Classmates.com 2004 Annual Report Download - page 18

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ITEM 3. LEGAL PROCEEDINGS
On April 20, 2001, Jodi Bernstein, on behalf of himself and all others similarly situated, filed a lawsuit in the United States District Court
for the Southern District of New York against NetZero, certain officers and directors of NetZero and the underwriters of NetZero's initial public
offering, Goldman Sachs Group, Inc., BancBoston Robertson Stephens, Inc. and Salomon Smith Barney, Inc. The complaint alleges that the
prospectus through which NetZero conducted its initial public offering in September 1999 was materially false and misleading because it failed
to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain
investors in exchange for which the underwriters allocated to those investors material portions of the restricted number of NetZero shares issued
in connection with the offering; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to
allocate NetZero shares to those customers in the offering in exchange for which the customers agreed to purchase additional NetZero shares in
the aftermarket at pre-determined prices. Plaintiffs are seeking injunctive relief and damages. Additional lawsuits setting forth substantially
similar allegations were also served against NetZero on behalf of additional plaintiffs in April and May 2001. The case against NetZero was
consolidated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998
and 2000, their underwriters and an unspecified number of their individual corporate officers and directors. In a court order dated February 15,
2005, the Court granted preliminary approval of the issuer defendants' proposed settlement.
On August 21, 2001, Juno commenced an adversary proceeding in U.S. Bankruptcy Court in the Southern District of New York against
Smart World Technologies, LLC, dba "Freewwweb" (the "Debtor"), a provider of free Internet access that had elected to cease operations and
had sought the protection of Chapter 11 of the Bankruptcy Code. The adversary proceeding arose out of a subscriber referral agreement between
Juno and the Debtor. In response to the commencement of the adversary proceeding, the Debtor and its principals filed a pleading with the
Bankruptcy Court asserting that Juno is obligated to pay compensation in an amount in excess of $80 million as a result of Juno's conduct in
connection with the subscriber referral agreement. In addition, a dispute arose between Juno and UUNET Technologies, Inc., an affiliate of MCI
WorldCom Network Services, Inc., regarding the value of services provided by UUNET, with UUNET claiming in excess of $1.0 million and
Juno claiming less than $0.3 million. On April 25, 2003, Juno, the Committee of Unsecured Creditors, WorldCom and UUNET (allegedly the
largest secured creditor) entered into a Stipulation of Settlement. The Stipulation of Settlement provides for the payment by Juno of $5.5 million
in final settlement of all claims against Juno, and we have reserved $5.5 million in connection with this proceeding. On September 11, 2003, the
court issued an order approving the Stipulation of Settlement. The Debtor has filed a Notice of Appeal of the district court order upholding the
decision of the Bankruptcy Court approving the Stipulation of Settlement in the Second Circuit Court of Appeals. The appeal was argued on
March 8, 2005 and the parties are awaiting a decision from the court.
On April 27, 2004, plaintiff MyMail Ltd. filed a lawsuit in the United States District Court for the Eastern District of Texas against
NetZero, Juno, NetBrands, America Online, Inc., AT&T, EarthLink, Inc., SBC Communications, Inc., and Verizon Communications, Inc.
alleging infringement of plaintiff's patent which purports to cover user access to a computer network. An answer and affirmative defenses have
been served on behalf of NetZero, Juno and NetBrands. Discovery is continuing and the court has set several dates for the parties to submit
briefs on claim construction issues. Trial has been scheduled for October 2005.
The pending lawsuits involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of
other resources to defend. Although we do not believe the outcome of the above outstanding legal proceedings, claims and litigation will have a
material adverse effect on our business, financial condition, results of operations or cash flows, the results of litigation are inherently uncertain
and we cannot assure you that we will not be materially and adversely
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