Classmates.com 2005 Annual Report Download - page 33

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 District Court granted preliminary approval of the issuer defendants’
proposed settlement. On June 30, 2005, the United States Court of Appeals for the Second Circuit granted the underwriter defendants’ petition
for permission to appeal the District Court’s order granting plaintiffs’ motion for class certification. A hearing on the settlement is scheduled for
April 24, 2006.
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, which provided 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. On September 12, 2005, the Second Circuit Court of Appeals vacated the judgment of the bankruptcy
court and remanded the case to the bankruptcy court. Discovery in the adversary proceeding in the bankruptcy court has commenced. No trial
date has been set.
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. On October 28, 2005, the court issued an
order granting defendants’ motions for summary judgment of non-infringement of the patent. MyMail has filed a notice of appeal of the trial
court’s ruling.
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 impacted by the results of such proceedings. We have established a
reserve for the Freewwweb matter discussed above and such reserve is reflected in our consolidated financial statements. We cannot assure you,
however, that any of the reserves that have been established for outstanding litigation are sufficient to cover the possible losses from such
litigation.
We are subject to various other legal proceedings and claims that arise in the ordinary course of business. We believe the amount, and
ultimate liability, if any, with respect to these actions will not materially affect our business, financial condition, results of operations or cash
flows. We cannot assure you, however, that such actions will not be material and will not adversely affect our business, financial condition,
results of operations or cash flows.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the quarter ended December 31, 2005.
32