Subordinated Loan and Security Agreement - eGroups Inc. and Comdisco Inc.
SUBORDINATED LOAN AND SECURITY AGREEMENT THIS SUBORDINATED LOAN AND SECURITY AGREEMENT (the "AGREEMENT"), dated asof October 8, 1999, is entered into by and between eGROUPS, INC., a Delawarecorporation, with its chief executive office and principal place of businesslocated at 350 Brannan Street, San Francisco, California, 94107 (the "BORROWER")and Comdisco, Inc., a Delaware corporation, with its principal place of businesslocated at 6111 North River Road, Rosemont, Illinois 60018 (the "LENDER" orsometimes, "COMDISCO"). In consideration of the mutual agreements containedherein, the parties hereto agree as follows: RECITALS WHEREAS, Borrower has requested Lender to make available to Borrower aloan or loans up to an aggregate principal amount of SEVEN MILLION DOLLARS($7,000,000.00); FOUR MILLION DOLLARS ($4,000,000.00) available immediately("LOAN A") and THREE MILLION DOLLARS ($3,000,000.00) available upon Borrower'srequest as more fully set forth herein ("LOAN B") (as the same may from time totime be amended, modified, supplemented or revised, individually or collectivelyreferred to as the "LOAN(S)"), which would be evidenced by SubordinatedPromissory Note(s) executed by Borrower substantially in the form of Exhibit Ahereto (as the same may from time to time be amended, modified, supplemented orrestated by the mutual written agreement of the parties, the "NOTE(S)"); WHEREAS, Lender is willing to make the Loan(s) on the terms and conditionsset forth in this Agreement; WHEREAS, Lender and Borrower agree any Loan(s) hereunder shall besubordinate to Senior Debt (as defined herein) to the extent set forth in theSubordination Agreement (as defined herein); and WHEREAS, Borrower has also given Lender certain rights to purchase theBorrower's Preferred Stock under terms and conditions set forth in thisAgreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual agreementscontained herein, Borrower and Lender hereby agree as follows:SECTION 1. DEFINITIONS Unless otherwise defined herein, the following capitalized terms shallhave the following meanings (such meanings being equally applicable to both thesingular and plural form of the terms defined); 1.1 "ACCOUNT" means any "account" as such term is defined in Section 9106of the UCC, now owned or hereafter acquired by Borrower or in which Borrower nowholds or hereafter acquires any interest and, in any event, shall include,without limitation, all accounts receivable, book debts and other forms ofobligations (other than forms of obligations evidenced by Chattel Paper,Documents or Instruments) now owned or hereafter received or acquired by orbelonging or owing to Borrower (including, without limitation, under any trade 2name, style or division thereof) whether arising out of goods sold or servicesrendered by Borrower or from any other transaction, whether or not the sameinvolves the sale of goods or services by Borrower (including, withoutlimitation, any such obligation which may be characterized as an account orcontract right under the UCC) and all of Borrower's rights in, to and under allpurchase orders or receipts now owned or hereafter acquired by it for goods orservices, and all of Borrower's rights to any goods represented by any of theforegoing (including, without limitation, unpaid seller's rights of rescission,replevin, reclamation and stoppage in transit and rights to returned, reclaimedor repossessed goods), and all monies due or to become due to Borrower under allpurchase orders and contracts for the sale of goods or the performance ofservices or both by Borrower (whether or not yet earned by performance on thepart of Borrower or in connection with any other transaction), now in existenceor hereafter occurring, including, without limitation, the right to receive theproceeds of said purchase orders and contracts, and all collateral security andguarantees of any kind given by any Person with respect to any of the foregoing. 1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is definedin Section 9105(1)(a) of the UCC. 1.3 "ADVANCE" means each installment made by the Lender to Borrowerpursuant to the Loan to be evidenced by the Note(s) secured by the Collateral. 1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan. 1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance underthe Loan, each to be substantially in the form of Exhibit B attached hereto, assubmitted by Borrower to Lender from time to time. 1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined inSection 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or inwhich Borrower now holds or hereafter acquires any interest. 1.7 "CLOSING DATE" means the date hereof. 1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3of this Agreement. 1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements orother agreements (other than rights evidenced by Chattel Paper, Documents orInstruments) in or under which Borrower may now or hereafter have any right,title or interest, including, without limitation, with respect to an Account,any agreement relating to the terms of payment or the terms of performancethereof. 1.10 "COPYRIGHTS" means all of the following now owned or hereafteracquired by Borrower or in which Borrower now holds or hereafter acquires anyinterest: (i) all copyrights, whether registered or unregistered, held pursuantto the laws of the United States, any State thereof or of any other country;(ii) registrations, applications and recordings in the United States CopyrightOffice or in any similar office or agency of the United States, any statethereof or any other country; (iii) any continuations, renewals or extensionsthereof; and (iv) any registrations to be issued in any pending applications. 2 3 1.11 "COPYRIGHT LICENSE" means any written agreement granting any right touse any Copyright or Copyright registration now owned or hereafter acquired byBorrower or in which Borrower now holds or hereafter acquires any interest. 1.12 "DOCUMENTS" means any "documents," as such term is defined in Section9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in whichBorrower now holds or hereafter acquires any interest. 1.13 "EQUIPMENT" means any "equipment," as such term is defined in Section9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in whichBorrower now holds or hereafter acquires any interest and any and all additions,substitutions and replacements of any of the foregoing, wherever located,together with all attachments, components, parts, equipment and accessoriesinstalled thereon or affixed thereto. 1.14 "EXCLUDED AGREEMENTS" means (i) the Master Lease Agreement dated asof June 23, 1999 between Borrower, as lessee, and Lender, as lessor, including,without limitation, any Equipment Schedules and Summary Equipment Schedules tothe Master Lease Agreement executed or delivered by Borrower pursuant theretoand any other modifications or amendments thereof, whereby Borrower (as lessee)leases equipment, software, or goods from Lender (as lessor) to Borrower (aslessee). 1.15 "FACILITY FEE" means one percent (1%) of Loan A and Loan B and due toLender at the Closing Date. The Commitment Deposit of Ten Thousand Dollars($10,000.00) previously paid by Borrower less reasonable due diligence expensesof Five Thousand Dollars ($5,000.00) shall be applied towards the Facility Feedue for Loan A. 1.16 "FIXTURES" means any "fixtures," as such term is defined in Section9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or inwhich Borrower now holds or hereafter acquires any interest and, now orhereafter attached or affixed to or constituting a part of, or located in orupon, real property wherever located, together with all right, title andinterest of Borrower in and to all extensions, improvements, betterments,renewals, substitutes, and replacements of, and all additions and appurtenancesto any of the foregoing property, and all purchases of the security constitutedthereby, immediately upon any acquisition or release thereof or any suchpurchase, as the case may be. 1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such termis defined in Section 9-106 of the UCC, now owned or hereafter acquired byBorrower or in which Borrower now holds or hereafter acquires any interest and,in any event, shall include, without limitation, all right, title and interestwhich Borrower may now or hereafter have in or under any contract, all customerlists, Copyrights, Trademarks, Patents, rights to Intellectual Property,interests in partnerships, joint ventures and other business associations,Licenses, permits, trade secrets, proprietary or confidential information,inventions (whether or not patented or patentable), technical information,procedures, designs, knowledge, know-how, software, data bases, data, skill,expertise, recipes, experience, processes, models, drawings, materials andrecords, goodwill (including, without limitation, the goodwill, associated withany Trademark, Trademark registration or Trademark licensed under any TrademarkLicense), claims in or under insurance policies, including unearned premiums,uncertificated securities, cash and other forms of money or currency, depositaccounts (including as defined in Section 9105(e) of the UCC), rights to sue forpast, present and future 3 4infringement of Copyrights, Trademarks and Patents, rights to receive taxrefunds and other payments and rights of indemnification. 1.18 "INITIAL PUBLIC OFFERING" means an initial public offering ofBorrower's securities. 1.19 "INSTRUMENTS" means any "instrument," as such term is defined inSection 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or inwhich Borrower now holds or hereafter acquires any interest. 1.20 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,service marks, tradenames, trade secrets, source codes, customer lists,proprietary or confidential information, inventions (whether or not patented orpatentable), technical information, procedures, designs, knowledge, know-how,software, data bases, skill, expertise, experience, processes, models, drawings,materials and records. 1.21 "INVENTORY " means any "inventory," as such term is defined inSection 9109(4) of the UCC, wherever located, now or hereafter owned or acquiredby Borrower or in which Borrower now holds or hereafter acquires any interest,and, in any event, shall include, without limitation, all inventory, goods andother personal property which are held by or on behalf of Borrower for sale orlease or are furnished or are to be furnished under a contract of service orwhich constitute raw materials, work in process or materials used or consumed orto be used or consumed in Borrower's business, or the processing, packaging,promotion, delivery or shipping of the same, and all furnished goods whether ornot such inventory is listed on any schedules, assignments or reports furnishedto Lender from time to time and whether or not the same is in transit or in theconstructive, actual or exclusive occupancy or possession of Borrower or is heldby Borrower or by others for Borrower's account, including, without limitation,all goods covered by purchase orders and contracts with suppliers and all goodsbilled and held by suppliers and all inventory which may be located on premisesof Borrower or of any carriers, forwarding agents, truckers, warehousemen,vendors, selling agents or other persons. 1.22 "LICENSE" means any Copyright License, Patent License, TrademarkLicense or other license of rights or interests now held or hereafter acquiredby Borrower or in which Borrower now holds or hereafter acquires any interestand any renewals or extensions thereof. 1.23 "LIEN" means any mortgage, deed of trust, pledge, hypothecation,assignment for security, security interest, encumbrance, levy, lien or charge ofany kind, whether voluntarily incurred or arising by operation of law orotherwise, against any property, any conditional sale or other title retentionagreement, any lease in the nature of a security interest, and the filing of anyfinancing statement (other than a precautionary financing statement with respectto a lease that is not in the nature of a security interest) under the UCC orcomparable law of any jurisdiction. 1.24 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s),and any other documents executed in connection with the Secured Obligations orthe transactions contemplated hereby, as the same may from time to time beamended, modified, supplemented or restated, provided, that the Loan Documentsshall not include any of the Excluded Agreements. 4 5 1.25 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon thebusiness, operations, properties, prospects, assets or conditions (financial orotherwise) of Borrower that materially hinders the ability of Borrower toperform, or of Lender to enforce, the Secured Obligations. 1.26 "MATURITY DATE" means the date thirty-six (36) months from theAdvance Date of each installment of the Loan. 1.27 "MAXIMUM LOAN AMOUNT" means Four Million Dollars ($4,000,000.00) forLoan A and Three Million Dollars ($3,000,000) for Loan B. 1.28 "MERGER EVENT" means a capital reorganization of the shares of theBorrower's stock (other than a combination, reclassification, exchange orsubdivision of shares otherwise provided for herein), or a merger orconsolidation of the Borrower with or into another corporation whether or notthe Borrower is the surviving corporation, or the sale of all or substantiallyall of the Borrower's properties and assets to any other person or any othertransaction or series of related transactions in which more than fifty percent(50%) of the voting power of Borrower is transferred to parties that were notexisting holders of the Borrower's capital stock immediately prior to suchtransaction, provided that such other corporation or other person shall havecash and cash equivalent assets equal to or greater than ten million dollars($10,000,000) and provided that the foregoing shall not apply to a mergereffected exclusively for the purpose of changing the domicile of the Borrower oran Initial Public Offering. 1.29 "NEXT ROUND" shall be defined as the earliest to occur of (i) apreferred stock financing of at least Ten Million Dollars ($10,000,000), (ii) aMerger Event, or (iii) an Initial Public Offering. 1.30 "PATENT LICENSE" means any written agreement granting any right withrespect to any invention on which a Patent is in existence now owned orhereafter acquired by Borrower or in which Borrower now holds or hereafteracquires any interest. 1.31 "PATENTS" means all of the following now owned or hereafter acquiredby Borrower or in which Borrower now holds or hereafter acquires any interest:(a) letters patent of, or rights corresponding thereto in, the United States orany other county, all registrations and recordings thereof, and all applicationsfor letters patent of, or rights corresponding thereto in the United States orany other country, including, without limitation, registrations, recordings andapplications in the United States Patent and Trademark Office or in any similaroffice or agency of the United States, any State thereof or any other country;(b) all reissues, continuations, continuations-in-part or extensions thereof;(c) all petty patents, divisionals, and patents of addition; and (d) all patentsto issue in any such applications. 1.32 "PERMITTED LIENS" means: (i) Liens in favor of Lender; (ii) Liens related to, or arising in connection with, Senior Debt; (iii) Liens for taxes, fees, assessments or other governmental charges or levies either not delinquent or being contested in good faith and for 5 6 which Borrower maintains adequate reserves on its books in accordance with GAAP; (iv) Purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; (v) Leases or subleases and licenses or sublicenses granted in the ordinary course of Borrower's business and any interest or title of a licensor or under any lease or license; (vi) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 9.8; (vii) Liens on assets (including the proceeds thereof and accessions thereto) that existed at the time such assets were acquired by Borrower; provided such liens are not granted in contemplation of or in connection with the acquisition of such asset by Borrower; (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (ix) Liens on insurance proceeds in favor of insurance companies granted solely as security for financed premiums; (x) deposits under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or Environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (xi) Liens arising by operation of law such as mechanics', materialman's, carriers', warehousemen's and landlord's liens incurred in the ordinary course of business; (xii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (ii) and (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (xiii) Liens relating to customary setoffs or bankers liens with respect to amounts on deposit in connection with arrangements with banks in the ordinary course of business. 1.33 "PREFERRED STOCK" means the Borrower's Series C Preferred Stock. 1.34 "PROCEEDS" means "proceeds," as such term is defined in Section9306(1) of the UCC and, in any event, shall include, without limitation, (a) anyand all Accounts, Chattel Paper, Instruments, cash or other forms of money orcurrency or other proceeds payable to Borrower from time to time in respect ofthe Collateral, (b) any and all proceeds of any insurance, indemnity, warrantyor guaranty payable to Borrower from time to time with respect 6 7to any of the Collateral, (c) any and all payments (in any form whatsoever) madeor due and payable to Borrower from time to time in connection with anyrequisition, confiscation, condemnation, seizure or forfeiture of all or anypart of the Collateral by any governmental authority (or any Person acting undercolor of governmental authority), (d) any claim of Borrower against thirdparties (i) for past, present or future infringement of any Copyright, Patent orPatent License or (ii) for past, present or future infringement or dilution ofany Trademark or Trademark License or for injury to the goodwill associated withany Trademark, Trademark registration or Trademark licensed under any TrademarkLicense and (e) any and all other amounts from time to time paid or payableunder or in connection with any of the Collateral. 1.35 "PURCHASE OPTION" shall have the meaning assigned to such term inSection 8 of this Agreement. 1.36 "RECEIVABLES" shall mean and include all of the Borrower's accounts,instruments, documents, chattel paper and general intangibles whether secured orunsecured, whether now existing or hereafter created or arising, and whether ornot specifically sold or assigned to Lender hereunder. 1.37 "SECURED OBLIGATIONS" shall mean and include all principal, interest,fees, costs, or other liabilities or obligations for monetary amounts owed byBorrower to Lender, whether due or to become due, matured or unmatured,liquidated or unliquidated, contingent or non-contingent, and all covenants andduties regarding such amounts, of any kind of nature, present or future, arisingunder this Agreement, the Note(s), or any of the other Loan Documents, whetheror not evidenced by any Note(s), Agreement or other instrument, as the same mayfrom time to time be amended, modified, supplemented or restated, provided, thatthe Secured Obligations shall not include any indebtedness or obligations ofBorrower arising under or in connection with the Excluded Agreements. 1.38 "SENIOR CREDITOR" means a bank, insurance company, pension fund, orother institutional lender to be determined and identified to Lender inaccordance with the Subordination Agreement, or a syndication of suchinstitutional lenders that provides Senior Debt financing to Borrower; provided,that Senior Creditor shall not include any officer, director, shareholder,venture capital investor, or insider of Borrower, or any affiliate of theforegoing persons, except upon the express written consent of Lender whichconsent shall not be unreasonably withheld. 1.39 "SENIOR DEBT" means any and all indebtedness and obligations forborrowed money (including, without limitation, principal, premium (if any),interest, fees charges, expenses, costs, professional fees and expenses, andreimbursement obligations) at any time owing by Borrower to Senior Creditor(s)under the applicable Senior Loan Documents, including, but not limited to suchamounts as may accrue or be incurred before or after default or workout or thecommencement of any liquidation, dissolution, bankruptcy, receivership orreorganization by or against Borrower provided, that (i) Borrower may incurSenior Debt without limitation as to amount, without the consent of Lender, solong as such Senior Debt is secured only by Borrower's property, plant andequipment (as defined under GAAP), (ii) if such Senior Debt is unsecured andwould exceed three million dollars ($3,000,000) in principal outstanding at anyone time, then Lender shall have the right to consent to the incurrence of suchSenior Debt, which consent shall not be unreasonably withheld, and (iii) if suchSenior 7 8Debt is secured by (a) non-property plant and equipment (as defined under GAAP)assets and (b) would exceed the greater of (i) three million dollars($3,000,000) in outstanding principal at any one time or (ii) eighty-fivepercent (85%) of qualified accounts receivable, then Lender shall have the rightto consent to the incurrence of such Senior Debt, which consent shall not beunreasonably withheld. To the extent Lender's consent is required hereunder,Senior Debt shall not include any indebtedness or obligation unless and untilsuch consent has been given. 1.40 "SENIOR LOAN DOCUMENTS" means the loan agreement between Borrower andSenior Creditor and any other agreement, security agreement, document,promissory note, UCC financing statement, or instrument executed by Borrower infavor of Senior Creditor pursuant to or in connection with the Senior Debt orthe loan agreement, as the same may from time to time be amended, modified,supplemented, extended, renewed, restated or replaced. 1.41 "SUBORDINATION AGREEMENT" means the Subordination Agreement to beentered into between Lender and Senior Creditor in such form as to be mutuallyagreeable to Lender, Borrower and Senior Lender. 1.42 "TRADEMARK LICENSE" means any written agreement granting any right touse any Trademark or Trademark registration now owned or hereafter acquired byBorrower or in which Borrower now holds or hereafter acquires any interest. 1.43 "TRADEMARKS" means any of the following now owned or hereafteracquired by Borrower or in which Borrower now holds or hereafter acquires anyinterest: (a) any and all trademarks, tradenames, corporate names, businessnames, trade styles, service marks, logos, other source or business identifiers,prints and labels on which any of the foregoing have appeared or appear, designsand general intangibles of like nature, now existing or hereafter adopted oracquired, all registrations and recordings thereof, and any applications inconnection therewith, including, without limitation, registrations, recordingsand applications in the United States Patent and Trademark Office or in anysimilar office or agency of the United States, any State thereof or any othercountry or any political subdivision thereof and (b) any reissues, extensions orrenewals thereof. 1.44 "UCC" shall mean the Uniform Commercial Code as the same may, fromtime to time, be in effect in the State of Illinois. Unless otherwise definedherein, terms that are defined in the UCC and used herein shall have themeanings given to them in the UCC.SECTION 2. THE LOANS 2.1 Lender agrees to lend to Borrower an amount not to exceed Four Millionand 00/100 Dollars ($4,000,000.00) in the aggregate at any one time outstanding("LOAN A") for the purposes and upon the terms and subject to the conditionscontained in this Agreement. 2.2 Lender agrees to lend to Borrower an amount not to exceed ThreeMillion and 00/100 Dollars ($3,000,000.00) in the aggregate at any one timeoutstanding ("LOAN B") for the purposes and upon the terms and subject to theconditions contained in this Agreement. 2.3 The Loan(s) shall be available in minimum Advances of Five HundredThousand Dollars ($500,000.00). Each Advance made by Lender to Borrower shall be 8 9evidenced by a Note in the original principal amount of such Advance. Theprincipal balance of each Note shall bear interest thereon precomputed at therate of eight and one-quarter percent (8.25%) per annum, and each such Noteshall be due and payable in twenty-four (24) equal monthly installments ofinterest only, payable on the first day of each month, followed by twelve (12)equal monthly installments of principal and interest, payable on the first dayof each month, to and including the Maturity Date (each, a "PAYMENT DATE"). Ifany payment under a Note shall be payable on a day other than a business day,then such payment shall be due and payable on the next succeeding business day. 2.4 In order to obtain an Advance under the Loans, Borrower shallcomplete, sign and deliver an Advance Request to Lender. Each Advance Requestshall identify an Advance Date which is no less than three (3) business daysfrom the date of such notice. Upon receipt of an Advance Request, Lender shallverify the information contained in the Advance Request and so long as no Eventof Default exists as of the date of the Advance Request, it shall promptlydeliver a Note dated the Advance Date evidencing such Advance to Borrower forsignature. Lender will fund the Advance in the manner requested in the AdvanceRequest within three (3) business days of receipt of the Advance Request so longas Lender has received the original signed Note from Borrower on or before suchdate. Borrower agrees that Lender may rely on any notice given by any Person itreasonably believes to be an authorized officer of Borrower. 2.5 Borrower shall have the option to prepay any Note, in whole or inpart, without premium or penalty by paying the principal amount thereon togetherwith all accrued and unpaid interest with respect to such principal amount, asof the date of such prepayment. Notwithstanding the foregoing, any suchprepayment by the Borrower shall not affect Lender's right to purchase asdescribed in Section 8 herein. 2.6 (a) Notwithstanding any provision in this Agreement, the Note(s), orany other Loan Document, it is not the parties' intent to contract for, chargeor receive interest at a rate that is greater than the maximum rate permissibleby law which a court of competent jurisdiction shall deem applicable hereto(which under the laws of the State of Illinois shall be deemed to be the lawsrelating to permissible rates of interest on commercial loans) (the "MaximumRate"). If the Borrower actually pays Lender an amount of interest, chargeableon the total aggregate principal Secured Obligations of Borrower under thisAgreement and the Note(s) (as said rate is calculated over a period of time fromthe date of this Agreement through the end of time that any principal isoutstanding on the Note(s)), which amount of interest exceeds interestcalculated at the Maximum Rate on said principal chargeable over said period oftime, then such excess interest actually paid by Borrower shall be appliedfirst, to the payment of principal outstanding on the Note(s); second, after allprincipal is repaid, to the payment of Lender's out of pocket costs, expenses,and professional fees which are owed by Borrower to Lender under this Agreementor the Loan Documents; and third, after all principal, costs, expenses, andprofessional fees owed by Borrower to Lender are repaid, the excess (if any)shall be refunded to Borrower, and the effective rate of interest will beautomatically reduced to the Maximum Rate. (b) In the event any interest is not paid when due hereunder, delinquentinterest shall be added to principal and shall bear interest on interest,compounded at the rate set forth in Section 2.3. 9 10 (c) Upon and during the continuation of an Event of Default hereunder, allSecured Obligations, including principal, interest, compounded interest, andreasonable professional fees, shall bear interest at a rate per annum equal tothe rate set forth in Section 2.3 plus five percent (5%) per annum ("DefaultRate"). (d) If the Borrower has not repaid the outstanding principal amount underthe Loan in its entirety by the Maturity Date (as defined in the applicableNote(s)), then for each additional month, or portion thereof, thereafter thatthe outstanding principal is not paid, Lender shall have the right to purchasefrom the Borrower at the applicable Purchase Price (as defined in Section 8.1hereof), an additional number of shares of Preferred Stock which number shall bedetermined by (i) multiplying the outstanding principal amount which is due butunpaid by three percent (3%) and (ii) dividing the product thereof by thePurchase Price.SECTION 3. SECURITY INTEREST As security for the prompt, complete and indefeasible payment when due(whether at stated payment dates or otherwise) of all the Secured Obligationsand in order to induce Lender to make the Loan(s) upon the terms and subject tothe conditions of the Note(s), Borrower hereby assigns, conveys, mortgages,pledges, hypothecates and transfers to Lender for security purposes only, andhereby grants to Lender a security interest in, all of Borrower's right, titleand interest in, to and under each of the following (all of which beinghereinafter collectively called the "Collateral"): (a) All Receivables; (b) All Equipment; (c) All Fixtures; (d) All General Intangibles; (e) All Inventory; (f) All other goods and personal property of Borrower whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; and (g) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. Notwithstanding the foregoing, in no event shall Collateral include anyCopyrights, Patents, Trademarks, Licenses, or any Intellectual Property. Such security interest shall be subordinate to any Permitted Liens.SECTION 4. CONDITIONS PRECEDENT TO LOAN 10 11 The obligations of the Lender to make Loans hereunder are subject to thesatisfaction by Borrower, or waiver by Lender, of the following conditions: 4.1 Borrower, on or prior to the Closing Date, shall have delivered toLender the following: (a) executed originals of the Agreement, and any other documents reasonably required by Lender to effectuate the liens of Lender with respect to all Collateral; (b) certified copy of resolutions of Borrower's Board of Directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents; (c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower; (d) certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; and (e) payment of the Facility Fee. 4.2 On each Advance Date: (a) The Lender shall have received (i) an Advance Request for suchAdvance as required by Section 2.4, and (ii) an executed Note evidencing suchAdvance. (b) The representations and warranties set forth in Section 5 hereofshall be true and correct in all material respects on and as of the Advance Datewith the same effect as though made on and as of such date, except to the extentsuch representations and warranties expressly relate to an earlier date.Each Advance Request shall be deemed to constitute a representation and warrantyby the Borrower on the Advance Date as to the matters specified in paragraph (b)of this Section 4.2. 4.3 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or causedto be taken such actions reasonably requested by Lender to grant Lender aperfected security interest in the Collateral, subject only to Permitted Liens.Such actions shall include, without limitation, the delivery to Lender of allappropriate financing statements, executed by Borrower, as to the Collateralgranted by Borrower for all jurisdictions as may be reasonably necessary ordesirable to perfect the security interest of Lender in such Collateral. 4.4 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the AdvanceDate, no fact or condition exists that would (or would, with the passage oftime, the giving of notice, or both) constitute an Event of Default under thisAgreement. 4.5 FUNDING LIMITATION. Notwithstanding anything in this Agreement to thecontrary, Lender shall not be obligated to fund any additional Advance toBorrower (i) at any time after six (6) months from the date of this Agreement,or (ii) at any time an Event of Default exists pursuant to Section 9. 11 12SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER The Borrower represents, warrants and agrees that: 5.1 Borrower owns all right title and interest in and to the Collateral,free of all liens, security interests, encumbrances and claims whatsoever,except for Permitted Liens. 5.2 Borrower has the full power and authority to, and does hereby grantand convey to the Lender, a perfected security interest in the Collateral assecurity for the Secured Obligations, free of all liens, security interests,encumbrances and claims, other than Permitted Liens and shall execute suchUniform Commercial Code financing statements in connection herewith as theLender may reasonably request. Except for Permitted Liens, no other lien,security interest, adverse claim or encumbrance has been created by Borrower oris known by Borrower to exist with respect to any Collateral. 5.3 Borrower is a corporation duly organized, legally existing and in goodstanding under the laws of the State of Delaware, and is duly qualified as aforeign corporation in all jurisdictions in which the nature of its business orlocation of its properties require such qualifications and where the failure tobe qualified would have a Material Adverse Effect. 5.4 Borrower's execution, delivery and performance of the Note(s), thisAgreement, all financing statements, all other Loan Documents, required to bedelivered or executed in connection herewith, have been duly authorized by allnecessary corporate action of Borrower, the individual or individuals executingthe Loan Documents were duly authorized to do so; and the Loan Documentsconstitute legal, valid and binding obligations of the Borrower, enforceable inaccordance with their respective terms, subject to applicable bankruptcy,insolvency, reorganization or other similar laws generally affecting theenforcement of the rights of creditors. 5.5 This Agreement and the other Loan Documents do not and will notviolate any provisions of Borrower's Certificate of Incorporation, Bylaws or anymaterial contract, agreement, law, regulation, order, injunction, judgment,decree or writ to which the Borrower is subject, or result in the creation orimposition of any lien, security interest or other encumbrance upon theCollateral, other than those (i) created by this Agreement or (ii) relating toPermitted Liens. 5.6 The execution, delivery and performance of this Agreement and theother Loan Documents do not require the consent or approval of any other personor entity including, without limitation, after reasonable inquiry any regulatoryauthority or governmental body of the United States or any state thereof or anypolitical subdivision of the United States or any state thereof. 5.7 No fact or condition exists that would constitute a payment default inexcess of $100,000 which remains uncured for thirty (30) days after receipt byBorrower of written notice under the Senior Loan Documents. 5.9 (a) There are no actions, suits or proceedings at law or in equity orby or before any governmental authority now pending or, to the knowledge of theBorrower, 12 13threatened against or affecting the Borrower or any business, property or rightsof the Borrower (i) which involve any Loan Document or (ii) as to which there isa reasonable possibility of an adverse determination and which, if adverselydetermined, could, individually or in the aggregate, result in a MaterialAdverse Effect. (b) The Borrower is not in violation of any law, rule or regulation, or indefault with respect to any judgment, writ, injunction or decree of anygovernmental authority, where such violation or default could result in aMaterial Adverse Effect. 5.10 No information, report, financial statement, exhibit or schedulefurnished by or on behalf of the Borrower to the Lender in connection with thenegotiation of any Loan Document or included therein or delivered pursuantthereto contained, contains or will contain any material misstatement of fact oromitted, omits or will omit to state any material fact necessary to make thestatements therein, in the light of the circumstances under which they were, areor will be made, not misleading. 5.11. All issued and outstanding shares of Common Stock, Preferred Stockor any other securities of the Company have been duly authorized and validlyissued and are fully paid and nonassessable. All outstanding shares of CommonStock, Preferred Stock and any other securities were issued in full compliancewith all federal and California state securities laws. In addition: (i) The authorized capital of the Company consists of (A) 20,000,000shares 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 areissued and outstanding and are convertible into 1,620,000 shares of Common Stockat $0.50 per share; and (C) 3,600,000 shares of Series B Preferred Stock, ofwhich 3,556,772 shares are issued and outstanding and convertible into 3,556,772shares of Common Stock at $1.43955 per share. All of the issued and outstandingshares of Preferred Stock have been duly authorized and validly issued and arefully paid and nonassessable. All of the issued and outstanding shares ofPreferred Stock have been duly authorized and validly issued and are fully paidand nonassessable. As of the Closing Date the authorized capital of the Companyconsists of (A) 20,000,000 shares of Common Stock, of which 6,226,399 shares areissued and outstanding; (B) 1,620,000 shares of Series A Preferred Stock, ofwhich 1,620,000 shares are issued and outstanding and are convertible into1,620,000 shares of Common Stock at $0.50 per share; and (C) 3,600,000 shares ofSeries B Preferred Stock, of which 3,556,772 shares are issued and outstandingand convertible into 3,556,772 shares of Common Stock at $1.43955 per share. Asof the Closing Date, except for (i) conversion privileges of the PreferredStock, (ii) outstanding Warrants to purchase Preferred Stock, (iii) outstandingoptions under the Company's 1998 Stock Option Plan and except as set forth inthe Company's Restated Certificate, there are (i) no subscription, warrant,option, convertible security or other right (contingent or otherwise) topurchase or acquire any shares of capital stock of the Company , (ii) noobligations (contingent or otherwise) to issue any subscription, warrant,option, convertible security or other such rights or to issue or distribute toholders of a share of its capital stock any evidences of indebtedness or assetsof the Company, and (iii) no obligation (contingent or otherwise) to purchase,redeem or otherwise acquire any shares of its capital stock or any interesttherein or to pay any dividend to make any other distribution in respectthereof. All of the issued and outstanding securities or the Company have beenoffered, issued and sold by the Company is compliance with applicable federaland state securities laws. 13 14 (ii) Except as set forth in the First Amended and Restated InvestorsRights Agreement dated December 17, 1998 (the "Rights Agreement"), noshareholder of the Company has preemptive rights to purchase new issuances ofthe Company's capital stock. 5.12 Borrower has filed and will file all tax returns, federal, state andlocal, which it is required to file and for which no filing extension has beengranted and has duly paid or fully reserved for all taxes or installmentsthereof (including any interest or penalties) as and when due, which have or maybecome due pursuant to such returns or pursuant to any assessment received byBorrower since its inception through the Closing Date, if any (including anytaxes being contested in good faith and by appropriate proceedings).SECTION 6. INSURANCE 6.1 So long as there are any Secured Obligations outstanding, Borrowershall cause to be carried and maintained commercial general liability insuranceagainst risks customarily insured against in Borrower's line of business. Suchrisks shall include, without limitation, the risks of death, bodily injury andproperty damage. So long as there are any Secured Obligations outstanding,Borrower shall also cause to be carried and maintained insurance upon theCollateral and Borrower's business, covering casualty, hazard and such otherproperty risks in amounts equal to the full replacement cost of the Collateral.Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU438 or equivalent) naming Lender as loss payee and additional insured. Borrowershall use commercially reasonable efforts to cause all policies evidencing suchinsurance to provide for at least thirty (30) days prior written notice by theunderwriter or insurance company to Lender in the event of cancellation orexpiration. Such policies shall be issued by such insurers and in such amountsas are reasonably acceptable to Lender. 6.2 Borrower shall and does hereby indemnify and hold Lender, its agentsand shareholders harmless from and against any and all claims, costs, expenses,damages and liabilities (including, without limitation, such claims, costs,expenses, damages and liabilities based on liability in tort, including withoutlimitation, strict liability in tort), including reasonable attorneys' fees,arising out of the disposition or utilization of the Collateral, other thanclaims arising at or caused by Lender's gross negligence or willful misconduct.SECTION 7. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of theSecured Obligations remain outstanding: 7.1 Borrower shall furnish to Lender the financial statements listedhereinafter, each prepared in accordance with generally accepted accountingprinciples consistently applied (the "Financial Statements"): (a) as soon as practicable and in any event within thirty (30) days after the end of each month: an internally prepared income statement, balance sheet, and cash flow statement, (including the commencement of any material litigation by or against Borrower), each certified by Borrower's Chief Executive or Financial Officer to be true and correct in all material respects; 14 15 (b) As soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, audited Financial Statements, setting forth in comparative form the corresponding figures for the preceding fiscal year, and accompanied by any audit report and opinion of the independent certified public accountants selected by Borrower; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor; and 7.2 Borrower shall permit any authorized representative of Lender and itsattorneys and accountants on reasonable notice to inspect, examine and makecopies and abstracts of the books of account and records of Borrower atreasonable times during normal business hours. In addition, upon reasonablenotice such representative of Lender and its attorneys and accountants shallhave the right to meet with management and officers of the Borrower to discusssuch books of account and records. 7.3 Borrower will from time to time execute, deliver and file, alone orwith Lender, any financing statements, security agreements or other documents;procure any instruments or documents as may be reasonably requested by Lender;and take all further action that may be reasonably necessary, or that Lender mayreasonably request, to confirm, perfect, preserve and protect the securityinterests intended to be granted hereby, and in addition, and for such purposesonly, Borrower hereby authorizes Lender to execute and deliver on behalf ofBorrower and to file such financing statements, security agreement and otherdocuments (reasonably necessary to confirm, continue, perfect, preserve andprotect the security interests granted hereby) without the signature of Borrowereither in Lender's name or in the name of Borrower as agent and attorney-in-factfor Borrower. The parties agree that a carbon, photographic or otherreproduction of this Agreement shall be sufficient as a financing statement andmay be filed in any appropriate office in lieu thereof. 7.4 Borrower shall protect and defend Borrower's title as well as theinterest of the Lender against all persons claiming any interest adverse toBorrower or Lender (other than in relation to Senior Debt and Permitted Liens)and shall at all times keep the Collateral free and clear from any legalprocess, liens or encumbrances whatsoever (except any placed thereon by Lender,or any liens arising by operation of law with respect to any obligations not yetoverdue or any other liens consented to in writing by Lender, or relating toSenior Debt and Permitted Liens) and shall give Lender prompt written noticethereof. 7.5 Without Lender's prior written consent, Borrower shall not except inthe ordinary course of its business, and except as permitted in relation toSenior Debt and Permitted Liens, (a) grant any material and unnecessaryextension of the time of payment of any of the Receivables, (b) to any materialextent, compromise, compound or settle the same for less than the full amountthereof, (c) release, wholly or partly, any Person liable for the paymentthereof, or allow any credit or discount whatsoever thereon other than tradediscounts granted in the ordinary course of business of Borrower. 7.6 Borrower shall maintain and protect its properties, assets andfacilities, including without limitation, its Equipment and Fixtures, in goodorder and working repair and condition 15 16(taking into consideration ordinary wear and tear) and from time to time make orcause to be made all necessary repairs, renewals and replacements thereto andshall competently manage and care for its property in accordance with prudentindustry practices. 7.7 Borrower shall not merge with and into any other entity; or sell orconvey all or substantially all of its assets or stock to any other person orentity without notifying Lender a minimum of fifteen (15) days prior to theclosing date and requesting Lender's consent which consent shall not beunreasonably withheld to the assignment of all of Borrower's Secured Obligationshereunder to the successor entity in form and substance reasonably satisfactoryto Lender. In the event Lender does not consent to such assignment the partiesagree Borrower shall prepay the Loan in accordance with Section 2.2 hereof. 7.8 Borrower shall not, without the prior written consent of Lender, suchconsent not to be unreasonably withheld, declare or pay any cash dividend ormake a distribution on any class of stock, other than pursuant to employeerepurchase plans upon an employee's death or termination of employment ortransfer, sell, lease, lend or in any other manner convey any equitable,beneficial or legal interest in any material portion of the assets of Borrowerother than (i) inventory sold in the normal course of business, (ii) in relationto Senior Debt and Permitted Liens as permitted herein, or (iii) licenses of itsIntellectual Property. 7.9 Upon the request of Lender, Borrower shall, during business hours,make the Inventory and Equipment available to Lender for inspection at the placewhere it is normally located and shall make Borrower's log and maintenancerecords pertaining to the Inventory and Equipment available to Lender forinspection. Borrower shall take all action reasonably necessary to maintain suchlogs and maintenance records in a materially correct and complete fashion. 7.10 Borrower covenants and agrees to pay when due, all taxes, fees orother charges of any nature whatsoever (together with any related interest orpenalties) now or hereafter imposed or assessed against Borrower, Lender or theCollateral or upon Borrower's ownership, possession, use, operation ordisposition thereof or upon Borrower's rents, receipts or earnings arisingtherefrom. Borrower shall file on or before the due date therefor all personalproperty tax returns in respect of the Collateral. Notwithstanding theforegoing, Borrower may contest, in good faith and by appropriate proceedings,taxes for which Borrower maintains adequate reserves therefor. 7.11 Borrower shall not relocate any item of the Collateral (other thansale of inventory in the ordinary course of business) unless: (i) suchrelocation shall be within the continental United States and (ii) Borrower shallfirst cause to be filed and/or delivered to the Lender all Uniform CommercialCode financing statements, certificates or other documents or instrumentsnecessary to continue in effect the perfected security interest of the Lender inthe Collateral, and (ii) have given the Lender no less than fifteen (15) daysprior written notice of such relocation. 7.12 Borrower shall not grant a security interest in, hypothecate orotherwise encumber its Intellectual Property other than (i) Permitted Liens, and(ii) licenses in the ordinary course of business including exclusive licenseswith geographical or time limitations, without Lender's prior written consent,which consent will not be unreasonably withheld. 16 17 7.13 Borrower shall consider a request by Lender to purchase shares ofBorrower's Preferred Stock in the next preferred round of equity financing(anticipated to be a Series C Preferred) in an amount equal to a minimum of FiveHundred Thousand Dollars ($500,000) and a maximum of Seven Hundred FiftyThousand Dollars ($750,000). 7.14 Subsequent to the date of this Agreement, Borrower may incur SeniorDebt, without limitation as to amount, provided, (i) Borrower may incur SeniorDebt without limitation as to amount, without the consent of Lender, so long assuch Senior Debt is secured only by Borrower's property, plant and equipment (asdefined under GAAP), (ii) if such Senior Debt is unsecured and would exceedthree million dollars ($3,000,000) in principal outstanding at any one time,then Lender shall have the right to consent to the incurrence of such SeniorDebt, which consent shall not be unreasonably withheld, and (iii) if such SeniorDebt is secured by (a) non-property, plant and equipment (as defined under GAAP)assets and (b) would exceed the greater of (i) three million dollars($3,000,000) in outstanding principal at any one time or (ii) eighty-fivepercent (85%) of qualified accounts receivable, then Lender shall have the rightto consent to the incurrence of such Senior Debt, which consent shall not beunreasonably withheld. To the extent Lender's consent is required hereunder,Senior Debt shall not include any indebtedness or obligation unless and untilsuch consent has been given.SECTION 8. PURCHASE OPTION 8.1 In addition to any opportunity granted pursuant to Section 7.13hereof, Lender shall have the right at any time, at Lender's sole and absolutediscretion (the "Purchase Option"), to purchase shares of Borrower's PreferredStock with an aggregate purchase value (subject to increase as provided inSection 8.2) determined as follows: (i) If amounts have been advanced against both Loan A or Loan B: (a) forty-five percent (45%) of the Maximum Loan Amount for Loan A; plus (b) forty-five percent (45%) of the Maximum Loan Amount for Loan B. (ii) If amounts have been advanced against Loan A and not Loan B: (a) forty-five percent (45%) of the Maximum Loan Amount for Loan A; plus (b) seventeen and one-half percent (17.5%) of the Maximum Loan Amount for Loan B. (iii) no amounts have been advanced against either Loan A or Loan B: (a) thirty-five percent (35%) of the Maximum Loan Amount for Loan A; plus (b) seventeen and one-half percent (17.5%) of the Maximum Loan Amount for Loan B.The purchase price per share under the Purchase Option (the "PURCHASE PRICE")shall be determined upon the earliest to occur of (i) the closing date of thepreferred equity financing with net proceeds to the Borrower in excess of TenMillion Dollars ($10,000,000.00); (ii) the 17 18date that the initial price per share to the public is determined for purposesof printing of the final prospectus for an Initial Public Offering; or (iii) theclosing date of a Merger Event. The "Purchase Price" shall be the lesser of: (i) the price per share equivalent of a Three Hundred Million 00/100 Dollar ($300,000,000.00) fully diluted pre-money valuation of Borrower if the participants in the Next Round include at least one financial investor/venture capital/mezzanine investor; (ii) the price per share equivalent of a Two Hundred Fifty Million 00/100 Dollar ($250,000,000.00) fully-diluted pre-money valuation of Borrower if the participants in the Next Round include only strategic corporate investor(s); or (iii) the price per share determined as follows: (a) If Borrower closes the Next Round on or before November 9, 1999, ninety percent (90%) of the purchase price per share of the securities issued or exchanged in the Next Round. (b) If Borrower closes the Next Round after November 9, 1999 but on or before December 9, 1999, eighty-five percent (85%) of the price per share of the securities issued or exchanged in the Next Round. (c) If Borrower closes the Next Round after December 9, 1999, but on or before February 9, 2000, seventy percent (70%) of the price per share of the securities issued or exchanged in the Next Round. (d) If Borrower closes the Next Round after February 9, 1999, but prior to March 1, 2000, sixty-five percent (65%) of the price per share of the securities issued or exchanged in the Next Round. (e) If Borrower closes the Next Round on or after March 1, 2000 the price per share equivalent of a One Hundred Million and 00/100 Dollar ($100,000,000.00) pre-money fully diluted valuation;Provided, that in the case of a Merger Event the price per share shall bedetermined under this subsection (iii) as follows: (i) if the Borrower is acquired in the Merger Event for cash or other consideration other than equity securities, the price per share shall be determined by dividing the aggregate value of such consideration by the number of shares of capital stock of Borrower eligible to receive such consideration at the time of the Merger Event; (ii) if the consideration in the Merger Event is equity securities, then the price per share shall be the per-share value assigned in the Merger Event to the Borrower's most senior class of stock that is eligible to be exchanged in the Merger Event. 18 19 The Purchase Option will terminate upon the date fifteen (15) days afterreceipt by Lender of notice from Borrower of its Board of Directors' approval ofdefinitive plans to initiate an Initial Public Offering or Merger Event, subjectto the terms set forth in Section 8.9 hereof.The number and purchase price of such shares are subject to adjustment asprovided in this Section 8. 8.2 If the Borrower has not repaid the outstanding principal amount undera Note in its entirety by the Maturity Date (as defined in the applicableNote(s)), then for each additional month, or portion thereof, thereafter thatthe outstanding principal is not paid, Lender shall have the right to purchasefrom the Borrower, at the Purchase Price (adjusted, as set forth and defined inSection 8.3 herein), an additional amount of Preferred Stock with a value equalto the product of (x) the outstanding principal amount which is due but unpaidand (y) three percent (3%). 8.3 The Purchase Price per share and the number of shares of PreferredStock purchasable hereunder are subject to adjustment, as follows: (a) If the Borrower at any time shall, by combination, reclassification,exchange or subdivision of the securities as to which purchase rights under thisPurchase Option exist into the same or a different number of securities of anyother class or classes, this Purchase Option shall thereafter represent theright to acquire such number and kind of securities as would have been issuableas the result of such change with respect to the securities which were subjectto the purchase rights under this Purchase Option immediately prior to suchclassification, exchange, subdivision or other change. (b) If the Borrower at any time shall combine or subdivide its PreferredStock, the Purchase Price shall be proportionately decreased in the case of asubdivision, or proportionately increased in the case of a combination. (c) If the Borrower at any time shall pay a dividend payable in, or makeany other distribution (except any distribution specifically provided for in theforegoing subsections (a) or (b)) of the Borrower's stock, then the PurchasePrice shall be adjusted, from and after the record date of such dividend ordistribution, to that price determined by multiplying the Purchase Price ineffect immediately prior to such record date by a fraction (i) the numerator ofwhich shall be the total number of all shares of the Borrower's stockoutstanding immediately prior to such dividend or distribution, and (ii) thedenominator of which shall be the total number of all shares of the Borrower'sstock outstanding immediately after such dividend or distribution. The Lendershall thereafter be entitled to purchase, at the Purchase Price resulting fromsuch adjustment, the number of shares of Preferred Stock (calculated to thenearest whole share) obtained by multiplying the Purchase Price in effectimmediately prior to such adjustment by the number of shares of Preferred Stockissuable upon the exercise hereof immediately prior to such adjustment anddividing the product thereof by the Purchase Price resulting from suchadjustment. (d) Additional antidilution rights applicable to the authorized andoutstanding Series A and Series B Preferred Stock are as set forth in theBorrower's Certificate of Incorporation, as amended through the Closing Date, atrue and complete copy of which is 19 20attached hereto as Exhibit C (the "CHARTER"). The Borrower shall promptlyprovide the Lender with any restatement, amendment, modification or waiver ofthe Charter. The Preferred Stock purchasable hereunder shall have the benefit ofthe same antidilution rights applicable to such Preferred Stock when authorizedand issued pursuant to Borrower's Charter, as amended, and Borrower shallprovide Lender with all notices and information at the time and to the extent itis required to do so to the holders of Preferred Stock. (e) If: (i) the Borrower shall declare any dividend or distribution uponits stock, whether in cash, property, stock or other securities; (ii) thereshall be any Merger Event; (iii) there shall be an Initial Public Offering; or(iv) there shall be any voluntary dissolution, liquidation or winding up of theBorrower; then, in connection with each such event, the Borrower shall send tothe Lender: (A) at least fifteen (15) days' prior written notice of the date onwhich the books of the Borrower shall close or a record shall be taken for suchdividend, distribution, subscription rights (specifying the date on which theholders of Preferred Stock shall be entitled thereto) or for determining rightsto vote in respect of such Merger Event, dissolution, liquidation or winding up;(B) in the case of any such dissolution, liquidation or winding up, at leastfifteen (15) days' prior written notice of the date when the same shall takeplace (and specifying the date on which the holders of Preferred Stock shall beentitled to exchange their Preferred Stock for securities or other propertydeliverable upon dissolution, liquidation or winding up); and (C) in the case ofa Initial Public Offering or Merger Event, the Borrower shall give the Lender atleast fifteen (15) days written notice prior to the effective date thereof. Each such written notice shall set forth, in reasonable detail, (i) theevent requiring the adjustment, (ii) the amount of the adjustment, (iii) themethod by which such adjustment was calculated, (iv) the Purchase Price, and (v)the number of shares subject to purchase hereunder after giving effect to suchadjustment, and shall be given by first class mail, postage prepaid, addressedto the Lender, at the address as shown herein, or at such other address asLender may subsequently designate by written notice to Borrower. (f) Failure to timely provide such notice required by subsection (e) aboveshall entitle Lender to retain the benefit of the applicable notice periodnotwithstanding anything to the contrary contained in any insufficient noticereceived by Lender. The notice period shall begin on the date Lender actuallyreceives a written notice containing all the information specified above. 8.5 The Purchase Option is exercisable by the Lender, in whole or in part,at any time, or from time to time, prior to the earlier of fifteen (15) daysafter receipt of notice from Borrower of the Board of Directors' approval ofdefinitive plans to initiate (i) an Initial Public Offering, or (ii) a MergerEvent. Lender may exercise its Purchase Option by tendering to the Borrower atits principal office a notice of exercise in the form attached hereto as ExhibitD (the "NOTICE OF PURCHASE"), duly completed and executed together with paymentin an amount equal to the Purchase Price for that portion of the Purchase Optionso exercised, in cash or by bank cashier's or certified check; provided thatLender may satisfy all or a portion of the Purchase Price by tender of one ormore Note(s), the outstanding principal and interest of which shall be creditedagainst the Purchase Price, with the balance, if any, of the Purchase Pricepayable in cash or by check as provided above. In such event, the Note(s) sotendered will be deemed satisfied in full and will be cancelled by the Lenderand the Borrower will have no further obligation to the Lender under suchNote(s). 20 21 Promptly upon receipt of the Notice of Purchase and the payment of thePurchase Price in accordance with the terms set forth below, Borrower shallexecute the acknowledgment of exercise in the form attached hereto as Exhibit E(the "ACKNOWLEDGMENT OF PURCHASE") indicating the number of shares which remainsubject to future purchases, if any. Subject to Lender's right of withdrawal, nolater than twenty-one (21) days thereafter, the Borrower shall issue to theLender a certificate for the number of shares of Preferred Stock purchased. 8.6 (a) During the term of this Purchase Option, the Borrower will at alltimes have authorized and reserved a sufficient number of shares of itsPreferred Stock to provide for the exercise of the rights to purchase PreferredStock as provided for herein. (b) If any shares of Preferred Stock required to be reserved hereunderrequire registration with or approval of any governmental authority under anyFederal or State law (other than any registration under the Securities Act of1933, as amended ("1933 Act"), as then in effect, or any similar Federal statutethen enforced, or any state securities law, required by reason of any transferinvolved in such purchase), or listing on any domestic securities exchange,before such shares may be issued upon purchase, the Borrower will, at itsexpense and as expeditiously as possible, use its best efforts to cause suchshares to be duly registered, listed or approved for listing on such domesticsecurities exchange, as the case may be. 8.7 No fractional shares or scrip representing fractional shares shall beissued upon the exercise of the Purchase Option, but in lieu of such fractionalshares the Borrower shall make a cash payment therefor upon the basis of thePurchase Price then in effect. 8.8 This Purchase Option does not entitle the Lender to any voting rightsor other rights as a shareholder of the Borrower prior to the exercise of thePurchase Option. 8.9 Borrower shall give Lender at least fifteen (15) days notice of aBoard of Directors' approval of definitive plans to initiate a Merger Event oran Initial Public Offering of its capital stock pursuant to a registrationstatement filed with the Securities and Exchange Commission. In either suchevent, Lender shall have the right to exercise its Purchase Option subject tothe successful completion of such Merger Event or Initial Public Offering. Ifsuch closing does not take place, the Borrower shall promptly notify the Lenderthat such proposed transaction has been terminated, and the Lender may rescindany exercise of its Purchase Option promptly after such notice of termination ofthe proposed transaction if the exercise of this Purchase Option has occurredafter the Borrower notified the Lender that the Merger Event was proposed.SECTION 9. DEFAULT The occurrence of any one or more of the following events (herein called"EVENTS OF DEFAULT") shall constitute a default hereunder and under the Note(s)and other Loan Documents: 9.1 Borrower defaults in the payment of any principal, interest or otherSecured Obligation involving the payment of money under this Agreement, theNote(s) or any of the 21 22other Loan Documents, and such default continues for more than five (5) daysafter Lender has given written notification thereof; or 9.2 Borrower defaults in the performance of any other covenant or SecuredObligation of Borrower hereunder or under the Note(s) or any of the other LoanDocuments, and such default continues for more than twenty (20) days afterLender has given written notice to Borrower of such default. 9.3 Any representation or warranty made herein by Borrower shall prove tohave been false or misleading in any material respect on the date it was made;or 9.4 Borrower shall make an assignment for the benefit of creditors, orshall admit in writing its inability to pay its debts as they become due, orshall file a voluntary petition in bankruptcy, or shall file any petition oranswer seeking for itself any reorganization, arrangement, composition,readjustment, liquidation, dissolution or similar relief under any present orfuture statute, law or regulation pertinent to such circumstances, or shall seekor consent to or acquiesce in the appointment of any trustee, receiver, orliquidator of Borrower or of all or any substantial part (33-1/3% or more) ofthe properties of Borrower; or Borrower or its directors or majorityshareholders shall take any action initiating the dissolution or liquidation ofBorrower; or 9.5 Sixty (60) days shall have expired after the commencement of an actionby or against Borrower seeking reorganization, arrangement, composition,readjustment, liquidation, dissolution or similar relief under any present orfuture statute, law or regulation, without such action being dismissed or allorders or proceedings thereunder affecting the operations or the business ofBorrower being stayed; or a stay of any such order or proceedings shallthereafter be set aside and the action setting it aside shall not be timelyappealed; or Borrower shall file any answer admitting or not contesting thematerial allegations of a petition filed against Borrower in any suchproceedings; or the court in which such proceedings are pending shall enter adecree or order granting the relief sought in any such proceedings; or 9.6 Sixty (60) days shall have expired after the appointment, without theconsent or acquiescence of Borrower, of any trustee, receiver or liquidator ofBorrower or of all or any substantial part of the properties of Borrower withoutsuch appointment being vacated; or 9.7 The occurrence of any payment default in excess of $100,000 under anySenior Loan Documents, Excluded Agreements, lease or other promissory note,agreement for borrowed money or obligation of Borrower which remains uncured formore than thirty (30) days after Borrower receives written notification thereof.SECTION 10. REMEDIES Upon the occurrence and continuance of any one or more Events of Default,Lender, at its option, may declare the Note and all of the other SecuredObligations to be accelerated and immediately due and payable (provided, thatupon the occurrence of an Event of Default of the type described in Sections 9.4or 9.5, the Note(s) and all of the other Secured Obligations shall automaticallybe accelerated and made due and payable without any further act), whereupon theunpaid principal of and accrued interest on such Note(s) and all otheroutstanding Secured Obligations shall become immediately due and payable, andshall thereafter bear interest at 22 23the Default Rate set forth in, and calculated according to, Section 2.3 (c) ofthis Agreement. Lender may exercise all rights and remedies with respect to theCollateral under the Loan Documents or otherwise available to it underapplicable law, including the right to release, hold or otherwise dispose of allor any part of the Collateral and the right to occupy, utilize, process andcommingle the Collateral. After any one or more Events of Default has remained uncured for more thanfifteen (15) days after Lender has given written notice to Borrower of failureto cure any Event of Default Lender may then, or at any time thereafter and fromtime to time, apply, collect, sell in one or more sales, lease or otherwisedispose of, any or all of the Collateral, in its then condition or following anycommercially reasonable preparation or processing, in such order as Lender mayelect, and any such sale may be made either at public or private sale at itsplace of business or elsewhere. Borrower agrees that any such public or privatesale may occur upon five (5) calendar days' prior written notice to Borrower.Lender may require Borrower to assemble the Collateral and make it available toLender at a place designated by Lender which is reasonably convenient to Lenderand Borrower. The proceeds of any sale, disposition or other realization uponall or any part of the Collateral shall be distributed by Lender in thefollowing order of priorities: First, to Lender in an amount sufficient to pay in full Lender's reasonable costs and professionals' and advisors' reasonable fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. Lender shall be deemed to have acted reasonably in the custody,preservation and disposition of any of the Collateral if it complies with theobligations of a secured party under Section 9207 of the UCC. Lender's rights and remedies hereunder are subject to the terms of theSubordination Agreement.SECTION 11. MISCELLANEOUS 11.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement andthe grant of a security interest hereunder shall remain in full force and effectand all the rights, powers and remedies of Lender hereunder shall continue toexist until the Secured Obligations are paid in full as the same become due andpayable and until Lender has executed a written termination statement (whichLender shall promptly execute after full payment of the Secured Obligationshereunder), reassigning to Borrower, without recourse, the Collateral and allrights conveyed hereby and returning possession of the Collateral to Borrower.The rights, powers and remedies of Lender hereunder shall be in addition to allrights, powers and remedies given by statute or rule of law and are cumulative.The Purchase of any one or more of the rights, powers and remedies providedherein shall not be construed as a waiver of or election of remedies withrespect to any other rights, powers and remedies of Lender. 23 24 11.2 SEVERABILITY. Whenever possible, each provision of this Agreementshall be interpreted in such manner as to be effective and valid underapplicable law, but if any provision of this Agreement shall be prohibited by orinvalid under such law, such provision shall be ineffective only to the extentand duration of such prohibition or invalidity, without invalidating theremainder of such provision or the remaining provisions of this Agreement. 11.3 NOTICE. Except as otherwise provided herein, all notices and serviceof process required, contemplated, or permitted hereunder or with respect to thesubject matter hereof shall be in writing, and shall be deemed to have beenvalidly served, given or delivered upon the earlier of: (i) the first businessday after transmission by facsimile or hand delivery or deposit with anovernight express service or overnight mail delivery service; or (ii) the thirdcalendar day after deposit in the United States mails, with proper first classpostage prepaid, and shall be addressed to the party to be notified as follows: (a) IF TO LENDER: COMDISCO, INC./COMDISCO VENTURES Attention: Jill Hanses 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5465 WITH A COPY TO: COMDISCO, INC./COMDISCO VENTURES Attention: Documentation Group 100 Hamilton Avenue, Suite 104A Palo Alto, CA 94301 Facsimile: (650) 473-0204 (b) IF TO BORROWER: EGROUPS, INC. Attention: Chief Executive Officer 520 Third Street, Suite 225 San Francisco, CA 94107 Facsimile: (415) 284-6900 Phone: (415) 449-3482or to such other address as each party may designate for itself by like notice. 11.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and theother Loan Documents constitute the entire agreement and understanding of theparties hereto in respect of the subject matter hereof and thereof, andsupersede and replace in their entirety any prior proposals, term sheets,letters, negotiations or other documents or agreements, whether written or oral,with respect to the subject matter hereof or thereof (including, withoutlimitation, Lender's proposal letter dated August 26, 1999, all of which aremerged herein and therein. None of the terms of this Agreement, the Note(s) orany of the other Loan Documents may be amended except by an instrument executedby each of the parties hereto. 24 25 11.5 HEADINGS. The various headings in this Agreement are inserted forconvenience only and shall not affect the meaning or interpretation of thisAgreement or any provisions hereof. 11.6 NO WAIVER. The powers conferred upon Lender by this Agreement aresolely to protect its interest in the Collateral and shall not impose any dutyupon Lender to exercise any such powers. No omission, or delay, by Lender at anytime to enforce any right or remedy reserved to it, or to require performance ofany of the terms, covenants or provisions hereof by Borrower at any timedesignated, shall be a waiver of any such right or remedy to which Lender isentitled, nor shall it in any way affect the right of Lender to enforce suchprovisions thereafter. 11.7 SURVIVAL. All agreements, representations and warranties contained inthis Agreement, the Note(s) and the other Loan Documents or in any documentdelivered pursuant hereto or thereto shall be for the benefit of Lender andshall survive the execution and delivery of this Agreement and the expiration orother termination of this Agreement. 11.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement and the otherLoan Documents shall inure to the benefit of and be binding on Borrower and itspermitted assigns (if any). Borrower shall not assign its obligations under thisAgreement, the Note(s) or any of the other Loan Documents without Lender'sexpress written consent which consent shall not be unreasonably withheld, andany such attempted assignment without consent shall be void and of no effect.Lender may assign, transfer, or endorse its rights hereunder and under the otherLoan Documents without prior notice to Borrower, and all of such rights shallinure to the benefit of Lender's successors and assigns. 11.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lenderharmless from, any and all liabilities with respect to, or resulting from anydelay in paying, any and all excise, sales or other similar taxes which may bepayable or determined to be payable with respect to any of the Collateral or inconnection with any of the transactions contemplated by this Agreement. 11.10 GOVERNING LAW. This Agreement, the Note(s) and the other LoanDocuments have been negotiated and delivered to Lender in the State of Illinois,and shall not become effective until accepted by Lender in the State ofIllinois. Payment to Lender by Borrower of the Secured Obligations is due in theState of Illinois. This Agreement, the Note(s) and the other Loan Documentsshall be governed by, and construed and enforced in accordance with, the laws ofthe State of Illinois, excluding conflict of laws principles that would causethe application of laws of any other jurisdiction. 11.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arisingin or under or related to this Agreement, the Note(s) or any of the other LoanDocuments may be brought in any state or federal court of competent jurisdictionlocated in the State of Illinois. By execution and delivery of this Agreement,each party hereto generally and unconditionally: (a) consents to personaljurisdiction in Cook County, State of Illinois; (b) waives any objection as tojurisdiction or venue in Cook County, State of Illinois; (c) agrees not toassert any defense based on lack of jurisdiction or venue in the aforesaidcourts; and (d) irrevocably agrees to be bound by any judgment rendered therebyin connection with this Agreement, the Note(s) or the 25 26other Loan Documents. Service of process on any party hereto in any actionarising out of or relating to this agreement shall be effective if given inaccordance with the requirements for notice set forth in Section 11.3, above andshall be deemed effective and received as set forth in Section 11.3, above.Nothing herein shall affect the right to serve process in any other mannerpermitted by law or shall limit the right of either party to bring proceedingsin the courts of any other jurisdiction. 11.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connectionwith complex financial transactions are most quickly and economically resolvedby an experienced and expert person and the parties wish applicable state andfederal laws to apply (rather than arbitration rules), the parties desire thattheir disputes be resolved by a judge applying such applicable laws. EACH OFBORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURYOF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM ORANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER ORITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiverextends to all such Claims, including, without limitation, Claims which involvepersons or entities other than Borrower and Lender; Claims which arise out of orare in any way connected to the relationship between Borrower and Lender; andany Claims for damages, breach of contract arising out of this Agreement, anyother Loan Document or any of the Excluded Agreements, specific performance, orany equitable or legal relief of any kind. 11.13 CONFIDENTIALITY. Lender acknowledges that certain items ofCollateral, including, but not limited to trade secrets, source codes, customerlists and certain other items of Intellectual Property, and any FinancialStatements provided pursuant to Section 7 hereof, constitute proprietary andconfidential information of the Borrower (the "Confidential Information").Accordingly, Lender agrees that any Confidential Information it may obtain inthe course of acquiring, perfecting or foreclosing on the Collateral orotherwise provided under this Agreement, provided such Confidential Informationis marked as confidential by Borrower at the time of disclosure, shall bereceived in the strictest confidence and will not be disclosed to any otherperson or entity in any manner whatsoever, in whole or in part, without theprior written consent of the Borrower, unless and until Lender has acquiredindefeasible title thereto. 11.14 COUNTERPARTS. This Agreement and any amendments, waivers, consentsor supplements hereto may be executed in any number of counterparts, and bydifferent parties hereto in separate counterparts, each of which when sodelivered shall be deemed an original, but all of which counterparts shallconstitute but one and the same instrument. [SIGNATURE PAGE FOLLOWS] 26 27IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and deliveredthis Agreement as of the day and year first above written. BORROWER: EGROUPS, INC. Signature: -------------------------- Print Name: ------------------------- Title: ------------------------------ACCEPTED IN ROSEMONT, ILLINOIS: LENDER: COMDISCO, INC. Signature: -------------------------- Print Name: ------------------------- Title: ------------------------------ 27
/Finance/Loan AgreementseGroups Inc.Comdisco Inc.2009-10-18/finance/loan//content/hippo/files/default.www/content/contract/contract/E/eGroups-Inc-/16321633Notice of Exercise of Purchase Option - eGroups Inc. and Comdisco Inc.
NOTICE OF EXERCISE OF PURCHASE OPTIONTO: eGroups, Inc. ("Borrower")(1) Subject to the successful completion of an Initial Public Offering, as setforth in the Loan Agreement, the undersigned Lender hereby elects to exerciseits Purchase Option with respect to 437,500 shares of the Series D PreferredStock of Borrower, pursuant to the terms of the Subordinated Loan and SecurityAgreement dated the 8th day of October, 1999, as amended pursuant to the letterdated November 17, 1999 between Borrower and the Lender (the "Loan Agreement"),and tenders herewith payment of the purchase price for such shares, togetherwith all applicable transfer taxes, if any, by converting and cancelling debtoutstanding in the amount of $3,150,000.00 which represents a portion of theoutstanding debt under that certain Subordinated Promissory Note dated October13, 1999.(2) In exercising its rights with respect to the Purchase Option, theundersigned hereby represents and warrants to Borrower as follows: (a) The right to acquire Preferred Stock or the Preferred Stock issuable uponexercise of the Lender's rights contained herein will be acquired for investmentand not with a view to the sale or distribution of any part thereof, and theLender has no present intention of selling or engaging in any publicdistribution of the same except pursuant to a registration or exemption.(b) The Lender understands (i) that the Preferred Stock issuable upon exerciseof its Purchase Option is not registered under the 1933 Act nor qualified underapplicable state securities laws on the ground that the issuance contemplated byits Purchase Option will be exempt from the registration and qualificationsrequirements thereof, and (ii) that the Borrower's reliance on such exemption ispredicated on the representations set forth in this notice.(c) The Lender has such knowledge and experience in financial and businessmatters as to be capable of evaluating the merits and risks of its investment,and has the ability to bear the economic risks of its investment.(d) The Lender understands that if the Borrower does not register with theSecurities and Exchange Commission pursuant to Section 12 of the 1934 Act (the"1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act, or if aregistration statement covering the securities under the 1933 Act is not ineffect when it desires to sell (i) the rights to purchase Preferred Stockpursuant to this its Purchase Option, or (ii) the Preferred Stock issuable uponexercise of the right to purchase, it may be required to hold such securitiesfor an indefinite period. The Lender also understands that any sale of itsrights of the Lender to purchase Preferred Stock or Preferred Stock which mightbe made by it in reliance upon Rule 144 under the 1933 Act may be made only inaccordance with the terms and conditions of that Rule.(e) Lender is an "accredited investor" within the meaning of the Securities andExchange Rule 501 of Regulation D, as presently in effect. 2(3) Subject to our review and acceptance of your Acknowledgement Certificatewith respect to this Notice, please issue a certificate or certificatesrepresenting said shares of Series D Preferred Stock in the name of theundersigned or in such other name as is specified below.COMDISCO, INC.(Name)Attn: Ms. Jill Hanses6111 N. River Rd.Rosemont, IL 60018(Address)Lender: COMDISCO, INC.By:Title: JILL R HANSESSENIOR VICE PRESIDENTDate:ACKNOWLEDGMENT OF RECEIPT OF NOTICE OF EXERCISE OF PURCHASE OPTIONThe undersigned eGroups, Inc. ("Borrower") hereby acknowledges receipt of the"Notice of Purchase" from Comdisco, Inc. ("Lender") to exercise its PurchaseOption with respect to 437,500 shares of the Series D Preferred Stock ofeGroups, Inc., pursuant to the terms of the Subordinated Loan and SecurityAgreement dated October 8, 1999, as amended pursuant to the letter datedNovember 17, 1999 (the "Agreement"). Borrower further acknowledges that suchshares remain subject to purchase under the terms of the Agreement.In connection with such Purchase Option the undersigned hereby represents,warrants and agrees as follows:(a) All representations and warranties of the Borrower made pursuant to theAgreement are true and correct in all material respects on and as of the date ofthis Acknowledgment with the same effect as though made on and as of this date(except as set forth in Schedule 1 to this Acknowledgment)(b) The Preferred Stock issuable upon exercise of the Lender's rights has beenduly and validly reserved and, when issued in accordance with the provisions ofthe Purchase Option, will be validly issued, fully paid and non-assessable, andwill be free of any taxes, liens, charges or encumbrances of any naturewhatsoever; provided, however, that the Preferred Stock issuable pursuant to thePurchase Option may be subject to restrictions on transfer under state and/orfederal securities laws. The Borrower has made available to the Lender true,correct and complete copies of its Charter and Bylaws, as amended. The issuanceof certificates for shares of Preferred Stock following exercise of the PurchaseOption shall be made without charge to the Lender for any issuance tax inrespect thereof, or other cost incurred by the Borrower in connection with suchpurchase and the related issuance of shares of Preferred Stock. The Borrowershall not be required to pay any tax which may 3be payable in respect of any transfer involved and the issuance and delivery ofany certificate in a name other than that of the Lender.(c) The issuance to Lender of the right to acquire the shares of PreferredStock, has been duly authorized by all necessary corporate action on the part ofthe Borrower, and the Purchase Option is not inconsistent with the Borrower'sCharter or Bylaws, does not contravene any law or governmental rule, regulationor order applicable to it, does not and will not contravene any provision of, orconstitute a default under, any material indenture, mortgage, contract or otherinstrument to which it is a party or by which it is bound, and the PurchaseOption constitutes a legal, valid and binding agreement of the Borrower,enforceable in accordance with its terms.(d) No consent or approval of, giving of notice to, registration with, or takingof any other action in respect of any state, federal or other governmentalauthority or agency is required with respect to the execution, delivery andperformance by the Borrower of its obligations under the Purchase Option, exceptfor the filing of notices pursuant to Regulation D under the 1933 Act and anyfiling required by applicable state securities law, which filings will beeffective by the time required thereby.(e) The Borrower is not, pursuant to the terms of any other agreement currentlyin existence, under any obligation to register under the 1933 Act any of itspresently outstanding securities or any of its securities which may hereafter beissued.(f) Subject to the accuracy of the Lender's representations in its Notice, theissuance of the Preferred Stock upon exercise of the Purchase Option willconstitute a transaction exempt from (i) the registration requirements ofSection 5 of the 1933 Act, in reliance upon Section 4(2) thereof, and (ii) thequalification requirements of the applicable state securities laws.(g) If Lender proposes to sell Preferred Stock issuable upon the exercise of thePurchase Option in compliance with Rule 144 promulgated by the Securities andExchange Commission, the Borrower shall furnish to the Lender, within five (5)days after receipt of a written request, a written statement confirming theBorrower's compliance with the filing requirements of the Securities andExchange Commission as set forth in such Rule, as such Rule may be amended fromtime to time.Borrower acknowledges that Lender has the right to review Schedule 1 to thisCertificate and that Lender may in its sole discretion withdraw its notice ofexercise of Purchase Option within the ten (10) business days after Lender'sreceipt of this Acknowledgment.Borrower: EGROUPS, INC.By:Title:Date: