. Revenue in any quarter substantially depends on advertising orders received and campaigns run in that quarter. Accordingly, we cannot predict revenue for any future quarter with any significant degree of certainty. In addition, given our limited operating history, we are unable to predict the effect of seasonality on our business. However, during the December 1999 holiday season, we experienced increased advertising revenue. Through February 2000, we derived a portion of our revenue from advertising contracts negotiated by third-party advertising brokers. We recorded as revenue our contractual percentage of the total revenue generated from the delivery of advertisements, net of commissions taken by these advertising brokers. We recognized this revenue in the period in which the advertisement was delivered, provided that no significant obligations remained and collection of the resulting receivable was probable. We have not recognized any revenue related to the non-monetary exchange of advertising-for-advertising as these exchanges were not objectively determinable. COST OF REVENUE The major components of cost of revenue consist of direct costs related to the ad-serving process, including web-hosting costs, direct labor attributable to product development and depreciation on equipment. These costs relate to serving advertisements to our members on behalf of our advertisers and direct marketers. OPERATING EXPENSES Product development. Product development expenses primarily include personnel and related expenses associated with the development of our email group communication platform, technical support, member support, quality assurance, and group categorization. Sales and marketing. Sales and marketing expenses include salaries, commissions and related expenses of employment for our direct sales force, business development and marketing personnel, 23 26 together with the expenses of marketing promotional programs, advertising, and public relations activities. General and administrative. General and administrative expenses include personnel and related expenses for corporate functions, such as accounting and finance, human resources, facilities, legal and information systems. General and administrative expenses also include consulting and professional service fees which may vary over time. Amortization of deferred stock compensation. Deferred stock compensation represents the aggregate difference at the date of grant for our option awards, between the respective exercise price and the deemed fair value of the underlying stock. This deferred stock compensation is amortized using the graded amortization method over the vesting period of the related awards, which is generally four years. We recorded deferred stock compensation of approximately $11.9 million for the six months ended January 31, 2000, and approximately $5.3 million for the period from inception to July 31, 1999. In connection with grants made in February and March 2000, we estimate that we will record additional deferred stock compensation of approximately $15.9 million. RESULTS OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 2000 AND 1999 REVENUE Total revenue was approximately $3.5 million and $43,000 for the six months ended January 31, 2000 and 1999. The increase in revenue was primarily due to the growth of our direct sales force during the six months ended January 31, 2000. For the six months ended January 31, 2000 and 1999, sales through third-party advertising brokers accounted for 22% and 0% of total revenue. As we transition to using our direct sales force to sell the advertising inventory formerly sold by these third-party brokers, we expect revenue generated by outside brokers to be insignificant in future periods. COST OF REVENUE Cost of revenue was approximately $325,000 and $87,000 for the six months ended January 31, 2000 and 1999. The increase in cost of revenue was primarily due to the increased number of personnel and additional equipment required to support the ad-serving process. Additional network and web-hosting costs also contributed to the increase. We expect cost of revenue to increase over time in absolute dollars as our ad-serving personnel and equipment costs continue to increase. OPERATING EXPENSES Product development. Product development expenses were approximately $3.7 million and $204,000 for the six months ended January 31, 2000 and 1999. The increase was due primarily to an increase in product development personnel and related expenses. We expect product development expenses to increase in absolute dollars as we continue to increase our product development personnel and further enhance our email group communication infrastructure. Sales and marketing. Sales and marketing expenses were approximately $4.2 million and $304,000 for the six months ended January 31, 2000 and 1999. The increase was primarily a result of growth in our direct sales, business development and marketing personnel. Direct labor and related expenses accounted for a substantial portion of the increase. Additional promotional spending, advertising, market-research activities and consulting fees also contributed to the growth. We expect 24 27 sales and marketing expenses to increase significantly in absolute dollars as we continue to grow our sales force and expand our marketing programs in the United States and abroad. General and administrative. General and administrative expenses were approximately $3.8 million and $550,000 for the six months ended January 31, 2000 and 1999. The increase was primarily due to increases in facility expenses, professional fees and personnel expenses associated with growth in headcount. In addition, in the six months ended January 31, 2000, we incurred merger-related expenses of $500,000. We expect general and administrative expenses to increase in absolute dollars to support an increasing number of employees and as a result of becoming a public company. Amortization of deferred stock compensation. Amortization of deferred stock compensation was approximately $4.0 million for the six months ended January 31, 2000, which consisted of $1.1 million related to product development, $1.5 million related to sales and marketing, and $1.4 million related to general and administrative expenses. Amortization expense was approximately $138,000 for the six months ended January 31, 1999, which consisted of $44,000 related to product development and $94,000 related to sales and marketing expenses. The unamortized deferred stock compensation balance at January 31, 2000 will be amortized as follows: $4.6 million for the six months ended July 31, 2000, $4.8 million for the year ended July 31, 2001, $2.1 million for the year ended July 31, 2002, $693,000 for the year ended July 31, 2003, and $22,000 for the year ended July 31, 2004. Stock options granted after January 31, 2000 will increase future deferred stock compensation. If we terminate the employment of option holders, this may reduce future stock compensation. OTHER INCOME (EXPENSE) Other income (expense) consists primarily of interest earned on investments in money market funds and interest payable on debt and capital lease obligations. Other income (expense) was approximately ($169,000) and $39,000 for the six months ended January 31, 2000 and 1999. We expect other income to increase as a result of interest earned on the anticipated cash proceeds from the offering, and other expense to increase as a result of interest payable on debt issued in October 1999 and January 2000 and additional anticipated capital lease financings as we expand our operations infrastructure. PROVISION FOR INCOME TAXES We recorded no provision for federal and state income taxes as we incurred net operating losses from inception to January 31, 2000. As of January 31, 2000, we had federal net operating loss carryforwards of approximately $12.6 million. If not utilized, the net operating loss carryforwards will expire at various dates beginning in 2019. Utilization of these net operating losses is likely to be subject to substantial annual limitation due to ownership change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. In addition, sales of stock, including shares sold in this offering, may further restrict our ability to utilize our net operating loss carryforwards. PERIOD FROM INCEPTION TO JULY 31, 1999 Revenue for the period from inception to July 31, 1999 was approximately $489,000. Advertising sold through third-party advertising brokers accounted for 44% of this revenue. We currently do not sell any advertising through third-party brokers. This advertising inventory is now sold through our direct sales force. Cost of revenue consisted of approximately $222,000 in direct costs related to the 25 28 ad-serving process. Product development expenses were $1.3 million and primarily consisted of personnel expenses. Sales and marketing expenses were approximately $2.7 million and primarily consisted of personnel-related expenses, promotional spending, advertising, market research activities and consulting. General and administrative expenses were approximately $2.1 million and primarily consisted of personnel, facilities, and recruiting expenses, and professional fees. Amortization of deferred stock compensation amounted to approximately $975,000, which consisted of $332,000 related to product development, $532,000 related to sales and marketing, and $111,000 related to general and administrative expenses. QUARTERLY OPERATING RESULTS The following table provides the unaudited quarterly condensed consolidated statements of operations data for each of the four quarters ended January 31, 2000. We believe this information reflects all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of such information for the quarters presented. The results for any quarter are not necessarily indicative of results for any future period.
FISCAL QUARTER ENDED ------------------------------------------------ APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 1999 1999 1999 2000 (IN THOUSANDS) Revenue....................................... $ 126 $ 320 $ 1,048 $ 2,416 Cost of revenue............................... 28 43 150 175 ------- ------- ------- ------- Gross profit ............................ 98 277 898 2,241 Operating expenses, excluding amortization of deferred stock compensation................. 1,685 3,416 4,422 7,327 Amortization of deferred stock compensation... 179 658 1,658 2,337 ------- ------- ------- ------- Total operating expenses................. 1,864 4,074 6,080 9,664 ------- ------- ------- ------- Operating loss........................... $(1,766) $(3,797) $(5,182) $(7,423) ======= ======= ======= =======
The increase in revenue over the four quarters above was primarily due to expanding our direct sales force beginning in April 1999, increasing our advertising targeting capabilities, and introducing our opt-in, permission-based marketing program in October 1999. The increase in operating expenses, excluding amortization of deferred stock compensation, over the four quarters above was due primarily to an increase in personnel in the product development, sales and marketing, and general and administrative areas. Other factors contributing to the increase included: higher facilities and infrastructure expenses associated with the growth in personnel and increased promotional spending, advertising and market research activities. The increase in the amortization of deferred stock compensation over the four quarters above was due to extensive hiring of the senior management team and staff. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have financed our operations through private placements of preferred and common stock, issuance of subordinated debt, revenue from advertising sales and strategic alliances, and, to a lesser extent, equipment financings. Through January 31, 2000, we have raised an aggregate of approximately $51.9 million in preferred stock private placements, $7.0 million in subordinated debt, $1.3 million in capital lease obligations, and $500,000 in senior debt. As of January 31, 2000, we had working capital of $44.6 million. 26 29 Net cash used for operating activities was $8.6 million for the six months ended January 31, 2000, primarily as a result of a net loss of $12.8 million and an increase in accounts receivable of $1.8 million, adjusted for non-cash expenses of $5.1 million from stock, debt and warrant issuances. Net cash used in operating activities was $4.6 million for the period from inception to July 31, 1999, primarily as a result of a net loss of $6.6 million, adjusted for non-cash expenses of $1.4 million from stock, debt and warrant issuances, and net changes in assets and liabilities of $558,000. Net cash used in investing activities was $2.1 million for the six months ended January 31, 2000 and $1.0 million for the period from inception to July 31, 1999. Net cash used in investing activities consisted of capital expenditures for computer equipment, leasehold improvements, and furniture and fixtures. Net cash provided by financing activities was $50.3 million for the six months ended January 31, 2000 and $10.6 million for the period from inception to July 31, 1999. Cash provided by financing activities primarily consisted of proceeds from the sale of preferred and common stock, issuance of subordinated debt, and, to a lesser extent, equipment financings. The net cash provided by financing activities for the six months ended January 31, 2000 was mainly attributable to the issuance of $7.0 million of subordinated debt and $42.0 million of preferred stock during that period. As of January 31, 2000, our principal commitments consisted of operating and capital leases and debt payments. Future minimum cash payments under all of these non-cancelable commitments total $8.0 million through the year 2005, excluding approximately $3.2 million of subordinated debt which will be converted into common stock prior to the closing of this offering. The future minimum cash payments include approximately $3.9 million of principal outstanding under a subordinated loan which bears interest at 8.25% per annum. The loan is due and payable in 24 equal monthly installments of interest-only payments, followed by 12 equal monthly installments of principal and interest payments. There is no prepayment penalty on the debt. Our working capital requirements depend on numerous factors including market acceptance of our service and the resources we allocate to supporting our growing member base, further improving our email group communication platform, launching new marketing programs, increasing our revenue, hiring additional personnel and expanding our international operations. We have experienced substantial increases in our expenditures since our inception consistent with growth in our operations and personnel, and we anticipate that our expenditures will continue to increase significantly for the foreseeable future. We believe that our available cash and cash equivalents, combined with the net proceeds of this offering, will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the next 12 months. After that period, however, we may need to raise additional funds to finance our ongoing product development efforts, external marketing programs, increased staffing and related expenses, and acquisitions or investments in complementary businesses, technologies, services or products. In addition, to meet our long-term liquidity needs, we may need to raise additional funds, establish credit facilities, or seek other financing arrangements. Additional funding may not be available on favorable terms, on a timely basis, if at all. YEAR 2000 READINESS To date, we have not experienced any material disruption in our services as a result of, nor are we aware that any of the third-party vendors on which we depend has been materially affected by, the commencement of the year 2000. In light of our experiences to date, we have not developed any specific contingency plan for year 2000 issues. Although we do not anticipate that our services will be affected by the year 2000, if we, or our third-party providers, fail to remedy any year 2000 issues, we 27 30 may experience a decrease in revenue, increased operating expenses, the loss of members or advertisers, and other business interruptions, any of which could harm our business. If we fail to adequately address year 2000 compliance issues, we may experience legal claims against us, which could be costly and time-consuming to defend. If we did experience significant year 2000 problems and were unable to provide services to our members and advertisers, our revenue would decline. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS 133. SFAS 133 requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in the fair value of the assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of the derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for years beginning after June 15, 2000. We do not currently hold any derivatives and do not expect this pronouncement to impact materially our results of operations. On December 3, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, or SAB 101. This SAB summarizes some areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. We believe that our current revenue recognition principles comply with SAB 101. DISCLOSURES REGARDING MARKET RISK We have limited exposure to financial market risks, including changes in interest rates. Our interest income and interest expense is sensitive to changes in the general level of United States interest rates. Our $7.0 million subordinated debt carries a fixed rate of interest and therefore does not expose us to any risk from interest-rate fluctuations. An increase or decrease in interest rates would not significantly increase or decrease interest income on cash balances due to our cash being primarily invested in short-term marketable securities. Due to the short-term nature of our investments, we believe that we have no material exposure to interest-rate fluctuations. As our international operations have been minimal to date, we believe that we have no material exposure to foreign exchange rate fluctuations. 28 31 BUSINESS OVERVIEW eGroups is the most widely used email group communication platform on the Internet. Our service enables our members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members participating in approximately 600,000 member-created groups, with new members joining our service at a rate of approximately 1.5 million per month. During February 2000, our members exchanged email messages at a rate of approximately 2 billion per month, and our web site generated 163 million page views. We derive revenue from permission-based direct marketing programs, sponsorships and other forms of online advertising. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member-designated interests, demographic information and other data. In addition, through our permission-based direct marketing programs, we deliver full-page emails to members who have elected to receive promotional offers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. Our rapid growth in members has been driven by the inherently viral nature of our business and the ease of using our service. The organic growth of our member base occurs as existing members expand their groups by inviting new members, who often form their own groups and invite additional new members. Our member base has expanded rapidly in both the United States and abroad, with over 20% of our members coming from international domains. INDUSTRY BACKGROUND GROWTH OF THE INTERNET AND EMAIL The Internet is a global communications network that allows millions of people to interact, share information and conduct business online. According to International Data Corporation, or IDC, the number of Internet users worldwide will increase from 196 million in 1999 to more than 500 million by the end of 2003. Jupiter Communications Inc. estimates that email is used by approximately 96% of Internet users. In addition, we believe that a majority of users' time online is spent composing and reading email, making it the most popular online application. Email continues to evolve as a primary facilitator of online interaction and is quickly becoming the predominant medium for personal and business communications. As the number of Internet users increases and email continues to grow in popularity, the number of email accounts created and messages delivered is projected to increase significantly. IDC estimates that the number of email accounts worldwide will more than double, from approximately 315 million in 1999 to approximately 757 million in 2005. Further, IDC estimates that email delivery volumes will increase nearly five-fold, from 1.4 trillion messages in 1999 to 6.9 trillion in 2005. IMPORTANCE OF GROUP COMMUNICATIONS Individuals, businesses and other organizations often form groups to communicate, coordinate and collaborate around areas of common interest. For example, an individual may belong to a corporate project team, a music fan club, an investment group, an alumni association, and a group of 29 32 family or friends. Businesses may join trade organizations or form vendor or customer groups to share ideas or transact business. Groups are dynamic, forming as people connect with each other and growing by personal referral. Groups may also evolve over time as they grow, with members creating additional groups focused on new or related interests. However, assembling and communicating can be difficult offline, requiring time, effort and expense to identify and contact participants. Traditional methods of communication among multiple group members can prove difficult unless all participants are able to gather simultaneously. Therefore, time constraints, geographic separation and technological limitations can inhibit the growth of offline groups and the effectiveness of their communications. The Internet enables group communications to occur on a global scale and offers efficiencies currently unavailable offline. Several online applications have been developed in an effort to assist group interaction, such as message boards, web-based clubs, online chat groups and newsletter distribution services. However, all of these online applications have significant limitations for group members and organizers. Many are difficult to use, and some require expert assistance to add members or administer groups. Some are inconvenient, as members must continually visit a web site to read group communications, while others require multiple group members to communicate simultaneously. Accordingly, group members and organizers are seeking a solution that provides a rich set of integrated and easy-to-use features for creating, customizing and managing their group communications. TRADITIONAL, INTERNET AND EMAIL-BASED ADVERTISING AND DIRECT MARKETING Advertisers and direct marketers spent approximately $309 billion on advertising in the United States in 1999, of which $132 billion was invested in brand advertising and $177 billion was spent on direct marketing, according to the Direct Marketing Association. Traditional forms of advertising media, such as print, broadcast and outdoor provide limited targeting capabilities and generally provide for marketing messages to be delivered on an undifferentiated basis to reach the broadest audience. Direct marketers attempt to target consumers with direct mail pieces, catalogs, magazine inserts and telemarketing. Advertising and direct marketing campaigns can be costly to administer due to the acquisition of targeting data, production and distribution of creative material, and the time delays involved in measuring customer responses. The Internet represents an attractive new medium for advertising and direct marketing and offers a combined set of features that are unavailable in traditional media. Online advertising enables advertisers to target consumers more precisely through the use of behavioral, demographic and other data. In addition, the Internet allows advertisers to receive immediate responses, to test campaign effectiveness, and to direct consumers to a precise point-of-sale where they may more rapidly complete a purchase transaction. These factors combine to increase the return on advertising investment and motivate advertisers to increase their online advertising expenditures. Forrester Research estimates that the amount spent on online advertising and direct marketing worldwide will increase ten-fold from $3.3 billion in 1999 to $33.1 billion in 2004. Internet advertisers and direct marketers are increasingly turning to email as a preferred delivery mechanism for their marketing messages. Email marketing provides significant efficiencies over traditional direct marketing through the elimination of postage, paper, printing, and handling costs and through enhanced delivery, tracking and reporting capabilities. In addition, email marketing also enables advertisers to send targeted, more relevant advertisements and promotions to consumers who have given permission to receive relevant advertising in their categories of interest. Since consumers are more likely to respond to advertising that they elect to receive, or which is targeted to their specific interests, direct marketers have embraced permission-based online marketing programs over traditional means. Jupiter Communications reports that response rates for direct email campaigns 30 33 targeted to permission-based audiences are three to ten times greater than the response rates of traditional direct mail methods. Although the Internet and email offer advertisers and direct marketers a number of advantages over traditional media, there remain significant challenges to realizing the full potential of online advertising. To date, online advertising generally has consisted of banner advertisements and sponsorships on heavily trafficked portals and other web content sites, similar to billboards on a well-traveled roadway. To complement these forms of broad-reaching advertising, advertisers also must be able to identify, target and reach specific consumers and showcase products and services that are relevant to those consumers. Many online advertisers have been unable to target their audiences successfully, largely due to a lack of accurate data on users and their interests. As a result, significant time and financial resources have been spent obtaining and analyzing critical data about consumers in order to determine the appropriate placement for advertisements and direct marketing offers. As advertisers and direct marketers strive to increase the effectiveness of their marketing programs, they are seeking solutions that will enable them to achieve broad reach and to deliver highly targeted messages to consumers. THE EGROUPS SOLUTION eGroups is the most widely used email group communication platform on the Internet. Our service allows members to easily create, join and manage online groups focused on business and personal interests. As of February 2000, we had over 14 million active members participating in approximately 600,000 member-created groups. During that same month, our members exchanged email messages at a rate of approximately 2 billion per month, while our web site generated 163 million page views. New members joined our service at a rate of approximately 1.5 million per month, the majority of whom were referred by existing members. Over 20% of our members have joined from international domains despite limited marketing efforts. By aggregating our members who have segmented themselves into groups based on their interests, we offer advertisers and direct marketers a broad audience as well as enable them to deliver highly targeted marketing messages. Our proprietary, high-volume ad-serving technology allows advertisers and direct marketers to place context-sensitive advertisements in emails and web pages based on member-designated interests, demographic information and other data. BENEFITS TO OUR MEMBERS: - EASY-TO-USE, CONVENIENT SERVICE. We have designed our platform to offer maximum ease of use and convenience to our members. Members communicate with each other using a single group email address, such as golf_fanatics@egroups.com, rather than the individual email addresses of each group member. Members can easily create groups and send personalized email invitations to others to join. Also, our web site provides an intuitive approach for members to join publicly accessible groups. We deliver group email directly to the member's email inbox allowing the member to read and reply at his or her convenience. Groups range in size from several people to hundreds of thousands. Our platform supports all popular email programs. - EXTENSIVE ARCHIVE OF MEMBER-GENERATED CONTENT. We believe that our archived email messages, which represent 825 gigabytes of data, constitute one of the largest searchable archives of user-generated content on the Internet. We archive public and private group email communications over the prior six months. On our web site, existing and prospective members can search the communications within publicly accessible groups or private groups to which they belong. During the past six months, we posted over nine billion messages to our archives. 31 34 Many of our members regularly browse and review these archives, representing a significant percentage of the time they spend on our web site. In addition, the publicly accessible archives attract new members to our service, as prospective members can browse the archives and then join groups that best match their interests. - CUSTOMIZABLE, PRIVACY-PROTECTED GROUPS. We enable group members to customize how they communicate and protect their privacy by limiting access to their groups. Members may elect to receive each email as it is sent, to receive a digest of each day's email messages, or to view group email solely at our web site. Members can configure their groups as announcement-only or discussion groups. Email messages to the group can be moderated by a group member, and the group archives can be kept private among group members or made public. In addition, we have developed a variety of safeguards that are designed to protect members and groups from the delivery of unauthorized email. We do not sell or disclose our member information or identities to our advertisers or other outside organizations. - INTEGRATED GROUP COMMUNICATION FEATURES. We offer a set of integrated web-based features that complement our email service and support dynamic groups. Each group receives dedicated storage space to share files such as photographs, documents and digital music. Group calendars with automatic email reminders allow groups to coordinate events. Our chat feature allows groups to schedule and conduct real-time discussions when needed. A polling feature allows members to survey their group on various topics that may be of interest to them, such as favorite political candidates or places to go to dinner. A group database allows members to store group information, such as contact data and project lists. - MULTIPLE-LANGUAGE PLATFORM. We plan to make our web-based platform available to users in 14 different languages starting in April 2000. Because members and moderators generate their own content for distribution within their groups, the emails can be written in the group members' native languages. Consequently, we only need to translate our homepage and certain parts of our web site to enhance the accessibility of our service to more international members in the future. In many countries, we are the first group communication platform available to Internet users in their native language, and we have already seen rapid expansion in those countries even prior to the planned launch of translations of our web site. - USEFUL AND RELEVANT ADVERTISING. We believe that more highly targeted advertisements and promotions can provide valuable information to our members. We are able to align advertisements more effectively with our members' self-designated interests providing them relevant advertisements that they are more likely to find useful. In addition, through our opt-in direct marketing programs, members can elect to receive category-specific email promotional offers, including new product offerings and special promotions. Because these advertisements are permission-based and highly targeted towards member-selected categories, they tend to provide more relevant content than less targeted advertisements. BENEFITS TO ADVERTISERS AND DIRECT MARKETERS: - ACCESS TO A LARGE AND GROWING AUDIENCE. We offer advertisers considerable breadth and reach, with 14 million active members across approximately 600,000 groups. We currently deliver approximately 2 billion emails and 163 million web-page views per month, nearly all containing an advertisement. According to Media Metrix, our web site ranked as the 13th most-visited site in the web-services category in February 2000 based on page views alone. Importantly, this statistic only measures 10% of our advertising inventory because Media Metrix does not measure email traffic, which represents 90% of our advertising inventory. 32 35 - MEMBER-DESIGNATED AFFINITY ADVERTISING. By subscribing to a group, our members segment themselves based on the interest category of their group. Advertisers and direct marketers then are able to target advertisements to members based on their interests. For example, online financial services firms can deliver email advertisements to members of an investment group, while pharmaceutical companies can promote new therapies to a health-related group. We believe that our member-designated category approach to targeting advertisements is a more effective approach than existing industry methods. In addition to individual group targeting, advertisements on our web site can be targeted to a member according to his or her age, gender, zip code and the multiple groups to which the member belongs. During 2000, we plan to extend this type of member targeting to our email inventory and to offer email and web targeting according to country, local geography, domain, operating system and type of web browser. - OPT-IN, PERMISSION-BASED DIRECT MARKETING. In addition to joining groups, our members may elect to receive relevant advertisements and promotions from our direct marketers in specific categories of interest. We currently have approximately 2.5 million subscriptions from our members for this opt-in advertising. Through our permission-based direct marketing programs, we deliver full-page emails to our members who have opted into this program. These members have elected to receive special offers and promotions in over 20 different product categories including books, computers, electronics, health, home and garden, investments, software, sports and travel. The offers provide more detailed product or service descriptions in the content of the email. As a result, this form of advertising generally yields higher response rates and commands higher prices than banner advertising. - EMAIL DELIVERY OF ADVERTISING IMPRESSIONS. We believe that by delivering advertisements in email messages rather than web-page views, advertisers are better able to reach consumers where they are spending the majority of their online time. As email programs increasingly support HTML-based content, we expect to be able to improve our delivery of rich-media advertising within group emails. THE EGROUPS STRATEGY We intend to maintain our leading position as the most widely used email group communication platform on the Internet. The following are key elements of our strategy: FURTHER ENHANCE OUR EMAIL GROUP COMMUNICATION PLATFORM. We intend to continue to develop, acquire and license proprietary products and technology to maintain our position as the leading email communication platform for online groups. To retain our current members and attract additional members, we expect to continue investing in and improving our members' experience with enhanced functionality and new features. For example, after conducting usability tests of our eGroups and ONElist web sites, we selected the best elements of each, and recently built a new web site architecture to deliver a better member experience. In April 2000, we plan to launch our redesigned web site with several major service enhancements, including a new user interface with over 100 usability and navigation improvements, including enhanced search, directory and archive features. INCREASE MEMBER BASE AND ACTIVITY. We intend to continue to increase our member base rapidly and encourage additional activity among existing members. To date, our member base has grown almost exclusively through word-of-mouth referrals by existing members. We plan to continue to expand our audience through member referrals and by launching more member-acquisition advertising and promotional programs, and by establishing more partnerships. We expect our members' activity to increase through cross-promotion of our other services and groups that may be of interest. Increasing member activity creates stronger relationships between us and our members, as 33 36 they join additional groups, use more applications, and send and receive more email. We also expect our large and growing member base to increase our attractiveness to advertisers and enhance our ability to enter into strategic partnerships. Additionally, we intend to encourage increased participation by our new and existing members in our opt-in direct marketing program. PROMOTE BRAND AWARENESS. We believe that building strong brand awareness will be instrumental in growing our member base and increasing our advertising revenues. We intend to promote our brand by consistently delivering value to our members and advertisers. We plan to promote eGroups within email messages sent by members and through select online and offline marketing campaigns. We also intend to maximize awareness of our brand among businesses and advertisers through traditional marketing channels. Our goal is for eGroups to be recognized as the leading platform for email group communication and as a leading provider of email advertising solutions. CONTINUE TO PURSUE MULTIPLE REVENUE SOURCES. We generate revenue from diverse sources, including web site and email advertising, sponsorships and opt-in email direct marketing programs. We plan to expand revenue from existing sources by increasing our direct sales efforts, increasing our inventory of rich-media email advertisements, improving our ability to target our web and email advertising, improving our data analysis capabilities and refining our opt-in direct marketing programs. In addition, we plan to introduce new subscription-based services and to develop other revenue sources. EXPAND INTERNATIONAL PRESENCE. We will leverage our email group communication platform to further expand internationally. To date, we have attracted over 20% of our members from international domains without incurring significant marketing expenditures. Since members create the content of the group communications, email messages can be composed in the member's native language and require no translation. Coinciding with the launch of our enhanced service in April 2000, we will launch 14 foreign language versions of our web site. We expect the number of international members to increase as we continue to launch additional foreign language versions of our web site and accelerate international marketing efforts. MEMBER SERVICES We provide a free email group communication service that allows members to create, join and manage email groups. Email groups offer a convenient way for members to communicate, coordinate and collaborate online around areas of common interest. We host approximately 600,000 active email groups on our service, and our members create several thousand new email groups each day. A new group can be created at our web site in a few easy steps--the group creator or moderator simply chooses a name for the group, provides a description, selects the appropriate category for the group directory and inputs the email addresses of the members he or she wants to invite to join the group. Groups are classified by the creator or moderator of the group, into categories provided by us. These categories are based on a classification system established by the Open Directory Project, or ODP. The ODP classification system allows individuals to find groups of interest through our directory using descriptions that are also used by numerous Internet search engines. MEMBER FEATURES Anyone with an email account may create a group or become a member of an existing group. Group members can send email messages to their groups from any email application such as Microsoft Outlook or Eudora, or through any email service, such as America Online, Inc.'s email service, Microsoft Corporation's Hotmail service or Yahoo! Inc.'s Yahoo Mail. Members also can configure email aliases to use multiple email addresses on our service. Email messages are delivered 34 37 directly to the member's inbox, where the member can read them and reply at his or her convenience. Through our web site, members can manage their email groups and customize their personal experience on our service. At the MyGroups page, each member can easily access all the groups to which he or she belongs and get an overview of current and past group activity. Members can decide when and how to view group email messages by changing their mail delivery settings--members may receive individual messages, receive a daily digest that consolidates all messages into one, view messages solely on the eGroups web site, or halt messages temporarily such as when going out of town. Members can also elect to receive special offers and promotions from our direct marketing partners in over 20 different product categories, such as investing, travel, sports and electronics. Each group benefits from an integrated set of web-based features that enhances email group communications. Each group also has a group page that provides a custom description of the group and allows access to group information and applications. Groups receive dedicated storage space to share files such as photos, documents and digital music. The group calendar enables groups to schedule meetings and events and can be configured to distribute email reminders to the group automatically. Each group also can use a private chat room on occasions when the members need a real-time collaboration tool and can create polls to quickly tabulate group opinion. For example, the poll may ask the group to vote on a date for a meeting, pick a design, or elect a group leader. A group database allows members to store group information, such as contact data and project lists. We also archive all the messages that a group has sent over the past six months, providing an easy and valuable reference tool for the group. Email archives can be viewed by date, author or discussion topic. Groups and their related archives may be designated as public or private. Publicly accessible archives can be viewed by any visitor to the eGroups web site, which helps attract new members to our service because prospective members can choose groups that best match their interests. Private archives can be viewed only by group members, thus maintaining group privacy. Because our members generate the content for their groups, our costs associated with acquiring and maintaining content remain minimal. In February 2000, PC Magazine awarded eGroups its Editor's Choice award for free email publishing based upon a number of factors including content management, administration, reporting, archiving, protection against unsolicited emails and back-end security. MODERATOR FEATURES Members who manage groups are known as "moderators." Moderators express pride of ownership in their groups and invite prospective members to their groups by sending out personalized email messages. Many members promote our service on their own personal and business web sites. Accordingly, we have tailored our service to provide several features designed to support group moderators. We enable moderators to customize their group settings based on the nature and purpose of the group. Moderators can easily configure their groups to be announcement groups, moderated discussion groups, or unmoderated discussion groups. Announcement groups are one-way newsletters from the moderator to the group. Moderated discussion groups allow any group member to post a message, but the moderator must approve the message before it is distributed to the group. Unmoderated discussion groups allow for free-flowing discussion with no moderator intervention. A group may be restricted so that the moderator must approve new members, or may be unrestricted so that any member may join. A group may be marked as "private" so that it will not appear in our public search database and will not be accessible to anyone but the members of that group. For example, a 35 38 music fan group may be configured as a public, unrestricted, announcement group to encourage the broadest possible fan base for an artist. By comparison, the moderator of a health support group may configure the group as a private, restricted and moderated discussion group to maintain privacy and control over the discussion content. Additional features enable moderators to invite others to join their group and to customize group communications. Moderators can easily add email addresses to their groups and invite members to join their groups, either by sending email invitations or posting links from their own web sites to the group page. We also provide each group with customized software tools to promote the group via a web-based subscription box, allowing the moderator to facilitate new member subscriptions from his or her own web site. Moderators also can customize email messages that go to their groups via an automated signature that is appended to each message. Customized welcome and goodbye messages can be sent to new and departing members. Moderators can also be notified by email when members join or leave the group. Large groups can have multiple moderators to facilitate group management. REPRESENTATIVE GROUPS Our service seamlessly handles email delivery for large and small groups. Each email group, whether it has several people or a hundred thousand, uses a single email address to communicate. For example, a member of a golfing group can communicate with his or her entire group by sending a single message to golf_fanatics@egroups.com. Our email system then distributes the email message to each member of the group. When another group member replies to the message, our service distributes the reply. Examples of groups that use our platform include: - Student and Alumni Groups. Student groups use our platform to coordinate study sessions, share class notes and plan social events. Alumni groups from high schools, colleges and universities utilize the eGroups service to stay in touch, coordinate meetings and fundraising efforts, and discuss favorite topics such as sports or politics. - Business Groups. Businesses use our platform as an alternative to setting up their own corporate intranet. In this regard, a business may establish an employee group to coordinate work projects and share files, a customer group to communicate new product announcements and product information, and a vendor group to coordinate project schedules and supplier needs. - Music/Entertainment Groups. Music groups have become especially popular among teens and young adults, as fans discuss favorite songs, concerts, or upcoming albums from popular artists like the BackStreet Boys, Ricky Martin and Brittney Spears. Our members participate in different music groups, which are focused on individual artists or types of music including pop, rock, country, hip hop, punk and classical. Television and movie fans also discuss episodes of their favorite TV shows or films. - Investor Groups. Investor groups use our platform to discuss investment ideas and portfolio strategies, as well as to exchange personal finance advice. Groups may form around broad themes such as the stock market in general or may be focused more narrowly on a specific industry or a particular group's investment theme. PRIVACY AND OTHER POLICIES Our platform has several features and policies to prevent unauthorized delivery of emails, harassment and illegal content. In order to prevent the unauthorized delivery of unwanted email 36 39 messages, we have implemented the following features: only group members may post a message to a group, moderators are limited in their ability to add large numbers of email addresses to their groups at one time, and email addresses appearing in the archives on the web site are masked to prevent people from copying and using email address lists without permission. Our member support team responds to member complaints of harassment or illegal content and removes offending content, groups and members from the service. Our privacy policies have been certified by TRUSTe, a leading non-profit organization, which provides privacy certification of web sites. MEMBER SUPPORT We provide support to our members seven days a week, 20 hours a day. Our support service is evolving to provide coverage 24 hours a day on a two-tiered basis. Tier 1 will consist of support representatives responsible for responding to email inquiries within four hours. Tier 2 support representatives will be dedicated to providing a more comprehensive level of support for participating large groups with greater than 500 members. Further, we provide support information on our web site that is accessible to all members. We utilize both commercial and proprietary support tools to ensure the highest degree of member service. These tools also afford us the ability to track recurring member issues that highlight opportunities for service improvements and enhancements. ADVERTISER AND DIRECT MARKETER SERVICES We offer a wide range of packages and options for advertisers and direct marketers to meet their specific needs. - RUN-OF-NETWORK ADVERTISING. Our advertising customers can reach a broad audience of over 14 million active members through run-of-network advertising. These advertisements are in the form of HTML banners, which can be delivered within page views on our web site or into group email messages, or in the form of text email messages. - TARGETED ADVERTISING. Advertisers can target banner advertisements to individual groups based on member-designated interests. In addition, advertisements on our web site can be targeted to a member according to his or her age, gender, zip code, and the multiple groups to which the member belongs. During 2000, we plan to extend this type of member targeting to our email inventory and to offer increased email and web targeting capabilities, including country, local geography, domain, operating system, and type of web browser. For advertisers seeking repeated exposure and increased response rates, we offer sponsorships, which involve multiple advertising placements over an extended period of time. Sponsorships provide a variety of additional promotional opportunities, such as the delivery of impressions on our web site through banner, button, or text-link advertising, sometimes including exclusive placement on certain web pages. - OPT-IN, PERMISSION-BASED DIRECT MARKETING PROGRAMS. We also offer permission-based direct marketing programs, which involve delivering full-page email promotional offers related to the categories of interest specified by our opt-in members. Because consumers are more likely to respond to advertising that they elect to receive and which is targeted to their specific interests, our permission-based email marketing programs have been well received by direct marketers. We currently have approximately 2.5 million subscriptions from our members who have elected to receive email promotional offers from our advertisers in specific categories of 37 40 interest. Our permission-based direct marketing programs can be targeted to 20 different product categories, consisting of: apparel games pets autos gifts small business books health software collectibles home & garden sports & outdoors computers investment toys electronics movies travel food & wine music
ADVERTISING AND DIRECT MARKETING SALES Advertisers, direct marketers and advertising agencies buy directly through our sales force, which is comprised of 23 people as of March 15, 2000. Our sales force is structured as a multi-regional organization with account managers, sponsorship managers and regional directors. Our sales personnel operate out of our offices in San Francisco and New York City. We also intend to leverage third-party advertising sales organizations in international markets. ADVERTISER AND DIRECT MARKETING CUSTOMERS During the three months ended January 31, 2000, we delivered advertisements for 114 advertisers and direct marketers. These customers represented several sectors, including technology companies, financial institutions, industrial manufacturers, and media companies. MARKETING Without the benefit of significant marketing programs to date, over 14 million active members have joined our groups. Our rapid growth in members has been driven by the inherently viral nature of our business and the ease of using our service. The organic growth of our member base occurs as existing members expand their groups by inviting new members, who often form their own groups and invite additional new members. To promote greater brand awareness, we intend to implement an integrated marketing program, which may include print advertising in consumer and trade publications, broadcast advertising on television and radio, outdoor advertising and online advertising. In addition, we plan to strengthen the eGroups brand with existing members by placing our own advertisements in group email messages and on our web site. We also will promote our business through trade show participation, speaking engagements and other public relations programs. We expect to increase our marketing activities in the future. TECHNOLOGY We have developed, and continue to expand, our expertise and industry-standard technology to deliver a robust, highly scalable email group communication platform. Our technology consists of several key components: EMAIL SYSTEM Our proprietary email system uses a reliable, scalable, distributed architecture to accept incoming email messages from group members, to process the messages through several proprietary steps, and then to distribute the messages to all members of that group. Incoming messages are authenticated to 38 41 confirm group status and the sender's identity by checking the member database. The system reformats the email according to the email preference of each member in text or HTML and inserts a targeted advertisement from our proprietary ad server. The system automatically handles problems common to large email lists such as auto responders and bounced messages. Our email system is designed to scale to support increasing email volumes by adding modest incremental hardware with limited incremental software engineering efforts. We delivered email messages at the rate of approximately 68 million messages per day during the month of February 2000. AD SERVERS Our ad-serving technology is based on a highly reliable, scalable and distributed architecture for targeting proprietary advertisements and delivering them into group emails and on the eGroups web site. The proprietary ad server manages our inventory of web and email advertising in order to maximize advertising revenues. The ad server is currently capable of targeting advertisements based on a number of parameters, including: - Group characteristics, such as group name and category; - Ad characteristics, such as ad location, size, format and type; - Priority and timing of ad campaigns; - Member demographics, such as age, gender and zip code. During 2000, we plan to enhance our targeting capabilities by enabling the ad server to target advertising based on additional member characteristics, such as country, local geography, domain, operating system and type of web browser. WEB AND APPLICATION SERVERS The web and application servers are run on the Linux operating system. Our web applications are based on a reliable, scalable, distributed architecture and provide the user interface and logic for our email group service. The web applications are integrated with the member database, archive servers and ad servers. ARCHIVE SERVERS The archives serve as a central repository for the historical content generated by groups on our service. Members can search for and retrieve prior messages sent over the past six months within the groups to which they belong and from other groups with publicly accessible archives. The archive servers also provide designated storage space for storing files such as documents, photos and digital music. We have licensed search technology to provide members with advanced capabilities to search for groups of interest and to search contents of archived messages. MEMBER DATABASE Our member database is the central repository for group and member information and is never sold or distributed outside the company according to our privacy policy. Each member's profile, preferences and group memberships are stored in the database and changes are managed via our web applications. Member information is also used to direct our ad targeting. Our member information may be supplemented by third-party information to enhance ad-targeting capabilities. The member database is maintained using an Oracle database on Sun Solaris servers. We also have entered into a 39 42 license agreement with E.piphany, Inc., to utilize its Data Mart software as the central database for all member information. The Data Mart software will enable us to integrate and analyze information from a variety of sources, including web logs, ad logs, email logs, member profiles, subscription data and customer support information. By enhancing our ability to analyze member information, we intend to provide superior member support, implement more effective member acquisition programs, and increase the response rates to our advertising. HOSTING AND NETWORK INFRASTRUCTURE Our email system and applications are hosted at Global Crossing's Global Center in Sunnyvale, California. Our hosting facility features redundant systems for power, fire protection, seismic reinforcement, and security surveillance by personnel and video monitors on a 24-hour basis. To enhance the security and performance of our service, our employees monitor the network hardware and software 24 hours a day, seven days a week. In addition, we employ a firewall solution to reduce the incidence of network security breaches. We intend to open additional data centers that will add further redundancy and network diversity. COMPETITION We face competition for members and for advertising and direct marketing customers. Our market is intensely competitive, and we expect that competition will persist and intensify in the future. Many of our competitors have longer operating histories, larger user bases, greater brand recognition and significantly greater financial, sales, technical, marketing and other resources. Many of these competitors can devote substantially more resources to the development of their products and services. In addition, our competitors may form strategic alliances or complete acquisitions of businesses, technologies or products that could reduce our competitive advantage. We believe that the primary competitive factors determining success in the market for email group communications include easy-to-use integrated group applications, a critical mass of active groups engaged in a diverse range of topics, service reliability, and responsive member support. While we believe that we compete favorably for members with respect to these factors, there is increasing competition emerging in this field. We compete for members with other Internet companies offering group communication services, such as Critical Path's RemarQ division, eCircles, Inc., Microsoft Corporation's Listbot Service, Topica, Inc., and Visto Corporation. In addition, the community and club services of established portals, such as Excite@Home Networks, Inc., Lycos, Inc., Microsoft Corporation's MSN, and Yahoo! Inc., represent alternatives to the consumer. We believe that the primary competitive factors determining success in the market for advertising and direct marketing customers include: the size, activity, and demographic profiles of the member base, and the ability to target members based on specific interests and demographic criteria. While we believe that we compete favorably with respect to these factors, numerous competitors may have an advantage over us with respect to specific factors. We compete for Internet advertising and sponsorship revenues with major web publishers and portals, such as America Online, Inc., Excite@Home Networks, Inc., Lycos, Inc., Microsoft Corporation's MSN, and Yahoo! Inc., as well as Internet advertising networks, such as DoubleClick, Inc. We compete for opt-in direct marketing revenues with companies such as Life Minders.com, Inc., NetCreations, Inc. and yesmail.com, Inc. We also compete with traditional advertising channels, including television, radio, print and outdoor media, for a share of advertisers' and direct marketers' total advertising budgets. 40 43 GOVERNMENT REGULATION We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally or directly applicable to electronic commerce. However, the Internet is increasingly popular and, as a result, laws and regulations may be adopted to govern it. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Furthermore, the growth of electronic commerce may prompt calls for more stringent consumer protection laws. Several jurisdictions have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. The adoption of such consumer protection laws could create uncertainty in web usage and reduce the demand for our products and services. We have a privacy and information security policy and seek to keep customer information private. We are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, libel and obscenity. The vast majority of such laws were adopted prior to the advent of the Internet. As a result, they do not address the unique issues of the Internet and related technologies. Changes in laws intended to address such issues could create uncertainty in the Internet marketplace. This uncertainty could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs. Legislation has recently been enacted in several states relating to the sending of unsolicited emails, a practice commonly referred to as "spamming." The federal government and several states, including New York and California, are considering, or have enacted, similar legislation. Although the provisions of these current and contemplated laws vary, they generally limit or prohibit both the transmission of unsolicited emails and the use of familiar spamming techniques such as the use of forged or fraudulent routing and header information. We believe that our services will not be significantly affected by this legislation because our current practices are intended to comply with current and proposed legislation. In addition, we have implemented a number of features and policies designed to reduce the likelihood of the transmission of unsolicited emails to our members. However, this legislation may affect our services, particularly in light of the rapidly evolving state of the law in this area. In addition, because our services are available over the Internet in multiple states and foreign countries, other jurisdictions may claim that we are required to qualify to do business in each state or foreign country. Our failure to qualify in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could have a material adverse effect on our business and operating results. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY PRODUCTS AND SERVICES We rely on various intellectual property laws and contractual restrictions to protect our proprietary products and services. These include confidentiality, invention assignment and nondisclosure agreements with our employees, contractors, suppliers and strategic partners. We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to protect our proprietary rights in products and services. In addition, we pursue the registration of our trademarks and service marks in the United States and internationally. However, effective 41 44 intellectual property protection may not be available in every country in which our services are made available online. We have filed for the registration of our trademarks in 21 countries. We have licensed various proprietary rights to third parties. Existing and future licensees may take actions that materially adversely affect the value of our proprietary rights or our reputation, or the quality of our brand. We also rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms. As a result, we may be required to obtain substitute technology of lower quality at greater cost, which could materially adversely affect our business and operating results. To date, we have not been notified, and are not aware, of any claims that our technologies infringe the proprietary rights of third parties. However, third parties could claim infringement by us with respect to our current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, with or without merit, could prove time-consuming, result in costly litigation, cause service upgrade delays, or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements may not be available, or may not be available on terms acceptable to us. As a result, any claim of infringement against us could have a material adverse effect upon our business and operating results. EMPLOYEES As of March 15, 2000, we had 154 full-time employees. We are not subject to any collective bargaining agreements and consider our employee relations to be good. Competition for employees in our industry is intense and our future success depends on our ability to attract, retain and motivate skilled employees. FACILITIES Our corporate offices are located in San Francisco, California, where we lease approximately 11,000 square feet under two leases that expire in September 2004 for 10,550 square feet and July 2000 for 450 square feet, and in Redwood City, California, where we lease approximately 14,000 square feet under a lease that expires in July 2004. We also maintain a sales office in New York City, where we lease approximately 3,850 square feet under a lease that expires in September 2004. We have business development and marketing offices in Europe and Japan. LEGAL PROCEEDINGS We currently are not a party to any material litigation, nor are we aware of any pending or threatened litigation that, individually or in the aggregate, would have a material adverse effect on our business, operating results or financial condition. However, occasionally we may become involved in litigation. Any litigation potentially could result in the expenditure of significant financial and managerial resources, even if the underlying claims have no merit. 42 45 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information with respect to our executive officers and directors as of March 15, 2000:
NAME AGE POSITION Michael B. Klein................. 29 President, Chief Executive Officer and Director Richard J. Carey................. 43 Senior Vice President, Product Development Marjorie T. Sennett.............. 39 Senior Vice President and Chief Financial Officer Steven T. Comfort................ 32 Vice President, Sales David W. Cragg................... 44 Vice President, Human Resources Jacqueline A. Maartense.......... 35 Vice President, Marketing Margaret E. Nibbi................ 38 Vice President, General Counsel and Secretary Carolyn J. Patterson............. 36 Vice President, Operations Marcus Riecke.................... 34 Vice President, Business Development and International Gayle A. Crowell(2).............. 49 Director Peter Mills(1)................... 48 Director Michael J. Moritz(2)............. 45 Director Daniel D. Springer(1)............ 36 Director
- ------------------------------ (1) Member of Audit Committee (2) Member of Compensation Committee Michael B. Klein has served as our Chief Executive Officer since November 1999 and served on our board of directors since December 1999. Prior to joining us, Mr. Klein was the Chief Executive Officer of ONElist, Inc., beginning in October 1999. Prior to that, he founded Transoft Networks, Inc., a leading supplier of storage area networking software, and served as its President and Chief Executive Officer from 1992 until May 1999 when the Company was acquired by Hewlett Packard. From 1989 to 1992, Mr. Klein founded and served as Chief Executive Officer of MIBEK Corporation, a developer of financial modeling and analysis software which was acquired in 1992. Mr. Klein holds a B.A. from the University of California, Santa Barbara, a J.D. from the Santa Barbara College of Law and an M.B.A. from Pepperdine University. Richard J. Carey has served as our Senior Vice President of Product Development since February 2000 and served as Vice President and Chief Technical Officer since November 1999. Prior to joining us, Mr. Carey was Vice President of Engineering at ONElist, Inc., beginning in September 1999. From September 1998 to January 1999, Mr. Carey co-founded and served as Vice President of Engineering at Listen.com, Inc., an online music service. Prior to that, Mr. Carey led the development team and the industry consortium for VRML, an Internet standard. He served as Director of Engineering at Silicon Graphics, a workstation and server company, from 1989 to 1998 and Director of Engineering at Vertigo/Cubicomp, a three-dimensional graphics and animation company, from 1984 to 1989. Mr. Carey holds a B.S. from the University of Maryland and an M.S. from Cornell University. Marjorie T. Sennett has served as our Senior Vice President and Chief Financial Officer since July 1999. Prior to joining us, she served as Senior Vice President and Chief Financial Officer of Amylin Pharmaceuticals, Inc., a biotechnology company, from 1989 to 1998. From 1982 to 1986, Ms. Sennett worked in the corporate finance and leveraged buyout departments at Bankers Trust Company. Ms. Sennett holds a B.A. from Vanderbilt University and an M.B.A. from the Stanford Graduate School of Business. 43 46 Steven T. Comfort has served as our Vice President of Sales since April 1999. Prior to joining us, Mr. Comfort served as a Vice President of Sales at 24/7 Media, an Internet advertising firm, beginning in February 1997. From January 1995 to February 1997, Mr. Comfort served as General Manager of Wired Online at Wired Ventures/Lycos. He worked in positions related to media planning at the advertising firms Messner Vetere Berger McNamee Schmetterer Euro-RSCG from 1991 to 1994 and D'Arcy Masius Benton and Bowles from 1989 to 1990. Mr. Comfort holds a B.A. from the University of North Carolina, Chapel Hill. David W. Cragg has served as our Vice President of Human Resources since March 2000. Prior to joining us, Mr. Cragg served as Principal HR Consultant at Genentech Inc., beginning in 1996. From 1992 until 1995, he worked as Director of Human Resources at Software Publishing Corporation. Mr. Cragg holds a B.A. from the University of California, Santa Cruz. Jacqueline A. Maartense has served as our Vice President of Marketing since September 1999. From 1991 to 1999, Ms. Maartense worked at Intuit, Inc., in a variety of marketing and general management roles, including Director of Quicken Marketing, Director of Online Sales and General Manager for Intuit, U.K. Prior to that, she worked at Gillette and Bristol Myers Squibb in positions related to brand management. Ms. Maartense holds a Bachelor of Commerce from Queen's University, Canada, and an M.B.A. from Harvard Business School. Margaret E. Nibbi has served as our Vice President, General Counsel and Corporate Secretary since November 1999. Prior to joining us, Ms. Nibbi was Legal Counsel at GetThere.com, an Internet services company, from October 1997 to September 1999. From 1995 to 1997, Ms. Nibbi was an associate at the law firm Gunderson, Dettmer, Stough, Villeneuve, Franklin & Hachigian and, from 1987 to 1995, she was an associate at the law firm Brobeck, Phleger & Harrison. Ms. Nibbi holds a B.A. and an M.A. from Stanford University and a J.D. from the Georgetown University Law Center. Carolyn J. Patterson has served as our Vice President of Operations since September 1999. Prior to joining us, Ms. Patterson served as Vice President of Operations at Critical Path, Inc., a leading provider of Internet messaging solutions, from August 1998 to August 1999. From January 1998 to August 1998, Ms. Patterson was the Channel Manager of Strategic Platform Alliances at Sybase, Inc., an integrated software company. From 1986 to 1997, Ms. Patterson worked in a variety of roles at AT&T, most recently as General Manager of Data Services Operations. Ms. Patterson holds a B.S. from Rider University and an M.B.A. from Monmouth University. Marcus Riecke has served as our Vice President of Business Development and International since January 2000. Prior to joining us, Mr. Riecke served as General Manager Europe at ONElist, Inc., beginning in September 1999. Prior to that, Mr. Riecke was Vice President New Business at AOL Bertelsmann Online from November 1998 to August 1999. Before joining AOL, Mr. Riecke was Managing Director at Lycos Bertelsmann, Germany, from June 1997 to October 1998. Prior to Lycos, Mr. Riecke was a consultant to the Chief Executive Officer and board of Bertelsmann AG from August 1996 to June 1997. Mr. Riecke holds a B.A. from the University of London (1989) and an M.B.A. from the Haas School of Business of the University of California, Berkeley (1996). Gayle A. Crowell has served on our board of directors since March 2000. Ms. Crowell is currently President of E.piphany.net, the online business unit of E.piphany, Inc., a customer relationship management software company. She has held that position since January 2000, following E.piphany's acquisition of RightPoint, Inc., a real-time marketing software company. From January 1998 to December 1999, Ms. Crowell served as President, Chief Executive Officer and Director of RightPoint. Ms. Crowell was named Chairman of the Board of RightPoint in May 1998. From 1995 to 1998, Ms. Crowell served as Senior Vice President and General Manager of Worldwide Field 44 47 Operations for Mosaix, Inc., which provides enterprise customer management call-center solutions to more than 1,300 customers worldwide. She holds a B.S. from the University of Nevada, Reno. Peter Mills has served on our board of directors since December 1999. Mr. Mills is a General Partner in CMGI @Ventures and has served as the Managing Partner of CMGI @Ventures since March 1995. From March 1992 to March 1995, from September 1988 to August 1998, Mr. Mills was the Chief Executive Officer of the United States Display Consortium (USDC) and served as SEMATECH's Chief Administrative Officer from September 1988 to August 1998. Mr. Mills serves as a director of Vicinity Corporation, as well as several privately held companies. Mr. Mills holds a B.S. from Ithaca College and an M.B.A. from the Graduate School of Business at Columbia University. Michael J. Moritz has served on our board of directors since December 1998. He has been a general partner of Sequoia Capital, a venture capital firm, since 1986. Mr. Moritz serves as a director of Yahoo! Inc., Flextronics International Ltd., Webvan Group, Inc., eToys, Inc., and Agile Software Corporation, as well as several private companies. Mr. Moritz holds an M.A. from Oxford University. Daniel D. Springer has served on our board of directors since March 2000. Mr. Springer has served as Chief Marketing Officer of NextCard, Inc., since February 1998. From 1991 to 1997, Mr. Springer worked at McKinsey & Co., an international consulting firm, where he consulted for a wide range of enterprises. Mr. Springer holds a B.A. from Occidental College and an M.B.A. from Harvard University. BOARD COMPOSITION Each of our officers who is also a director devotes full time to our business and affairs. Our nonemployee directors devote such time to our business and affairs as is necessary to discharge their duties. There are currently no family relationships among any of our directors, officers or key employees. BOARD COMMITTEES Our board of directors has an audit committee and a compensation committee. Audit Committee. The board of directors established our audit committee in March 2000. The audit committee has the powers and responsibilities to monitor our exposure to major financial risks and review, among other things, the adequacy of our internal control systems and financial reporting procedures, our annual and quarterly financial statements, and our annual audit. The audit committee currently consists of Messrs. Mills and Springer. Compensation Committee. The board of directors established our compensation committee in March 2000. The compensation committee has authority to review and recommend to the board of directors the compensation and benefits of all of our executive officers, and general policies relating to compensation and benefits of our employees. The compensation committee currently consists of Mr. Moritz and Ms. Crowell. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationships currently exist between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. 45 48 DIRECTOR COMPENSATION Our directors do not currently receive cash compensation from us for their service as members of the board of directors. We do not provide additional compensation for committee participation or special assignments of the board of directors. In March 2000, our board of directors adopted our stock option grant program for non-employee directors. The program will be administered under our 2000 Stock Incentive Plan. Under this program, each non-employee director will receive a nonqualified stock option to purchase 50,000 shares of common stock upon initial election or appointment to the board following this offering. One-fourth of the shares subject to these options will vest after one year of service with the balance vesting in equal monthly installments over the next 36 months of continuous service. After that, beginning with the annual meeting of stockholders in 2001, each nonemployee director will automatically receive an additional option to purchase 12,500 shares of common stock immediately following each year's annual meeting of stockholders. This option will vest monthly over a four-year period measured from the date of grant. The exercise price for all options granted under the program will be the fair market value of the common stock on the date of grant. Options will have a ten-year term, except that the unvested portion of options may expire on the earlier date that a director ceases services as a director and the vested portion of those options will expire three months after a nonemployee director ceases services as a director, or in the case of death, one year after the date of death. If specified corporate transactions occur, such as a merger or sale of the company, 25% of the outstanding unvested options granted to a nonemployee director under the program will automatically accelerate and become exercisable immediately prior to the corporate transaction. Acceleration of option vesting will not occur if the corporate transaction is a related-party transaction specified in the plan. EXECUTIVE COMPENSATION The following table provides the total compensation received by our chief executive officer for services rendered to us in all capacities for the period from our inception on June 5, 1998 to July 31, 1999, the end of our last fiscal year. The executive listed below is referred to as the Named Executive Officer elsewhere in this prospectus. 46 49 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION FOR THE PERIOD FROM COMPENSATION INCEPTION (JUNE 5, 1998) TO JULY 31, 1999 AWARDS ------------------------------------------- -------------- ALL OTHER RESTRICTED NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) STOCK AWARD($) Martin Roscheisen................. $104,781 -- -- $364,549(1) Former President and Chief Executive Officer(2)
- ------------------------------ (1) This award covered 1,215,164 restricted shares of our common stock of which 401,004 shares were fully vested at the time of the award. During the period from June 5, 1998 to February 4, 2000, the remaining unvested shares vested at the rate of 22,616 shares for each month of continuous service completed by Mr. Roscheisen in any capacity. On February 4, 2000, Mr. Roscheisen entered into an executive separation agreement with us under which all of his remaining unvested shares became vested as of that date. (2) In November 1999, Mr. Roscheisen resigned from the office of President and Chief Executive Officer. Michael B. Klein has served as our Chief Executive Officer since November 1999 and receives an annual salary of $195,000. Marjorie T. Sennett has served as our Senior Vice President and Chief Financial Officer since July 1999 and receives an annual salary of $175,000. Richard J. Carey has served as our Senior Vice President, Product Development, since February 2000 and receives an annual salary of $175,000. Jacqueline A. Maartense has served as our Vice President, Marketing, since September 1999 and receives an annual salary of $150,000. Steven T. Comfort has served as our Vice President, Sales, since April 1999 and receives an annual salary of $100,000. Mr. Comfort received $75,000 as a sales commission bonus for the calendar year 1999. OPTION GRANTS SINCE INCEPTION We did not grant stock options to our Named Executive Officer during the period from our inception to July 31, 1999. We have never granted any stock appreciation rights. Michael B. Klein has served as our Chief Executive Officer since November 1999 and has been granted options to purchase 1,030,894, 196,809 and 522,297 shares of common stock at exercise prices of $0.05762, $5.00 and $6.00 per share, all of which shares have been acquired upon exercise. Marjorie T. Sennett has served as our Senior Vice President and Chief Financial Officer since July 1999 and has been granted options to purchase 232,000 and 143,000 shares of common stock at exercise prices of $0.30 and $6.00 per share, all of which shares have been acquired upon exercise. Richard J. Carey has served as our Senior Vice President, Product Development since November 1999 and has been granted options to purchase 256,161 and 118,839 shares of common stock at exercise prices of $0.05762 and $6.00 per share, all of which shares have been acquired upon exercise. Jacqueline A. Maartense has served as our Vice President, Marketing since September 1999 and has been granted an option to purchase 200,000 shares of common stock at an exercise price of $0.35 per share, all of which shares have been acquired upon exercise. Steven T. Comfort has served as our Vice President, Sales since April 1999 and has been granted options to purchase 100,000, 15,000 and 10,000 shares of common stock at exercise prices of $0.30, $0.35 and $6.00 per share, all of which shares have been acquired upon exercise. As of March 15, 2000, all of the shares acquired upon exercise of stock options are subject to a right of repurchase by us at the exercise price paid. These repurchase rights lapse over a period of four years measured from the date of the option grant. 47 50 FISCAL YEAR-END OPTION VALUES Our Named Executive Officer did not hold options to purchase our stock as of July 31, 1999. EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS On February 4, 2000, our Named Executive Officer, Martin Roscheisen, entered into an executive separation agreement with us under which all of his remaining unvested shares became vested as of that date. All of our executive officers employed in the United States are employed "at-will" and their employment may be terminated at any time. We have issued offer letters to all of our executive officers pursuant to which each person is entitled to a base salary, bonuses and options to purchase restricted shares of our common stock. In addition, we provided Ms. Sennett with a loan in the principal amount of $100,000, bearing no interest, for relocation expenses as part of her agreement to join us. The note also provides that we will forgive this loan in 48 equal monthly installments following July 31, 1999, provided she continues her employment with us on each of those dates. We also agreed upon commencement of their employment that if any of the following executive officers is actually or constructively discharged without cause in connection with or following a transaction in which we experience a change in control, then a portion of their remaining unvested shares will vest immediately: Michael B. Klein, Marjorie T. Sennett, Richard J. Carey, Jacqueline A. Maartense and Steven T. Comfort. STOCK PLANS 2000 STOCK INCENTIVE PLAN Our 2000 Stock Incentive Plan, or 2000 Plan, was adopted by our board in March 2000, and we expect it will be approved by our stockholders in April 2000. The purpose of our 2000 Plan is to enhance long-term shareholder value by offering opportunities to officers, directors, employees, consultants, agents, advisors and independent contractors of eGroups and its subsidiaries to participate in eGroups' growth and success, and to encourage them to remain in the service of eGroups and its subsidiaries and to own eGroups stock. Our 2000 Plan provides for awards of stock options and stock. Our board has reserved a total of 5,400,000 shares of common stock for issuance under the plan, plus: - Any shares reserved but not granted under our 1998 Stock Option Plan or returned to the 1998 Stock Option Plan upon termination of options up to a total of 1,808,729 shares; and - An automatic annual increase, to be added on the first day of our fiscal year beginning in 2001, equal to the lesser of (1) 2,000,000 shares, (2) 5% of the average number of shares outstanding as used to calculate fully diluted earnings per share as reported in eGroups' financial statements for the preceding fiscal year, and (3) a lesser number determined by the board. Any shares from increases in previous years that are not actually issued shall be added to the aggregate number of shares available for issuance under the 2000 Plan. Our 2000 Plan provides for the granting to employees, including officers, of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and for the granting to employees, officers, directors, consultants, agents, advisors and independent contractors of nonqualified stock options. To the extent an optionee would have the right in any calendar year to exercise for the first time one or more incentive stock options for shares having an aggregate fair market value, determined for each share as of the date the option to purchase the shares was granted, in excess of $100,000, any of these excess options shall be treated as nonqualified stock options. Unless terminated earlier, our 2000 Plan will terminate on March 1, 2010. 48 51 Our 2000 Plan may be administered by the board of directors or a committee or committees of the board. Currently, our 2000 Plan will be administered by the compensation committee of our board. The plan administrator determines the terms of options granted under the 2000 Plan, including the number of shares subject to an option and its exercise price, which, for incentive stock options, must be at least equal to the fair market value of the common stock on the date of grant, term and exercisability. The plan administrator determines the term of options, which may not exceed ten years, or five years in the case of an incentive stock option granted to a 10% shareholder. Optionees may not transfer options other than by will or the laws of descent or distribution, with the provision that the plan administrator may grant nonqualified stock options with limited transferability rights in some circumstances. The plan administrator determines when options vest and become exercisable. eGroups expects that options granted under the 2000 Plan generally will vest at the rate of 1/4 of the total number of shares subject to the options 12 months after the date of grant, and 1/48 of the total number of shares subject to the options each month thereafter. The plan administrator is authorized under our 2000 Plan to issue shares of common stock to eligible participants with terms, conditions and restrictions established by the plan administrator in its sole discretion. Restrictions may be based on continuous service with eGroups or its subsidiaries or the achievement of performance goals. Holders of restricted stock are shareholders of eGroups and have all the rights of stockholders with respect to such shares with some restrictions. The plan administrator will make proportional adjustments to the aggregate number of shares issuable under our 2000 Plan and to outstanding awards in the event of stock splits or other capital adjustments. In the event of the sale of all or substantially all of eGroups' assets, or a merger or consolidation of eGroups with or into another corporation, all options outstanding under the 2000 Plan will be assumed or equivalent options substituted by the successor corporation, unless such successor corporation does not agree to such assumption or substitution, in which case each outstanding option and restricted stock award will automatically accelerate and become 100% vested and exercisable immediately before the corporate transaction, and any unexercised options will terminate upon consummation of the transaction. No awards will be granted under our 2000 Plan until the effective date of this offering. EGROUPS 1998 STOCK OPTION PLAN Our 1998 Stock Option Plan was adopted by our board and approved by our stockholders in June 1998. We reserved a total of 5,410,024 shares of common stock for issuance under the 1998 Stock Option Plan. Simultaneous with the effectiveness of this offering, our board of directors has suspended our 1998 Stock Option Plan and determined that no further grants will be made under it. Any shares remaining for future option grants and any future cancellations of options from our 1998 Stock Option Plan will become available for future grant under our 2000 Plan. The purposes of the 1998 Stock Option Plan are to attract and retain the best available personnel, to provide additional incentives to eGroups' employees and persons rendering consulting or advisory services, and to promote the success of eGroups' business. The 1998 Stock Option Plan provides for the granting of incentive and nonqualified options. Our 1998 Stock Option Plan may be administered by our board or a committee of the board. Currently, the 1998 Stock Option Plan is administered by the board. The plan administrator determines the terms of options granted under the 1998 Stock Option Plan, including the number of shares subject to an option and its exercise price, term and exercisability. The terms and conditions for options granted under the 1998 Stock Option Plan are substantially similar to those for options granted under the 2000 Plan, except as follows. Generally, options under 49 52 the 2000 Plan may not be exercised until the options are vested. In some instances, the plan administrator may grant options that may be exercised immediately after the grant date, but to the extent the shares subject to the options are not vested as of the date of the exercise, eGroups retains a right to repurchase any shares that remain unvested at the time of the optionee's termination of employment by paying an amount equal to the exercise price times the number of unvested shares. No option may be transferred by the optionee other than by will or the laws of descent or distribution. As of March 15, 2000, options to purchase 2,711,453 shares of eGroups common stock at a weighted average exercise price of $2.55 per share were outstanding under the eGroups 1998 Stock Option Plan and the ONElist 1998 Stock Plan described below. ONELIST 1998 STOCK PLAN We assumed the ONElist 1998 Stock Plan and options outstanding under that plan in connection with the merger of eGroups and ONElist under which all outstanding ONElist options were assumed by eGroups and are exercisable for eGroups' stock. No further option grants will be made under this plan. The purposes of the ONElist Plan were to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the company's business. The ONElist Plan provided for the granting of incentive and nonqualified options. The terms and conditions for options granted under the ONElist Plan were substantially similar to those for options granted under the eGroups 1998 Option Plan. EGROUPS 2000 EMPLOYEE STOCK PURCHASE PLAN eGroups' 2000 Employee Stock Purchase Plan was adopted by our board in March 2000, and we expect it to be approved by our stockholders in April 2000. We will implement the Purchase Plan upon the effectiveness of this offering. We reserved a total of 500,000 shares of common stock for issuance under the Purchase Plan. The number of shares reserved will be increased automatically each year on the first day of our fiscal year beginning in 2001 by an amount equal to the lesser of (1) 420,000 shares, (2) 1.2% of the average number of shares outstanding as used to calculate fully diluted earnings per share as reported in eGroups' financial statements for the preceding fiscal year, and (3) a lesser amount determined by our board. Any shares from increases in previous years that are not actually issued shall be added to the aggregate number of shares available for issuance under the Purchase Plan. We intend for the Purchase Plan to qualify under Section 423 of the Internal Revenue Code. We intend to implement the Purchase Plan by an offering period commencing upon the effectiveness of this offering and ending on May 31, 2002. Each subsequent offering period will have a duration of 24 months. Each offering period after the first offering period will commence on June 1st of each year. Each offering period will consist of four consecutive purchase periods of six months duration with the last day of each period being designated a purchase date. The first purchase date will occur on November 30, 2000, with subsequent purchase dates to occur every six months thereafter. The Purchase Plan will be administered by the compensation committee of our board. Employees, including officers and employee directors, of eGroups, or of any of its majority-owned subsidiaries designated by our board, are eligible to participate in the Purchase Plan if they are employed by eGroups or any such subsidiary for at least 20 hours per week and more than five months per year. The Purchase Plan permits eligible employees to purchase shares of stock through payroll deductions, which may not exceed 15% of an employee's compensation. Under the Purchase Plan, no employee may purchase common stock worth more than $25,000 in any calendar year, valued as of 50 53 the first day of each offering period, or more than $25,000 of common stock in any purchase period, valued as of the last day of that purchase period. In addition, owners of 5% or more of eGroups' or a subsidiary's common stock may not participate in the Purchase Plan. The price of the common stock purchased under the Purchase Plan will be the lesser of 85% of the fair market value of eGroups' common stock at the beginning of the offering period or at the purchase date, except that the purchase price for the first offering period will be equal to the lesser of 100% of the initial public offering price of the common stock or 85% of the fair market value on the purchase date. If the fair market value of the common stock on a purchase date is less than the fair market value at the beginning of the offering period, a new 24 month offering period will automatically begin on the first business day following the purchase date with a new fair market value. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with eGroups or a participating subsidiary. If not terminated earlier, the Purchase Plan will have a term of ten years. The Purchase Plan provides that in the event of a merger of eGroups with or into another corporation or a sale of all or substantially all of eGroups' assets, each right to purchase stock under the Purchase Plan will be assumed or an equivalent right substituted by the successor corporation. If the successor corporation refuses to assume or substitute for the purchase right, the offering period during which a participant may purchase stock will be shortened to a specified date before the proposed merger or sale. Our board has the power to amend or terminate the Purchase Plan if that action does not adversely affect any outstanding rights to purchase stock under the Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS Our Amended and Restated Certificate of Incorporation limits the liability of our directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors except liability for breach of their duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, unlawful payments of dividends or unlawful stock repurchases or redemptions, or any transaction from which the director derived an improper personal benefit. This limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies like injunctive relief or rescission. Our bylaws provide that we shall indemnify our directors to the fullest extent permitted by law. They also permit us similarly to indemnify officers, employees and other agents. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity. We plan to enter into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements will indemnify our directors and executive officers for some expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of or in connection with their services as a director, officer, employee or agent of eGroups, any subsidiary of eGroups, or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. At present, there is no pending litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. 51 54 RELATIONSHIPS AND RELATED TRANSACTIONS Since our inception in June 1998, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, or holder of more than 5% of any class of our voting securities or members of such person's immediate family had or will have a direct or indirect material interest, other than (1) compensation agreements and other arrangements, which are described in "Management," and (2) the transactions described below. EQUITY TRANSACTIONS In June 1998, we sold 1,620,000 shares of our Series A preferred stock for $0.50 per share. In December 1998, we sold 3,556,772 shares of our Series B preferred stock for $1.43955 per share. On November 30, 1999, we merged with ONElist through a statutory merger of EG Acquisition Corporation, a wholly owned subsidiary of eGroups and ONElist by which 2,662,882 shares of ONElist common stock were exchanged and converted into 8,318,629 shares of eGroups common stock, and 2,330,665 shares of ONElist preferred stock were exchanged and converted into 7,280,811 shares of eGroups Series C preferred stock. In December 1999, we sold 4,081,633 shares of our Series D preferred stock for $10.29 per share. Listed below are the directors, executive officers and stockholders who beneficially own more than 5% of our securities who participated in these transactions. "See Description of Capital Stock."
VALUE AT SERIES A SERIES B SERIES C SERIES D AMOUNT $ PER COMMON PREFERRED PREFERRED PREFERRED PREFERRED PAID SHARE STOCKHOLDER (IN THOUSANDS) Michael B. Klein........................... 1,030,894 -- -- -- -- 59 Richard J. Carey........................... 256,161 15 Mark Fletcher.............................. 4,685,880 -- -- -- -- 150 Entities affiliated with CMGI @Ventures.... -- -- -- 4,314,558 291,545 5,400 Bertelsmann Ventures....................... -- -- -- 2,876,371 680,272 8,600 Entities affiliated with Sequoia Capital... -- -- 2,848,112 -- 485,909 9,100 Entities affiliated with Atlas Venture..... -- 1,620,000 694,660 -- 680,272 8,810
These parties acquired these shares on the same terms as other purchasers in this transaction. Shares held by all affiliated persons and entities have been aggregated. Share numbers and purchase price information are reflected on an as-if-converted into shares of common stock basis. See "Principal Stockholders" for more detail on shares held by these purchasers. Peter Mills, one of our directors, is an affiliate of each of the entities affiliated with CMGI @Ventures. Michael Moritz, one of our directors, is a general partner of Sequoia Capital VIII and thus is an affiliate of each of the entities affiliated with Sequoia Capital. EMPLOYMENT-RELATED CONTRACTS As part of Mr. Roscheisen's employment with us, he assigned a business concept and related intellectual property rights to us. In return, we issued to him 1,215,164 restricted shares of our common stock, all of which have vested. Some of our executive officers have received employment offer letters from us. See "Management--Employment Contracts and Change of Control Arrangements." We plan to enter into indemnification agreements with each of our directors and executive officers. See "Management--Indemnification of Officers and Directors." 52 55 LOANS TO EXECUTIVE OFFICERS The following executive officers delivered to us full-recourse promissory notes to purchase restricted stock under our 1998 Stock Option Plan. The full principal amount and accrued interest under each note remain outstanding. The terms of the notes are summarized below:
INTEREST ACCRUED INTEREST BALANCE NAME DATE OF MATURITY RATE PRINCIPAL AS OF 3/15/00 AS OF 3/15/00 Richard J. Carey................. March 15, 2004 6.80 $ 712,915 $ 0 $ 712,915 Steven T. Comfort................ October 12, 2003 6.25% 35,135 937 36,072 Steven T. Comfort................ March 15, 2004 6.80 59,990 0 59,990 David W. Cragg................... March 15, 2004 6.80 749,875 0 749,875 Michael B. Klein................. January 26, 2004 6.21 983,848 11,685 995,533 Michael B. Klein................. March 15, 2004 6.80 3,133,260 0 3,133,260 Jacqueline A. Maartense.......... October 12, 2003 6.25 69,800 1,862 71,662 Margaret E. Nibbi................ January 5, 2004 6.21 674,850 8,015 682,865 Carolyn J. Patterson............. November 17, 2003 6.08 27,920 555 28,475 Carolyn J. Patterson............. March 15, 2004 6.80 269,955 0 269,955 Marjorie T. Sennett.............. October 11, 2003 6.25 69,368 1,863 71,231 Marjorie T. Sennett.............. March 15, 2004 6.80 857,857 0 857,857
We extended Marjorie T. Sennett, our Senior Vice President and Chief Financial Officer, a loan related to her relocation expenses. See "Management--Employment Contracts and Change of Control Arrangements." OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS SINCE INCEPTION David W. Cragg has served as our Vice President, Human Resources since March 2000 and has been granted an option to purchase 125,000 shares of common stock at an exercise price of $6.00 per share, all of which shares have been acquired upon exercise. Margaret E. Nibbi has served as our Vice President, General Counsel since November 1999 and has been granted an option to purchase 150,000 shares of common stock at an exercise price of $4.50 per share, all of which shares have been acquired upon exercise. Carolyn J. Patterson has served as our Vice President, Operations since September 1999 and has been granted options to purchase 80,000 and 45,000 shares of common stock at exercise prices of $0.35 and $6.00 per share, all of which shares have been acquired upon exercise. Marcus Riecke has served as our Vice President, Business Development since January 2000 and has been granted options to purchase 168,691 and 31,309 at exercise prices of $0.05762 and $5.00 per share, of which no shares have been acquired upon exercise. See also "Management -- Option Grants Since Inception." As of March 15, 2000, all of the shares acquired upon exercise of stock options are subject to a right of repurchase by us at the exercise price paid. These repurchase rights lapse over a period of four years measured from the date of the option grant. OTHER TRANSACTIONS In March 2000, we entered into a Software License and Services Agreement with E.piphany, Inc. Under this agreement, we acquired a nonexclusive license for approximately $900,000 to use E.piphany's customization and campaign management software to enhance our email and web-based services. We may terminate the agreement at any time, and E.piphany may terminate upon written notice if we materially breach the agreement and fail to correct the breach within 30-days' notice. 53 56 Gayle Crowell, one of our directors, also serves as the President of E.piphany.net, the online and electronic commerce operation of E.piphany. In December 1999 and February 2000, we entered into advertising contract orders with X.com, Inc., to provide $225,000 and $50,500, respectively, of advertising placement services. Michael J. Moritz, one of our directors, is a general partner of Sequoia Capital IX, which holds an equity interest in X.com, Inc. 54 57 PRINCIPAL STOCKHOLDERS The following table provides information regarding beneficial ownership of our common stock, following automatic conversion of all preferred stock, as of March 15, 2000, and as adjusted to reflect our sale of common stock in this offering by: - Each person or entity known by us to own beneficially more than 5% of our common stock; - Each of our directors and our Named Executive Officer; and - All of our executive officers and directors as a group. We determined this beneficial ownership under the rules of the Securities and Exchange Commission, which generally require inclusion of shares over which a person has voting or investment power. Share ownership in each case includes shares issuable upon exercise of outstanding options and warrants that are exercisable within 60 days of March 15, 2000, as described in the footnotes below. The following calculations of the percentages of outstanding shares are based on 33,583,879 shares of our common stock outstanding as of March 15, 2000, on an as-converted basis, and shares of common stock outstanding after this offering. PRINCIPAL STOCKHOLDERS TABLE
PERCENTAGE OF SHARES BENEFICIALLY OWNED NUMBER OF SHARES -------------------------------- NAME BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING 5% STOCKHOLDERS Mark Fletcher(2)......................... 4,685,880 14.0% Entities affiliated with CMGI @Ventures(3).......................... 4,606,103 13.7% Entities affiliated with Atlas Venture(4)............................ 2,994,932 8.9% Bertelsmann Ventures(5).................. 3,556,643 10.6% Entities affiliated with Sequoia Capital(6)............................ 3,334,021 9.9% Scott Hassan(7).......................... 1,912,164 5.7% DIRECTORS AND EXECUTIVE OFFICERS Michael B. Klein(8)...................... 1,750,000 5.2% Gayle Crowell(9)......................... 50,000 * Peter Mills(10).......................... 4,656,103 13.9% Michael J. Moritz(11).................... 3,384,021 10.1% Daniel D. Springer(12)................... 50,000 * Martin Roscheisen........................ 1,215,164 3.6% All directors and executive officers as a group (13 persons)(8)(9)(10)(11)(12) (13)..... 12,780,288 37.6%
- ------------------------------ * Less than 1% of the outstanding shares of common stock. (1) Beneficial ownership is determined under the rules of the Securities and Exchange Commission and includes investment or voting power relating to the securities. Shares of common stock subject to options, warrants or other rights to purchase common stock that are currently exercisable or are exercisable within 60 days after March 15, 2000, are deemed outstanding for purpose of computing the percentage ownership of the persons holding such options, warrants or other rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. (2) At March 15, 2000, 1,366,715 shares held by Mr. Fletcher were vested, and 3,319,165 shares were unvested and subject to a right of repurchase in favor of us. This right lapses over a period of four years from the date of 55 58 issuance and accelerates in some instances. Mr. Fletcher's address is 374 Genoa Drive, Redwood City, CA 94065. (3) Represents 830,190 shares held by @Ventures Foreign Fund III, L.P., 2,767,175 shares held by @Ventures III, L.P., 92,123 shares held by @Ventures Investors, LLC, and 916,615 shares held by CMG@Ventures III, LLC. The address for CMGI @Ventures is 100 Brickstone Square, 5th Floor, Andover, MA 01810. (4) Represents 63,732 shares held by Atlas Venture Entrepreneurs' Fund III, L.P., and 2,931,200 shares held by Atlas Venture Fund III, L.P. The address for Atlas Venture is 222 Berkeley Street, Boston, MA 02116. (5) Bertelsmann Ventures' address is 813 Anacapa Street, Studio 111, Santa Barbara, CA 93101. (6) Represents 6,266 shares held by Sequoia 1997, 3,022,692 shares held by Sequoia Capital VIII, 38,342 shares held by Sequoia International Technology Partners VIII, 200,041 shares held by Sequoia International Technology Partners VIII (Q), and 66,680 shares held by CMS Partners LLC. The address of Sequoia Capital is 3000 Sand Hill Road, Building 4, Suite 280, Menlo Park, CA 94025. (7) Mr. Hassan's address is 961 Duncan Street, San Francisco, CA 94131. (8) At March 15, 2000, all of the shares held by Mr. Klein were unvested and subject to a right of repurchase in favor of us. This right lapses over a period of four years from the date of issuance and accelerates in some instances. (9) Represents 50,000 shares subject to options that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (10) Includes 830,190 shares held by @Ventures Foreign Fund III, L.P., 2,767,175 shares held by @Ventures III, L.P., 92,123 shares held by @Ventures Investors, LLC and 916,615 shares held by CMG@Ventures III, LLC. Mr. Mills is a Managing Partner of CMGI @Ventures and thus may be deemed to be a beneficial owner of these shares. Mr. Mills disclaims beneficial ownership of these shares. Also includes 50,000 shares subject to options held by Mr. Mills that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (11) Represents 6,266 shares held by Sequoia 1997, 3,022,692 shares held by Sequoia Capital VIII, 38,342 shares held by Sequoia International Technology Partners VIII, 200,041 shares held by Sequoia International Technology Partners VIII (Q), and 66,680 shares held by CMS Partners LLC. Mr. Moritz is a general partner of Sequoia Capital and as such may be deemed to be a beneficial owner of these shares. Mr. Moritz disclaims beneficial ownership of these shares. Also includes 50,000 shares subject to options held by Mr. Moritz that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (12) Represents 50,000 shares subject to options that are exercisable within 60 days. These options vest over a period of four years from the date of issuance and accelerate in some instances. (13) Includes 400,000 shares subject to options that are exercisable within 60 days and 3,225,000 shares subject to a right of repurchase in favor of us. This right lapses over a period of four years from the date of issuance and accelerates in some instances. 56 59 DESCRIPTION OF CAPITAL STOCK GENERAL Upon completion of this offering, we will be authorized to issue 150,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock is not complete and is qualified in its entirety by our certificate of incorporation and bylaws, which are included as exhibits to the registration statement, of which this prospectus forms a part, and by the provisions of applicable Delaware law. COMMON STOCK As of March 15, 2000, we had 33,583,879 shares of common stock outstanding and held of record by 120 stockholders, which includes the automatic conversion of all of our shares of convertible preferred stock and the issuance of 437,500 of common stock upon the conversion of subordinated debt prior to the closing of this offering. In addition, as of March 15, 2000, there were 2,711,453 shares of common stock subject to outstanding options and 8,330 shares of common stock subject to outstanding warrants. Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock issued after the sale of the common stock offered by this prospectus may be entitled, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of eGroups, holders of common stock would be entitled to share in the assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered by us in this offering, when issued and paid for, will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that our board of directors may designate in the future. PREFERRED STOCK Upon the closing of this offering, the board of directors will have the authority, without action by the stockholders, to designate and issue up to an aggregate of 10,000,000 shares of preferred stock in one or more series, and to designate the rights, preferences and privileges of each series. These rights may be greater than those of the common stock. We cannot determine the actual effect of the issuance of any shares of preferred stock upon the rights of holders of common stock until the board of directors determines the specific rights of the holders of the preferred stock. However, the effects might include: - Restricting dividends on the common stock; - Diluting the voting power of the common stock; - Impairing the liquidation rights of the common stock; or - Delaying or preventing a change in control of us without further action by the stockholders. 57 60 Upon the closing of this offering, no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock. WARRANTS In June 1999, we issued a warrant to purchase 8,330 shares of Series B preferred stock to Comdisco, Inc., at an exercise price of $7.20 per share. This warrant expires in June 2003. REGISTRATION RIGHTS We have entered into an investor rights agreement among us and some of our stockholders. Under the terms of that agreement, the holders of 16,539,216 shares of the outstanding common stock, referred to as registrable securities, are entitled to registration rights for their shares under the Securities Act. These registration rights include the following: - Beginning 180 days following the date of this prospectus, the holders of a majority of the registrable securities may require us, subject to some limitations, to file a registration statement covering their registrable securities, provided that the anticipated aggregate offering price would be at least $15,000,000. - Most holders of registrable securities are entitled to piggyback registration rights as part of any registration by us of securities for our own account or the account of other security holders. If we propose to register any shares of common stock under the Securities Act, the holders of such piggyback registration rights are entitled to receive notice of the registration and are entitled to include their shares in the offering, with some exceptions. - At any time after we become eligible to file a registration statement on Form S-3, any holder of the registrable securities may require us to file registration statements on Form S-3 under the Securities Act for a public offering of registrable securities if the reasonably anticipated aggregate offering price would exceed $1,000,000, with some exceptions. Each of these registration rights has some conditions and limitations, including the right of the underwriters in any underwritten offering to limit the number of shares included in that registration. All registration rights terminate either three years from the effective date of this offering or, with respect to a particular holder, when the shares held by that holder either may be sold under Rule 144 during any three-month period or represent less than one percent of our outstanding voting stock. We are generally required to bear all of the expenses of all such registrations, except underwriting discounts and commissions. Registration of any of the shares entitled to registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. The investor rights agreement obligates us to indemnify the holders of registration rights, with some exceptions. EFFECT OF SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AND THE DELAWARE ANTI-TAKEOVER LAW Various provisions of our Amended and Restated Certificate of Incorporation and Bylaws, which will become effective upon the closing of this offering, may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, with 58 61 some exceptions, prohibits a Delaware corporation from engaging in any business combination involving any interested stockholder, unless: - Prior to that date, the board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - Upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers, and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - On or after that date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Our certificate of incorporation and bylaws contain provisions that may have the effect of delaying, deferring or preventing a change in control. These provisions: - Enable the board of directors, without further stockholder approval, to designate and issue up to ten million shares of preferred stock; - Prohibit the removal of directors without cause; - Impose special notice requirements upon the right of stockholders to call special meetings of stockholders; - Prohibit stockholders from acting by written consent once this offering closes; - Prevent stockholders from filling vacancies on the board of directors; - Require super-majority approval of the stockholders to effect amendments to the bylaws and certain provisions of our certificate of incorporation; and - Require no less than 60 days' advance notice with respect to nominations of directors or other matters to be voted on by stockholders other than by or at the direction of the board of directors. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for our common stock is ChaseMellon Shareholder Services, LLC. NASDAQ NATIONAL MARKET LISTING We have applied to list our common stock on the Nasdaq National Market under the trading symbol "EGPS." 59 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering, we will have outstanding shares of common stock. Of these shares, the shares sold in the offering, plus any shares issued upon exercise of the underwriters' over-allotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act, generally, officers directors or 10% stockholders. The remaining 33,583,879 shares outstanding are "restricted securities" within the meaning of Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted shares in the public market, or the availability of these shares for sale, could adversely affect the market price of the common stock. All of these shares will be subject to "lock-up" agreements that will prohibit these stockholders from offering, selling or otherwise disposing of any of the shares of common stock owned by them for a period of 180 days after the date of this offering, subject to the following exceptions applicable to stockholders who are not officers of eGroups: - 25% of a holder's shares may be sold on the earlier of 90 days after the date of this offering or on the second trading day after the first public release of our quarterly results if the last recorded sale price on the Nasdaq National Market for 20 of the 30 trading days ending on that date is at least twice the price per share in this initial public offering; and - An additional 25% of each holder's shares may be sold 135 days after the date of this offering if the price per share of common stock has achieved the same target level. However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. Upon expiration of the lock-up agreements, shares will become eligible for sale pursuant to Rule 144(k), shares will become eligible for sale under Rule 144 and shares will become eligible for sale under Rule 701. ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET (LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
APPROXIMATE NUMBER OF SHARES ELIGIBLE DAY AFTER DATE OF THIS PROSPECTUS ON EFFECTIVENESS FOR FUTURE SALE 90 days after the effective date or second trading day following first public release of quarterly earnings(1)............................................. 135 days after the effective date(1)........................ 180 days after the effective date (expiration of lock-up)...
- ------------------------------ (1) The number of shares listed may be offered, sold or traded, provided that the last recorded sale price per share for 20 of the 30 trading days ending on such date is at least twice the initial public offering price per share. 60 63 In general, under Rule 144, and beginning after the expiration of the lock-up agreements 180 days after the date of this prospectus, a person, or persons whose shares are combined, who has beneficially owned restricted securities for at least one year would be entitled to sell within any three- month period a number of shares that do not exceed the greater of the following: - one percent of the number of shares of common stock then outstanding that will equal approximately shares immediately after this offering; or - the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to some manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Persons deemed to be affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied. We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Prior to this offering, there has been no public market for the common stock, and we cannot assure you that a significant public market for the common stock will develop or be sustained after the offering. Any future sale of substantial amounts of the common stock in the open market may adversely affect the market price of the common stock offered under this prospectus. Any of our employees or professionals who purchased his or her shares under a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits nonaffiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume-limitation, or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the date of this prospectus. We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our stock plans. We expect to file the registration statement covering shares offered under our stock incentive plans within 180 days after the date of this prospectus, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act. In addition, after this offering, holders of shares will be entitled to rights relating to registration of their shares under the Securities Act. Registration of such shares would result in these shares, except for shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately on the effectiveness of registration. 61 64 UNDERWRITING Subject to the terms and conditions contained in an underwriting agreement dated , 2000, the underwriters named below, whom Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and FleetBoston Robertson Stephens Inc. represent, have severally agreed to purchase from us the respective number of shares of common stock set forth opposite their names below:
NUMBER UNDERWRITERS: OF SHARES: Donaldson, Lufkin & Jenrette Securities Corporation......... Chase Securities Inc. ...................................... FleetBoston Robertson Stephens Inc. ........................ -------- Total............................................. ========
The underwriting agreement provides that the obligations of the underwriters to purchase and accept delivery of the shares of common stock in the offering are subject to approval by their counsel of legal matters concerning the offering and to conditions precedent that must be satisfied by us. The underwriters are obligated to purchase and accept delivery of all the shares of common stock in the offering, other than those shares covered by the over-allotment option described below, if any are purchased. The underwriters initially propose to offer some of the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and in part to dealers at the initial public offering price less a concession not in excess of $ per share. The underwriters may allow, and those dealers may re-allow, a concession not in excess of $ per share. After the initial offering of the common stock to the public, the public offering price and other selling terms may be changed by the representatives at any time without notice. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. An electronic prospectus will be available on the web site maintained by DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation. Other than the prospectus in electronic format, the information on that web site relating to this offering is not part of this prospectus and has not been approved or endorsed by us or the underwriters, and should not be relied on by prospective investors. We have granted to the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of additional shares of common stock at the initial public offering price less underwriting discounts and commissions. The underwriters may exercise the option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise the option, each underwriter will become obligated, subject to conditions contained in the underwriting agreement, to purchase its pro rata portion of such additional shares based on the underwriters' percentage underwriting commitment as indicated in the above table. 62 65 The following table provides the compensation payable to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of our common stock.
NO FULL EXERCISE EXERCISE Per share................................................. Total.....................................................
We will pay the offering expenses, estimated to be $ . We have agreed to indemnify the underwriters against liabilities which may arise in connection with this offering, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make with respect to these liabilities. We, our executive officers, directors, stockholders and option holders are subject to lock-up agreements that will prohibit them from offering, selling or otherwise disposing of any of the shares of common stock owned by them for a period of 180 days after the date of this offering, subject to the following exceptions applicable to stockholders who are not officers of eGroups: - 25% of a holder's shares may be sold on the earlier of 90 days after the date of this offering or on the second trading day after the first public release of our quarterly results if the last recorded sale price on the Nasdaq National Market for 20 of the 30 trading days ending on that date is at least twice the price per share in this initial public offering; and - an additional 25% of each holder's shares may be sold 135 days after the date of this offering if the price per share of common stock has achieved the same target level. However, Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. In addition, during this 180-day period, we have also agreed not to file any registration statement pertaining to, and each of our executive officers, directors and stockholders have agreed not to make any demand for, or exercise any class right pertaining to, the registration of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Prior to this offering, there has been no established trading market for our common stock. The initial public offering price of the shares of our common stock offered by this prospectus will be determined by negotiation among us and the representatives of the underwriters. The factors to be considered in determining the initial public offering price include: - The history of and the prospects for the industry in which we compete; - Our past and present operations; - Our historical results of operations; - Our prospects for future earnings; - The recent market prices of securities of generally comparable companies; and - The general condition of the securities markets at the time of the offering. At our request, the underwriters have reserved up to 15% of the shares of common stock to be sold in this offering for sale to some of our members who have registered with our service. No shares 63 66 have been reserved for sale to our directors or officers. Through this directed share program, we intend to ensure that those members that have supported us, or who are in a position to support us in the future, have the opportunity to purchase our common stock at the same price that we are offering our shares to the general public. Indications of interest will be sought by means of a written notice, which conforms to Rule 134 under the Securities Act, accompanied by a copy of this prospectus. Prospective participants will be permitted to participate in this offering at the initial public offering price presented on the cover page of this prospectus. No commitment to purchase shares by any participant in the directed share program will be accepted until after the registration statement of which this prospectus is part is effective and an initial public offering price has been established. The number of shares of our common stock available for sale to the general public will be reduced by the number of shares sold through the directed share program. Any shares reserved for the directed share program which are not purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We have applied to list our common stock on the Nasdaq National Market under the trading symbol "EGPS." Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock included in this offering in any jurisdiction where action for that purpose is required. The shares of common stock included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any of these shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. We advise persons who receive this prospectus to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy any shares of common stock included in this offering in any jurisdiction where an offer or solicitation is unlawful. As part of this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot this offering, creating a syndicate short position. The underwriters may bid for and purchase our shares of common stock in the open market to cover such syndicate short positions or to stabilize the price of our common stock. In addition, the underwriting syndicate may reclaim selling concessions from syndicate members and selected dealers if they repurchase previously distributed common stock in syndicate covering transactions, in stabilizing transactions or otherwise. These activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time. 64 67 LEGAL MATTERS The validity of the common stock we are offering will be passed upon for us by Perkins Coie LLP, San Francisco, California. Selected legal matters in connection with this offering will be passed upon for the underwriters by Pillsbury Madison & Sutro LLP, San Francisco, California. As of the consummation of this offering, an investment partnership associated with, and some partners of, Perkins Coie LLP own an aggregate of 9,718 shares of our Series D Preferred Stock, which will convert into 9,718 shares of common stock prior to the closing of this offering. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at July 31, 1999 and January 31, 2000, and for the period from our inception on June 5, 1998 to July 31, 1999 and for the six months ended January 31, 2000, as set forth in their report. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the SEC, a registration statement on Form S-1 under the Securities Act relating to the shares of common stock we are offering. This prospectus does not contain all the information provided in the registration statement and the exhibits to it. For further information with respect to eGroups, Inc., and our common stock, we refer you to the registration statement and to the exhibits filed with the registration statement. Statements contained in this prospectus relating to the contents of any contract or other document are not necessarily complete, and in each instance we make reference to the copy of such contract or other document that we have filed as an exhibit to the registration statement, each of these statements being fully qualified by that reference. Anyone may inspect a copy of the registration statement without charge at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any portion of the registration statement from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. 65 68 EGROUPS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity............................ F-5 Consolidated Statements of Cash Flows....................... F-7 Notes to Consolidated Financial Statements.................. F-8
F-1 69 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders eGroups, Inc. We have audited the accompanying consolidated balance sheets of eGroups, Inc. as of July 31, 1999 and January 31, 2000, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity, and cash flows for the period from inception (June 5, 1998) to July 31, 1999 and for the six-month period ended January 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of eGroups, Inc. at July 31, 1999 and January 31, 2000, and the consolidated results of its operations and its cash flows for the period from inception (June 5, 1998) to July 31, 1999 and for the six-month period ended January 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Palo Alto, California February 25, 2000 F-2 70 EGROUPS, INC. CONSOLIDATED BALANCE SHEETS
PRO FORMA STOCKHOLDERS' EQUITY AT JULY 31, JANUARY 31, JANUARY 31, 1999 2000 2000 ----------- ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......................... $ 4,957,231 $ 44,586,059 Accounts receivable, net of allowance for doubtful accounts of $10,000 and $150,000 at July 31, 1999 and January 31, 2000...................... 329,127 2,157,805 Prepaids and other current assets................. 301,404 340,797 ----------- ------------ Total current assets........................... 5,587,762 47,084,661 Property and equipment, net......................... 950,594 2,697,423 Other assets, net................................... 217,595 2,429,171 ----------- ------------ Total assets................................... $ 6,755,951 $ 52,211,255 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................. $ 708,065 $ 1,118,346 Accrued liabilities............................... 668,113 905,324 Deferred revenue.................................. -- 47,568 Short-term debt................................... 135,454 136,344 Short-term capital lease obligations.............. 23,030 299,240 ----------- ------------ Total current liabilities...................... 1,534,662 2,506,822 Long-term capital lease obligations................. 54,662 938,162 Long-term debt...................................... 169,046 7,211,143 Commitments......................................... Redeemable convertible preferred stock, $0.001 par value, 7,300,000 shares authorized, 7,280,811 shares issued and outstanding at July 31, 1999 (no shares authorized, issued or outstanding at January 31, 2000 and pro forma)................... 4,236,723 -- $ -- Stockholders' equity: Convertible preferred stock, $0.001 par value, issuable in series; 5,220,000 and 17,500,000 shares authorized at July 31, 1999 and January 31, 2000; 5,176,772 and 16,539,216 (liquidation preference of $51,979,337) shares issued and outstanding at July 31, 1999 and January 31, 2000 (10,000,000 shares authorized, no shares issued or outstanding pro forma)............... 5,177 16,539 -- Common stock, $0.001 par value; 43,000,000 shares authorized; 12,453,628 and 16,244,195 shares issued and outstanding at July 31, 1999 and January 31, 2000 (150,000,000 shares authorized, 32,783,411 shares issued and outstanding pro forma)......................... 12,454 16,244 32,783 Additional paid-in capital........................ 11,717,496 75,296,764 75,296,764 Notes receivable from stockholders................ (14,330) (2,159,493) (2,159,493) Deferred stock compensation....................... (4,315,327) (12,196,265) (12,196,265) Accumulated deficit............................... (6,644,612) (19,418,661) (19,418,661) ----------- ------------ ------------ Total stockholders' equity..................... 760,858 41,555,128 $ 41,555,128 ----------- ------------ ============ Total liabilities and stockholders' equity..... $ 6,755,951 $ 52,211,255 =========== ============
See accompanying notes. F-3 71 EGROUPS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM INCEPTION SIX MONTHS ENDED JANUARY 31, (JUNE 5, 1998) TO ----------------------------- JULY 31, 1999 1999 2000 ----------------- ------------ ------------- (UNAUDITED) Revenue..................................... $ 488,700 $ 42,535 $ 3,463,636 Cost of revenue............................. 221,832 86,464 324,471 ----------- ----------- ------------ Gross profit (loss)......................... 266,868 (43,929) 3,139,165 Operating expenses: Product development....................... 1,282,240 204,480 3,717,296 Sales and marketing....................... 2,688,900 303,503 4,227,690 General and administrative................ 2,124,727 550,120 3,804,245 Amortization of deferred stock compensation(1)........................ 974,754 138,294 3,994,627 ----------- ----------- ------------ Total operating expenses............... 7,070,621 1,196,397 15,743,858 ----------- ----------- ------------ Operating loss.............................. (6,803,753) (1,240,326) (12,604,693) Interest and other income................... 181,871 44,255 348,509 Interest and other expense.................. (22,730) (4,638) (517,865) ----------- ----------- ------------ Total other income (expense)........... 159,141 39,617 (169,356) ----------- ----------- ------------ Net loss.................................... (6,644,612) (1,200,709) (12,774,049) Accretion on redeemable convertible preferred stock..................................... (212,625) (33,861) (128,934) ----------- ----------- ------------ Net loss attributable to common stockholders.............................. $(6,857,237) $(1,234,570) $(12,902,983) =========== =========== ============ Basic and diluted net loss per share attributable to common stockholders....... $ (1.25) $ (0.29) $ (1.61) =========== =========== ============ Shares used in per share calculation........ 5,465,400 4,302,949 8,011,140 Pro forma basic and diluted net loss per share attributable to common stockholders (unaudited)............................... $ (0.49) $ (0.56) =========== ============ Shares used in pro forma per share calculation (unaudited)................... 13,641,257 22,642,636
- ------------------------------ (1) See Note 8 for a description of the amortization of deferred stock compensation. See accompanying notes. F-4 72 EGROUPS, INC. CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY --------------------------------------------------------- REDEEMABLE CONVERTIBLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------ -------------------- -------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at inception (June 5, 1998)........................... -- $ -- -- $ -- -- $ -- $ -- Issuances of common stock to founders at $0.005 to $0.032 per share........................... -- -- -- -- 11,490,340 11,490 214,725 Issuances of common stock and options to consultants for cash and services at $0.005 to $0.30 per share....................... -- -- -- -- 522,427 523 455,380 Issuance of Series A preferred stock at $0.50 per share, net of issuance costs of $18,375....... -- -- 1,620,000 1,620 -- -- 790,005 Issuance of Series B preferred stock at $1.44 per share, net of issuance costs of $12,545....... -- -- 3,556,772 3,557 -- -- 5,104,050 Issuance of Series C redeemable preferred stock at $0.56 per share, net of issuance costs of $25,088......................... 7,280,811 4,024,098 -- -- -- -- -- Warrants issued in connection with debt............................ -- -- -- -- -- -- 51,498 Accretion of redeemable convertible preferred stock..... -- 212,625 -- -- -- -- (212,625) Issuances of common stock upon exercise of options............. -- -- -- -- 647,737 648 34,520 Repurchases of common stock upon termination..................... -- -- -- -- (206,876) (207) (10,138) Deferred stock compensation....... -- -- -- -- -- -- 5,290,081 Amortization of deferred stock compensation.................... -- -- -- -- -- -- -- Net loss and comprehensive loss... -- -- -- -- -- -- -- ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at July 31, 1999 (carried forward)........................ 7,280,811 4,236,723 5,176,772 5,177 12,453,628 12,454 11,717,496 STOCKHOLDERS' EQUITY ---------------------------------------------------------- NOTES RECEIVABLE DEFERRED TOTAL FROM STOCK ACCUMULATED STOCKHOLDERS' STOCKHOLDERS COMPENSATION DEFICIT EQUITY ------------ ------------ ------------ ------------- Balance at inception (June 5, 1998)........................... $ -- $ -- $ -- $ -- Issuances of common stock to founders at $0.005 to $0.032 per share........................... -- -- -- 226,215 Issuances of common stock and options to consultants for cash and services at $0.005 to $0.30 per share....................... -- -- -- 455,903 Issuance of Series A preferred stock at $0.50 per share, net of issuance costs of $18,375....... -- -- -- 791,625 Issuance of Series B preferred stock at $1.44 per share, net of issuance costs of $12,545....... -- -- -- 5,107,607 Issuance of Series C redeemable preferred stock at $0.56 per share, net of issuance costs of $25,088......................... -- -- -- -- Warrants issued in connection with debt............................ -- -- -- 51,498 Accretion of redeemable convertible preferred stock..... -- -- -- (212,625) Issuances of common stock upon exercise of options............. (14,330) -- -- 20,838 Repurchases of common stock upon termination..................... -- -- -- (10,345) Deferred stock compensation....... -- (5,290,081) -- -- Amortization of deferred stock compensation.................... -- 974,754 -- 974,754 Net loss and comprehensive loss... -- -- (6,644,612) (6,644,612) ----------- ------------ ------------ ------------ Balance at July 31, 1999 (carried forward)........................ (14,330) (4,315,327) (6,644,612) 760,858
F-5 73 EGROUPS, INC. CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
STOCKHOLDERS' EQUITY --------------------------------------------------------- REDEEMABLE CONVERTIBLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------ -------------------- -------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL - ---------------------------------- ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at July 31, 1999 (brought forward)........................ 7,280,811 $ 4,236,723 5,176,772 $ 5,177 12,453,628 $12,454 $11,717,496 Issuances of common stock upon exercise of options............. -- -- -- -- 4,001,489 4,001 2,274,925 Issuances of common stock and options to consultants for cash and services at $0.068 to $5.00 per share....................... -- -- -- -- 4,998 5 927,146 Accretion of redeemable convertible preferred stock..... -- 128,934 -- -- -- -- (128,934) Conversion of redeemable preferred to nonredeemable preferred stock........................... (7,280,811) (4,365,657) 7,280,811 7,281 -- -- 4,358,376 Issuance of Series D preferred stock at $10.29 per share, net of issuance costs of $27,420.... -- -- 4,081,633 4,081 -- -- 41,968,502 Warrants issued in connection with debt............................ -- -- -- -- -- -- 2,327,500 Repurchases of common stock upon termination..................... -- -- -- -- (215,920) (216) (23,812) Deferred stock compensation....... -- -- -- -- -- -- 11,875,565 Amortization of deferred stock compensation.................... -- -- -- -- -- -- -- Net loss and comprehensive loss... -- -- -- -- -- -- -- ---------- ----------- ---------- ------- ---------- ------- ----------- Balance at January 31, 2000....... -- $ -- 16,539,216 $16,539 16,244,195 $16,244 $75,296,764 ========== =========== ========== ======= ========== ======= =========== STOCKHOLDERS' EQUITY ---------------------------------------------------------- NOTES RECEIVABLE DEFERRED TOTAL FROM STOCK ACCUMULATED STOCKHOLDERS' STOCKHOLDERS COMPENSATION DEFICIT EQUITY - ---------------------------------- ------------ ------------ ------------ ------------- Balance at July 31, 1999 (brought forward)........................ $ (14,330) $ (4,315,327) $ (6,644,612) $ 760,858 Issuances of common stock upon exercise of options............. (2,148,153) -- -- 130,773 Issuances of common stock and options to consultants for cash and services at $0.068 to $5.00 per share....................... -- -- -- 927,151 Accretion of redeemable convertible preferred stock..... -- -- -- (128,934) Conversion of redeemable preferred to nonredeemable preferred stock........................... -- -- -- 4,365,657 Issuance of Series D preferred stock at $10.29 per share, net of issuance costs of $27,420.... -- -- -- 41,972,583 Warrants issued in connection with debt............................ -- -- -- 2,327,500 Repurchases of common stock upon termination..................... 2,990 -- -- (21,038) Deferred stock compensation....... -- (11,875,565) -- -- Amortization of deferred stock compensation.................... -- 3,994,627 -- 3,994,627 Net loss and comprehensive loss... -- -- (12,774,049) (12,774,049) ----------- ------------ ------------ ------------ Balance at January 31, 2000....... $(2,159,493) $(12,196,265) $(19,418,661) $ 41,555,128 =========== ============ ============ ============
See accompanying notes. F-6 74 EGROUPS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM INCEPTION SIX MONTHS ENDED JANUARY 31, (JUNE 5, 1998) TO ----------------------------- JULY 31, 1999 1999 2000 ----------------- ------------ ------------- (UNAUDITED) OPERATING ACTIVITIES: Net loss........................................ $(6,644,612) $(1,200,709) $(12,774,049) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................. 100,613 16,302 356,334 Noncash expenses from stock, debt and warrant issuances.................................. 1,426,897 175,654 5,149,888 Changes in assets and liabilities: Accounts receivable........................ (329,127) (26,033) (1,828,678) Prepaids and other current assets.......... (301,404) (20,909) (39,393) Other assets, net.......................... (187,266) (3,330) (118,076) Accounts payable........................... 708,065 32,240 410,281 Accrued liabilities........................ 668,113 77,971 237,211 Deferred revenue........................... -- 1,401 47,568 ----------- ----------- ------------ Net cash used in operating activities.... (4,558,721) (947,413) (8,558,914) INVESTING ACTIVITIES: Capital expenditures............................ (1,038,828) (218,785) (2,098,107) FINANCING ACTIVITIES: Principal payments of capital lease and debt financing..................................... (2,740) -- (214,940) Proceeds from capital lease obligations......... 80,432 -- 1,217,872 Proceeds from issuances of debt................. 304,500 100,000 7,199,765 Proceeds from issuances of preferred stock, net........................................... 5,899,232 9,906,520 41,972,583 Proceeds from issuances of redeemable preferred stock, net.................................... 4,024,098 -- -- Proceeds from issuances of common stock......... 259,603 203,849 131,607 Repurchase of common stock...................... (10,345) -- (21,038) ----------- ----------- ------------ Net cash provided by financing activities............................ 10,554,780 10,210,369 50,285,849 ----------- ----------- ------------ Net increase in cash and cash equivalents....... 4,957,231 9,044,171 39,628,828 Cash and cash equivalents at beginning of period........................................ -- -- 4,957,231 ----------- ----------- ------------ Cash and cash equivalents at end of period...... $ 4,957,231 $ 9,044,171 $ 44,586,059 =========== =========== ============ SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for other assets....... $ 26,213 $ 26,213 $ -- =========== =========== ============ Issuance of common stock for notes receivable... $ 14,330 $ -- $ 2,148,153 =========== =========== ============ Deferred stock compensation..................... $ 5,290,081 $ 720,718 $ 11,875,565 =========== =========== ============ Deferred debt interest in connection with issuance of warrants and conversion option.... $ 51,498 $ -- $ 2,327,500 =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.......................... $ 11,715 $ 4,732 $ 147,414 =========== =========== ============
See accompanying notes. F-7 75 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION On June 5, 1998, eGroups, Inc., "eGroups", was incorporated in the state of Delaware under the name Findmail Communications, Inc. eGroups offers a widely used email group communication platform on the Internet, with an integrated set of web-based features that support dynamic groups. eGroups enables advertisers and direct marketers to reach consumers by delivering targeted email advertising solutions. The financial operations of eGroups for the period from inception (June 5, 1998) to July 31, 1998 were insignificant, with a net loss of approximately $65,000 in the period, and have been combined with eGroups' results for the period from inception (June 5, 1998) to July 31, 1999. The accompanying consolidated financial statements include the accounts of eGroups and its wholly owned subsidiary, ONElist, Inc., which merged with eGroups on November 30, 1999 (see Note 2), and the accounts of its wholly owned foreign subsidiaries in Germany and Japan. The historical consolidated financial statements of eGroups prior to the merger date have been restated to reflect the merger with ONElist, Inc., which has been accounted for as a pooling of interests. eGroups has sustained net losses and negative cash flows from operations since inception. eGroups' ability to meet its obligations in the ordinary course of business is dependent upon its ability to establish profitable operations and to raise additional financing through public or private equity financings, collaborative or other arrangements with corporate sources, or other sources of financing. In the six months ended January 31, 2000, eGroups received financing of approximately $42,000,000 through the issuance of Series D convertible preferred stock and $7,000,000 through issuance of subordinated debt. Management believes that these funds will be sufficient to enable eGroups to meet planned expenditures through at least January 31, 2001. If anticipated operating results are not achieved, and additional financial resources are not available on terms acceptable to eGroups, management intends to delay or reduce expenditures so as not to require such resources. INTERIM FINANCIAL INFORMATION In the opinion of management, the unaudited financial statements for the six months ended January 31, 1999 have been prepared on the same basis as the audited financial statements and contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the unaudited interim results when read in conjunction with the audited financial statements and the accompanying notes. Operating results for any interim period are not necessarily indicative of results to be expected for the entire year or for any other subsequent period. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. F-8 76 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION eGroups derives its revenue principally from short-term advertising contracts in which eGroups guarantees a minimum number of impressions (a view of an advertisement by a member), for a fixed fee. Advertising revenue is recognized using either the ratio of impressions delivered to the total guaranteed impressions or on a straight-line basis over the term of the contract, whichever is less, provided that eGroups does not have any significant remaining obligations and collection of the resulting receivable is probable. To the extent that minimum guaranteed impression levels or other obligations are not being met, eGroups defers recognition of the corresponding revenue until guaranteed levels are being achieved or the obligations are satisfied. For advertising contracts that do not involve guaranteed impressions, revenue is recognized based on actual impressions delivered. Provisions for bad debts and additional discounts are provided at the time of revenue recognition based upon historical experience and current economic conditions. Through January 31, 2000, the majority of eGroups' advertising contracts have ranged from several weeks to two months in duration. eGroups has also derived a portion of its revenue from short-term advertising contracts negotiated by third-party advertising brokers. eGroups records as revenue its contractual percentage of the total revenue generated from the delivery of advertisements, net of the commission taken by the advertising broker. Such revenue is recognized in the period in which the advertisement is delivered, provided that no significant obligations remain and collection of the resulting receivable is probable. To the extent the advertising broker does not collect billings from the advertisers, or grant additional discounts, eGroups is not at risk for its contractual percentage of such bad debts and additional discounts. Net revenue derived from these agreements represented 44%, 0% and 22% of eGroups' revenue for the period from inception (June 5, 1998) to July 31, 1999 and the six-month periods ended January 31, 1999 and January 31, 2000. Revenue also includes sponsorship revenue under contracts in which eGroups commits to provide sponsors with a variety of promotional opportunities in addition to traditional banner advertising. In a typical sponsorship agreement, eGroups provides sponsors with a variety of additional promotional activities, such as the delivery of impressions on its website through banner, button or text-link advertising, sometimes granting exclusive placement on specific web pages. The portion of sponsorship revenue that is recognized in the period in which the advertisement is displayed is the ratio of impressions delivered over the total guaranteed impressions or the straight-line basis over the term of the contract, provided that no significant obligations remain and the collection of the resulting receivable is probable. eGroups also derives revenue from the delivery of permission-based, direct marketing email campaigns. Such revenue is recognized upon the delivery of the email advertisements at the lesser of the ratio of emails delivered over the total guaranteed number of emails or on a straight-line basis over the term of the contract. eGroups has not recognized any revenue related to the nonmonetary exchange of advertising for advertising as such exchanges were not objectively determinable. F-9 77 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CERTAIN RISKS AND CONCENTRATIONS eGroups has a limited operating history and its prospects are subject to the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as Internet services. These risks include the difficulty of developing and extending the eGroups brand, competitive challenges posed by other group communication services, fluctuations in operating results, dependence on advertising revenues, and the difficulty in maintaining and increasing the level of traffic to the eGroups networks and online services. eGroups' revenue is principally derived from the sale of online advertising, the market for which is highly competitive and rapidly changing. Significant changes in the industry or changes in customer buying behavior could adversely affect operating results. In the event that eGroups does not successfully implement its business plan, certain assets may not be recoverable. For the period from inception (June 5, 1998) to July 31, 1999, revenue from eGroups' two largest customers accounted for approximately 44% and 37% of total revenue. For the six-month period ended January 31, 2000, revenue from eGroups' largest customer accounted for approximately 20% of total revenue. At July 31, 1999, one customer accounted for approximately 53% of the net accounts receivable balances. At January 31, 2000, two customers accounted for 27% and 10% of net accounts receivable balances. eGroups generally does not require collateral and maintains allowances for potential credit losses. Such losses have been insignificant. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated amortization and depreciation which is provided using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the asset. ADVERTISING EXPENSES Advertising is expensed as incurred. The costs of producing advertising are incurred and expensed during production. The costs of communicating advertising are incurred and expensed as the advertisement is broadcast in accordance with Statement of Position No. 93-7, "Reporting on Advertising Costs." Advertising expense was approximately $128,000 for the period from inception (June 5, 1998) to July 31, 1999, and approximately $194,000 for the six-month period ended January 31, 2000. CASH AND CASH EQUIVALENTS eGroups considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. As of July 31, 1999 and January 31, 2000, cash equivalents consisted primarily of investments in money market funds. To date, eGroups has not experienced losses on any of its investments. F-10 78 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of eGroups' cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying amount of eGroups debt and capital lease obligations approximates the fair value of such instruments based upon management's best estimate of interest rates that would be available for similar debt obligations at January 31, 2000. NET LOSS PER SHARE Basic and diluted net loss per share is presented in conformity with the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Pursuant to the Securities and Exchange Commission ("SEC") Accounting Bulletin No. 98, common stock and convertible preferred stock issued or granted for nominal consideration prior to the anticipated effective date of an initial public offering must be included in the calculation of basic and diluted net loss per share as if they had been outstanding for all periods presented. To date, eGroups has not had any issuances or grants for nominal consideration. In accordance with SFAS 128, basic and diluted net loss per share has been computed using the weighted-average number of common shares outstanding during the period, less the weighted-average number of shares of common stock issued to founders, investors, and employees that are subject to repurchase. Shares subject to repurchase have been excluded as these shares must be returned to eGroups if specified conditions are not met. Basic and diluted pro forma net loss per share, as presented in the statements of operations, have been computed as described above and also give effect, under SEC guidance, to the conversion of the convertible preferred stock and redeemable convertible preferred stock (using the if-converted method) from the original date of issuance. The F-11 79 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share:
PERIOD FROM INCEPTION (JUNE 5, 1998) TO SIX MONTHS ENDED JANUARY 31, JULY 31, ----------------------------- 1999 1999 2000 ----------------- ------------ ------------- (UNAUDITED) Net loss................................... $(6,644,612) $(1,200,709) $(12,774,049) Accretion on redeemable convertible preferred stock.................................... (212,625) (33,861) (128,934) ----------- ----------- ------------ Net loss attributable to common stockholders............................. $(6,857,237) $(1,234,570) $(12,902,983) =========== =========== ============ Basic and diluted: Weighted-average shares of common stock outstanding........................... 9,651,015 8,254,854 15,828,528 Less: weighted-average shares subject to repurchase............................ (4,185,615) (3,951,905) (7,817,388) ----------- ----------- ------------ Weighted-average shares used in computing basic and diluted net loss per share..... 5,465,400 4,302,949 8,011,140 =========== =========== ============ Basic and diluted net loss per share....... $ (1.25) $ (0.29) $ (1.61) =========== =========== ============
PERIOD FROM INCEPTION SIX MONTHS (JUNE 5, 1998) TO ENDED JULY 31, JANUARY 31, 1999 2000 ----------------- ------------ Net loss.................................. $(6,644,612) $(12,774,049) =========== ============ Pro forma basic and diluted: Shares used above....................... 5,465,400 8,011,140 Pro forma adjustment to reflect weighted-average effect of assumed conversion of convertible preferred stock (unaudited).................... 8,175,857 14,631,496 ----------- ------------ Shares used in computing pro forma basic and diluted net loss per share (unaudited)............................. 13,641,257 22,642,636 =========== ============ Pro forma basic and diluted net loss per share (unaudited)....................... $ (0.49) $ (0.56) =========== ============
eGroups has excluded all convertible preferred stock, redeemable convertible preferred stock, warrants for convertible preferred stock, outstanding stock options, and shares subject to repurchase from the calculation of diluted net loss per share because all such securities are antidilutive for all periods presented. If eGroups' initial public offering is consummated, all of the convertible preferred stock outstanding will automatically be converted into common stock. Unaudited pro forma stockholders' equity at January 31, 2000, as adjusted for the assumed conversion of convertible F-12 80 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) preferred stock based on the shares of convertible preferred stock outstanding at January 31, 2000, is disclosed on the balance sheet. The total number of shares excluded from the calculation of diluted net loss per share was as follows (on an as-converted-to-common basis):
JULY 31, JANUARY 31, 1999 2000 ----------- ----------- Common stock subject to repurchase.................. 7,197,104 9,902,047 Preferred stock..................................... 12,457,583 16,539,216 Common stock options outstanding.................... 2,816,835 1,951,190 Warrants to purchase preferred stock................ 8,330 445,830 ----------- ---------- 22,479,852 28,838,283 =========== ==========
INCOME TAXES Since incorporation, eGroups has recognized income taxes under the liability method. Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. STOCK-BASED COMPENSATION As permitted by the FASB Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), eGroups accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for its stock-based compensation plans. Under APB 25, when the exercise price of eGroups' employee stock awards equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Stock compensation related to non-employees is based on the fair value of the related stock or options in accordance with SFAS 123 and its interpretations. COMPREHENSIVE LOSS To date, comprehensive loss has been the same as net loss and the accumulated deficit is the same as the accumulated comprehensive loss. SEGMENT INFORMATION eGroups has organized its operations into a single operating segment, the development of group communication services on the Internet. eGroups derives the significant majority of its revenues from operations in the United States. At January 31, 2000, no material assets were held outside of the United States. F-13 81 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOFTWARE DEVELOPED FOR INTERNAL USE Through January 31, 2000, capitalizable costs incurred have not been significant for any development project. Accordingly, eGroups has charged all costs to product development expense in the periods they were incurred. RECENT PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires eGroups to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for years beginning after June 15, 2000. eGroups does not currently hold any derivatives and does not expect this pronouncement to materially impact the results of its operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. eGroups believes that its current revenue recognition principles comply with SAB 101. 2. MERGER WITH ONELIST On November 30, 1999, eGroups completed its merger with ONElist, Inc. ("ONElist"), a privately held company that operates in the Internet group communication business. ONElist commenced operations in June 1998. eGroups exchanged all of the outstanding common stock of ONElist for 8,318,629 shares of eGroups common stock at an exchange ratio of 3.12392 shares of eGroups common stock for each share of ONElist common stock, and exchanged all of the outstanding Series A redeemable convertible preferred stock of ONElist for 7,280,811 shares of eGroups Series C redeemable convertible preferred stock. eGroups also assumed all outstanding stock options to acquire 1,304,182 shares of ONElist capital stock, after giving effect to the exchange ratio. The merger was treated as a pooling of interests for accounting purposes, and accordingly, the historical financial statements of eGroups have been restated to combine the results of both companies in all periods. F-14 82 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 2. MERGER WITH ONELIST (CONTINUED) Separate results of the combined entities through the date of the merger (November 30, 1999) were as follows (Unaudited):
PERIOD FROM INCEPTION (JUNE 5, 1998) TO SIX MONTHS ENDED FOUR MONTHS ENDED JULY 31, JANUARY 31, NOVEMBER 30, 1999 1999 1999 ----------------- ---------------- ----------------- Revenue: eGroups.......................... $ 265,582 $ 41,413 $ 1,179,056 ONElist.......................... 223,118 1,122 434,359 ----------- ----------- ----------- $ 488,700 $ 42,535 $ 1,613,415 =========== =========== =========== Net loss attributable to common stockholders: eGroups.......................... $(4,343,492) $ (933,718) $(4,363,859) ONElist.......................... (2,513,745) (300,852) (3,579,520) ----------- ----------- ----------- $(6,857,237) $(1,234,570) $(7,943,379) =========== =========== ===========
There were no intercompany transactions between the two companies or significant conforming accounting adjustments. 3. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following:
JULY 31, JANUARY 31, 1999 2000 ---------- ----------- Cash and cash equivalents: Cash................................................ $ 498,152 $ 1,501,325 Money market funds.................................. 4,459,079 43,084,734 ---------- ----------- Total cash and cash equivalents.................. $4,957,231 $44,586,059 ========== ===========
4. LOAN TO OFFICER In June 1999, eGroups provided a $100,000 loan to an officer in connection with relocation and in exchange for a nonrecourse promissory note. The note does not bear interest, is being forgiven over a four-year period beginning in July 1999, and is included in other assets in the accompanying balance sheet. Amounts forgiven have been recorded as compensation expense. F-15 83 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 5. BALANCE SHEET DETAIL
JULY 31, JANUARY 31, 1999 2000 ---------- ----------- Property and equipment: Computer and software equipment...................... $ 876,417 $2,546,083 Furniture, fixtures, and leasehold improvements...... 79,240 486,828 Other equipment...................................... 83,171 104,024 ---------- ---------- 1,038,828 3,136,935 Accumulated depreciation and amortization............ (88,234) (439,512) ---------- ---------- $ 950,594 $2,697,423 ========== ==========
As of July 31, 1999 and January 31, 2000, eGroups had approximately $80,432 and $1,217,872 of fixed assets purchased under capital leases with approximately $0 and $71,456 of accumulated depreciation, respectively. Other assets: Other assets at January 31, 2000 are primarily comprised of the unamortized debt interest expense associated with the value of a conversion option issued in connection with subordinated debt. See Note 8. Accrued liabilities: Accrued compensation................................. $ 290,957 $ 439,737 Accrued legal and accounting......................... 40,000 184,000 Accrued marketing and advertising.................... 45,000 60,000 Other accrued expenses............................... 292,156 221,587 ---------- ---------- $ 668,113 $ 905,324 ========== ==========
6. COMMITMENTS AND BORROWINGS eGroups leases its main facilities under noncancelable operating lease agreements, which expire in July 2004 and September 2004. Rent expense was $102,211 for the period from inception (June 5, 1998) to July 31, 1999, and $468,296 for the six-month period ended January 31, 2000. In September 1999, eGroups entered into a noncancelable sublease agreement with a stockholder of eGroups, which expires in April 2000. Rent expense in connection with this sublease was $168,525 for the six-month period ended January 31, 2000. In December 1999, eGroups entered into a noncancelable sub-sublease for the same property with an unrelated third party which expires in April 2000. Rental income was approximately $26,700 for the six-month period ended January 31, 2000. In June 1999, eGroups entered into a one-year Master Lease Agreement with a lender that allows eGroups to borrow up to $1,500,000 for the purchase of property and equipment. Under this Agreement, in July 1999, eGroups signed a $204,500 Secured Promissory Note with the lender. The Note bears interest at an annual rate of 7.4%. Payments of approximately $3,600 are due monthly with a final $30,675 payment due on September 1, 2003. Also under this agreement, in October and December 1999, the Company entered into lease agreements for approximately $436,000 and $782,000, respectively. The leases are payable in 48 equal monthly payments of approximately $9,100 and $16,300, respectively, beginning in October and December 1999. The Note and lease agreements F-16 84 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 6. COMMITMENTS AND BORROWINGS (CONTINUED) are secured by certain property and equipment of eGroups. The Note and lease agreements reduce the available borrowings under the Master Lease Agreement to approximately $77,600 as of January 31, 2000. In July 1999, eGroups entered into a three-year capital lease agreement for the purchase of $80,432 in equipment. As of January 31, 2000, minimum payments under all noncancelable leases were as follows:
CAPITAL OPERATING LEASES LEASES ---------- ---------- Six months ending July 31, 2000........................ $ 191,590 $ 383,305 Years ending July 31: 2001................................................. 383,180 700,581 2002................................................. 380,440 700,581 2003................................................. 350,304 348,654 2004................................................. 118,395 330,334 2005 and thereafter.................................. -- 66,794 ---------- ---------- Total minimum lease payments........................... 1,423,909 $2,530,249 ========== Less amount representing interest...................... (186,507) ---------- Present value of minimum payments...................... 1,237,402 Less current portion................................... (299,240) ---------- Long-term portion...................................... $ 938,162 ==========
In July 1998, eGroups entered into a $100,000 loan agreement with a financial institution for the purchase of property and equipment. The rate of interest was the lender's prime lending rate plus 2.00%. Payments of approximately $3,000 in principal plus interest, were due monthly beginning in August 1999 through January 2003. The loan was secured by substantially all of eGroups' assets. In October 1999, eGroups repaid the entire outstanding balance. In September 1999, eGroups entered into a $200,000 loan agreement with a financial institution. The loan bears interest at 8% and is payable in 24 equal monthly payments of approximately $7,900, plus interest, beginning in September 1999 through August 2001. In October 1999, eGroups entered into a $7,000,000 Subordinated Loan and Security Agreement. Notes taken out under this Agreement bear interest at 8.25% per annum and are due and payable in 24 equal monthly installments of interest-only payments, followed by 12 equal monthly installments of principal and interest payments. The loan is secured by a secondary lien on substantially all of eGroups' assets. In connection with this Agreement, eGroups issued an option, allowing the lender to convert 45% of the notes taken out under the loan into shares of eGroups' convertible preferred stock (see Note 8). As of January 31, 2000, eGroups has borrowed $7,000,000 under the terms of the Subordinated Loan Security Agreement. The loan agreement provides that eGroups shall not, without prior written consent of the lender, declare or pay cash dividends or make a distribution on any class of stock. F-17 85 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 6. COMMITMENTS AND BORROWINGS (CONTINUED) A summary of eGroups' outstanding debt is as follows:
JULY 31, JANUARY 31, 1999 2000 --------- ----------- Subordinated notes...................................... $ -- $7,000,000 Other notes............................................. 304,500 347,487 --------- ---------- Total debt.............................................. 304,500 7,347,487 Short-term debt......................................... (135,454) (136,344) --------- ---------- Long-term debt.......................................... $ 169,046 $7,211,143 ========= ==========
401(k) PROFIT SHARING PLAN Effective January 1, 1999, eGroups established the eGroups 401(k) Profit Sharing Plan (the "Plan"). The Plan provides for eGroups to match employee contributions at a rate equal to 50% of employee contributions up to 6% of their compensation. Employees are eligible to participate in the Plan on any January 1, April 1, July 1, or October 1 following the first day of employment. The terms of the Plan are subject to change as determined by management. eGroups made contributions for the period from inception (June 5, 1998) to July 31, 1999 and for the six months ended January 31, 2000, of $25,351 and $65,638, respectively. 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK As part of the merger agreement with ONElist, eGroups exchanged all shares of ONElist redeemable convertible preferred Series A shares for a new class of Series C eGroups redeemable convertible preferred shares with terms identical to the redeemable convertible preferred Series A shares of ONElist. For so long as shares of Series C redeemable convertible preferred stock remained outstanding, each holder of Series C redeemable convertible preferred stock could, at the option of the holder, on each of December 31, 2003, December 31, 2004 and December 31, 2005, require eGroups to redeem a number of shares of Series C preferred stock equal to one-third of the number of shares of Series C preferred stock held by such holder as of the first such date. The shares were redeemable at the original issue price plus an additional 9% per annum, compounded annually commencing on the date of issuance. The carrying amount of Series C preferred stock has been increased by periodic accretions so as to equal redemption amounts at the redemption dates. In December 1999, in connection with the issuance of Series D convertible preferred stock, the Series C redeemable preferred stock was modified to be non-redeemable. At January 31, 2000, the outstanding shares are classified as convertible preferred stock in stockholders' equity. F-18 86 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK
SHARES SHARES ISSUED AND AUTHORIZED OUTSTANDING ----------------------- ----------------------- JULY 31, JANUARY 31, JULY 31, JANUARY 31, 1999 2000 1999 2000 --------- ----------- --------- ----------- Series A................................... 1,620,000 1,620,000 1,620,000 1,620,000 Series B................................... 3,600,000 3,600,000 3,556,772 3,556,772 Series C................................... -- 7,280,811 -- 7,280,811 Series D................................... -- 4,520,000 -- 4,081,633 Undesignated............................... -- 479,189 -- -- --------- ---------- --------- ---------- Total convertible preferred stock.......... 5,220,000 17,500,000 5,176,772 16,539,216 ========= ========== ========= ==========
Each share of Series A, B, C and D convertible preferred stock is, at the option of the holder, convertible into one share of common stock, subject to certain adjustments for dilution, if any, resulting from future stock issuances. The outstanding shares of Series A, B, C and D convertible preferred stock automatically convert into common stock immediately prior to the closing of an underwritten public offering of common stock under the Securities Act of 1933 in which the Company receives at least $20,000,000 in gross proceeds at a per share offering price of at least $15.44. Series A, B, C and D convertible preferred stockholders are entitled to noncumulative dividends of $0.040, $0.115, $0.050 and $0.926 per share per annum if and when declared by the board of directors. No dividends have been declared as of January 31, 2000. The Series A, B, C and D convertible preferred stockholders are entitled to receive, upon liquidation, an amount per share equal to the issuance price, plus all declared but unpaid dividends. Thereafter, the remaining assets and funds, if any, shall be distributed pro rata among the common stockholders. The Series A, B, C and D convertible preferred stockholders have voting rights equal to the common shares issuable upon conversion of their preferred shares. COMMON STOCK eGroups has sold 11,490,340 shares of common stock to founders of eGroups and ONElist for $0.005 - $0.032 per share. Certain of these shares are subject to repurchase by eGroups at the price paid by the stockholder, in the event of termination of services by the stockholder to eGroups. For 3,512,475 of these shares, the repurchase option lapses ratably over a 36-month period. For 4,685,880 of these shares, the repurchase option lapses ratably over a 36-month period beginning on the one-year anniversary. Additionally, the repurchase option of certain shares will lapse upon the occurrence of certain defined events. At July 31, 1999 and January 31, 2000, 6,637,256 and 5,921,679 shares were subject to repurchase (see Note 11). eGroups has sold 522,427 and 527,425 shares of common stock to consultants for cash at $0.005 - $0.349 per share and services rendered at July 31, 1999 and January 31, 2000, respectively. F-19 87 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) 337,500 of these shares were subject to repurchase by eGroups at the price paid by the stockholder, in the event of termination of services by the consultant to eGroups. The repurchase option lapses ratably over a 48-month period. Additionally, the repurchase option lapses upon the occurrence of certain defined events. At July 31, 1999 and January 31, 2000, 232,500 and 85,312 shares were subject to repurchase. eGroups has reserved shares of common stock for issuance as follows:
JANUARY 31, 2000 ----------- Warrants.................................................... 445,830 Stock options............................................... 2,744,767 Conversion of convertible preferred stock................... 16,539,216 ---------- 19,729,813 ==========
STOCK WARRANTS In conjunction with a debt agreement (see Note 6), eGroups issued warrants to purchase 8,330 shares of eGroups' Series B preferred stock at $7.20 per share to a lender. The warrants vested immediately and are exercisable over a period of five years or three years from the effective date of eGroups' initial public offering, whichever is earlier. The value of the warrants, based on a Black- Scholes calculation using a volatility factor of 0.5, and a life of five years, was $51,498, which is being amortized to interest expense over the one-year life of the agreement. As of July 31, 1999, and January 31, 2000, all of these warrants are exercisable. SUBORDINATED DEBT CONVERSION OPTION In conjunction with a subordinated loan and security agreement (see Note 6), the lender purchased an option to convert 45% of the notes taken out under the loan into shares of eGroups' convertible preferred stock with an aggregate purchase value of 45% of the total amount advanced against the loan. The exercise price of the convertible preferred stock is equal to 70% of the Series D convertible preferred stock price, or $7.20 per share. At January 31, 2000, the lender has the option to purchase 437,500 shares under the agreement (see Note 11). The value of the option, based on a Black-Scholes calculation, using a volatility factor of 0.5, and a life of three years, was $2,327,500 which is being amortized to interest expense over the three-year life of the loan. 1998 STOCK OPTION PLAN In June 1998, eGroups adopted the 1998 Stock Option Plan and on November 30, 1999, eGroups assumed the ONElist, Inc. 1998 Stock Plan (collectively the "Plan"). Options under the Plan are generally for periods not to exceed ten years, and must be issued at prices not less than 100% and 85% for incentive and non-statutory stock options, respectively, of the estimated fair value of the underlying shares of common stock on the date of grant as determined by the board of directors. Options granted to stockholders who own greater than 10% of the outstanding stock are for periods not to exceed five years, and must be issued at prices not less than 110% of the estimated fair F-20 88 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) value of the underlying shares of common stock on the date of grant. The Plan provides for grants of immediately exercisable options; however, eGroups has the right to repurchase any unvested common stock upon termination of employment at the original exercise price. As of July 31, 1999, and January 31, 2000, eGroups had 327,348 and 3,895,056 shares of common stock outstanding subject to repurchase under the Plan. Options become exercisable at such times and under such conditions as determined by the board of directors. Options generally vest over four years and are immediately exercisable. Information with respect to stock option activity from inception (June 5, 1998) to January 31, 2000, is summarized as follows:
WEIGHTED- OPTIONS AVERAGE AVAILABLE FOR OPTIONS PRICE EXERCISE GRANT OUTSTANDING PER SHARE PRICE ------------- ----------- ------------ --------- Shares authorized................... 5,539,376 Options granted................... (3,726,744) 3,726,744 $0.02 - $0.30 $0.14 Options exercised................. -- (647,737) $0.02 - $0.30 $0.05 Options canceled.................. 262,172 (262,172) $0.06 - $0.30 $0.11 ---------- ---------- Balance at July 31, 1999............ 2,074,804 2,816,835 $0.02 - $0.30 $0.16 Additional shares authorized...... 3,914,965 -- -- -- Authorized shares canceled........ (1,346,474) -- -- -- Options granted................... (4,122,518) 4,122,518 $0.06 - $5.00 $1.11 Options exercised................. -- (4,001,489) $0.06 - $5.00 $0.58 Options canceled.................. 272,800 (986,674) $0.03 - $4.50 $0.56 ---------- ---------- Balance at January 31, 2000......... 793,577 1,951,190 $0.02 - $5.00 $1.09 ========== ==========
Exercise prices for options outstanding as of January 31, 2000, and the weighted-average remaining contractual life are as follows:
OPTIONS OUTSTANDING AND EXERCISABLE ------------------------------------- WEIGHTED- AVERAGE WEIGHTED- REMAINING AVERAGE NUMBER CONTRACTUAL EXERCISE EXERCISE OF SHARES LIFE PRICE PRICE --------- ----------- --------- (IN YEARS) $0.02 - 0.06................................. 1,091,701 9.26 $0.05 0.30 - 0.35................................. 437,132 9.51 0.33 4.50 - 5.00................................. 422,357 9.87 4.58 --------- 1,951,190 9.45 1.09 =========
For the period from inception (June 5, 1998) to July 31, 1999, and for the six-month periods ended January 31, 1999 and 2000, eGroups recorded deferred compensation expense of $5,290,081, $720,718, and $11,875,565, respectively, representing the difference between the exercise prices and F-21 89 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) the deemed fair values of eGroups' common stock on the dates these stock options were granted. These amounts are being amortized by charges to operations over the vesting periods of the individual stock options using a graded vesting method. The unamortized deferred stock compensation balance at January 31, 2000, will be amortized as follows: $4,553,899 in the six months ending July 31, 2000, $4,808,181 in the year ending July 31, 2001, $2,119,283 in the year ending July 31, 2002, $693,009 in the year ending July 31, 2003, and $21,893 in the year ending July 31, 2004. Subsequent terminations of the employment of option holders may reduce future stock-based compensation. See Note 11. Amortization of deferred stock compensation relates to the following operating expenses:
PERIOD FROM SIX MONTHS ENDED INCEPTION JANUARY 31, (JUNE 5, 1998) TO ------------------------- JULY 31, 1998 1999 2000 ----------------- ----------- ---------- (UNAUDITED) Product development................... $332,295 $ 44,318 $1,120,695 Sales and marketing................... 531,652 93,586 1,533,921 General and administrative............ 110,807 390 1,340,011 -------- -------- ---------- Total............................... $974,754 $138,294 $3,994,627 ======== ======== ==========
In the period from inception (June 5, 1998) to July 31, 1999, and in the six-month period ended January 31, 2000, eGroups issued options to purchase 18,750 and 22,550 shares of common stock, respectively, to several third-party consultants in exchange for services rendered. In connection with these options, eGroups recorded noncash charges of $20,392 and $64,042 in these periods. ACCOUNTING FOR STOCK-BASED COMPENSATION UNDER SFAS 123 As discussed in Note 1, eGroups has elected to follow APB 25 and related interpretations in accounting for its employee stock awards. The alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock awards. Under APB 25, when the exercise price of eGroups' employee stock awards equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The fair value for eGroups' stock awards was estimated at the date of grant using the minimum value options pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because eGroups' stock-based awards have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards. The fair value of awards granted during the period from inception (June 5, 1998) to July 31, 1999, and the six months ended January 31, 2000, F-22 90 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) were determined using a risk-free interest rate of 6.0%, an expected life of four years, and a dividend yield of zero. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. eGroups' pro forma information follows:
PERIOD FROM SIX MONTHS INCEPTION ENDED (JUNE 5, 1998) TO JANUARY 31, JULY 31, 1999 2000 ----------------- ------------ Net loss attributable to common stockholders: As reported...................................... $(6,857,237) $(12,902,983) Pro forma........................................ $(6,863,101) $(12,949,039) Basic and diluted net loss per share attributable to common stockholders: As reported...................................... $ (1.25) $ (1.61) Pro forma........................................ $ (1.26) $ (1.62)
STOCK SPLIT In December 1998, the board of directors approved a 2-for-1 stock split of the outstanding shares of eGroups' common and preferred stock. All of the share information contained in these financial statements and footnotes has been retroactively adjusted to reflect the stock split. 9. NOTES RECEIVABLE During the period from inception (June 5, 1998) to July 31, 1999, and for the six-month period ended January 31, 2000, eGroups issued $14,330 and $2,148,153, respectively, of full recourse notes receivable from employees which bear interest at rates ranging from 4.5% to 6.2% per annum in consideration for the exercise of stock options. The notes are collateralized by the underlying shares of common stock and mature on various dates through fiscal 2004. 10. INCOME TAXES As of July 31, 1999 and January 31, 2000, eGroups had federal net operating loss carryforwards of approximately $5,000,000 and $12,600,000, respectively. The Company also had federal research and development credit carryforwards of approximately $100,000 as of January 31, 2000. The net operating loss and credit carryforwards will expire at various dates beginning in 2019, if not utilized. Utilization of the net operating losses and credits may be subject to substantial annual limitation due to the ownership change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for F-23 91 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 10. INCOME TAXES (CONTINUED) financial reporting and the amounts used for income tax purposes. Significant components of eGroups' deferred tax assets and liabilities for federal and state income taxes are as follows:
JULY 31, JANUARY 31, 1999 2000 ----------- ----------- Deferred tax assets: Net operating loss carryforwards................... $ 2,000,000 $ 5,000,000 Research credit carryforwards...................... 100,000 200,000 Other.............................................. 100,000 100,000 ----------- ----------- Total deferred tax assets.................. 2,200,000 5,300,000 Valuation allowance.................................. (2,200,000) (5,300,000) ----------- ----------- Net deferred tax assets.............................. $ -- $ -- =========== ===========
Based upon the weight of available evidence, which includes eGroups' historical operating performance and the reported cumulative net losses in all prior periods, eGroups has provided a full valuation allowance against its net deferred tax assets. The valuation allowance increased by $2,200,000 in the period from inception (June 5, 1998) to July 31, 1999. 11. SUBSEQUENT EVENTS (UNAUDITED) REPURCHASE OF FOUNDERS STOCK In March 2000, eGroups repurchased 600,478 shares of its common stock from one of its founders under a repurchase right for $3,003. INITIAL PUBLIC OFFERING In March 2000, eGroups' board of directors authorized management to file a registration statement with the Securities and Exchange Commission to permit eGroups to sell shares of its common stock to the public. Upon completion of the initial public offering as described in the registration statement, all outstanding convertible preferred stock will be converted into 16,539,216 shares of common stock. SUBORDINATED DEBT CONVERSION In March 2000, a lender gave notice to eGroups of its intention to exercise its option to purchase 437,500 shares of preferred stock upon the conversion of $3,150,000 of subordinated debt. This conversion and the conversion of such shares into common stock will occur upon the closing of eGroups' initial public offering. DEFERRED STOCK COMPENSATION In February and March 2000, eGroups granted to its employees options to purchase a total of 1,773,991 shares of common stock at prices between $5.00 and $6.00 per share. In connection with F-24 92 EGROUPS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE SIX MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED) 11. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) these grants, eGroups estimates that it will record additional deferred stock compensation of approximately $15,912,000. EGROUPS 2000 EMPLOYEE STOCK PURCHASE PLAN In March 2000, the board of directors adopted the eGroups 2000 Employee Stock Purchase Plan, subject to stockholder approval, and reserved 500,000 shares of common stock for issuance under this plan. On each August 1, beginning in 2001, the aggregate number of shares reserved for issuance under this plan will increase automatically by the lesser of (i) 420,000 shares, (ii) 1.2% of the average number of shares outstanding as used to calculate the previous year's fully diluted earnings per share, or (iii) a lesser amount determined by the board. 2000 STOCK INCENTIVE PLAN In March 2000, the board of directors adopted the 2000 Stock Incentive Plan, subject to stockholder approval, and reserved 5,400,000 shares of common stock for issuance under the plan, plus any shares reserved but not granted under the 1998 Stock Option Plan or returned to the 1998 Stock Option Plan upon termination of options. On each August 1, beginning in 2001, the aggregate number of shares reserved for issuance under this plan will increase automatically by the lesser of (i) 2,000,000 shares, (ii) 5% of the average number of shares outstanding used to calculate the previous year's fully diluted earnings per share, or (iii) a lesser number determined by the board. Simultaneous with effectiveness of eGroups' initial public offering, no further grants may be made under the 1998 Stock Option Plan. GRANT PROGRAM FOR NON-EMPLOYEE DIRECTORS In March 2000, the board of directors adopted a stock option grant program for non-employee directors. The program will be administered under the 2000 Stock Incentive Plan. Each non-employee director will receive a non-qualified stock option to purchase 50,000 shares of common stock upon initial election or appointment to the board. Beginning with the annual meeting of stockholders in 2001, each non-employee director will automatically receive an additional option to purchase 12,500 shares of common stock immediately following each year's annual meeting of stockholders. The exercise price for all options granted under the program will be the fair market value of the common stock on the date of grant. F-25 93 [Inside Back Cover] The top of the page has the following header: AN EXPANDING GLOBAL PRESENCE The following three sub-headers are located across the page directly under the above header: "Members generate their own content for group communications in their native languages." "Over 20% of our members come from international domains." "The eGroups web site will be available in 14 languages in April 2000." Below these sub-headers is a centered rendering of planet earth. Domain names for eGroups' international web sites are arrayed around this photograph. 94 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 2000 LOGO SHARES OF COMMON STOCK ------------------------- PROSPECTUS ------------------------- DONALDSON, LUFKIN & JENRETTE CHASE H&Q ROBERTSON STEPHENS - -------------------------------------------------------------------------------- We have not authorized any dealer, sales person or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of eGroups, Inc., have not changed since the date hereof. - -------------------------------------------------------------------------------- Until , 2000 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- 95 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses to be paid by the Registrant in connection with this offering are as follows. All amounts are estimates other than the SEC registration fee and the NASD filing fees. Securities and Exchange Commission registration fee......... $ 19,800 NASD filing fee............................................. 8,000 Nasdaq National Market listing fee.......................... 95,000 Printing fees............................................... 200,000 Legal fees and expenses..................................... 500,000 Accounting fees and expenses................................ 400,000 Blue sky fees and expenses.................................. 10,000 Transfer agent and registrar fees........................... 7,500 Miscellaneous fees.......................................... * -------- Total.................................................. $ * ========
- ------------------------------ * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended ("Securities Act"). Article VIII of our Amended and Restated Certificate of Incorporation (Exhibit 3.2 hereto), which will be effective upon the closing of this offering, and Article XI of our current Bylaws (Exhibit 3.3 hereto) provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by Delaware law. In addition, we have entered into Indemnification Agreements (Exhibit 10.1 hereto) with our officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification among us and the Underwriters with respect to certain matters, including matters arising under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since our inception in June 1998, we have sold and issued the following securities: 1. On June 5, 1998, we issued 5,242,500 shares of common stock to three founders for an aggregate consideration of $26,212.50 paid by cash, check, or assignment of intellectual property rights and other assets. 2. On June 5, 1998, we issued 337,500 shares of common stock to three advisors for an aggregate purchase price of $1,687.50. 3. On June 22, 1998, we issued an aggregate of 1,620,000 shares of Series A preferred stock to two accredited investors for an aggregate purchase price of $810,000. 4. On December 17, 1998, we issued an aggregate of 3,556,772 shares of Series B preferred stock to nine accredited investors for an aggregate purchase price of $5,120,151.13. II-1 96 5. On June 22, 1999, we issued a warrant to purchase up to 8,330 shares of Series B preferred stock to one accredited investor in connection with a certain lease financing. 6. On October 8, 1999, we granted a right to purchase up to 437,500 shares of Series D preferred stock to one investor in connection with issuance of debt. The purchase right was exercised by the investor on March 16, 2000, and we issued 437,500 shares of Series D preferred stock to such investor in consideration of cancellation of debt in the principal amount of $3,150,000. 7. On November 30, 1999, in connection with our acquisition by merger of ONElist, Inc., we issued an aggregate of 8,318,629 shares of common stock to twenty shareholders of ONElist and 7,280,811 shares of Series C preferred stock to seven accredited investors of ONElist. 8. On December 14, 1999, we issued an aggregate of 4,081,633 shares of Series D preferred stock to twenty-four accredited investors for an aggregate consideration of $42,000,003.36. 9. Since our incorporation, we have entered into an aggregate of 291 stock option agreements to purchase our common stock to employees, directors and consultants with exercise prices ranging from $0.02 to $6.00. No underwriters were involved in the foregoing sales of securities. The issuance of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering, or Rule 701 of the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
EXHIBIT NUMBER DESCRIPTION 1.1 Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization among eGroups, Inc., EG Acquisition Corporation and ONElist, Inc., dated as of November 9, 1999. 3.1 Fifth Amended and Restated Certificate of Incorporation. 3.2 Form of Amended and Restated Certificate of Incorporation, to be effective upon completion of this offering. 3.3 Amended and Restated Bylaws. 4.1 Form of Common Stock Certificate. 4.2 Second Amended and Restated Investors Rights Agreement, dated as of December 14, 1999, among eGroups, Inc., and the investors listed on the exhibits thereto. 4.3 Warrant Agreement to purchase shares of the Series B Preferred Stock, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 4.4* Letter to Purchasers of Preferred Stock regarding Registration Rights in the Proposed Initial Public Offering. 5.1* Opinion of Perkins Coie LLP regarding the legality of the common stock being registered. 10.1* Form of Indemnification Agreement between eGroups, Inc., and each of its officers and directors. 10.2 Form of Lockup Agreement.
II-2 97
EXHIBIT NUMBER DESCRIPTION 10.3 eGroups 1998 Stock Option Plan. 10.4* eGroups 2000 Stock Incentive Plan. 10.5 ONElist 1998 Option Plan. 10.6* eGroups 2000 Employee Stock Purchase Plan. 10.7 Form of Stock Option Agreement. 10.8 Form of Early Exercise Notice and Restricted Stock Purchase Agreement. 10.9 Form of Notice of Stock Option Grant. 10.10 Employment Offer Letter with Michael B. Klein, dated as of October 11, 1999. 10.11 Employment Offer Letter with Richard J. Carey, dated as of September 16, 1999. 10.12 Employment Offer Letter with Marjorie T. Sennett, dated as of June 7, 1999. 10.13 Employment Offer Letter with Steven T. Comfort, dated as of April 8, 1999. 10.14 Employment Offer Letter with Jacqueline A. Maartense, dated as of September 1, 1999. 10.15 Form of eGroups Proprietary Information and Inventions Assignment Agreement. 10.16* Form of ONElist Employment, Confidential Information and Invention Assignment Agreement. 10.17 Series A Preferred Stock Purchase Agreement, dated as of December 28, 1998, among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.18 Series A Preferred Stock Purchase Agreement, dated as of June 22, 1998, among FindMail Communications, Inc., and the purchasers listed on the exhibits thereto. 10.19 Series B Preferred Stock Purchase Agreement, dated as of December 17, 1998 among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.20 Series D Preferred Stock Purchase Agreement, dated as of December 14, 1999, among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.21 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Scott Hassan, amended as of December 15, 1998. 10.22 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Martin Roscheisen, amended as of December 15, 1998. 10.23 First Amended and Restated Common Stock Purchase Agreement, dated as of December 24, 1998 among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.24 Employment Agreement, dated as of December 28, 1998, between eGroups, Inc., and Mark Fletcher. 10.25 Form of Promissory Note between eGroups, Inc., as lender, and certain executive officers, as borrowers. 10.26* Promissory Note, dated as of July , 1999, between eGroups, Inc., as lender, and Marjorie T. Sennett, as borrower. 10.27* Lease for 350 Brannan Street, San Francisco, dated May 3, 1999. 10.28* Lease for 2688 Middlefield Road, Redwood City, dated June 9, 1999. 10.29 Subordinated Promissory Note, dated as of March 16, 2000, between Comdisco, Inc., as lender, and eGroups, Inc., as borrower. 10.30** Software License and Service Agreement, dated as of March 3, 2000, between eGroups, Inc. and E.piphany, Inc. 10.31 Form of Advertising Insertion Order and standard advertising terms and conditions. 10.32 Advertising Insertion Order, dated as of December 6, 1999, between eGroups, Inc., and X.com, Inc. 10.33** Advertising Insertion Order, dated as of February 9, 2000, between eGroups, Inc., and X.com, Inc. 10.34** Advertising Sales Agreement, dated as of March 1, 2000, between eGroups, Inc., and beMANY!, Inc.
II-3 98
EXHIBIT NUMBER DESCRIPTION 10.35 Master Services Agreement, dated as of February , 2000 between eGroups, Inc., and Global Center, Inc. 10.36 Loan and Security Agreement, dated as of May 19, 1999, between ONElist, Inc., and Silicon Valley Bank. 10.37 Master Lease Agreement, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 10.38 Subordinated Loan Agreement, dated as of October 8, 1999, between eGroups, Inc., and Comdisco, Inc. 10.39 Notice of Exercise of Purchase Option by Comdisco, Inc., dated as of March 16, 2000. 21.1* List of Subsidiaries. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Perkins Coie LLP (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-6 of the Registration Statement). 27.1 Financial Data Schedule for the period from inception (June 5, 1998) to July 31, 1999. 27.2 Financial Data Schedule for the six-month period ended January 31, 2000.
- ------------------------------ * To be filed by amendment ** Confidential treatment requested as to certain portions of this Exhibit. (b) FINANCIAL STATEMENT SCHEDULES No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation, or the Bylaws of the Registrant, the Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-4 99 (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 100 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on this 23rd day of March, 2000. eGROUPS, INC. By: /s/ MICHAEL B. KLEIN ------------------------------------ Michael B. Klein President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that each individual whose signature appears below constitutes and appoints Michael B. Klein and Marjorie T. Sennett, and each of them, such individual's true and lawful attorneys-in-fact and agents with full power of substitution, for such individual and in such individual's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such individual might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or such individual's or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE /s/ MICHAEL B. KLEIN President, Chief Executive March 23, 2000 - -------------------------------------------------------- Officer and Director Michael B. Klein (Principal Executive Officer) /s/ MARJORIE T. SENNETT Chief Financial Officer March 23, 2000 - -------------------------------------------------------- (Principal Financial and Marjorie T. Sennett Accounting Officer) /s/ GAYLE A. CROWELL Director March 23, 2000 - -------------------------------------------------------- Gayle A. Crowell /s/ PETER MILLS Director March 23, 2000 - -------------------------------------------------------- Peter Mills /s/ MICHAEL J. MORITZ Director March 23, 2000 - -------------------------------------------------------- Michael J. Moritz /s/ DANIEL D. SPRINGER Director March 23, 2000 - -------------------------------------------------------- Daniel D. Springer
II-6 101 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION 1.1 Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization among eGroups, Inc., EG Acquisition Corporation and ONElist, Inc., dated as of November 9, 1999. 3.1 Fifth Amended and Restated Certificate of Incorporation. 3.2 Form of Amended and Restated Certificate of Incorporation, to be effective upon completion of this offering. 3.3 Amended and Restated Bylaws. 4.1 Form of Common Stock Certificate. 4.2 Second Amended and Restated Investors Rights Agreement, dated as of December 14, 1999, among eGroups, Inc., and the investors listed on the exhibits thereto. 4.3 Warrant Agreement to purchase shares of Series B Preferred Stock, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 4.4* Letter to Purchasers of Preferred Stock regarding Registration Rights in the Proposed Initial Public Offering. 5.1* Opinion of Perkins Coie LLP regarding the legality of the common stock being registered. 10.1* Form of Indemnification Agreement between eGroups, Inc., and each of its officers and directors. 10.2 Form of Lockup Agreement. 10.3 eGroups 1998 Stock Option Plan. 10.4* eGroups 2000 Stock Incentive Plan. 10.5 ONElist 1998 Option Plan. 10.6* eGroups 2000 Employee Stock Purchase Plan. 10.7 Form of Stock Option Agreement. 10.8 Form of Early Exercise Notice and Restricted Stock Purchase Agreement. 10.9 Form of Notice of Stock Option Grant. 10.10 Employment Offer Letter with Michael B. Klein, dated as of October 11, 1999. 10.11 Employment Offer Letter with Richard J. Carey, dated as of September 16, 1999. 10.12 Employment Offer Letter with Marjorie T. Sennett, dated as of June 7, 1999. 10.13 Employment Offer Letter with Steven T. Comfort, dated as of April 8, 1999. 10.14 Employment Offer Letter with Jacqueline A. Maartense, dated as of September 1, 1999. 10.15 Form of eGroups Proprietary Information and Inventions Assignment Agreement. 10.16* Form of ONElist Employment, Confidential Information and Invention Assignment Agreement. 10.17 Series A Preferred Stock Purchase Agreement, dated as of December 28, 1998, among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.18 Series A Preferred Stock Purchase Agreement, dated as of June 22, 1998, among FindMail Communications, Inc., and the purchasers listed on the exhibits thereto. 10.19 Series B Preferred Stock Purchase Agreement, dated as of December 17, 1998 among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.20 Series D Preferred Stock Purchase Agreement, dated as of December 14, 1999, among eGroups, Inc., and the purchasers listed on the exhibits thereto. 10.21 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Scott Hassan, amended as of December 15, 1998. 10.22 Common Stock Purchase Agreement, dated as of June 5, 1998 between FindMail Communications, Inc., and Martin Roscheisen, amended as of December 15, 1998.
102
EXHIBIT NUMBER DESCRIPTION 10.23 First Amended and Restated Common Stock Purchase Agreement, dated as of December 24, 1998, among ONElist, Inc., and the purchasers listed on the exhibits thereto. 10.24 Employment Agreement, dated as of December 28, 1998, between eGroups, Inc., and Mark Fletcher. 10.25 Form of Promissory Note between eGroups, Inc., as lender, and certain executive officers, as borrowers. 10.26* Promissory Note, dated as of July , 1999, between eGroups, Inc., as lender, and Marjorie T. Sennett, as borrower. 10.27* Lease for 350 Brannan Street, San Francisco, dated May 3, 1999. 10.28* Lease for 2688 Middlefield Road, Redwood City, dated June 9, 1999. 10.29 Subordinated Promissory Note, dated as of March 16, 2000, between Comdisco, Inc., as lender, and eGroups, Inc., as borrower. 10.30** Software License and Service Agreement, dated as of March 3, 2000, between eGroups, Inc., and E.piphany, Inc.] 10.31 Form of Advertising Insertion Order and standard advertising terms and conditions. 10.32 Advertising Insertion Order, dated as of December 6, 1999, between eGroups, Inc., and X.com, Inc. 10.33** Advertising Insertion Order, dated as of February 9, 2000, between eGroups, Inc., and X.com, Inc. 10.34** Advertising Sales Agreement, dated as of March 1, 2000, between eGroups, Inc., and BeMANY!, Inc. 10.35 Master Services Agreement, dated as of February , 2000 between eGroups, Inc., and Global Center, Inc. 10.36 Loan and Security Agreement, dated as of May 19, 1999, between ONElist, Inc., and Silicon Valley Bank. 10.37 Master Lease Agreement, dated as of June 23, 1999, between eGroups, Inc., and Comdisco, Inc. 10.38 Subordinated Loan Agreement, dated as of October 8, 1999, between eGroups, Inc., and Comdisco, Inc. 10.39 Notice of Exercise of Purchase Option by Comdisco, Inc., dated as of March 16, 2000. 21.1* List of Subsidiaries. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Perkins Coie LLP (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-6 of the Registration Statement). 27.1 Financial Data Schedule for the period from inception (June 5, 1998) to July 31, 1999. 27.2 Financial Data Schedule for the six-month period ended January 31, 2000.
- ------------------------------ * To be filed by amendment ** Confidential treatment requested as to certain portions of this Exhibit. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 ___________ Shares eGROUPS, INC. Common Stock UNDERWRITING AGREEMENT _______, 2000 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. FLEETBOSTON ROBERTSON STEPHENS INC. As representatives of the several Underwriters named in Schedule I hereto c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Dear Sirs: eGroups, Inc. a Delaware corporation (the "COMPANY"), proposes to issue and sell _______ shares of common stock (par value $.001 per share) (the "FIRM SHARES") to the several underwriters named in Schedule I hereto (the "UNDERWRITERS"). The Company also proposes to issue and sell to the several Underwriters not more than an additional share of its common stock ($.001 per share) (the "ADDITIONAL SHARES") if requested by the Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter referred to collectively as the "Shares". The shares of common stock of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock". SECTION 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "COMMISSION") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "ACT"), a registration statement on Form S-1, including a prospectus, relating to the Shares. The registration statement, as amended at the time it became effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT"; and the prospectus in the form first used to confirm sales of Shares is 1 2 hereinafter referred to as the "PROSPECTUS". (1)(2) If the Company has filed or is required pursuant to the terms hereof to file a registration statement pursuant to Rule 462(b) under the Act registering additional shares of Common Stock (a "RULE 462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462(b) Registration Statement. SECTION 2. Agreements to Sell land Purchase and Lock- Up Agreements. (3) On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell, and each Underwriter agrees, severally and not jointly, to purchase from the Company at a price per Share of $____ (the "Purchase Price") the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto, On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell the Additional Shares and the Underwriters shall have the right to purchase, severally and not jointly, up to _____ Additional Shares from the Company at the Purchase Price. Additional Shares may be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. The Underwriters may exercise their right to purchase Additional Shares in whole or in part from time to time by giving written notice thereof to the Company within 30 days after the date of this Agreement. You shall give any such notice on behalf of the Underwriters and such notice shall specify the aggregate number of Additional Shares to be purchased pursuant to such exercise and the date for payment and delivery thereof, which date shall be a business day (i) no earlier than two business days after such notice has been given (and, in any event, no earlier than the Closing Date (as hereinafter defined)) and (ii) no later than ten business days after such notice has been given. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) which bears the same proportion to the total number of Additional Shares to be purchased from the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I bears to the total number of Firm Shares. The Company hereby agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock (regardless of whether any of the transactions described in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such other securities, in cash or otherwise), except to the Underwriters pursuant to this Agreement, for a period of 180 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during such period (i) the Company may grant stock options pursuant to the Company's existing stock option plan and (ii) the Company may issue shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof. The Company also agrees not to file any registration statement with respect to any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 180 days after the date of the Prospectus without the prior written consent of 2 3 Donaldson, Lufkin & Jenrette Securities Corporation. The Company shall, prior to or concurrently with the execution of this Agreement, deliver an agreement in the form of Exhibit A hereto executed by (i) each of the directors and officers of the Company an (ii) each stockholder listed on Annex I hereto. SECTION 3. Terms of Public Offering. The Company is advised by you that the Underwriters propose (i) to make a public offering of their respective portions of the Shares as soon after the execution and delivery of this Agreement as in your judgment is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. Delivery and Payment. The Shares shall be represented by definitive certificates and shall be issued in such authorized denominations and registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation shall request no later than two business days prior to the Closing Date or the applicable Option Closing Date (as defined below), as the case may be. The Company shall deliver the Shares, with any transfer taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of The Depository Trust Company ("DTC"), for the respective accounts of the several Underwriters, against payment to the Company of the Purchase Price therefore by wire transfer of Federal or other funds immediately available in New York City. The certificates representing the Shares shall be made available for inspection not later than 9:30 A.M., New York City time, on the business day prior to the Closing Date or the applicable Option Closing Date, as the case may be, at the office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time and date of delivery and payment for the Finn Shares shall be 9:00 A.M., New York City time, on _________, 2000 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery for the Finn Shares are hereinafter referred to as the "CLOSING DATE." The time and date of delivery and payment for any Additional Shares to be purchased by the Underwriters shall be 9:00 A.M., New York City time, on the date specified in the applicable exercise notice given by you pursuant to Section 2 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery for any Additional Shares are hereinafter referred to as an "OPTION CLOSING DATE". The documents to be delivered on the Closing Date or any Option Closing Date on behalf of the parties hereto pursuant to Section 8 of this Agreement shall be delivered at the offices of Pillsbury Madison & Sutro LLP, 50 Fremont Street, San Francisco, California 94105 and the Shares shall be delivered at the Designated Office, all on the Closing Date or such Option Closing Date, as the case may be. SECTION 5. Agreements of the Company. The Company agrees with you: (a) To advise you promptly and, if requested by you, to confirm such advice in writing, (i) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, (iii) when any amendment to the Registration 3 4 Statement becomes effective, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, when the Rule 462(b) Registration Statement has become effective and (v) of the happening of any event during the period referred to in Section 5(d) below which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you four signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits, and to furnish to you and each Underwriter designated by you such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits, as you may reasonably request. (c) To prepare the Prospectus, the form and substance of which shall be satisfactory to you, and to file the Prospectus in such form with the Commission within the applicable period specified in Rule 424(b) under the Act; during the period specified in Section 5(d) below, not to file any further amendment to the Registration Statement and not to make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall reasonably object after being so advised; and, during such period, to prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or amendment or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Shares by you, and to use its best efforts to cause any such amendment to the Registration Statement to become promptly effective. (d) Prior to 10:00 A.M., New York City time, on the first business day after the date of this Agreement and from time to time thereafter for such period as in the opinion of counsel for the Underwriters a prospectus is required by law to be delivered in connection with sales by an Underwriter or a dealer, to famish in New York City to each Underwriter and any dealer as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) as such Underwriter or dealer may reasonably request. (e) If during the period specified in Section 5(d), any event shall occur or condition shall exist as a result of which, in the opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with applicable law, and to famish to each Underwriter and to any dealer as many copies thereof as such Underwriter or dealer may reasonably request. 4 5 (f) Prior to any public offering of the Shares, to cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request, to continue such registration or qualification in effect so long as required for distribution of the Shares and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that the Company shall not be required in connection therewith to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation other than as to matters and transactions relating to the Prospectus, the Registration Statement, any preliminary prospectus or the offering or sale of the Shares, in any jurisdiction in which it is not now so subject. (g) To mail and make generally available to its stockholders as soon as practicable an earnings statement covering the twelve-month period ending _______, 2001 that shall satisfy the provisions of Section 11(a) of the Act, and to advise you in writing when such statement has been so made available. (h) During the period of three years after the date of this Agreement, to furnish to you as soon as available copies of all reports or other communications furnished to the record holders of Common Stock or furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed and such other publicly available information concerning the Company and its subsidiaries as you may reasonably request. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Act and all other fees and expenses in connection with the preparation, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), any preliminary prospectus, the Prospectus and all amendments and supplements to any of the foregoing, including the mailing and delivering of copies thereof to the Underwriters and dealers in the quantities specified herein, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) all costs of printing or producing this Agreement and any other agreements or documents in connection with the offering, purchase, sale or delivery of the Shares, (iv) all expenses in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in connection therewith (including the filing fees and fees and disbursements of counsel for the Underwriters in connection with such registration or qualification and memoranda relating thereto), (v) the filing fees and disbursements of counsel - -------- (1) Insert date one year after the end of the Company's fiscal quarter in which the closing will occur. 5 6 for the Underwriters in connection with the review and clearance of the offering of the Shares by the National Association of Securities Dealers, Inc., (vi) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8 -A relating to the Common Stock and all costs and expenses incident to the listing of the Shares on the Nasdaq National Market, (vii) the cost of printing certificates representing the Shares, (viii) the costs and charges of any transfer agent, registrar and/or depositary, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. (j) To use its best efforts to list for quotation the Shares on the Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq National Market for a period of three years. (k) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date or any Option Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Shares. (l) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the Shares, to file a Rule 462(b) Registration Statement with the Commission registering the Shares not so covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of this Agreement and to pay to the Commission the filing fee for such Rule 462(b) Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111 (b) under the Act. SECTION 6. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) The Registration Statement has become effective (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement); any Rule 462(b) Registration Statement filed after the effectiveness of this Agreement will become effective no later than 10: 00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) The Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement), when it became effective, did not contain and, as amended, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement) and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Act, (iii) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement and any amendments thereto, when they become effective (A) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (B) will comply in all material respects with the 6 7 Act and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in any preliminary prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (d) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (e) There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens granted or issued by the Company or any of its subsidiaries relating to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of the Company or any of its subsidiaries, except as otherwise disclosed in the Registration Statement. (f) All the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; and the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (g) All of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. (h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. 7 8 (i) Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound. (j) The execution, delivery and performance of this Agreement by the Company, the compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (iv) result in the suspension, termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization. (k) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject that are required to be described in the Registration Statement or the Prospectus and are not so described; nor are there any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required. (l) Neither the Company nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement Income Security Act of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act, or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole. (m) Each of the Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "AUTHORIZATION") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of 8 9 the Company and its subsidiaries, taken as a whole. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (n) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (o) This Agreement has been duly authorized, executed and delivered by the Company. (p) Ernst & Young LLP are independent public accountants with respect to the Company and its subsidiaries as required by the Act. (q) The consolidated financial statements included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), together with related schedules and notes, present fairly the consolidated financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; the supporting schedules, if any, included in the Registration Statement present fairly in accordance with generally accepted accounting principles the information required to be stated therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (r) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 9 10 (s) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (t) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, in management or operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. (u) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 10 11 SECTION 7. Indemnification.(a) The Company agrees to indemnify and hold harmless each Underwriter, its directors, its officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished in writing to the Company by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter who failed to deliver a Prospectus, as then amended or supplemented, (so long as the Prospectus and any amendments or supplements thereto was provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages, liabilities or judgments caused by any untrue statement or alleged untrue statement of a material fact contained in such preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in the Prospectus, as so amended or supplemented, and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to such Underwriter but only with reference to information relating to such Underwriter furnished in writing to the Company by such Underwriter through you expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume the defense of such action pursuant to this Section 7(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of such Underwriter). Any indemnified party shall have the right to employ separate counsel in any such 11 12 action and participate in the defense thereof, but `he fees and expenses of such counsel shall be at the expense of the indemnified party unless the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case of parties indemnified pursuant to Section 7(a), and by the Company, in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. To the extent the indemnification provided for in this Section 7 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(d)(i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (after deducting underwriting 12 13 discounts and commissions, but before deducting expenses) received by the Company, and the total underwriting discounts and commissions received by the Underwriters, bear to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such ,statement or omission. (d) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person which was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective number of Shares purchased by each of the Underwriters hereunder and not joint. (e) The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. SECTION 8. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Shares under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) If the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or contemplated by the Commission. 13 14 (c) You shall have received on the Closing Date a certificate dated the Closing Date, signed by Michael Klein and Marjorie T. Sennett in their capacities as the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer of the Company, confirming the matters set forth in Sections 6(t), 8(a) and 8(b) and that the Company has complied with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by the Company on or prior to the Closing Date. (d) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause 8(d)(i), 8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus.(7) (e) You shall have received on the Closing Date an opinion (satisfactory to you and counsel for the Underwriters), dated the Closing Date, of Perkins Coie LLP counsel for the Company in the form of Exhibit B hereto. The opinion of Perkins Coie LLP described in Exhibit B above shall be rendered to you at the request of the Company and shall so state therein. (f) You shall have received on the Closing Date an opinion, dated the Closing Date, of Pillsbury Madison & Sutro LLP counsel for the Underwriters, as to the matters referred to in Sections 8(e)(iv), 8(e)(vi), 8(e)(ix) (but only with respect to the statements under the caption "Description of Capital Stock"' and "Underwriting") and 8(e)(xvii) In giving such opinions with respect to the matters covered by Section 8(e)(xvii) counsel for the Company and counsel for the Underwriters may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. (g) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from Ernst & Young, independent public accountants, containing the information and statements of the type ordinarily included in accountants' comfort letters" to Underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (h) The Company shall have delivered to you the agreements specified in Section 2 hereof which agreements shall be in full force and effect on the Closing Date. 14 15 (i) The Shares shall have been duly listed for quotation on the Nasdaq National Market. (j) The Company shall not have failed on or prior to the Closing Date to perform or comply with any of the agreements herein contained and required to be performed or complied with by the Company on or prior to the Closing Date. The several obligations of the Underwriters to purchase any Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of such Additional Shares and other matters related to the issuance of such Additional Shares. SECTION 9. Effectiveness of Agreement and Termination. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. This Agreement may be terminated at any time on or prior to the Closing Date by you by written notice to the Company if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation on prices for securities or other instruments on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. If on the Closing Date or on an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase the Finn Shares or Additional Shares, as the case may be, which it has or they have agreed to purchase hereunder on such date and the aggregate number of Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the total number of Firm Shares or Additional Shares, as the case may be, to be purchased on such date by all Underwriters, each non-defaulting Underwriter shall be obligated severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I bears to the total number of Finn Shares which all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as you may specify, to purchase the Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or 15 16 Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Firm Shares or Additional Shares, as the case may be, which any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Finn Shares or Additional Shares, as the case may be, without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Finn Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased by all Underwriters and arrangements satisfactory to you and the Company for purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter and the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase such Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase on such date in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. SECTION 10. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) If to the Company, to eGroups, Inc. and (ii), if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10 172, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company and the several Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the officers or directors of any Underwriter, any person controlling any Underwriter, the Company, the officers or directors of the Company or any person controlling the Company, (ii) acceptance of the Shares and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Shares are not delivered by or on behalf of the Company as provided herein (other than as a result of any termination of this Agreement pursuant to Section 9), the Company agrees to reimburse the several Underwriters for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Company shall be liable for all expenses which it has agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the several Underwriters, their directors and officers and any persons controlling any of the Underwriters for any and all fees and expenses (including, without limitation, the fees disbursements of counsel) 16 17 incurred by them in connection with enforcing their rights hereunder (including, without limitation, pursuant to Section 7 hereof). Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriters, the Underwriters' directors and officers, any controlling persons referred to herein, the Company's directors and the Company's officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, eGROUPS, INC. By: --------------------------------- Title: DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. FLEETBOSTON ROBERTSON STEPHENS INC. Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto By DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By --------------------------------- 17 18 SCHEDULE I
Number of Firm Shares Underwriters to be Purchased - ------------ --------------------- Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities Inc. FleetBoston Roberston Stephens Inc. Total
19 Annex I The Company, its executive officers, directors, stockholders and all option holders stockholders 20 EXHIBIT A Form of Lock-Up Agreement 21 EXHIBIT B Company Counsel Opinion EX-2.1 3 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG EGROUPS, INC., EG ACQUISITION CORPORATION AND ONELIST, INC. Dated as of November 9, 1999 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER .................................................................. 1 1.1 The Merger ................................................................ 1 1.2 Effective Time ............................................................ 2 1.3 Effect of the Merger ...................................................... 2 1.4 Articles of Incorporation; Bylaws ......................................... 2 1.5 Directors and Officers .................................................... 2 1.6 Merger Consideration ...................................................... 3 1.7 Dissenting Shares ......................................................... 7 1.8 Surrender of Certificates ................................................. 7 1.9 No Further Ownership Rights in ONElist Common Stock ....................... 8 1.10 Lost, Stolen or Destroyed Certificates ................................... 9 1.11 Tax and Accounting Consequences .......................................... 9 1.12 Taking of Necessary Action; Further Action ............................... 9 ARTICLE II REPRESENTATIONS AND WARRANTIES OF ONELIST .................................. 9 2.1 Organization of ONElist ................................................... 9 2.2 ONElist Capital Structure ................................................. 9 2.3 Subsidiaries .............................................................. 10 2.4 Authority ................................................................. 10 2.5 Financial Statements ...................................................... 11 2.6 No Undisclosed Liabilities ................................................ 11 2.7 No Changes ................................................................ 12 2.8 Tax and Other Returns and Reports ......................................... 13 2.9 Restrictions on Business Activities ....................................... 14 2.10 Title to Properties; Absence of Liens and Encumbrances ................... 15 2.11 Intellectual Property .................................................... 15 2.12 Agreements, Contracts and Commitments .................................... 17 2.13 Interested Party Transactions ............................................ 19 2.14 Compliance with Laws ..................................................... 19 2.15 Litigation ............................................................... 19 2.16 Insurance ................................................................ 20 2.17 Minute Books ............................................................. 20 2.18 Environmental Matters .................................................... 20 2.19 Brokers' and Finders' Fees ............................................... 20 2.20 Employee Matters and Benefit Plans ....................................... 20 2.21 Accounting and Regulatory Matters ........................................ 24 2.22 Year 2000 Compliance ..................................................... 25 2.23 Representations Complete ................................................. 25 ARTICLE III REPRESENTATIONS AND WARRANTIES OF EGROUPS AND MERGER
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- SUB ........................................................................... 25 3.1 Organization of eGroups and Merger Sub. ................................... 25 3.2 eGroups and Merger Sub Capital Structure .................................. 26 3.3 Subsidiaries .............................................................. 26 3.4 Authority ................................................................. 27 3.5 Financial Statements ...................................................... 27 3.6 No Undisclosed Liabilities ................................................ 28 3.7 No Changes ................................................................ 28 3.8 Tax and Other Returns and Reports ......................................... 29 3.9 Restrictions on Business Activities ....................................... 31 3.10 Title to Properties; Absence of Liens and Encumbrances ................... 31 3.11 Intellectual Property .................................................... 31 3.12 Agreements, Contracts and Commitments .................................... 33 3.13 Interested Party Transactions ............................................ 35 3.14 Compliance with Laws ..................................................... 35 3.15 Litigation ............................................................... 35 3.16 Insurance ................................................................ 35 3.17 Minute Books ............................................................. 36 3.18 Environmental Matters .................................................... 36 3.19 Brokers' and Finders' Fees ............................................... 36 3.20 Employee Matters and Benefit Plans ....................................... 36 3.21 Accounting and Regulatory Matters ........................................ 40 3.22 Year 2000 Compliance ..................................................... 40 3.23 Representations Complete ................................................. 40 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME ........................................ 40 4.1 Conduct of Business of ONElist and eGroups ................................ 40 4.2 No ONElist Solicitation ................................................... 46 4.3 No eGroups or Merger Sub Solicitation ..................................... 46 ARTICLE V ADDITIONAL AGREEMENTS ....................................................... 47 5.1 ONElist Shareholder and eGroups Stockholder Approvals ..................... 47 5.2 Restrictions on Transfer .................................................. 48 5.3 Access to Information ..................................................... 49 5.4 Confidentiality ........................................................... 50 5.5 Expenses .................................................................. 50 5.6 Public Disclosure ......................................................... 50 5.7 Consents .................................................................. 50 5.8 FIRPTA Compliance ......................................................... 51 5.9 Reasonable Efforts ........................................................ 51
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 5.10 Notification of Certain Matters .......................................... 51 5.11 Certain Benefit Plans .................................................... 51 5.12 Accounting and Tax Treatment ............................................. 51 5.13 Additional Documents and Further Assurances .............................. 52 5.14 ONElist's Auditors ....................................................... 52 5.15 eGroups' Auditors ........................................................ 52 5.16 Agreement of Affiliates .................................................. 52 5.17 Voting Agreements ........................................................ 52 5.18 Indemnification .......................................................... 53 ARTICLE VI CONDITIONS TO THE MERGER ................................................... 53 6.1 Conditions to Obligations of Each Party to Effect the Merger .............. 53 6.2 Additional Conditions to Obligations of ONElist ........................... 55 6.3 Additional Conditions to the Obligations of eGroups and Merger Sub. ....... 57 ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES; COVENANTS OF MAJOR SHAREHOLDERS .................................................................. 58 7.1 Non-Survival of Representations and Warranties ............................ 58 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................................ 59 8.1 Termination ............................................................... 59 8.2 Effect of Termination ..................................................... 59 8.3 Amendment ................................................................. 60 8.4 Extension; Waiver ......................................................... 60 ARTICLE IX GENERAL PROVISIONS ......................................................... 60 9.1 Notices ................................................................... 60 9.2 Interpretation ............................................................ 61 9.3 Counterparts .............................................................. 61 9.4 Entire Agreement; Assignment .............................................. 61 9.5 Severability .............................................................. 61 9.6 Other Remedies ............................................................ 62 9.7 Governing Law ............................................................. 62 9.8 Rules of Construction ..................................................... 62 9.9 Specific Performance ...................................................... 62
-iii 5 INDEX OF EXHIBITS
EXHIBIT DESCRIPTION ------- ----------- EXHIBIT A List of eGroups Major Stockholders EXHIBIT B List of ONElist Major Shareholders EXHIBIT C Form of Agreement of Merger EXHIBIT D Form of Fourth Amended and Restated Certificate of Incorporation of eGroups, Inc. EXHIBIT E ONElist Schedules EXHIBIT F eGroups and Merger Sub Schedules EXHIBIT G Form of eGroups Affiliate Agreement EXHIBIT H Form of ONElist Affiliate Agreement EXHIBIT I Form of Amendment to First Amended and Restated Investor Rights Agreement EXHIBIT J Form of Amendment to First Amended and Restated Co-Sale Agreement EXHIBIT K Form of eGroups Voting Agreement EXHIBIT L Form of ONElist Voting Agreement EXHIBIT M Letter Agreement Between ONElist and eGroups dated October 14, 1999
iv 6 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of November 9, 1999 among eGroups, Inc., a Delaware corporation ("eGroups"), EG Acquisition Corporation, a California corporation and a wholly-owned subsidiary of eGroups ("Merger Sub"), and ONElist, Inc., a California corporation ("ONElist"). RECITALS A. The Boards of Directors of each of ONElist and eGroups and the sole shareholder of Merger Sub believe it is in the best interests of each company and their respective shareholders that eGroups acquire ONElist through the statutory merger of Merger Sub with and into ONElist (the "Merger") and, in furtherance thereof, have approved the Merger. B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding shares of capital stock of ONElist and all outstanding options, warrants and other rights to acquire or receive shares of capital stock of ONElist shall be converted into the right to receive shares of capital stock of eGroups. C. It is the intention of the parties to this Agreement that the Merger for federal income tax purposes shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and for accounting purposes shall qualify for treatment as a pooling of interests. D. ONElist, eGroups and Merger Sub desire to make certain representations, warranties, covenants and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the California Corporations Code (the "California Code"), Merger Sub shall be merged with and into ONElist, the separate corporate existence of Merger Sub shall cease, and ONElist shall continue as the surviving corporation and as a wholly-owned subsidiary of eGroups. ONElist as the surviving corporation after the Merger is sometimes referred to hereinafter as the "Surviving Corporation." The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of Directors of ONElist and eGroups, and by eGroups, as the sole shareholder of Merger Sub. 7 1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Wilson Sonsini Goodrich & Rosati ("WSGR"), 975 Page Mill Road, Palo Alto, California, unless another place, time or date is agreed to by eGroups and ONElist. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On or before the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger in substantially the form attached hereto as Exhibit C (the "Agreement of Merger") with the Secretary of State of the State of California, in accordance with the relevant provisions of applicable law (the time of acceptance by the Secretary of State of the State of California of such filing being referred to herein as the "Effective Time"). The parties currently intend that the Closing Date will occur on or prior to November 30, 1999. The parties hereto shall also take such further actions as may be required by the State of California in connection with the consummation of the Merger. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the California Code. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of ONElist and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of ONElist and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Articles of Incorporation; Bylaws. (a) Unless otherwise determined by eGroups and ONElist prior to the Effective Time, at the Effective Time, the Articles of Incorporation of ONElist shall be amended and restated in full as set forth in Exhibit 1 to the Agreement of Merger until thereafter amended in accordance with the California Code and as provided in such Articles of Incorporation. (b) Unless otherwise determined by eGroups and ONElist prior to the Effective Time, at the Effective Time, the Bylaws of ONElist shall be amended and restated in full such that the Bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall become the Bylaws of ONElist as the Surviving Corporation until thereafter amended in accordance with the California Code and as provided in the Articles of Incorporation of the Surviving Corporation and such Bylaws. 1.5 Directors and Officers. (a) Surviving Corporation. Unless otherwise determined by eGroups and ONElist prior to the Effective Time, the directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold the office of a director of the Surviving Corporation in accordance with the provisions of the California Code and the Articles of Incorporation and Bylaws of the Surviving Corporation until their successors are duly elected and qualified. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the provisions of the Bylaws of the Surviving Corporation. 2 8 (b) eGroups. At the Effective Time, the directors of eGroups shall be as follows:. Eric Archambeau Jan Buettner Mark Fletcher Martin Roscheisen Michael Klein Peter Mills Michael Moritz 1.6 Merger Consideration. (a) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings: "Comdisco Securities" shall mean: (i) that certain warrant dated June 23, 1999, issued by eGroups to Comdisco, Inc. ("Comdisco") for the purchase of eGroups Series B Preferred Stock; and (ii) that right of Comdisco to purchase up to $1,800,000 worth of preferred stock sold by eGroups in its next round of equity financing. "Consideration Shares" shall mean those shares of eGroups Common Stock and eGroups Series C Preferred Stock to be received by ONElist Shareholders pursuant to Section 1.6. "eGroups Capital Stock" shall mean shares of eGroups Common Stock, eGroups Preferred Stock and any shares of other capital stock of eGroups. "eGroups Common Stock" shall mean shares of common stock of eGroups. "eGroups Convertible Securities" shall mean all issued and outstanding rights (other than eGroups Preferred Stock and eGroups Options) to acquire or receive shares of eGroups Capital Stock. "eGroups Fully-Diluted Capitalization Number" shall mean all of the issued and outstanding shares of eGroups Common Stock as of the Effective Time calculated on a fully-diluted basis as if all outstanding eGroups Preferred Stock had been fully converted, all outstanding eGroups Options had been fully exercised and the Comdisco Securities had been fully exercised and/or converted immediately prior to such issuance (and the resulting securities fully converted into eGroups Common Stock) as of such date. The foregoing calculation shall be performed in accordance with Section 1.6(b) hereof. "eGroups Options" shall mean all issued and outstanding options to purchase or otherwise acquire eGroups Common Stock (whether or not vested) held by officers, employees or directors of or consultants to eGroups or other persons. -3- 9 "eGroups Preferred Stock" shall mean shares of Series A Preferred Stock and Series B Preferred Stock of eGroups. "eGroups Series C Preferred Stock" shall mean the Series C Preferred Stock of eGroups with the rights, preferences, privileges and restrictions set forth in eGroups' Fourth Amended and Restated Certificate of Incorporation in the form attached as Exhibit D hereto (the "Fourth Amended and Restated Certificate"). "Exchange Ratio" shall mean the product of (A) the quotient of (x) the eGroups Fully-Diluted Capitalization Number divided by (y) ONElist Fully-Diluted Capitalization Number multiplied by (B) the quotient of (a) 57 divided by (b) 43 (with the result rounded to five decimal places). "GAAP" shall mean U.S. generally accepted accounting principles. "Knowledge" shall mean, with respect to ONElist or eGroups, what is within the actual knowledge of any of the officers or directors of ONElist or eGroups, as the case may be. "Material Adverse Effect" shall mean any change, event or effect that is materially adverse to the business, assets (including intangible assets), financial condition or results of operations of ONElist or eGroups, as applicable. "Michael Klein Option" shall mean, assuming the completion of the Merger and the next round of equity financing of eGroups, the stock option to be granted to Michael Klein for that number of shares of eGroups Common Stock that, upon the completion of such equity financing, would bring his total ownership of eGroups stock to 3.42% of the total outstanding stock on a fully diluted basis. "ONElist Capital Stock" shall mean shares of ONElist Common Stock, ONElist Preferred Stock and any shares of other capital stock of ONElist. "ONElist Common Stock" shall mean shares of common stock of ONElist. "ONElist Fully-Diluted Capitalization Number" shall mean all of the issued and outstanding shares of ONElist Common Stock as of the Effective Time calculated on a fully-diluted basis as if all outstanding ONElist Preferred Stock had been fully converted, all outstanding ONElist Options had been fully exercised and the Michael Klein Option had been fully exercised as of such date. The foregoing calculation shall be performed in accordance with Section 1.6(b) hereof. "ONElist Options" shall mean all issued and outstanding options to purchase or otherwise acquire ONElist Common Stock (whether or not vested) held by officers, employees, directors of or consultants to ONElist or other persons. "ONElist Preferred Stock" shall mean shares of Series A Preferred Stock of ONElist. -4- 10 "ONElist Shareholders" shall mean holders of any shares of ONElist Capital Stock immediately prior to the Effective Time. (b) Calculation Methodology. The parties have agreed to a method for estimating the Comdisco Securities and the shares issuable upon exercise of the Michael Klein Option. Such method is defined in a spreadsheet separately initialed by ONElist and eGroups. Based upon such method and the agreed upon formulae and methodology in such spreadsheet ONElist and eGroups have jointly calculated the Exchange Ratio. Shortly before the Effective Time, ONElist and eGroups agree to jointly recalculate the Exchange Ratio in accordance with such method after giving effect to any changes in the eGroups Fully-Diluted Capitalization Number and/or the ONElist Fully-Diluted Capitalization Number that occur between the date hereof and the Effective Time. (c) Effect on ONElist Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of ONElist or the ONElist Shareholders, each share of ONElist Capital Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares, as defined in Section 1.7 hereof and any shares owned by eGroups, Merger Sub or ONElist or any direct or indirect wholly owned subsidiary thereof) shall be canceled and extinguished and shall be converted automatically into the right to receive, upon surrender of the certificate representing such shares of ONElist Capital Stock and upon the terms and subject to conditions set forth below and throughout this Agreement, including, without limitation, Sections 1.6(f), (g) and (h) hereof (i) in the case of each share of ONElist Common Stock, a number of shares of eGroups Common Stock equal to the Exchange Ratio and (ii) in the case of each share of ONElist Preferred Stock, a number of Shares of eGroups Series C Preferred Stock equal to the Exchange Ratio. (d) Assumption of ONElist Options. At the Effective Time, each outstanding ONElist Option issued pursuant to ONElist's 1998 Stock Plan (the "ONElist Option Plan") or otherwise, whether vested or unvested, will be assumed by eGroups in connection with the Merger. Each ONElist Option so assumed by eGroups under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the ONElist Option Plan and/or as provided in the respective option agreements immediately prior to the Effective Time (including, without limitation, any vesting schedule or repurchase rights), except that (i) each ONElist Option will be exercisable, subject to the same terms and conditions set forth in the ONElist Option Plan and/or as provided in the respective option agreements immediately prior to the Effective Time (including, without limitation, any vesting schedule or repurchase rights), for that number of whole shares of eGroups Common Stock equal to the product of the number of shares of ONElist Common Stock that were issuable upon exercise of such ONElist Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of eGroups Common Stock, (ii) the per share exercise price for the shares of eGroups Common Stock issuable upon exercise of such assumed ONElist Option will be equal to the quotient determined by dividing the exercise price per share of ONElist Capital Stock at which such ONElist Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent and (iii) eGroups and its Board of Directors shall be substituted for ONElist and the Committee -5- 11 of ONElist's Board of Directors (including, if applicable, the entire Board of Directors of ONElist) administering the ONElist Option Plan. (e) Option Status. It is the intention of the parties hereto that the ONElist Options assumed by eGroups following the Closing pursuant to this Section 1.6 will, to the extent permitted by applicable law, qualify as incentive stock options as defined in Section 422 of the Code, to the extent any such ONElist Options qualified as incentive stock options immediately prior to the Effective Time. (f) Adjustments to Exchange Ratio. The Exchange Ratio shall be equitably adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into eGroups Capital Stock or ONElist Capital Stock), reorganization, recapitalization or other like change with respect to eGroups Capital Stock or ONElist Capital Stock occurring after the date hereof and prior to the Effective Time. Any such change for which a record date is established shall be deemed for the purposes of this Section 1.6(f) to have occurred on the record date. (g) Fractional Shares. No fractional share of eGroups Common Stock or eGroups Series C Preferred Stock shall be issued in the Merger. In lieu thereof, any fractional share shall be rounded to the nearest whole share (with 0.5 being rounded up) of eGroups Common Stock or eGroups Series C Preferred Stock, as the case may be. (h) Cancellation of eGroups-owned and ONElist-owned Stock. At the Effective Time, by virtue of the Merger and without any action on the part of any of the parties hereto, each share of ONElist Capital Stock owned by eGroups, Merger Sub, ONElist or any direct or indirect wholly-owned subsidiary thereof immediately prior to the Effective Time, shall be cancelled and extinguished without any conversion thereof. (i) Capital Stock of Merger Sub. At the Effective Time, by virtue of the Merger and without any action on the part of any of the parties hereto, each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. 1.7 Dissenting Shares. "Dissenting Shares" shall mean any shares of ONElist Capital Stock held by a holder who has demanded and perfected appraisal rights for such shares in accordance with the California Code and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal rights. Any Dissenting Shares shall be converted into the right to receive from the Surviving Corporation such consideration as may be determined to be due with respect to each such Dissenting Share pursuant to Chapter 13 of the California Code; provided, however, that shares of ONElist Capital Stock that are Dissenting Shares at the Effective Time of the Merger and are held by a holder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal as provided in the California Code, shall be -6- 12 deemed to be converted, as of the Effective Time of the Merger, into the right to receive consideration in accordance with the procedures specified in Section 1.6(c). ONElist shall give eGroups (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to the California Code received by ONElist and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under the California Code. ONElist will not voluntarily make any payment with respect to any demands for appraisal and will not, except with the prior written consent of eGroups, settle or offer to settle any such demands. It is understood and agreed that the obligation to make any payment in connection with Dissenting Shares under Chapter 13 of the California Code shall be exclusively that of the Surviving Corporation and that eGroups shall be under no obligation to perform and discharge any such obligation or to reimburse or make any contribution to the capital of the Surviving Corporation to enable it to perform and discharge any such obligation. eGroups shall give ONElist prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to the California Code received by eGroups. 1.8 Surrender of Certificates. (a) Exchange Agent. WSGR shall serve as the exchange agent (the "Exchange Agent") in the Merger. (b) eGroups to Provide Common Stock and Series C Preferred Stock. Immediately prior to the Effective Time, eGroups shall make available to the Exchange Agent for exchange in accordance with this Article I, certificates representing the shares of eGroups Common Stock and eGroups Series C Preferred Stock issuable to ONElist Shareholders pursuant to Section 1.6 in exchange for outstanding shares of ONElist Capital Stock. (c) Exchange Procedures. As soon as practicable after the Closing Date, the Surviving Corporation shall cause to be mailed to each ONElist Shareholder, (i) a letter of transmittal (which shall be in such form and have such other provisions as eGroups may reasonably specify and shall specify that delivery shall be effected, and risk of loss and title to the certificates (the "Certificates") which immediately prior to the Effective Time represent outstanding shares of ONElist Capital Stock whose shares are converted into the right to receive such ONElist Shareholder's pro rata portion of the Consideration Shares pursuant to Section 1.6, shall pass, only upon delivery of the Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing such ONElist Shareholder's pro rata portion of the Consideration Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by eGroups, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive, and the Exchange Agent shall promptly deliver in exchange therefor, a certificate bearing the legend set forth in Section 5.2 hereof representing the number of whole Consideration Shares to which such holder is entitled pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of ONElist Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the -7- 13 payment of dividends, to evidence the ownership of the number of full shares of eGroups Common Stock and/or eGroups Series C Preferred Stock, as the case may be, into which such shares of ONElist Capital Stock shall have been so converted. (d) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to eGroups Common Stock or eGroups Series C Preferred Stock, as the case may be, with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of eGroups Common Stock and/or eGroups Series C Preferred Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of eGroups Common Stock and/or eGroups Series C Preferred Stock issued in exchange therefor, at the time of such surrender, the amount of dividends or other distributions (without interest) with a record date after the Effective Time theretofore paid with respect to such whole shares of eGroups Common Stock and/or eGroups Series C Preferred Stock. (e) Transfers of Ownership. If any certificate for shares of eGroups Common Stock and/or eGroups Series C Preferred Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to eGroups or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of eGroups Common Stock and/or eGroups Series C Preferred Stock, as the case may be, in any name other than that of the registered holder of the Certificate surrendered. (f) No Liability. Notwithstanding anything to the contrary in this Section 1.8, neither the Exchange Agent, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of eGroups Capital Stock or ONElist Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9 No Further Ownership Rights in ONElist Common Stock. All shares of eGroups Common Stock and eGroups Series C Preferred Stock issued in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to shares of ONElist Capital Stock outstanding prior to the Effective Time, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of ONElist Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates evidencing shares of ONElist Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making and delivery of an affidavit of that fact by the holder thereof, such shares of eGroups Common Stock and/or eGroups Series C Preferred Stock as may be required pursuant to Section 1.6; provided, however, that eGroups may, in its discretion and as a condition precedent to the issuance thereof, require the owner -8- 14 of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against eGroups or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.11 Tax and Accounting Consequences. It is intended by the parties hereto that the Merger shall (i) constitute a reorganization within the meaning of Section 368 of the Code and (ii) qualify for accounting treatment as a pooling of interests. The parties hereto adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. Each party has consulted with its own tax advisers and accountants with respect to the tax and accounting consequences of the Merger. 1.12 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of ONElist and Merger Sub, the officers and directors of ONElist and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF ONELIST As of the date hereof, ONElist hereby represents and warrants to eGroups and Merger Sub, subject to such exceptions as are specifically disclosed in the disclosure schedules supplied by ONElist to eGroups dated as of the date hereof and attached hereto as Exhibit E (the "ONElist Schedules"), as follows: 2.1 Organization of ONElist. ONElist is a corporation duly organized, validly existing and in good standing under the laws of the State of California. ONElist has the corporate power to own its properties and to carry on its business as now being conducted. ONElist is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on ONElist. ONElist has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to eGroups. 2.2 ONElist Capital Structure. (a) The authorized capital stock of ONElist consists of 10,000,000 shares of authorized Common Stock, no par value, of which 2,457,429 shares are issued and outstanding; 2,400,000 shares of authorized Series A Preferred Stock, no par value, of which 2,330,665 are issued and outstanding. The ONElist Capital Stock is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.2(a). All outstanding shares of ONElist Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of ONElist or any material agreement to which ONElist is a party or by which it is bound. -9- 15 (b) ONElist has reserved 1,665,000 shares of ONElist Common Stock for issuance to directors, employees and consultants pursuant to the ONElist Option Plan, of which 819,322 shares are subject to outstanding, unexercised options and 444,928 shares remain available for future grant. All of the ONElist Options have been duly authorized and validly issued, as applicable, in accordance with the applicable terms of the ONElist Option Plan and Blue Sky laws. Schedule 2.2(b) sets forth for each outstanding ONElist Option (i) the name of the holder of such security, (ii) the number of shares of capital stock subject to such security, (iii) the exercise price of such security, (iv) the date of grant of such security, (v) the date on which such security expires, and (vi) whether the exercisability of such security will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except as set forth in Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which ONElist is a party or by which it is bound obligating ONElist to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of ONElist or obligating ONElist to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. The holders of ONElist Options have been or will be given, or shall have properly waived, any required notice prior to the Merger, and all such rights will be terminated at or prior to the Effective Time. As a result of the Merger, eGroups will be the record and sole beneficial owner of all ONElist Capital Stock and all rights to acquire or receive ONElist Capital Stock. 2.3 Subsidiaries. Except as set forth on Schedule 2.3, ONElist does not have any subsidiaries and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 2.4 Authority. Subject only to the requisite approval of the Merger and this Agreement by ONElist's shareholders, ONElist has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of ONElist, subject only to the approval of the Merger by ONElist's shareholders. ONElist's Board of Directors has unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by ONElist and constitutes the valid and binding obligation of ONElist, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Except as set forth on Schedule 2.4, subject only to the approval of the Merger and this Agreement by ONElist's shareholders, the execution and delivery of this Agreement by ONElist does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "ONElist Conflict") (i) any provision of the Articles of Incorporation or Bylaws of ONElist or (ii) any material mortgage, indenture, lease, contract or -10- 16 other material agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to ONElist or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("Governmental Entity") or any third party (so as not to trigger any ONElist Conflict) is required by or with respect to ONElist in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Agreement of Merger with the California Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (iii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 2.4. 2.5 Financial Statements. Schedule 2.5 sets forth ONElist's unaudited balance sheet as of December 31, 1998, and the related unaudited statements of operations and cash flow for the twelve month period ended December 31, 1998 (the "ONElist Year-End Financials") and ONElist's unaudited balance sheet as of September 30, 1999 and the related unaudited statements of operations and cash flows for the nine months then ended (the "ONElist Interim Financials") (collectively, such financial statements are sometimes referred to herein as "ONElist Financial Statements"). The ONElist Financial Statements have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The ONElist Financial Statements present fairly the financial condition, operating results and cash flows of ONElist as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which will not be material in amount or significance. ONElist's unaudited balance sheet dated as of September 30, 1999, shall be referred to as the "ONElist Current Balance Sheet". 2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, ONElist does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the ONElist Current Balance Sheet, or (ii) has not arisen in the ordinary course of ONElist's business since the date of the ONElist Current Balance Sheet, consistent with past practices. 2.7 No Changes. Except as set forth in Schedule 2.7, since the date of the ONElist Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by ONElist except in the ordinary course of business as conducted as of the date of the ONElist Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Articles of Incorporation or Bylaws of ONElist; (c) capital expenditure or commitment by ONElist, either individually or in the aggregate, exceeding $50,000; -11- 17 (d) destruction of, damage to or loss of any material assets, business or customer of ONElist (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by ONElist; (g) revaluation by ONElist of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of ONElist, or any direct or indirect redemption, purchase or other acquisition by ONElist of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of its officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement or in the ordinary course of business and consistent with past practices; (j) sale, lease, license or other disposition of any of the assets or properties of ONElist, except in the ordinary course of business and consistent with past practices; (k) material amendment or termination of any material contract, agreement or license to which ONElist is a party or by which it is bound; (l) loan by ONElist to any person or entity, incurring by ONElist of any indebtedness, guaranteeing by ONElist of any indebtedness, issuance or sale of any debt securities of ONElist or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (m) waiver or release of any right or claim of ONElist, including any write-off or other compromise of any account receivable of ONElist other than in the ordinary course of business; (n) change in pricing or royalties set or charged by ONElist to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to ONElist; (o) event or condition of any character that has or could be reasonably expected to have a Material Adverse Effect on ONElist; or -12- 18 (p) negotiation or agreement by ONElist or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (o) (other than negotiations with eGroups and its representatives regarding the transactions contemplated by this Agreement). 2.8 Tax and Other Returns and Reports. (a) Definition of Taxes. For the purpose of this Agreement, "Tax" or "Taxes" means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.8: (i) ONElist as of the Effective Time will have prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("Returns") due on or before the Effective Time relating to any and all Taxes concerning or attributable to ONElist or its operations and such Returns are or will be prior to filing true and correct in all material respects and have been completed in accordance with applicable law. (ii) ONElist as of the Effective Time: (A) will have paid or accrued on the ONElist Interim Financials all Taxes it is required to pay or which are attributable to the period ending September 30, 1999 and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) ONElist has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, assessed, or to its Knowledge proposed against ONElist, nor has ONElist executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of ONElist is currently in progress, nor has ONElist been notified of any request for such an audit or other examination. (v) ONElist does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved for in accordance with GAAP on the ONElist Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and ONElist has no Knowledge of any basis for the assertion of any such liability attributable to ONElist, its assets or operations. (vi) ONElist has provided to eGroups or has made available to representatives of eGroups for inspection copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of ONElist's incorporation. -13- 19 (vii) There are (and as of immediately following the Effective Date there will be) no liens, pledges, charges, claims, security interests or other encumbrances of any sort on the assets ("Liens") of ONElist relating to or attributable to Taxes. (viii) Except as set forth in Schedule 2.8(b)(viii), as of the Effective Time, there will not be any contract, agreement, plan or arrangement, excluding any arrangement to which eGroups or any of its employees is a party, covering any employee or former employee of ONElist that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code as a result of the Merger. (ix) ONElist has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by ONElist. (x) ONElist is not a party to a tax sharing or allocation agreement nor does ONElist owe any amount under any such agreement. (xi) ONElist is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xii) Except as may be required as a result of the Merger, ONElist has not been and will not be required to include any adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing. (xiii) Since September 30, 1999 no Taxes have been incurred except in the ordinary course of business. 2.9 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which ONElist is a party or otherwise binding upon ONElist which has or reasonably could be expected to have the effect of materially prohibiting or impairing any business practice of ONElist, any acquisition of property (tangible or intangible) by ONElist or the conduct of business by ONElist. Without limiting the foregoing, ONElist has not entered into any agreement under which ONElist is restricted from developing, selling, licensing, marketing, promoting or otherwise distributing any products, services or technology to any class of customers, or entering into any strategic alliances, in any geographic area, during any period of time or in any segment of the market. 2.10 Title to Properties; Absence of Liens and Encumbrances. (a) ONElist owns no real property, nor has it ever owned any real property. All such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a default). -14- 20 (b) ONElist has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the ONElist Financial Statements or in Schedule 2.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.11 Intellectual Property. (a) For purposes of this Agreement, the following terms have the following definitions: "Intellectual Property" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, URLs, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; (vii) all moral and economic rights of authors and inventors, however denominated, throughout the world and (viii) any similar or equivalent rights to any of the foregoing anywhere in the world. "ONElist Intellectual Property" shall mean any Intellectual Property that is used in the ONElist business as currently conducted and as currently proposed to be conducted. "Registered Intellectual Property" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered copyrights and applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any state, government or other public legal authority. "ONElist Registered Intellectual Property" means all of the Registered Intellectual Property owned by, or filed in the name of, ONElist. (b) No material ONElist Intellectual Property or product or service of ONElist is subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation restricting in any manner the use, transfer, or licensing thereof by ONElist, or which may affect the validity, use or enforceability of such ONElist Intellectual Property. -15- 21 (c) Each material item of ONElist Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (d) ONElist owns and has good and exclusive title to, or has license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to, each material item of ONElist Intellectual Property or other Intellectual Property used by ONElist free and clear of any lien or encumbrance (excluding licenses and related restrictions); and, to the Knowledge of ONElist, ONElist is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of the business of ONElist, including the sale of any products or the provision of any services by ONElist. (e) ONElist owns exclusively, and has good title to, all copyrighted works that are ONElist products or which ONElist otherwise expressly purports to own. (f) To the extent that any material Intellectual Property has been developed or created by a third party for ONElist, ONElist has a written agreement with such third party with respect thereto and ONElist thereby either (i) has obtained ownership of, and is the exclusive owner of or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment, except to the extent restricted by applicable law. (g) ONElist has not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material to ONElist Intellectual Property, to any third party. (h) Schedule 2.11(h) lists all material contracts, licenses and agreements to which ONElist is a party as of the date hereof (i) with respect to ONElist Intellectual Property licensed or transferred to any third party (other than end-user licenses in the ordinary course); or (ii) pursuant to which a third party has licensed or transferred any material Intellectual Property to ONElist. (i) All material contracts, licenses and agreements relating to ONElist Intellectual Property are in full force and effect. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such contracts, licenses and agreements. ONElist is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements and, to the Knowledge of ONElist, all other parties to such contracts, licenses and agreements are in compliance with, and have not materially breached any term of, such contracts, licenses and agreements. Following the Closing Date, the Surviving Corporation will be permitted to exercise all of ONElist's rights under such contracts, licenses and agreements to the same extent ONElist would have been able to had the transactions contemplated by this Agreement not occurred and without the payment -16- 22 of any additional amounts or consideration other than ongoing fees, royalties or payments which ONElist would otherwise be required to pay. (j) To the Knowledge of ONElist, the operation of the business of ONElist as such business currently is conducted, including ONElist's design, development, manufacture, marketing and sale of the products or services of ONElist (including with respect to products and services currently under development) has not, does not and will not infringe or misappropriate the Intellectual Property of any third party in any respect adverse to such party or constitute unfair competition or trade practices under the laws of any jurisdiction in which ONElist currently conducts business. (k) ONElist has not received notice from any third party that the operation of the business of ONElist or any act, product or service of ONElist, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction in which ONElist currently conducts business. (l) To the Knowledge of ONElist, no person has or is infringing or misappropriating, in any respect materially adverse to ONElist, any ONElist Intellectual Property. (m) ONElist has taken reasonable steps to protect ONElist's rights in ONElist's confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to ONElist, and, without limiting the foregoing, ONElist has and enforces a policy requiring each employee and contractor to execute a proprietary information/confidentiality and invention assignment agreement and all current and former employees and contractors of ONElist have executed such an agreement, except where the failure to do so is not reasonably expected to be material to ONElist. 2.12 Agreements, Contracts and Commitments. (a) Except as set forth on Schedule 2.12(a), ONElist does not have, is not a party to nor is it bound by: (i) any collective bargaining agreements; (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations; (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (iv) any material employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any material consulting or sales agreement, contract or commitment under which any firm or other organization provides services to ONElist; -17- 23 (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (vi) any fidelity or surety bond or completion bond; (vii) any lease of personal property having a value individually in excess of $50,000; (viii) any agreement of indemnification or guaranty; (ix) any agreement, contract or commitment containing any covenant limiting the freedom of ONElist to engage in any line of business or to compete with any person; (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $50,000; (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of ONElist's business; (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof; (xiii) any purchase order or contract for the purchase of raw materials involving $50,000 or more; (xiv) any construction contracts; (xv) any distribution, joint marketing or development agreement; (xvi) any agreement pursuant to which ONElist has granted or may be required to grant in the future, to any party, a source-code license or option or other right to use or acquire source-code; or (xvii) any other agreement, contract or commitment that involves $50,000 or more or is not cancelable without penalty within thirty (30) days. (b) Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are noted in Schedule 2.12(b), ONElist has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.12(a) or Schedule 2.11(h) (any such -18- 24 agreement, contract or commitment, a "ONElist Contract"). Each ONElist Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any default thereunder of which ONElist has Knowledge by any party obligated to ONElist pursuant thereto. 2.13 Interested Party Transactions. Except as set forth on Schedule 2.13, (i) no officer, director or, to the Knowledge of ONElist (without any duty to investigate), any ONElist Shareholder has, directly or indirectly, an economic interest worth greater than $25,000 in any entity which furnished or sold, or furnishes or sells, services or products that ONElist furnishes or sells, or proposes to furnish or sell, (ii) no officer or director, or to the Knowledge of ONElist (without any duty to investigate), any ONElist Shareholder has, directly or indirectly, an economic interest worth greater than $25,000 in any entity that purchases from or sells or furnishes to, ONElist, any goods or services or (iii) no officer, director or ONElist Shareholder has, directly or indirectly, a beneficial interest in any contract or agreement worth greater than $25,000 set forth in Schedule 2.12(a) or Schedule 2.11(h); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.13. For the purposes of this subsection, "officer" and "director" shall include any parent, child, sibling or spouse of any of such persons, or any trust, partnership or corporation in which such officer or director has a controlling interest. 2.14 Compliance with Laws. ONElist has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 2.15 Litigation. Except as set forth in Schedule 2.15, there is no action, suit or proceeding of any nature pending or to ONElist's Knowledge threatened against ONElist, its properties or any of its officers or directors in their respective capacities as such. Except as set forth in Schedule 2.15, to ONElist's Knowledge, there is no investigation pending or threatened against ONElist, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 2.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of ONElist to manufacture, offer or sell any of its products in the present manner or style thereof. 2.16 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of ONElist, there is no claim by ONElist pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid or will be paid when due and ONElist is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). ONElist has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.17 Minute Books. The minute books of ONElist made available to counsel for eGroups are the only minute books of ONElist and contain a reasonably accurate summary of all meetings of -19- 25 directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of ONElist. 2.18 Environmental Matters. ONElist is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its Knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.19 Brokers' and Finders' Fees. ONElist has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.20 Employee Matters and Benefit Plans. (a) Definitions. For purposes of this Section 2.20 and Section 3.20 of this Agreement, the following terms shall have the meanings set forth below: (i) "ONElist Affiliate" shall mean any other corporation, partnership, limited liability company, trade, business, person or other entity that, together with ONElist, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code; (ii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (iii) "ONElist Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which (A) is or has been sponsored, maintained, contributed to, or required to be contributed to, by ONElist or any ONElist Affiliate for the benefit of any "ONElist Employee" (as defined below), or (B) with respect to which ONElist or any ONElist Affiliate has or could have any material liability or obligation, contingent or otherwise; (iv) "ONElist Employee" shall mean any current, former, or retired employee, officer, or director of ONElist or any ONElist Affiliate; (v) "ONElist Employee Agreement" shall refer to each written management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between ONElist or any ONElist Affiliate and any ONElist Employee or consultant. Except as set forth on Schedule 2.20(a)(v), ONElist represents and warrants that there are no oral agreements between ONElist or any Affiliate and any ONElist Employee or consultant pertaining to management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar matters or arrangements; -20- 26 (vi) "IRS" shall mean the Internal Revenue Service; (vii) "Multiemployer Plan" shall mean any Pension Plan (as defined below) which is a "multiemployer plan," as defined in Section 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code; (viii) "Multiple Employer Plan" means any Pension Plan (as defined below) which is a "multiple employer plan," within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code; and (ix) "Pension Plan" shall mean any "employee pension benefit plan," as defined in Section 3(2) of ERISA. (b) Schedule. Schedule 2.20(b) contains an accurate and complete list of each ONElist Employee Plan and each ONElist Employee Agreement. ONElist does not have any plan or commitment, whether legally binding or not, to establish any new ONElist Employee Plan or ONElist Employee Agreement, to modify any ONElist Employee Plan or ONElist Employee Agreement (except to the extent required by law or to conform any such ONElist Employee Plan or ONElist Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to eGroups in writing, or as required by this Agreement), or to enter into any ONElist Employee Plan or ONElist Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. There has been no amendment, interpretation or other announcement (written or oral) by ONElist or, to the Knowledge of ONElist, any other Person relating to, or change in participation or coverage under, any ONElist Employee Plan or ONElist Employee Agreement that, either alone or together with other such items or events, could materially increase the expense of maintaining the ONElist Employee Plans and ONElist Employee Agreements above the level of expense incurred with respect thereto for the most recent fiscal year included in the ONElist Financial Statements. (c) Documents. ONElist has provided, or will provide within three (3) days following the execution of this Agreement, to eGroups (i) correct and complete copies of all documents embodying or materially affecting the interpretation or application of each ONElist Employee Plan and each ONElist Employee Agreement including all amendments thereto; (ii) the most recent annual actuarial valuations, if any, prepared for each ONElist Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each ONElist Employee Plan or related trust; (iv) if the ONElist Employee Plan is funded, the most recent annual and periodic accounting of ONElist Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each ONElist Employee Plan which has a material adverse effect on such ONElist Employee Plan; (vi) the most recent IRS determination, opinion, notification or advisory letters as applicable, and rulings relating to ONElist Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any ONElist Employee Plan or ONElist Employee Agreement; (vii) all material written agreements and contracts relating to each ONElist Employee Plan and ONElist Employee Agreement, including, but not limited to, trust agreements, -21- 27 administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material distributed to any ONElist Employee or ONElist Employees relating to any ONElist Employee Plan or ONElist Employee Agreement and any proposed ONElist Employee Plan or ONElist Employee Agreement, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to ONElist; and (ix) all registration statements and prospectuses prepared in connection with each ONElist Employee Plan not otherwise publicly available on the SEC website. (d) Employee Plan Compliance. Except as set forth on Schedule 2.20(d): (i) ONElist and, to the Knowledge of ONElist, all other Persons have properly performed in all material respects all obligations required to be performed by them under each ONElist Employee Plan and ONElist Employee Agreement; (ii) each ONElist Employee Plan and ONElist Employee Agreement is, and at all times since inception has been, established, maintained, administered, operated and funded in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (iii) each ONElist Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is, and at all times since inception has been, so qualified, and has either received a favorable determination letter from the IRS with respect to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination; (iv) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, has occurred with respect to any ONElist Employee Plan for which an exemption is not applicable; (v) there are no actions, suits or claims pending, or, to the Knowledge of ONElist, threatened or anticipated (other than routine claims for benefits) against any ONElist Employee Plan or against the assets of any ONElist Employee Plan; and (vi) each ONElist Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to ONElist, eGroups or any ONElist Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vii) there are no audits, inquiries or proceedings pending or, to the Knowledge of ONElist, threatened by the IRS or DOL with respect to any ONElist Employee Plan or ONElist Employee Agreement; (viii) all contributions, premiums and other payments due or required to be paid to (or with respect to) each ONElist Employee Plan have been timely paid, or if not yet due, have been properly accrued on ONElist's books consistent with past practice; and (ix) neither ONElist nor any ONElist Affiliate has incurred, and to the Knowledge of ONElist there exists no condition or set of circumstances in connection with which either ONElist or any ONElist Affiliate could incur, a material liability or expense (except for benefit claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law, statute, order, rule or regulation with respect to any ONElist Employee Plan or ONElist Employee Agreement. (e) Pension Plans. At no time has ONElist or any ONElist Affiliate sponsored, maintained, participated in, or contributed to (or been required to contribute to), any Pension Plan -22- 28 which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has ONElist or any ONElist Affiliate contributed to or been requested (or obligated) to contribute to any Multiemployer Plan or Multiple Employer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 2.20(g), neither ONElist nor any ONElist Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any ONElist Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and ONElist has never represented, promised or contracted (whether in oral or written form) to any ONElist Employee (either individually or to ONElist Employees as a group) or any other person that such ONElist Employee(s) or other person would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. The term "other employee welfare benefits" means those benefits traditionally provided under an "employee benefit welfare plan" as defined in ERISA Section 3(1). (h) Health Care Compliance. Neither the ONElist nor any ONElist Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such Act, or any similar provisions of state law applicable to its Employees. (i) Effect of Transaction. Except as set forth on Schedule 2.20(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any ONElist Employee Plan, ONElist Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any ONElist Employee. (j) Employment Matters. ONElist (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to ONElist Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to ONElist Employees; (iii) is not liable for any arrears of wages, other than arrears normally included in its payroll schedule and system, or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for ONElist Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against ONElist under any worker's compensation policy or long-term disability policy. -23- 29 To ONElist's Knowledge, no employee of ONElist has violated any employment contract, nondisclosure agreement or noncompetition agreement by which such employee is bound due to such employee being employed by ONElist and disclosing to ONElist or using trade secrets or proprietary information of any other person or entity. (k) Labor. To the Knowledge of ONElist, no work stoppage or labor strike against ONElist is pending or threatened. Except as set forth in Schedule 2.20(k), ONElist is not involved in or, to the Knowledge of ONElist, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any ONElist Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in a material liability to ONElist. To the Knowledge of ONElist, neither ONElist nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to ONElist. Except as set forth in Schedule 2.20(k), ONElist is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to ONElist Employees and no collective bargaining agreement is being negotiated by ONElist. 2.21 Accounting and Regulatory Matters. (a) For purposes of this Agreement, the following terms have the following meanings: An "Affiliate" of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 5% or greater equity or voting interest of such Person; or (iii) any other Person for which a Person described in clause (ii) acts in any such capacity. Notwithstanding the foregoing, the terms "ONElist Affiliate" and "eGroups Affiliate" as used in Sections 2.20 and 3.20 hereof, respectively, shall have the meanings assigned to them in said sections. "Person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. (b) ONElist has no Knowledge of any action taken or agreed to be taken by ONElist or any Affiliate of ONElist nor has any Knowledge of any fact or circumstance that is reasonably likely to (a) prevent the Merger from qualifying for pooling-of-interests accounting treatment, or (b) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 6.1(j). 2.22 Year 2000 Compliance. All of ONElist's products and services (including products and services currently under development) to the extent they record, store, process, calculate and present dates, if at all, will record, store, process, calculate and present dates falling on and after January 1, 2000, will calculate any information dependent on or relating to such dates in the same manner and with the same functionality, data integrity and performance as the products record, store, -24- 30 process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates (collectively "Year 2000 Compliant"). All of ONElist's material products and services will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. To the Knowledge of ONElist, all of ONElist's internal computer systems, including without limitation, its accounting systems, are Year 2000 Compliant. 2.23 Representations Complete. None of the representations or warranties made by ONElist (as modified by the ONElist Schedules), nor any statement made in any schedule or certificate furnished by ONElist pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of ONElist in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF EGROUPS AND MERGER SUB As of the date hereof, eGroups and Merger Sub hereby represent and warrant to ONElist, subject to such exceptions as are specifically disclosed in the disclosure schedule supplied by eGroups and Merger Sub to ONElist dated as of the date hereof and attached hereto as Exhibit F (the "eGroups and Merger Sub Schedules"), as follows: 3.1 Organization of eGroups and Merger Sub. eGroups is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. eGroups has the corporate power to own its properties and to carry on its business as now being conducted. eGroups is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on eGroups. eGroups has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to ONElist. Merger Sub has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to ONElist. 3.2 eGroups and Merger Sub Capital Structure. (a) The authorized capital stock of eGroups consists of 20,000,000 shares of authorized Common Stock, of which 7,255,624 shares are issued and outstanding, 1,620,000 shares of authorized Series A Preferred Stock, of which 1,620,000 shares are issued and outstanding, and 3,600,000 shares of authorized Series B Preferred Stock, of which 3,556,772 are issued and outstanding. The shares of the capital stock of eGroups are held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 3.2(a). All outstanding shares of eGroups Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not -25- 31 subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of eGroups or any agreement to which eGroups is a party or by which it is bound. (b) The authorized capital stock of Merger Sub consists of 1,000 shares of authorized Common Stock, all of which are issued and outstanding and held of record by eGroups. All outstanding shares of the capital stock of Merger Sub are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of Merger Sub or any agreement to which the Merger Sub is a party or by which it is bound. (c) eGroups has reserved 2,900,000 shares of Common Stock for issuance to directors, employees and consultants pursuant to eGroups' 1998 Stock Plan ("eGroups Stock Plan"), of which 873,850 shares are subject to outstanding, unexercised options ("eGroups Options") and 82,250 shares remain available for future grant. Schedule 3.2(c) sets forth for each outstanding eGroups Option and eGroups Convertible Security, (i) the name of the holder of such security, (ii) the number of shares of capital stock subject to such security, (iii) the exercise price of such security, (iv) the date of grant of such security, (v) the date on which such security expires, and (vi) whether the exercisability of such security will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except for the eGroups Convertible Securities described in Schedule 3.2(c), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which eGroups is a party or by which it is bound obligating eGroups to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of eGroups or obligating eGroups to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. 3.3 Subsidiaries. Other than Merger Sub and except as set forth on Schedule 3.3, eGroups does not have any subsidiaries and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 3.4 Authority. Subject only to the requisite approval of the Merger and this Agreement by eGroups' shareholders and Merger Sub's shareholder, each of eGroups and Merger Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of eGroups and Merger Sub, subject only to the approval of the Merger by eGroups' stockholders and Merger Sub's shareholder. Each of eGroups' Board of Directors and Merger Sub's Board of Directors have unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by eGroups and Merger Sub and constitutes the valid and binding obligation of eGroups and Merger Sub, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific -26- 32 performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Except as set forth on Schedule 3.4, subject only to the approval of the Merger and this Agreement by eGroups' stockholders and Merger Sub's shareholder, the execution and delivery of this Agreement by eGroups and Merger Sub does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "eGroups Conflict") (i) any provision of the Third Amended and Restated Certificate of Incorporation (the "Third Amended and Restated Certificate") or Bylaws of eGroups, (ii) any provision of the Articles of Incorporation or Bylaws of Merger Sub, or (iii) any material mortgage, indenture, lease, contract or other material agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to eGroups or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any third party (so as not to trigger any eGroups Conflict) is required by or with respect to eGroups or Merger Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Agreement of Merger with the California Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (iii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 3.4. eGroups, as the sole shareholder of Merger Sub, has voted prior to the Effective Time the shares of Merger Sub's Common Stock in favor of approval of this Agreement, as and to the extent required by applicable law. 3.5 Financial Statements. Schedule 3.5 sets forth eGroups' unaudited balance sheet as of July 31, 1999, and the related unaudited statement of income and cash flow for the twelve month period ended July 31, 1999 (the "eGroups Year-End Financials"), and eGroups' unaudited balance sheet as of September 30, 1999 and the related unaudited statements of income and cash flows for the two months then ended (the "eGroups Interim Financials") (collectively, such financial statements are sometimes referred to herein as "eGroups Financial Statements"). The eGroups Financial Statements have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The eGroups Financial Statements present fairly the financial condition, operating results and cash flows of eGroups as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which will not be material in amount or significance. eGroups' unaudited balance sheet dated as of September 30, 1999 shall be referred to as the "eGroups Current Balance Sheet." 3.6 No Undisclosed Liabilities. Except as set forth in Schedule 3.6, eGroups does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the eGroups Current Balance Sheet, or (ii) has not arisen in the ordinary course of eGroups' business since the date of the eGroups Current Balance Sheet, consistent with past practices. -27- 33 3.7 No Changes. Except as set forth in Schedule 3.7, since the date of the eGroups Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by eGroups except in the ordinary course of business as conducted as of the date of the eGroups Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Third Amended and Restated Certificate or Bylaws of eGroups; (c) capital expenditure or commitment by eGroups, either individually or in the aggregate, exceeding $50,000; (d) destruction of, damage to or loss of any material assets, business or customer of eGroups (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by eGroups; (g) revaluation by eGroups of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of eGroups, or any direct or indirect redemption, purchase or other acquisition by eGroups of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of eGroups' officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement or in the ordinary course of business and consistent with past practices; (j) sale, lease, license or other disposition of any of the assets or properties of eGroups, except in the ordinary course of business as conducted on that date and consistent with past practices; (k) material amendment or termination of any material contract, agreement or license to which eGroups is a party or by which it is bound; (l) loan by eGroups to any person or entity, incurring by eGroups of any indebtedness, guaranteeing by eGroups of any indebtedness, issuance or sale of any debt securities of eGroups or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; -28- 34 (m) waiver or release of any right or claim of eGroups, including any write-off or other compromise of any account receivable of eGroups other than in the ordinary course of business; (n) change in pricing or royalties set or charged by eGroups to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to eGroups; (o) event or condition of any character that has or could be reasonably expected to have a Material Adverse Effect on eGroups; or (p) negotiation or agreement by eGroups or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (o) (other than negotiations with ONElist and its representatives regarding the transactions contemplated by this Agreement). 3.8 Tax and Other Returns and Reports. (a) Tax Returns and Audits. Except as set forth in Schedule 3.8: (i) eGroups as of the Effective Time will have prepared and filed all required Returns relating to any and all Taxes concerning or attributable to eGroups or its operations and such Returns are true and correct in all material respects and have been completed in accordance with applicable law. (ii) eGroups as of the Effective Time: (A) will have paid or accrued on the eGroups Interim Financials all Taxes it is required to pay or which are attributable to the period ending September 30, 1999 and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) eGroups has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, assessed, or to its Knowledge proposed against eGroups, nor has eGroups executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of eGroups is currently in progress, nor has eGroups been notified of any request for such an audit or other examination. (v) eGroups does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against in accordance with GAAP on the eGroups Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and eGroups has no Knowledge of any basis for the assertion of any such liability attributable to ONElist, its assets or operations. (vi) eGroups has provided to ONElist copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of eGroups' incorporation. -29- 35 (vii) There are (and as of immediately following the Effective Date there will be) no Liens on the assets of eGroups relating to or attributable to Taxes. (viii) Except as set forth in Schedule 3.8(a)(viii), as of the Effective Time, there will not be any contract, agreement, plan or arrangement, excluding any arrangement to which ONElist or any of its employees are a party, covering any employee or former employee of eGroups that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code as a result of the Merger. (ix) eGroups has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by eGroups. (x) eGroups is not a party to a tax sharing or allocation agreement nor does eGroups owe any amount under any such agreement. (xi) eGroups is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xii) Except as may be required as a result of the Merger, eGroups has not been and will not be required to include any adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing. (xiii) Since September 30, 1999, no Taxes have been incurred except in the ordinary course of business. 3.9 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which eGroups is a party or otherwise binding upon eGroups which has or reasonably could be expected to have the effect of materially prohibiting or impairing any business practice of eGroups, any acquisition of property (tangible or intangible) by eGroups or the conduct of business by eGroups. Without limiting the foregoing, eGroups has not entered into any agreement under which eGroups is restricted from developing, selling, licensing, marketing, promoting or otherwise distributing any products, services or technology to any class of customers, or entering into any strategic alliances, in any geographic area, during any period of time or in any segment of the market. 3.10 Title to Properties; Absence of Liens and Encumbrances. (a) eGroups owns no real property, nor has it ever owned any real property. All such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a default). -30- 36 (b) eGroups has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the eGroups Financial Statements or in Schedule 3.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 3.11 Intellectual Property. (a) For purposes of this Agreement, the following terms have the following definitions: "eGroups Intellectual Property" shall mean any Intellectual Property that is used in eGroups business as currently conducted and as currently proposed to be conducted. "eGroups Registered Intellectual Property" means all of the Registered Intellectual Property owned by, or filed in the name of, eGroups. (b) No material eGroups Intellectual Property or product or service of eGroups is subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation restricting in any manner the use, transfer, or licensing thereof by eGroups, or which may affect the validity, use or enforceability of such eGroups Intellectual Property. (c) Schedule 3.11(c) sets forth a complete and accurate list of all eGroups Registered Intellectual Property as of the date hereof and specifies, where applicable, the jurisdictions in which each such item of eGroups Registered Intellectual Property has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers. Each material item of eGroups Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (d) eGroups owns and has good and exclusive title to, or has license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to, each material item of eGroups Intellectual Property or other Intellectual Property used by eGroups free and clear of any lien or encumbrance (excluding licenses and related restrictions); and, to the Knowledge of eGroups, eGroups is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of the business of eGroups, including the sale of any products or the provision of any services by eGroups. -31- 37 (e) eGroups owns exclusively, and has good title to, all copyrighted works that are eGroups products or which eGroups otherwise expressly purports to own. (f) To the extent that any material Intellectual Property has been developed or created by a third party for eGroups, eGroups has a written agreement with such third party with respect thereto and eGroups thereby either (i) has obtained ownership of, and is the exclusive owner of or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted and as currently proposed to be conducted) to all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment, except to the extent restricted by applicable law. (g) eGroups has not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material to eGroups Intellectual Property, to any third party. (h) Schedule 3.11(h) lists all material contracts, licenses and agreements to which eGroups is a party as of the date hereof (i) with respect to eGroups Intellectual Property licensed or transferred to any third party (other than end-user licenses in the ordinary course); or (ii) pursuant to which a third party has licensed or transferred any material Intellectual Property to eGroups. (i) All material contracts, licenses and agreements relating to eGroups Intellectual Property are in full force and effect. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such contracts, licenses and agreements. eGroups is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements and, to the Knowledge of eGroups, all other parties to such contracts, licenses and agreements are in compliance with, and have not materially breached any term of, such contracts, licenses and agreements. Following the Closing Date, eGroups will be permitted to exercise all of eGroups' rights under such contracts, licenses and agreements to the same extent eGroups would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which eGroups would otherwise be required to pay. (j) To the Knowledge of eGroups, the operation of the business of eGroups as such business currently is conducted, including eGroups' design, development, manufacture, marketing and sale of the products or services of eGroups (including with respect to products and services currently under development) has not, does not and will not infringe or misappropriate the Intellectual Property of any third party in any respect adverse to such party or constitute unfair competition or trade practices under the laws of any jurisdiction in which eGroups currently conducts business. (k) eGroups has not received notice from any third party that the operation of the business of eGroups or any act, product or service of eGroups, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction in which eGroups currently conducts business. -32- 38 (l) To the Knowledge of eGroups, no person has or is infringing or misappropriating, in any respect materially adverse to eGroups, any eGroups Intellectual Property. (m) eGroups has taken reasonable steps to protect eGroups' rights in eGroups' confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to eGroups, and, without limiting the foregoing, eGroups has and enforces a policy requiring each employee and contractor to execute a proprietary information/confidentiality and invention assignment agreement and all current and former employees and contractors of eGroups have executed such an agreement, except where the failure to do so is not reasonably expected to be material to eGroups. 3.12 Agreements, Contracts and Commitments. (a) Except as set forth on Schedule 3.12(a), eGroups does not have, is not a party to nor is it bound by: (i) any collective bargaining agreements; (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations; (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (iv) any material employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any material consulting or sales agreement, contract or commitment under which any firm or other organization provides services to eGroups; (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (vi) any fidelity or surety bond or completion bond; (vii) any lease of personal property having a value individually in excess of $50,000; (viii) any agreement of indemnification or guaranty; (ix) any agreement, contract or commitment containing any covenant limiting the freedom of eGroups to engage in any line of business or to compete with any person; -33- 39 (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $50,000; (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of eGroups' business; (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof; (xiii) any purchase order or contract for the purchase of raw materials involving $50,000 or more; (xiv) any construction contracts; (xv) any distribution, joint marketing or development agreement; (xvi) any agreement pursuant to which eGroups has granted or may grant in the future, to any party, a source-code license or option or other right to use or acquire source-code; or (xvii) any other agreement, contract or commitment that involves $50,000 or more or is not cancelable without penalty within thirty (30) days. (b) Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 3.12(b), eGroups has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 3.12(a), Schedule 3.11(c) or Schedule 3.11(h) (any such agreement, contract or commitment, a "eGroups Contract"). Each eGroups Contract is in full force and effect and, except as otherwise disclosed in Schedule 3.12(b), is not subject to any default thereunder of which eGroups has Knowledge by any party obligated to eGroups pursuant thereto. 3.13 Interested Party Transactions. Except as set forth on Schedule 3.13, (i) no officer, director or, to the Knowledge of eGroups (without any duty to investigate), any stockholder of eGroups has, directly or indirectly, an economic interest worth greater than $25,000 in any entity which furnished or sold, or furnishes or sells, services or products that eGroups furnishes or sells, or proposes to furnish or sell, (ii) no officer, director or, to the Knowledge of eGroups (without any duty to investigate), any stockholder of eGroups has, directly or indirectly, an economic interest worth greater than $25,000 in any entity that purchases from or sells or furnishes to, eGroups, any goods or services or (iii) no officer, director or stockholder of eGroups has, directly or indirectly, a beneficial interest worth greater than $25,000 in any contract or agreement set forth in Schedule 3.12(a), Schedule 3.11(c) or Schedule 3.11(h); provided, that ownership of no more than -34- 40 one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 3.13. For the purposes of this subsection, "officer" and "director" shall include any parent, child, sibling or spouse of any of such persons, or any trust, partnership or corporation in which such officer or director has a controlling interest. 3.14 Compliance with Laws. eGroups has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 3.15 Litigation. Except as set forth in Schedule 3.15, there is no action, suit or proceeding of any nature pending or to eGroups' Knowledge threatened against eGroups, its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 3.15, to eGroups' Knowledge, there is no investigation pending or threatened against eGroups, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 3.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of eGroups to manufacture, offer or sell any of its products in the present manner or style thereof. 3.16 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of eGroups, there is no claim by eGroups pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and eGroups is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). eGroups has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 3.17 Minute Books. The minute books of eGroups made available to counsel for ONElist are the only minute books of eGroups and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of eGroups. 3.18 Environmental Matters. eGroups is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its Knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 3.19 Brokers' and Finders' Fees. eGroups has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. -35- 41 3.20 Employee Matters and Benefit Plans. (a) Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "eGroups Affiliate" shall mean any other corporation, partnership, limited liability company, trade, business, person or other entity that, together with eGroups, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code; (ii) "eGroups Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA, (A) which is or has been sponsored, maintained, contributed to, or required to be contributed to, by eGroups or any eGroups Affiliate for the benefit of any "eGroups Employee" (as defined below), or (B) with respect to which eGroups or any eGroups Affiliate has or could have any material liability or obligation, contingent or otherwise; (iii) "eGroups Employee" shall mean any current, former, or retired employee, officer, or director of eGroups or any eGroups Affiliate; (iv) "eGroups Employee Agreement" shall refer to each written management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between eGroups or any eGroups Affiliate and any eGroups Employee or consultant. Except as set forth on Schedule 3.20(a)(iv), eGroups represents and warrants that there are no oral agreements between eGroups or any Affiliate and any eGroups Employee or consultant pertaining to management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar matters or arrangements; (b) Schedule. Schedule 3.20(b) contains an accurate and complete list of each eGroups Employee Plan and each eGroups Employee Agreement together with a schedule of all liabilities, whether or not accrued, under each such eGroups Employee Plan or eGroups Employee Agreement only to the extent not reflected on the eGroups Current Balance Sheet. eGroups does not have any plan or commitment, whether legally binding or not, to establish any new eGroups Employee Plan or eGroups Employee Agreement, to modify any eGroups Employee Plan or eGroups Employee Agreement (except to the extent required by law or to conform any such eGroups Employee Plan or eGroups Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to eGroups in writing, or as required by this Agreement), or to enter into any eGroups Employee Plan or eGroups Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. There has been no amendment, interpretation or other announcement (written or oral) by eGroups or, to the Knowledge of eGroups, any other Person relating to, or change in participation or coverage under, any eGroups Employee Plan or eGroups Employee Agreement that, either alone or together with other such items or events, could materially increase the expense of maintaining the eGroups Employee Plans and eGroups Employee -36- 42 Agreements above the level of expense incurred with respect thereto for the most recent fiscal year included in the eGroups Financial Statements. (c) Documents. eGroups has provided, or will provide within three (3) days following the execution of this Agreement, to ONElist (i) correct and complete copies of all documents embodying or materially affecting the interpretation or application of each eGroups Employee Plan and each eGroups Employee Agreement including all amendments thereto; (ii) the most recent annual actuarial valuations, if any, prepared for each eGroups Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each eGroups Employee Plan or related trust; (iv) if the eGroups Employee Plan is funded, the most recent annual and periodic accounting of eGroups Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each eGroups Employee Plan which has a material adverse effect on such eGroups Employee Plan; (vi) the most recent IRS determination, opinion, notification or advisory letters as applicable, and rulings relating to eGroups Employee Plans and copies of all applications and correspondence to or from the IRS or the DOL with respect to any eGroups Employee Plan or eGroups Employee Agreement; (vii) all material written agreements and contracts relating to each eGroups Employee Plan and eGroups Employee Agreement, including, but not limited to, trust agreements, administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material distributed to any eGroups Employee or eGroups Employees relating to any eGroups Employee Plan or eGroups Employee Agreement and any proposed eGroups Employee Plan or eGroups Employee Agreement, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to eGroups; and (ix) all registration statements and prospectuses prepared in connection with each eGroups Employee Plan not otherwise publicly available on the SEC website. (d) Employee Plan Compliance. Except as set forth on Schedule 3.20(d), (i) eGroups and, to the Knowledge of eGroups, all other Persons have properly performed in all material respects all obligations required to be performed by them under each eGroups Employee Plan and eGroups Employee Agreement; (ii) each eGroups Employee Plan and eGroups Employee Agreement is, and at all times since inception has been, established, maintained, administered, operated and funded in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (iii) each eGroups Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is, and at all times since inception has been, so qualified, and has either received a favorable determination letter from the IRS with respect to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination; (iv) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, has occurred with respect to any eGroups Employee Plan for which an exemption is not applicable; -37- 43 (v) there are no actions, suits or claims pending, or, to the Knowledge of eGroups, threatened or anticipated (other than routine claims for benefits) against any eGroups Employee Plan or against the assets of any eGroups Employee Plan; and (vi) each eGroups Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to ONElist, eGroups or any eGroups Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vii) there are no audits, inquiries or proceedings pending or, to the Knowledge of eGroups, threatened by the IRS or DOL with respect to any eGroups Employee Plan or eGroups Employee Agreement; (viii) all contributions, premiums and other payments due or required to be paid to (or with respect to) each eGroups Employee Plan have been timely paid, or if not yet due, have been properly accrued on eGroups's books consistent with past practice; and (ix) neither eGroups nor any eGroups Affiliate has incurred, and to the Knowledge of eGroups there exists no condition or set of circumstances in connection with which either eGroups or any eGroups Affiliate could incur, a material liability or expense (except for benefit claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law, statute, order, rule or regulation with respect to any eGroups Employee Plan or eGroups Employee Agreement. (e) Pension Plans. At no time has eGroups or any eGroups Affiliate sponsored, maintained, participated in, or contributed to (or been required to contribute to), any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has eGroups or any eGroups Affiliate contributed to or been requested (or obligated) to contribute to any Multiemployer Plan or Multiple Employer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 3.20(g), neither eGroups nor any eGroups Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any eGroups Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and eGroups has never represented, promised or contracted (whether in oral or written form) to any eGroups Employee (either individually or to eGroups Employees as a group) or any other person that such eGroups Employee(s) or other person would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. The term "other employee welfare benefits" means those benefits traditionally provided under an "employee benefit welfare plan" as defined in ERISA Section 3(1). (h) Health Care Compliance. Neither eGroups nor any eGroups Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such Act, or any similar provisions of state law applicable to its Employees. -38- 44 (i) Effect of Transaction. Except as set forth on Schedule 3.20(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any eGroups Employee Plan, eGroups Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any eGroups Employee. (j) Employment Matters. eGroups (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to eGroups Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to eGroups Employees; (iii) is not liable for any arrears of wages, other than arrears normally included in its payroll schedule and system, or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for eGroups Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against eGroups under any worker's compensation policy or long-term disability policy. To eGroups' Knowledge, no employee of eGroups has violated any employment contract, nondisclosure agreement or noncompetition agreement by which such employee is bound due to such employee being employed by eGroups and disclosing to eGroups or using trade secrets or proprietary information of any other person or entity. (k) Labor. To the Knowledge of eGroups, no work stoppage or labor strike against eGroups is pending or threatened. Except as set forth in Schedule 3.20(k), eGroups is not involved in or, to the Knowledge of eGroups, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any eGroups Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to eGroups. To the Knowledge of eGroups, neither eGroups nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a material liability to eGroups. Except as set forth in Schedule 3.20(k), eGroups is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to eGroups Employees and no collective bargaining agreement is being negotiated by eGroups. 3.21 Accounting and Regulatory Matters. eGroups has no Knowledge of any action taken by eGroups or any Affiliate of eGroups or agreed to be taken nor has any Knowledge of any fact or circumstance that is reasonably likely to (a) prevent the Merger from qualifying for pooling-of-interests accounting treatment, or (b) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 6.1(j). -39- 45 3.22 Year 2000 Compliance. All of eGroups' products and services (including products and services currently under development) to the extent they record, store, process, calculate and present dates, if at all, are Year 2000 Compliant. All of eGroups' material products and services will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. To the Knowledge of eGroups, all of eGroups' internal computer systems, including without limitation, its accounting systems, are Year 2000 Compliant. 3.23 Representations Complete. None of the representations or warranties made by eGroups or Merger Sub (as modified by the eGroups and Merger Sub Schedules), nor any statement made in any schedule or certificate furnished by eGroups or Merger Sub pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the stockholders of eGroups or Merger Sub in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 Conduct of Business of ONElist and eGroups. (a) ONElist Conduct. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, ONElist agrees (except to the extent that eGroups shall otherwise consent in writing or as expressly contemplated herein) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. ONElist shall promptly notify eGroups of any material event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting ONElist or its business. Except as expressly contemplated by this Agreement and except as set forth on Schedule 4.1(a), ONElist shall not, without the prior written consent of eGroups: (i) Enter into any commitment, activity or transaction not in the ordinary course of business; (ii) Transfer to any person or entity any rights to any ONElist Intellectual Property (other than pursuant to end-user licenses in the ordinary course of business); -40- 46 (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of ONElist; (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the ONElist Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of ONElist, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock (or options, warrants or other rights exercisable therefor); (vii) Except as may be required for the issuance of shares of ONElist Capital Stock upon exercise or conversion of presently outstanding ONElist Options and except pursuant to agreements previously entered into and agreements that ONElist will enter into in the ordinary course of business and consistent with past practice in connection with the employment of non-officer employees, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (viii) Cause or permit any amendments to its Articles of Incorporation or Bylaws; (ix) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of ONElist; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice, or create any security interest in such assets or properties; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of ONElist or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments (a) required by law or, (b) with respect to non-officer -41- 47 employees and consultants (i) made pursuant to written agreements outstanding on the date hereof (which such agreements are disclosed on Schedule 4.1(a)(xii)), or (ii) pursuant to ONElist policy in effect on the date hereof and that has been disclosed to eGroups; (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees other than in the ordinary course of business and consistent with past practice; (xiv) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; (xv) Take any action, including the acceleration of vesting of any options, warrants, restricted stock or other rights to acquire shares of the capital stock of ONElist which would be reasonably likely to interfere with eGroups' ability to account for the Merger as a pooling of interests or any other action that could jeopardize the tax-free reorganization hereunder; (xvi) Pay, discharge or satisfy, in an amount in excess of $25,000, in any one case, or $100,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the ONElist Financial Statements or incurred in the ordinary course of business since September 30, 1999; (xvii) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xviii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xix) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (xx) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xxi) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (xxii) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which ONElist directly or indirectly holds any interest on the date hereof; or -42- 48 (xxiii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a)(i) through (xxii) above, or any other action that would prevent ONElist from performing or cause ONElist not to perform its covenants hereunder. (b) eGroups Conduct. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, eGroups agrees (except to the extent that ONElist shall otherwise consent in writing or as expressly contemplated herein) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. eGroups shall promptly notify ONElist of any material event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting eGroups or its business. Except as expressly contemplated by this Agreement and except as set forth on Schedule 4.1(b), eGroups shall not, without the prior written consent of ONElist: (i) Enter into any commitment, activity or transaction not in the ordinary course of business; (ii) Transfer to any person or entity any rights to any eGroups Intellectual Property (other than pursuant to end-user licenses in the ordinary course of business); (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of eGroups; (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the eGroups and Merger Sub Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of eGroups, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock (or options, warrants or other rights exercisable therefor); (vii) Except for the issuance of shares of eGroups capital stock upon exercise or conversion of presently outstanding eGroups Convertible Securities and except pursuant to agreements previously entered into and agreements that eGroups will enter into in the ordinary -43- 49 course of business and consistent with past practice in connection with the employment of non-officer employees, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (viii) Cause or permit any amendments to its Third Amended and Restated Certificate or Bylaws; (ix) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of eGroups; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice, or create any security interest in such assets or properties; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of eGroups or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments (a) required by law or, (b) with respect to non-officer employees and consultants (i) made pursuant to written agreements outstanding on the date hereof (which such agreements are disclosed on Schedule 4.1(b)(xii)), or (ii) pursuant to eGroups policy in effect on the date hereof and that has been disclosed to ONElist; (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees other than in the ordinary course of business and consistent with past practice; (xiv) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; (xv) Take any action, including the acceleration of vesting of any options, warrants, restricted stock or other rights to acquire shares of the capital stock of eGroups which would be reasonably likely to interfere with eGroups' ability to account for the Merger as a pooling of interests or any other action that could jeopardize the tax-free reorganization hereunder; -44- 50 (xvi) Pay, discharge or satisfy, in an amount in excess of $25,000, in any one case, or $100,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the eGroups Financial Statements or incurred in the ordinary course of business since September 30, 1999; (xvii) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xviii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xix) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (xx) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xxi) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (xxii) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which eGroups directly or indirectly holds any interest on the date hereof; or (xxiii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(b)(i) through (xxii) above, or any other action that would prevent eGroups from performing or cause eGroups not to perform its covenants hereunder. 4.2 No ONElist Solicitation. (a) Until the earlier of (i) the Effective Time or (ii) the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, ONElist will not (nor will ONElist permit any of ONElist's employees, officers, directors, advisors, stockholders, agents, representatives or Affiliates to) directly or indirectly, take any of the following actions with any party other than eGroups and its designees: (A) solicit, initiate, entertain, respond to or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of ONElist or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or -45- 51 otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries, (B) provide information with respect to it to any person, other than eGroups, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of ONElist (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries, (C) enter into an agreement with any person, other than eGroups, providing for the acquisition of ONElist (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries, or (D) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of ONElist or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in ONElist or any of its subsidiaries by any person, other than by eGroups. ONElist shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if ONElist receives prior to the Effective Time or the termination of this Agreement any offer or proposal relating to any of the above, ONElist shall immediately notify eGroups thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as eGroups may reasonably request. Except as contemplated by this Agreement, disclosure by ONElist of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.2. (b) Notwithstanding anything to the contrary contained herein, in the event that the Closing has not occurred on or before November 30, 1999, ONElist may engage in the activities set forth in clauses (A) through (D) of Section 4.2(a) solely for the purpose of effecting a private equity or debt financing. 4.3 No eGroups or Merger Sub Solicitation. (a) Until the earlier of (i) the Effective Time or (ii) the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, eGroups and Merger Sub will not (nor will eGroups or Merger Sub permit any of their employees, officers, directors, advisors, stockholders, agents, representatives or Affiliates to) directly or indirectly, take any of the following actions with any party other than ONElist and its designees: (A) solicit, initiate, entertain, respond to or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of eGroups or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries, (B) provide information with respect to it to any person, other than ONElist, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of eGroups (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries, (C) enter into an agreement with any person providing for the acquisition of eGroups (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries, or (D) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of eGroups or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its -46- 52 or their capital stock or assets or any equity interest in eGroups or any of its subsidiaries by any person. eGroups shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if eGroups receives prior to the Effective Time or the termination of this Agreement any offer or proposal relating to any of the above, eGroups shall immediately notify ONElist thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as ONElist may reasonably request. Except as contemplated by this Agreement, disclosure by eGroups of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.3. (b) Notwithstanding anything to the contrary contained herein, in the event that the Closing has not occurred on or before November 30, 1999, eGroups may engage in the activities set forth in clauses (A) through (D) of Section 4.3(a) solely for the purpose of effecting a private equity or debt financing. ARTICLE V ADDITIONAL AGREEMENTS 5.1 ONElist Shareholder and eGroups Stockholder Approvals. (a) As promptly as practicable, ONElist shall submit this Agreement and the transactions contemplated hereby, including without limitation the Merger, to ONElist's shareholders for approval as provided by California law and ONElist's Articles of Incorporation and Bylaws. The materials submitted to ONElist's shareholders shall be subject to review and approval by eGroups and include information regarding eGroups and ONElist, the terms of the Merger and this Agreement and the unanimous recommendation of the Board of Directors of ONElist in favor of the Merger, this Agreement and the transactions contemplated hereby. (b) As promptly as practicable, eGroups shall submit this Agreement and the transactions contemplated hereby, including without limitation the Merger, to eGroups' stockholders for approval and adoption as provided by California law, Delaware law and eGroups' Third Amended and Restated Certificate and Bylaws. The materials submitted to eGroups' stockholders shall include the unanimous recommendation of the Board of Directors of eGroups in favor of the Merger, this Agreement and the transactions contemplated hereby. 5.2 Restrictions on Transfer. (a) All certificates representing Consideration Shares deliverable to any ONElist Shareholder pursuant to this Agreement and in connection with the Merger and any certificates subsequently issued with respect thereto or in substitution therefor (including any shares issued or issuable in respect of any such shares upon any stock split stock dividend, recapitalization, conversion or similar event) shall be stamped or otherwise imprinted with legends in the following form: -47- 53 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THE TRANSFER RESTRICTIONS APPLICABLE TO THESE SHARES ARE BINDING ON TRANSFEREES OF THESE SHARES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED DIRECTLY OR INDIRECTLY FOR SUCH PERIOD OF TIME NOT TO EXCEED ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE EFFECTIVE DATE OF ANY REGISTRATION STATEMENT OF THE ISSUER FILED UNDER THE SECURITIES ACT IN CONNECTION WITH THE INITIAL PUBLIC OFFERING OF THE ISSUER'S COMMON STOCK. (b) The certificates evidencing the Consideration Shares shall also bear any legend required by the Commissioner of Corporations of the State of California or such as are required pursuant to any state, local or foreign law governing such securities. (c) The Consideration Shares will not be registered under the Securities Act in connection with the Merger. (d) No ONElist Shareholder shall be permitted to sell, transfer or otherwise dispose of any Consideration Shares received in the Merger, unless (i) such sale, transfer or other disposition is made in conformity with Rule 145(d) promulgated under the Securities Act, (ii) such sale, transfer or other disposition has been registered under the Securities Act or (iii) eGroups receives a written opinion of counsel reasonably acceptable to it stating that the proposed transfer of the Consideration Shares may be effected without registration under the Securities Act. (e) Each ONElist Shareholder agrees that, during the period of duration (up to, but not exceeding, one hundred eighty (180) days) specified by eGroups and an underwriter of common stock or other securities of eGroups, following the effective date of a registration statement of eGroups filed under the Securities Act of 1933, as amended, it shall not, to the extent requested by eGroups and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of eGroups held by it at any time during such period except Common Stock included in such registration; provided, however that (i) such agreement shall be applicable only to the first such registration statement of eGroups which covers common stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and -48- 54 (ii) all officers and directors of eGroups, all one percent security holders, and all other persons with registration rights (whether or not pursuant to the Investors Rights Agreement (as defined below)) enter into similar agreements. In order to enforce the foregoing covenant, eGroups may impose stop-transfer instructions with respect to any registrable securities (and the shares of securities of every other person subject to the foregoing restriction) until the end of such period, and each holder of registrable securities shall execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 5.2(e) Notwithstanding the foregoing, the obligations described in this Section 5.2(e) shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 5.3 Access to Information. Each party shall afford the others and its accountants, counsel and other representatives, and with respect to clause (b) below, shall cause its accountants to afford, reasonable access during normal business hours during the period prior to the Effective Time to: (a) all of its properties, books, personnel, contracts, commitments and records; (b) the accountants of the other party, the audit work papers and other records of the accounts of such party; and (c) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of it as the others may reasonably request. No information or knowledge obtained in any investigation pursuant to this Section 5.3 shall affect or be deemed to modify any representation or warranty contained herein. 5.4 Confidentiality. Each of the parties hereto hereby agrees to keep the terms of this Agreement (except to the extent contemplated hereby) and such information or knowledge obtained in any investigation pursuant to Section 5.3, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, confidential; provided, however, that the foregoing shall not apply to information or knowledge which: (a) a party can demonstrate, through its written records in existence prior to the date hereof, was already lawfully in its possession prior to the disclosure thereof by the other party; (b) is generally known to the public and did not become so known through any violation of law; (c) became known to the public through no fault, action or inaction of the party receiving the information; (d) is later lawfully acquired by the receiving party without confidentiality restrictions from other sources; (e) is required to be disclosed by order of court or government agency with subpoena powers (provided that such party shall have provided the other party with prior notice of such order or subpoena and an opportunity to object or take other available action); or (f) which is disclosed in the course of any litigation between any of the parties hereto. In the event that this Agreement is terminated in accordance with Section 8.1 hereof, the parties agree that that certain letter agreement by and between ONElist and eGroups dated October 14, 1999 (a true and complete copy of which is attached hereto as Exhibit M and is hereby incorporated by reference and made a part hereof) (the "Letter Agreement") shall remain in full force and effect. In the event of any conflict between the terms of the Letter Agreement and this Agreement, the terms of the Letter Agreement shall control. -49- 55 5.5 Expenses. (a) Third Party Expenses. In the event the Merger is not consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. (b) Brokers' or Finders' Fees. Each party hereto shall indemnify and hold the other party harmless from any claim for brokers' fees or finders' fees arising out of the transactions contemplated hereby by any Person claiming to have been engaged by the indemnifying party. 5.6 Public Disclosure. Unless otherwise required by law (including, without limitation, federal and state securities laws) prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto unless approved by eGroups and ONElist prior to release, provided that such approval shall not be unreasonably withheld. The parties will mutually agree in advance on the form, timing and contents of announcements and disclosures regarding the Merger. 5.7 Consents. eGroups and ONElist shall use commercially reasonable efforts to obtain the consents, waivers and approvals under any of the eGroups Contracts and ONElist Contracts as may be required in connection with the Merger (all of such consents, waivers and approvals are set forth in the ONElist Schedules and eGroups and Merger Sub Schedules) so as to preserve all rights of and benefits to eGroups and ONElist thereunder. 5.8 FIRPTA Compliance. On or prior to the Closing Date, ONElist shall deliver to eGroups a properly executed statement in a form reasonably acceptable to eGroups for purposes of satisfying eGroups' obligations under Treasury Regulation Section 1.1445-2(c)(3). 5.9 Reasonable Efforts. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use commercially reasonable efforts to ensure that its representations and warranties remain true and correct in all material respects, and to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement. 5.10 Notification of Certain Matters. ONElist shall give prompt notice to eGroups, and eGroups shall give prompt notice to ONElist, of (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of ONElist, eGroups or Merger Sub, respectively, contained in this Agreement to be untrue or -50- 56 inaccurate at or prior to the Effective Time and (ii) any failure of ONElist or eGroups, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.10 shall not limit or otherwise affect any remedies available to the party receiving such notice. No disclosure pursuant to this Section 5.10 shall be deemed to amend or supplement the ONElist Schedules or the eGroups and Merger Sub Schedules, as the case may be, or prevent or cure any misrepresentation, breach of warranty or breach of covenant. 5.11 Certain Benefit Plans. Subject to compliance with pooling-of-interest accounting treatment of the Merger, eGroups shall take such reasonable actions as are necessary to allow eligible employees of ONElist to participate in the benefit programs of eGroups provided to similarly situated employees of eGroups, or alternative benefits programs substantially comparable to those provided to similarly situated employees of eGroups, as soon as reasonably practicable after the Effective Time. For purposes of participation and vesting under eGroups' employee benefit plans, the service with ONElist of the employees of ONElist prior to the Effective Time shall be treated as service with eGroups. eGroups shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance, consulting and other compensation contracts or agreements disclosed in the ONElist Schedules between ONElist and any current or former director, officer or employee thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the ONElist Benefit Plans. 5.12 Accounting and Tax Treatment. Each of the parties undertakes and agrees to use its reasonable efforts to cause the Merger, and to take no action which would cause the Merger not, to qualify for treatment as a pooling of interests for accounting purposes and each of the parties agrees to take no action which would cause the Merger not to qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes. 5.13 Additional Documents and Further Assurances. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. 5.14 ONElist's Auditors. ONElist will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any ONElist audit work papers for up to the past three years, including selected interim financial statements and data and (ii) the delivery of such representations from ONElist's independent accountants as may be reasonably requested by eGroups or its accountants in order for eGroups' accountants to render the opinion called for by Section 6.1(m) hereof. 5.15 eGroups' Auditors. eGroups will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any eGroups audit or review work papers for up to the past three years, including the examination of selected interim financial statements and data and (ii) the delivery of such representations from eGroups' independent accountants as may be reasonably requested by ONElist or its accountants in order for ONElist's accountants to render the opinion called for by Section 6.1(m) hereof. -51- 57 5.16 Agreement of Affiliates. ONElist and eGroups have disclosed in Schedule 5.16 of the ONElist Schedules and the eGroups and Merger Sub Schedules, respectively, each Person whom such party reasonably believes is an Affiliate of such party. If the Merger is accounted for using the pooling-of-interests method of accounting, shares of eGroups Common Stock held by such Persons shall not be transferable until such time as financial results covering at least 30 days of combined operations of eGroups and ONElist have been published within the meaning of Section 201.01 of the SEC's Codification of Financial Reporting Policies (and eGroups shall be entitled to place restrictive legends upon certificates for shares of eGroups Common Stock issued to Affiliates of ONElist pursuant to this Agreement to enforce the provisions of this Section 5.16). 5.17 Voting Agreements. (a) Concurrently with the execution of this Agreement, eGroups shall cause those of its stockholders listed on Exhibit A hereto to execute Voting Agreements in the form attached hereto as Exhibit K, whereby each such stockholder agrees to vote, whether at a meeting of stockholders or pursuant to a written consent, all shares of eGroups Capital Stock held by such stockholder and by affiliates controlled by such stockholder in favor of the Merger, this Agreement and the transactions contemplated by this Agreement. (b) Concurrently with the execution of this Agreement, ONElist shall cause those of its shareholders listed on Exhibit B hereto to execute Voting Agreements in the form attached hereto as Exhibit L, whereby each such shareholder agrees to vote, whether at a meeting of shareholders or pursuant to a written consent, all shares of ONElist Capital Stock held by such shareholder and by affiliates controlled by such shareholder in favor of the Merger, this Agreement and the transactions contemplated by this Agreement. 5.18 Indemnification. (a) For a period of three years after the Effective Time, eGroups shall, and shall cause the Surviving Corporation to, indemnify, defend and hold harmless the present and former directors, officers, employees and agents of ONElist (each, an "Indemnified Party") against all liabilities arising out of actions or omissions arising out of the Indemnified Party's service or services as directors, officers, employees or agents of ONElist occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the fullest extent permitted under California law and by ONElist's Articles of Incorporation and Bylaws as in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any litigation and whether or not eGroups is insured against any such matter. Without limiting the foregoing, in any case in which approval by the Surviving Corporation is required to effectuate any indemnification, the Surviving Corporation shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually and reasonably agreed upon between eGroups and the Indemnified Party. (b) This Section 5.18 shall survive the Effective Time and is intended to benefit ONElist, the Surviving Corporation and each of the Indemnified Parties and shall be binding upon -52- 58 all successors and assigns (whether by operation of law or by contract) of eGroups and the Surviving Corporation for the period specified above. ARTICLE VI CONDITIONS TO THE MERGER 6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) ONElist Shareholder Approval. This Agreement and the Merger shall have been approved by the ONElist Shareholders by the requisite vote under applicable law and ONElist's Articles of Incorporation and Bylaws. (b) eGroups Stockholder Approval. This Agreement, the Merger and the Fourth Amended and Restated Certificate of eGroups shall have been approved and adopted by the stockholders of eGroups by the requisite vote under applicable law and eGroups' Third Amended and Restated Certificate and Bylaws. (c) eGroups Fourth Amended and Restated Certificate. The Fourth Amended and Restated Certificate of eGroups shall have been filed with the Secretary of State of the State of Delaware. (d) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. (e) Dissenters Rights. Holders of more than ten percent (10%) of the outstanding shares of ONElist Capital Stock and eGroups Capital Stock, on an aggregate basis, shall not have exercised, nor shall they have any continued right to exercise, appraisal rights under applicable law with respect to their shares by virtue of the Merger. (f) Tax Opinions. eGroups and ONElist shall each have received written opinions from their respective tax counsel (Perkins Coie LLP ("Perkins Coie") and WSGR, respectively), in form and substance reasonably satisfactory to them, to the effect that the Merger will constitute a tax-free reorganization within the meaning of Section 368(a) of the Code and such opinions shall not have been withdrawn. The parties to this Agreement agree to make reasonable representations (and to cause their Affiliates to make reasonable representations) as requested by counsel for the purpose of rendering the opinions discussed herein. -53- 59 (g) Investors Rights Agreement. The First Amended and Restated Investors Rights Agreement, dated as of December 17, 1998 (the "Investors Rights Agreement"), by and among eGroups and certain holders of eGroups' securities shall have been amended, in substantially the form attached hereto as Exhibit I, and executed by eGroups, the shareholders of ONElist who possess registration rights pursuant to written agreements existing on the date hereof with respect to certain securities of ONElist, and a sufficient number of the existing holders of registration rights with respect to eGroups' securities in order to permit the granting of such rights to such ONElist shareholders under the Investors Rights Agreement. (h) Co-Sale Agreement. The First Amended and Restated Co-Sale Agreement, dated as of December 17, 1998 (the "Co-Sale Agreement"), by and among eGroups and certain holders of eGroups' securities shall have been amended, in substantially the form attached hereto as Exhibit J, and executed by eGroups, the shareholders of ONElist who possess co-sale rights pursuant to written agreements existing on the date hereof with respect to certain securities of ONElist, and a sufficient number of the existing holders of co-sale rights with respect to eGroups' securities in order to permit the granting of such rights to such ONElist shareholders under the Co-Sale Agreement. (i) Termination of Prior Agreements. ONElist shall have terminated its: (i) Rights Agreement by and among ONElist and certain holders of its capital stock, dated as of December 28, 1998 and amended as of February 26, 1999; and (ii) Right of First Refusal and Co-Sale Agreement by and among ONElist and certain holders of its capital stock, dated as of December 28, 1998 and amended as of February 26, 1999. (j) Governmental Approvals. All approvals from Governmental Entities, including without limitation any requisite Blue Sky approvals, which are appropriate or necessary for the consummation of the Merger, shall have been obtained. (k) Litigation. There shall be no bona fide action, suit, claim or proceeding of any nature pending, or overtly threatened, against eGroups or ONElist, their respective properties or any of their officers or directors, arising out of, or in any way connected with, the Merger or other transactions contemplated by the terms of this Agreement. (l) Consents and Approvals. Each party hereto shall have obtained any and all consents required for consummation of the Merger or for the preventing of any breach of or default under any ONElist Contract or eGroups Contract, as the case may be, or any other contract or agreement to which either party is a party or to which it is bound, which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on either ONElist or eGroups, as applicable. No consent so obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of either party would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such party would not, in its reasonable judgment, have entered into this Agreement. (m) Pooling Letters. -54- 60 (i) eGroups shall have received from Ernst & Young LLP ("Ernst & Young"), independent auditors for eGroups, a letter dated as of the Closing Date (which may contain customary qualifications and assumptions), to the effect that Ernst & Young concurs with eGroups' management's conclusion that eGroups may account for the Merger as a pooling of interests under Accounting Principles Board Opinion No. 16, and ONElist shall have received a copy of said letter. (ii) ONElist shall have received from PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), independent auditors for ONElist, a letter dated as of the Closing Date (which may contain customary qualifications and assumptions), to the effect that PricewaterhouseCoopers concurs with ONElist's management's conclusion that no conditions exist related to ONElist that would preclude eGroups from accounting for the Merger as a pooling of interests under Accounting Principles Board Opinion No. 16. (n) Affiliate Agreements. Each of the persons and entities listed as Affiliates of eGroups on Schedule 5.16 shall have executed and delivered Affiliate Agreements in substantially the form of Exhibit G, and each of the persons and entities listed as Affiliates of ONElist on Schedule 5.16 shall have executed and delivered Affiliate Agreements in substantially the form of Exhibit H, and all such Affiliate Agreements shall be in full force and effect. 6.2 Additional Conditions to Obligations of ONElist. The obligations of ONElist to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by ONElist: (a) Representations and Warranties. The representations and warranties of eGroups and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties that are qualified by references to "material" or "Material Adverse Effect" which all shall be true and correct in all respects, and except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on eGroups; and ONElist shall have received a certificate to such effect signed on behalf of eGroups by the chief executive officer and chief financial officer of eGroups. (b) Agreements and Covenants. eGroups and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time, and ONElist shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of eGroups. (c) Third Party Consents. ONElist shall have been furnished with evidence satisfactory to it that eGroups has obtained the consents, approvals and waivers set forth in Schedule 6.2(c) to the eGroups and Merger Sub Schedules. -55- 61 (d) Exchange Agent Certification. The Exchange Agent shall have delivered to ONElist a certificate, dated as of the Effective Time, to the effect that the Exchange Agent has received from eGroups appropriate instructions and authorization for the Exchange Agent to issue a sufficient number of shares of eGroups Common Stock and eGroups Series C Preferred Stock in exchange for outstanding shares of ONElist Capital Stock. (e) Legal Opinion. ONElist shall have received a legal opinion from Perkins Coie, counsel to eGroups, in form and substance mutually agreed upon with WSGR. (f) Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial conditions or results of operations of eGroups since the date of the eGroups Current Balance Sheet. (g) Indemnification. The Articles of Incorporation of Merger Sub shall contain officer and director indemnification provisions that are substantially similar to the officer and director indemnification provisions contained in ONElist's Articles of Incorporation in the form delivered to eGroups on the date of this Agreement. (h) Due Diligence Investigation. ONElist shall have completed its due diligence investigation of eGroups to ONElist's reasonable satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of eGroups contained herein. In this regard, ONElist's due diligence investigation shall be conclusively deemed to have been completed to ONElist's reasonable satisfaction in the event that the preliminary eGroups Schedules attached hereto are not subsequently modified, or otherwise do not require subsequent modification in order to make eGroups' representations and warranties true and correct in all material respects on and as of the Closing Date. (i) Termination of 401(k) Plan. If agreed to in writing by both ONElist and eGroups at least three (3) days prior to the Closing Date, eGroups and its Affiliates, if applicable, shall terminate its or their 401(k) plan(s) immediately prior to Closing. If the parties so agree, eGroups shall provide to ONElist evidence that the eGroups' and each Affiliate's (if applicable) 401(k) plans have been terminated pursuant to resolutions of each such entity's Board of Directors (the form and substance of which resolutions shall be subject to review and approval by both ONElist and eGroups, effective immediately preceding the Closing. (j) Amendment to Comdisco Agreement. ONElist shall have received evidence satisfactory to it that eGroups and Comdisco have amended Section 1.33 of that certain Subordinated Loan and Security Agreement dated as of October 8, 1999 between eGroups and Comdisco to read as follows: "`Preferred Stock' means the Borrower's Series D Preferred Stock." 6.3 Additional Conditions to the Obligations of eGroups and Merger Sub. The obligations of eGroups and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by eGroups: -56- 62 (a) Representations and Warranties. The representations and warranties of ONElist contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties that are qualified by references to "material" or "Material Adverse Effect" which all shall be true and correct in all respects, and except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on ONElist or eGroups; and eGroups and Merger Sub shall have received a certificate to such effect signed on behalf of ONElist by the chief executive officer and chief financial officer of ONElist. (b) Agreements and Covenants. ONElist shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and eGroups and Merger Sub shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of ONElist. (c) Third Party Consents. eGroups shall have been furnished with evidence satisfactory to it that ONElist has obtained the consents, approvals and waivers set forth in Schedule 6.3(c) to the ONElist Schedules. (d) Legal Opinion. eGroups shall have received a legal opinion from WSGR, in form and substance mutually agreed upon with Perkins Coie. (e) Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial conditions or results of operations of ONElist since the date of the eGroups Current Balance Sheet. (f) Due Diligence Investigation. eGroups shall have completed its due diligence investigation of ONElist to eGroups' reasonable satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of ONElist contained herein. In this regard, eGroups' due diligence investigation shall be conclusively deemed to have been completed to eGroups' reasonable satisfaction in the event that the preliminary ONElist Schedules attached hereto are not subsequently modified, or otherwise do not require subsequent modification, in order to make ONElist's representations and warranties true and correct in all material respects on and as of the Closing Date. (g) Termination of 401(k) Plan. If agreed to in writing by both ONElist and eGroups at least three (3) days prior to the Closing Date, ONElist and its Affiliates, if applicable, shall terminate its or their 401(k) plan(s) immediately prior to Closing. If the parties so agree, ONElist shall provide to eGroups evidence that the ONElist's and each Affiliate's (if applicable) 401(k) plans have been terminated pursuant to resolutions of each such entity's Board of Directors (the form and substance of which resolutions shall be subject to review and approval by both ONElist and eGroups, effective immediately preceding the Closing. -57- 63 (h) Proprietary Information and Inventions Agreements. Each of ONElist's employees, including Ed Struzenberg, Scott Shambarger, Marcus Riecke, Frank Mara and Mark Fletcher, will have executed the ONElist form proprietary information and inventions agreement. ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES 7.1 Non-Survival of Representations and Warranties. All of the representations and warranties of ONElist, eGroups and Merger Sub contained in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the corresponding schedules thereto) shall terminate at the Effective Time. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. Except as provided in Section 8.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) by mutual consent of ONElist and eGroups; (b) by eGroups or ONElist if: (i) the Effective Time has not occurred before 5:00 p.m. (Pacific time) on December 31, 1999 (provided that the right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party whose failure to use its commercially reasonable efforts to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any governmental entity that would make consummation of the Merger illegal; (c) by eGroups or ONElist if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit eGroups' or ONElist's ownership or operation of all or any portion of the business of ONElist or (ii) compel eGroups or ONElist to dispose of or hold separate all or a portion of the business or assets of ONElist or eGroups as a result of the Merger; (d) by eGroups if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of ONElist and (i) such breach has not been cured within fifteen (15) days after written notice to ONElist (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied; or -58- 64 (e) by ONElist if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of eGroups or Merger Sub and (i) such breach has not been cured within fifteen (15) days after written notice to eGroups (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied. Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of eGroups, Merger Sub or ONElist, or their respective officers, directors or shareholders, provided that each party shall remain liable for any breaches of this Agreement prior to its termination; and provided further that, the provisions of Sections 5.4, 5.5 and 8.2 and Article IX of this Agreement shall remain in full force and effect and survive any termination of this Agreement. 8.3 Amendment. Except as is otherwise required by applicable law after the shareholders of ONElist and the stockholders of eGroups approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 8.4 Extension; Waiver. At any time prior to the Effective Time, eGroups and Merger Sub, on the one hand, and ONElist, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): -59- 65 (i) if to ONElist, to: ONElist, Inc. 2688 Middlefield Road, Unit C Redwood City, California 94063 Attention: Michael B. Klein Telephone No.: (650) 216-3379 Facsimile No.: (650) 216-3399 with a copy to: Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California 94304 Attention: Henry P. Massey, Jr., Esq. Michael S. Russell, Esq. Telephone No.: (650) 493-9300 Facsimile No.: (650) 493-6811 (ii) if to eGroups or Merger Sub, to: eGroups, Inc. 350 Brannan Street San Francisco CA 94107 Attention: Chief Executive Officer Telephone No.: (415) 546-2700 Facsimile No.: (415) 546-2801 with a copy to: Perkins Coie LLP 135 Commonwealth Drive Menlo Park, CA 94025 Attention: Buddy Arnheim, Esq. Telephone No.: (650) 752-6000 Facsimile No.: (650) 752-6050 9.2 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more -60- 66 counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 9.4 Entire Agreement; Assignment. This Agreement, the Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder (except with respect to Section 5.18); and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that eGroups and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective Affiliates. 9.5 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.6 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 9.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.9 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. -61- 67 IN WITNESS WHEREOF, eGroups, Merger Sub, and ONElist have caused this Agreement to be signed by their duly authorized respective officers and representatives, all as of the date first written above. ONELIST, INC. EGROUPS, INC. By: By: --------------------------- --------------------------------- Name: Name: Title: Title: EG ACQUISITION CORPORATION By ---------------------------------- Name: Title: SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION EX-3.1 4 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EGROUPS, INC. The undersigned, Michael Klein and Margaret Nibbi hereby certify that: 1. They are the duly elected and acting Chief Executive Officer and Secretary, respectively, of eGroups, Inc., a Delaware corporation (the "Corporation"). 2. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of Delaware on June 5, 1998 under the name Findmail Communications, Inc. 3. The Certificate of Incorporation of the Corporation shall be amended and restated to read in full as follows: ARTICLE I "The name of this corporation is eGroups, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) CLASSES OF STOCK. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is Sixty Million Five Hundred Thousand (60,500,000) each with a par value of $0.001 per share. Forty Three Million (43,000,000) shall be Common Stock and Seventeen Million Five Hundred Thousand (17,500,000) shall be Preferred Stock. (B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized by this Fifth Amended and Restated Certificate of Incorporation may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated "Series A Preferred Stock" and shall consist of One Million Six Hundred Twenty Thousand 2 (1,620,000) shares. The second series of Preferred Stock shall be designated "Series B Preferred Stock" and shall consist of Three Million Six Hundred Thousand (3,600,000) shares. The third series of Preferred Stock shall be designated "Series C Preferred Stock" and shall consist of Seven Million Two Hundred Eighty Thousand Eight Hundred Eleven (7,280,811) shares. The fourth series of Preferred Stock shall be designated "Series D Preferred Stock" and shall consist of Four Million Five Hundred Twenty Thousand (4,520,000) shares. The remaining shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the corporation (the "Board of Directors") is expressly authorized to provide for the issue of all or any of the remaining shares of Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares (a "Preferred Stock Designation") and as may be permitted by the General Corporation Law of the State of Delaware. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series other than the Series A, Series B, Series C or Series D Preferred Stock subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock are as set forth below in this Article IV(B). 1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, contemporaneously as to each other and prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock of the Corporation, at the rate as follows: (a) holders of the Series A Preferred Stock shall be entitled to receive dividends at an annual rate of $0.04 per share of Series A Preferred Stock; (b) holders of the Series B Preferred Stock shall be entitled to receive dividends at an annual rate of $0.115 per share of Series B Preferred Stock; (c) holders of the Series C Preferred Stock shall be entitled to receive dividends at an annual rate of $0.04994 per share of Series C Preferred Stock; and (d) holders of the Series D Preferred Stock shall be entitled to receive dividends at an annual rate of $ 0.9261 per share (in each case adjusted to reflect subsequent stock dividends, stock splits or recapitalizations) when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. 2. LIQUIDATION. (a) PREFERENCE. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be -2- 3 entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to $0.50, $1.43955, $0.55626 and $10.29, respectively, per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus declared but unpaid dividends on such shares. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the preferential amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) REMAINING ASSETS. Upon the completion of the distribution required by Section 2(a) above, the remaining assets of the Corporation available for distribution to stockholders shall be distributed on a pro rata basis to the holders of Common Stock based on the number of shares of Common Stock held by each. (c) CERTAIN ACQUISITIONS. (i) DEEMED LIQUIDATION. For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (B) a sale of all or substantially all of the assets of the Corporation, unless the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity in approximately the same relative percentages after such acquisition or sale as before such acquisition or sale. (ii) VALUATION OF CONSIDERATION. In the event of a deemed liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and -3- 4 (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (iii) NOTICE OF TRANSACTION. The Corporation shall give each holder of record of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock written notice of such impending transaction not later than ten (10) days prior to the stockholders' meeting called to approve such transaction, or ten (10) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than ten (10) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of each class of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such series of Preferred Stock. (iv) EFFECT OF NONCOMPLIANCE. In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2(c)(iii) hereof. 3. REDEMPTION. The Preferred Stock is not redeemable. 4. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Subject to Section 4(c), each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) $0.50, in the case of the Series A Preferred Stock; (ii) $1.43955, in the case of the Series B Preferred -4- 5 Stock; (iii) $0.55626 in the case of the Series C Preferred Stock; and (iv) $10.29 in the case of the Series D Preferred Stock, by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Series A Conversion Price shall be $0.50 per share, the initial Series B Conversion Price shall be $1.43955 per share, the initial Series C Conversion Price shall be $0.55626 per share and the initial Series D Conversion Price shall be $10.29. The Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall each be subject to adjustment as set forth in Section 4(d). (b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall automatically be converted into shares of Common Stock at the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price, as applicable, at the time in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, resulting in aggregate gross offering proceeds to the Corporation (before expenses, discounts or commissions) of at least $20,000,000 and an offering price of not less than $15.44 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock voting together as a single class. (c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be), and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. In the event of an automatic conversion pursuant to Section 4(b), the outstanding shares of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall be converted automatically without any further action by the holder of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or the transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be); and the Corporation shall not be obliged to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing the shares of Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D -5- 6 Preferred Stock are either delivered to the Corporation or the transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be) as provided above, or the holder notifies the Corporation or the transfer agent for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (as the case may be) that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable thereafter, issue and deliver to such address as the holder may direct, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. If the conversion is in connection with a public offering of securities described in Section 4(b), the conversion shall be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, and the conversion shall not be deemed to have occurred until immediately prior to the closing of such sale of securities. (d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN SPLITS AND COMBINATIONS. The Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall be subject to adjustment from time to time as follows: (i) In the event the Corporation should at any time or from time to time after the date on which the Fifth Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware (the "Purchase Date") fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. -6- 7 (e) OTHER DISTRIBUTIONS. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(i), then, in each such case for the purpose of this Section 4(e), the holders of Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) RECAPITALIZATIONS. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2), provision shall be made so that the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (g) NO IMPAIRMENT. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. (h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock the holder -7- 8 is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock (i) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. -8- 9 (k) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 5. VOTING RIGHTS. (a) GENERAL. The holder of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) VOTING FOR THE ELECTION OF DIRECTORS. The Board of Directors will consist of seven (7) members, two (2) of which will be elected by the holders of a majority of the shares of the Common Stock, voting as a separate class, one (1) of which will be elected by the holders of a majority of the shares of the Series A Preferred Stock, voting as a separate class, one (1) of which will be elected by the holders of a majority of the shares of the Series B Preferred Stock, voting as a separate class, two (2) of which will be elected by the holders of a majority of the shares of the Series C Preferred Stock, voting as a separate class, and one (1) of which will be elected by the holders of a majority of the Common Stock and Preferred Stock, voting together as one class. Any vacancy in the Board of Directors occurring because of the death, resignation or removal of a Director shall be filled by the vote or written consent of the holders of the class entitled to fill such seat as provided in this Section 5(b). 6. PROTECTIVE PROVISIONS. (a) Subject to the rights of series of Preferred Stock which may from time to time come into existence, so long as greater than 4,375,000 shares of Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at a majority of the then outstanding shares of Preferred Stock, voting together as a single class: (i) sell, convey or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty (50%) of the voting power of this Corporation is disposed of; -9- 10 (ii) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on parity with, the outstanding Preferred Stock; (iii) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (iv) amend this Corporation's Fifth Amended and Restated Certificate of Incorporation or Bylaws; (v) increase the authorized number of directors of this Corporation; or (vi) declare or pay dividends on shares of the Corporation's Common Stock. (b) So long as at least 405,000 shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series A Preferred Stock then outstanding, voting as a single class: (i) alter or change the rights, preferences and privileges of the shares of Series A Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series A Preferred Stock. (c) So long as at least 900,000 shares of Series B Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series B Preferred Stock then outstanding, voting as a single class: (i) alter or change the rights, preferences and privileges of the shares of Series B Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series B Preferred Stock. (d) So long as at least 1,800,000 shares of Series C Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series C Preferred Stock then outstanding, voting as a single class: -10- 11 (i) alter or change the rights, preferences and privileges of the shares of Series C Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series C Preferred Stock. (e) So long as at least 1,130,000 shares of Series D Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval, by vote or written consent, in the manner provided by law, of the holders of a majority of the total number of shares of Series D Preferred Stock then outstanding, voting as a single class: (i) alter or change the rights, preferences and privileges of the shares of Series D Preferred Stock so as to affect adversely such shares; or (ii) increase the total number of authorized shares of Series D Preferred Stock. 7. STATUS OF CONVERTED STOCK. In the event any shares of Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. The Fifth Amended and Restated Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. (C) COMMON STOCK. 1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Division (B) of this Article IV. 3. REDEMPTION. The Common Stock is not redeemable. 4. VOTING RIGHTS. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE V Except as otherwise provided in this Fifth Amended and Restated Certificate of Incorporation in furtherance and not in limitation of the powers conferred by statute, the Board of -11- 12 Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation. ARTICLE VI Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation. ARTICLE VII (A) To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation. (C) Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of the Corporation's Fifth Amended and Restated Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision." * * * -12- 13 The foregoing Fifth Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at San Francisco, California, on December ___, 1999. ---------------------------------------- Michael Klein President and Chief Executive Officer ---------------------------------------- Margaret Nibbi Secretary EX-3.2 5 FORM OF CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EGROUPS, INC. The undersigned, Michael Klein and Margaret Nibbi, certify that: 1. They are the duly elected President and Secretary, respectively, of eGroups, Inc., a Delaware corporation. 2. The corporation was originally incorporated in Delaware, and the original certificate of incorporation (the "Original Certificate") was filed with the Secretary of State of Delaware on June 5, 1998. 3. Pursuant to Sections 228, 242 and 245 of the Delaware General Corporation Law, this Amended and Restated Certificate of Incorporation amends and restates the provisions of the Original Certificate. 4. The Certificate of Incorporation of this corporation is hereby amended and restated to read in full as follows: ARTICLE I The name of this corporation is "eGroups, Inc." ARTICLE II The address of the corporation's registered office in the State of Delaware is 15 East North Street, in the city of Dover, county of Kent, 19909. The name of its registered agent at such address is Incorporating Services, Ltd. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law. ARTICLE IV A. CLASSES OF STOCK The corporation is authorized to issue two classes of stock, to be designated as "Preferred Stock," $0.001 par value, and "Common Stock," $0.001 par value, respectively. The total number of shares that the corporation is authorized to issue is 160,000,000 shares. The number of shares of Preferred Stock authorized is 10,000,000 shares, and the number of shares of Common Stock authorized is 150,000,000 shares. 2 B. RIGHTS AND RESTRICTIONS OF COMMON STOCK (a) The Common Stock is not redeemable. (b) The holder of each share of Common Stock shall have the right to one vote and shall be entitled to notice of any stockholders' meeting in accordance with the Amended and Restated Bylaws of the corporation, and shall be entitled to vote upon such matters and in such manner as provided by law. C. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the corporation's Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. D. AUTHORITY OF BOARD OF DIRECTORS WITH RESPECT TO STOCK MATTERS The authority of the Board of Directors with respect to each class or series of stock shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of any such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation; -2- 3 (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible or not, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the corporation, acting in accordance with this Amended and Restated Certificate of Incorporation, may deem advisable and are not inconsistent with law and the provisions of this Amended and Restated Certificate of Incorporation. ARTICLE V The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE VI The corporation is to have perpertual existence. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. ARTICLE VIII 1. Limitation on Directors' Liability. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. -3- 4 2. Indemnification. The corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the corporation, or any predecessor of the corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. 3. Amendments. Neither any amendment nor repeal of this Article VIII. nor the adoption of any provision of the corporation's Amended and Restated Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent position. ARTICLE IX In the event any shares of Preferred Stock shall be redeemed or converted, the shares so converted or redeemed shall not revert to the status of authorized but unissued shares, but instead shall be canceled and shall not be re-issuable by the corporation. ARTICLE X Holders of stock of any class or series of the corporation shall not be entitled to cumulate their votes for the election of directors or any other matter submitted to a vote of the stockholders, unless such cumulative voting is required pursuant to the Delaware General Corporation Law, in which event each such holder shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) such holder would be entitled to cast for the election of directors with respect to such holder's shares of stock multiplied by the number of directors to be elected by such holder, and the holder may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as such holder may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. 1. Number of Directors. The number of directors which constitutes the whole Board of Directors of the corporation shall be designated in the Amended and Restated Bylaws of the corporation. Each director shall serve until the next annual meeting of the stockholders or until his successor is duly elected. 2. Election of Directors. Elections of directors need not be by written ballot unless the Amended and Restated Bylaws of the corporation shall so provide. ARTICLE XI -4- 5 No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Amended and Restated Bylaws and no action shall be taken by the stockholders by written consent. The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article X or Article XI of this Amended and Restated Certificate of Incorporation. ARTICLE XII Any meeting of stockholders may be held within or without the State of Delaware, as the Amended and Restated Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Amended and Restated Bylaws of the corporation. -5- 6 We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in this certificate are true and correct of our own knowledge. Executed at San Francisco, California this ______ day of __________, 2000. ----------------------------------- Michael B. Klein Chief Executive Officer ----------------------------------- Margaret E. Nibbi Secretary EX-3.3 6 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.3 AMENDED AND RESTATED BYLAWS OF EGROUPS, INC. ARTICLE I OFFICES Section 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL Section 3. CORPORATE SEAL. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS Section 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. 1 2 Section 5. ANNUAL MEETING. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in 2 3 accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine he shall so declare at the meeting, and the defective nomination shall be disregarded. (d) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. 3 4 Section 6. SPECIAL MEETINGS. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix. (b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than as specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 7. NOTICE OF MEETINGS; WAIVER OF NOTICE. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of' the outstanding shares 4 5 of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series. Section 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. Section 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members 5 6 of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. Section 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 13. ACTION WITHOUT MEETING. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. 6 7 (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of the State of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. (d) Notwithstanding the foregoing, no such action by written consent may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock of the corporation (the "Initial Public Offering"). Section 14. ORGANIZATION. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. 7 8 ARTICLE IV DIRECTORS Section 15. NUMBER AND TERM OF OFFICE. The number of directors that shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting of the stockholders, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. Section 17. ELECTION, QUALIFICATION AND TERM OF OFFICE. Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for director may be prescribed. Each director, including a directors elected to fill a vacancy, shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 18. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. Section 19. RESIGNATION. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold 8 9 office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. Section 20. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock, no director shall be removed without cause. Subject to any limitations imposed by law, the Board of Directors or any individual director may be removed from office at any time with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the "Voting Stock"). Section 21. MEETINGS. (a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors. (c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the President or any two (2) of the directors. (d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (e) NOTICE OF MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of 9 10 objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (f) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. QUORUM AND VOTING. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time by the Board of Directors in accordance with Section 15 hereof, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. Section 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation therefor. 10 11 Section 25. COMMITTEES. (a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation. (b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (c) TERM. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 25 may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in 11 12 addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. Section 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS Section 27. OFFICERS DESIGNATED. The officers of the corporation shall be a Chief Executive Officer, a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and any such officers as it shall deem necessary. Any number of offices may be held by the same person. 12 13 Section 28. TENURE AND DUTIES OF OFFICERS. (a) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) CHIEF EXECUTIVE OFFICER. Subject to such provisionary powers, if any, as may be given by the Board of Directors to the Chairman of the Board of Directors, if any, the Chief Executive Officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board of Directors, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of Chief Executive Officer of a corporation and shall have such powers and duties as may be prescribed by the Board of Directors or these Bylaws. (c) PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board of Directors, if any, or the Chief Executive Officer, the President shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of President of a corporation and such other powers and duties as we may be prescribed by the Board of Directors or these Bylaws. (d) VICE PRESIDENTS. In the absence or disability of the Chief Executive Officer and President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as form time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of these Board of Directors (e) SECRETARY. The Secretary shall keep or cause to be kept, at the the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all 13 14 stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. (f) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President, the Chief Executive Officer, or the directors, upon request, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 30. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. Section 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION 14 15 Section 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chief Executive Officer, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors or the Chief Executive Officer, or the President or any 15 16 Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 36. TRANSFERS. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more 16 17 classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. Section 37. FIXING RECORD DATES. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) Prior to the Initial Public Offering, in order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. 17 18 (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman or Vice Chairman of the Board of Directors, or the Chief Executive Officer, or the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the 18 19 person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS Section 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR Section 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. 19 20 ARTICLE XI INDEMNIFICATION Section 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its directors to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d). (b) OTHERS. The corporation shall have power to indemnify its officers, employees and other agents as set forth in the Delaware General Corporation Law. (c) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer or officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal 20 21 counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers and officers under this Section 43 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer or officer. Any right to indemnification or advances granted by this Section 43 to a director or executive officer or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation. (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official 21 22 capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Section 43 shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) INSURANCE. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43. (h) AMENDMENTS. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Section 43 in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) SAVING CLAUSE. If this Section 43 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. (j) CERTAIN DEFINITIONS. For the purposes of this Section 43, the following definitions shall apply: (i) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (ii) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so 22 23 that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section 43. ARTICLE XII NOTICES Section 44. NOTICES. (a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. 23 24 (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two (2) consecutive annual meetings, or (ii) all, and at least two (2), payments (if sent by first class mail) of dividends or interest on securities 24 25 during a twelve-(12) month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENT Section 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. The Board of Directors shall also have the power to adopt, amend or repeal Bylaws. ARTICLE XIV LOANS TO OFFICERS Section 46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE XV MISCELLANEOUS Section 47. ANNUAL REPORT. 25 26 (a) Subject to the provisions of paragraph (b) of this Section 47, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than one hundred (100) stockholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the Exchange Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than one hundred (100) holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 26 EX-4.1 7 FORM OF STOCK CERTIFICATE 1 EXHIBIT 4.1 EGROUPS, INC. A DELAWARE CORPORATION NUMBER <> *<>* SHARES COMMON STOCK This certifies that <> is the record holder of <> shares of COMMON STOCK of EGROUPS INC. transferable only on the books of said corporation by the holder, in person, or by duly authorized attorney, upon surrender of this certificate properly endorsed or assigned. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation and the Bylaws of the corporation and any amendments thereto, a copy of which is on file at the officer of the corporation and made part hereof as fully as though the provisions of the Certificate of Incorporation and Bylaws were imprinted in full on this certificate, to all of which the holder of this certificate, by acceptance hereof, assents. The corporation will furnish without charge to each stockholder who so requests, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. WITNESS, the Seal of the corporation and the signatures of its duly authorized officers this <> day of <>, 2000. - ----------------------------------- ----------------------------------- Marjorie Sennett, Chief Financial Michael Klein, President Officer EX-4.2 8 INVESTORS RIGHTS AGREEMENT 1 EXHIBIT 4.2 EGROUPS, INC. SECOND AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT This Second Amended and Restated Investors Rights Agreement (the "Agreement") is made as of the 14th day of December, 1999, by and among eGroups, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit A hereto, each of which is herein referred to as an "Investor," and Eric Archambeau, Mark Fletcher, Scott Hassan, Carl Page, Martin Roscheisen, and Scott Schamberger, each of whom is herein referred to as a "Founder." RECITALS WHEREAS, certain of the Investors (the "Existing Investors") hold the Company's Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock and possess certain registration rights, information rights and other rights pursuant to a First Amended and Restated Investors' Rights Agreement dated as of December 17, 1998, as amended on November 9, 1999, by and among the Company and such Existing Investors (the "Prior Agreement"); WHEREAS, the Existing Investors are holders of more than 50% of the "Registrable Securities" of the Company (as defined in the Prior Agreement) and desire to terminate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; WHEREAS, the Company and the purchasers of the Series D Preferred Stock (the "Series D Investors") have entered into a Series D Preferred Stock Purchase Agreement (the "Series D Purchase Agreement") of even date herewith pursuant to which the Company desires to sell to the Series D Investors and the Series D Investors desire to purchase from the Company shares of the Company's Series D Preferred Stock; WHEREAS, a condition to the Series D Investors obligations under the Series D Purchase Agreement is that the Company, the Founders and the Investors enter into this Agreement in order to provide the Investors with (i) certain rights to register shares of the Company's Common Stock issuable upon conversion of the Series D Preferred Stock held by the Investors, (ii) certain rights to receive or inspect information pertaining to the Company, and (iii) a right of first offer with respect to certain issuances by the Company of its securities; WHEREAS, the Company, the Existing Investors and the Founders each desire to induce the Series D Investors to purchase shares of Series D Preferred Stock pursuant to the Series D Purchase Agreement by agreeing to the terms and conditions set forth herein; AGREEMENT NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the Existing Investors hereby agree that the Prior Agreement shall be terminated and be 2 superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows: 1. REGISTRATION RIGHTS. The Company and the Investors covenant and agree as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means (i) the shares of Common Stock issuable or issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock (such shares of Common Stock are collectively referred to hereinafter as the "Stock"), (ii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Stock, and (iii) the shares of Common Stock issued to the Founders (the "Founders' Stock"), provided, however, that for the purposes of Section 1.2 or 1.4 the Founders' Stock shall not be deemed Registrable Securities and the Founders shall not be deemed Holders and provided, further, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which his or her rights under this Agreement are not assigned. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof; (e) The term "Form S-3" means such form under the Act as in effect on the date hereof or any successor form under the Act; and (f) The term "SEC" means the Securities and Exchange Commission. -2- 3 1.2 REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) June 19, 2002, or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration covering shares of Common Stock to be sold by the Company having an aggregate offering price of at least $15,000,000, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use its reasonable best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.5. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder. (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; -3- 4 provided, however, that the Company may not utilize this right more than once in any twelve (12)-month period. (d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date (A) one hundred eighty (180) days after the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (B) ninety (90) days after the effective date of a registration subject to Section 1.3; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below. 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and -4- 5 (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 1.4; (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (vi) during the period one hundred eighty (180) days after the effective date of a registration statement subject to Section 1.3. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such -5- 6 registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Use its reasonable best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters -6- 7 in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.6 FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(ii), whichever is applicable. 1.7 EXPENSES OF REGISTRATION. (a) DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. (b) COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.11), including (without limitation) all registration, filing, and qualification fees, printers' and accounting fees relating or apportionable thereto and the reasonable fees and disbursements of one counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, but excluding underwriting discounts and commissions relating to Registrable Securities. (c) REGISTRATION ON FORM S-3. All expenses incurred in connection with a registration requested pursuant to Section 1.4, including (without limitation) all registration, filing, qualification, printers' and accounting fees and the reasonable fees and -7- 8 disbursements of counsel for the selling Holder or Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders), but in no event shall (a) the amount of securities (not including Founders' Stock) of the selling Holders included in the offering be reduced unless the securities of all other selling stockholders (including Founders) are excluded entirely, and (b) the amount of securities (not including Founders' Stock) of the selling Holders included in the offering be reduced below twenty-five percent (25%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities, in which case, the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder's securities are included. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Selling Stockholder," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.9 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations -8- 9 (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.9(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be -9- 10 represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided, that, in no event shall any contribution by a Holder under this Subsection 1.9(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to -10- 11 utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of at least one hundred fifty thousand (150,000) shares of such securities (as adjusted to reflect stock dividends, stock splits and recapitalizations); provided however, that no transfer will be made to a competitor of the Company (as determined by the Board of Directors); and provided further, that the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. The provisions of this Section 1.11 shall not apply to (a) a transfer of any Registrable Securities not involving a change in beneficial ownership, or (b) transactions involving the distribution without consideration of Registrable Securities by the Holders to any of its affiliated funds or entities, partners or members, or retired partners or members, or to the estate of any of its partners or members or retired partners or members. 1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, excluding Registrable Securities held by the Founders, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. -11- 12 1.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company's initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock of the Company (whether such shares or any such securities are then owned by the Holder or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering provided that such registration statement is declared effective; and (b) all officers and directors of the Company, all two-percent security holders, and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and each Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 1.13. Notwithstanding the foregoing, the obligations described in this Section 1.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 1.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (a) three (3) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (b) with respect to any Holder of Registrable Securities (i) such time as Rule 144 or another similar exemption under the Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration or (ii) at such time as such Holder holds Registrable Securities constituting less than one percent (1%) of the outstanding voting stock of the Company. -12- 13 2. COVENANTS OF THE COMPANY. 2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each Investor holding, and to transferees of, at least three hundred thousand (300,000) shares of Registrable Securities (as adjusted to reflect stock dividends, stock splits and recapitalizations) (each a "Major Investor"): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP") and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; (c) with respect to the financial statements called for in subsection (b) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors determines that it is in the best interest of the Company to do so; and (d) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Major Investor or any assignee of the Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this subsection (d) or any other subsection of Section 2.1 to provide information which it deems in good faith to be a trade secret or similar confidential information. 2.2 INSPECTION. The Company shall permit each Major Investor, at such Major Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.3 SBA REGULATORY COMPLIANCE COOPERATION. In the event that Bank of America Ventures determines that it has a Regulatory Problem (as defined below), it -13- 14 shall have the right to transfer its Registrable Securities without regard to any restrictions on transfer set forth in this Agreement or the Purchase Agreement (provided that the transferee agrees to become a party to each such agreement), and the Company shall take all such actions as are reasonably requested by Bank of America Ventures in order to (i) effectuate and facilitate any transfer by it of any securities of the Company then held by it to any person designated by Bank of America Ventures, (ii) permit Bank of America Ventures (or any of its affiliates) to exchange all or any portion of any voting security then held by it on a share-for-share basis for shares of a nonvoting security of the Company, which nonvoting security shall be identical in all respects to the voting security exchanged for it, except that it shall be nonvoting and shall be convertible into a voting security on such terms as are requested by it in light of regulatory considerations then prevailing, and (iii) amend this Agreement, as amended from time to time, to effectuate and reflect the foregoing. The parties to this Agreement agree to vote all of the Company's securities held by them in favor of such amendments and actions. For purposes of this Agreement, a "Regulatory Problem" means any set of facts or circumstances wherein it has been asserted by any governmental regulatory agency that Bank of America Ventures is not entitled to hold, or exercise any significant right with respect to, the underlying securities into which the Series D Preferred Stock are convertible. 2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, "Major Investor" includes any partners and affiliates of an Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) Within fifteen (15) calendar days after delivery of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Major Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). The Company shall promptly, in writing, inform each Major Investor that purchases all the shares available to it (each, a "Fully-Exercising Investor") of any other Major Investor's failure to do likewise. During the ten (10)-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or -14- 15 exercisable securities then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). (c) The Company may, during the forty-five (45)-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. (d) The right of first offer in this paragraph 2.4 shall not be applicable (i) to the issuance or sale of shares of Common Stock (or options therefor) to employees, consultants and directors, pursuant to plans or agreements approved by the Board of Directors for the primary purpose of soliciting or retaining their services, or (ii) to or after consummation of a bona fide, firmly underwritten public offering of shares of Common Stock, or (iii) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, or (iv) to the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or (v) to the issuance of securities to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, or similar transactions other than for primarily equity financing purposes, or (vi) to the issuance or sale of the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock. 2.5 TERMINATION OF INFORMATION, INSPECTION AND SBA COVENANTS. The covenants set forth in Section 2.1, Section 2.2 and Section 2.3 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, whichever event shall first occur. 3. MISCELLANEOUS. 3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or any Common Stock issued upon conversion thereof). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. -15- 16 3.2 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of laws. 3.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 3.5 NOTICES. Unless otherwise provided, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram, or confirmed fax or email, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto or as subsequently modified by written notice. 3.6 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement, including the rights of Major Investors set forth in Section 2, may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding, not including the Founders' Stock; provided that if such amendment has the effect of affecting the Founders' Stock (a) in a manner different than securities issued to the Investors and (b) in a manner adverse to the interests of the holders of the Founders' Stock, then such amendment shall require the consent of the holder or holders of a majority of the Founders' Stock. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 3.8 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (x) such provision shall be excluded from this Agreement, (y) the balance of the Agreement shall be interpreted as if such provision were so excluded and (z) the balance of the Agreement shall be enforceable in accordance with its terms. 3.9 AGGREGATION OF STOCK. All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. -16- 17 [Signature Pages Follow] -17- 18 The parties have executed this SECOND AMENDED INVESTORS RIGHTS AGREEMENT as of the date first above written. COMPANY: EGROUPS, INC. ---------------------------------------- Name: Michael Klein Title: President and Chief Executive Officer Address: 350 Brannan Street San Francisco, CA 94107 INVESTORS: SIGNATURE PAGE TO INVESTORS RIGHTS AGREEMENT 19 FOUNDERS: ---------------------------------------- Eric Archambeau ---------------------------------------- Mark Fletcher ---------------------------------------- Scott Hassan ---------------------------------------- Carl Page ---------------------------------------- Martin Roscheisen ---------------------------------------- Scott Schamberger SIGNATURE PAGE TO INVESTORS RIGHTS AGREEMENT EX-4.3 9 WARRANT AGREEMENT 1 EXHIBIT 4.3 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT To Purchase Shares of the Series B Preferred Stock of EGROUPS, INC. Dated as of June 23,1999 (the "Effective Date") WHEREAS, eGroups, Inc., a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of June 23, 1999, Equipment Schedule No. VL-1 and VL-2 dated as of June 23, 1999, and related Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Series B Preferred Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, such number of fully paid and non-assessable shares of the Company's Series B Preferred Stock ("Preferred Stock") equal to $60,000 divided by the Exercise Price. The Exercise Price shall be the price per share of the Next Round of financing, provided such financing is completed on or before December 1, 1999. In the event the Next Round is completed after December 1, 1999, the Exercise Price shall be $1.43955 per share. Next Round shall be defined as (i) preferred stock financing of at least $2,000,000, (ii) the sale, conveyance disposal, or encumbrance of all or substantially all of the Company's property or business or Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation).or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of Company is disposed of ("Merger Event"), provided that a Merger Event shall not apply to a merger effected exclusively for the purpose of changing the domicile of the company or (iii) an initial public offering of the Company's Common Stock which such public offering has been declared effective by the SEC. Notwithstanding the foregoing, in the event the Next Round is a transaction as defined in (ii) or (iii) above, the Exercise Price shall be the greater of (a) a 30% discount to the price per share in such 2 financing or (b) $1.43955, The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) five (5) years or (ii) three (3) years from the effective date of the Company's initial public offering, whichever is earlier. Notwithstanding the term of this Warrant Agreement fixed pursuant to the above paragraph, the right to purchase Preferred Stock as granted herein shall expire, if not previously exercised immediately upon the closing of a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (the "Merger") provided in which Warrantholder realizes a value for its shares equal to or greater than $4.31865 per share. The Company shall notify the Warrantholder if the Merger is proposed in accordance with the terms of 8(f) hereof, and if the Company fails to deliver such written notice, then notwithstanding anything to the contrary in this Warrant Agreement, the rights to purchase the Company's Preferred Stock shall not expire until the Company complies with such notice provisions. Such notice shall also contain such details of the proposed Merger as are reasonable in the circumstances. If such closing does not take place, the Company shall promptly notify the Warrantholder that such proposed transaction has been terminated, and the Warrantholder may rescind any exercise of its purchase rights promptly after such notice of termination of the proposed transaction If the exercise of Warrants has occurred after the Company notified the Warrantholder that the Merger was proposed. In the event of such rescission, the Warrants will continue to be exercisable on the same terms and conditions contained herein. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: X = Y(A-B) - ---------- -2- 3 A Where: X = the number of shares of Preferred Stock to be issued to the Warrantholder. Y = the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Preferred Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (ii) if this Warrant is exercised after, and not in connection with the Company's initial public offering,and: (a) if traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or (b) if actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; (iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis pursuant to such merger or acquisition. -3- 4 Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 4. RESERVATION OF SHARES. (a) Authorization and Reservation of Shares. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. (b) Registration or Listing. If any shares of Preferred Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the -4- 5 Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit IV (the "Charter"). The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. -5- 6 (f) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least ten (10) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least ten (10) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least ten (10) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (g) Timely Notice. Failure to timely provide such notice required by subsection (f) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholders rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to -6- 7 Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 20,000,000 shares of Common Stock, of which 5,812,399 shares are issued and outstanding; (B) 1,620,000 shares of Series A Preferred Stock, of which 1,620,000 shares are issued and outstanding and are convertible into 1,620,000 shares of Common Stock at $0.50 per share; and (C) 3,600,000 shares of Series B Preferred Stock, of which 3,556,772 shares are issued and outstanding and convertible into 3,556,772 shares of Common Stock at $1.43955 per share. (ii) The Company has reserved (A) 1,900,000 shares of Common Stock for issuance under its 1998 Stock Option Plan, under which 768,450 options are outstanding. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) Except as set forth in the First Amended and Restated Investors Rights Agreement dated December 17, 1998 (the "Rights Agreement"), no shareholder of the Company has preemptive rights to purchase new issuances of the Company's capital stock. (e) Insurance. The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement. M Other Commitments to Register Securities. Except as set forth in the Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. -7- 8 (g) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. (h) Compliance with Rule 144. At the written request of the Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. (b) Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if -8- 9 such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Preferred Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "l 934 Act" ), or file reports pursuant to Section 15(d), of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the 'Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MARKET STANDOFF. Warrantholder hereby agrees that, during the period of duration (up to, but not exceeding, one hundred eighty (180) days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell(including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: -9- 10 (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company, all one-percent security holders, and all other persons with registration rights enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop - -transfer instructions with respect to the securities of each shareholder until the end of such period, and Warrantholder agrees that, if so requested, Warrantholder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 12. Notwithstanding the foregoing, the obligations described in this Section 12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 13. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Goveminq Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of Illinois. (d) Counterparts. This Warrant Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease Administration, cc: Legal Department, Attention: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088) and (ii) to the Company at 520 Third Street, Suite 225, San Francisco, CA 94107, Attention: Carl Page (and/or if by facsimile, (415) 449-3594) cc: Perkins Coie, 135 Commonwealth Drive, Menlo Park, CA, 94025, Attention: Ralph L Arnheim, III or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for -10- 11 any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase price for the Leases referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion from the Company's counsel with respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. Company: EGROUPS, INC. By: Title: Warrantholder: COMDISCO, INC. By: Title: -11- EX-10.2 10 FORM OF LOCK - UP AGREEMENT 1 EXHIBIT 10.2 Exhibit A LOCK-UP AGREEMENT March ___, 2000 eGroups, Inc. 350 Brannan Street San Francisco, CA 94107 Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities Inc. FleetBoston Robertson Stephens Inc. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: The undersigned understands that Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities, Inc. and FleetBoston Robertson Stephens Inc., as Representatives of the several underwriters (the "UNDERWRITERS"), propose to enter into an Underwriting Agreement with eGroups, Inc. (the "COMPANY"), providing for the initial public offering (the "INITIAL PUBLIC OFFERING") of common stock, par value $.001 per share (the "COMMON STOCK"), of the Company. To induce the Underwriters that may participate in the Initial Public Offering to continue their efforts in connection with the Initial Public Offering, the undersigned, form the date hereof and through the end of the 180-day period after the date of the final prospectus relating to the Initial Public Offering (the "FINAL PROSPECTUS"): (i) agrees not to (x) offer , pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, other wise transfer or dispose of, directly or indirectly, any shares of Common Stock (other than shares of common stock purchased in the open market by the undersigned on or after the closing of the Initial Public Offering) or any securities convertible into or exercisable or exchangeable for Common Stock (including, without limitation, shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange 2 Commission) (collectively, "COMPANY SECURITIES") or (y) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Company Securities (regardless of whether any of the transactions described in clause (x) or (y) is to be settled by the delivery of Company Securities, in cash or otherwise), without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation; (ii) agrees not to make any demand for, or exercise any right with respect to, the registration of any Company Securities, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation; and (iii) authorizes the Company to cause the transfer agent to decline to transfer and/or to note stop transfer restrictions on the transfer books and records of the Company with respect to any Company Securities for which the undersigned is the record holder and, in the case of any such shares or securities for which the undersigned is the beneficial but not the record holder, agrees to cause the record holder to cause the transfer agent to decline to transfer and/or to note stop transfer restrictions on such books and records with respect to such shares or securities; provided further, that the restrictions in clause (i) above shall cease to apply to (A) 25% of the Company Securities beneficially owned by the undersigned on the date of the Final Prospectus upon the later to occur of (I) the end of the 90-day period after the date of the Final Prospectus or (II) the second trading day following the first public release of the Company's quarterly results after the date of the Final Prospectus, and (B) an additional 25% of the Company Securities beneficially owned by the undersigned on the date of the Final Prospectus, upon the end of the 135-day period after the date of the Final Prospectus if, in the case of both clauses (A) and (B), (X) the reported last sale price of the Common Stock on the Nasdaq National Market is at least twice the price per share in the Initial Public Offering for 20 of the 30 trading days ending on (a) in the case of clause (A) above, the later of (1) the last trading day of the 90-day period after the date of the Final Prospectus or (2) the second trading day following the first public release of the Company's quarterly results after the date of the Final Prospectus and (b) in the case of clause (B) above, the last trading day of the 135-day period after the date of the Final Prospectus and (Y) the undersigned is not, and has not been since the date of the Final Prospectus, an officer of the Company; provided further , that the undersigned agrees to give Donaldson, Lufkin & Jenrette Securities Corporation and the Company written notice three business days prior to taking any of the actions set forth in clause (i) above pursuant to the preceding proviso and to execute any such action only through Donaldson, Lufkin & Jenrette Securities Corporation or any of its affiliates acting as broker, unless otherwise agreed in writing by of Donaldson, Lufkin & Jenrette Securities Corporation. The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into the agreements set forth herein, and that, upon request, the undersigned will execute any additional documents necessary or desirable in connection with the enforcement 3 hereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors, and assigns of the undersigned. Very truly yours, ------------------------------------ Name: (Please Print or type) Address: Social Security or Taxpayer Identification No.: Number of shares of Common Stock owned: Number and name of securities that are convertible into, or exercisable or exchangeable for, Common Stock: Number of shares of Common Stock issuable upon conversion, exercise or exchange of such securities: EX-10.3 11 1998 STOCK OPTION PLAN 1 EXHIBIT 10.3 EXHIBIT A EGROUPS, INC. 1998 STOCK OPTION PLAN EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT This Agreement ("Agreement") is made as of ______________, by and between eGroups, Inc., a Delaware corporation (the "Company"), and <> ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the 1998 Stock Option Plan. 1. EXERCISE OF OPTION. Subject to the terms and conditions hereof, Purchaser hereby elects to exercise his or her option to purchase ______________ shares of the Common Stock (the "Shares") of the Company under and pursuant to the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement dated <> (the "Option Agreement"). Of these Shares, Purchaser has elected to purchase _______________ of those Shares which have become vested as of the date hereof under the Vesting Schedule set forth in the Notice of Stock Option Grant (the "Vested Shares") and _____________ Shares which have not yet vested under such Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares shall be $<> per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, (d) subject to Section 153 of the Delaware General Corporation Law, delivery of a promissory note in the form attached as Exhibit C to the Option Agreement (or in any form acceptable to the Company), or (e) a combination of the foregoing. If Purchaser delivers a promissory note as partial or full payment of the purchase price, Purchaser will also deliver a Pledge and Security Agreement in the form attached to Exhibit D to the Option Agreement (or in any form acceptable to the Company). 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below). After any Shares have been released from such Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) REPURCHASE OPTION. (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including death or disability), 2 with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days from such date to repurchase all or any portion of the Unvested Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock dividends and the like). (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company, by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) One hundred percent (100%) of the Unvested Shares shall initially be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting Schedule set forth in the Notice of Stock Option Grant until all Shares are released from the Repurchase Option. Fractional shares shall be rounded to the nearest whole share. (b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(b) (the "Right of First Refusal"). (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(b) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), -2- 3 or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(b), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(b) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (c) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(b)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the Fair Market Value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(c)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (d) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the Parent or a 100% -3- 4 owned Subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment. (e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (f) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(c) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). (g) MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Attachment A executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or the Secretary's designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. -4- 5 (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this -5- 6 Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. (d) REMOVAL OF LEGEND. When all of the following events have occurred, the Shares then held by Purchaser will no longer be subject to the legend referred to in Section 6(a)(ii): (i) the termination of the Right of First Refusal; (ii) the expiration or termination of the market standoff provisions of Section 3(g) (and of any agreement entered pursuant to Section 3(g)); and (iii) the expiration or exercise in full of the Repurchase Option. After such time, and upon Purchaser's request, a new certificate or certificates representing the Shares not repurchased shall be issued without the legend referred to in Section 6(a)(ii), and delivered to Purchaser. 7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income for a Nonstatutory Stock Option and as alternative minimum taxable income for an Incentive Stock Option the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income and alternative minimum tax treatment under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he or she will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto as Attachment B. Purchaser further agrees that he or she will execute and submit with the Acknowledgment a copy of the 83(b) Election attached hereto as Attachment C (for income tax purposes in connection with the early exercise of a Nonstatutory Stock Option) or Attachment D (for alternative minimum tax purposes in connection with the early exercise of an incentive stock option) if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. -6- 7 9. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] -7- 8 The parties have executed this Agreement as of the date first set forth above. COMPANY: EGROUPS, INC. By: ----------------------------------------- Marjorie Sennett, Chief Financial Officer Address: 350 Brannan Street San Francisco, CA 94107 PURCHASER: <> -------------------------------------------- (Signature) Address: <
> I, ______________________, spouse of <>, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. -------------------------------------------- Spouse of <> EX-10.5 12 ONELIST 1998 OPTION PLAN 1 EXHIBIT 10.5 ONELIST, INC. 1998 STOCK PLAN (AMENDED AS OF DECEMBER 17, 1998) 1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means ONElist, Inc., a California corporation. (h) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity. (i) "Director" means a member of the Board of Directors of the Company. 2 (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. -2- 3 (p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. (r) "Option Agreement" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions' of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (s) "Option Exchange Program" means a program whereby outstanding Options are exchanged for Options with a lower exercise price. (t) "Optioned Stock" means the Common Stock subject to an Option or a Stock Purchase Right. (u) "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (v) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (w) "Plan" means this 1998 Stock Plan. (x) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (y) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (z) "Service Provider" means an Employee, Director or Consultant. (aa) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (bb) "Stock Purchase Right" means a right to purchase Common Stock pursuant to Section 11 below. (cc) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the -3- 4 Plan is 1,165,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Administrator. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; -4- 5 (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (viii) to initiate an Option Exchange Program; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. Eligibility. (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a -5- 6 Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. -6- 7 (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise, Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (I) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. -7- 8 Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and -8- 9 conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options and Stock Purchase Rights. The Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase. (c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. -9- 10 12. Adjustments upon Changes in Capitalization, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a -10- 11 merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the. Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. -11- 12 (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Share. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. 19. Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -12- EX-10.7 13 FORM OF STOCK OPTION AGREEMENT 1 EXHIBIT 10.7 EGROUPS, INC. 1998 STOCK OPTION PLAN STOCK OPTION AGREEMENT 1. GRANT OF OPTION. eGroups, Inc., a Delaware corporation (the "Company"), hereby grants to <> ("Optionee") an option (the "Option") to purchase a total number of shares of Common Stock (the "Shares") set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to the terms, definitions and provisions of the eGroups, Inc. 1998 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. If the aggregate Fair Market Value of the shares with respect to which the Option first becomes exercisable during any calendar year (under the Option and all other Incentive Stock Options you hold) exceeds $100,000, the excess portion will be treated as a nonstatutory stock option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for Incentive Stock Options. 2. EXERCISE OF OPTION. This Option shall be exercisable during its Term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Section 9 of the Plan as follows: (a) RIGHT TO EXERCISE. (i) This Option may be exercised in whole or in part at any time after the Date of Grant, as to Shares which have not yet vested under the vesting schedule indicated on the Notice of Stock Option Grant; provided, however, that Optionee shall execute as a condition to such exercise of this Option, the Early Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If Optionee chooses to exercise this Option solely as to Shares which have vested under the vesting schedule indicated on the Notice of Stock Option Grant, Optionee shall complete and execute the form of Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit B ( the "Exercise Agreement"). Notwithstanding the foregoing, the Company may in its discretion prescribe or accept a different form of notice of exercise and/or stock purchase agreement if such forms are otherwise consistent with this Agreement, the Plan and then-applicable law. (ii) This Option may not be exercised for a fraction of a share. (iii) In the event of Optionee's death, disability or other termination of employment or consulting relationship, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(iv) below. (iv) In no event may this Option be exercised after the Expiration Date of this Option as set forth in the Notice of Stock Option Grant. (b) METHOD OF EXERCISE. This Option shall be exercisable by execution and delivery of the Early Exercise Agreement or the Exercise Agreement, whichever is applicable, or of any other 2 written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee: (a) cash; (b) check; (c) surrender of other shares of Common Stock of the Company which (i) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by Optionee for more than 6 months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (d) if there is a public market for the Shares and they are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the Exercise Price. (e) subject to Section 153 of the Delaware General Corporation Law, a promissory note in the form attached to this Agreement as Exhibit C, or in any other form approved by the Company. 4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set forth in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at such Termination Date, or if Optionee does not exercise this Option within the Termination Period, the Option shall terminate. -2- 3 6. DISABILITY OF OPTIONEE. (a) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), exercise this Option to the extent he or she was entitled to exercise it at such Termination Date. To the extent that Optionee was not entitled to exercise the Option on the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(a), the Option shall terminate. (b) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's consulting relationship or Continuous Status as an Employee as a result of a disability not constituting a total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), exercise the Option to the extent Optionee was entitled to exercise it as of such Termination Date; provided, however, that if this is an Incentive Stock Option and Optionee fails to exercise this Incentive Stock Option within three months from the Termination Date, this Option will cease to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will be treated for federal income tax purposes as having received ordinary income at the time of such exercise in an amount generally measured by the difference between the Exercise Price for the Shares and the Fair Market Value of the Shares on the date of exercise. To the extent that Optionee was not entitled to exercise the Option at the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(b), the Option shall terminate. 7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during the Term of this Option and while an Employee or Consultant of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, or (b) within 30 days after Optionee's Termination Date, the Option may be exercised at any time within six months following the date of death (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the Termination Date. 8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 9. TERM OF OPTION. This Option may be exercised only within the Term set forth in the Notice of Stock Option Grant, subject to the limitations set forth in Section 7 of the Plan. 10. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of certain of the federal and California tax consequences of exercise of this Option and disposition of the Shares under the laws in effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. -3- 4 (a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies as an Incentive Stock Option, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax (up to a maximum of 28%) in the year of exercise. (b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not qualify as an Incentive Stock Option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock Option, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. In either case, the long-term capital gain will be taxed for federal income tax and alternative minimum tax purposes at a maximum rate of 28% if the Shares are held more than one year but less than 18 months after exercise and at 20% if the Shares are held more than 18 months after exercise. If Shares purchased under an Incentive Stock Option are disposed of within one year after exercise or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. (d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION SHARES. If the Option granted to Optionee herein is an Incentive Stock Option, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee acknowledges and agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee. 11. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon exercising a Nonstatutory Stock Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares over the Exercise Price. However, the timing of this income recognition may be deferred for up to six months if Optionee is subject to Section 16 of the Exchange Act. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option by one or some combination of the following methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (i) in the case of Shares previously acquired from the Company, have been owned by Optionee for more than six months on the date of surrender, and (ii) have a Fair Market Value on the date -4- 5 of surrender equal to or greater than Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. For this purpose, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). If Optionee is subject to Section 16 of the Exchange Act (an "Insider"), any surrender of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"). All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. 12. MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Optionee agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. [Signature Page Follows] -5- 6 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one document. EGROUPS, INC. By: -------------------------------------- Marjorie Sennett, Chief Financial Officer OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Dated: --------------------- -------------------------------------- <> EX-10.8 14 FORM OF EARLY EXERCISE AGREEMENT 1 EXHIBIT 10.8 EXHIBIT B EGROUPS, INC. 1998 STOCK OPTION PLAN EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT This Agreement ("Agreement") is made as of ______________, by and between eGroups, Inc., a Delaware corporation (the "Company"), and ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the 1998 Stock Option Plan. 1. EXERCISE OF OPTION. Subject to the terms and conditions hereof, Purchaser hereby elects to exercise his or her option to purchase __________ shares of the Common Stock (the "Shares") of the Company under and pursuant to the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement dated <>, (the "Option Agreement"). The purchase price for the Shares shall be $<> per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, (d) subject to Section 153 of the Delaware General Corporation Law, delivery of a promissory note in the form attached as Exhibit C to the Option Agreement (or in any form acceptable to the Company), or (e) a combination of the foregoing. If Purchaser delivers a promissory note as partial or full payment of the purchase price, Purchaser will also deliver a Pledge and Security Agreement in the form attached to Exhibit D to the Option Agreement (or in any form acceptable to the Company). 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws. (a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the "Right of First Refusal"). (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or 2 otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(a), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(a) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (b) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(a)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of -2- 3 the purchase price paid by Purchaser pursuant to this Agreement or the Fair Market Value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(b)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (c) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the Parent or a 100% owned Subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment. (d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (e) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). (f) MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. -3- 4 (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this -4- 5 Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. (d) REMOVAL OF LEGEND. When all of the following events have occurred, the Shares then held by Purchaser will no longer be subject to the legend referred to in Section 5(a)(ii): (i) the termination of the Right of First Refusal; and (ii) the expiration or termination of the market standoff provisions of Section 3(f) (and of any agreement entered pursuant to Section 3(f)). After such time, and upon Purchaser's request, a new certificate or certificates representing the Shares not repurchased shall be issued without the legend referred to in Section 5(a)(ii), and delivered to Purchaser. 6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 7. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (d) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and -5- 6 obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] -6- 7 The parties have executed this Agreement as of the date first set forth above. COMPANY: EGROUPS, INC. By: -------------------------------------- Marjorie Sennett, Chief Financial Officer Address: 350 Brannan Street San Francisco, CA 94107 PURCHASER: ----------------------------------------- (Signature) Address: <
> I, ______________________, spouse of <>, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. ---------------------------------------- Spouse of<> EX-10.9 15 NOTICE OF STOCK OPTION GRANT 1 EXHIBIT 10.9 EGROUPS, INC. 1998 STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT <> <
> You have been granted an option to purchase Common Stock ("Common Stock") of eGroups, Inc. (the "Company") as follows: Board Approval Date: <> Date of Grant (Later of Board <> Approval Date or Commencement of Employment/Consulting): Vesting Commencement Date: <> Exercise Price Per Share: $<> Total Number of Shares Granted: <> Total Exercise Price: $<> Type of Option: <> Incentive Stock Option -------- ("ISO") <> Nonstatutory Stock Option -------- ("NSO") Term/Expiration Date: <> Vesting Schedule: This Option may be exercised immediately, in whole or in part and shall vest in accordance with the following schedule: 25% of the Shares subject to the Option shall vest on the twelve (12) month anniversary of the Vesting Commencement Date and 1/48 of the total number of Shares subject to the Option shall vest on the <>day of each month thereafter. 2 Termination Period: This Option may be exercised for 45 days after termination of employment or consulting relationship except as set out in Sections 6 and 7 of the Stock Option Agreement (but in no event later than the Expiration Date). By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the 1998 Stock Option Plan and the Stock Option Agreement, both of which are attached and made a part of this document. <> EGROUPS, INC.: By: - ------------------------------ ---------------------------------- Signature Marjorie Sennett, Chief Financial Officer - ------------------------------ Print Name -2- EX-10.10 16 EMPLOYMENT LETTER WITH MICHAEL KLEIN 1 EXHIBIT 10.10 www.onelist.com October 11, 1999 Michael B. Klein 1475 Terminal Way Suite E Reno, NV 89502 Dear Michael: We feel that you have what it takes to help ONElist, Inc. ("ONElist" or the "Company") achieve its future goals and maintain its success as the world's leading e-mail community service and would like you to join our team. I am pleased to offer you the position of President and CEO of ONElist. This letter (together with the Company's standard form of Employment, Confidential Information and Invention Assignment Agreement, the execution and delivery of which will be a condition of your employment) will confirm the terms of your employment with the Company. Your annual salary will be $150,000, paid bi-monthly. Additionally, you will be paid $15,000 for one year for travel expenses between Northern and Southern California. You are eligible to participate in the ONElist Incentive Stock Option (ISO) plan and will receive an option grant (in a separate document) to purchase 330,000 shares of ONElist common stock at $0.18 per share, subject to the vesting schedule and the terms and conditions of the Company Stock Option Plan and option agreement. The 330,000 shares equal 6% of ONElist's outstanding shares on a fully-diluted basis. Additionally, you will be granted a number of options after the close of the Company's Series B round of funding, with an exercise price equal to the then-current fair market value of the Company's common stock, that will bring your total number of granted shares to 6% of the total outstanding shares on a fully-diluted basis. These grants are subject to approval by the Company's Board of Directors. The terms of the Company's standard form of Stock Option Agreement allow for the exercise of unvested options. If you elect to exercise unvested options, the shares obtained upon such exercise shall be subject to a right of repurchase on behalf of the Company. Additionally, in the event you exercise unvested options you may choose to file an election with the Internal Revenue Service, within 30 days of the purchase of the shares, electing pursuant to Section 83(b) of the Internal Revenue Code to be taxed currently on any difference between the purchase price of the shares and their fair market value on the date of purchase. You should review the Company's form of Stock Option Agreement for the specific terms relating to the early exercise of stock options, and consult with your tax advisor regarding the advisability of an early exercise and the filing of an 83(b) election. ONElist agrees to use commercially reasonable efforts to obtain Directors and Officers insurance prior to your start date. ONElist agrees to make you a member of its Board of Directors. You will be reporting directly to the Board of Directors. As the President and CEO of ONElist, you will be expected to achieve the following objectives: 1) Close the next round of financing within 90 days from your start date, raising a minimum of $20,000,000 at a valuation acceptable to the Board of Directors. 2) Hire a CFO with IPO and public company experience within 90 days from your start date. 2 3) Meet quarterly revenue objectives for calendar year 2000 as approved by the Board. Projections will be approved at the first Board meeting after you become CEO. In the event that your employment is involuntarily terminated other than for "cause" or is "constructively terminated" (as such terms are defined below), twelve additional months of options will become vested and exercisable and you will be entitled to exercise your vested options for a period of three (3) months from the date of employment termination; provided, however, that if any such termination occurs more than eighteen (18) months from the date your employment commences with the Company (the "Effective Date") and is after a Change of Control (as defined below), the provisions set forth in the following paragraph shall control. If after a Change of Control (as defined below) of the Company, your employment with the Company is involuntary terminated other than for "cause" or is "constructively terminated" (as such terms are defined below) more than eighteen (18) months after the Effective Date, all of your unvested options will become vested and exercisable and you will be entitled to exercise your vested options for a period of three (3) months from the date of employment termination. For purposes of the foregoing: (a) Termination for "cause" means (i) the failure by you to substantially perform your material duties after a written demand for substantial performance is delivered to you by the Board of Director that specifically identifies the manner in which the Board of Directors believes that you have not substantially performed your duties, (ii) the failure (in material respect) by you to follow reasonable policies or directives established by the Board of Directors after written notice to you by the Board of Directors that you are not following such policies or directives, (iii) bad faith conduct that is materially detrimental to the Company, or (iv) the conviction of you of a felony. (b) Your employment with the Company will be deemed to have been "constructively terminated" if there shall occur (i) a reduction in your base salary other than a reduction that is part of a general reduction of officer salaries, (ii) a material change in your responsibility or authority, or (iii) an office relocation requiring a commute of greater than 50 miles. (c) For purposes of the foregoing, a "Change of Control" shall be deemed to have occurred if (i) the Company sells or otherwise disposes all of substantially all of its assets; (ii) there is a merger or consolidation of the Company with any other corporation or corporations, provided that the shareholders of the Company, as a group, do not hold, immediately after such event, more than 50% of the voting power of the surviving or successor corporation; or (iii) a person or entity, including any "person" as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but other than any of the investors in the Company as of the Effective Date, becomes the "beneficial owner" (as defined in the Exchange Act) of Common Stock of the Company representing 50% or more of the combined voting power of the voting securities of the Company (exclusive of persons who are now officers or directors of the Company). The company shall require any successor or assignee, in connection with any sale, transfer or other disposition of all substantially all of the Company's assets or business, whether by purchase, merger, consolidation or otherwise, expressly to assume and agree to perform the Company's obligations hereunder in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. You are also eligible for the following standard Company benefits: medical/ dental/ vision, life insurance, LTD, vacation, and holidays. You will receive more detailed information about these during your new employee orientation. 3 Benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc. TriNet is an employer services organization contracted by the Company to perform selected employer responsibilities on our behalf. As a result of ONElist's arrangement with TriNet, TriNet will be considered your employer of record for payroll, benefits, and other functions involving employer related administration, including your new hire enrollment processing. However, as ONElist is the company for which you will perform service, we will retain the right to control and direct your work, its results, and the manner and means by which your work is accomplished With the exception of the provision for at will employment described below, ONElist and/or TriNet may modify, revoke, suspend or terminate any of the terms, plans, policies and/or procedures described in the employee handbook or as otherwise communicated to you, in whole or in part, at any time, with or without notice, and ONElist may change or terminate the TriNet relationship at any time. As with all employees, your employment with ONElist is at will. This means that your terms and conditions of employment, including but not limited to termination, demotion, promotion, transfer, compensation, benefits, duties and location of work may be changed with or without cause, for any or no reason, and with or without notice. Your status as an at-will employee cannot be changed by any statement, promise, policy, course of conduct, writing or manual unless except through a written agreement signed by an officer authorized by the Board of Directors. Michael, we are looking forward to your joining the team and contributing to this exciting venture. We expect your start date to be 10/13/99. You may indicate your acceptance of this offer by signing the acknowledgment below and returning it to me by within five (5) days from the date of this letter, at which time this offer expires if not previously accepted. If you have any questions or concerns please do not hesitate to call. Sincerely, - ------------------------------ Mark Fletcher President/ CEO I accept the offer of employment as stated in this letter. - ------------------------------- 10/12/99 Addressee's Signature Date Enclosures: Duplicate Letter (for your files) EX-10.11 17 EMPLOYMENT LETTER WITH RICHARD CAREY 1 EXHIBIT 10.11 www.onelist.com SEPTEMBER 16, 1999 RICHARD CAREY 1230 PAYNE DRIVE LOS ALTOS, CA 94024 DEAR RICHARD: Congratulations! We feel that you have what it takes to help ONElist achieve its future goals and maintain its success as the world's leading e-mail community service and would like you to join our team. I am pleased to offer you the position of VICE PRESIDENT OF ENGINEERING at ONElist. Your salary will be based on an annual salary of $175,000, paid bi-monthly and you will receive a $5,000 signing bonus. You are eligible to participate in the ONElist Incentive Stock Option (ISO) plan and will receive an option grant (in a separate document) to purchase 82,000 shares of ONElist common stock, subject to the vesting schedule, terms and conditions of the Company' Stock Option Plan, option agreement. This grant is subject to approval by the Company's Board of Directors. In the event that within one year from the effective date of your employment with the company is involuntarily terminated other than for "cause" or is "constructively terminated" (as such terms are defined below), the first 25% of the option shares (20,500 shares) will become vested and exercisable and you will be entitled to exercise such portion of the Option for a period of three (3) months form the date of employment termination; provided, however, that if any such provisions of paragraph 6(a) below shall control. For purposes of the foregoing: Termination for "cause" means (A) the failure by you substantially to perform your material duties after a written demand for substantial performance is delivered to you by the Board of Director that specifically identifies the manner in which the Board of Directors believes that you have not substantially performed your duties, (B) the failure (in material respect) by you to follow reasonable policies or directives established by the board of Directors after written notice to you by the Board of Directors that you are not following such policies or directives, (C) bad faith conduct that is materially detrimental to the Company, or (D) the conviction of you of a felony. Your employment with the Company will be deemed to have been "constructively terminated" if there shall occurs (A) a reduction in your base salary other than a reduction that is part 2 of a general reduction of officer salaries, (B) a material change in your responsibility or authority, or (C) an office relocation requiring a commute greater than 50 miles. In addition, if within six (6) months after the Change of Control (as defined below) of the Company, your employment with the Company is involuntary terminate other than for "cause" of is "constructively terminated" (as such terms are defined above), a portion of the Option shares equivalent to an additional one (1) year of vesting (20,500 shares) from the date of portion of the option for a period of three (3) months from the date of employment termination; provided, however, that in no event shall such accelerated vesting permit you to exercise more than Change of Control occurred 18 months after the Effective Date and your employment were terminated under the circumstances set forth in this paragraph 20 months after the Effective Date, an additional four (4) months of vesting would occur. For purposes of the foregoing, a "Change of Control of the Company" shall be deemed to have occurred if (i) the Company sells or otherwise disposes all of substantially all of its assets; (ii) there is a merger or consolidation of the Company with any other corporation or corporations, provided that the shareholders of the Company, as a group, do not hold, immediately after such event, more than 50% of the voting power of the surviving or successor corporation; or (iii) a person or entity, including any "person" as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but other than any of the investors in the Company as of the Effective Date, becomes the "beneficial owner" (as defined in the Exchange Act) of Common Stock of the Company representing 50% or more of the combined voting power of the voting securities of the Company (exclusive of persons who are now officers or directors of the Company). The company shall require any successor of assignee, in connection with any sale, transfer or other disposition of all substantially all of the Company's assets or business, whether by purchase, merger, consolidation or otherwise, expressly to assume and agree to perform the Company's obligations hereunder in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. You are also eligible for the following standard Company benefits: medical/ dental/ vision, life insurance, LTD, vacation, and holidays. You will receive more detailed information about these during your new employee orientation. Benefits, payroll, and other human resource management services are provided through TriNet Employer Group, Inc. TriNet is an employer services organization contracted by The Company to perform selected employer responsibilities on our behalf. As a result of ONElist's arrangement with TriNet, TriNet will be considered your employer of record for payroll, benefits, and other functions involving employer related administration, including your new hire enrollment processing. However, as ONElist is the company for which you will perform service, we will retain the right to control and direct your work, its results, and the manner and means by which your work is accomplished. With the exception of the provision for at will employment described below, ONElist and/or TriNet may modify, revoke, suspend or terminate any of the terms, plans, policies and/or procedures described in the employee handbook or as otherwise communicated to you, in whole or part, at any -2- 3 time, with or without notice, and ONElist may change or terminate the TriNet relationship at any time. As with all employees, your employment with ONElist is at will. This means that your terms and conditions of employment, including but not limited to termination, demotion, promotion, transfer, compensation, benefits, duties and location of work may be changed with or without cause, for any or no reason, and with or without notice. Your status as an at-will employee cannot be changed by any statement, promise, policy, course of conduct, writing or manual unless except through a written agreement signed by the President/CEO of the company. RICHARD, we are looking forward to your joining the team and contributing to this exciting venture. Your start date is SEPTEMBER 27, 1999. You may indicate your acceptance of this offer by signing the acknowledgment below and returning it to me by within five (5) days from the date of this letter, at which time this offer expires if not previously accepted. If you have any questions or concerns please do not hesitate to call. Sincerely, Mark Fletcher President/ CEO I accept the offer of employment as stated in this letter. Addressee's Signature Enclosures: Duplicate Letter (for your files) -3- EX-10.12 18 EMPLOYMENT LETTER WITH MARJORIE SENNETT 1 EXHIBIT 10.12 June 7th, 1999 Marjorie Sennett 13251 Denara Rd. San Diego, CA 92130 Dear Marjorie, It is my pleasure to offer you a position at eGroups Inc., working with us to make our Internet group communication service pervasive world-wide. Title: Senior Vice President and Chief Financial Officer Salary: $200K per annum Loan: $100K forgiven over 4 years Stock options: 232,000 The terms of your new position with the Company are as set forth below: 1. POSITION (a) You will take on the responsibilities of Chief Financial Officer. You will report to the CFO. (b) You agree to the best of your ability and experience that you will at all times conscientiously perform the duties and obligations required of and from you pursuant to the extent and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote substantially all of your business time and attention to the business of the Company, you will not render commercial or professional services of any nature to any person or organization for compensation, without the prior written consent of the Company's Chief Executive Officer or Board of Directors, and you will not directly or indirectly engage or participate in any business that is directly competitive in any, manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on July 5th, 1999. 3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you will be required to provide the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 4. COMPENSATION. (a) Salary. Your annual salary will be $200,000.00, paid every two weeks pursuant to the Company's regular payroll policy (or in the same manner as other employees of the Company). (b) Loan. You will receive an interest-free loan of $100,000.00, on your Start Date. This loan is to be paid back within 120 days upon termination of your employment with the Company, but the amount to be paid back will be reduced by 1/48th of 100,000 per month of your full time employment with the Company. 2 (b) Benefits. You will be eligible to Participate in the health, medical, dental or life insurance programs and the 401(k) and employee stock purchase programs established by the Company, on the same basis as other similarly compensated employees. (c) Vacation. You will be entitled to twenty-one (21) days of paid vacation after one (1) year of employment with the Company, accruing at a rate of 1.75 days of vacation per month of service. Your manager may also grant additional vacation time. (d) Moving Expenses. The Company will cover reasonable expenses for moving to the Bay Area, including packing and moving of household goods, up to three month temporary housing, up to three house hunting trips for the family, and weekly travel for you to and from San Diego until your family is relocated. In addition the Company will gross up year end W-2 income to cover nondeductible relocation expenses. (e) Termination. Separate from the case of a Merger of the Company, if your employment is terminated by the Company without Cause, a reasonable severance package shall be worked out. If Your employment is terminated before the first anniversary of the commencement of your employment, the Company's right of repurchase shall immediately lapse with respect to 1/48th of the total number of Shares or each month of employment completed. 5. OPTION TO PURCHASE COMMON STOCK. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase 232,000 shares of the Company's Common Stock ("Shares") under the Company's 1998 Employee Stock Option Plan established by the Board of Directors. The option shall have an exercise purchase price equal to the fair market value on the date of the grant as determined in good faith by the Board of Directors of the Company. These Shares issued upon the exercise of the option will be subject to the Company's right of repurchase in the event of the termination of your employment with the Company. This repurchase right will lapse as to 1/4th of the total number of Shares on the first anniversary of the commencement of your employment, and shall lapse as to 1/48th of the total number of Shares each month thereafter. The Company's repurchase, right will continue to lapse only so long as you continue to be employed by the Company. The option will be an incentive stock option to the maximum extent allowed by applicable law and will be subject to the terms of the stock option agreement between you and the Company. Notwithstanding the foregoing, the Company's right of repurchase shall immediately lapse with respect to 50% of the then unvested Shares and a reasonable severance package shall be worked out if, in connection with or following the completion of Merger (as defined below), your employment with the Company (or its successor entity) is terminated by the Company or its successor without cause (as defined below) or you terminate your employment voluntarily as a result of a Constructive Termination (as defined below). - - "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. - - "Cause" for the termination of your employment with the Company or its successor will exist at any time upon one or more of the following events. (i) Your willful misconduct in performance of the duties of your position with the Company or its successor, including your refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not inconsistent with your position and duties, and such refusal to comply is not remedied within 15 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (ii) your conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude. 3 - - "Constructive Termination" shall be deemed to occur if there is (i) an adverse change in your position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility; or (ii) a reduction of your compensation, taken as a whole. 6. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Proprietary Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement") prior to or on your Start Date. 7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 8. AT-WILL EMPLOYMENT. Your employment with the Company will be on an "at Will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability, We are all delighted to be able to extend you this offer until 5 pm PST on June 7th, 1999, and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. If you have any questions about this offer, please call me at 415-284-5245. We look forward to a favorable reply and to a rewarding and productive association with you. Sincerely, Martin Roscheisen, CEO Agreed and Accepted Marjorie Sennett Date Enclosure: Proprietary Formation and Invention Assignment Agreement EX-10.13 19 EMPLOYMENT LETTER WITH STEVEN COMFORT 1 EXHIBIT 10.13 April 8th, 1999 Steven Comfort 1144 Treat Street San Francisco, CA 94110 415-282-7597 Dear Steven, It is my pleasure to offer you a position at eGroups Inc., working with us on our next-generation Internet group communication and application service. Title: Vice President of Sales Salary: $100,000 per annum Bonus A: $75,000 per annum for reaching 80-100% of target Bonus B: $75,000 per annum for 100-150% Stock options: 100,000 Vesting period: 4 years The terms of your new position with the Company are as set forth below: 1. POSITION. (a) You will be part of the company's management team as Vice President of Sales, taking responsibility to spearhead our efforts in building an advertising sales team, define the company's advertising and direct marketing products and price points, and convert inventory into revenue according to target plans agreed upon. You will report to the CEO. You will have a sliding budget that scales with available inventory. (b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on April 26th, 1999. 3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 2 4. COMPENSATION. (a) Salary. Your annual base salary will be $100,000.00. Your salary will be paid every two weeks in pursuant to the Company's regular payroll policy (or in the same manner as other employees of the Company). (b) Bonus. You will be eligible to receive a bonus of $75,000 per year for reaching 100% of the target plan. If you reach less than 100% but more than a minimum of 80%, you will be eligible for a bonus that scales linearly upward from the 80% minimum to the 100% the target. There will be no bonus for reaching less than 80% of the target. If you reach more than 100%, you will be eligible to receive another $75,000 for reaching up to 150% of the target, scaling in the same way as the other bonus. The target plan will be agreed upon in detail after you start working with us, but the overall goal will be to reach a revenue of $500K per month by the end of 1999. Bonus payments will be assessed on a quarterly basis in each case. (c) Benefits. You will be eligible to participate in the health, medical, dental or life insurance programs and the 401(k) and employee stock purchase programs established by the Company, on the same basis as other similarly compensated employees. (d) Vacation. You will be entitled to twenty-one (21) days of paid vacation after one (1) year of employment with the Company, accruing at a rate of 1.75 days of vacation per month of service. Your manager may also grant additional vacation time. 5. OPTION TO PURCHASE COMMON STOCK. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase One-Hundred Thousand (100,000) shares of the Company's Common Stock ("Shares") under the Company's 1998 Employee Stock Option Plan established by the Board of Directors. The option shall have an exercise purchase price equal to the fair market value on the date of the grant as determined in good faith by the Board of Directors of the Company. These Shares issued upon the exercise of the option will be subject to the Company's right of repurchase in the event of the termination of your employment with the Company. This repurchase right will lapse as to 1/4th of the total number of Shares on the first anniversary of the commencement of your employment, and shall lapse as to 1/48th of the total number of Shares each month thereafter. The Company's repurchase right will continue to lapse only so long as you continue to be employed by the Company. The option will be an incentive stock option to the maximum extent allowed by applicable law and will be subject to the terms of the stock option agreement between you and the Company. (a) Notwithstanding the foregoing, the Company's right of repurchase shall immediately lapse with respect to the Shares if, in connection with or following the completion of Merger (as defined below), your employment with the Company (or its successor entity) is terminated by the Company or its successor without Cause (as defined below) or you terminate your employment voluntarily as a result of a Constructive Termination (as defined below). (b) "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. (c) "Cause" for the termination of your employment with the Company or its successor will exist at any time upon one or more of the following events: (i) Your willful misconduct in performance of the duties of your position with the Company or its successor, including your refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not 3 inconsistent with your position and duties, and such refusal to comply is not remedied within 10 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (ii) your conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude. (d) "Constructive Termination" shall be deemed to occur if there is (i) an adverse change in your position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility (it being understood that your operating responsibilities, title and reporting relationships may be changed in connection with integration of the Company's operations with those of an acquiror following a Merger); or (ii) a reduction of your compensation, taken as a whole. 6. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Proprietary Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date. 7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 8. AT-WILL EMPLOYMENT Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. We are all delighted to be able to extend you this offer until 2pm on Monday April 12th, 1999, and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the* Confidentiality Agreement, sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. If you have any questions about this offer, please call me at 415.284.5245. We look forward to a favorable reply and to a rewarding and productive association with you. Sincerely, Martin Roscheisen, CEO Agreed and Accepted: - ------------------------------ ------------------------------ Steven Comfort Date Enclosure: Proprietary Information and Invention Assignment Agreement EX-10.14 20 EMPLOYMENT LETTER WITH JACQUELINE A. MAARTENSE 1 EXHIBIT 10.14 September 1st, 1999 Jacqueline Maartense 31 Hancock Street San Francisco, CA 94114 Jacqueline: It is my pleasure to offer you a position at eGroups, Inc. working with us to make our group communication service pervasive worldwide. Title: VP Marketing Salary: $150,000 Stock Options: 200,000 shares Sign-on Bonus: $10K Vesting Period: 4 years, with one-year cliff and monthly vesting thereafter Start Date: 9/27/99
The terms of your new position with the Company are as set forth below: 1. POSITION. (a) We are very pleased to offer you a position as VP Marketing reporting to the CEO. A description is attached to clarify the scope of this position. (b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on the above start date. 3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 4. COMPENSATION. (a) Salary. Your salary will be payable pursuant to the Company's regular payroll policy (or in the same manner as other employees of the Company) currently every two weeks. 2 (b) Benefits. You will be eligible to participate in the health, medical, dental or life insurance programs and the 401(k) and employee stock purchase programs established by the Company, on the same basis as other similarly compensated employees, as those policies may change from time to time. (c) Sign-on bonus. We will pay you a sign-on bonus of $10,000.00 on the Start Date of your employment. Eight tenth of this bonus are to be fully repaid in the event that you terminate your employment with the Company before the completion of six months of employment with the Company. (c) Vacation. You will be entitled to twenty-one (21) days of paid personal leave per year, accruing on a monthly basis according to the Company's policy, to use for vacation, personal illness, and family illness. (d) Severance. In the event you are terminated without cause or have Good Reason, you will receive a lump-sum severance payment iZon the termination date or date you have Good Reason equal to three months of salary plus our prorated bonus for the year. In addition, you will receive 3 months of continuing company benefits. If your employment is terminated before the first anniversary of the commencement of your employment, the Company's right of repurchase shall immediately lapse with respect to 1/48th of the total number of Shares for each month of employment completed. "Good Reason" means (i) the material reduction or material modification of your authority, duties, title, salary, employee benefits or responsibilities without your prior written consent, or (ii) any requirement that you move your principal place of employment from the San Francisco Bay Area. 5. OPTION TO PURCHASE COMMON STOCK. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase shares of the Company's Common Stock as stated above ("Shares") under the Company's 1998 Employee Stock Option Plan established by the Board of Directors. The option shall have an exercise purchase price equal to the fair market value on the date of the grant as determined in good faith by the Board of Directors of the Company. These Shares issued upon the exercise of the option will be subject to the Company's right of repurchase in the event of the termination of your employment with the Company. This repurchase right will lapse as to 1/4th of the total number of Shares on the first anniversary of the commencement of your employment, and shall lapse as to 1/48th of the total number of Shares each month thereafter. The Company's repurchase right will continue to lapse only so long as you continue to be employed by the Company. The option will be an incentive stock option to the maximum extent allowed by applicable law and will be subject to the terms of the stock option agreement between you and the Company. Notwithstanding the foregoing, the Company's right of repurchase shall immediately lapse with respect to 25% of the Shares if, in connection with or following the completion of Merger (as defined below), your employment with the Company (or its successor entity) is terminated by the Company or its successor without Cause (as defined below) or you terminate your employment voluntarily as a result of a Constructive Termination (as defined below). "Merger" shall mean a merger or consolidation of the Company in connection with which greater than 50% of the voting power of the Company is transferred, or a sale of all or substantially all of the Company's assets or capital stock, excluding a transaction for the sole purpose of changing the legal domicile of the Company. "Cause" for the termination of your employment with the Company or its successor will exist at any time upon one or more of the following events: (i) Your willful misconduct in performance of the duties of your position with the Company or its successor, including your refusal to comply in any material respect with the legal directives of the Company's Chief Executive Officer or the Board of Directors so long as such directives are not inconsistent 2 3 with your position and duties, and such refusal to comply is not remedied within 15 working days after written notice from the Company or its successor, which written notice shall state that failure to remedy such conduct may result in termination for Cause; or (ii) your conduct that materially discredits the Company or its successor or is materially detrimental to the reputation of the Company or its successor, including conviction of a felony involving moral turpitude. "Constructive Termination" shall be deemed to occur if there is (i) an adverse change in your position or operating responsibilities with the Company or its successor causing such position to be of materially reduced stature or responsibility; or (ii) a reduction of your compensation, taken as a whole; or (iii) you are required to move your principal place of employment from the San Francisco Bay Area. 6. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Proprietary Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date. 7. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 8. AT-WILL EMPLOYMENT. Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further liability. This at-will nature of your employment may be changed only by a written agreement signed by you and the Chief Executive Officer of the Company that refers expressly to the at-will nature of your employment. We are delighted to extend you this offer until 8pm PST on August __, 1999 and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. If you have any questions about this offer, please call me. We look forward to a favorable reply and to a rewarding and productive association with you. Sincerely, Martin Roscheisen CEO Agreed and Accepted: - ------------------------------- ------------------------------- Employee Name Date 3 4 Enclosure: Proprietary Information and Invention Assignment Agreement 4 EX-10.15 21 INVENTIONS ASSIGNMENT AGREEMENT 1 EXHIBIT 10.15 EGROUPS, INC. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed (or my employment being continued) by or retained as a consultant (or my consulting relationship being continued eGroups, Inc., a Delaware corporation, with any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the "Company", and in consideration of my employment or consulting relationship with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following: 1. EMPLOYMENT OR CONSULTING RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or in a consulting relationship with, or the duration of my employment or consulting relationship with, the Company under any existing agreements between the Company and me or under applicable law. Any employment or consulting relationship between the Company and me, whether commenced prior to or upon the date of this Agreement, shall be referred to herein as the "Relationship." 2. AT-WILL EMPLOYMENT. I understand and acknowledge that my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability. 3. PROPRIETARY INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Proprietary Information of the Company which I obtain or create. I further agree not to make copies of such Proprietary Information except as authorized by the Company. I understand that "Proprietary Information" means any Company proprietary information, technical. data, trade secrets or know how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "Proprietary Information" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Proprietary Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee or consultant of the Company have not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in' carrying out my work for the Company consistent with the Company's agreement with such third party. 4. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as Exhibit A a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "Prior Inventions"), 2 which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use,' sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or' its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by or a consultant of the Company (collectively referred to as "Inventions"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "works made for hire" (to the greatest extent permitted by applicable law) and are compensated by my salary (if I am an employee) or by such amounts paid to me under any applicable consulting agreement or consulting arrangements (if I am a consultant), unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of. all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. (e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any. invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company promptly in writing of any inventions that I believe meet such provisions and are not otherwise disclosed on Exhibit A. 5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory note