YAHOO INC
10-Q, EX-2.8, 2000-07-28
COMPUTER INTEGRATED SYSTEMS DESIGN
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Exhibit 2.8

AGREEMENT AND PLAN OF MERGER
dated as of June 27, 2000
among
YAHOO! INC.,
HERMES ACQUISITION CORPORATION
and
EGROUPS, INC.

TABLE OF CONTENTS

 
    
   Page
ARTICLE I THE MERGER   1
  SECTION 1.1   EFFECTIVE TIME OF THE MERGER   1
  SECTION 1.2   CLOSING   2
  SECTION 1.3   EFFECTS OF THE MERGER   2
  SECTION 1.4   DIRECTORS AND OFFICERS   2
ARTICLE II CONVERSION OF SECURITIES   2
  SECTION 2.1   CONVERSION OF CAPITAL STOCK   2
  SECTION 2.2   ESCROW AGREEMENT   4
  SECTION 2.3   DISSENTING SHARES   4
  SECTION 2.4   EXCHANGE OF CERTIFICATES   5
  SECTION 2.5   DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES   6
  SECTION 2.6   TAX AND ACCOUNTING CONSEQUENCES   6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET   6
  SECTION 3.1   ORGANIZATION OF TARGET AND ITS SUBSIDIARIES   6
  SECTION 3.2   TARGET CAPITAL STRUCTURE   7
  SECTION 3.3   AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS   9
  SECTION 3.4   FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES   10
  SECTION 3.5   TAX MATTERS   10
  SECTION 3.6   ABSENCE OF CERTAIN CHANGES OR EVENTS   12
  SECTION 3.7   TITLE AND RELATED MATTERS   13
  SECTION 3.8   PROPRIETARY RIGHTS   13
  SECTION 3.9   EMPLOYEE BENEFIT PLANS   15
  SECTION 3.10   BANK ACCOUNTS   16
  SECTION 3.11   CONTRACTS   16
  SECTION 3.12   ORDERS, COMMITMENTS AND RETURNS   18
  SECTION 3.13   COMPLIANCE WITH LAW   18
  SECTION 3.14   LABOR DIFFICULTIES; NO DISCRIMINATION   18
  SECTION 3.15   TRADE REGULATION   19
  SECTION 3.16   INSIDER TRANSACTIONS   19
  SECTION 3.17   EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS   19
  SECTION 3.18   INSURANCE   19
  SECTION 3.19   ACCOUNTS RECEIVABLE   19
  SECTION 3.20   LITIGATION   19
  SECTION 3.21   GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS   20

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  SECTION 3.22   NO OTHER INVESTMENTS   20
  SECTION 3.23   COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS   20
  SECTION 3.24   CORPORATE DOCUMENTS   20
  SECTION 3.25   NO BROKERS   20
  SECTION 3.26   POOLING OF INTERESTS   20
  SECTION 3.27   ADVERTISERS, CUSTOMERS AND SUPPLIERS   21
  SECTION 3.28   TARGET ACTION   21
  SECTION 3.29   OFFERS   21
  SECTION 3.30   PRIVACY LAWS AND POLICIES COMPLIANCE   21
  SECTION 3.31   DISCLOSURE   21
  SECTION 3.32   HEARING NOTICE AND INFORMATION STATEMENT; REGISTRATION STATEMENT; PROXY STATEMENT/ PROSPECTUS   21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB   22
  SECTION 4.1   ORGANIZATION OF ACQUIROR AND SUB   22
  SECTION 4.2   VALID ISSUANCE OF ACQUIROR COMMON STOCK   22
  SECTION 4.3   AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS   22
  SECTION 4.4   SEC FILINGS; FINANCIAL STATEMENTS   23
  SECTION 4.5   POOLING OF INTERESTS   24
  SECTION 4.6   INTERIM OPERATIONS OF SUB   24
  SECTION 4.7   SHAREHOLDERS CONSENT   24
  SECTION 4.8   HEARING NOTICE AND INFORMATION STATEMENT; REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS   24
ARTICLE V PRECLOSING COVENANTS OF TARGET   24
  SECTION 5.1   FAIRNESS HEARING AND PERMIT   24
  SECTION 5.2   APPROVAL OF TARGET STOCKHOLDERS   25
  SECTION 5.3   ADVICE OF CHANGES   25
  SECTION 5.4   OPERATION OF BUSINESS   25
  SECTION 5.5   ACCESS TO INFORMATION   27
  SECTION 5.6   SATISFACTION OF CONDITIONS PRECEDENT   28
  SECTION 5.7   OTHER NEGOTIATIONS   28
  SECTION 5.8   TERMINATION OF LEASE   28
ARTICLE VI PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB   28
  SECTION 6.1   ADVICE OF CHANGES   28
  SECTION 6.2   RESERVATION OF ACQUIROR COMMON STOCK   28
  SECTION 6.3   SATISFACTION OF CONDITIONS PRECEDENT   28
  SECTION 6.4   STOCK OPTIONS AND WARRANTS   29
  SECTION 6.5   NASDAQ NATIONAL MARKET LISTING   29

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  SECTION 6.6   CERTAIN EMPLOYEE BENEFIT MATTERS   29
  SECTION 6.7   DIRECTOR AND OFFICER LIABILITY   30
ARTICLE VII OTHER AGREEMENTS   30
  SECTION 7.1   CONFIDENTIALITY   30
  SECTION 7.2   NO PUBLIC ANNOUNCEMENT   30
  SECTION 7.3   REGULATORY FILINGS; CONSENTS; REASONABLE EFFORTS   30
  SECTION 7.4   POOLING ACCOUNTING   31
  SECTION 7.5   FURTHER ASSURANCES   31
  SECTION 7.6   ESCROW AGREEMENT   31
  SECTION 7.7   FIRPTA   32
  SECTION 7.8   BLUE SKY LAWS   32
  SECTION 7.9   OTHER FILINGS   32
ARTICLE VIII CONDITIONS TO MERGER   32
  SECTION 8.1   CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER   32
  SECTION 8.2   ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND SUB   33
  SECTION 8.3   ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET   35
ARTICLE IX TERMINATION AND AMENDMENT   35
  SECTION 9.1   TERMINATION   35
  SECTION 9.2   EFFECT OF TERMINATION   36
  SECTION 9.3   FEES AND EXPENSES   36
ARTICLE X ESCROW AND INDEMNIFICATION   37
  SECTION 10.1   INDEMNIFICATION   37
  SECTION 10.2   ESCROW FUND   37
  SECTION 10.3   DAMAGE THRESHOLD   37
  SECTION 10.4   ESCROW PERIODS   38
  SECTION 10.5   CLAIMS UPON ESCROW FUND   38
  SECTION 10.6   VALUATION   38
  SECTION 10.7   OBJECTIONS TO CLAIMS   38
  SECTION 10.8   RESOLUTION OF CONFLICTS   38
  SECTION 10.9   SHAREHOLDERS' AGENTS   39
  SECTION 10.10   ACTIONS OF THE SHAREHOLDERS' AGENTS   39
  SECTION 10.11   CLAIMS   40
ARTICLE XI MISCELLANEOUS   40
  SECTION 11.1   SURVIVAL OF REPRESENTATIONS AND COVENANTS   40
  SECTION 11.2   NOTICES   40
  SECTION 11.3   INTERPRETATION   41

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  SECTION 11.4   COUNTERPARTS   41
  SECTION 11.5   ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES    
  SECTION 11.6   GOVERNING LAW   41
  SECTION 11.7   ASSIGNMENT   42
  SECTION 11.8   AMENDMENT   42
  SECTION 11.9   EXTENSION; WAIVER   42
  SECTION 11.10   SPECIFIC PERFORMANCE   42
  SECTION 11.11   SEVERABILITY   42

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EXHIBITS        
 
EXHIBIT A		  
 		  
—		  
 		  
VOTING AGREEMENT
EXHIBIT B   —   NONCOMPETITION AGREEMENT
EXHIBIT C   —   STOCKHOLDERS AGREEMENT
EXHIBIT D   —   AFFILIATE AGREEMENT
EXHIBIT E   —   ESCROW AGREEMENT
EXHIBIT F   —   SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
EXHIBIT G-1   —   ACQUIROR TAX CERTIFICATE
EXHIBIT G-2   —   TARGET TAX CERTIFICATE
EXHIBIT H   —   SUBJECT MATTER OF OPINION OF COUNSEL TO ACQUIROR

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AGREEMENT AND PLAN OF MERGER

    THIS AGREEMENT AND PLAN OF MERGER, dated as of June 27, 2000 (this "Agreement"), is entered into by and among Yahoo! Inc., a Delaware corporation ("Acquiror"), Hermes Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Acquiror ("Sub"), and eGroups, Inc., a Delaware corporation ("Target").

RECITALS

    A.  The Boards of Directors of Acquiror, Sub and Target deem it advisable and in the best interests of each corporation and their respective stockholders that Acquiror and Target combine their respective businesses in order to advance the long-term business interests of Acquiror and Target;

    B.  The combination of Acquiror and Target shall be effected by the terms of this Agreement through a transaction in which Sub will merge with and into Target, Target will become a wholly owned subsidiary of Acquiror and the stockholders of Target will become stockholders of Acquiror (the "Merger");

    C.  For Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");

    D.  For accounting purposes, it is intended that the Merger shall be accounted for as a pooling of interests transaction;

    E.  As a condition and inducement to Acquiror's willingness to enter into this Agreement, certain Target stockholders holding no less than 51% of the issued and outstanding Preferred Stock of Target and no less than 51% of the issued and outstanding Common Stock of Target, have, concurrently with the execution of this Agreement, executed and delivered Voting Agreements in the form attached hereto as Exhibit A (the "Voting Agreements"), pursuant to which such stockholders have, among other things, agreed to vote their shares of Target capital stock in favor of the Merger and to grant Acquiror irrevocable proxies to vote such shares;

    F.  As a further condition and inducement to Acquiror's willingness to enter into this Agreement, certain employees of Target who are also stockholders of Target have, concurrently with the execution of this Agreement, executed and delivered Noncompetition Agreements in the form attached hereto as Exhibit B (the "Noncompetition Agreements"), which agreements shall only become effective at the Effective Time (as defined in Section 1.1 below).

    G.  As a further condition and inducement to Acquiror's willingness to enter into this Agreement, certain stockholders of Target have executed and delivered to Acquiror Stockholders Agreements in the form attached hereto as Exhibit C (the "Stockholders Agreements") and Affiliate Agreements in the form attached hereto as Exhibit D (the "Affiliate Agreements").

    NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:

ARTICLE I

THE MERGER

    Section 1.1  Effective Time of the Merger.

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    Section 1.2  Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m., California time, on a date (the "Closing Date") to be specified by Acquiror and Target, which shall be no later than the second business day after satisfaction or waiver of the latest to occur of the conditions set forth in Article VIII, at the offices of Venture Law Group, A Professional Corporation, 2775 Sand Hill Road, Menlo Park, California unless another date, time or place is agreed to in writing by Acquiror and Target.

    Section 1.3  Effects of the Merger.

    Section 1.4  Directors and Officers. The directors of Sub immediately prior to the Effective Time shall become the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, and the officers of Sub immediately prior to the Effective Time shall become the officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.

ARTICLE II

CONVERSION OF SECURITIES

    Section 2.1  Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of Target or capital stock of Sub:

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    Section 2.2  Escrow Agreement. At the Effective Time or such later time as determined in accordance with Section 2.3(b), Acquiror will, on behalf of the holders of Target Common Stock and Target Preferred Stock, deposit in escrow certificates representing ten percent (10%) of the Total Consideration Shares allocable to Target Common Stock and Target Preferred Stock in the Merger. Such shares shall be held in escrow on behalf of the persons who are the holders of Target Common Stock or Target Preferred Stock in the Merger immediately prior to the Effective Time (the "Former Target Stockholders"), in accordance with the portion of Total Consideration Shares allocable to each such Former Target Stockholder based upon the Exchange Ratios ("Pro Rata Portion"). Such shares (collectively, the "Escrow Shares") shall be held and applied pursuant to the provisions of an escrow agreement (the "Escrow Agreement") to be executed pursuant to Section 7.6. All calculations to determine the number of Escrow Shares to be delivered by each stockholder of the Company into escrow as aforesaid shall be rounded down to the nearest whole share.

    Section 2.3  Dissenting Shares.

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    Section 2.4  Exchange of Certificates.

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    Section 2.5  Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Acquiror Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Acquiror Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Acquiror Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any dividends or other distributions with a record date after the Effective Time previously paid with respect to such whole shares of Acquiror Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Acquiror Common Stock.

    Section 2.6  Tax and Accounting Consequences.

    Target represents and warrants to Acquiror and Sub that the statements contained in this Article III are true and correct, except as expressly set forth in the disclosure schedule delivered by Target to Acquiror on or before the date of this Agreement (the "Target Disclosure Schedule"). The Target Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article III.

    Section 3.1  Organization of Target and its Subsidiaries.

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    Section 3.2  Target Capital Structure.

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    Section 3.3  Authority; No Conflict; Required Filings and Consents.

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    Section 3.4  Financial Statements; Absence of Undisclosed Liabilities.

    Section 3.5  Tax Matters.

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    Section 3.6  Absence of Certain Changes or Events. Since April 30, 2000, other than as set forth on the Target Disclosure Schedule, Target has not:

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    Section 3.7  Title and Related Matters. Target has good and valid title to all its properties, interests in properties and assets, real and personal, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except the lien of current taxes not yet due and payable and minor imperfections of and encumbrances on title, if any, as do not materially detract from the value of or interfere with the present use of the property affected thereby. The equipment of Target used in the operation of its business is, taken as a whole, (i) adequate for the business conducted by Target and (ii) in good operating condition and repair, ordinary wear and tear excepted. All personal property leases to which Target is a party are valid, binding, enforceable against the parties thereto and in effect in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium, or other laws affecting the enforcement of creditors' rights generally and by principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. To the knowledge of Target, there is not under any of such leases any existing default or event of default or event which, with notice or lapse of time or both, would constitute a default. The Target Disclosure Schedule contains a description of all items of personal property with an individual net book value in excess of $5,000 and real property leased or owned by Target, describing its interest in said property. True and correct copies of Target's real property and personal property leases have been provided to Acquiror or its representatives.

    Section 3.8  Proprietary Rights.

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    Section 3.9  Employee Benefit Plans.

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    Section 3.10  Bank Accounts. The Target Disclosure Schedule sets forth the names and locations of all banks, trust companies, savings and loan associations, and other financial institutions at which Target maintains accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom.

    Section 3.11  Contracts.

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    The agreements, documents and instruments set forth on the Target Disclosure Schedule are referred to herein as "Material Contracts". True and correct copies of each document or instrument listed on the Target Disclosure Schedule pursuant to this Section 3.11(a) have been provided to Acquiror or its representatives.

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    Section 3.12  Orders, Commitments and Returns. All accepted advertising arrangements entered into by Target, and all material agreements, contracts, or commitments for the purchase of supplies by Target, were made in the ordinary course of business. There are no oral contracts or arrangements for the sale of advertising or any other product or service by Target.

    Section 3.13  Compliance With Law. Target and the operation of its business are in compliance in all material respects with all applicable laws and regulations material to the operation of its business. Neither Target nor, to Target's knowledge, any of its employees has directly or indirectly paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, government official or other party in the United States or any other country, that was or is in violation of any federal, state, or local statute or law or of any statute or law of any other country having jurisdiction. Target has not participated directly or indirectly in any boycotts or other similar practices affecting any of its customers. Target has complied in all material respects at all times with any and all applicable federal, state and foreign laws, rules, regulations, proclamations and orders relating to the importation or exportation of its products, except for such noncompliances as would not in the aggregate reasonably be expected to have a Material Adverse Effect on Target.

    Section 3.14  Labor Difficulties; No Discrimination.

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    Section 3.15  Trade Regulation. All of the prices charged by Target in connection with the marketing or sale of any products or services have been in compliance with all applicable laws and regulations. No claims have been communicated or threatened in writing against Target with respect to wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other violation of any laws or regulations relating to anti-competitive practices or unfair trade practices of any kind, and to Target's knowledge, no specific situation, set of facts, or occurrence provides any basis for any such claim against Target.

    Section 3.16  Insider Transactions. No affiliate ("Affiliate") as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") of Target has any interest in any equipment or other property, real or personal, tangible or intangible of Target, including, without limitation, any Target Proprietary Rights or, to the knowledge of Target, any creditor, supplier, customer, manufacturer, agent, representative, or distributor of Target Products; provided, however, that no such Affiliate or other person shall be deemed to have such an interest solely by virtue of the ownership of less than 1% of the outstanding stock or debt securities of any publicly-held company, the stock or debt securities of which are traded on a recognized stock exchange or quoted on the Nasdaq Stock Market.

    Section 3.17  Employees, Independent Contractors and Consultants. The Target Disclosure Schedule lists all currently effective written or oral consulting, independent contractor and/or employment agreements and other material agreements concluded with individual employees, independent contractors or consultants to which Target is a party. True and correct copies of all such written agreements have been provided to Acquiror or its representatives. All independent contractors have been properly classified as independent contractors for the purposes of federal and applicable state tax laws, laws applicable to employee benefits and other applicable law. All salaries and wages paid by Target are in compliance in all material respects with applicable federal, state and local laws. Also shown on the Target Disclosure Schedule are the names, positions and salaries or rates of pay, including bonuses, of all persons presently employed by, or performing contract services for, Target. No bonus or other payment will become due to Target employees or contractors as a result of the Merger.

    Section 3.18  Insurance. The Target Disclosure Schedule contains a list of the principal policies of fire, liability and other forms of insurance currently or previously held by Target, and all claims made by Target under such policies. To the knowledge of Target, Target has not done anything, either by way of action or inaction, that might invalidate such policies in whole or in part. There is no claim 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 Target is otherwise in compliance with the terms of such policies and bonds in all material respects. Target has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.

    Section 3.19  Accounts Receivable. Subject to any reserves set forth in the Most Recent Balance Sheet, the accounts receivable shown on the Most Recent Balance Sheet represent and will represent bona fide claims against debtors for sales and other charges, and are not subject to discount except for normal cash and immaterial trade discounts. The amount carried for doubtful accounts and allowances disclosed in the Most Recent Balance Sheet is sufficient to provide for any losses which may be sustained on realization of the receivables.

    Section 3.20  Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of Target, threatened against Target or any of its properties or any of its officers or directors (in

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their capacities as such). There is no judgment, decree or order against Target, or, to the knowledge of Target, any of its directors or officers (in their capacities as such). To Target's knowledge, no circumstances exist that could reasonably be expected to result in a claim against Target as a result of the conduct of Target's business (including, without limitation, any claim of infringement of any intellectual property right). The matters described in this Section 3.20 include, but are not limited to, those arising under any applicable federal, state and local laws, regulations and agency interpretations of the same relating to the collection and use of user information gathered in the course of the Company's operations.

    Section 3.21  Governmental Authorizations and Regulations. Target has obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which Target currently operates or holds any interest in any of its properties or (ii) that is required for the operation of Target's business or the holding of any such interest, and all of such authorizations are in full force and effect.

    Section 3.22  No Other Investments. Except for its ownership of the capital stock of the Subsidiaries identified on Schedule 3.2(d) of the Target Disclosure Schedule, Target does not own or control (directly or indirectly) any capital stock, bonds or other securities of, and does not have any proprietary interest in, any other corporation, limited liability company, general or limited partnership, firm, association or business organization, entity or enterprise, and Target does not control (directly or indirectly) the management or policies of any other corporation, limited liability company, partnership, firm, association or business organization, entity or enterprise.

    Section 3.23  Compliance with Environmental Requirements. Target has obtained all permits, licenses and other authorizations which are required under federal, state and local laws applicable to Target and relating to pollution or protection of the environment, including laws or provisions relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials, substances, or wastes into air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials, substances, or wastes or which are intended to assure the safety of employees, workers or other persons, except where the failure to obtain such authorizations could not be reasonably expected to have a Material Adverse Effect. Target is in compliance in all material respects with all terms and conditions of all such permits, licenses and authorizations. There are no conditions, circumstances, activities, practices, incidents, or actions known to Target which could reasonably be expected to form the basis of any claim, action, suit, proceeding, hearing, or investigation of, by, against or relating to Target, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic substance, material or waste, or relating to the safety of employees, workers or other persons.

    Section 3.24  Corporate Documents. Target has furnished to Acquiror or its representatives: (a) copies of its Certificate of Incorporation and Bylaws, as amended to date; (b) its minute book containing consents, actions, and meetings of the stockholders, the board of directors and any committees thereof; (c) all material permits, orders, and consents issued by any regulatory agency with respect to Target, or any securities of Target, and all applications for such permits, orders, and consents; and (d) the stock transfer books of Target setting forth all transfers of any capital stock. The corporate minute books, stock certificate books, stock registers and other corporate records of Target are complete and accurate, and the signatures appearing on all documents contained therein are the true or facsimile signatures of the persons purporting to have signed the same.

    Section 3.25  No Brokers. Neither Target nor, to Target's knowledge, any Target stockholder is obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or the other Transaction Documents or in connection with any transaction contemplated hereby or thereby.

    Section 3.26  Pooling of Interests. To Target's knowledge after consultation with its independent auditors, neither Target nor any of its Affiliates has taken or agreed to take any action which would prevent

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Acquiror from accounting for the business combination to be effected by the Merger as a pooling of interests.

    Section 3.27  Advertisers, Customers and Suppliers. As of the date hereof, no advertiser or other customer which individually accounted for more than 2% of Target's gross revenues during the 12-month period preceding the date hereof, and no material supplier of Target, has canceled or otherwise terminated prior to the expiration of the contract term, or, to the Target's knowledge, made any written threat to Target to cancel or otherwise terminate its relationship with Target, or has at any time on or after December 31, 1999 decreased materially its services or supplies to Target in the case of any such supplier, or its usage of the services or products of Target in the case of such customer, and to Target's knowledge, no such supplier or customer intends to cancel or otherwise terminate its contractual relationship with Target or to decrease materially its services or supplies to Target or its usage of the services or products of Target, as the case may be. Target has not knowingly (i) breached, so as to provide a benefit to Target that was not intended by the parties, any agreement with, or (ii) engaged in any fraudulent conduct with respect to, any customer or supplier or Target.

    Section 3.28  Target Action. The Board of Directors of Target, by unanimous written consent or at a meeting duly called and held, has by the unanimous vote of all directors (i) determined that the Merger is fair and advisable to and in the best interests of Target and its stockholders, (ii) approved the Merger and this Agreement in accordance with the provisions of Delaware Law, and (iii) directed that this Agreement and the Merger be submitted to Target stockholders for their approval and resolved to recommend that Target stockholders vote in favor of the approval of this Agreement and the Merger.

    Section 3.29  Offers. Target has suspended or terminated, and has the legal right to terminate or suspend, all negotiations and discussions of Acquisition Transactions (as defined in Section 5.6) with parties other than Acquiror.

    Section 3.30  Privacy Laws and Policies Compliance. Target has complied with all applicable federal, state and local laws, and regulations relating to the collection and use of user information gathered in the course of Target's operations, and Target has at all times complied in all material respects with all rules, policies and procedures established by Target from time to time with respect to the foregoing.

    Section 3.31  Disclosure. No statements by Target contained in this Agreement, its exhibits and schedules nor in any of the certificates required to be delivered by Target to Acquiror or Sub under this Agreement or in Target's registration statement on Form S-1 filed with the SEC on March 23, 2000 ("Target's Form S-1") contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. Target has disclosed to Acquiror all material information relating specifically to the operations and business of Target as of the date of this Agreement or the transactions contemplated by this Agreement.

    Section 3.32  Hearing Notice and Information Statement; Registration Statement; Proxy Statement/ Prospectus. The information relating to Target included in (i) the notice sent to the stockholders of Target pursuant to, and meeting the requirements of Article 2 of Subchapter 1 of the California Administrative Code, Title 10, Chapter 3, Subchapter 2, as amended (the "Hearing Notice"), concerning the hearing held by the California Commissioner of Corporations (the "Commissioner") to consider the terms, conditions and fairness of the transactions contemplated hereby pursuant to Section 25142 of the California Corporate Securities Law of 1968, as amended (the "Hearing"), (ii) the application for permit filed with the Commissioner in connection with the Hearing (the "Permit Application") and (iii) the information statement mailed to stockholders of Target in connection with the transactions contemplated hereby (the "Information Statement") shall not, at the time the Hearing Notice is mailed to stockholders of Target, at the time the Information Statement is mailed to stockholders of Target and at all times subsequent thereto (through and including the Effective Date), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information relating to Target included in the registration statement on Form S-4 (or such other or successor form as shall be

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appropriate) pursuant to which the shares of Acquiror Common Stock to be issued in the Merger will be registered with the SEC if the Permit is not issued (the "Registration Statement") shall not, at the time the Registration Statement (including any amendments or supplements thereto) is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information relating to Target included in the proxy statement/prospectus to be sent to the stockholders of Target in connection with the meeting of Target's stockholders to consider the Merger (the "Target Stockholders Meeting") (such proxy statement/prospectus as amended or supplemented is referred to herein as the "Proxy Statement") shall not, on the date the Proxy Statement is first mailed to Target stockholders, at the time of the Target Stockholders Meeting and at the Effective Time, contain any statement which, at such time, is false or misleading with respect to any material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Target Stockholders Meeting which has become false or misleading. If, at any time prior to the Effective Time, any event or information should be discovered by Target which should be set forth in an amendment to the (x) Hearing Notice, the Permit Application or the Information Statement or (y) the Registration Statement or the Proxy Statement, Target shall promptly inform Acquiror. Notwithstanding the foregoing, Target makes no representation, warranty or covenant with respect to any information relating to Acquiror which is contained in any of the foregoing documents.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB

    Acquiror and Sub jointly and severally represent and warrant to Target that, except as disclosed in a filing with the Securities and Exchange Commission (the "SEC"), the statements contained in this Article  IV are true and correct.

    Section 4.1  Organization of Acquiror and Sub. Each of Acquiror and its Subsidiaries, including Sub, is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has all requisite corporate power to own, lease and operate its property and to carry on its business as now being conducted and is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the failure to be so qualified or licensed would have a Material Adverse Effect on Acquiror or Sub. The authorized capital stock of Sub consists of 1,000 shares of Common Stock, all of which are issued and outstanding, duly paid and nonassessable and are owned by Acquiror free and clear of all liens, charges and encumbrances.

    Section 4.2  Valid Issuance of Acquiror Common Stock. The shares of Acquiror's Common Stock, par value of $0.001 per share ("Acquiror Common Stock"), to be issued pursuant to the Merger will be duly authorized, validly issued, fully paid, and non-assessable and issued in compliance with all applicable federal or state securities laws.

    Section 4.3  Authority; No Conflict; Required Filings and Consents.

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    Section 4.4  SEC Filings; Financial Statements.

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    Section 4.5  Pooling of Interests. To Acquiror's knowledge after consultation with its independent accountants, neither Acquiror nor any of its affiliates has taken or agreed to take any action which would prevent Acquiror from accounting for the business combination to be effected by the Merger as a pooling of interests.

    Section 4.6  Interim Operations of Sub. Sub was formed by Acquiror solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement. Sub has no liabilities and, except for a subscription agreement pursuant to which all of its authorized capital stock was issued to Acquiror, is not a party to any agreement other than this Agreement and agreements with respect to the appointment of registered agents and similar matters.

    Section 4.7  Stockholders Consent. No consent or approval of the stockholders of Acquiror is required or necessary for Acquiror to enter into this Agreement or the Transaction Documents or to consummate the transactions contemplated hereby and thereby.

    Section 4.8  Hearing Notice and Information Statement; Registration Statement; Proxy Statement/ Prospectus. The information relating to Acquiror included in (i) the Hearing Notice concerning the Hearing, (ii) the Permit Application and (iii) the Information Statement shall not, at the time the Hearing Notice is mailed to stockholders of Target, at the time the Information Statement is mailed to stockholders of Target and at all times subsequent thereto (through and including the Effective Date), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information relating Acquiror included in the Registration Statement shall not, at the time the Registration Statement (including any amendments or supplements thereto) is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, The information relating Acquiror included in the Proxy Statement shall not, on the date the Proxy Statement is first mailed to Target's stockholders, at the time of the Target Stockholders Meeting and at the Effective Time, contain any statement which, at such time, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which it is made, not false or misleading or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Target Stockholders Meeting which has become false or misleading. If at any time prior to the Effective Time any event or information should be discovered by Acquiror which should be set forth in any amendment to the Registration Statement or a supplement to the Proxy Statement, Acquiror will promptly inform Target. Notwithstanding the foregoing, Acquiror makes no representation, warranty or covenant with respect to any information relating to Target which is contained in any of the forgoing documents.

ARTICLE V

PRECLOSING COVENANTS OF TARGET

    Section 5.1  Fairness Hearing and Permit. As promptly as practicable after the execution of this Agreement, Target and Acquiror shall prepare, and Acquiror shall file with the Commissioner, the Permit Application and a request for the Hearing to be held by the Commissioner to consider the terms, conditions and fairness of the transactions contemplated by this Agreement and the Merger Agreement pursuant to Section 25142 of the California Corporate Securities Laws of 1968, as amended. As soon as permitted by the Commissioner, Target shall mail the Hearing Notice to all stockholders of Target entitled to receive such notice under Delaware Law. Target and Acquiror will notify each other promptly of the receipt of any comments from the Commissioner or its staff and of any request by the Commissioner or its staff or any other government officials for amendments or supplements to any of the documents filed therewith or any other filing or for additional information and will supply each other with copies of all correspondence between such party or any of its representatives, on the one hand, and the Commissioner,

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or its staff or any other government officials, on the other hand, with respect to the filing. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Information Statement or any other filing, each party shall promptly inform the other of such occurrence and cooperate in filing with the Commissioner or its staff or any other government officials, and/or mailing to stockholders of Target, such amendment or supplement. The Information Statement shall include the recommendation of the Board of Directors of Target in favor of the Merger Agreement and the Merger and the conclusion of the Board of Directors of Target that the terms and conditions of the Merger are fair and reasonable to the stockholders of Target. Anything to the contrary contained herein notwithstanding, Target shall not include in the Information Statement any information with respect to Acquiror or its affiliates or associates, the form and content of which information shall not have been approved by Acquiror prior to such inclusion. If the Commissioner informs Acquiror or Target of its determination not to (A) grant the Hearing, (B) permit the mailing of the Notice of Hearing or (C) issue the Permit, Target and Acquiror shall prepare, and Acquiror shall file with the SEC the Registration Statement, which shall comply in form with applicable SEC requirements and shall use all reasonable efforts to cause the Registration Statement to become effective as soon thereafter as practicable. Acquiror will notify Target promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement or any other filing or for additional information and will supply Target with copies of all correspondence between Acquiror or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement or other filing. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Registration Statement or any other filing, each party shall promptly inform the other party of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of Target, such amendment or supplement. The Proxy Statement shall include the recommendation of the Board of Directors of Target in favor of the Merger Agreement and the Merger and the conclusion of the Board of Directors of Target that the terms and conditions of the Merger are fair and reasonable to stockholders of Target. As soon as practicable following the execution of this Agreement, Target shall take all necessary action to cause Target's Form S-1 to be withdrawn from registration with the SEC.

    Section 5.2  Approval of Target Stockholders. Target shall promptly after the date hereof take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to convene the Target Stockholders Meeting or to secure the written consent of its stockholders, in each case, within 30 days of the issuance of the Permit or the effectiveness of the Registration Statement, as applicable. Target shall consult with Acquiror regarding the date of the Target Stockholders Meeting and use all reasonable efforts and shall not postpone or adjourn (other than for the absence of a quorum) the Target Stockholders Meeting without the consent of Acquiror. Target shall use its best efforts to solicit from stockholders of Target proxies in favor of the Merger and shall take all other action necessary or advisable to secure the vote or consent of stockholders required to effect the Merger.

    Section 5.3  Advice of Changes. Target will promptly advise Acquiror in writing of any event known to Target occurring subsequent to the date of this Agreement which would, or would be reasonably likely to, render any representation or warranty of Target contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect.

    Section 5.4  Operation of Business. During the period from the date of this Agreement and continuing until the earlier of the termination of the Agreement or the Effective Time, Target agrees (except to the extent that Acquiror shall otherwise consent in writing), to carry on its business in the usual, regular and ordinary course in substantially the same manner as previously conducted, to pay its debts and taxes when due, subject to good faith disputes over such debts or taxes, to pay or perform other obligations when due, and, to the extent consistent with such business, use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, to the end that its goodwill and ongoing businesses would be unimpaired at the Effective Time. Target shall promptly notify Acquiror of any event

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or occurrence not in the ordinary course of business of Target. Except as expressly contemplated by this Agreement, Target shall not, without the prior written consent of Acquiror:

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All communications from Target to Acquiror requesting waivers with respect to the provisions of this Section 5.4 shall be directed to Richard Riley at Acquiror's address set forth at Section 11.2(a) of this Agreement. All such requests for waivers shall be promptly considered in good faith by Acquiror whose consent with respect thereto shall not be unreasonably withheld.

    Section 5.5  Access to Information. Until the Closing, Target shall allow Acquiror and its agents and representatives reasonable free access during normal business hours upon reasonable notice to its files, books, records, representatives, employees, agents and offices, including, without limitation, any and all information relating to taxes, commitments, contracts, leases, licenses, and personal property and financial condition. Until the Closing, Target shall cause its accountants to cooperate with Acquiror and its agents in making available all financial information requested, including without limitation the right to examine all working papers pertaining to all financial statements prepared or audited by such accountants. No

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information or knowledge obtained in any investigation pursuant to this Section shall affect or be deemed to modify any representation or warranty contained in this Agreement or its exhibits and schedules. All such access shall be subject to the terms of the Confidentiality Agreement (as defined in Section 7.1).

    Section 5.6  Satisfaction of Conditions Precedent. Target will use its reasonable best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Sections 8.1 and 8.2, and Target will use its reasonable best efforts to cause the transactions contemplated by this Agreement to be consummated, and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties which may be necessary or reasonably required on its part in order to effect the transactions contemplated by this Agreement. Target shall use its best efforts to obtain any and all consents necessary with respect to those Material Contracts listed on Schedule 5.6 of the Target Disclosure Schedule required to consummate the Merger (the "Material Consents").

    Section 5.7  Other Negotiations. Following the date hereof and until termination of this Agreement pursuant to Section 9.1, Target will not (and it will not permit any of its officers, directors, employees, representatives (including, without limitation, accountants, attorneys, investment bankers or investors) agents and Affiliates on its behalf directly or indirectly through another person to) take any action to solicit, initiate, seek, encourage or support or take any other action designed to facilitate any inquiry, proposal or offer from, furnish any information to, or participate in any negotiations with, any corporation, partnership, person or other entity or group (other than Acquiror) regarding any acquisition of Target, any merger or consolidation with or involving Target, or any acquisition of any material portion of the stock or assets of Target or any material license of Target Proprietary Rights (any of the foregoing being referred to in this Agreement as an "Acquisition Transaction") or enter into an agreement concerning any Acquisition Transaction with any party other than Acquiror. If between the date of this Agreement and the termination of this Agreement pursuant to Section 9.1, Target receives from a third party any offer or indication of interest regarding any Acquisition Transaction, or any request for information regarding any Acquisition Transaction, Target shall (i) notify Acquiror immediately (orally and in writing) of such offer, indication of interest or request, including the identity of such party and the full terms of any proposal therein, and (ii) notify such third party of Target's obligations under this Agreement; provided, however, that the foregoing shall not be construed so as to require Target to breach any non-disclosure agreements entered into prior to June 1, 2000.

    Section 5.8  Termination of Lease or Qualified Sublease. As soon as practicable following the execution of this Agreement, Target shall use its best efforts to (i) cause the 555 Market Street Lease Agreement to be terminated in all respects at a cost to Target in an amount less than $8,644,000 or (ii) enter into a Qualified Sublease.

ARTICLE VI

PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB

    Section 6.1  Advice of Changes. Acquiror and Sub will promptly advise Target in writing of any event occurring subsequent to the date of this Agreement which would render any representation or warranty of Acquiror or Sub contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect.

    Section 6.2  Reservation of Acquiror Common Stock. Acquiror shall prior to the Effective Time reserve for issuance, out of its authorized but unissued capital stock, the maximum number of shares of Acquiror Common Stock as may be issuable upon consummation of the Merger.

    Section 6.3  Satisfaction of Conditions Precedent. Acquiror and Sub will use their reasonable best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Sections 8.1 and 8.3, and Acquiror and Sub will use their reasonable best efforts to cause the transactions contemplated by this Agreement to be consummated, and, without limiting the generality of the foregoing, to obtain all

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consents and authorizations of third parties and to make all filings with, and give all notices to, third parties which may be necessary or reasonably required on its part in order to effect the transactions contemplated hereby.

    Section 6.4  Stock Options.

    Section 6.5  Nasdaq National Market Listing. Acquiror will cause the shares of Acquiror Common Stock issuable to the stockholders of Target in the Merger and to the holders of Target Options to be assumed by Acquiror in the Merger to be authorized for listing on the Nasdaq National Market.

    Section 6.6  Certain Employee Benefit Matters. From and after the Effective Time, employees of Target at the Effective Time will be provided with employee benefits by the Surviving Corporation or Acquiror which in the aggregate are no less favorable to such employees than those provided from time to time by Acquiror to its similarly situated employees. If any employee of Target becomes a participant in any employee benefit plan, program, policy or arrangement of Acquiror, such employee shall be given

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credit for all service prior to the Effective Time with Target to the extent permissible under such plan, program, policy or arrangement.

    Section 6.7  Director and Officer Liability. For six years after the Effective Time, the Surviving Corporation shall indemnify and hold harmless the present and former officers, directors, employees and agents of Target in respect of acts and omissions occurring on or prior to the Effective Time to the extent required by Target's Certificate of Incorporation and Bylaws in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law.

ARTICLE VII

OTHER AGREEMENTS

    Section 7.1  Confidentiality. Each party acknowledges that Acquiror and Target have previously executed a Mutual Non-Disclosure Agreement dated as of May 26, 2000 (the "Confidentiality Agreement"), which agreement shall continue in full force and effect in accordance with its terms.

    Section 7.2  No Public Announcement. The parties shall make no public announcement concerning this Agreement, their discussions or any other memoranda, letters or agreements between the parties relating to the Merger; provided,however, that either of the parties, but only after reasonable consultation with the other, may make disclosure if required under applicable law; and provided further, however, that following execution of this Agreement or consummation of the Merger, Acquiror may make a public announcement regarding the Merger and the integration of Target's business into that of Acquiror. The parties have agreed upon the form and substance of a press release to be issued by Acquiror announcing the Merger and the execution of this Agreement.

    Section 7.3  Regulatory Filings; Consents; Reasonable Efforts.

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    Section 7.4  Pooling Accounting. Target and Acquiror shall each use reasonable good faith efforts, and shall each use its reasonable good faith efforts to cause its respective Affiliates, to cause the business combination to be effected by the Merger to be accounted for as a pooling of interests and to cause such treatment to be accepted by the SEC. Neither Target nor Acquiror shall take any action that would adversely affect the ability of Acquiror to account for the business combination to be effected by the Merger as a pooling of interests. Consistent with the foregoing, Target agrees that, to the extent it is determined that any of its employees, directors or stockholders will receive payments in connection with the Merger that would result in an excise tax to the recipient pursuant to Section 4999 of the Code and result in a nondeductible expense to Target pursuant to Section 280G of the Code, it will not seek the approval of its stockholders to exempt the payments from such excise tax. Schedule 7.4 sets forth those persons who, in Target's reasonable judgment are or may, at any time prior to the Closing Date, be "affiliates" of Target within the meaning of the SEC's Accounting Releases Nos. 130 and 135 (the "Target Affiliates"). Target shall provide Acquiror such information and documents as Acquiror shall reasonably request for purposes of reviewing such list. Target shall use its commercially reasonable efforts to deliver or cause to be delivered to Acquiror on or prior to the Closing from each of the Target Affiliates an executed Affiliate Agreement.

    Section 7.5  Further Assurances. Prior to and following the Closing, each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement.

    Section 7.6  Escrow Agreement. On or before the Effective Time, Acquiror shall, and the parties hereto shall exercise their reasonable good faith efforts to cause the Escrow Agent (as defined in

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Section 10.2) and the Stockholders' Agents (as defined in Section 10.9), to enter into an Escrow Agreement in substantially the form attached hereto as Exhibit E.

    Section 7.7  FIRPTA. Target shall, prior to the Closing Date, provide Acquiror with a properly executed Foreign Investment and Real Property Tax Act of 1980 ("FIRPTA") FIRPTA Notification Letter which states that shares of capital stock of Target do not constitute "United States real property interests" under Section 897(c) of the Code, for purposes of satisfying Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In addition, simultaneously with delivery of such FIRPTA Notification Letter, Target shall provide to Acquiror, as agent for Target, a form of notice to the Internal Revenue Service in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2), along with written authorization for Acquiror to deliver such notice form to the Internal Revenue Service on behalf of Target upon the Closing of the Merger.

    Section 7.8  Blue Sky Laws. Acquiror shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Acquiror Common Stock in connection with the Merger. Target shall use its reasonable good faith efforts to assist Acquiror as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of Acquiror Common Stock in connection with the Merger.

    Section 7.9  Other Filings. As promptly as practicable after the date of this Agreement, Target and Acquiror will prepare and file any other filings required under the Exchange Act, the Securities Act or any other Federal, foreign or state securities or blue sky laws relating to the Merger and the transactions contemplated by this Agreement (the "Other Filings"). The Other Filings will comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Other Filings, Target or Acquiror, as the case may be, will promptly inform the other of such occurrence and cooperate in making any appropriate amendment or supplement, and/or mailing to stockholders of Target, such amendment or supplement.

    Section 7.10  Qualification of Merger as a Reorganization. It is the intent of the parties to this Agreement that the Merger qualify as a reorganization under Section 368(a) of the Code, and each of Acquiror, Sub, the Target and the Surviving Corporation covenants and agrees not to take any position on any Return or report relating to Taxes inconsistent with such intent. Each of Acquiror, Sub, the Target and the Surviving Corporation agrees not to take any action either before or after the Effective Time that could reasonably be expected to cause the Merger not to be treated as a "reorganization" under Section 368(a) of the Code.

ARTICLE VIII

CONDITIONS TO MERGER

    Section 8.1  Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions:

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    Section 8.2  Additional Conditions to Obligations of Acquiror and Sub. The obligations of Acquiror and Sub to effect the Merger are subject to the satisfaction of each of the following conditions, any of which may be waived in writing exclusively by Acquiror and Sub:

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    Section 8.3  Additional Conditions to Obligations of Target. The obligation of Target to effect the Merger is subject to the satisfaction of each of the following conditions, any of which may be waived, in writing, exclusively by Target:

    Section 9.1  Termination. This Agreement may be terminated at any time prior to the Effective Time:

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    Section 9.2  Effect of Termination. In the event of termination of this Agreement as provided in Section 9.1, this Agreement shall immediately become void and there shall be no liability or obligation on the part of Acquiror, Target, Sub or their respective officers, directors, stockholders or Affiliates, except as set forth in Section 9.3 and further except to the extent that such termination results from the willful breach by any such party of any of its representations, warranties or covenants set forth in this Agreement.

    Section 9.3  Fees and Expenses.

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    Section 10.1  Indemnification. From and after the Effective Time and subject to the limitations contained in Section 10.2, the Former Target Stockholders will, severally but not jointly and pro rata up to but not exceeding their Pro Rata Portion, indemnify Acquiror, Acquiror's current and future affiliates (including the Surviving Corporation), the respective officers, directors, employees, agents, attorneys, accountants, advisors and representatives of such entities and the respective successors and assigns of such entities (collectively, the "Indemnified Parties") and hold the Indemnified Parties harmless against any loss, expense, liability or other damage, including attorneys' fees, to the extent of the amount of such loss, expense, liability or other damage (collectively "Damages") that the Indemnified Parties have incurred by reason of the breach or alleged breach by Target of any representation, warranty, covenant or agreement of Target contained in this Agreement or in the certificates to be delivered pursuant to Sections 8.2(a) and 8.2(b) (without giving effect to any "Material Adverse Effect" or other materiality qualification or any similar qualification contained in or incorporated directly or indirectly in such representation, warranty, covenant or agreement and without giving effect to any update to the Target Disclosure Schedules delivered by Target to Acquiror prior to Closing). In addition, Target shall indemnify and hold the Indemnified Parties harmless against (i) any amount payable out of the Escrow Fund pursuant to Section 9.3(b) in connection with excess Aggregate Transaction Expenses; (ii) any cash amounts or other value transfers paid or payable by Target in excess of $8,644,000 in connection with or as a result of the termination of the 555 Market Street Lease Agreement; (iii) any Damages incurred following the Effective Time by any Indemnified Party in connection with or as a result of the pending claim by France Telecom against Target or a Subsidiary of Target identified on Schedule 3.20 of the Target Disclosure Schedule and (iv) to the extent that Target shall choose to enter into a Qualified Sublease prior to the Effective Time, any cash amounts or other value transfers paid or payable by Target in connection with or as a result of the Qualified Sublease (other than the remitting to the Landlord of a portion of any net profits realized by Target in connection with the subleasing arrangement pursuant to the terms of the 555 Market Street Lease Agreement) and any Damages incurred following the Effective Time through the Escrow Period by any Indemnified Party in connection with the Qualified Sublease. Acquiror, Target and Sub acknowledge and agree, and the Former Target Shareholders, by their adoption of this Agreement, agree that notwithstanding anything to the contrary contained in this Agreement or any other Transaction Document, such indemnification under this Article X shall be the sole and exclusive remedy for any such claim of breach by Target and with respect to those matters noted in the immediately preceding sentence, except in those cases involving fraud or intentional breach on the part of Target.

    Section 10.2  Escrow Fund. As security and the sole and exclusive recourse for the indemnities in Section 10.1 and the reimbursement obligations contemplated by Section 9.3(b), as soon as practicable after the Effective Time, the Escrow Shares shall be deposited with U.S. Bank Trust, National Association (or such other institution selected by Acquiror with the reasonable consent of Target) as escrow agent (the "Escrow Agent"), such deposit to constitute the Escrow Fund (the "Escrow Fund") and to be governed by the terms set forth in this Article X and in the Escrow Agreement.

    Section 10.3  Damage Threshold. Notwithstanding the foregoing, the Former Target Stockholders shall have no liability under Section 10.1 and Acquiror may not receive any shares from the Escrow Fund unless and until an Officer's Certificate or Certificates (as defined in Section 10.5 below) for an aggregate amount of Acquiror's Damages in excess of $200,000 has been delivered to the Stockholders' Agents and to the Escrow Agent; provided, however, that after an Officer's Certificate or Certificates for an aggregate of $200,000 in Damages has been delivered, Acquiror shall be entitled to receive Escrow Shares equal in value to the full amount of Damages identified in such Officer's Certificate or Certificates; and provided further, however, that $200,000 threshold amount contemplated by this Section 10.3 shall not be applicable

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to claims made against the Escrow Fund pursuant to clauses (i), (ii) or (iv) of Section 10.1 above, which claims shall be subject to indemnification and reimbursement on a first dollar basis, but shall be applicable to claims made pursuant to clause (iii) of Section 10.1 above.

    Section 10.4  Escrow Periods. The Escrow Fund shall terminate upon the first anniversary date of the Closing Date (the period from the Closing Date to the first anniversary of the Closing Date referred to as the "Escrow Period"), provided, however, that the number of Escrow Shares, which, in the reasonable judgment of Acquiror, subject to the objection of the Stockholders' Agents and the subsequent resolution of the matter in the manner provided in Section 10.8, are necessary to satisfy any unsatisfied claims specified in any Officer's Certificate theretofore delivered to the Escrow Agent and the Stockholders' Agents prior to termination of the Escrow Period with respect to Damages incurred or litigation pending prior to expiration of the Escrow Period, shall remain in the Escrow Fund until such claims have been finally resolved.

    Section 10.5  Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or before the last day of the Escrow Period of a certificate signed by any appropriately authorized officer of Acquiror (an "Officer's Certificate"):

    Section 10.6  Valuation. For the purpose of compensating Acquiror for its Damages pursuant to this Agreement, the value per share of the Escrow Shares which shall be released to Acquiror in respect of a claim for Damages shall be the Average Stock Price.

    Section 10.7  Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate shall be delivered to the Stockholders' Agents (as defined in Section 10.9 below) and for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery of Escrow Shares pursuant to Section 10.4 unless the Escrow Agent shall have received written authorization from the Stockholders' Agents to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of the Escrow Shares in the Escrow Fund in accordance with Section 10.4, provided that no such delivery may be made if the Stockholders' Agents shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent and to Acquiror prior to the expiration of such thirty (30) day period.

    Section 10.8  Resolution of Conflicts.

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    Section 10.9  Stockholders' Agents.

    Section 10.10  Actions of the Stockholders' Agents. A decision, act, consent or instruction of the Stockholders' Agents shall constitute a decision of all of the Former Target Stockholders for whom shares of Acquiror Common Stock otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each such Former Target Stockholder, and the Escrow Agent and Acquiror may rely upon any decision, act, consent or instruction of the Stockholders' Agents as being the

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decision, act, consent or instruction of each and every such Former Target Stockholder. The Escrow Agent and Acquiror are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Stockholders' Agents.

    Section 10.11  Claims. In the event Acquiror becomes aware of a third-party claim which Acquiror believes may result in a demand against the Escrow Fund, Acquiror shall promptly notify the Stockholders' Agents of such claim, and the Stockholders' Agents and the Former Target Stockholders for whom shares of Acquiror Common Stock otherwise issuable to them are deposited in the Escrow Fund shall be entitled, at their expense, to participate in any defense of such claim. Acquiror shall have the right in its sole discretion to settle any such claim; provided, however, that Acquiror may not effect the settlement of any such claim without the consent of the Stockholders' Agents, which consent shall not be unreasonably withheld. In the event that the Stockholders' Agents have consented to any such settlement, the Stockholders' Agents shall have no power or authority to object to the amount of any claim by Acquiror against the Escrow Fund for indemnity with respect to such settlement in the amount agreed to.

ARTICLE XI

MISCELLANEOUS

    Section 11.1  Survival of Representations and Covenants. All representations, warranties, covenants and agreements of Target contained in this Agreement shall survive the Closing and any investigation at any time made by or on behalf of Acquiror until the end of the Escrow Period. If Escrow Shares or other assets are retained in the Escrow Fund beyond expiration of the period specified in the Escrow Agreement, then (notwithstanding the expiration of such time period) the representation, warranty, covenant or agreement applicable to such claim shall survive until, but only for purposes of, the resolution of the claim to which such retained Escrow Shares or other assets relate. All representations, warranties, covenants and agreements of Acquiror contained in this Agreement shall terminate as of the Effective Time, provided that the covenants and agreements contained in Sections 6.5, 6.6, 9.2 and 9.3 shall survive the Closing and shall continue in full force and effect.

    Section 11.2  Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or two business days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 
  
 
 
 		  
 
Yahoo! Inc.
3420 Central Expressway
Santa Clara, CA 95051
Attention: Senior Vice President, Corporate Development
Fax No: (408) 328-7939
Telephone No: (408) 731-3378
with a copy at the same address to the attention of the General Counsel and
Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Fax No: (650) 233-8386
Telephone No: (650) 854-4488

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eGroups, Inc.
320 Brannan Street
San Francisco, CA 94107
Attention: Chief Executive Officer
Fax No: (415) 546-2855
Telephone No: (415) 546-2700
with a copy to:
Perkins Coie LLP
135 Commonwealth Drive
Menlo Park, CA 94025
Attention: Buddy Arnheim
Fax No: (650) 752-6050
Telephone No: (650) 752-6000

    Section 11.3  Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. 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. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." Whenever the words "to the knowledge of Target" or "known to Target" or similar phrases are used in this Agreement, they mean when used in reference to (i) an individual, to the actual knowledge, after reasonable inquiry, of such individual or (ii) a party that is not an individual, to the actual knowledge, after reasonable inquiry, of the directors, officers and employees of such party. All references to "Target" in Articles III, V and VII shall be deemed to be references to Target and its Subsidiaries taken together and all covenants of Target in this Agreement shall, to the extent appropriate, be interpreted to include the commitment on the part of Target to cause its Subsidiaries to perform or refrain from performing the specified action.

    Section 11.4  Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

    Section 11.5  Entire Agreement; No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein), the Confidentiality Agreement, and the Transaction Documents (a) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) are not intended to confer upon any person other than the parties hereto (including without limitation any Target employees) any rights or remedies hereunder.

    Section 11.6  Governing Law; Jurisdiction. This Agreement shall be governed and construed in accordance with the laws of the State of California without regard to any applicable conflicts of law; provided that all matters related to the Merger and all matters of corporate governance of each party hereto shall be governed by the laws of the State of Delaware.. In any action between the parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in the State of California; (b) if any such action is commenced in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in the Northern District of California; (c) each of the parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 11.2.

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    Section 11.7  Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, however, that Acquiror shall be permitted to assign (i) the rights and obligations of Sub hereunder to another wholly owned subsidiary of Acquiror, and (ii) its rights and obligations hereunder to any successor in interest to it in connection with a transaction involving a change-in-control of Acquiror. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.

    Section 11.8  Amendment. This Agreement may be amended by the parties hereto, at any time before or after approval of matters presented in connection with the Merger by the stockholders of Target, but after any such stockholder approval, no amendment shall be made which by law requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

    Section 11.9  Extension; Waiver. At any time prior to the Effective Time, the parties hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or the other acts of the other parties hereto, (ii) waive any inaccuracies in the representations or warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions 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 a written instrument signed on behalf of such party.

    Section 11.10  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 injunctive relief 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.

    Section 11.11  Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law or regulation, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

[Signature Page Follows]

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    IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and Plan of Merger to be signed by their respective officers thereunto duly authorized as of the date first written above.

 
    
    
    YAHOO! INC.
 
 		  
 		  
By:		  
 		  
/s/ Jeff Mallett
    Title:   President & Chief Operating Officer
 
 		  
 		  
 HERMES ACQUISITION CORPORATION
 
 		  
 		  
By:		  
 		  
/s/ Jeff Mallett
    Title:   President
 
 		  
 		  
 EGROUPS, INC.
 
 		  
 		  
By:		  
 		  
/s/ Michael Klein
    Title:   President and Chief Executive Officer

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