Classmates.com 2009 Annual Report Download - page 39

Table of Contents
ITEM 3. LEGAL PROCEEDINGS
In April 2001 and in May 2001, lawsuits were filed in the United States District Court for the Southern District of New York against
NetZero, Inc. ("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. A consolidated amended complaint was filed in April 2002.
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. The case against
NetZero was coordinated 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. The parties in the
approximately 300 coordinated class actions, including NetZero, the underwriter defendants in the NetZero class action, and the plaintiff class in
the NetZero action, have reached an agreement in principle under which the insurers for the issuer defendants in the coordinated cases will make
a settlement payment on behalf of the issuers, including NetZero. On October 5, 2009, the district court issued an order granting final approval of
the settlement and certifying the settlement class. Certain individuals have appealed the October 5, 2009 order.
In 2009, a committee of the U.S. Senate commenced an investigation of post-transaction sales practices and the companies that have
engaged in such practices. As part of such investigation, we received a request for information from the committee, and we have cooperated with
such request. In addition, we have received a civil investigative demand from the Attorney General of the State of Washington and subpoenas
from the Attorney General of the State of New York regarding their respective investigations into such practices and the companies that have
engaged in them, including us. We have been cooperating with the investigations, but we cannot predict their outcome or their potential
implications for our business. There are no assurances that additional governmental investigations or other legal actions will not be instituted in
connection with our former post-transaction sales practices or other current or former business practices.
Lawsuits and investigations 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 our outstanding legal proceedings, investigations, claims, and
litigation will have a material adverse effect on our business, financial condition, results of operations, or cash flows, the results of legal
proceedings, investigations, claims, and litigation are inherently uncertain and we cannot provide assurance that we will not be materially and
adversely impacted by the results of such proceedings or investigations. At December 31, 2009, we had not established any reserves for legal
proceedings and investigations except for a $2.2 million reserve for a pending lawsuit.
We are subject to various legal proceedings, claims and litigation that arise in the ordinary course of business. Based on information at this
time, 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. There can be no assurance, however, that such actions will not materially and 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, 2009.
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