Exhibit 10.18


 


August 14,
2008


 


Mr. Steve
McArthur


c/o
Classmates Online, Inc.


2001
Lind Avenue SW, Suite 500

Renton, WA 98055


 


Dear
Steve,


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


7.                                      Termination of Employment


 


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


 


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


 


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


 


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


 


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


 


(c)                                  Definitions.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(iii)                               theft, dishonesty, fraud or embezzlement;


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


9

















 


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


 


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


 


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


 


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


 


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


 


If you have any questions, please call the undersigned.


 


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  CLASSMATES ONLINE, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark R. Goldston

  
	
   

  	
  Name: Mark R. Goldston

  
	
   

  	
  Title: Chairman & Chief Executive Officer

  



 


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


 


 


	
  /s/ Steve McArthur

  	
   

  
	
   

  
	
   

  
	
  Dated: 

  	
  14 August, 2008

  	
   

  
			



 


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Appendix
A


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(iv)                              a change in the composition of the
Board over a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or (B) have
been 


 


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


 


B.                                    Change in Control of Classmates Media Corporation


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


13

















 


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


 


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


 


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


 


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