NETZERO INC
S-1/A, 1999-08-04
COMPUTER PROCESSING & DATA PREPARATION
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<PAGE>

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1999


                                                      REGISTRATION NO. 333-82827

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                          AMENDMENT NO. 1 TO FORM S-1

                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------

                                 NETZERO, INC.

             (Exact Name of Registrant as Specified in Its Charter)
                         ------------------------------

<TABLE>
<S>                              <C>                            <C>
           DELAWARE                          7370                  95-4644384
 (State or Other Jurisdiction    (Primary Standard Industrial   (I.R.S. Employer
     of Incorporation or         Classification Code Number)     Identification
        Organization)                                               Number)
</TABLE>

                              2555 TOWNSGATE ROAD
                       WESTLAKE VILLAGE, CALIFORNIA 91361
                                 (805) 418-2000

    (Address, Including Zip Code, and Telephone Number, Including Area Code,
                  of Registrant's Principal Executive Offices)
                         ------------------------------

                                MARK R. GOLDSTON
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                 NETZERO, INC.
                              2555 TOWNSGATE ROAD
                       WESTLAKE VILLAGE, CALIFORNIA 91361
                                 (805) 418-2000
 (Name, Address Including Zip Code, and Telephone Number, Including Area Code,
                             of Agent For Service)
                         ------------------------------

                                   COPIES TO:

        RICHARD A. FINK, ESQ.                    KENNETH M. SIEGEL, ESQ.
        KEVEN F. BAXTER, ESQ.                      PAUL B. SHINN, ESQ.
         JOSEPH H. CHI, ESQ.                      ROBERT E. DAWSON, ESQ.
         AMY J. HANSEN, ESQ.                 WILSON SONSINI GOODRICH & ROSATI
   BROBECK, PHLEGER & HARRISON LLP                  650 PAGE MILL ROAD
         38 TECHNOLOGY DRIVE                 PALO ALTO, CALIFORNIA 94304-1050
       IRVINE, CALIFORNIA 92618                       (650) 493-9300
            (949) 790-6300

                         ------------------------------

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
                         ------------------------------

      If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /

      If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________

      If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________

      If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________

      If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                         ------------------------------

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
                             TITLE OF EACH CLASS OF                                PROPOSED MAXIMUM AGGREGATE
                          SECURITIES TO BE REGISTERED                                  OFFERING PRICE (1)
<S>                                                                               <C>
Common Stock, $0.001 par value..................................................          $115,000,000

<CAPTION>
                             TITLE OF EACH CLASS OF                                        AMOUNT OF

                          SECURITIES TO BE REGISTERED                                 REGISTRATION FEE (2)

<S>                                                                               <C>
Common Stock, $0.001 par value..................................................            $31,970

</TABLE>


(1) Estimated solely for the purpose of computing the registration fee pursuant
    to Rule 457(o).


(2) Previously paid by the Registrant in connection with the filing of the
    Registration Statement on July 14, 1999.

                         ------------------------------

      THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL, NOR DOES IT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>

                  SUBJECT TO COMPLETION. DATED AUGUST 4, 1999.


                                         Shares

     [LOGO]
                                 NETZERO, INC.
                                  Common Stock

                               ------------------

    This is an initial public offering of shares of common stock of NetZero,
Inc. NetZero is offering all of the       shares of common stock to be sold in
this offering.

    Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $           and $           . Application has been made
for quotation of the common stock on The Nasdaq National Market under the symbol
"NZRO".

    SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.

                            ------------------------

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

                            ------------------------

<TABLE>
<CAPTION>
                                                                                       PER SHARE        TOTAL
                                                                                      -----------  ----------------
<S>                                                                                   <C>          <C>
     Initial public offering price..................................................   $           $
     Underwriting discount..........................................................   $           $
     Proceeds, before expenses, to NetZero..........................................   $           $
</TABLE>

    The underwriters may purchase, under certain circumstances, up to an
additional       shares of common stock from NetZero, at the initial public
offering price less the underwriting discount.

                            ------------------------

    The underwriters expect to deliver the shares against payment in New York,
New York on              , 1999.

GOLDMAN, SACHS & CO.

            DONALDSON, LUFKIN & JENRETTE

                        HAMBRECHT & QUIST

                                    WIT CAPITAL CORPORATION

                            ------------------------

                      Prospectus dated            , 1999.
<PAGE>
                              [INSIDE FRONT COVER]
                       [SCHEMATIC OF THE ZEROPORT WINDOW]
<PAGE>
                               PROSPECTUS SUMMARY


    THE FOLLOWING SUMMARY SHOULD BE READ TOGETHER WITH, AND IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND THE
NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS: (1) REFLECTS THE AUTOMATIC
CONVERSION OF OUR OUTSTANDING SERIES A, SERIES B, SERIES C AND SERIES D
PREFERRED STOCK INTO COMMON STOCK IMMEDIATELY PRIOR TO THE CLOSING OF THIS
OFFERING; (2) REFLECTS THE 3-FOR-2 STOCK SPLIT EFFECTED IN JULY 1999; (3)
REFLECTS OUR REINCORPORATION INTO DELAWARE WHICH WE WILL COMPLETE PRIOR TO THE
OFFERING; AND (4) ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THE
OVER-ALLOTMENT OPTION GRANTED TO THEM.


                                 NETZERO, INC.

    NetZero is pioneering a new Internet service model that provides consumers
with free and easy access to the Internet while offering online advertisers a
highly effective way to target those users. We offer users a simple and
compelling proposition--free and unlimited Internet access as well as free
e-mail and navigational tools to enhance their online experience. For
advertisers, our service offers a powerful online direct marketing tool with
features and functionality that have distinct advantages over traditional forms
of online advertising. The value of NetZero's proposition is evidenced by our
growth; between our October 1998 launch and June 30, 1999, approximately 1.17
million users registered for our service. During June 1999, approximately
613,000 of these users accessed our service and were delivered over 830 million
advertising impressions. Our services are offered in over 1,100 cities
nationwide.

    An important feature of our service is The ZeroPort, a small window
displayed on our users' computer screens while they are online that is always
visible regardless of where they navigate. Users can move The ZeroPort to any
location on their screen but cannot close it or reduce its size. The ZeroPort
displays advertisements and advertiser-sponsored buttons and icons, all of which
can link directly to sites and services such as news, financial information,
sports and shopping. We generate revenues by selling advertisements and
sponsorships on The ZeroPort and by referring our users to sponsors' Web-sites.
We plan to receive fees from advertisers when our users subscribe for services
or purchase products or when other performance criteria are satisfied.

    While the Internet has emerged as an attractive new advertising medium,
advertisers are seeking solutions to enhance its effectiveness for targeting
users and delivering messages. Most online advertisers have difficulties
successfully targeting their audiences, largely due to a lack of precise data on
user demographics and online behavior. Online advertisers also face challenges
capturing the attention of users and delivering messages for a sustained period
of time as they can with television and radio. We obtain demographic information
from our users and track their online activity, enabling us to offer advertisers
the ability to target users, measure advertising effectiveness and potentially
improve the return on their advertising dollars. Moreover, in contrast to
traditional online advertisements which can generally be scrolled off of a
viewer's screen, The ZeroPort is always visible during a user's online session,
enabling our advertisers to display messages for a sustained period of time. We
believe NetZero offers solutions that enhance the effectiveness of online
advertising and can redefine the way products and services are marketed online.

    We were incorporated in California in July 1997 and plan to reincorporate in
Delaware prior to completion of the offering. Our executive offices are located
at 2555 Townsgate Road, Westlake Village, California 91361, and our telephone
number is (805) 418-2000. Information contained on our Web-site or The ZeroPort
does not constitute part of this prospectus. NetZero-TM-, The ZeroPort-TM-,
zCast-TM- and SPEEDY Assistant-TM- are our trademarks. This prospectus also
includes trademarks of entities other than NetZero.

                                       3
<PAGE>
                                  THE OFFERING

<TABLE>
<S>                                            <C>
Common stock offered by NetZero..............  shares
Common stock to be outstanding after this
  offering...................................  shares
Use of proceeds..............................  For general corporate purposes, principally
                                               working capital, capital expenditures, and
                                               possible acquisitions.
Proposed Nasdaq National Market symbol.......  "NZRO"
</TABLE>


    The number of shares to be outstanding after this offering excludes
8,275,649 shares of common stock available for issuance pursuant to our stock
plans, of which 3,497,100 shares are subject to outstanding options as of June
30, 1999, at a weighted average exercise price of $0.69 per share.


                             SUMMARY FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

    The following table sets forth certain of our summary financial data. This
information should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in the prospectus.


<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED                        YEAR
                                     JULY 21, 1997     --------------------------------------------------------     ENDED
                                  (INCEPTION) THROUGH  SEPTEMBER 30,    DECEMBER 31,    MARCH 31,    JUNE 30,     JUNE 30,
                                     JUNE 30, 1998          1998            1998          1999         1999         1999
                                  -------------------  --------------  --------------  -----------  -----------  -----------
<S>                               <C>                  <C>             <C>             <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................   $              --    $         --    $        122    $     781    $   3,731    $   4,634
Gross loss......................                  --              (6)           (942)      (3,198)      (3,646)      (7,792)
Loss from operations............                 (19)           (217)         (1,789)      (5,125)      (8,204)     (15,335)
Net loss........................                 (25)           (217)         (1,795)      (5,095)      (8,113)     (15,220)
Net loss per share:
  Basic and diluted(1)..........   $              --    $      (0.02)   $      (0.22)   $   (0.50)   $   (0.71)   $   (1.41)
  Weighted average shares--
    basic and diluted(1)........              15,000          13,451           8,025       10,277       11,413       10,792
  Pro forma basic and diluted
    net loss per share(2).......                                                                                  $   (0.44)
  Shares outstanding used in pro
    forma basic and diluted net
    loss per share
    calculation(2)..............                                                                                     34,800
</TABLE>



<TABLE>
<CAPTION>
                                                                                     AS OF JUNE 30, 1999
                                                                          -----------------------------------------
                                                                           ACTUAL    PRO FORMA(2)   AS ADJUSTED(3)
                                                                          ---------  -------------  ---------------
<S>                                                                       <C>        <C>            <C>
BALANCE SHEET DATA:
Cash and cash equivalents...............................................  $  24,035   $    24,035    $
Working capital.........................................................     16,097        16,097
Total assets............................................................     47,501        47,501
Capital leases and notes payable, less current portion..................      3,527         3,527            3,527
Redeemable convertible preferred stock..................................      2,140            --               --
Deferred stock compensation.............................................      6,732         6,732            6,732
Total stockholders' equity..............................................     30,954        33,094
</TABLE>


- ------------------------


(1) See Notes 2 and 9 of Notes to Financial Statements for determination of
    shares used in computing basic and diluted net loss per share.



(2) Pro forma to give effect to the conversion of all issued and outstanding
    shares of preferred stock into common stock.


(3) As adjusted to reflect the sale of       shares of common stock offered
    hereby at an assumed initial public offering price of $               per
    share after deducting the underwriting discount and estimated offering
    expenses payable by NetZero. See "Use of Proceeds" and "Capitalization".

                                       4
<PAGE>
                                  RISK FACTORS

    YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US
OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.

    IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED,
THE VALUE OF OUR STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.

                  WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS

WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN AND WE HAVE
OPERATED OUR BUSINESS FOR ONLY A SHORT PERIOD OF TIME.

    Our business model is unproven and a number of other businesses offering
free Internet access have failed. Furthermore, since we only began offering
Internet access in October 1998, we have a limited operating history, which will
make it difficult for you to evaluate our performance. You should carefully
consider the risks and difficulties we may encounter in the new and rapidly
evolving Internet market. These risks include our ability to:

       - retain and increase our user base;

       - generate sufficient revenues to cover our costs;

       - manage our telecommunications costs;

       - develop brand recognition with users and advertisers;

       - provide adequate levels of user support;

       - upgrade and scale our communications network and internal server
         capacity;

       - respond to technological developments in the industry; and

       - comply with evolving standards relating to the use of information
         obtained from, and privacy of, Internet users.

    If we are not able to successfully address these risks, our business,
results of operations and financial condition could be materially and adversely
affected. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for detailed information on our limited
operating history.

OUR BUSINESS WILL BE SERIOUSLY HARMED IF WE FAIL TO RETAIN AND GROW OUR USER
BASE OR DEMONSTRATE THAT OUR REGISTERED USERS ARE ACTUALLY USING OUR SERVICE.

    The success of our business will depend on our ability to retain our
existing user base, add new users and demonstrate to advertisers that our users
are using our service on a regular basis. To date, we have relied extensively on
"viral" or "word-of-mouth" marketing to attract the vast majority of our users
and will continue to do so for the foreseeable future. Such marketing is outside
of our control and there can be no assurance that it will generate rates of
growth in our user base comparable to what we have experienced to date. In
addition, we intend to generate new users through other distribution channels.
If such distribution channels prove more costly than anticipated, it could
adversely impact our ability to grow. If we are unable to grow our user base,
our ability to generate revenues, decrease per-user telecommunications costs and
implement our strategy will be materially and adversely affected.

                                       5
<PAGE>
    There are a variety of reasons why users would discontinue using our
service. Many users may dislike The ZeroPort--which is always present--or may
not wish to have their online activities tracked and prefer to pay for Internet
access without advertising or tracking. In addition, releases of our software
have had, and may have in the future, reliability and other issues which may
result in user dissatisfaction. To date, we have provided minimal user support
compared to the support offered by other Internet service providers. While we
intend to focus our resources and efforts on enhancing our users' online
experience, there can be no assurance that existing users will accept The
ZeroPort or be satisfied with our user support efforts, or that our service will
match or exceed the quality, speed and reliability of competitive Internet
access services. If our users believe that the level of support they receive is
inadequate, our user turnover rate will likely increase.

    A number of our registered users may not actively use our service for
periods of time. While approximately 1.17 million users had registered for our
service as of June 30, 1999, approximately 613,000 had used our service in the
previous 30 days. If we are not able to demonstrate to our advertisers that we
have an active and growing user base, advertisers may choose not to advertise
with us and our business, results of operations and financial condition could be
materially and adversely affected.


    We also believe that intense competition from our Internet access
competitors, some of which offer many free hours of service, rebates on computer
purchases, or other promotions for new users, will cause some of our existing or
potential users to switch to our competitors' services. It is relatively easy
for Internet users to switch to competing providers and we cannot be certain
that any steps we take will maintain or improve user retention. We also believe
that a number of our users also have Internet access accounts with our
competitors and that we will face increasing competition from new competitors
providing free or bundled Internet access services. As a result, a number of our
users do not, or may not, use NetZero as their primary Internet service
provider. In addition, some new users use the Internet only as a novelty and do
not become consistent users of Internet services and, therefore, may be more
likely to discontinue their service. These factors adversely affect our user
turnover rates. We cannot assure you that our user turnover rate will not
increase in the future. Any increase in user turnover rates could have a
material adverse effect on our business, results of operations and financial
condition.


OUR FAILURE TO GENERATE ADVERTISING REVENUES IN QUANTITIES AND AT RATES THAT ARE
SATISFACTORY TO US COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.

    We do not charge our users any fees for our Internet access and e-mail
services. The success of our business depends primarily on our ability to
generate advertising revenues. We cannot be sure that advertisers will continue
to purchase advertising space on the Internet or that our particular business
model will be attractive to advertisers. A significant portion of our revenues
may be dependent on our ability to fulfill various performance criteria, such as
having our users subscribe to specific services or purchase specific products of
advertisers. Whether such criteria are fulfilled will depend on our ability to
effectively target users through identifying relevant demographic criteria and
developing targeting data. We are in the early stages of that process and may
encounter technical limitations on our ability to target users based on their
demographic information. The quality of our demographic information also depends
on the accuracy of the information provided by our users, which we do not
corroborate. Therefore, we cannot assure you that we will be able to effectively
target users and achieve performance-based revenues. If we fail to do so, our
business, results of operations and financial condition could be materially and
adversely affected.

    In addition, competition for Internet-based advertising revenues is intense
and the amount of available standard banner advertising space on the Internet is
increasing at a significant rate. These

                                       6
<PAGE>

factors are causing Internet advertising rates to decline and we expect that
these rates may continue to decline in the future. Also, our growth in users has
resulted in, and in the future may result in, our advertising inventory growing
faster than our ability to sell the inventory at reasonable rates. Therefore, we
cannot assure you that we will be able to attract advertising revenues in
quantities and at rates that are sufficient to support our business model. Our
failure to do so would likely have a material adverse effect on our business,
results of operations and financial condition.



WE RELY ON A SMALL NUMBER OF TELECOMMUNICATIONS CARRIERS AND MAY BE UNABLE TO
FIND ADEQUATE REPLACEMENTS IF THEIR RATES INCREASE, IF THEIR SERVICE QUALITY
DECLINES, OR IF THEY DISCONTINUE DOING BUSINESS WITH US.


    Our business substantially depends on the capacity, affordability,
reliability and security of our telecommunications networks. To use our
services, users must initiate telephone connections between their personal
computers and computer hardware in local or regional facilities known as points
of presence (POPs) provided by third-party telecommunications carriers. These
telecommunications providers also provide connections between their POPs and our
central computers. Only a small number of telecommunications companies can
provide the network services we require. There has been significant
consolidation in the telecommunications industry, and there is a significant
risk that further consolidation could make us reliant on an even smaller number
of providers. Most of our telecommunications services are provided pursuant to
short-term agreements that the telecommunications service providers can
terminate or elect not to renew. As a result, there is a significant risk that
any or all of our current telecommunications service providers could decide not
to provide us with service at rates acceptable to us, or at all.

    RISK OF CONFLICTS OF INTEREST.  Many telecommunications companies offer, or
have announced that they will begin to offer, Internet access services, making
them direct competitors of ours. In addition, each of our telecommunications
providers supplies network access to some of our competitors, and could choose
to grant those competitors preferential network access, potentially limiting our
users' ability to access the Internet. If our telecommunications service
providers were to decrease the levels of service or access provided to us, or if
they were to terminate their relationships with us for competitive or other
reasons, and we were not able to develop alternate sources of supply, our
business, results of operations and financial condition would be materially and
adversely affected.

    RISK OF UNACCEPTABLE SERVICE QUALITY.  Our reliance on third-party
telecommunications service providers also exposes us to the risks that such
providers will fail to provide service or that their service quality will not be
acceptable. In either event, we would likely lose users who are dissatisfied
with our service, which could materially and adversely affect our business,
results of operations and financial condition. Since we do not have direct
control over our telecommunications carriers' network reliability and the
quality of their service, we cannot assure you that we will be able to provide
consistently reliable Internet access for our users.

    RISK OF PRICE SENSITIVITY.  Our financial results are highly sensitive to
variations in prices for the telecommunications services we purchase. We cannot
assure you that telecommunications prices will decline, or that such prices will
not increase. Some of our telecommunications providers impose minimum connection
charges. Our business could be harmed if minimum connection charges increase or
become more prevalent. In addition, the availability and pricing of POPs varies
geographically, and we may not be able to obtain new or substitute POPs in
certain geographic areas within the required lead times or on commercially
reasonable terms, if at all. We cannot assure you that our telecommunications
providers will continue to provide us access to their POPs on commercially
acceptable price terms, or that alternative services will be available on such
terms.

                                       7
<PAGE>
WE DEPEND ON NETGRAVITY SOFTWARE TO EFFECTIVELY SERVE ADVERTISEMENTS TO THE
ZEROPORT.

    All of our advertisements are served using software licensed from
NetGravity. While there is other software available, it would substantially
disrupt our business in the near term to switch to another provider. As such, we
are reliant on NetGravity and its software. Our agreement with NetGravity
expires in 2001. If NetGravity's software fails to perform as expected, or if we
are not able to renew such agreement or license or internally develop similar
software in the future, we may not be able to effectively display advertisements
to our users. In such event, our business, results of operations and financial
condition would be materially and adversely affected. On July 13, 1999,
DoubleClick, an Internet advertising provider, and NetGravity announced that
they had entered into a merger agreement pursuant to which DoubleClick will
acquire NetGravity in a stock-for-stock transaction.

WE ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW.


    As of June 30, 1999, we had an accumulated deficit of approximately $15.2
million. We expect that our losses and negative cash flow will increase for the
foreseeable future as we continue to expand our operations and incur expenses in
connection with:


       - purchasing telecommunications service capabilities in anticipation of a
         growing user base;

       - obtaining additional equipment and software for our network
         infrastructure to enable us to expand and improve the quality of our
         services;

       - adding personnel;

       - continuing to develop our direct and indirect sales and marketing
         efforts;

       - increasing our product development efforts; and

       - expanding our user support services.

    Our ability to achieve profitability and positive cash flow depends upon a
number of factors, including our ability to increase revenue or reduce per-user
costs. Although our revenues have grown in recent quarters, we cannot be certain
that we will be able to sustain these growth rates or that we will obtain
sufficient revenues to achieve profitability or positive cash flow. If we do
achieve profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future. If we fail to do so,
the market price for our common stock could suffer.

OUR MARKETS ARE VERY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY,
ESPECIALLY AGAINST ESTABLISHED INDUSTRY COMPETITORS.

    We compete for users and advertising customers.

    COMPETITION FOR USERS

    We currently compete or expect to compete for users with the following types
of companies that provide access services:

       - established online service and content providers, such as America
         Online and The Microsoft Network;

       - independent national Internet service providers, such as EarthLink,
         MindSpring and Prodigy;

       - national long-distance carriers, such as AT&T, GTE and MCI WorldCom;

                                       8
<PAGE>
       - local telephone companies and regional Bell operating companies, such
         as Pacific Bell;

       - numerous regional and local commercial Internet service providers;

       - computer hardware and software and other technology companies, such as
         IBM and Microsoft;

       - cable operators and online cable services, such as Excite@Home;


       - Internet portals and search engines such as Yahoo!;


       - other free Internet service providers; and

       - nonprofit or educational Internet service providers.


    We face competition for users and expect that competition in this market
will continue to intensify for the foreseeable future. Existing competitors may
take steps such as reducing their subscriber fees, offering promotions for
access services or bundling free access services with other product offerings.
In addition, we believe that new competitors for Internet users, including major
computer manufacturers and software, media and telecommunications companies,
will continue to enter the Internet access market. For example, AltaVista, a
leading portal and search engine, recently announced that it will be offering a
free ad-supported Internet access solution to strengthen its relationship with
its users, and Dell recently announced that it will bundle free Internet access
with certain of its computers. New entrants have announced Internet access
models similar to ours, and the implementation of similar models by new entrants
or existing competitors could limit the value of our consumer proposition. As
awareness of the Internet grows, existing competitors are likely to further
increase their emphasis on their Internet access services, resulting in even
greater competition for us. In addition, telecommunications companies with far
greater resources, distribution channels and brand awareness may offer their own
Internet access services to users. These companies have their own
telecommunications network infrastructure and therefore have lower
communications costs in connection with the Internet access services they
provide. These advantages reduce the overall cost of Internet access for such
companies and may significantly increase competitive pressures on us. The
ability of our competitors to acquire other Internet service providers, to enter
into strategic alliances or joint ventures or to bundle other services and
products with Internet access services could also put us at a significant
competitive disadvantage.


    We cannot predict whether we will be able to compete successfully against
current or future competitors. As a result, we cannot assure you that
competitive pressures faced by us will not materially and adversely affect our
business, results of operations or financial condition. Increased competition
could cause us to increase our sales and marketing expenses and related user-
acquisition costs and could also result in increased user turnover and decreased
advertising revenues. Since we do not charge our users membership fees, we may
not be able to offset the effects of these increased costs and we may not have
the resources to continue to compete successfully. These developments would
materially and adversely affect our business, results of operations and
financial condition.

    We also face competition from companies that provide broadband connections
to users' homes, including local and long-distance telephone companies, cable
television companies, electric utility companies, wireless communications
companies and other Internet service providers. These companies may use
broadband technologies to include Internet access or business services such as
Web hosting in their basic bundle of services or may offer Internet access or
business services for little or no additional charge. Most of our service is
offered via dial-up modems which are limited to access speeds of up to 56 kbps.
Broadband technologies enable users to transmit and receive print, video, voice
and data in digital form at significantly faster access speeds. While the market
for

                                       9
<PAGE>
such broadband technologies is still emerging, we believe it will continue to
grow and pose an increasingly significant source of competition. We may have to
develop new technologies or add broadband access services to remain competitive.
Our pursuit of these technological advances may require substantial time and
expense. We cannot be certain that we will succeed in adapting our Internet
access service business to compete effectively with these technologies.

    Furthermore, to the extent that we need to provide broadband access
services, we face the risk that the companies that own broadband networks may
prevent us from delivering Internet access through the wire and cable
connections that they own. The availability and terms of Internet service
providers' access to broadband local telephone company networks are under
regulatory and judicial review. Our ability to compete with telephone and cable
television companies that are able to support broadband transmission, and to
provide better Internet services and products, may depend on future regulation
to guarantee open access to the broadband networks. However, in January 1999,
the Federal Communications Commission declined to take any action to mandate or
otherwise regulate access by Internet service providers to broadband cable
facilities at this time. It is unclear whether and to what extent local and
state regulatory agencies will take any initiatives to implement this type of
regulation, and whether they will be successful in establishing their authority
to do so. Similarly, the FCC is considering proposals that could limit the right
of Internet service providers to connect with their users over broadband local
telephone lines. In addition to competing directly in the Internet access
market, both cable and telephone facilities operators are also aligning
themselves with certain Internet service providers who would receive
preferential or exclusive use of broadband local connections to end users. If
high-speed, broadband facilities increasingly become the preferred mode by which
users access the Internet and we are unable to gain access to these facilities
on reasonable terms, our business, results of operations and financial condition
could be materially and adversely affected. In addition, we do not currently
compete internationally. If the ability to provide Internet access
internationally becomes a competitive advantage in the Internet access industry,
we may be at a competitive disadvantage relative to our competitors who offer
such services.

    We cannot predict what effect technological developments will have on our
competitive position. The rapid development of new competing technologies and
standards increases the risk that current or new competitors could develop
products and services that reduce the competitiveness of our products and
services. If our products and services become obsolete or less competitive with
other available products and services, our business, results of operations and
financial condition could be materially and adversely affected.

    COMPETITION FOR ADVERTISING CUSTOMERS

    We compete for Internet advertising and sponsorship revenues with Web search
engine and portal companies such as Yahoo!, Lycos, Excite@Home and Infoseek,
with large Web publishers such as CNN.com and CNET and with other online content
providers such as America Online and Microsoft. Further, we compete with
Internet advertising providers, such as DoubleClick, Adsmart, 24/7 Media and
ValueClick. We also encounter competition from a number of other sources,
including content aggregation companies, advertising sales networks, advertising
agencies, and other companies which facilitate Internet advertising.

    We may not be able to compete successfully against current or future
competitors for advertising revenues, many of whom have longer operating
histories, greater name recognition, larger user bases, significantly greater
financial, technical and marketing resources and more established relationships
with advertisers than we do. These advantages may allow such competitors to
respond more quickly than we can to new or emerging technologies and changes in
advertiser requirements. They may also be able to devote greater resources than
we can to the development, promotion and sale of their products and services.
Such competitors may also

                                       10
<PAGE>
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners,
advertisers and Web publishers. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products or services to
address the needs of our prospective customers. As a result, it is possible that
new competitors may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. It is possible that we will not be able to
compete successfully or that competitive pressures will materially and adversely
affect our business, results of operations or financial condition.

    Companies doing business on the Internet, including us, must also compete
with television, radio, cable and print media for a share of advertisers' total
advertising budgets. Advertisers may be reluctant to devote a significant
portion of their advertising budget to Internet advertising if they perceive the
Internet to be a limited or ineffective advertising medium.


WE WILL DEPEND ON A SMALL NUMBER OF KEY CUSTOMERS FOR A SIGNIFICANT PORTION OF
OUR REVENUES.



    A small number of customers have accounted for, and may in the future
account for, a significant portion of our revenues. For example, we derived
approximately 27% of our revenues for the year ended June 30, 1999 and
approximately 34% of our revenues for the quarter ended June 30, 1999 from an
agreement with LookSmart. We also derived approximately 26% of our revenues for
the year ended June 30, 1999 and approximately 28% of our revenues for the
quarter ended June 30, 1999 from an agreement with AdSmart. Our agreement with
LookSmart will expire in April 2000 and our agreement with AdSmart will expire
in February 2000. Our business, results of operations and financial condition
will be materially and adversely affected if we are unable either to renew our
material agreements or to replace such agreements with similar agreements with
new customers.


OUR BUSINESS WILL BE ADVERSELY AFFECTED IF USER DEMAND FOR OUR SERVICE EXCEEDS
OUR TELECOMMUNICATIONS AND SERVER CAPACITY.


    We may from time to time experience increases in our telecommunications
usage which exceed our then available telecommunications capacity and the
capacity of our internal servers. As a result, users may be unable to register
or log on to our service, may experience a general slow-down in their Internet
access or may be disconnected from their sessions. Excessive user demand could
also result in system failures of our internal server networks. Inaccessability,
interruptions or other limitations on the ability to access our service due to
excessive user demand or any failure of our servers to handle user traffic,
would have a material adverse effect on our business, results of operations and
financial condition.


WE MUST ENHANCE OUR INTERNAL NETWORK INFRASTRUCTURE TO MEET ADDITIONAL DEMAND OR
CHANGING USER REQUIREMENTS.

    Our internal network infrastructure is composed of a complex system of
application, database, ad and e-mail servers. Service interruptions originating
within our internal network have occurred in the past and may occur in the
future, especially when usage exceeds capacity. We will need substantial
financial, operational, and management resources to enhance our systems,
particularly our database servers and storage capabilities, to handle a large
number of users. We cannot be certain that we will be able to accomplish this on
a timely basis and at a commercially reasonable cost, or at all. If we fail to
do so, our business, results of operations and financial condition could be
materially and adversely affected.

                                       11
<PAGE>
WE MAY NOT BE SUCCESSFUL IN MANAGING OUR GROWTH.

    Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. For
us to effectively manage our rapidly growing operations, we must continue to
assimilate our new personnel and implement and improve our operational,
financial, and management information systems. We will also have to anticipate
our future telecommunications capacity needs within lead-time requirements. If
we fail to procure sufficient quantities of telecommunications products and
services, we may be unable to provide our current and future users with
acceptable service levels. We also run the risk of purchasing excessive amounts
of telecommunications products and services based on incorrect assumptions and
projections regarding increased usage. In such event, we would be required to
bear the costs of excess telecommunications capacity without commensurate
increases in revenues. We cannot assure you that we will be able to effectively
manage these and other aspects of our business. Our failure to do so would
likely have a material adverse effect on our business, results of operations and
financial condition.

IF WE ARE UNSUCCESSFUL IN ESTABLISHING AND MAINTAINING THE NETZERO BRAND, OR IF
WE INCUR EXCESSIVE EXPENSES IN PROMOTING AND MAINTAINING OUR BRAND, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD BE MATERIALLY AND
ADVERSELY AFFECTED.

    We believe that establishing and maintaining the NetZero brand is critical
to retain and expand our user base. Promotion of the NetZero brand will depend
on our success in providing high-quality Internet products and services.
However, such success will depend, in part, on the services, products and
efforts of third parties, over which we have little or no control. For instance,
if our third party telecommunication service providers fail to provide quality
service, our users' ability to access the Internet may be interrupted, which may
adversely affect the NetZero brand. If our users and advertisers do not perceive
our existing products and services as high quality, or if we introduce new
products or services or enter into new business ventures that are not favorably
received by our users and advertisers, then we will be unsuccessful in building
brand recognition and brand loyalty in the marketplace. We may also need to
devote substantial resources to create and maintain a distinct brand loyalty
among our users and to promote and maintain the NetZero brand in a very
competitive market. If we are unsuccessful in establishing or maintaining the
NetZero brand or if we incur excessive expenses in promoting and maintaining our
brand, our business, results of operation and financial condition could be
materially and adversely affected.

OUR SUCCESS DEPENDS UPON THE SUCCESSFUL DEVELOPMENT OF NEW PRODUCTS AND SERVICES
IN THE FACE OF RAPIDLY EVOLVING TECHNOLOGY.

    The market for Internet access is characterized by rapidly changing
technology, evolving industry standards, changes in user needs, and frequent new
service and product introductions. Our future success will depend, in part, on
our ability to use leading technologies effectively, to continue to develop our
technical expertise, and to enhance our existing services and develop or obtain
new services to meet changing user needs on a timely and cost-effective basis.
We may not be successful in achieving these goals.

    RELIANCE ON THIRD PARTIES.  We rely upon third parties to help us develop
technologies that enhance our current product and service offerings. If our
relationships with such third parties are impaired or terminated, then we would
have to find other developers on a timely basis or develop technology completely
on our own. We cannot predict whether we will be able to obtain the third-party
technology necessary for continued development and introduction of new and
enhanced products and services. In addition, we cannot predict whether we will
be able to obtain third-party technology on commercially reasonable terms or
replace third-party technology in the event such technology becomes unavailable,
obsolete or incompatible with future versions of our products or

                                       12
<PAGE>
services. The absence of, or any significant delay in, the replacement of
third-party technology could have a material adverse effect on our business,
results of operations and financial condition.

    RISK RELATED TO CHANGING STANDARDS.  We believe that our ability to compete
successfully will also depend upon the continued compatibility and
interoperability of our services with products and architectures offered by
various vendors. Although we intend to support emerging standards in the market
for Internet access, industry standards may not be established or, if they are
established, we may not be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. For instance, we have
been notified that Sun Microsystems is upgrading its JAVA language and that the
new version will require more memory to implement. Our software uses the JAVA
language extensively and we will have to modify our resources accordingly to
accommodate the new version. We cannot assure you that we will be able to make
such modifications, or any other modifications which may be required to adapt to
new or changing standards, in a cost-effective and timely manner, or at all. In
addition, others may develop services or technologies that will render our
services or technology noncompetitive or obsolete. Our business and prospects
could be seriously harmed if we are not able to adapt to changes in technology
and industry standards, and to develop and introduce new and enhanced products
and service offerings.

    RISK OF NEW TECHNOLOGY.  We can provide no assurances that future advances
in technology will be beneficial to, or compatible with, our business.
Furthermore, we may not successfully use new technologies effectively or adapt
our proprietary technology to user requirements or emerging industry standards
on a timely basis. Our ability to remain technologically competitive may require
substantial expenditures and lead time. If we are unable to adapt in a timely
manner to changing market conditions or user requirements, our business, results
of operations and financial condition could be materially and adversely
affected.


ERRORS IN OUR SOFTWARE, FIRMWARE OR HARDWARE MAY HARM OUR BUSINESS.



    The software, firmware and hardware used to operate and provide our services
is complex and, accordingly, may contain undetected errors or failures. We have
in the past, and may in the future, encounter errors in the software, firmware
or hardware used to operate and provide our services. This has resulted in, and
may in the future result in, a number of adverse consequences, including:



       - users being disconnected from our service or being unable to access our
         service;



       - loss of data or revenue;



       - injury to reputation; and



       - diversion of development resources.



    We cannot assure you that our software, firmware or hardware will be
error-free. If such errors exist, our business, results of operations and
financial condition could be materially and adversely affected.


WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR AVOIDING CLAIMS
THAT WE INFRINGE UPON THE PROPRIETARY RIGHTS OF OTHERS.

    Our success depends in part upon our software and related documentation. We
principally rely upon copyright, trade secret, and contract laws to protect our
proprietary technology. We cannot be certain that we have taken adequate steps
to prevent misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent

                                       13
<PAGE>
or superior to our technology. Our ability to prevent others from using our
software could materially and adversely affect our business, results of
operation and financial condition.

    In addition, since we provide our Internet access software for free, we are
extremely susceptible to various forms of unauthorized use of our software. For
instance, we have experienced, and expect to continue to experience, numerous
instances of third parties selling unauthorized copies of our software. Others
have attempted to charge fees for installing our software without our
permission. Such actions could adversely affect NetZero's brand name.

    We have permission and, in some cases, licenses from each developer of the
software that we bundle in NetZero's front-end software product for users.
Although we do not believe that the software or the trademarks we use or any of
the other elements of our business infringe on the proprietary rights of any
third parties, third parties may assert claims against us for infringement of
their proprietary rights and these claims may be successful. In addition, a
number of third-party owners of patents have claimed to hold patents that cover
various forms of online transactions or online technology. As with other online
service providers, patent claims could be asserted against us based upon our
services or technologies.

    We could incur substantial costs and diversion of management resources in
the defense of any claims relating to proprietary rights, which could materially
and adversely affect our business, results of operations and financial
condition. Parties making these claims could secure a judgment awarding
substantial damages as well as injunctive or other equitable relief that could
effectively block our ability to license our products in the United States or
abroad. Such a judgment against us could prevent us from operating our business
or have other material adverse effects on our business, results of operations
and financial condition. If a third party asserts a claim relating to
proprietary technology or information against us, we may seek licenses to the
intellectual property from the third party. We cannot be certain, however, that
third parties will extend licenses to us on commercially reasonable terms, or at
all. If we fail to obtain the necessary licenses or other rights, it could
materially and adversely affect our business, results of operations and
financial condition.

WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL REQUIRED TO GROW OUR BUSINESS.

    Our ability to grow depends significantly on our ability to expand our
operations by contracting for additional POPs and expanding our internal network
infrastructure. These expansion efforts will require significant advance capital
equipment expenditures and commitments for telecommunications capacity. If the
proceeds from this offering, cash on hand, cash generated from operations and
the amounts available under lease lines, are not sufficient to meet our cash
requirements, we will need to seek additional capital from public or private
equity or debt sources to fund our growth and operating plans and respond to
other contingencies. We may not be able to raise needed cash on terms acceptable
to us or at all. Financings may be on terms that are dilutive or potentially
dilutive to our stockholders. If sources of financing are required, but are
insufficient or unavailable, we will be required to modify our growth and
operating plans to the extent of available funding, which would have a material
adverse effect on our business, results of operations and financial condition.

OUR NETWORK AND BUSINESS IS VULNERABLE TO SECURITY BREACHES, VIRUSES AND
INAPPROPRIATE USE BY INTERNET USERS, WHICH COULD DISRUPT OUR SERVICE.

    The future success of our business will depend on the security of our
network and, in part, on the security of the network infrastructures of our
third-party telecommunications service providers, over which we have no control.
Computer viruses or problems caused by our users or other third parties, such as
the sending of excessive volumes of unsolicited bulk e-mail or "spam", could
lead to interruptions, delays, or cessation in service to our users. In
addition, the sending of "spam"

                                       14
<PAGE>
through our network could result in third parties asserting claims against us.
We cannot assure you that we would prevail in such claims and our failure to do
so could result in large judgments which would have a material and adverse
effect on our business, results of operation and financial condition. Users or
other third parties could also potentially jeopardize the security of
confidential information stored in our computer systems or our users' computer
systems by their inappropriate use of the Internet, including "hacking" or
"cracking", which could cause losses to us or our users or deter persons from
using our services. Users or third parties may also potentially expose us to
liability by "identity theft", or posing as another NetZero user. Unauthorized
access by current and former employees or others could also potentially
jeopardize the security of confidential information stored in our computer
systems and those of our users.

    We expect that our users will increasingly use the Internet for commercial
transactions in the future. Any network malfunction or security breach could
cause these transactions to be delayed, not completed at all, or completed with
compromised security. Users or others may assert claims of liability against us
as a result of any failure by us to prevent these network malfunctions and
security breaches, and may deter others from using our services, which could
cause our business prospects to suffer. Although we intend to continue using
industry-standard security measures, such measures have been circumvented in the
past, and we cannot assure you that these measures will not be circumvented in
the future. We also cannot assure you that the security measures of our
third-party network providers will be adequate. In addition, to alleviate
problems caused by computer viruses or other inappropriate uses or security
breaches, we may have to interrupt, delay, or cease service to our users, which
could have a material adverse effect on our business, results of operations and
financial condition.

    In addition, various software programs have been developed that specifically
target The ZeroPort to disable our ability to deliver advertisements to a user.
While we believe we have been able to limit the effectiveness of such attempts,
we cannot assure you that we will be able to continue to do so in the future.
Widespread adoption of this type of software would materially and adversely
affect our ability to operate our business.


WE ARE DEPENDENT ON THIRD-PARTY HARDWARE SUPPLIERS.


    The expansion of our network infrastructure and the expansion of Internet
services in general is placing, and will continue to place, a significant demand
on our suppliers, some of which have limited resources and production capacity.
From time to time, we have experienced delayed delivery from suppliers of
modems, servers, and other equipment. In particular, our servers are a critical
part of our infrastructure and we will need to add additional servers to expand
our operations. We currently purchase, and expect to continue to purchase, all
of our servers from Sun Microsystems. Since we do not have an agreement with Sun
Microsystems regarding future server purchases, we have no assurance that Sun
Microsystems will continue to supply servers to us. We may be unable to
implement our planned expansion and our users may be unable to connect to our
network if:

       - we are not able to obtain additional modems, servers and other
         equipment in a timely manner;

       - such equipment is not available on commercially acceptable terms; or

       - we are unable to develop alternative sources of supply, if required.

WE HAVE LIMITED EXPERIENCE WITH THE THIRD-PARTY SOFTWARE WE USE TO RUN OUR
OPERATIONS.

    Virtually every aspect of our operations, including finance, billing,
accounting, storage and retrieval of user data, and advertisement tracking, uses
or interfaces with a centralized software

                                       15
<PAGE>
system provided by Oracle. We have only limited experience with the operation of
this system. Difficulty with the operation of, or errors, defects or
malfunctions in the operation of this system, could result in loss of data,
erroneous overcharges or undercharges to advertising customers or disruption of
operations, any one of which could materially and adversely affect our business,
results of operations and financial condition.

FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE MATERIAL ADVERSE EFFECTS ON OUR
BUSINESS.

    A significant portion of the world's computer hardware and software has
historically used only two digits to identify the year in a date, often meaning
that the computer will fail to distinguish dates in the 21st century from dates
in the 20th century. As a result, various problems may arise from the improper
processing of dates and date-sensitive calculations by computers and other
machinery as the Year 2000 is approached and reached. These problems include
system failures or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar business activities.

    Our failure, or the failure of third parties on which we rely, to adequately
address Year 2000 readiness issues could result in an interruption, or a
failure, of our normal business activities or operations. Presently, we believe
that the primary risks that we face with regard to the Year 2000 are those
arising from third-party services or products. In particular, we depend heavily
on third party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of these network services or equipment
could cause our users and advertisers to consider seeking alternate providers or
advertising space, or cause an unmanageable burden on user service and technical
support. This, in turn, could materially and adversely affect our business,
results of operations and financial condition.

    In addition, the failure of our internal computer systems or of third-party
equipment or software to operate without Year 2000 complications could require
us to incur significant unanticipated expenses to remedy any problems and could
expose us to claims for losses incurred by our users due to such Year 2000
complications. The defense of any such claims, with or without merit, could
require us to incur substantial costs and would divert management's time and
attention, which could have a material adverse effect on our business, results
of operations and financial condition.

    Furthermore, our business depends on the continued operation of, and
widespread access to, the Internet. To the extent that the normal operation of
the Internet is disrupted by the Year 2000 issue, or if a large portion of our
users and advertisers are unable to access the Internet due to Year 2000-related
issues in connection with their own systems, our business, results of operations
and financial condition could be materially and adversely affected.

WE RELY ON A RELATIVELY NEW MANAGEMENT TEAM AND NEED ADDITIONAL PERSONNEL TO
GROW OUR BUSINESS.

    Most of our senior management team has only recently joined us. For example,
Mark Goldston, our Chief Executive Officer, joined us in March 1999, Charles
Hilliard, our Chief Financial Officer, joined us in April 1999, and Perri
Procida, our Senior Vice President, Sales, joined us in May 1999. There can be
no assurance that we will successfully assimilate our recently hired officers or
that we can successfully locate, hire, assimilate and retain qualified key
management personnel. Our business is largely dependent on the personal efforts
and abilities of our senior management and certain other key personnel. Any of
our officers or employees can terminate his or her employment relationship at
any time. The loss of these certain key employees or our inability to attract or
retain other qualified employees could seriously harm our business and
prospects. We do not carry key man life insurance on any of our key employees.

                                       16
<PAGE>
    Our future success also depends on our ability to attract, retain and
motivate highly skilled technical, managerial, editorial, merchandising,
marketing and user service personnel. We plan to dramatically hire additional
personnel in all areas of our business. Competition for such personnel is
intense, particularly in the Internet and high technology industry. As a result,
we may be unable to successfully attract, assimilate or retain qualified
personnel. We may also be unable to retain the employees we currently employ or
attract additional technical personnel. The failure to retain and attract the
necessary personnel could have a material adverse effect on our business,
results of operations and financial condition.

OUR OPERATIONS AND SERVICES ARE VULNERABLE TO NATURAL DISASTERS.

    Our operations and services depend on the extent to which our computer
equipment and the telecommunications infrastructure of our third-party network
providers is protected against damage from fire, earthquakes, power loss,
telecommunications failures, and similar events. A significant portion of our
computer equipment, including critical equipment dedicated to our Internet
access services, is located at our headquarters and at a co-location facility in
Los Angeles, California. Despite precautions taken by us and our third-party
network providers, over which we have no control, a natural disaster or other
unanticipated problems at our headquarters, network hub, or a third-party
network provider POP could cause interruptions in the services that we provide.
If disruptions occur, we may have no means of replacing these network elements
on a timely basis or at all. We do not currently maintain fully redundant or
back-up Internet services, backbone facilities or other fully redundant
computing and telecommunications facilities. Extensive or multiple interruptions
in providing users with Internet access are a primary reason for user decisions
to stop using access services. Accordingly, any disruption of our services due
to system failure could have a material and adverse effect on our business,
results of operations and financial condition. Furthermore, we do not currently
have any business disruption insurance.

IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE FUTURE ACQUISITIONS INTO OUR
OPERATIONS, THEN OUR RESULTS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.

    We evaluate acquisition opportunities on an ongoing basis and at any given
time may be engaged in discussions with respect to possible acquisitions or
other business combinations. We may seek strategic acquisitions that can
complement our current or planned business activities. Such acquisitions may not
be available at the times or on terms acceptable to us, or at all. In addition,
acquiring a business involves many risks, including:

       - potential disruption of our ongoing business and diversion of resources
         and management time;

       - unforeseen obligations or liabilities;

       - possible inability of management to maintain uniform standards,
         controls, procedures and policies;

       - difficulty assimilating the acquired operations and personnel;

       - risks of entering markets in which we have little or no direct prior
         experience;

       - potential impairment of relationships with employees or users as a
         result of changes in management; and

       - potential dilutive issuances of equity, large and immediate write-offs,
         the incurrence of debt, and amortization of goodwill or other
         intangible assets, any of which could materially or adversely affect
         our results of operations and financial condition.

                                       17
<PAGE>
    We cannot assure you that we will make any acquisitions or that we will be
able to obtain additional financing for such acquisitions, if necessary. If any
acquisitions are made, we cannot assure that we will be able to successfully
integrate the acquired business into our operations or that the acquired
business will perform as expected.


OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS AND WE MAY BE
SUBJECT TO SEASONAL AND CYCLICAL PATTERNS WHICH MAY NEGATIVELY IMPACT OUR SHARE
PRICE.



    Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including seasonality and other factors set
forth in this "Risk Factors" section. In future quarters, our operating results
may be below the expectations of public market analysts and investors and the
price of our common stock may fall. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".


                 WE FACE RISKS RELATED TO THE INTERNET INDUSTRY

WE FACE RISKS RELATING TO UNCERTAIN LEGAL LIABILITY AND GOVERNMENT REGULATION
ASSOCIATED WITH THE INTERNET.


    The law relating to the liability of Internet service providers for
information carried on, stored on, or disseminated through their networks is
evolving and no clear legal precedents have been established. In addition, the
law regarding Internet advertising, including specific URL targeting, remains
unsettled. While no one has ever filed a claim against us relating to these
matters, someone may file a claim of that type in the future. If that happens,
we may have to spend significant amounts of money to defend ourselves against
these claims and, if we are not successful in our defense, the amount of damages
that we may have to pay could be significant and we may be required to alter our
business practices. Our liability insurance may not cover potential claims
relating to the Internet services we provide or may not be adequate to indemnify
us for all liabilities that may be imposed on us. Any costs that we incur as a
result of defending these claims or the amount of liability that we may suffer
if our defense is not successful could materially and adversely affect our
business, results of operations and financial condition.


    Additionally, a number of legislative and regulatory proposals under
consideration by federal, state, local and foreign governmental organizations
may lead to laws or regulations concerning online content, user privacy,
taxation, parental consent for access by their minor children, access charges,
liability for third-party activities, bulk e-mail or "spam", encryption
standards, e-commerce, domain name registration and use, copyright infringement,
and other intellectual property issues. It is also uncertain as to how existing
laws will be applied by the judiciary to the Internet. The adoption of new laws
or the application of existing laws may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our services, increase our
cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.

    We cannot predict the impact, if any, that any future regulatory changes or
developments may have on our business, results of operations and financial
condition. Changes in the regulatory environment relating to the Internet access
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could have a material adverse effect on
our business, results of operations and financial condition.

    REGULATION OF CONTENT AND ACCESS--LAWS PROTECTING MINORS.  Prohibition and
restriction of Internet content and access could dampen the growth of Internet
use, decrease the acceptance of the Internet as a communications and commercial
medium, expose us to liability and thereby have a material adverse effect on our
business, results of operations and financial condition. A variety of

                                       18
<PAGE>
restrictions on content and access, primarily as they relate to children, have
been enacted or proposed. The Child Online Protection Act of 1998 prohibits and
imposes criminal penalties and civil liability on anyone engaged in the business
of selling or transferring, by means of the World Wide Web, material that is
harmful to minors without restricting access to such material by persons under
seventeen years of age. In addition, the Federal Telecommunications Act of 1996
imposes fines on any entity that knowingly permits any telecommunications
facility under such entity's control to be used to make obscene or indecent
material available to minors via an interactive computer service. Numerous
states have adopted or are currently considering similar types of legislation.
We cannot predict whether any claim under such federal statutes, similar state
statutes or common law will be asserted against us, or if asserted, whether it
will be successful. In addition, laws have been proposed which would require
Internet service providers to supply, at cost, filtering technologies to limit
or block the access of minors to unsuitable materials on the Internet. The
imposition of content restrictions and potential liability for materials carried
on or disseminated through our systems could require us to implement measures to
reduce our exposure to such liability. Such measures may require the expenditure
of substantial resources or the discontinuation of certain product or service
offerings. Further, the costs of defending against any such claims and potential
adverse outcomes of such claims could have a material adverse effect on our
business, results of operations and financial condition.

    LIABILITY FOR DEFAMATION, NEGLIGENCE AND INFRINGEMENT.  Because users
download and redistribute materials that are cached or replicated by us in
connection with our Internet services, claims could be made against us under
both U.S. and foreign law for defamation, negligence, copyright or trademark
infringement, or other theories based on the nature and content of such
materials. While we have attempted to obtain safe harbor protection against
claims of copyright infringement under the Digital Millenium Copyright Act of
1998, there can be no guarantee that we will prevail in any such claims. We also
could be exposed to liability with respect to the offering of third-party
content that may be accessible through our services, including links to
Web-sites maintained by our users or other third parties, or posted directly to
our Web-site, and subsequently retrieved by a third party through our services.
It is also possible that if any third-party content provided through our
services contains errors, third parties who access such material could make
claims against us for losses incurred in reliance on such information. You
should know that these types of claims have been successfully brought against
online service providers. In particular, copyright and trademark laws are
evolving both domestically and internationally, and it is uncertain how broadly
the rights provided under these laws will be applied to online environments. It
is impossible for us to determine who the potential rights holders may be with
respect to all materials available through our services.


    PRIVACY CONCERNS.  We provide users with free Internet access and other free
services in exchange for demographic information when they register with us. We
have developed and adhere to a privacy policy whereby we provide notice to users
on our Web-site concerning the types of information we collect, how the
information is used, and the extent to which such information may be disclosed
to third parties. Internet user privacy has become an issue both in the United
States and abroad. Some commentators, privacy advocates and government bodies
have recommended or taken actions to limit the use of personal profiles or other
personal information by those collecting such information, particularly as it
relates to children. For example, the Children's Online Privacy Protection Act
of 1998 requires, among other things, that online operators obtain verifiable
parental consent for the collection, use, or disclosure of personal information
from children. The Act further mandates that the Federal Trade Commission
promulgate regulations for the collection of data from children by commercial
Web-site operators. We cannot predict the exact form of the regulations that the
FTC may finally adopt. We cannot assure you that our current information
collection procedures and disclosure policies will be found to be in compliance
with existing or future laws or regulations. There can be no assurance that the
United States or foreign nations will


                                       19
<PAGE>

not adopt additional legislation to impose restrictions on the manner in which
personal information is collected, used and disclosed. Our failure to comply
with existing laws, or the adoption of new laws or regulations that require us
to change the way we conduct our business, could have a material adverse effect
on our business, results of operations and financial condition.


    TAX TREATMENT OF INTERNET AND E-COMMERCE.  The tax treatment of the Internet
and e-commerce is currently unsettled. A number of proposals have been made at
the federal, state and local levels and by certain foreign governments that
could impose taxes on the online sale of goods and services and certain other
Internet activities. Recently, the Internet Tax Information Act was signed into
law, placing a three-year moratorium on new state and local taxes on Internet
commerce. However, there can be no assurance that future laws imposing taxes or
other regulations on commerce over the Internet would not substantially impair
the growth of e-commerce and as a result have a material adverse effect on our
business, results of operations and financial condition.

    TELECOMMUNICATIONS REGULATION.  As an Internet service provider, we are not
currently directly regulated by the Federal Communications Commission or any
other agency, other than regulations applicable to businesses generally. In a
report to Congress adopted on April 10, 1998, the FCC reaffirmed that Internet
service providers should be classified as unregulated "information service
providers", rather than regulated "telecommunications providers" under the terms
of the Telecommunications Act of 1996. This finding is important because it
means that regulations that apply to telephone companies and similar carriers do
not apply to us. We also are not required to contribute a percentage of our
gross revenues to support "universal service" subsidies for local telephone
services and other public policy objectives, such as enhanced communications
systems for schools, libraries, and some health care providers. The FCC action
is also likely to discourage states from regulating Internet service providers
as telecommunications carriers or imposing similar subsidy obligations.

    Nevertheless, Internet-related regulatory policies are continuing to
develop, and it is possible that we could be exposed to regulation in the
future. For example, in the same report to Congress, the FCC stated its
intention to consider whether to regulate voice and fax telephony services
provided over the Internet as "telecommunications" even though Internet access
itself would not be regulated. We cannot predict whether the FCC will modify its
current policies against regulation of Internet service providers.

    We could also be affected by any change in the ability of our users to reach
our network through a dial-up telephone call without any additional charges. The
FCC has ruled that connections linking end users to their Internet service
providers are jurisdictionally interstate rather than local, but the FCC did not
subject such calling to the access charges that apply to traditional
telecommunications companies. Local telephone companies assess access charges to
long distance companies for the use of the local telephone network to originate
and terminate long distance calls, generally on a per-minute basis. We could be
adversely affected by any regulatory change that would result in application of
access charges to Internet service providers because this would substantially
increase the cost of using the Internet. Since the largest component of our
operating costs is comprised of telecommunications costs, any increase in such
costs would have a material adverse effect on our business, results of
operations and financial condition.

    State public utility commissions generally have declined to regulate
enhanced or information services. Some states, however, have continued to
regulate particular aspects of enhanced services in limited circumstances, such
as where they are provided by incumbent local exchange carriers that operate
telecommunications networks. Moreover, the public service commissions of some
states continue to review potential regulation of such services. We cannot
assure you that state

                                       20
<PAGE>
regulatory authorities will not seek to regulate aspects of these activities as
telecommunications services.

    WORKFORCE INVESTMENT ACT OF 1998.  Section 508 of the Workforce Investment
Act of 1998 requires that all Web-sites operated by a federal agency, as well as
those operated by anyone doing business with the federal government, modify
their Web-sites to make them accessible to those who are handicapped. There are
proposals to extend this Act to all Web-sites, which could increase our costs
and make our service less attractive to the non-handicapped.

SEASONAL TRENDS IN INTERNET USAGE AND ADVERTISING SALES MAY NEGATIVELY AFFECT
OUR BUSINESS.

    Seasonal trends could affect the advertising revenues we generate from
operating our Internet services. To the extent that our advertising revenues
depend on the amount of usage by our users, any seasonal fluctuations in
Internet usage could affect our advertising revenues during such periods of
fluctuation. In addition, the rate at which new users sign up for our services
may be lower during certain seasons and holiday periods. Because our operating
history is so limited, it is difficult for us to accurately predict these trends
and plan accordingly. Since our operating expenses are based on our expectations
of future revenues, it is possible that seasonal fluctuations could materially
and adversely affect our business, results of operations and financial
condition.

IF INTERNET USAGE DOES NOT CONTINUE TO GROW, WE MAY NOT BE ABLE TO EXECUTE OUR
BUSINESS PLAN.

    If the use of the Internet does not continue to grow or evolves in a way
that we cannot address, our business, financial condition and operating results
could be materially and adversely affected. Substantially all of our revenues
are dependent on the continued use and expansion of the Internet. Use of the
Internet has grown dramatically, but no assurance can be given of the continued
use and expansion of the Internet. A decrease in the demand for Internet
services or a reduction in the currently anticipated growth for such services
could have a material adverse effect on our business, results of operations and
financial condition. We have based our business model on certain assumptions
regarding the continued growth of use of the Internet. If these assumptions turn
out to be incorrect, our projections may be materially different than actual
results or circumstances, which could have a material adverse effect on our
business, results of operations and financial condition.

PROTECTION OF OUR DOMAIN NAMES IS UNCERTAIN.

    We currently hold the Web domain name relating to our brand, NetZero.com, as
well as numerous other related Web domain names. The acquisition and maintenance
of domain names generally is regulated by governmental agencies and their
designees. The regulation of domain names in the United States and in foreign
countries is subject to change in the near future. Such changes in the United
States are expected to include a transition from the current system to a system
which is controlled by a non-profit corporation and the creation of additional
top-level domains. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars, or modify the requirement for holding
domain names. As a result, we may be unable to acquire or maintain relevant
domain names in the countries in which we conduct, or plan to conduct, business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. Therefore,
we may be unable to prevent third parties from acquiring domain names that are
similar to, infringe upon, dilute or otherwise decrease the value of our
trademarks and other proprietary rights.

                                       21
<PAGE>
                WE ARE SUBJECT TO RISKS RELATED TO THE OFFERING

NO PUBLIC MARKET EXISTS FOR OUR COMMON STOCK.

    Prior to this offering, there has been no public market for our common stock
and we cannot be sure that an active trading market for our common stock will
develop or continue as a result of this offering. We will determine the initial
public offering price of the shares of our common stock through negotiations
with the underwriters. Please see "Underwriting" for more information.

THE CONCENTRATED CONTROL OF OUR COMPANY COULD ADVERSELY AFFECT STOCKHOLDERS.

    After this offering, our executive officers, directors and 5% stockholders,
in the aggregate, will control   % of our voting stock. As a result, these
stockholders will have significant influence and ability to control most matters
requiring board and stockholder approval, including a significant corporate
transaction like the sale of our company, a change in control or the terms of
future equity financings. Such stockholders may have interests adverse to those
of other stockholders in general, and they may use their influence to approve or
take actions which are adverse to your interests.

PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

    If you purchase common stock in this offering, you will incur immediate and
substantial dilution in the net tangible book value of the shares purchased. We
estimate this dilution to be approximately $           per share, or
approximately   % (based on an assumed initial public offering price of
$           ). Additional dilution may occur upon the exercise of outstanding
stock options.

OUR STOCK PRICE COULD FLUCTUATE SIGNIFICANTLY.

    The trading price of our common stock is likely to be volatile and could
fluctuate widely in response to factors such as the following, some of which are
beyond our control:

       -  general economic factors;

       -  changes in expectations of our future financial performance, including
           financial estimates by securities analysts and investors;

       -  changes in operating and stock price performance of other Internet and
           online companies similar to us; or

       -  future sales of our common stock.

    Domestic and international stock markets often experience significant price
and volume fluctuations. These fluctuations, as well as general economic and
political conditions unrelated to our performance, may adversely affect the
price of our common stock. In particular, following initial public offerings,
the market prices for stocks of Internet and technology-related companies often
reach levels that bear no relationship to the operating performance of these
companies. These market prices are generally not sustainable and could vary
widely. If our common stock trades to such high levels following this offering,
it could eventually experience a significant decline. Therefore, you may not be
able to resell shares of our stock at or for more than the price you paid.

SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.

    The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also might
make it difficult for us to sell securities in the future at a time and at a
price that we deem appropriate. You should read "Shares Eligible For Future

                                       22
<PAGE>
Sale" for a more detailed discussion of when and how many additional shares of
our stock may be sold after this offering.

OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF THE PROCEEDS FROM THIS
OFFERING.

    The net proceeds of this offering are estimated to be approximately
$      million (approximately $               million if the underwriters'
over-allotment option is exercised in full) at an assumed initial public
offering price of $           per share and after deducting the estimated
underwriting discount and estimated offering expenses. Our management will
retain broad discretion as to the allocation of the proceeds of this offering
and may use such proceeds in a manner in which you may not agree.

CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS COULD DETER TAKEOVER EFFORTS.

    Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. In addition, we are
subject to the provisions of Section 203 of the Delaware General Corporation
Law, as amended from time to time. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control in attempts
with respect to us and, accordingly, may discourage attempts to acquire us.

                                       23
<PAGE>
                INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

    This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects", "anticipates",
"estimates", "intends", "believes" and similar expressions are intended to
identify forward-looking statements. These statements include, but are not
limited to, statements under the captions "Risk Factors", "Use of Proceeds",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and elsewhere in this prospectus.

    These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. The
cautionary statements made in this prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
prospectus. We assume no obligation to update such forward-looking statements
publicly for any reason, or to update the reasons actual results could differ
materially from those anticipated in such forward-looking statements, even if
new information becomes available in the future.

                                       24
<PAGE>
                                USE OF PROCEEDS

    Our net proceeds from the sale of the   shares of common stock offered
hereby are estimated to be approximately $      ($      million if the
underwriters exercise their over-allotment option in full) based upon an assumed
offering price of $      per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us.

    We intend to use the net proceeds of the offering:

       - for use in expansion of our business, including additions and
         enhancements to our server and network infrastructure and the
         functionality of The ZeroPort;

       - as additional working capital; and

       - for general corporate purposes.

    As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
offering. Pending such uses, the net proceeds of the offering will generally be
invested in short-term, interest-bearing investment-grade instruments. We intend
to maintain flexibility in our use of the proceeds of this offering. The amounts
actually expended for each of the purposes listed above are at our discretion
and may vary significantly depending upon a number of factors, including the
growth of our user base, capital spending requirements and developments in the
Internet access market. Accordingly, we reserve the right to reallocate the
proceeds of this offering as we deem appropriate.

    From time to time, in the ordinary course of business, we evaluate possible
acquisitions of, or investments in, businesses, products and technologies that
are complementary to our business. A portion of the net proceeds may be used to
fund acquisitions or investments. We currently have no arrangements, agreements
or understandings, and are not engaged in active negotiations with respect to
such acquisitions or investments.

                                DIVIDEND POLICY

    We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain all available funds for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay dividends will be at the
discretion of our Board of Directors and will depend on our results of
operations, financial conditions, contractual and legal restrictions and other
factors it deems relevant. We expect that any lease financing or credit
agreements we enter into will prohibit the payment of dividends without the
lender's consent.

                                       25
<PAGE>
                                 CAPITALIZATION


    The following table sets forth our capitalization as of June 30, 1999 (a) on
an actual basis, (b) on a pro forma basis to reflect the automatic conversion of
all outstanding shares of preferred stock into shares of common stock upon the
closing of this offering and the planned reincorporation into Delaware and (c)
the pro forma information on an as adjusted basis to give effect to the receipt
of the estimated net proceeds from the sale of       shares of common stock at
an assumed initial public offering price of $      per share.


<TABLE>
<CAPTION>
                                                                                        JUNE 30, 1999
                                                                             ------------------------------------
<S>                                                                          <C>        <C>          <C>
                                                                              ACTUAL     PRO FORMA   AS ADJUSTED
                                                                             ---------  -----------  ------------

<CAPTION>
                                                                                        (IN THOUSANDS)
<S>                                                                          <C>        <C>          <C>
Cash and cash equivalents..................................................  $  24,035   $  24,035    $
                                                                             ---------  -----------  ------------
                                                                             ---------  -----------  ------------
Capital leases and notes payable, less current portion.....................  $   3,527   $   3,527    $    3,527
Redeemable convertible preferred stock, no-par value; actual-- 19,231,000
  shares authorized, 19,230,000 shares issued and outstanding; pro forma
  and pro forma as adjusted--no shares authorized, issued or
  outstanding..............................................................      2,140          --            --
Stockholders' equity:
Convertible preferred stock, $0.001 par value; actual--55,769,000 shares
  authorized, 45,182,000 shares issued and outstanding; pro forma and pro
  forma as adjusted--10,000,000 shares authorized; no shares issued and
  outstanding..............................................................     44,720          --            --
Common stock, $0.001 par value; actual--150,000,000 shares authorized,
  28,624,000 shares issued and outstanding; pro-forma--500,000,000 shares
  authorized, 93,036,000 shares issued and outstanding; pro forma as
  adjusted--500,000,000 shares authorized,      shares issued and
  outstanding..............................................................      1,352          93
Additional paid-in capital.................................................      7,888      56,007
Notes receivable from stockholders.........................................     (1,029)     (1,029)       (1,029)
Deferred stock compensation................................................     (6,732)     (6,732)       (6,732)
Accumulated deficit........................................................    (15,245)    (15,245)      (15,245)
                                                                             ---------  -----------  ------------
Total stockholders' equity.................................................     30,954      33,094
                                                                             ---------  -----------  ------------
Total capitalization.......................................................  $  36,621   $  36,621    $
                                                                             ---------  -----------  ------------
                                                                             ---------  -----------  ------------
</TABLE>


                                       26
<PAGE>
                                    DILUTION


    Our pro forma net tangible book value as of June 30, 1999 was approximately
$33.1 million, or $0.36 per share. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities divided by
the number of shares of common stock outstanding as of June 30, 1999 after
giving pro forma effect to the automatic conversion of all outstanding shares of
preferred stock. After giving effect to our sale of       shares of common stock
offered by this prospectus at an assumed initial public offering price of
$         per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of as of June 30, 1999 would have been $      million, or $      per
share. This represents an immediate increase in pro forma net tangible book
value of $         per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $         per share to investors
purchasing common stock in this offering.


    The following table illustrates this per share dilution:


<TABLE>
<S>                                                                     <C>        <C>
Assumed initial public offering price per share.......................             $
  Pro forma net tangible book value per share as of June 30, 1999.....  $    0.36
  Increase per share attributable to new investors....................
                                                                        ---------
Pro forma net tangible book value per share after this offering.......
                                                                                   ---------
Dilution per share to new investors...................................             $
                                                                                   ---------
                                                                                   ---------
</TABLE>



    The following table summarizes, on a pro forma basis as of June 30, 1999,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by new investors, assuming an initial public offering price of
$               per share and before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us:



<TABLE>
<CAPTION>
                                                        SHARES PURCHASED           TOTAL CONSIDERATION        AVERAGE
                                                   --------------------------  ---------------------------     PRICE
                                                      NUMBER        PERCENT        AMOUNT        PERCENT     PER SHARE
                                                   -------------  -----------  --------------  -----------  -----------
<S>                                                <C>            <C>          <C>             <C>          <C>
Existing stockholders............................     93,036,000            %  $   48,212,000            %   $    0.52
New investors....................................
                                                   -------------         ---   --------------         ---
Total............................................                        100%  $                      100%
                                                   -------------         ---   --------------         ---
                                                   -------------         ---   --------------         ---
</TABLE>



    The foregoing table gives pro forma effect to the automatic conversion of
all outstanding shares of preferred stock as if it had occurred at June 30,
1999, and assumes no exercise of the underwriters' over-allotment option or
shares underlying outstanding options. As of June 30, 1999, options to purchase
3,497,100 shares of common stock were outstanding at a weighted average exercise
price of $0.69 per share. To the extent that these options are exercised, new
investors will experience further dilution. See "Description of Capital Stock"
and note 6 of the notes to our financial statements.


                                       27
<PAGE>
                            SELECTED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


    You should read the following selected financial data in conjunction with
the financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. The statement of operations data for the period from July
21, 1997 (inception) through June 30, 1998, the year ended June 30, 1999, and
the balance sheet data as of June 30, 1998 and 1999 are derived from the audited
financial statements of NetZero, Inc. included elsewhere in this prospectus. The
statement of operations data for the three months ended September 30, 1998,
December 31, 1998, March 31, 1999 and June 30, 1999, have been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of the
financial position and results of operations for the period.



<TABLE>
<CAPTION>
                                JULY 21, 1997                    THREE MONTHS ENDED                       YEAR
                                 (INCEPTION)   ------------------------------------------------------     ENDED
                                   THROUGH     SEPTEMBER 30,    DECEMBER 31,    MARCH 31,   JUNE 30,    JUNE 30,
                                JUNE 30, 1998       1998            1998          1999        1999        1999
                                -------------  --------------  --------------  -----------  ---------  -----------
<S>                             <C>            <C>             <C>             <C>          <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................   $        --    $         --    $        122    $     781   $   3,731   $   4,634
Cost of revenues..............            --               6           1,064        3,979       7,377      12,426
                                -------------  --------------  --------------  -----------  ---------  -----------
Gross loss....................            --              (6)           (942)      (3,198)     (3,646)     (7,792)
Operating expenses:
  Sales and marketing.........            --              11             138          290         437         876
  Product development.........            --               8             210          292         472         982
  General and
    administrative............            19              77             429        1,114       2,687       4,307
  Stock-based compensation....            --             110              46          188         812       1,156
  Depreciation and
    amortization..............            --               5              24           43         150         222
                                -------------  --------------  --------------  -----------  ---------  -----------
      Total operating
        expenses..............            19             211             847        1,927       4,558       7,543
Loss from operations..........           (19)           (217)         (1,789)      (5,125)     (8,204)    (15,335)
Interest and other income
  (expense), net..............            (6)             --              (6)          30          91         115
                                -------------  --------------  --------------  -----------  ---------  -----------
Net loss......................   $       (25)   $       (217)   $     (1,795)   $  (5,095)  $  (8,113)  $ (15,220)
                                -------------  --------------  --------------  -----------  ---------  -----------
                                -------------  --------------  --------------  -----------  ---------  -----------
Basic and diluted net loss per
  share.......................   $        --    $      (0.02)   $      (0.22)   $   (0.50)  $   (0.71)  $   (1.41)
Shares used to calculate basic
  and diluted net loss per
  share.......................        15,000          13,451           8,025       10,277      11,413      10,792
Pro forma basic and diluted
  net loss per share..........                                                                          $   (0.44)
Shares outstanding used in pro
  forma basic and diluted net
  loss per share
  calculation.................                                                                             34,800
</TABLE>



<TABLE>
<CAPTION>
                                                                                                  AS OF JUNE 30,
                                                                                                 1998       1999
                                                                                               ---------  ---------
<S>                                                                                            <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................  $       1  $  24,035
Working capital (deficit)....................................................................        (23)    16,097
Total assets.................................................................................          1     47,501
Capital leases and notes payable, less current portion.......................................         --      3,527
Redeemable convertible preferred stock.......................................................         --      2,140
Deferred stock compensation..................................................................         --      6,732
Total stockholders' equity (deficit).........................................................        (23)    30,954
</TABLE>


                                       28
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. SEE "INFORMATION REGARDING
FORWARD-LOOKING STATEMENTS". THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ALSO SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

    NetZero is pioneering a new Internet service model that provides consumers
with free and unlimited Internet access while offering online advertisers a
highly effective way to reach those users through precise targeting technology.

    We were incorporated in July 1997 and launched our service in October 1998.
For the period from inception until October 1998, we had no revenues and our
operating activities related primarily to the development of our proprietary
zCast software. Since launching our service, we have continued these operating
activities and have also focused on developing changes to The ZeroPort to
enhance its features and functionality; implementing the zCast Server network
cell infrastructure; hiring personnel; contracting with third-party
communications providers; selling advertising; marketing our service to
potential sponsors of placements on The ZeroPort and pursuing distribution
arrangements such as those with Compaq and Xerox. We have spent, and will
continue to spend, significant resources on these activities.


    REVENUES.  We intend to generate revenues through banner advertisements,
referrals of our users to other Web-sites, sponsorships on The ZeroPort,
performance-based agreements and distribution arrangements. Historically, The
ZeroPort has been limited in its capabilities and our revenue has been generated
primarily from non-targeted banner advertising, a majority of which has been
sold through third parties such as Adsmart. We anticipate that a significant
portion of our banner inventory will be sold in a similar manner in the future.
We recently began generating revenues from selling targeted banner
advertisements and by referring our users to our co-branded start page with
Looksmart.



    We expect to release a substantially upgraded version of The ZeroPort in the
near future that will expand its features and offer additional ways to generate
revenues, including selling exclusive and non-exclusive sponsorships of buttons
and marquee space as well as sponsorships of a customizable ticker tape and
browse window on The ZeroPort. Our advertising revenues could be derived from a
variety of fee arrangements, including fixed fees or fees based on the number of
users referred to the advertiser's Web-site, the number of ads delivered, other
performance criteria, or any combination of the foregoing. For example, we
recently entered into agreements with eBay and FiNet for sponsorship of certain
services offered through drop-down menus on The ZeroPort. We have also entered
into an agreement with Cisco for sponsored advertising on The ZeroPort and
agreements with Priceline.com and Ameritrade to link and refer our users to
their Web-sites from within The ZeroPort. Each of these agreements involve fee
arrangements based on performance criteria. We intend to enter into similar
arrangements with other entities. However, since we have limited experience
marketing these types of arrangements, and have no actual experience with
respect to the performance of such arrangements, we cannot predict the degree to
which they will become part of our revenue mix.



    We anticipate that we will receive higher advertising rates for targeted
advertisements and sponsorships than for non-targeted banner advertisements.
However, we have limited experience in selling and managing these types of
arrangements and there can be no assurance that we will successfully sell all of
the various advertising services we intend to offer or that such arrangements
will generate significant revenues or higher advertising rates. In addition, the
growth in our user base has resulted, and may result in the future, in
situations where our advertising inventory


                                       29
<PAGE>

capacity has increased faster than our ability to sell such inventory at desired
rates. While we rely on agreements with third parties to sell a significant
portion of our banner advertisements, such agreements are short term in nature
and are subject to termination and pricing pressures. Due to increased costs
associated with more users and greater inventory, our failure to renew such
agreements or the failure of the combination of such agreements and the efforts
of our in-house sales force to sell increased inventory at reasonable rates may
materially and adversely affect our operating results. In addition, our success
with performance-based fee arrangements may depend on our ability to effectively
target users. We are in the early stages of that process and may encounter
technical and other limitations on our ability to successfully target users,
including limitations associated with privacy concerns. We cannot assure you
that we will be able to achieve anticipated revenues. In addition, while we
believe that the growth of our user base will enhance the value of our services
to our advertising customers, there can be no assurance that we will adequately
perform under these arrangements or that we will be able to replace such
arrangements on comparable terms, if at all. The failure to generate significant
sponsorships on The ZeroPort or the failure to replace significant contracts
when they expire could adversely affect our revenues and results of operations.


    Banner advertising, sponsorship and performance-based revenues are
recognized ratably in the periods in which the advertisement or sponsorship
placement is displayed or in which the performance criteria are achieved,
provided that no significant NetZero obligations remain and collection of the
resulting receivable is probable. To the extent banner delivery commitments or
performance criteria are not met, NetZero either loses the right to such
revenues or defers the corresponding revenues until the remaining ads are
delivered or performance criteria are achieved.


    Referral revenues are recognized as referrals are made to sponsors'
Web-sites, provided that no significant NetZero obligations remain and
collection of the related receivable is probable.



    Our advertising revenues are subject to the effects of seasonality.
Advertisers typically purchase impressions on a forward basis. If purchasing
patterns or timing of purchasing by advertisers were to change, our operations
and quarter to quarter comparisons could be materially affected.



    Our revenues will be significantly affected by our ability to grow our user
base. If we are unable to grow our user base or our user demographics are not
attractive to advertisers, we may be unable to attract significant commitments
from advertisers or satisfy our agreements with our advertisers relating to
performance criteria.



    We do not currently anticipate that inflation will have a material impact on
our results of operations.


    COST OF REVENUES.  Cost of revenues consists of telecommunications costs,
allocated depreciation of our network equipment, allocated occupancy costs and
personnel and related expenses of our network. We intend to expend significant
amounts of capital and to make significant commitments to future
telecommunications capabilities with the expectation of a rapidly increasing
subscriber base and anticipated usage patterns. Our failure to accurately
forecast our users' needs could result in significant overcapacity which would
adversely impact our result of operations. Conversely, underforecasting usage
could adversely impact the ability of our users to receive adequate service and
adversely impact our reputation and our ability to maintain or increase our
subscriber base. We have a limited history in forecasting our users'
requirements and there can be no assurance that we will be able to accurately
forecast such requirements in the future.

    SALES AND MARKETING.  Sales and marketing expenses include salaries, sales
commissions, benefits, travel and related expenses for our direct sales force,
fees paid to third-party advertising sales agents, marketing, and sales support
functions. In an effort to increase our revenues, user base and brand awareness,
we expect to increase significantly the amount of spending on sales

                                       30
<PAGE>
and marketing over the next year. Marketing costs associated with increasing our
user base, which to date have been minimal, are expensed in the period incurred.

    PRODUCT DEVELOPMENT.  Product development costs include expenses for the
development of new or improved technologies designed to enhance the performance
of our service, including the salaries and related expenses for our software
engineering department, as well as costs for contracted services, content,
facilities and equipment. We believe that a significant level of product
development activity is necessary for our business and intend to increase
significantly the amount of spending to fund this activity.


    GENERAL AND ADMINISTRATIVE.  General and administrative expenses include
salaries, benefits and expenses for our executive, finance, legal and human
resources personnel. In addition, general and administrative expenses include
fees for professional services and occupancy costs. We expect general and
administrative expenses to increase in absolute dollars as we continue to expand
our administrative infrastructure to support the anticipated growth of our
business, including costs associated with being a public company.



    STOCK-BASED COMPENSATION.  In connection with the grant of stock options to
employees and the imposition of restrictions on shares of stock held by certain
founders during the year ended June 30, 1999, we recorded aggregate deferred
compensation of approximately $7.8 million. This deferred compensation
represented the difference between the deemed fair value of our common stock for
accounting purposes and the exercise price of these options or shares at the
date of grant. Deferred compensation is presented as a reduction of
stockholders' equity and amortized over the vesting period of applicable
options, generally four years.



RESULTS OF OPERATIONS



    The following table sets forth selected statement of operations data as a
percentage of total revenues:



<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED                 YEAR
                                                               ----------------------------------------      ENDED
                                                                DECEMBER 31,    MARCH 31,    JUNE 30,      JUNE 30,
                                                                    1998          1999         1999          1999
                                                               --------------  -----------  -----------  -------------
<S>                                                            <C>             <C>          <C>          <C>
AS A PERCENTAGE OF REVENUES
Revenues.....................................................           100%          100%         100%          100%
Cost of revenues.............................................           872           509          198           268
                                                                    -------         -----        -----         -----
Gross loss...................................................          (772)         (409)         (98)         (168)
Operating expenses:
Sales and marketing..........................................           113            37           12            19
Product development..........................................           172            37           12            21
General and administrative...................................           351           143           72            93
Stock-based compensation.....................................            38            24           22            25
Depreciation and amortization................................            20             6            4             5
                                                                    -------         -----        -----         -----
    Total operating expenses.................................           694           247          122           163
Loss from operations.........................................        (1,466)         (656)        (220)         (331)
Interest and other income (expense), net.....................            (5)            4            3             3
                                                                    -------         -----        -----         -----
Net loss.....................................................        (1,471)%        (652)%       (217)%        (328)%
                                                                    -------         -----        -----         -----
                                                                    -------         -----        -----         -----
</TABLE>



    THREE MONTHS ENDED JUNE 30, 1999



    REVENUES.  Revenues for the quarter ended June 30, 1999 were $3.7 million,
which represented an increase of $3.0 million, or 378%, from $781,000 for the
quarter ended March 31, 1999. The increase was primarily attributable to
revenues generated from our start page agreement with Looksmart, as well as
increased sales of banner advertisements, primarily through our third-


                                       31
<PAGE>

party sales force. In particular, we generated approximately $1.3 million, or
34% of our total revenues for the quarter ended June 30, 1999, from our start
page agreement with Looksmart, which we entered into in April 1999. We also
generated approximately $1.0 million, or 28% of our total revenues for the
quarter ended June 30, 1999, from banner advertisements sold through Adsmart.
This amount represented an increase of approximately $856,000 from the $178,000
of revenues generated from Adsmart for the quarter ended March 31, 1999, which
represented approximately 23% of our total revenues for that period.



    COST OF REVENUES.  Cost of revenues for the quarter ended June 30, 1999 was
$7.4 million, which represented an increase of $3.4 million, or 85%, from $4.0
million for the quarter ended March 31, 1999. The increase was primarily
attributable to increased telecommunications expense related to the growth in
our user base and depreciation related to our network costs.



    SALES AND MARKETING.  Sales and marketing expenses for the quarter ended
June 30, 1999 were $437,000, which represented an increase of $147,000, or 51%,
from $290,000 for the quarter ended March 31, 1999. The increase was primarily
due to the hiring of additional direct sales force personnel.



    PRODUCT DEVELOPMENT.  Product development expenses for the quarter ended
June 30, 1999 were $472,000, which represented an increase of $180,000, or 62%,
from $292,000 for the quarter ended March 31, 1999. The increase was primarily
due to the hiring of additional software engineers.



    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
quarter ended June 30, 1999 were $2.7 million, which represented an increase of
$1.6 million, or 141%, from $1.1 million for the quarter ended March 31, 1999.
The increase was primarily due to the hiring of additional administrative
personnel and increased professional and consulting expense.



    STOCK-BASED COMPENSATION.  In the year ended June 30, 1999, we recorded
total deferred compensation of $7.8 million in connection with stock option
grants and restricted founders' shares. We are amortizing this amount over the
vesting periods of the applicable options or shares, resulting in an expense of
$1.1 million for the year ended June 30, 1999. Stock-based compensation for the
year ended June 30, 1999 also include a charge for $67,000 related to the
issuance of options to purchase shares of Series A and B redeemable convertible
preferred stock.



    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for the
quarter ended June 30, 1999 was $150,000, which represented an increase of
$107,000, or 249%, from $43,000 for the quarter ended March 31, 1999. The
increase was primarily attributable to the purchase of fixed assets to be used
in the business.



    INTEREST AND OTHER INCOME (EXPENSE), NET.  Interest income consists of
earnings on our cash and cash equivalents. Interest expense consists primarily
of interest expense on capital equipment leases. Interest income, net, for the
quarter ended June 30, 1999 was $91,000, which represented an increase of
$61,000 from net interest income of $30,000 in the quarter ended March 31, 1999.
The increase was primarily attributable to interest on the $33.2 million in
proceeds from our Series D preferred stock financing in May 1999.



    INCOME TAXES.  As a result of operating losses and our inability to
recognize a benefit from our deferred tax assets, we have not recorded a
provision for income tax for the fiscal year ended June 30, 1999. We have
provided a full valuation allowance on our deferred tax assets, consisting
primarily of net operating loss carry-forwards of $5.9 million, because of
uncertainty regarding their realizability.


                                       32
<PAGE>

    THREE MONTHS ENDED MARCH 31, 1999


    REVENUES.  Revenues for the quarter ended March 31, 1999 were $781,000,
which represented an increase of $659,000, or 540%, from $122,000 for the
quarter ended December 31, 1998. The increase was primarily attributable to
increased sales of banner advertisements.

    COST OF REVENUES.  Cost of revenues for the quarter ended March 31, 1999 was
$4.0 million, which represented an increase of $2.9 million, or 274%, from $1.1
million for the quarter ended December 31, 1998. The increase was primarily
attributable to increased telecommunications expense related to the growth in
our user base.


    SALES AND MARKETING.  Sales and marketing expenses for the quarter ended
March 31, 1999 were $290,000, which represented an increase of $152,000, or
110%, from $138,000 for the quarter ended December 31, 1998. The increase was
due to the hiring of additional direct sales force personnel.



    PRODUCT DEVELOPMENT.  Product development expenses for the quarter ended
March 31, 1999 were $292,000, which represented an increase of $82,000, or 39%,
from $210,000 for the quarter ended December 31, 1998. The increase was due to
the hiring of additional software engineers.



    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
quarter ended March 31, 1999 were $1.1 million, which represented an increase of
$685,000, or 160%, from $429,000 for the quarter ended December 31, 1998. The
increase was primarily due to the hiring of additional employees, including Mark
Goldston, our Chief Executive Officer.



    STOCK-BASED COMPENSATION.  In the nine months ended March 31, 1999, we
recorded total deferred compensation of $5.0 million in connection with stock
option grants and restricted founders' shares. We are amortizing this amount
over the vesting periods of the applicable options or shares, resulting in
expense of $277,000 for the nine months ended March 31, 1999. Stock-based
compensation in the nine months ended March 31, 1999 also include a charge for
$67,000 related to the issuance of options on the Series A and B redeemable
convertible preferred stock.



    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for the
quarter ended March 31, 1999 was $43,000, which represented an increase of
$19,000, or 79%, from $24,000 for the quarter ended December 31, 1998. The
increase was due primarily to the purchase of fixed assets to be used in the
business.



    INTEREST AND OTHER INCOME (EXPENSE), NET.  Interest income consists of
earnings on our cash and cash equivalents. Interest expense consists primarily
of interest expense on capital equipment leases. Interest income, net, for the
quarter ended March 31, 1999 was $30,000, which represented an increase of
$36,000 from net interest expense of $6,000 in the quarter ended December 31,
1998. The increase was primarily attributable to interest on the $11.4 million
in proceeds from our Series C preferred stock financing in February 1999.


    INCOME TAXES.  As a result of operating losses and our inability to
recognize a benefit from our deferred tax assets, we have not recorded a
provision for income tax for the nine months ended March 31, 1999. We have
provided a full valuation allowance on our deferred tax assets, consisting
primarily of net operating loss carry-forwards, because of uncertainty regarding
their realizability.


    PERIOD FROM JULY 21, 1997 (INCEPTION) THROUGH JUNE 30, 1998



    NetZero began its business operations in October 1998, and as a result,
operating results for the year ended June 30, 1998 are not meaningful or
material.


                                       33
<PAGE>

FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION



    Our operating results may fluctuate substantially in the future as a result
of a variety of factors, many of which are outside of our control, including
those discussed elsewhere in this prospectus. We plan to significantly increase
our operating expenses and capital expenditures to expand our sales and
marketing efforts, promote the NetZero brand, continue to enhance the features
and functionality of The ZeroPort, upgrade our internal network infrastructure,
pursue new distribution channels and hire new personnel across all levels of our
organization. We determine our operating expenses largely on the basis of
anticipated growth in our revenues and certain of our expenses are fixed in the
short term. There are risks associated with the timing and achievement of
revenue targets due to a variety of factors, and there can be no assurance that
revenues will increase commensurately with expenses. We believe that our
expenses will significantly exceed our revenues for the foreseeable future. As a
result of these and other factors, our operating results may vary substantially
from quarter to quarter. See "Risk Factors" for a discussion of some of the
factors which could lead to substantial operating losses.



    In addition, seasonal trends could affect the revenues we generate. To the
extent that our revenues depend on the amount of usage by our users, any
seasonal fluctuations in Internet usage could affect our revenues during such
periods of fluctuation. We anticipate that user traffic levels will be impacted
by the summer and year-end vacation and holiday periods. Moreover, the rate at
which new users sign up for our services may be related to gifts or purchases of
PCs, which typically increase during the fourth quarter as a result of the
holiday season and may decline during other periods. As a result, new user
registration may be subject to seasonality. However, because our operating
history is so limited, it is difficult for us to accurately predict these trends
and plan accordingly. Since our operating expenses are based on our expectations
of future revenues, it is possible that seasonal fluctuations could materially
and adversely affect our business, results of operations and financial
condition.


    Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of operating results are not necessarily a good indication of future
performance.

LIQUIDITY AND CAPITAL RESOURCES


    Since our inception, we have financed our operations primarily through the
private placement of equity securities, raising $46.9 million through June 1999.
At June 30, 1999 we had $24.0 million in cash and cash equivalents.



    Net cash used for our operating activities was $9.4 million for the year
ended June 30, 1999. Net cash used for operating activities consisted primarily
of net operating losses and increases in accounts receivable and restricted cash
balances, which were partially offset by increases in depreciation, stock-based
compensation, accounts payable and deferred revenue.



    Net cash used for our investing activities was $13.4 million for the year
ended June 30, 1999. Net cash used for investing activities consisted primarily
of capital expenditures for computer equipment, purchased software, office
equipment and leasehold improvements. As our operations expand, we anticipate
that our planned purchases of capital equipment will require significant
additional expenditures over the next 12 months.



    Net cash provided by our financing activities was $46.8 million for the year
ended June 30, 1999. Net cash provided by financing activities was principally
attributable to the private sale of convertible preferred stock.



    As of June 30, 1999, our principal commitments consisted of office and
equipment leases. Future minimum cash payments under these non-cancelable
commitments are $18.1 million through the year 2009.



    We currently anticipate that our existing cash and cash equivalents, the net
proceeds from this offering, proceeds from equipment leases and any cash
generated from operations will be sufficient


                                       34
<PAGE>
to fund our operating activities, capital expenditures and other obligations
through at least the next 12 months. However, we may need to raise additional
funds in order to fund more rapid expansion, to expand our marketing activities,
to develop new or enhance existing services or products, to respond to
competitive pressures or to acquire complementary services, businesses or
technologies. If we are not successful in generating sufficient cash flow from
operations, we may need to raise additional capital through public or private
financings, strategic relationships or other arrangements. This additional
funding, if needed, might not be available on terms acceptable to us, or at all.
Our failure to raise sufficient capital when needed could have a material
adverse effect on our business, results of operations and financial condition.
If additional funds were raised through the issuance of equity securities, the
percentage of stock owned by our then-current stockholders would be reduced.
Furthermore, such equity securities might have rights, preferences or privileges
senior to those of our common stock.

YEAR 2000

    Many existing computer systems and software are coded to accept only two
digit entries in the date code field and cannot distinguish 21st century dates
from 20th century dates. If not corrected, there could be system failures or
miscalculations causing disruptions of operations, including, among other
things, an inability to process transactions or engage in normal business
activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced to comply with these "Year 2000" requirements.

    OUR STATE OF READINESS


    We are currently implementing the following assessment and processes in an
effort to assess and remedy any Year 2000 issues which could impact our
operations:



    Phase I: Assessment of Operations (In process--estimated completion in
August 1999);



    Phase II: Prepare Formal Test Plan (In process--estimated completion in
August 1999);



    Phase III: Implement Test (In process--estimated completion in September
1999); and



    Phase IV: Remediation of Year 2000 issues (In process--estimated completion
in October 1999).



    While we have not completed our formal assessment of the impact that the
Year 2000 problem may have on our operations, we believe the following four
distinct areas of our operations may be affected by the Year 2000 problem:



    INTERNALLY DEVELOPED SOFTWARE.  We have internally developed a substantial
portion of the systems and software that we use to operate and monitor our
online operations. We designed and developed these systems and software to be
Year 2000 compliant. Based upon our assessment and testing to date, we believe
that our internally developed systems and software are Year 2000 compliant. We
plan to complete testing of our internal systems and software by the end of
September 1999.



    THIRD-PARTY HARDWARE AND SOFTWARE SUPPLIERS.  We use third-party equipment
and software and as a result, our ability to address Year 2000 issues is to a
large extent dependent upon the Year 2000 readiness of these third parties'
hardware and software products. These products include servers manufactured by
Sun Microsystems, Network equipment manufactured by Cisco, database management,
financial application and other software licensed from Oracle, our advertisement
server software from NetGravity, data storage equipment from EMC, and JAVA, a
programming language licensed from Sun Microsystems that we use to implement
most of our internally developed software. We have reviewed documentation on
Year 2000 compliance prepared by most of the third parties from whom we have
purchased any hardware and software products. We intend to complete our
assessment of these parties' products by the end of August 1999. Based upon our
review of such documentation and the fact that we either purchased the most
current product


                                       35
<PAGE>

versions available from these third parties or installed the latest patches or
upgrades available, we believe these applications are Year 2000 compliant.



    TELECOMMUNICATIONS CARRIERS.  We are entirely dependent on our
telecommunications carriers to provide access between their POPs and our
network. We have initiated discussions with all of our telecommunications
carriers to determine the extent to which we are vulnerable to those third
parties' Year 2000 issues. We have obtained Year 2000 readiness disclosure
statements from some of these carriers which confirm that their systems are Year
2000 compliant. We are following up with our remaining telecommunications
suppliers and plan to receive similar Year 2000 disclosure statements from them
by the end of August 1999. In addition, we believe that several of our
telecommunications carriers have conducted Year 2000 compliance checks as a part
of their standard disaster recovery simulations. We expect to resolve any
significant Year 2000 issues with our telecommunications carriers; however, in
the event they do not achieve Year 2000 compliance, we may have to seek
alternate suppliers of telecommunications services.



    NON-IT SYSTEMS.  Our non-information technology systems, such as heating and
air conditioning, security systems and other embedded technology, may be subject
to Year 2000 risks. We have obtained Year 2000 compliance statements from most
of the manufacturers of our non-IT systems, all of which were placed in service
in 1999. In addition, based on our assessment to date, we believe that these
systems are Year 2000 compliant. We plan to complete our assessment and testing
of these systems by the end of September 1999.


    THE COSTS OF ADDRESSING OUR YEAR 2000 ISSUES

    To date, we have not incurred any material expense in connection with
identifying, evaluating and remediating Year 2000 compliance issues. We believe
that substantially all of the expense that we will incur in the future relating
to the Year 2000 problem will be costs associated with time spent by our
employees in the evaluation process and Year 2000 compliance in general. We do
not expect the total costs of our Year 2000 compliance efforts to be material.
However, if these costs are substantially higher than we anticipate, they could
have a material adverse effect on our business.

    THE RISKS ASSOCIATED WITH OUR YEAR 2000 ISSUES

    If Year 2000 issues prevent our users from accessing the Internet, our
business and operations will suffer. Any failure of our systems and our
communications infrastructure with respect to the Year 2000 problem could result
in:

       - increased user turnover and corresponding loss of advertising revenues
         resulting from decreased impressions; or

       - increased allocation of our resources to address Year 2000 problems
         without additional revenues commensurate with such dedication of
         resources.

    OUR CONTINGENCY PLANS


    We have not completed our contingency plan with respect to Year 2000 risks.
However, we believe our worst case scenario is the interruption of our business
resulting from Year 2000 failure of our telecommunications carriers which
provide access between their POPs and our internal network. We plan on
completing our contingency plan in the near future.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use", which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. We expect that the adoption of SOP 98-1
will not have a material impact on our financial position, results of

                                       36
<PAGE>
operations or cash flows. We will be required to implement SOP No. 98-1 in the
first quarter of fiscal 2000.

    In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities". SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
We expect that the adoption of SOP No. 98-5 will not have a material impact on
our financial position, results of operations or cash flows. We will be required
to implement SOP No. 98-1 in the first quarter of fiscal 2000.

    In June 1998, The Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". The statement
requires the recognition of all derivatives as either assets or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. Because we do not currently
hold any derivative instruments or engage in hedging activities, the impact of
the adoption of SFAS No. 133 is not currently expected to have a material impact
on our business, results of operations or financial condition. We will be
required to implement SFAS No. 133 in the first quarter of fiscal 2001.

                                       37
<PAGE>
                                    BUSINESS

NETZERO

    NetZero is pioneering a new Internet service model that provides consumers
with free and easy access to the Internet while offering online advertisers a
highly effective way to reach those users through our proprietary targeting
technology. We offer users a simple and compelling proposition--free and
unlimited Internet access, as well as free e-mail and navigational tools to
enhance their online experience. The value of NetZero's proposition is evidenced
by our growth; between our October 1998 launch and June 30, 1999, approximately
1.17 million users registered for our service. During June 1999, approximately
613,000 of these users accessed our service and were delivered over 830 million
advertising impressions. Our services are offered in over 1,100 cities
nationwide.

    When users access the Internet through our service, we display a small
window on their computer screen called The ZeroPort which is always visible
while they are online, regardless of where they navigate. Users can move The
ZeroPort to different locations on their screens but cannot close it or reduce
its size. The ZeroPort displays advertisements, advertiser-sponsored buttons,
icons and drop-down menus. By clicking on The ZeroPort, users can navigate
directly to sites and services such as news, sports, finance and shopping. We
generate revenues by selling advertisements and sponsorships on The ZeroPort. We
plan to expand our revenue sources to include fees from advertisers and
merchants when our users subscribe for services, purchase products or satisfy
other performance criteria.

    Our service is based on two key principles. First, we provide users free
Internet access and other free services. We obtain demographic information when
users register for our services which we supplement with our ability to track
their online activity. Second, we offer advertisers access to a large audience
and enable them to target messages, based on user demographics and online
behavior, for extended periods of time. Our model combines certain of the
characteristics of network television--where a mass audience has free access to
an advertising-supported medium-- with the targeting advantages of direct
marketing. We believe NetZero is positioned to redefine the Internet access
model and the way products and services are marketed online.

INDUSTRY BACKGROUND

    GROWTH OF THE INTERNET

    The emergence and wide acceptance of the Internet has fundamentally changed
how millions of people worldwide share information, communicate and conduct
business. International Data Corporation (IDC) estimates that the number of
Internet users in the United States will increase from approximately 63 million
in 1998 to approximately 177 million by the end of 2003. The growth in Internet
usage is being driven by a number of factors, including:

       - a large and growing installed base of personal computers;

       - easier, faster, and more reliable access to the Internet;

       - improvements in network security, infrastructure and bandwidth;

       - the rapidly expanding availability of online content and commerce
         sites; and

       - an increasing amount of offline advertising promoting the Internet.

    TRADITIONAL INTERNET ACCESS

    There are more than 6,000 ISPs in the United States today, varying widely in
geographic coverage, user focus and the nature and quality of services provided
to users. With the exception of

                                       38
<PAGE>
a few large providers, the vast majority of ISPs do not offer branded nationwide
coverage. A number of ISPs are beginning to supplement their basic access with
services such as e-commerce and telecommunications.

    ISPs generally charge users monthly access fees and fees for additional
services, such as Web hosting. IDC estimates that users spend an average of
approximately $250 per year for Internet access. Telecommunications costs
associated with providing dial-up Internet access have declined in recent years
with the emergence of wholesale providers that resell capacity to ISPs. These
providers have built and continue to build networks on a large scale and are
able to spread the cost of their networks over multiple ISPs. Though access fees
charged to users have declined over time, they have not fallen as quickly as the
costs of personal computers or telecommunications. We believe that while users
are generally focused on speed and reliability as they evaluate Internet access
services, they are also increasingly focusing on cost, particularly as their
other computing costs decline and since the rest of their online experience is
generally free.

    GROWTH OF INTERNET ADVERTISING

    Traditional television, radio and print advertising has focused on building
awareness-- repeating a branded message with high frequency to a large
audience--rather than targeting individual users based on demographics or
behavior. The Internet has emerged as an attractive new medium for advertising
because it offers features that are unavailable in traditional media. For
example, the Internet enables advertisers to target specific types of users,
receive direct feedback on their advertisements, and capture valuable data on
user preferences while reaching a broad, global audience.


    The Internet also represents an attractive medium for direct marketing,
which has traditionally been conducted through direct mail and telemarketing.
The interactive nature of the Internet enables direct marketers to deliver
targeted promotions to users. The success of any direct marketing campaign is
generally measured by the response rate of users. The Internet has the potential
to enable direct marketers to increase user response rates and decrease costs
per transaction by targeting campaigns to particular users based on their
demographic profile, interests and online behavior. Forrester Research estimates
that the amount spent on Internet advertising in the United States will grow
from $1.5 billion in 1998 to $15.3 billion in 2003.


    LIMITATIONS OF CURRENT INTERNET ADVERTISING

    While the Internet offers advertisers and direct marketers a number of
advantages over traditional media, there remain significant challenges to
realizing the full potential of online advertising. To date, online advertising
has generally consisted of banner advertisements and sponsorships on heavily
trafficked portals and other Web content sites. We believe that users who visit
those sites tend not to spend a great deal of time on any one page and can
generally scroll traditional banner advertisements off of their screens, leading
advertisers to increasingly question the effectiveness of these advertisements.
In addition, most online advertisers are unable to successfully target their
audiences, largely due to a lack of precise demographic and navigation data on
users. As advertisers and direct marketers continue to increase their online
spending, they are seeking solutions and technologies which will enable them to
deliver highly-targeted messages, receive real-time feedback and capitalize on
other potential advantages of online advertising.

THE NETZERO SOLUTION

    We have created a business model that provides free, unlimited Internet
access to users and a powerful direct marketing tool for advertisers and
sponsors.

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    OUR VALUE PROPOSITION TO USERS

    FREE, UNLIMITED INTERNET ACCESS AND E-MAIL.  We offer users free unlimited
access to the Internet and navigational tools to enhance their online
experience. We also provide each of our users with a free e-mail account. Users
can access our services with a computer running Windows 95, Windows 98 or
Windows NT 4.x and with at least 16 MB of RAM, a 14.4 kbps or faster dial-up
modem and any standard Internet browser.

    THE ZEROPORT.  We combine navigational tools with our other service to
enhance our users' online experience. The ZeroPort contains buttons conveniently
displayed in a dashboard-like setting around the advertising window. These
buttons enable users to go directly to specific Web-sites across a variety of
categories. For example, The ZeroPort has a button that allows users to search
the Internet through LookSmart, an Internet services directory that currently
appears as the start page for our service. We plan to add significant
functionality to The ZeroPort, including advertiser-sponsored buttons that can
link directly to various popular Internet services and sites, as well as a
customizable ticker which can display the latest news headlines, sports scores
and stock market quotes, among other new features. Our user data enables us to
deliver information and advertising intended to be tailored to our users'
interests.


    The following schematic illustrates the ZeroPort, including certain of the
features and functions that we expect to add to the next release:


[Graphic depiction of The Zero Port, including an advertising window,
sponsorship buttons and information ticker appears here]

    OUR VALUE PROPOSITION TO ADVERTISERS AND DIRECT MARKETERS

    PROMINENT AND SUSTAINED ADVERTISING MEDIUM.  In contrast to most portal and
content sites which display advertising, NetZero remains with users the entire
time they are online. Once users are logged on through NetZero, The ZeroPort
remains in full view throughout the session, including when they are waiting for
pages to download, navigating the Internet and even engaging in

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<PAGE>
non-browsing activities such as sending or receiving e-mail. The constant
visibility of The ZeroPort allows advertisements to be displayed for a specified
period of time, typically from 20 to 30 seconds.

    DYNAMIC TARGETING AND INFORMATION GATHERING.  Our users provide demographic
information when they register for our service. Utilizing our proprietary zCast
technology, we can track our users' behavior the entire time they are online
through our service. As a result, we are able to deliver targeted advertisements
and measure their effectiveness. For example, our users can receive ads from a
brokerage firm when they are viewing sites containing stock quotes or financial
news, or receive promotions from a bookseller when browsing sites containing
book reviews. We also offer advertisers the ability to display ads in The
ZeroPort while users are viewing a competitor's Web-site or when viewing the
advertisers' own Web-site, thereby complementing their site and precluding
competitive ads from being displayed at that time.

    PERFORMANCE-BASED ADVERTISING.  While the Internet has emerged as an
important mass advertising medium, advertisers are increasingly seeking
solutions to ensure that they maximize their return on investment. To meet the
demands of advertisers who value specific results from their online marketing
campaigns, we intend to offer pricing alternatives where we are paid only if our
users link to an advertiser's site and subscribe for services, purchase products
or satisfy some other performance criteria.

THE NETZERO STRATEGY

    Our objective is to redefine the Internet access model and the way products
and services are marketed online. The key elements of our strategy are:

    BUILD A PREMIER BRAND.  We believe that establishing brand awareness is
critical to attracting and retaining users and advertisers and intend to make
brand building prominent in our marketing efforts. Our strategy is to promote
the perception of the NetZero brand among users as a premier provider of
Internet services and among advertisers as the most effective means of targeting
potential customers. To achieve this objective, we plan to advertise the NetZero
brand extensively online, as well as through traditional media, including
television, radio and print advertising. We plan to support the quality brand
image conveyed through our marketing campaign by establishing sponsorship
relationships with leading online and offline consumer brands as advertisers.

    INCREASE USER BASE.  We intend to continue to rapidly increase our user
base. Aggregating a large audience will provide economies of scale, increase our
attractiveness to advertisers and enhance our ability to enter into strategic
marketing arrangements. To date, our user base has grown almost exclusively
through word-of-mouth referrals by existing users. We plan to expand our
audience through more aggressive user-acquisition programs, including
co-branding, distribution of CDs to install our service, bundling and retail
distribution relationships, and television, radio and print advertising.

    IMPROVE USER EXPERIENCE.  We will continue efforts to improve the experience
of users and maximize their retention by enhancing the technical capabilities
and ease of use of our service, making our users' online experience more
relevant and personal, providing additional user support options and adding new
services.

    PURSUE DIVERSE REVENUE SOURCES.  Our service enables us to pursue revenues
from diverse sources, including banner advertising, sponsorships and e-commerce.
To date, advertisers and merchants have paid us for placements of ads and
sponsorships on The ZeroPort and for referrals to their Web-sites. We also plan
to offer advertisers enhanced advertising and tracking tools and to

                                       41
<PAGE>
generate fees through referrals and other arrangements when our users open
accounts with, or purchase products or services from, our advertisers.

    MAXIMIZE SALES AND MARKETING EFFICIENCY.  We intend to continue to pursue a
two-pronged strategy to sell and market advertising and sponsorship on The
ZeroPort. First, our internal sales and marketing organization will focus on
developing innovative sponsor relationships with leading brand marketers in
addition to selling banner advertisements on The ZeroPort. We believe sponsoring
arrangements will tend to have longer terms, elements of exclusivity and higher
rates than typical banner advertising. Second, we will leverage the resources of
outside sales organizations to enhance our ability to sell large quantities of
ad inventory within a short period of time. We have entered into agreements with
Adsmart, 24/7 Media and ValueClick to augment our efforts to sell traditional
banner advertising as we continue to expand our internal sales organization.

    MINIMIZE NETWORK COSTS.  Network costs associated with providing our service
are a major component of our cost structure. Our strategy of purchasing
telecommunications capacity from third-party wholesale providers, rather than
building and managing our own network, has enabled us to rapidly expand the
geographic scope of our service and accommodate user growth while reducing
capital expenditures. Although we may at some point consider investing in
various forms of networking infrastructure, particularly in cases where a given
type of access would otherwise be difficult or prohibitively costly to obtain,
we currently intend to continue using wholesale providers and to negotiate
volume discounts as our purchasing power increases. We believe this will enable
us to reduce costs, continue to rapidly expand our service coverage and to
ensure reliable service through multiple wholesale providers.

    We also believe that our strategy of using wholesale providers will enable
us to remain network-independent and to switch providers or technologies as cost
or performance improvements become available. As a result, we believe we can be
flexible in responding to user demand for higher-speed access and other types of
improved service such as DSL, cable modems, high-speed wireless access and other
broadband technologies.

SOURCES OF REVENUE

    We generate, or plan to generate, revenues from the following services. An
agreement with a significant customer typically involves a number of the
services offered to maximize the effectiveness of the customer's advertising or
sponsorship campaigns.

    BANNER ADVERTISING. Our advertisers can currently purchase standard banner
advertising on The ZeroPort at rates comparable to those generally available for
banner advertising. Advertisers can also purchase targeted advertising on The
ZeroPort so that their advertisements are displayed only to users satisfying
certain criteria specified by our advertisers, such as gender, interests,
language preferences and geographic location. We also offer advertisers the
opportunity to target specific Web-sites so that their ads are displayed on The
ZeroPort when users are viewing such Web-sites, including those of competitors
of the advertisers. They can also purchase advertising space on TheZeroPort when
users are viewing the advertisers' own Web-sites, thereby complementing the site
and precluding competitors from displaying their advertisements on The ZeroPort
at that time. We charge our advertisers premium rates for targeted advertising
services. Direct advertisers that have placed banner advertisements on The
ZeroPort include Bell South, eBay, Microsoft, Netscape and theglobe.com.

    SPONSORSHIP. The ZeroPort contains a number of buttons and, in the future,
will contain additional buttons, drop-down menus, a marquee space and a
customizable ticker tape and browse window which are or will be available for
sponsorship by advertisers. The buttons and drop-down menus will be organized
into categories such as news, sports, finance and shopping. This allows

                                       42
<PAGE>
advertisers to purchase exclusive or non-exclusive sponsorships for a specific
category, and helps direct interested users to their sites. The ticker tape will
display sports, news and stock market quotes.

    WEB-REFERRALS AND E-COMMERCE. We enter into arrangements with e-commerce
merchants and service providers where we receive fees based on the number of
users who are referred to their Web-site, subscribe for their services, purchase
their products, or satisfy other performance criteria. These arrangements can be
based on our ability to direct users to specific Web-sites, on advertisements
and sponsorships on The ZeroPort, as well as on targeted e-mail messages sent
directly by advertisers to users who elect to receive such messages via their
free e-mail accounts.

    OTHER. We have also received revenues from co-branding and distribution
arrangements and intend to pursue other diverse revenue opportunities.


    Our revenues from any of the above sources could include a variety of fee
arrangements, including fixed fees or fees based on the number of users referred
to the advertiser, the number of ads delivered, other performance criteria, or
any combination of the foregoing. During the year ended June 30, 1999, Looksmart
and Adsmart accounted for approximately 27% and 26%, respectively, of NetZero's
revenues. No other customer accounted for more than 10% of NetZero's revenues
during that year.


SALES AND MARKETING

    ADVERTISING SALES


    We sell traditional banner advertising through third party advertising
firms, including Adsmart, 24/7 Media and ValueClick. We sell and market banner
advertisements and sponsorship on The ZeroPort through our direct sales force,
which comprised 12 people as of June 30, 1999. Our sales force is structured as
a multi-region organization with regional managers, key account managers and a
national planning group. Our sales personnel operate out of our headquarters in
Westlake Village, California and our offices in New York and San Francisco. We
intend to continue to capitalize on our agreements with third parties to sell
traditional banner advertising as we continue to expand our internal sales
organization.



    We recently started selling sponsorships for placements on, and links from,
The ZeroPort. For example, we granted eBay the sponsorship for person-to-person
auctions, linking eBay to the "Auction" button or a drop-down menu on The
ZeroPort, and we granted FiNet the sponsorship for mortgage services, linking
FiNet to a drop-down menu on The ZeroPort. We have also entered into agreements
with Priceline.com and Ameritrade, to link and refer our users to their
Web-sites from within The ZeroPort, and an agreement with Cisco, which provides
certain sponsorship advertising within The ZeroPort. We expect our sponsorship
arrangements could involve some level of exclusivity and will command higher
prices than traditional online advertising. Sponsorship advertising involves a
greater degree of integration and consultation between NetZero and the marketer.
We intend to focus our sales and marketing organization on building and
sustaining these relationships, including working to select the appropriate
media strategy based on the sponsor's requirements for timing, number of
impressions and desired response rate.


    USER ACQUISITION

    To date, we have relied extensively on word-of-mouth marketing to attract
the vast majority of our users. We plan to increase our user marketing efforts,
including television, radio and print media advertising, direct marketing
campaigns such as widespread direct mailing and distribution of CDs to install
our software, and bundling, co-branding, and retail distribution arrangements.
For

                                       43
<PAGE>
instance, we have entered into the following distribution arrangements to build
our brand, acquire users and generate revenues:

    COMPAQ. In April 1999, we entered into a twelve-month agreement with Compaq
under which Compaq will bundle and distribute our NetZero software with its
Presario products. Compaq will pay for substantially all of the marketing,
distribution and advertising costs of the bundled product in exchange for up to
10% of The ZeroPort's banner advertising inventory on NetZero sessions initiated
from the bundled Presario products. In addition, all users who sign up for
NetZero's service through software installed on the bundled product will be
directed to AltaVista's start page each time they log-on to NetZero's service
for the term of the agreement. With certain exceptions, through February 2000,
Compaq will not offer any other free Internet access services on its Presario
products and we will not bundle our service with the personal computers of any
other manufacturer or enter into any agreements with Compaq's retailers for the
distribution of our services.

    XEROX. In July 1999, we entered into a non-exclusive arrangement with Xerox
under which Xerox agreed to bundle and distribute CDs for installing our
software with its computer peripheral products. Xerox has agreed to pay us a fee
per CD and purchase advertising from us through December 1999.

USER SUPPORT

    Our user service strategy is to build programs designed to increase user
satisfaction and retention, while controlling costs and accommodating our rapid
growth. To date, our user service has been handled in-house, but we plan to
engage in selective outsourcing of certain aspects of our user service to
vendors to provide us with greater efficiency and scalability for future growth.

    We provide online and offline "self-help" services that provide a variety of
support options to our users, including our SPEEDY Assistant offline software
which is loaded onto the user's computer when the service is initially installed
from the CD and can also be downloaded from our Web-site. This offline tool
assists users in loading and operating our software, provides answers to common
questions and helps users set up their e-mail account through step-by-step
instructions. We also provide comprehensive help, tutorials, advisories, answers
to frequently asked questions and tips via our Web-site, fax back support and
e-mail. We intend to provide the same support via real-time chat and message
boards. We also provide telephone support between 8:00 a.m. and 9:00 p.m.
(Pacific time), Monday through Saturday. We have entered into an agreement with
a third party to develop and outsource a "pay for what you need" program which
will provide our users with toll-free telephone access, 24 hours per day, 7 days
per week, to a support representative for a per-incident basis charge.

    Our user service organization continually monitors quantitative metrics such
as average wait time, first call resolution rate and abandon rate. We plan to
implement a problem tracking system that will allow recurring problems to be
identified and communicated to the appropriate user service function for
resolution. We are also in the process of enhancing our in-house support system
through the addition of an e-mail distribution system and a dynamic Web-based
database. The database will be accessible by our outsourcing partners, in-house
user service representatives and our customers on a real-time basis to provide
answers to frequently asked questions and to ensure delivery of user service in
a consistent manner.

                                       44
<PAGE>
TECHNOLOGY

    We have developed and continue to expand a proprietary software system
called zCast that enables us to track our users' navigational activities and to
deliver highly-targeted advertising. zCast has two major components:

    THE ZCAST CLIENT SOFTWARE

    The zCast Client application is the software product that includes The
ZeroPort which is installed on all of our users' personal computers. The
ZeroPort is visible and appears on top of other windows while a connection to
NetZero's service is maintained. The zCast Client performs multiple tasks,
including:

       - establishing a connection to the NetZero service;

       - capturing demographic information;

       - authenticating a user via a user ID and password;

       - tracking URLs visited;

       - managing the display of advertising banners;

       - targeting advertising based on URL visited and on keyword search;

       - logging the number of times an ad was shown and the number of times an
         ad was clicked on;

       - monitoring the quality of the online session (including dial-up and
         network errors); and

       - providing a mechanism for customer feedback.

    We intend to continue to extend the functionality of The ZeroPort to enhance
our users' experience. Features under development include:

       - short-cut buttons to content sites;

       - an information ticker for stocks, weather, sports and news;

       - a new message indicator; and

       - rich media support.

    The zCast Client is a JAVA application that runs on a user's personal
computer. Using JAVA affords us the ability to run on multiple operating systems
with minimal code changes. In addition to JAVA, native Microsoft Windows
applications and system files are used to extend the functionality of the zCast
Client. The zCast Client currently operates on the Windows 95, Windows 98 and
Windows NT 4.x operating systems. We also plan to operate on the Apple Macintosh
operating system in the future.

    THE ZCAST SERVER NETWORK

    The zCast Server network is a group of back-end software applications
running on multiple servers that manage and collect important data relating to
each user's online session. The servers consist of the following components:

    APPLICATION SERVER. The application server software interacts with The
ZeroPort to send and receive information such as authentication, playlists of
advertisements and impression and click counts. This proprietary software is
written in JAVA, which helps make interaction between The ZeroPort and the
server seamless and robust. The application server also takes advantage of
software and hardware load balancing, both of which enhance the scalability of
the system.

                                       45
<PAGE>
    DATABASE SERVER. The database server stores session information, user
information and ad display and click counts. This server is based on Oracle
database technology and is designed by NetZero to handle very large volumes of
data.

    AD SERVER. The ad server manages the ad inventory and determines which ads
users will view during their online session. This server is based on NetGravity
technology and has been customized by NetZero to create a playlist of
advertising banners for each online session. The implementation of the
NetGravity ad server has been further customized to significantly improve its
performance and scalability.

    All of the above components run on Sun Microsystems' servers and are
connected to disk arrays. These provide NetZero with the ability to quickly
scale and improve overall system performance.

    We are in the process of implementing a multiple "cell" architecture to
enhance the scalability of the zCast Server network. Each cell, which will
operate independently of other cells, will consist of application servers,
database servers and ad servers and is being designed to handle two to three
million users, based on current average usage. Once implemented, we intend to
balance traffic across different cells based on capacity, providing us with a
fault-tolerant infrastructure.

    As part of our free Internet service, we provide industry standard POP3
e-mail accounts for our registered users. POP3 e-mail can be accessed by most
popular e-mail client software applications such as Microsoft Outlook Express.
Our e-mail servers run Qmail software in a Sun Sparc Solaris environment. We
have modified and continue to modify the Qmail server software to provide the
capacity to service millions of users. We have placed rigorous anti-spamming
mechanisms in place on our e-mail servers to limit abuses of our free e-mail
service.

COMMUNICATIONS NETWORK

    To use our services, users initiate telephone connections between their
personal computers and computer hardware in local or regional telecommunications
facilities known as POPs. We contract for the use of POPs around the country
from various wholesale providers, including GTE Internetworking, Level 3
Communications, NaviNet and Apex Global Information Systems. These providers
also carry our data between their POPs and our central computers in Los Angeles,
California. Through our network providers, we are able to offer local dial-up
phone numbers in over 1,100 cities across the United States. Thus, our users
typically bear no expenses for communication beyond the cost, if any, of an
ordinary local or regional phone call. Our service provides full Point-to-Point
Protocol (PPP) access to the Internet, and supports the v.90 standard for 56
kbps connections and ISDN in certain areas. We continuously monitor network
service levels around the country and work with our partners to help maintain
high levels of network availability and throughput for our users.

    Our zCast and e-mail servers reside at a co-location facility provided by
Level 3 Communications in Los Angeles, California. We are in the process of
building our own data center at our offices in Westlake Village, California,
which will be equipped with battery and generator power backup systems to
prevent outages from interruption of utility power to the building. When the
data center is complete, we will also install zCast and e-mail servers at that
facility.

COMPETITION

    We compete for users and advertising customers.

                                       46
<PAGE>
    COMPETITION FOR USERS


    We believe that the primary competitive factors determining success in the
market for Internet users include a reputation for reliability of service,
effective customer support, pricing, easy-to-use software, geographic coverage
and scope of services. Other important factors include the timing and
introduction of new products and services and industry as well as general
economic trends. While we believe that we compete favorably with respect to
these factors, numerous of our competitors may have an advantage over us with
respect to specific factors. We currently compete with established online
service and content providers, such as America Online, The Microsoft Network,
independent national ISPs such as EarthLink, MindSpring and Prodigy, numerous
regional and local commercial ISPs, and portals and search engines such as
Yahoo! and Alta Vista. Certain of these providers offer significantly greater
customer support and scope of services than we currently offer. We also compete
against other companies that offer free Internet access services or free
products, such as PCs, bundled with, or as promotions for, access services, and
expect that more companies will begin to offer such services or products in the
future. We also compete with, and expect increased competition from,
telecommunications service providers, such as AT&T, GTE and MCI WorldCom. These
companies generally have far greater resources, distribution channels and brand
awareness as well as lower costs because they control the telecommunications
services we are required to purchase. This cost advantage, which could result in
significant discounts to the user, could significantly increase competitive
pressures on us. We also believe that new competitors, including large computer
hardware and software, media and telecommunications companies, will continue to
enter the Internet access market and that our competition will increase as large
diversified telecommunications and media companies acquire ISPs and as ISPs
consolidate into larger, more competitive companies. Diversified competitors may
also bundle other services and products with Internet connectivity services,
potentially placing us at a significant competitive disadvantage.


    We also face competition from companies that provide broadband connections
to users' homes, including local and long-distance telephone companies, cable
television companies, electric utility companies, and wireless communications
companies. These companies may use broadband technologies to include Internet
access or business services such as Web hosting in their basic bundle of
services or may offer Internet access or business services for little or no
additional charge. Broadband technologies enable users to access the Internet at
much faster speeds than the dial-up service we currently offer. While the market
for such broadband technologies is still emerging, we believe it will continue
to grow and pose an increasingly significant source of competition.

    COMPETITION FOR ADVERTISING CUSTOMERS

    We believe that the primary competitive factors determining success in the
market for advertising customers include the size and demographic profile of a
user base, the ability to target users based on specific demographic criteria,
pricing and geographic coverage. While we believe that we compete favorably with
respect to these factors, numerous of our competitors may have an advantage over
us with respect to specific factors. We compete for Internet advertising and
sponsorship revenues with certain major ISPs, content providers, large Web
publishers, Web search engine and portal companies, Internet advertising
providers, content aggregation companies, and various other companies which
facilitate Internet advertising. Many of these companies have longer operating
histories, greater name recognition, larger user bases and significantly greater
financial, technical and marketing resources than we do. This may allow them to
respond more quickly than we can to new or emerging technologies and changes in
advertiser requirements. It may also allow them to devote greater resources than
we can to the development, promotion and sale of their products and services.
Such competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing

                                       47
<PAGE>
policies and make more attractive offers to existing and potential employees,
strategic partners, advertisers and Web publishers. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective advertising
and sponsorship customers. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share. We also compete with
television, radio, cable and print media for a share of advertisers' total
advertising budgets.

INTELLECTUAL PROPERTY

    Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark law. We have filed
four patent applications relating to NetZero's techniques for delivering
advertisements on computer desktops.

    We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
NetZero's solutions or technologies. We cannot be certain that the steps we have
taken will prevent misappropriation of our solutions or technologies,
particularly in foreign countries where the laws or law enforcement may not
protect our proprietary rights as fully as in the United States. We have
licensed, and may license in the future, elements of our trademarks, trade dress
and similar proprietary right to third parties. While we attempt to ensure that
the quality of our brand is maintained by such business partners, such partners
may take actions that could materially and adversely affect the value of our
proprietary rights or reputation.

    Our zCast technology collects and utilizes data derived from our user
activity. This data is used for ad targeting and measuring ad performance.
Although we believe that we have the right to use such data, there can be no
assurance that third parties will not assert claims against us for using such
information. In addition, others may claim rights to such information. We may
also be required, upon request, to delete "identifying information" of users
under the age of 18.

    We cannot be certain that any of our proprietary rights will be viable or of
value in the future since the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related industries is uncertain and
still evolving. In particular, there can be no assurance that any of our patent,
copyright or trademark applications, now pending or to be filed in the future,
will be approved. Even if they are approved, such patents, trademarks or
copyrights may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own such
trademarks, our use of the trademarks will be restricted unless we enter into
arrangements with such third parties. These arrangements may not be available on
commercially reasonable terms.

    Furthermore, third parties may assert infringement claims against us. From
time to time we may be subject to claims in the ordinary course of our business,
including claims of alleged infringement of the trademarks, patents and other
intellectual property rights of third parties by us or our users. Any such
claims, or any resultant litigation, should it occur, could subject us to
significant liability for damages and could result in the invalidation of our
proprietary rights. In addition, even if we were to win any such litigation,
such litigation could be time-consuming and expensive to defend, and could
result in the diversion of our time and attention, any of which could materially
and adversely affect our business, results of operations and financial
condition. Any claims or litigation may also result in limitations on our
ability to use such trademarks, patents and

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<PAGE>
other intellectual property unless we enter into arrangement with such third
parties, which may be unavailable on commercially reasonable terms.

PRIVACY POLICY

    We believe that issues relating to the privacy of Internet users and the use
of personal information about these users are critically important as the
Internet and its commercial use grow. We have adopted and disclosed to our users
a detailed policy outlining the permissible uses of information about users and
the extent to which such information may be shared with others. Our users must
acknowledge and agree to this policy when registering to use our service. We do
not sell or license to third parties any personally identifiable information
about users unless they specifically authorize us to do so. However, we do use
information about users to improve the effectiveness of advertising by our
advertising customers. We are a member of the TRUSTe program, an independent
non-profit organization that audits the privacy statements of Web-sites and
their adherence to those privacy statements.

EMPLOYEES

    As of June 30, 1999, we employed 116 persons, including 22 in sales and
marketing, 20 in customer care, 33 in product development, 15 in information
systems and 26 in finance, accounting and administration. None of our employees
are subject to any collective bargaining agreement.

FACILITIES


    Our principal executive offices are located in a 49,000 square feet facility
in Westlake Village, California under a lease expiring in March 2009. We also
have leased space for our sales and marketing efforts in San Francisco and New
York. We are continually evaluating our facilities requirements.


LEGAL PROCEEDINGS

    We are not a party to any material legal proceedings.

                                       49
<PAGE>
                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

    The following table sets forth certain information regarding our directors,
executive officers and key employees as of June 30, 1999:

<TABLE>
<CAPTION>
NAME                              AGE                           POSITION(S)
- ----------------------------      ---      -----------------------------------------------------
<S>                           <C>          <C>
Mark R. Goldston............          44   Chairman, Chief Executive Officer and Director
Ronald T. Burr..............          34   President, Chief Technology Officer, Co-founder and
                                           Director
Charles S. Hilliard.........          35   Senior Vice President, Finance and Chief Financial
                                           Officer
Frederic A. Randall, Jr.....          42   Senior Vice President, General Counsel and Secretary
Perri S. Procida............          42   Senior Vice President, Sales
Stacy A. Haitsuka...........          33   Senior Vice President, Technology and Co-Founder
Harold R. MacKenzie.........          33   Vice President, Software Development and Co-Founder
Marwan A. Zebian............          39   Vice President, Networking and Communications and Co-
                                           Founder
Janet C. Daly...............          38   Vice President, Marketing
David J. Dowling............          32   Vice President, Business Development
Dennis L. Gordon............          49   Vice President, Information Systems and Customer Care
James T. Armstrong(1)(2)....          33   Director
David C. Bohnett(1).........          43   Director
Jennifer S. Fonstad(1)......          33   Director
Bill Gross(2)...............          41   Director
Paul G. Koontz(2)...........          39   Director
</TABLE>

- ------------------------

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

    MARK R. GOLDSTON has been our Chairman and Chief Executive Officer and a
director since March 1999. Prior to joining NetZero, Mr. Goldston served as
Chairman and Chief Executive Officer of The Goldston Group, a strategic advisory
firm, from December 1997 to March 1999. From April 1996 to December 1997, he
served as President, Chief Executive Officer and a director of Einstein/Noah
Bagel Corp. after founding and serving his initial term with The Goldston Group
from June 1994 to April 1996. Mr. Goldston also served as President and Chief
Operating Officer of L.A. Gear from September 1991 to June 1994 and as a
principal of Odyssey Partners, L.P., a private equity firm, from September 1989
to September 1991. Mr. Goldston received his M.B.A. (M.M.) from the J.L. Kellogg
School at Northwestern University and his B.S.B.A. in Marketing and Finance from
Ohio State University.

    RONALD T. BURR is a co-founder of NetZero and has been our President and a
director since July 1997, and our Chief Technology Officer since March 1999. Mr.
Burr was also our Chief Executive Officer from July 1997 to March 1999. From
1991 to 1998, Mr. Burr was President of Impact Software, a software consulting
firm which he co-founded. From 1989 to 1991, Mr. Burr held a senior position as
a consulting technical team leader on a development project jointly produced by
IBM and Security Pacific Automation Company. From 1983 to 1989, Mr. Burr held
various management positions, including vice president of software development
with Vault Corporation, an Allen & Co. venture-funded software startup.

    CHARLES S. HILLIARD has been our Senior Vice President, Finance and Chief
Financial Officer since April 1999. Prior to joining NetZero, Mr. Hilliard
served as an investment banker with Morgan Stanley Dean Witter & Co. from May
1994 to April 1999, most recently as a Principal in the

                                       50
<PAGE>
Corporate Finance Department. From August 1990 to May 1994, he served in the
Mergers & Acquisitions and Corporate Finance departments of Merrill Lynch & Co.
Mr. Hilliard served as a tax accountant with Arthur Andersen & Co. from
September 1985 to July 1988 and was licensed as a Certified Public Accountant in
January 1988. Mr. Hilliard received his B.S. in Business Administration from the
University of Southern California and his M.B.A. with distinction from the
University of Michigan.

    FREDERIC A. RANDALL, JR. has been our Senior Vice President and General
Counsel since March 1999. Mr. Randall was appointed Secretary in May 1999. Prior
to joining NetZero, Mr. Randall was a partner at Brobeck, Phleger & Harrison LLP
from January 1991, and an associate from 1984 to December 1990. Mr. Randall
received his B.A. in English Literature with distinction from the University of
Michigan and his J.D., CUM LAUDE, from the University of San Francisco School of
Law.

    PERRI S. PROCIDA has been our Senior Vice President, Sales since May 1999.
From October 1998 to April 1999, Ms. Procida acted as an independent consultant
for various Internet companies. From September 1996 to September 1998, Ms.
Procida was the Senior Vice President, Network Sales of the UPN Television
Network. From October 1979 to September 1996, she held various positions at NBC
Television Network, including Vice President of News Sales. Ms. Procida received
her B.S. from Syracuse University, majoring in Radio/Television and English.

    STACY A. HAITSUKA is a co-founder of NetZero and has been our Senior Vice
President, Technology since March 1999. From July 1997 to March 1999, Mr.
Haitsuka was our Chief Technology Officer and a member of our board of
directors. Mr. Haitsuka also served as our Secretary from July 1997 to May 1999.
From May 1991 to September 1998, Mr. Haitsuka was the vice-president of Impact
Software, a software consulting company which he co-founded. Prior to May 1991,
Mr. Haitsuka held various positions at Security Pacific Automation Company. Mr.
Haitsuka received his B.S. in Computer Science from California State University
at Dominguez Hills.

    HAROLD R. MACKENZIE is a co-founder of NetZero and has been our Vice
President, Software since July 1997. Prior to joining NetZero, he was a manager
with Impact Software from September 1996 to August 1998. From December 1995 to
September 1996, Mr. MacKenzie was an independent consultant focusing on custom
computer applications. From February 1992 to December 1995, Mr. MacKenzie was a
senior consultant for Andersen Consulting. From 1989 to 1992, he worked for the
Robotics Division of Seiko Instruments, Inc. Mr. MacKenzie received his B.S. in
Computer Science from California State University, Northridge.

    MARWAN A. ZEBIAN is a co-founder of NetZero and has been our Vice President,
Networking and Communications since July 1997. Prior to joining NetZero, Mr.
Zebian was a technical expert with Impact Software from 1994 to 1998. From 1990
to 1994, Mr. Zebian founded and operated Megasoftware Engineering. From 1989 to
1991, Mr. Zebian held various technical positions at Security Pacific Automation
Company.

    JANET C. DALY has been our Vice President of Marketing since December 1998.
Prior to joining NetZero, Ms. Daly was the Vice President of Marketing of
Quarterdeck from November 1997 to August 1998. From March 1996 to November 1997,
she was the Director of Marketing of CyberMedia. From September 1994 through
March 1996, Ms. Daly was the Senior Brand Manager and the Product Marketing
Manager, Consumer Division at Davidson and Associates. From November 1991 to
August 1994, Ms. Daly was the Senior Marketing Manager at Symantec-Peter Norton
Group. Ms. Daly received her B.A. from the University of California at Santa
Barbara.

    DAVID J. DOWLING has been our Vice President of Business Development since
April 1999. From March 1997 to March 1999, he was President of media.com, the
interactive media and marketing communications affiliate of Grey Advertising.
From January 1996 to March 1997,

                                       51
<PAGE>
Mr. Dowling served as the Director of Media for Grey Interactive. From September
1994 through January 1996, Mr. Dowling served as the Director of Media
Connections, another affiliate of Grey Advertising. Mr. Dowling received his
B.S., CUM LAUDE, in Marketing from the University of Connecticut.

    DENNIS L. GORDON has been our Vice President, Customer Care since April 1998
and also our Vice President of Information Systems since March 1999. Prior to
joining NetZero, Mr. Gordon held various information technology management and
technical positions with the Southern California Gas Company, a subsidiary of
Pacific Enterprises, from 1977 to 1998.

    JAMES T. ARMSTRONG has been a director since September 1998. Mr. Armstrong
has been a principal with idealab! Capital Partners since August 1998. From May
1995 to August 1998, Mr. Armstrong was a senior associate with Austin Ventures.
From September 1989 to March 1992, Mr. Armstrong was a senior auditor with Ernst
& Young. Mr. Armstrong serves on the board of directors of several private
companies including CarsDirect.com, Aveo, OpenSales.com, and Jobs.com. Mr.
Armstrong received his B.A. in Economics from the University of California at
Los Angeles and his M.B.A. with honors from the University of Texas.


    DAVID C. BOHNETT has been a director since December 1998. Mr. Bohnett served
as Chairman of the Board and Secretary of GeoCities, which he founded, from
November 1994 until May 1999, when GeoCities merged with Yahoo!. From November
1994 to April 1998, Mr. Bohnett also served as GeoCities' Chief Executive
Officer and President. From November 1994 to November 1997, Mr. Bohnett also
served as GeoCities' Chief Financial Officer. Mr. Bohnett also serves on the
Board of Directors of Stamps.com, Inc. and several private companies. Mr.
Bohnett received his B.S. degree in Business Administration from the University
of Southern California and his M.B.A. degree in Finance from the University of
Michigan.


    JENNIFER S. FONSTAD has been a director since January 1999. Ms. Fonstad is a
partner with Draper Fisher Jurvetson. Ms. Fonstad also serves on the board of
directors of several private companies including iShip.com, Conduit,
Saltare.com, Global Sight and Troika Networks. From January 1997 to May 1997,
she worked with SensAble Technologies. She held management positions with the
Planning Technologies Group, now part of the Nextera Group, from January 1995 to
May 1996 and a start-up based in Central Europe from September 1991 to May 1993.
Ms. Fonstad began her career as an Associate Consultant with Bain & Company. Ms.
Fonstad received her B.S. CUM LAUDE in Economics from Georgetown University and
her M.B.A. with distinction from Harvard.

    BILL GROSS has been a director since September 1998. Since March 1996, Mr.
Gross has served as Chairman of the Board, Chief Executive Officer and President
of Bill Gross' idealab!, an incubator and venture capital firm which he founded
that specializes in Internet companies. He also has served as a Managing
Director of idealab! Capital Management I, LLC, a venture capital firm, since
March 1998. From June 1991 to January 1997, he served as Chairman of Knowledge
Adventure, Inc., an educational software developer of multimedia CD-ROMs for
children, which was founded by Mr. Gross. From February 1986 to March 1991, he
was a developer at Lotus Development Corporation. Mr. Gross serves on the board
of directors of Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.)
and GoTo.com, Inc. He also serves on the board of directors of several private
companies. Mr. Gross received his B.S. in Mechanical Engineering from the
California Institute of Technology.

    PAUL G. KOONTZ has been a director since January 1999. Since 1996, Mr.
Koontz has been a member of Foundation Capital Management II L.L.C., the general
partner of Foundation Capital II, L.P. From 1995 to 1996, he was with Sutter
Hill Ventures and in 1994 he was the initial Vice President of Marketing of
Netscape Communications Corporation. From 1987 to 1994, Mr. Koontz was with
Silicon Graphics, Inc., where he held a number of positions, including Director
of

                                       52
<PAGE>
Marketing. Mr. Koontz serves on the boards of directors of Onyx Software
Corporation and several privately held companies. Mr. Koontz received his B.S.
in mechanical engineering from Princeton University and his Masters in
engineering management from Stanford University.

BOARD OF DIRECTORS

    Our board of directors currently comprises seven directors. Directors are
elected by the stockholders at each annual meeting of stockholders and serve for
one year or until their successors are duly elected and qualified. However, our
certificate of incorporation provides that, following the offering, our board of
directors will be divided into three classes as nearly equal in size as possible
with staggered, three-year terms. The term of office of our Class I directors
will expire at the annual meeting of stockholders to be held in 2000; the term
of office of our Class II directors will expire at the annual meeting of
stockholders to be held in 2001; and the term of office of our Class III
directors will expire at the annual meeting of the stockholders to be held in
2002. At each annual meeting of the stockholders, beginning with the 2000 annual
meeting, the successors to the directors whose terms will then expire will be
elected to serve from the time of their election and qualification until the
third annual meeting following their election or until their successors have
been duly elected and qualified, or until their earlier resignation or removal,
if any. Messrs. Bohnett and Koontz have been designated as Class I directors;
Mr. Burr and Ms. Fonstad have been designated as Class II directors; and Messrs.
Armstrong, Goldston and Gross have been designated as Class III directors. The
classification of our board of directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of NetZero.

BOARD COMMITTEES

    The board has established an audit committee to meet with and consider
suggestions from members of management and our internal accounting personnel, as
well as our independent accountants, concerning our financial operations. The
audit committee also has the responsibility to review our audited financial
statements and consider and recommend the employment of, and approve the fee
arrangements with, independent accountants for both audit functions and for
advisory and other consulting services. The audit committee is currently
comprised of Messrs. Armstrong and Bohnett and Ms. Fonstad. The board has also
established a compensation committee to review and make recommendations to the
board regarding the compensation and benefits for our key executive officers,
administer our stock purchase, equity incentive and stock option plans. The
compensation committee is currently comprised of Messrs. Armstrong, Gross and
Koontz.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    None of the members of the compensation committee is or has been an employee
of ours at any time since our formation. None of our executive officers serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of our board of
directors or compensation committee.

DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS

    Our directors receive no cash remuneration for serving on the board of
directors or any board committee; however, directors are reimbursed for all
reasonable expenses incurred by them in attending board and committee meetings.
In December 1998, David C. Bohnett was granted an option to purchase 225,000
shares of Series C preferred stock at an exercise price of $0.4297. The

                                       53
<PAGE>
options vest ratably over a four year period. Mr. Bohnett also purchased 101,260
shares of NetZero's Series B preferred stock in January 1999 for an aggregate
purchase price of $15,000.

    Certain non-employee directors may also receive option grants and other
equity incentives under our new 1999 Stock Incentive Plan, including the
director fee option grant programs in effect under that plan. See "--1999 Stock
Incentive Plan" below.

    Employee directors are also eligible to receive stock option grants and
direct issuances of common stock under our 1999 Stock Incentive Plan. See
"--1999 Stock Incentive Plan".

EXECUTIVE COMPENSATION

    The following summary compensation table sets forth information concerning
cash and non-cash compensation earned during the fiscal year ended June 30, 1999
by our current Chief Executive Officer, and one other executive officer who
acted as our chief executive officer during the fiscal year ended June 30, 1999
prior to the current Chief Executive Officer. None of our other executive
officers received total compensation in excess of $100,000 during the fiscal
year ended June 30, 1999. Since the close of our June 30, 1999 fiscal year, we
have added several additional officers. For a list of our current executive
officers and certain members of our senior management, see "--Directors and
Executive Officers".

                SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1999

<TABLE>
<CAPTION>
                                                                                        LONG TERM
                                                                                       COMPENSATION
                                                                                      --------------
                                     ANNUAL COMPENSATION                                SECURITIES
                                   ------------------------       OTHER ANNUAL          UNDERLYING          ALL OTHER
NAME AND PRINCIPAL POSITIONS       SALARY ($)    BONUS ($)      COMPENSATION ($)       OPTIONS (#)       COMPENSATION($)
- ---------------------------------  -----------  -----------  -----------------------  --------------  ---------------------
<S>                                <C>          <C>          <C>                      <C>             <C>
Mark R. Goldston(1) .............      56,154       70,383             --                6,286,383             --
  Chairman and Chief Executive
  Officer
Ronald T. Burr ..................     102,542       25,000             --                   --                 --
  President, Chief Technology
  Officer, Co-Founder and
  director
</TABLE>

- ------------------------

(1) Mr. Goldston was hired as NetZero's Chief Executive Officer in March 1999.

    In addition to the above named executive officers for the fiscal year ended
June 30, 1999, NetZero currently employs certain other executive officers who it
anticipates will qualify as named executive officers in future years. Those
executives include Charles S. Hilliard, Senior Vice President, Finance and Chief
Financial Officer (annual salary of $140,000), Perri S. Procida, Senior Vice
President, Sales (annual salary of $135,000) and Frederic A. Randall, Jr.,
Senior Vice President, General Counsel and Secretary (annual salary of
$135,000).

                 STOCK OPTIONS GRANTED DURING FISCAL YEAR 1999

    The following table sets forth certain information regarding options to
purchase common stock granted to named executive officers during the fiscal year
ended June 30, 1999 including the potential realizable value over the ten-year
term of the options, based on assumed, annually compounded rates of stock value
appreciation. These assumed rates of appreciation comply with the rules of the
Securities and Exchange Commission and do not represent our estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock. No stock appreciation rights were
granted to such individuals during such year.

                                       54
<PAGE>
    The option for Mark Goldston was granted under our 1999 Stock Option/Stock
Issuance Plan. See "Employment Agreements and Change in Control Arrangements"
for more information on the vesting of the option shares.


    During the fiscal year ended June 30, 1999, we granted options to purchase
an aggregate of 13,595,483 shares of common stock, including Mr. Hilliard's
option to purchase 1,200,000 shares of our common stock and Mr. Randall's option
to purchase 1,050,000 shares of our common stock. Please see "--Employment
Agreements and Change in Control Arrangements" for specific option information
for Mr. Goldston, Mr. Hilliard and Mr. Randall.



<TABLE>
<CAPTION>
                                             INDIVIDUAL GRANTS                                         POTENTIAL REALIZABLE
                          --------------------------------------------------------                   VALUE AT ASSUMED ANNUAL
                           NUMBER OF     PERCENTAGE OF                                                    RATES OF STOCK
                          SECURITIES     TOTAL OPTIONS                   MARKET                      APPRECIATION FOR OPTION
                          UNDERLYING      GRANTED TO       EXERCISE     VALUE AT                               TERM
                            OPTIONS      EMPLOYEES IN      PRICE PER     DATE OF    EXPIRATION   --------------------------------
NAME                      GRANTED(#)        1999(#)          SHARE      GRANT(1)       DATE         0%         5%         10%
- ------------------------  -----------  -----------------  -----------  -----------  -----------  ---------  ---------  ----------
<S>                       <C>          <C>                <C>          <C>          <C>          <C>        <C>        <C>
Mark R. Goldston........   6,286,383            46.2%      $    0.10    $    0.70      3/19/09   3,771,830  6,539,261  10,785,043
Ronald T. Burr..........           0          --              --           --           --                     --
</TABLE>


- ------------------------

(1) All options were granted at an exercise price which our board of directors
    believed to be equal to the fair market value of our common stock on the
    date of grant. Based upon a subsequent review, we determined the deemed fair
    value of the common stock for financial accounting purposes to be as
    reflected in the "Market Value at Date of Grant" column. The amount shown in
    the "0%" column reflects the difference between the exercise price and the
    deemed fair market value as of the date of option grant, as determined in
    our subsequent review.

  AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1999 AND YEAR-END
                                 OPTION VALUES

    The following table sets forth certain information concerning options to
purchase common stock exercised by the named executive officers during the
fiscal year ended June 30, 1999. None of the named executive officers held any
unexercised stock options or stock appreciation rights on June 30, 1999.

<TABLE>
<CAPTION>
                                                                                SHARES ACQUIRED ON       VALUE
NAME                                                                                 EXERCISE          REALIZED
- -----------------------------------------------------------------------------  --------------------  -------------
<S>                                                                            <C>                   <C>
Mark R. Goldston.............................................................         6,286,383      $   3,771,830
Ronald T. Burr...............................................................                --                 --
</TABLE>

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

    Mark R. Goldston entered into a four-year employment agreement, effective as
of March 20, 1999, pursuant to which Mr. Goldston serves as our Chief Executive
Officer and Chairman. Pursuant to this agreement, Mr. Goldston receives a base
salary of $200,000 per year and during the first two years of the agreement, Mr.
Goldston receives a guaranteed bonus of $200,000 per year, payable in four
quarterly installments. Mr. Goldston is also entitled to receive a signing bonus
of $300,000 payable on January 1, 2000 so long as he is employed by us on such
date. In addition, we gave Mr. Goldston benefits that we make available to our
employees in comparable positions, and we granted Mr. Goldston an immediately
exercisable option to purchase 6,286,383 shares of our common stock. Mr.
Goldston exercised his option to purchase common stock in full, however, the
option shares are subject to repurchase by us at the price paid for such shares.
Our repurchase right lapses pursuant to a forty-eight equal monthly vesting
schedule. If Mr. Goldston's employment is terminated by us without cause, or if
following a change in control of NetZero, Mr. Goldston resigns for certain
specified reasons, he will be entitled to receive a $1,000,000 lump sum
severance payment. In addition, if Mr. Goldston's employment is terminated by us
without cause within the first year of his employment, an additional 25% of his
option shares of common stock will

                                       55
<PAGE>
vest, and if his employment is terminated by us without cause following the
first year of his employment, all of his shares will vest. Mr. Goldston will
also be credited with an additional twenty-four months of vesting on his option
shares in the event his employment is terminated by reason of death or permanent
disability. Further, Mr. Goldston's option shares automatically vest upon a
change in control of NetZero.

    Charles S. Hilliard entered into a four-year employment agreement, effective
as of April 17, 1999, pursuant to which Mr. Hilliard serves as Senior Vice
President, Finance and Chief Financial Officer. Pursuant to this agreement, Mr.
Hilliard receives a base salary of $140,000 plus a performance-based bonus of up
to 50% of his base salary. In addition, we gave Mr. Hilliard benefits that we
make available to our employees in comparable positions, and we granted Mr.
Hilliard an immediately exercisable option to purchase 1,200,000 shares of our
common stock at a price per share of $0.33. Mr. Hilliard exercised his option to
purchase common stock in full, however, such option shares are subject to
repurchase by us at the price paid for such shares. Our repurchase right lapses
with respect to 25% of the option shares upon the one-year anniversary of Mr.
Hilliard's employment and with respect to the remaining 75% of the option shares
over 36 equal monthly installments thereafter. We also agreed to sell 225,000
shares of our Series D preferred stock to Mr. Hilliard at a price per share of
$1.84. Mr. Hilliard's employment is subject to termination at any time by him or
by us. If Mr. Hilliard's employment is terminated without cause, he will be
entitled to receive a lump sum payment of $280,000 and shall be credited with an
additional twelve months of vesting on his option shares. Mr. Hilliard will also
be credited with an additional twelve months of vesting on his option shares in
the event his employment is terminated by reason of death or permanent
disability. If, following a change in control, Mr. Hilliard's employment is
terminated without cause or is constructively terminated, all of the option
shares shall vest immediately; provided, if such change in control occurs on or
prior to January 17, 2000, only 75% of the option shares shall vest.

    Frederic A. Randall, Jr. entered into a four-year employment agreement,
effective as of March 20, 1999, pursuant to which Mr. Randall serves as a Senior
Vice President and our General Counsel. Pursuant to this Agreement, Mr. Randall
receives a base salary of $135,000 plus a performance-based bonus of up to 50%
of his base salary. In addition, we gave Mr. Randall benefits that we make
available to our employees in comparable positions, and we granted Mr. Randall
an immediately exercisable option to purchase 1,050,000 shares of our common
stock at a price per share of $0.10. Mr. Randall exercised his option to
purchase common stock in full, however, the option shares are subject to
repurchase by us at the price paid for such shares. Our repurchase right lapses
with respect to 25% of the option shares upon the one-year anniversary of Mr.
Randall's employment and with respect to the remaining 75% of the option shares
over 36 equal monthly installments thereafter. Mr. Randall's employment is
subject to termination at any time by him or by us. If Mr. Randall's employment
is terminated without cause, he will be entitled to receive a lump sum payment
of $270,000 and shall be credited with an additional twelve months of vesting on
his option shares. Mr. Randall will also be credited with an additional twelve
months of vesting on his option shares in the event his employment is terminated
by reason of death or permanent disability. If, following a change in control,
Mr. Randall's employment is terminated without cause or is constructively
terminated, all of the option shares shall vest immediately; provided, if such
change in control occurs on or prior to December 19, 1999, only 75% of the
option shares shall vest.

    Our 1999 Stock Incentive Plan includes change in control provisions which
may result in the accelerated vesting of outstanding option grants and stock
issuances. See "--1999 Stock Incentive Plan--Change in Control".

                                       56
<PAGE>
1999 STOCK INCENTIVE PLAN


    The 1999 Stock Incentive Plan is the successor program to our existing stock
option/stock issuance plans. The new 1999 Stock Incentive Plan was adopted by
the board in July 1999 and we expect that it will be submitted to the
stockholders for their approval prior to the closing of this offering. If
approved by the stockholders, the 1999 Stock Incentive Plan will become
effective upon the closing of this offering. At that time, all outstanding
options under our existing stock option/ stock issuance plan will be transferred
to the 1999 Stock Incentive Plan, and no further option grants will be made
under that plan. The transferred options will continue to be governed by their
existing terms, unless our compensation committee decides to extend one or more
features of the 1999 Stock Incentive Plan to those options. Except as otherwise
noted below, the transferred options have substantially the same terms as will
be in effect for grants made under the discretionary option grant program of our
1999 Stock Incentive Plan.



    SHARE RESERVE.  Under the 1999 Stock Incentive Plan, 21.9 million shares of
our common stock have been authorized for issuance. This share reserve consists
of the shares that will be carried over from our existing stock option/stock
issuance plans, including the shares subject to outstanding options under these
plans, plus an additional increase of approximately 2.4 million shares. The
share reserve under our 1999 Stock Incentive Plan will automatically increase on
the first trading day in January of each year, beginning with calendar year
2000, by an amount equal to 3% of the total number of shares of our common stock
outstanding on the last trading day in December in the prior year, but in no
event will any such annual increase exceed 6.5 million shares. In addition, no
participant in the 1999 Stock Incentive Plan may be granted stock options or
direct stock issuances for more than 2 million shares of common stock in total
in any calendar year.


    PROGRAMS.  Our 1999 Stock Incentive Plan has four separate programs:

       - the discretionary option grant program, under which eligible
         individuals in our employ may be granted options to purchase shares of
         our common stock at an exercise price not less than the fair market
         value of those shares on the grant date;

       - the stock issuance program, under which eligible individuals may be
         issued shares of common stock directly, upon the attainment of
         performance milestones or the completion of a specified service period
         or as a bonus for past services;

       - the salary investment option grant program, under which our executive
         officers and other highly compensated employees may be given the
         opportunity to apply a portion of their base salary each year to the
         acquisition of special below market stock option grants; and

       - the director fee option grant program, under which our non-employee
         board members may be given the opportunity to apply a portion of any
         retainer fee otherwise payable to them in cash for the year to the
         acquisition of special below-market option grants.

    ELIGIBILITY.  The individuals eligible to participate in our 1999 Stock
Incentive Plan include our officers and other employees, our board members and
any consultants we hire.

    ADMINISTRATION.  The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other

                                       57
<PAGE>
highly compensated employees who may participate in the salary investment option
grant program in the event that program is put into effect for one or more
calendar years.

    PLAN FEATURES.  Our 1999 Stock Incentive Plan will include the following
features:

       - The exercise price for any options granted pursuant to the plan may be
         paid in cash or in shares of our common stock valued at fair market
         value on the exercise date. The option may also be exercised through a
         same-day sale program without any cash outlay by the optionee.

       - The compensation committee will have the authority to cancel
         outstanding options under the discretionary option grant program,
         including any transferred options from our existing stock option/stock
         issuance plan, in return for the grant of new options for the same or
         different number of option shares with an exercise price per share
         based upon the fair market value of our common stock on the new grant
         date.

       - Stock appreciation rights may be issued under the discretionary option
         grant program. These rights will provide the holders with the election
         to surrender their outstanding options for a payment from us equal to
         the fair market value of the shares subject to the surrendered options
         less the exercise price payable for those shares. We may make the
         payment in cash or in shares of our common stock. None of the
         outstanding options under our existing stock option/stock issuance plan
         have any stock appreciation rights.

    CHANGE IN CONTROL.  The 1999 Stock Incentive Plan will include the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:

       - In the event that we are acquired by merger or asset sale, each
         outstanding option under the discretionary option grant program which
         is not to be assumed by the successor corporation will immediately
         become exercisable for all the option shares, and all outstanding
         unvested shares will immediately vest, except to the extent our
         repurchase rights with respect to those shares are to be assigned to
         the successor corporation.

       - The compensation committee will have complete discretion to grant one
         or more options which will become exercisable for all the option shares
         in the event those options are assumed in the acquisition but the
         optionee's service with us or the acquiring entity is subsequently
         terminated. The vesting of any outstanding shares under our 1999 Stock
         Incentive Plan may be accelerated upon similar terms and conditions.

       - The compensation committee may grant options and structure repurchase
         rights so that the shares subject to those options or repurchase rights
         will immediately vest in connection with a successful tender offer for
         more than fifty percent of our outstanding voting stock or a change in
         the majority of our board through one or more contested elections. Such
         accelerated vesting may occur either at the time of such transaction or
         upon the subsequent termination of the individual's service.


       - The options outstanding under our existing stock option/stock issuance
         plan will immediately vest in the event we are acquired and the
         acquiring company does not assume those options. In addition, any
         options which are so assumed may vest in whole or in part on an
         accelerated basis upon an involuntary termination of the optionee's
         employment within 12 months after the acquisition. In general, an
         employee with such an acceleration provision will, after taking that
         acceleration into account, be vested at the time of his or her
         involuntary termination in the greater of (i) the number


                                       58
<PAGE>

         of shares in which he or she would have been vested at that time had
         his or her service been twice as long as the actual period of service
         rendered prior to such involuntary termination or (ii) the number of
         shares in which he or she would have been vested in had he or she
         completed one year of service prior to such termination.


    SALARY INVESTMENT OPTION GRANT PROGRAM.  In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $10,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to purchase that number of shares of common stock determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of our common stock on the grant date. The option will have an exercise
price per share equal to one-third of the fair market value of the option shares
on the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the amount of the salary reduction.
The option will become exercisable in a series of twelve equal monthly
installments over the calendar year for which the salary reduction is to be in
effect.


    DIRECTOR FEE OPTION GRANT PROGRAM.  If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January of the calendar year for which the non-employee
board member would otherwise be paid the cash retainer fee in the absence of his
or her election. The option will have an exercise price per share equal to
one-third of the fair market value of the option shares on the grant date, and
the number of shares subject to the option will be determined by dividing the
amount of the retainer fee applied to the program by two-thirds of the fair
market value per share of our common stock on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal to
the portion of the retainer fee applied to that option. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the election is in effect. However, the option will become
immediately exercisable for all the option shares upon the death or disability
of the optionee while serving as a board member.


    ADDITIONAL PROGRAM FEATURES.  Our 1999 Stock Incentive Plan will also have
the following features:

       - Outstanding options under the salary investment option grant and
         director fee option grant programs will immediately vest if we are
         acquired by a merger or asset sale or if there is a successful tender
         offer for more than 50% of our outstanding voting stock or a change in
         the majority of our board through one or more contested elections.

       - Limited stock appreciation rights will automatically be included as
         part of each grant made under the salary investment option grant and
         the director fee option grant programs, and these rights may also be
         granted to one or more officers as part of their option grants under
         the discretionary option grant program. Options with this feature may
         be surrendered to us upon the successful completion of a hostile tender
         offer for more than 50% of our outstanding voting stock. In return for
         the surrendered option, the optionee will be entitled to a cash
         distribution from us in an amount per surrendered option share based
         upon the highest price per share of our common stock paid in that
         tender offer.

                                       59
<PAGE>
       - The board may amend or modify the 1999 Stock Incentive Plan at any
         time, subject to any required stockholder approval. The 1999 Stock
         Incentive Plan will terminate no later than July 12, 2009.

1999 EMPLOYEE STOCK PURCHASE PLAN.


    Our 1999 Employee Stock Purchase Plan was adopted by the board in July 1999
and we expect that it will be submitted to the stockholders for their approval
prior to the closing of this offering. We expect the plan to become effective
immediately upon the signing of the underwriting agreement for this offering.
The plan is designed to allow our eligible employees and the eligible employees
of our participating subsidiaries to purchase shares of common stock, at
semi-annual intervals, with their accumulated payroll deductions.



    SHARE RESERVE.  500,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each year, beginning in calendar year 2000, by an amount
equal to one and one half percent (1.5%) of the total number of outstanding
shares of our common stock on the last trading day in December in the prior
year, but in no event will any such annual increase exceed 3,250,000 shares.


    OFFERING PERIODS.  The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering is signed and
will end on the last business day in October 2001. The next offering period will
start on the first business day in November 2001, and subsequent offering
periods will be set by our compensation committee.

    ELIGIBLE EMPLOYEES.  Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of May and November each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.


    PAYROLL DEDUCTIONS.  A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of April and October each
year. In no event, however, may any participant purchase more than 2,500 shares
on any purchase date, and not more than 500,000 shares may be purchased in total
by all participants on any purchase date. Our compensation committee may
increase or decrease these limits prior to the start of any new offering period
under the plan.


    RESET FEATURE.  If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.

    CHANGE IN CONTROL.  Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the

                                       60
<PAGE>
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.

    PLAN PROVISIONS.  The following provisions will also be in effect under the
plan:

       - The plan will terminate no later than the last business day of October
         2009.

       - The board may at any time amend, suspend or discontinue the plan.
         However, certain amendments may require stockholder approval.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

    The certificate of incorporation that we will adopt immediately prior to the
closing of this offering provides that, except to the extent prohibited by the
Delaware General Corporation Law, our directors will not be personally liable to
us or our stockholders for monetary damages for any breach of fiduciary duty as
directors. Under the Delaware General Corporation Law, the directors have a
fiduciary duty to NetZero which is not eliminated by this provision of the
certificate of incorporation and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available. In addition, each director will continue to be subject to liability
under the Delaware law for breach of the director's duty of loyalty, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or which involve intentional misconduct, or knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Delaware law. This provision also does not affect the director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. We have obtained liability insurance for
our officers and directors.

    Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided that
this provision shall not eliminate or limit the liability of a director: (a) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) arising under Section
174 of the Delaware law, or (d) for any transaction from which the director
derived an improper personal benefit. The Delaware law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
certificate of incorporation provides that we shall, to the fullest extent
permitted by the Delaware law, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person is or was a director or officer, or is or
was serving at our request as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgements, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.

    We have entered into indemnification agreements with our directors and
certain of our officers containing provisions that may require us, among other
things, to indemnify such directors and officers against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
liability insurance if maintained for other directors or officers.

    At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.

                                       61
<PAGE>
                             PRINCIPAL STOCKHOLDERS

    The following table sets forth information with respect to the beneficial
ownership of our common stock as of June 30, 1999:

       - each stockholder whom we know to beneficially own 5% or more of the
         outstanding shares of common stock;

       - each of our directors and named executive officers; and

       - all of our directors and executive officers as a group.

The information set forth in the table below gives effect to the conversion of
all issued and outstanding convertible preferred stock. Unless otherwise
indicated, the address of each beneficial owner listed below is c/o NetZero,
Inc., 2555 Townsgate Road, Westlake Village, California.

    Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below, we
believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 93,036,410 shares of common stock outstanding
as of June 30, 1999, and       shares of common stock outstanding after the
completion of this offering. In computing the number of shares of common stock
subject to options held by that person that are exercisable within 60 days of
June 30, 1999, these shares are deemed outstanding for the purpose of
determining the percentage ownership of the optionee. These shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership of
any other stockholder.

<TABLE>
<CAPTION>
                                                                                        PERCENTAGE OF SHARES
                                                                                         BENEFICIALLY OWNED
                                                                                   ------------------------------
                                                               NUMBER OF SHARES                         AFTER
NAME OF BENEFICIAL OWNER                                      BENEFICIALLY OWNED   BEFORE OFFERING    OFFERING
- ------------------------------------------------------------  -------------------  ---------------  -------------
<S>                                                           <C>                  <C>              <C>
Named Executive Officers and Directors:
  Mark R. Goldston(1).......................................         6,040,731             6.5%               %
  Ronald T. Burr............................................         3,707,500             4.0%
  Bill Gross(2).............................................        28,917,104            31.1%
  James T. Armstrong(3).....................................        23,949,278            25.6%
  Jennifer S. Fonstad(4)....................................        15,050,677            16.2%
  Paul G. Koontz(5).........................................        10,899,406            11.7%
  David C. Bohnett..........................................           326,260                *

OTHER 5% STOCKHOLDERS:
Entities affiliated with Bill Gross(6)......................        28,917,104            31.1%               %
  130 West Union Street
  Pasadena, CA 91103
Entities affiliated with Draper Fisher Jurvetson Management
  Company V, LLC(7).........................................        15,050,677            16.2%               %
  400 Seaport Court, Suite 350
  Redwood City, CA 94063
Entities affiliated with Foundation Capital Management II,
  LLC(8)....................................................        10,899,406            11.7%               %
  70 Willow Road, Suite 200
  Menlo Park, CA 94025
</TABLE>

                                       62
<PAGE>
<TABLE>
<CAPTION>
                                                                                        PERCENTAGE OF SHARES
                                                                                         BENEFICIALLY OWNED
                                                                                   ------------------------------
                                                               NUMBER OF SHARES                         AFTER
NAME OF BENEFICIAL OWNER                                      BENEFICIALLY OWNED   BEFORE OFFERING    OFFERING
- ------------------------------------------------------------  -------------------  ---------------  -------------
<S>                                                           <C>                  <C>              <C>
CPQ Holdings, Inc.(9).......................................         8,125,000             8.7%               %
  20555 State Highway 249
  Houston, TX 77070
All directors and executive officers as a group (11
  people)(10)...............................................        72,055,813            77.4%               %
</TABLE>

- ------------------------

*   Represents beneficial ownership of less than 1% of the outstanding shares of
    common stock.

(1) Includes (i) 5,926,383 shares held by the Mark and Nancy Jane Goldston
    Family Trust dated November 8, 1997, over which Mr. Goldston exercises
    voting power, as trustee, and (ii) 60,000 shares held by the Kogan Family
    Irrevocable Trust, over which Mr. Goldston exercises voting power, as
    trustee.

(2) Includes 28,917,104 shares held by affiliates of idealab! Capital Management
    I, LLC and idealab! Holdings, L.L.C. Mr. Gross is a managing member of both
    idealab! Capital Management I, LLC and idealab! Holdings, L.L.C., and as
    such may be deemed to exercise voting and investment power over such shares.
    Mr. Gross disclaims beneficial ownership of such shares, except to the
    extent of his proportionate interest therein.

(3) Includes 23,949,278 shares held by idealab! Capital Partners I-A, L.P. and
    idealab! Capital Partners I-B, L.P. Mr. Armstrong is a principal of each of
    these entities and disclaims beneficial ownership of such shares, except to
    the extent of his proportionate interest therein.

(4) Includes 15,050,677 shares held by entities affiliated with Draper Fisher
    Jurvetson, as set forth in note (7) below. Ms. Fonstad is a partner of
    Draper Fisher Jurvetson and disclaims beneficial ownership of such shares,
    except to the extent of her proportionate interest therein.

(5) Includes 10,899,406 shares held by entities affiliated with Foundation
    Capital Management II, LLC, as set forth in note (8) below. Mr. Koontz
    disclaims beneficial ownership of such shares, except to the extent of his
    proportionate interest therein.

(6) Includes (i) 10,215,281 shares owned by idealab! Capital Partners I-A, L.P.,
    (ii) 13,733,997 shares owned by idealab! Capital Partners I-B, L.P., and
    (iii) 4,967,826 shares owned by idealab! Holdings, L.L.C. idealab! Capital
    Management I, LLC is the general partner of both idealab! Capital Partners
    I-A, L.P. and idealab! Capital Partners I-B, L.P. In addition, Bill Gross is
    a managing member of both idealab! Capital Management I, LLC and idealab!
    Holdings, L.L.C. and is therefore deemed to exercise voting and investment
    power over such shares.

(7) Includes 13,921,876 shares owned by Draper Fisher Jurvetson Fund V, L.P. and
    1,128,801 shares owned by Draper Fisher Jurvetson Partners V, LLC. Draper
    Fisher Jurvetson Management Company V, LLC is the general partner of Draper
    Fisher Jurvetson Fund V, L.P. and the manager of Draper Fisher Jurvetson
    Partners V, LLC and is therefore deemed to exercise voting and investment
    power over such shares.

(8) Includes 9,264,496 shares owned by Foundation Capital II, L.P., 1,089,940
    shares owned by Foundation Capital II Entrepreneurs Fund, LLC, and 544,970
    shares owned by Foundation Capital II Principals Fund, LLC. Foundation
    Capital Management II, LLC is the general partner of Foundation Capital II,
    L.P. and the manager of both Foundation Capital II Entrepreneurs Fund, LLC
    and Foundation Capital II Principals Fund, LLC and is thus deemed to
    exercise voting and investment power over such shares.

(9) Includes 8,125,000 shares owned by CPQ Holdings, Inc., an affiliate of
    Compaq Computer Corporation.


(10) Includes 900,000 shares subject to options, all of which are immediately
    exercisable. Also includes 12,064,111 shares subject to our right of
    repurchase. Of such shares, 424,431 shall be released from such right of
    repurchase within 60 days of June 30, 1999.


                                       63
<PAGE>
                              CERTAIN TRANSACTIONS

    Since our founding in July 1997, there has not been any transaction to which
we are a party in which the amount involved exceeded $60,000 and in which any
director, executive officer, holder of more than 5% of our common stock or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than (i) compensation agreements
and other agreements which are described where required in "Management", and
(ii) the transactions described below:

    The following table summarizes the shares of common stock and preferred
stock purchased by executive officers, directors and 5% stockholders of NetZero
and persons associated with them since July 1997. All share numbers (a) reflect
the number of shares of common stock purchased by the respective party on an
as-converted basis and (b) reflect the 3-2 stock split that we expect to occur
in July 1999.

<TABLE>
<CAPTION>
                                                                            PREFERRED STOCK
EXECUTIVE OFFICERS, DIRECTORS AND 5%        COMMON       ------------------------------------------------------
  STOCKHOLDERS                               STOCK         SERIES A      SERIES B      SERIES C      SERIES D
- --------------------------------------  ---------------  -------------  -----------  -------------  -----------
<S>                                     <C>              <C>            <C>          <C>            <C>
Entities affiliated with Bill
  Gross(1)............................              --      11,956,121    7,172,593      4,630,783    5,157,607
Entities affiliated with Draper,
  Fisher, Jurvetson Management Company
  V, LLC(2)...........................              --              --           --     12,798,634    2,252,043
Entities affiliated with Foundation
  Capital Management II, LLC(3).......              --              --           --      9,261,557    1,637,849
CPQ Holdings, Inc.(4).................              --              --           --             --    8,125,000
David C. Bohnett......................              --              --      101,260        225,000
Mark R. Goldston......................       6,286,383              --           --             --       54,348
Ronald T. Burr........................       3,975,000              --           --             --           --
Stacy A. Haitsuka.....................       3,975,000              --           --             --           --
Charles S. Hilliard...................       1,200,000              --           --             --      225,000
Frederic A. Randall, Jr...............       1,050,000              --           --         11,635           --
</TABLE>

- ------------------------

(1) Bill Gross is (a) a managing member of idealab! Capital Management I, LLC,
    which is the general partner of both idealab! Capital Partners I-A, L.P. and
    idealab! Capital Partners I-B, L.P., and (b) the managing member of idealab!
    Holdings, L.L.C., and therefore is deemed to exercise voting and investment
    power over all of the shares held by idealab! Holdings, L.L.C., idealab!
    Capital Partners I-A, L.P., and idealab! Capital Partners I-B, L.P.

(2) Draper Fisher Jurvetson Management Company V, LLC is (a) the general partner
    of Draper Fisher Jurvetson Fund V, L.P. and (b) the manager of Draper Fisher
    Jurvetson Partners V, LLC, and therefore is deemed to exercise voting and
    investment power of all of the shares held by Draper Fisher Jurvetson Fund
    V, L.P. and Draper Fisher Jurvetson Partners V, LLC.

(3) Foundation Capital Management II, LLC is (a) the general partner of
    Foundation Capital II, L.P. and (b) the manager of both Foundation Capital
    II Entrepreneurs Fund, LLC and Foundation Capital II Principals Fund, LLC,
    and therefore is deemed to exercise voting and investment power over all of
    the shares held by Foundation Capital II, L.P., Foundation Capital II
    Entrepreneurs Fund, LLC, and Foundation Capital II Principals Fund, LLC.

(4) CPQ Holdings, Inc. is an affiliate of Compaq Computer Corporation.

ISSUANCE OF FOUNDERS STOCK

    In July 1997, we sold an aggregate of 15,000,000 shares of our common stock
to Ronald T. Burr, Stacy Haitsuka, Marwan Zebian and Harold MacKenzie. The
shares were issued at a price per

                                       64
<PAGE>

share of $0.00013. As a condition to the September 1998 issuance of Series A
preferred stock described below, each of the foregoing individuals entered into
a stock restriction agreement with NetZero, pursuant to which each such
individual agreed to subject half of his shares of common stock to vesting over
a four-year period. The stock restriction agreements were amended to provide for
accelerated vesting in the event of termination in connection with or following
a change in control.


ISSUANCE OF SERIES A AND SERIES B PREFERRED STOCK

    In September, October and November 1998, and March and June 1999, we sold an
aggregate of 11,956,121 shares of Series A preferred stock at $0.0889 per share
to Bill Gross' idealab!, idealab! Holdings, L.L.C., idealab! Capital Partners
I-A, L.P., and idealab! Capital Partners I-B, L.P. In December 1998, and
January, March and June 1999, we sold an aggregate of 7,172,593 shares of Series
B preferred stock at $0.1481 per share to Bill Gross' idealab!, idealab!
Holdings, L.L.C., idealab! Capital Partners I-A, L.P., and idealab! Capital
Partners I-B, L.P.

    In January 1999, David C. Bohnett, a director of NetZero, purchased 101,260
shares of our Series B preferred stock for a purchase price of $15,000.

ISSUANCE OF WARRANTS FOR SERIES C PREFERRED STOCK

    In January 1999, we issued warrants to purchase an aggregate of 23,271
shares of Series C preferred stock to idealab! Capital Partners I-A, L.P. and
idealab! Capital Partners I-B, L.P. in connection with a $100,000 bridge loan
from such entities. The warrants were exercised immediately after the closing of
our Series C preferred stock financing in February 1999.

ISSUANCE OF SERIES C PREFERRED STOCK

    In February 1999, we sold an aggregate of 26,851,533 shares of Series C
preferred stock at $0.4297 per share to several investors pursuant to a stock
purchase agreement, including (a) idealab! Capital Partners I-A, L.P. and
idealab! Capital Partners I-B, L.P. who purchased an aggregate of 4,607,512
shares of Series C preferred stock for an aggregate purchase price of
$1,980,002, (b) two affiliates of Draper Fisher Jurvetson who purchased an
aggregate of 12,798,634 shares of Series C preferred stock for an aggregate
purchase price of $5,500,000, (c) several affiliates of Foundation Capital who
purchased an aggregate of 9,261,557 shares of Series C preferred stock for an
aggregate purchase price of $3,980,000, and (d) Frederic A. Randall, Jr., who
purchased 11,635 shares of Series C preferred stock for a purchase price of
$5,000.

ISSUANCE OF OPTION TO PURCHASE SERIES C PREFERRED STOCK

    In March 1999, David C. Bohnett purchased 225,000 shares of our Series C
preferred stock for a purchase price of $96,690, in connection with the exercise
of the option to purchase such shares which was granted to Mr. Bohnett in
December 1998 in connection with his joining our board of directors. The option
shares are subject to NetZero's right of repurchase at the price paid per share.
The repurchase right lapses in a series of 48 equal monthly installments which
began December 1, 1998.

ISSUANCE OF SERIES D PREFERRED STOCK

    In May 1999, we sold an aggregate of 18,082,283 shares of Series D preferred
stock at $1.84 per share to several investors, including (a) idealab! Capital
Partners I-A, L.P., idealab! Capital Partners, I-B, L.P. and idealab! Holdings,
L.L.C., who purchased an aggregate of 5,157,607 shares of Series D preferred
stock for an aggregate purchase price of $9,489,998, (b) two affiliates of
Draper Fisher Jurvetson who purchased an aggregate of 2,252,043 shares of Series
D preferred

                                       65
<PAGE>
stock at an aggregate purchase price of $4,143,759, (c) several affiliates of
Foundation Capital Management II, LLC, who purchased an aggregate of 1,637,849
shares of Series D preferred stock for an aggregate purchase price of
$3,013,644, (d) Mark R. Goldston, who purchased 54,348 shares of Series D
preferred stock for a purchase price of $100,000, and (e) Charles S. Hilliard,
who purchased 225,000 shares of Series D preferred stock for a purchase price of
$414,000.

ISSUANCE OF OPTIONS TO PURCHASE COMMON STOCK

    In March 1999, Mark R. Goldston purchased 6,286,383 shares of our common
stock for a purchase price of $628,638 in connection with the exercise of an
option granted to Mr. Goldston in connection with his employment. The purchase
price for such common stock was paid with a note payable to NetZero for the
entire amount.

    In April 1999, Frederic A. Randall, Jr. purchased 1,050,000 shares of our
common stock for a purchase price of $105,000 in connection with the exercise of
an option granted to him in connection with his employment.

    In April 1999, Charles S. Hilliard purchased 1,200,000 shares of our common
stock for a purchase price of $400,000, in connection with the exercise of an
option granted to Mr. Hilliard in connection with his employment. The purchase
price for such common stock was paid with a note payable to NetZero for the
entire amount.

TECHNOLOGY ASSIGNMENT AGREEMENT WITH IMPACT SOFTWARE, INC.

    During the nine months ended March 31, 1999, we paid an aggregate of
$100,000 to Impact Software, Inc. pursuant to a Technology Assignment Agreement
to purchase certain technology and repay certain indebtedness. Messrs. Burr,
Haitsuka, MacKenzie and Zebian are directors, officers and/or employees of
NetZero and were shareholders and officers of Impact Software at the time such
agreement was executed.

INVESTORS' RIGHTS AGREEMENT

    In May 1999, we entered into an Amended and Restated Investors' Rights
Agreement with certain of our stockholders, which provides such stockholders
certain rights to require us to register their shares of NetZero common stock.

DISTRIBUTION AGREEMENT WITH COMPAQ

    In April 1999, we entered into a Distribution, License and Alliance
Agreement with Compaq Computer Corporation, pursuant to which Compaq will
distribute our NetZero software with its Presario products over a twelve month
period. Immediately after the offering, Compaq, through its affiliate CPQ
Holdings, Inc., will own approximately   % of our outstanding capital stock.

                                       66
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

GENERAL

    We are authorized to issue 500,000,000 shares of common stock, par value
$0.001, and 10,000,000 shares of undesignated preferred stock, par value $0.001.
The following description of our securities and certain provisions of our
certificate of incorporation and bylaws are summaries. Statements contained in
this prospectus relating to such provisions are not necessarily complete. Copies
of our certificate of incorporation and bylaws have been filed with the
Commission as exhibits to our registration statement, of which this prospectus
forms a part. The descriptions of common stock and preferred stock reflect
changes to our capital structure that will occur upon the closing of this
offering in accordance with the terms of the certificates that will be adopted
by us immediately prior to the closing of this offering.

COMMON STOCK

    As of June 30, 1999, there were 93,036,410 shares of common stock
outstanding and held of record by 163 stockholders (assuming conversion of all
shares of preferred stock into common stock). Based on the number of shares
outstanding as of that date and giving effect to the issuance of the
shares of common stock offered by us hereby, there will be              shares
of common stock outstanding (assuming no exercise of the underwriters'
over-allotment option) upon the closing of the offering.

    Holders of the common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders. Holders of common stock are
entitled to receive ratably any dividends that may be declared by the Board of
Directors out of legally available funds, subject to any preferential dividend
rights of any outstanding preferred stock. Upon our liquidation, dissolution or
winding up, the holders of common stock are entitled to receive ratably our net
assets available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of common stock are, and the shares offered by us in this
offering will be upon receipt of payment for such shares, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of holders of
shares of any series of preferred stock which we may designate and issue in the
future without further stockholder approval. Upon the closing of the offering,
there will be no shares of preferred stock outstanding.

PREFERRED STOCK

    Upon the closing of this offering, all outstanding shares of our Series A,
Series B, Series C and Series D preferred stock will convert into shares of
common stock. Thereafter, the board of directors will be authorized without
further stockholder approval to issue from time to time up to an aggregate of
10,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights, qualifications, limitations or
restrictions of the shares of each such series, including the dividend rights,
dividend rates, conversion rights, voting rights, term of redemption (including
sinking fund provisions), redemption price or prices, liquidation preferences
and the number of shares constituting any series or designations of such series
without further vote or action by the stockholders. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of our management without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. We have no present plans to issue any shares of
preferred stock.

                                       67
<PAGE>
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS

    Certain provisions of our certificate of incorporation and bylaws, which
will become effective upon the closing of this offering, may make it more
difficult to acquire control of NetZero by various means. These provisions could
deprive the stockholders of opportunities to realize a premium on the shares of
common stock owned by them. In addition, these provisions may adversely affect
the prevailing market price of the stock. These provisions are intended to (a)
enhance the likelihood of continuity and stability in the composition of the
board and in the policies formulated by the board, (b) discourage certain types
of transactions which may involve an actual or threatened change in control of
NetZero, (c) discourage certain tactics that may be used in proxy fights, (d)
encourage persons seeking to acquire control of NetZero to consult first with
the board of directors to negotiate the terms of any proposed business
combination or offer, and (e) reduce our vulnerability to an unsolicited
proposal for a takeover that does not contemplate the acquisition of all
outstanding shares of NetZero or that is otherwise unfair to our stockholders.

    CLASSIFIED BOARD OF DIRECTORS; REMOVAL; FILLING VACANCIES AND
AMENDMENT.  The certificate and bylaws provide that upon the closing of this
offering the board shall be divided into three classes of directors serving
staggered, three-year terms. The classification of the board has the effect of
requiring at least two annual stockholder meetings, instead of one, to replace a
majority of members of the board. Subject to the rights of the holders of any
outstanding series of preferred stock, the certificate authorizes only the board
to fill vacancies, including newly created directorships. Accordingly, this
provision could prevent a stockholder from obtaining majority representation on
the board by enlarging the board of directors and filling the new directorships
with its own nominees. The certificate also provides that directors may be
removed by stockholders only for cause and only by the affirmative vote of
holders of two-thirds of the outstanding shares of voting stock.

    STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS.  The certificate
provides that stockholders may not take action by written consent, but may only
take action at duly called annual or special meetings of stockholders. The
certificate further provides that special meetings of our stockholders may be
called only by the chairman of the board of directors or a majority of the board
of directors. A special meeting may not be held absent such a written request.
The request shall state the purpose or purposes of the proposed meeting. This
limitation on the right of stockholders to call a special meeting could make it
more difficult for stockholders to initiate actions that are opposed by the
board of directors. These actions could include the removal of an incumbent
director or the election of a stockholder nominee as a director. They could also
include the implementation of a rule requiring stockholder ratification of
specific defensive strategies that have been adopted by the board of directors
with respect to unsolicited takeover bids. In addition, the limited ability of
the stockholders to call a special meeting of stockholders may make it more
difficult to change the existing board and management.

    ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS.  The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 120 days
prior to the date of our annual meeting. The bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.

                                       68
<PAGE>
    AUTHORIZED BUT UNISSUED SHARES.  The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.

    SUPERMAJORITY VOTE TO AMEND CHARTER AND BYLAWS.  The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. Our
amended and restated certificate of incorporation imposes supermajority vote
requirements in connection with business combination transactions and the
amendment of certain provisions of our certificate of incorporation and bylaws,
including those provisions relating to the classified board of directors, action
by written consent, the ability of stockholders to call special meetings and the
ability of stockholders to bring business before an annual meeting or to
nominate directors. Following the completion of this offering, our present
directors and executive officers and their respective affiliates will
beneficially own approximately       % of our common stock. This gives them veto
power with respect to any stockholder action or approval requiring either a
two-thirds vote or a simple majority.

    SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW.  We are subject to the
provisions of Section 203 of the Delaware General Corporation Law, as amended
from time to time. Subject to certain exceptions, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years from the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, fifteen percent
(15%) or more of the corporation's voting stock. This statute could prohibit or
delay the accomplishment of mergers or other takeover or change in control in
attempts with respect to us and, accordingly, may discourage attempts to acquire
us.

REGISTRATION RIGHTS

    Under the Amended and Restated Investor Rights Agreement dated as of May 10,
1999, among NetZero and certain holders of its securities, the holders of
approximately 85,698,000 shares of common stock, or Registrable Securities,
after this offering will be entitled to certain rights with respect to the
registration of the Registrable Securities under the Securities Act. Under the
Investors Rights Agreement, if NetZero proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other stockholders, the holders of Registrable Securities are entitled to
notice of such registration and are entitled to include their Registrable
Securities in the registration. Of the approximately 85,698,000 shares of
Registrable Securities, approximately 21,286,000 shares are only entitled to
these "piggy back" registration rights.

    In addition, if at any time after August 15, 2000, NetZero receives a
request from certain holders of at least 20% of the Registrable Securities,
NetZero is obligated to cause these shares to be registered under the Securities
Act, provided that the offering size would exceed $5,000,000. Certain holders of
Registrable Securities have the right to cause two demand registrations.
Further, holders of Registrable Securities may require NetZero to register all
or a portion of their Registrable

                                       69
<PAGE>
Securities on Form S-2 or Form S-3 under the Securities Act, provided that the
offering size would exceed $1,000,000, when these forms become available for use
by NetZero, and subject to certain other conditions and limitations. The
holders' rights with respect to all these registrations are subject to certain
conditions, including the right of the underwriters of any of these offerings to
limit the number of shares included in any of these registrations. NetZero has
agreed to pay all expenses related to certain of these registrations, except for
underwriting discounts and commissions, to effect the registration and sale of
the Registrable Securities. Upon registration, such shares are freely tradeable
in the public market without restriction.

TRANSFER AGENT AND REGISTRAR

    The Transfer Agent and Registrar for our common stock will be U.S. Stock
Transfer Corporation.

LISTING

    Application has been made for listing the common stock on The Nasdaq
National Market under the trading symbol "NZRO".

                                       70
<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE

    Upon completion of the offering, we will have              shares of common
stock outstanding (             shares if the underwriters' over-allotment
option is exercised in full), assuming no exercise of options after
             , 1999. Of this amount, the              shares offered by this
prospectus will be available for immediate sale in the public market as of the
date of this prospectus. An additional              shares are not subject to a
180-day lock-up and will be available for sale in the public market 90 days
following the date of this prospectus pursuant to Rule 701. Approximately
             additional shares will be available for sale in the public market
following the expiration of 180-day lock-up agreements with the representatives
of our underwriters, subject in some cases to compliance with the volume and
other limitations of Rule 144.

<TABLE>
<CAPTION>
                                       APPROXIMATE SHARES
   DAYS AFTER THE DATE OF THIS         ELIGIBLE FOR FUTURE
            PROSPECTUS                       SALE(1)                        COMMENT
- ----------------------------------  -------------------------  ----------------------------------
<S>                                 <C>                        <C>

Upon Effectiveness................                             Freely tradeable shares sold in
                                                               offering and shares saleable under
                                                               Rule 144(k) that are not subject
                                                               to 180-day lock-up

90 days...........................                             Shares saleable under Rule 144,
                                                               144(k) or 701 that are not subject
                                                               to 180-day lock-up

180 days..........................                             Lock-up released; shares saleable
                                                               under Rule 144, 144(k) or 701

Over 180 days.....................                             Restricted securities held for one
                                                               year or less
</TABLE>

- ------------------------

(1) If the underwriters waive the 180-day lock-up agreements within the first 90
    days after the date of this prospectus, an additional              shares
    will be available for sale in the public market 90 days following the date
    of this prospectus, subject in some cases to compliance with the volume and
    other limitations of Rule 144.

    In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of (a) 1% of the then outstanding shares of common stock (approximately
shares immediately after the offering) or (b) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of NetZero at any time
during the 90 days immediately preceding the sale and who has beneficially owned
his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.

    We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be

                                       71
<PAGE>
sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered hereby.

    Our directors, executive officers, stockholders with registration rights and
certain other stockholder and optionholders have agreed pursuant to the
underwriting agreement and other agreements that they will not sell any common
stock without the prior written consent of Goldman, Sachs & Co. for a period of
180 days from the date of this prospectus. We have also agreed not to issue any
shares during the lock-up period without the consent of Goldman, Sachs & Co.,
except that we may, without such consent, grant options and sell shares pursuant
to our stock incentive and purchase plans.

    Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of              , the holders of options to purchase
approximately              shares of common stock will be eligible to sell their
shares upon the expiration of the lock-up period, subject in certain cases to
vesting of such options.

    We intend to file a registration statement on Form S-8 under the Securities
Act within       days after the completion of the offering to register
shares of common stock subject to outstanding stock options reserved for
issuance under our 1999 Stock Incentive Plan, thus permitting the resale of such
shares by nonaffiliates in the public market without restriction under the
Securities Act.

    In addition, certain stockholders have registration rights with respect to
85,698,444 shares of common stock and common stock equivalents. Registration of
the registrable securities under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act.

                                 LEGAL MATTERS

    The validity of the common stock offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, Irvine, California. As of June 30, 1999,
Brobeck, Phleger & Harrison LLP and certain entities and individuals affiliated
with Brobeck, Phleger & Harrison LLP beneficially owned an aggregate of 46,540
shares of our Series C preferred stock and an aggregate of 40,761 shares of our
Series D preferred stock, all of which will convert to common stock in the
offering. Certain legal matters relating to the sale of common stock in this
offering will be passed upon for the underwriters by Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, Palo Alto, California.

                                    EXPERTS


    The financial statements of NetZero, Inc. as of June 30, 1998 and 1999 and
for the period from July 21, 1997 (inception) through June 30, 1998 and the year
ended June 30, 1999 included in this prospectus and Registration Statement have
been audited by PricewaterhouseCoopers LLP, independent accountants, as set
forth in their report appearing elsewhere in this prospectus, and are included
in reliance upon their report given on the authority of said firm as experts in
accounting and auditing.


                                       72
<PAGE>
                             ADDITIONAL INFORMATION

    We have filed with the Securities and Exchange Commission (the "Commission")
a registration statement on Form S-1 (including the exhibits and schedules
thereto) under the Securities Act with respect to the shares to be sold in the
offering. This prospectus does not contain all the information set forth in the
registration statement. For further information with respect to us and the
shares to be sold in the offering, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract, agreement
or other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. In addition, we
intend to file annual, quarterly and current reports, proxy statements and other
information with the Commission.

    You may read and copy all or any portion of the registration statement or
any reports, statements or other information that we file at the Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our Commission
filings, including the registration statement, are also available to you on the
Commission's Web-site (http://www.sec.gov).

                                       73
<PAGE>
                                 NETZERO, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                                    <C>
Report of Independent Accountants....................................................     F-2

Balance Sheets.......................................................................     F-3

Statements of Operations.............................................................     F-4

Statements of Stockholders' Equity (Deficit).........................................     F-5

Statements of Cash Flows.............................................................     F-6

Notes to Financial Statements........................................................     F-7
</TABLE>

                                      F-1
<PAGE>

    The following report is in the form that will be signed upon the
reincorporation into Delaware as described in Note 13 of the notes to the
financial statements.


                                          /s/ PricewaterhouseCoopers LLP


Woodland Hills, California
July 30, 1999


                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
NetZero, Inc.


    In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity (deficit) and cash flows present fairly, in
all material respects, the financial position of NetZero, Inc. (the "Company")
as of June 30, 1998 and 1999 and the results of its operations and its cash
flows for the period from July 21, 1997 (Inception) through June 30, 1998 and
for the year ended June 30, 1999 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.



Woodland Hills, California
July 28, 1999, except for Note 13 as
to which the date is       , 1999


                                      F-2
<PAGE>
                                 NETZERO, INC.


                                 BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                       JUNE 30,       JUNE 30,
                                                                         1998           1999
                                                                      -----------  --------------    PRO FORMA
                                                                                                   STOCKHOLDERS'
                                                                                                       EQUITY
                                                                                                      JUNE 30,
                                                                                                        1999
                                                                                                   --------------
                                                                                                    (UNAUDITED)
<S>                                                                   <C>          <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents.........................................   $   1,000   $   24,035,000
  Accounts receivable, net of allowance for doubtful accounts of
    $160,000 at June 30, 1999.......................................          --        2,253,000
  Other current assets..............................................          --          689,000
                                                                      -----------  --------------
      Total current assets..........................................       1,000       26,977,000

Property and equipment, net.........................................          --       18,116,000
Restricted cash.....................................................          --        1,789,000
Deposits............................................................          --          619,000
                                                                      -----------  --------------
      Total assets..................................................   $   1,000   $   47,501,000
                                                                      -----------  --------------
                                                                      -----------  --------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..................................................   $   4,000   $    4,879,000
  Due to related party..............................................      19,000               --
  Accrued liabilities...............................................       1,000        1,521,000
  Deferred revenue..................................................          --        2,739,000
  Current portion of notes payable..................................          --          560,000
  Current portion of capital leases.................................          --        1,181,000
                                                                      -----------  --------------
      Total current liabilities.....................................      24,000       10,880,000
Notes payable less current portion..................................          --        1,210,000
Capital leases less current portion.................................          --        2,317,000
Commitments and contingencies (Note 12).............................

Redeemable convertible preferred stock, no-par value; 19,231,000
  shares authorized; 19,230,000 issued and outstanding at June 30,
  1999; liquidation preference and redemption value of $2,140,000...          --        2,140,000
                                                                      -----------  --------------
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 55,769,000 shares
  authorized; 45,182,000 shares issued and outstanding at June 30,
  1999; liquidation preference of $44,917,000;
  Pro forma--10,000,000 shares authorized; no shares issued and
  outstanding.......................................................          --       44,720,000             --
Common stock, $0.001 par value; 30,000,000 and 150,000,000 shares
  authorized at June 30, 1998 and June 30, 1999, respectively;
  15,000,000 and 28,624,000 shares issued and outstanding at June
  30, 1998 and June 30, 1999, respectively; Pro forma--500,000,000
  authorized; 93,036,000 shares issued and outstanding..............       2,000        1,352,000         93,000
Additional paid-in capital..........................................          --        7,888,000     56,007,000
Notes receivable from stockholders..................................          --       (1,029,000)    (1,029,000)
Deferred stock compensation.........................................          --       (6,732,000)    (6,732,000)
Accumulated deficit.................................................     (25,000)     (15,245,000)   (15,245,000)
                                                                      -----------  --------------  --------------
      Total stockholders' equity (deficit)..........................     (23,000)      30,954,000   $ 33,094,000
                                                                      -----------  --------------  --------------
                                                                                                   --------------
      Total liabilities and stockholders' equity....................   $   1,000   $   47,501,000
                                                                      -----------  --------------
                                                                      -----------  --------------
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>
                                 NETZERO, INC.


                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                                JULY 21, 1997
                                                                             (INCEPTION) THROUGH    YEAR ENDED
                                                                                JUNE 30, 1998      JUNE 30, 1999
                                                                             -------------------  ---------------
<S>                                                                          <C>                  <C>
Net revenues...............................................................     $          --     $     4,634,000
Cost of revenues (Including $411,000 of depreciation expense)..............                --          12,426,000
                                                                             -------------------  ---------------
Gross loss.................................................................                --          (7,792,000)
                                                                             -------------------  ---------------
Operating expenses:
  Sales and marketing......................................................                --             876,000
  Product development......................................................                --             982,000
  General and administrative...............................................            19,000           4,307,000
  Stock-based compensation.................................................                --           1,156,000
  Depreciation and amortization............................................                --             222,000
                                                                             -------------------  ---------------
Total operating expenses...................................................            19,000           7,543,000
                                                                             -------------------  ---------------
Loss from operations.......................................................           (19,000)        (15,335,000)
                                                                             -------------------  ---------------
Interest income............................................................                --             225,000
Interest expense...........................................................                --            (110,000)
Other expense..............................................................            (6,000)                 --
                                                                             -------------------  ---------------
Net loss...................................................................     $     (25,000)    $   (15,220,000)
                                                                             -------------------  ---------------
                                                                             -------------------  ---------------
Basic and diluted net loss per share.......................................     $          --     $         (1.41)
                                                                             -------------------  ---------------
                                                                             -------------------  ---------------
Shares used to calculate basic and diluted net loss per share..............        15,000,000          10,792,000
                                                                             -------------------  ---------------
                                                                             -------------------  ---------------
Unaudited pro forma basic and diluted net loss per share...................                       $         (0.44)
                                                                                                  ---------------
                                                                                                  ---------------
Unaudited shares used to calculate pro forma basic and diluted net loss per
  share....................................................................                            34,800,000
                                                                                                  ---------------
                                                                                                  ---------------
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>
                                 NETZERO, INC.


                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                              CONVERTIBLE                                                    NOTE
                            PREFERRED STOCK             COMMON STOCK        ADDITIONAL    RECEIVABLE       DEFERRED
                       -------------------------  ------------------------    PAID-IN        FROM           STOCK
                         SHARES        AMOUNT       SHARES       AMOUNT       CAPITAL    STOCKHOLDERS    COMPENSATION
                       -----------  ------------  -----------  -----------  -----------  -------------  --------------
<S>                    <C>          <C>           <C>          <C>          <C>          <C>            <C>
Balance at July 21,
  1997 (Inception)...           --  $         --           --  $        --  $        --   $        --    $         --
  Issuance of common
    stock............           --            --   15,000,000        2,000           --            --              --
  Net loss...........           --            --           --           --           --            --              --
                       -----------  ------------  -----------  -----------  -----------  -------------  --------------

Balance at June 30,
  1998...............           --            --   15,000,000        2,000           --            --              --
  Issuance of common
    stock............           --            --       23,000        2,000           --            --              --
  Issuance of Series
    C convertible
    preferred stock,
    net..............   27,077,000    11,512,000           --           --           --            --              --
  Exercise of
    warrants for
    Series C
    convertible
    preferred
    stock............       23,000        10,000           --           --           --            --              --
  Exercise of stock
    options..........           --            --    6,115,000      319,000           --            --              --
  Exercise of options
    for a note
    receivable.......           --            --    7,486,000    1,029,000           --    (1,029,000)             --
  Deferred stock
    compensation.....           --            --           --           --    7,821,000            --      (7,821,000)
  Amortization of
    deferred stock-
    based
    compensation.....           --            --           --           --           --            --       1,089,000
  Charge for issuance
    of Series A and B
    options..........           --            --           --           --       67,000            --              --
  Issuance of Series
    D convertible
    preferred
    stock............   18,082,000    33,198,000           --           --           --            --              --
  Net loss...........           --            --           --           --           --            --              --
                       -----------  ------------  -----------  -----------  -----------  -------------  --------------
Balance at June 30,
  1999...............   45,182,000  $ 44,720,000   28,624,000  $ 1,352,000  $ 7,888,000   $(1,029,000)   $ (6,732,000)
  Assumed conversion
    of convertible
    preferred
    stock............  (45,182,000)  (44,720,000)  45,182,000   44,720,000           --            --              --
  Assumed conversion
    of redeemable
    convertible
    preferred
    stock............           --            --   19,230,000    2,140,000           --            --              --
Reincorporation into
  Delaware and change
  in par value of
  common stock.......           --            --           --  (48,119,000)  48,119,000            --              --
                       -----------  ------------  -----------  -----------  -----------  -------------  --------------
Balance at June 30,
  1999, pro forma
  (unaudited)........           --  $         --   93,036,000  $    93,000  $56,007,000   $(1,029,000)   $ (6,732,000)
                       -----------  ------------  -----------  -----------  -----------  -------------  --------------
                       -----------  ------------  -----------  -----------  -----------  -------------  --------------

<CAPTION>
                                          TOTAL
                                      STOCKHOLDERS'
                        ACCUMULATED       EQUITY
                          DEFICIT       (DEFICIT)
                       -------------  --------------
<S>                    <C>            <C>
Balance at July 21,
  1997 (Inception)...   $        --    $         --
  Issuance of common
    stock............            --           2,000
  Net loss...........       (25,000)        (25,000)
                       -------------  --------------
Balance at June 30,
  1998...............       (25,000)        (23,000)
  Issuance of common
    stock............            --           2,000
  Issuance of Series
    C convertible
    preferred stock,
    net..............            --      11,512,000
  Exercise of
    warrants for
    Series C
    convertible
    preferred
    stock............            --          10,000
  Exercise of stock
    options..........            --         319,000
  Exercise of options
    for a note
    receivable.......            --              --
  Deferred stock
    compensation.....            --              --
  Amortization of
    deferred stock-
    based
    compensation.....            --       1,089,000
  Charge for issuance
    of Series A and B
    options..........            --          67,000
  Issuance of Series
    D convertible
    preferred
    stock............            --      33,198,000
  Net loss...........   (15,220,000)    (15,220,000)
                       -------------  --------------
Balance at June 30,
  1999...............   $(15,245,000)  $ 30,954,000
  Assumed conversion
    of convertible
    preferred
    stock............            --              --
  Assumed conversion
    of redeemable
    convertible
    preferred
    stock............            --       2,140,000
Reincorporation into
  Delaware and change
  in par value of
  common stock.......            --              --
                       -------------  --------------
Balance at June 30,
  1999, pro forma
  (unaudited)........   $(15,245,000)  $ 33,094,000
                       -------------  --------------
                       -------------  --------------
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>
                                 NETZERO, INC.


                            STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                               JULY 21, 1997          YEAR
                                                                            (INCEPTION) THROUGH      ENDED
                                                                               JUNE 30, 1998     JUNE 30, 1999
                                                                            -------------------  --------------
<S>                                                                         <C>                  <C>
Cash flows from operating activities:
  Net loss................................................................       $ (25,000)       $(15,220,000)
  Adjustments to reconcile net loss to net cash provided by (used for)
    operating activities:
    Depreciation and amortization.........................................              --             633,000
    Provision for doubtful accounts.......................................              --             160,000
    Stock-based compensation..............................................              --           1,156,000
    Loss on disposal of fixed assets......................................              --              98,000
    Changes in operating assets and liabilities:
      Accounts receivable.................................................              --          (2,413,000)
      Deposits............................................................              --            (619,000)
      Other current assets................................................              --            (689,000)
      Restricted cash.....................................................              --          (1,789,000)
      Accounts payable....................................................           4,000           5,085,000
      Accrued liabilities.................................................           1,000           1,520,000
      Due to related party................................................          19,000             (19,000)
      Deferred revenue....................................................              --           2,739,000
                                                                                ----------       --------------
        Net cash used for operating activities............................          (1,000)         (9,358,000)
                                                                                ----------       --------------
Cash flows from investing activities:
  Purchases of property and equipment.....................................              --         (13,609,000)
  Proceeds from the sale of fixed assets..................................              --             226,000
                                                                                ----------       --------------
        Net cash used for investing activities............................              --         (13,383,000)
                                                                                ----------       --------------
Cash flows from financing activities:
  Payments on capital leases..............................................              --            (241,000)
  Proceeds from bridge loan...............................................              --             100,000
  Payments on note payable................................................              --            (165,000)
  Proceeds from exercise of stock options.................................              --             319,000
  Net proceeds from issuance of common stock..............................           2,000               2,000
  Net proceeds from issuance of redeemable convertible preferred stock....              --           2,140,000
  Net proceeds from issuance of convertible preferred stock...............              --          44,620,000
                                                                                ----------       --------------
        Net cash provided by financing activities.........................           2,000          46,775,000
                                                                                ----------       --------------
        Change in cash and cash equivalents...............................           1,000          24,034,000
Cash and cash equivalents, beginning of period............................              --               1,000
                                                                                ----------       --------------
Cash and cash equivalents, end of period..................................       $   1,000        $ 24,035,000
                                                                                ----------       --------------
                                                                                ----------       --------------
Supplemental disclosure of cash flow activities:
Cash paid during the year for interest....................................       $      --        $    110,000
                                                                                ----------       --------------
                                                                                ----------       --------------
Notes receivable from stockholders in connection with the exercise of
  stock options...........................................................       $      --        $  1,029,000
                                                                                ----------       --------------
                                                                                ----------       --------------
Bridge loan repayment in exchange for issuance of convertible preferred
  stock...................................................................       $      --        $    100,000
                                                                                ----------       --------------
                                                                                ----------       --------------
Equipment financed with note payable......................................       $      --        $  1,725,000
                                                                                ----------       --------------
                                                                                ----------       --------------
Accounts payable financed with note payable...............................       $      --        $    210,000
                                                                                ----------       --------------
                                                                                ----------       --------------
Equipment obtained under capital leases...................................       $      --        $  3,739,000
                                                                                ----------       --------------
                                                                                ----------       --------------
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>
                                 NETZERO, INC.


                         NOTES TO FINANCIAL STATEMENTS


1.  BUSINESS:

    NetZero, Inc. ("NetZero" or the "Company") was incorporated in July 1997 and
launched its service in October 1998. NetZero provides consumers with free
access to the Internet while offering online advertisers a highly effective way
to reach those consumers. The Company offers its users free and unlimited
Internet access as well as free e-mail and navigational tools to enhance the
users online experience. For advertisers, the Company offers an online direct
marketing tool with features and functionality that have distinct advantages
over traditional forms of online advertising.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


USE OF ESTIMATES

    The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.

CASH EQUIVALENTS

    The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of deposits in money market funds.

CONCENTRATION OF RISK

    Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with major financial
institutions; at times, such balances with any one financial institution may be
in excess of FDIC insurance limits. The Company's accounts receivable are
derived primarily from revenue earned from customers located in the United
States. The Company extends credit based upon an evaluation of the customer's
financial condition and generally collateral is not required. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable; to date such losses, if any, have been
within management's expectations.


    At June 30, 1999, two customers comprised 43% and 13% of the accounts
receivable balance, respectively. For the year ended June 30, 1999, two
customers comprised 27% and 26% of revenues, respectively.


SOURCES OF SUPPLIES

    The Company relies on third-party networks, local telephone companies and
other companies to provide data communications capacity. Although management
believes that alternate telecommunications facilities could be found in a timely
manner, any disruption of these services could have an adverse effect on the
Company's financial position and results of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and lease obligations are carried at
historical cost, which

                                      F-7
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

approximates their fair value because of the short-term maturity of these
instruments and the relatively stable interest rate environment.

PROPERTY AND EQUIPMENT

    Property and equipment are stated at historical cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years, or the shorter of the
lease term or the estimated useful lives of the assets, if applicable.

LONG-LIVED ASSETS

    The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. In
the event the expected undiscounted future cash flows attributable to the asset
is less than the carrying amount of the asset, an impairment loss equal to the
excess of the asset's carrying value over its fair value is recorded. To date,
no such impairment has been recorded.

REVENUE RECOGNITION


    The Company's revenues are derived principally from the sale of banner
advertisements, sponsorships, referrals of our users to other web-sites,
performance based agreements, and distribution arrangements. To date most of the
Company's revenues have been generated from banner advertisements and referrals
of users to other web-sites. Advertising rates are dependent on whether the
advertisement impressions are displayed on the Company's banner window on a
general rotation or targeted to specific audiences. The Company's obligations
typically include the guarantee of a minimum number of impressions or the
satisfaction of other performance criteria. Advertising revenue is recognized as
the impressions are displayed or as click-throughs occur, depending on the
contract terms, provided that no significant company obligations remain and
collection of the related receivable is probable. To date, the duration of the
Company's advertising commitments have generally averaged from one to two
months. To the extent minimum guaranteed impressions or other performance
criteria are not met, the Company defers recognition of the corresponding
revenues until the remaining guaranteed impressions or other performance
criteria are met. Referral revenues are recognized as referrals are made to
other web-sites, provided that no significant company obligations remain and
collection of the related receivable is probable.


PRODUCT DEVELOPMENT COSTS

    Product development costs incurred by the Company to develop, enhance,
manage, monitor and operate the Company's Web-sites and related technologies are
expensed as incurred.

ADVERTISING EXPENSE


    Advertising costs are expensed as incurred and totalled $0 and $102,000 for
the period from July 21, 1997 (Inception) through June 30, 1998 and for the year
ended June 30, 1999, respectively.


                                      F-8
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

STOCK-BASED COMPENSATION

    The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
expense is recognized over the vesting period based on the difference, if any,
on the date of grant between the deemed fair value of the Company's stock for
accounting purposes and the exercise price. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and
Emerging Issues Task Force 96-18.

INCOME TAXES

    The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

NET LOSS PER SHARE

    Basic and diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of common shares outstanding
during the period. Shares associated with stock options, warrants and
convertible preferred stock are not included to the extent they are
antidilutive.

UNAUDITED PRO FORMA NET LOSS PER SHARE


    Unaudited pro forma net loss per share is computed by dividing the net loss
for the period by the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
convertible preferred stock into shares of the Company's common stock effective
upon the closing of the Company's initial public offering as if such conversion
occurred on July 1, 1998 or at the date of original issuance, if later. The
resulting pro forma adjustment includes an increase in weighted average shares
used to compute basic and diluted net loss per share of 24,008,000 for the year
ended June 30, 1999.


COMPREHENSIVE INCOME

    Effective July 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.

SEGMENTS

    Effective July 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for

                                      F-9
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)


the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
has determined that it does not have any separately reportable business segments
as of June 30, 1998 and June 30, 1999.


RECENT ACCOUNTING PRONOUNCEMENTS

    In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. The Company expects that the adoption of
SOP 98-1 will not have a material impact on its financial position, results of
operations or cash flows. The Company will be required to implement SOP No. 98-1
in the first quarter of fiscal 2000.

    In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The Company expects that the adoption of SOP No. 98-5 will not have a material
impact on its financial position, results of operations or cash flows. The
Company will be required to implement SOP No. 98-1 in the first quarter of
fiscal 2000.

    In June 1998, The Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The statement
requires the recognition of all derivatives as either assets or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. Because the Company does
not currently hold any derivative instruments and does not engage in hedging
activities, the impact of the adoption of SFAS No. 133 is not currently expected
to have a material impact on financial position, results of operations or cash
flows. The Company will be required to implement SFAS No. 133 in the first
quarter of fiscal 2001.


STOCK SPLIT



    In July 1999, the Company authorized and implemented a three-for-two forward
stock split. The share information in the accompanying financial statements has
been retroactively restated to reflect the effect of the stock split.


                                      F-10
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


3.  PROPERTY AND EQUIPMENT:

    Property and equipment consists of the following:


<TABLE>
<CAPTION>
                                                               JUNE 30, 1998   JUNE 30, 1999
                                                               --------------  --------------
<S>                                                            <C>             <C>
Computer software and equipment..............................    $       --    $   14,068,000
Furniture and fixtures.......................................            --           929,000
Assets under capital leases..................................            --         3,739,000
                                                               --------------  --------------
Total........................................................            --        18,736,000

Less: accumulated depreciation, including accumulated capital
  lease amortization of $0 and $246,000 at June 30, 1998 and
  1999, respectively.........................................            --          (620,000)
                                                               --------------  --------------
                                                                 $       --    $   18,116,000
                                                               --------------  --------------
                                                               --------------  --------------
</TABLE>



    Depreciation expense for the period from July 21, 1997 (Inception) through
June 30, 1998 and for the year ended June 30, 1999 was $0 and $633,000,
respectively.


4.  ACCRUED LIABILITIES:

    Accrued liabilities consist of the following:


<TABLE>
<CAPTION>
                                                                JUNE 30, 1998   JUNE 30, 1999
                                                                --------------  --------------
<S>                                                             <C>             <C>
Accrued payroll...............................................    $       --     $    619,000
Accrued expenses..............................................         1,000          642,000
Accrued offering expenses.....................................            --          260,000
                                                                --------------  --------------
                                                                  $    1,000     $  1,521,000
                                                                --------------  --------------
                                                                --------------  --------------
</TABLE>



5.  LONG-TERM DEBT



    Long-term debt consisted of the following at June 30, 1999:



<TABLE>
<CAPTION>
Notes Payable to vendor, quarterly payments of $198,000,
 including interest at 15.29% through March 2002,
 uncollateralized..............................................  $1,770,000
<S>                                                              <C>
Less current portion...........................................     560,000
                                                                 ----------
                                                                 $1,210,000
                                                                 ----------
                                                                 ----------
</TABLE>



    Future minimum principal payments required are as follows:



<TABLE>
<CAPTION>
Year Ended June 30:
<S>                                                              <C>
2000...........................................................  $  560,000
2001...........................................................     652,000
2002...........................................................     558,000
                                                                 ----------
                                                                 $1,770,000
                                                                 ----------
                                                                 ----------
</TABLE>


                                      F-11
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



6.  RELATED-PARTY TRANSACTIONS:


    In September 1998, the Company purchased certain software technology for
$80,000 in cash from a related party.


    At June 30, 1999, the Company held notes receivable from two employees for
$1,029,000 for the exercise of stock options. The notes bear interest at 4.83%
and 5.28% per annum, respectively and are due on March 20, 2004 and April 16,
2004, respectively, unless paid earlier. The notes are classified as a component
of stockholders' equity, have recourse provisions and are collateralized by the
shares of common stock issued upon exercise.



7.  STOCK OPTIONS AND STOCK ISSUANCE PLANS:



    The Company's 1998 and 1999 Stock Option and Stock Issuance Plans (the
"Plans") provide for the issuance of stock and stock options at prices not less
than 85% (110% if the award is issued to a 10% stockholder) of the fair market
value at the date of issue. An aggregate of 19,500,000 shares were reserved
under the Plans, of which 2,379,000 shares were available for future grant at
June 30, 1999 and 3,497,000 options were outstanding at June 30, 1999.



    The Plans provide for the grant of nonstatutory and incentive stock options
to employees, officers, directors and consultants of the Company. Options
granted generally vest 25% after one year of service, and ratably over 36 months
thereafter and are immediately exercisable for unvested shares of common stock,
with the unvested portion of the shares remaining subject to repurchase by the
Company at the exercise price until the vesting period is complete. The Company
had 10,907,000 unvested shares of common stock issued and outstanding under the
Plans at June 30, 1999 (Note 8).



    The Stock Issuance Equity Program provides for the issuance of common stock
directly to participants and may vest immediately or in one or more installments
over the service period but at not less than 20% per year. Unvested shares of
common stock remain subject to repurchase by the Company at the original
issuance price. There were 23,000 shares issued under the Stock Issuance program
as of June 30, 1999.



    The following table summarizes activity under the Stock Option Plans for the
period from July 21, 1997 (Inception) through June 30, 1998 and for the year
ended June 30, 1999:



<TABLE>
<CAPTION>
                                                                                                         WEIGHTED
                                                                                                          AVERAGE
                                                                              NUMBER         PRICE       EXERCISE
                                                                            OF SHARES      PER SHARE       PRICE
                                                                          --------------  ------------  -----------
<S>                                                                       <C>             <C>           <C>
OPTIONS OUTSTANDING AT JULY 21, 1997 (INCEPTION)........................              --  $         --   $      --
  Granted...............................................................       4,285,000           .03         .03
                                                                          --------------
OPTIONS OUTSTANDING AT JUNE 30, 1998....................................       4,285,000           .03         .03
  Granted...............................................................      13,865,000      .03-3.33         .26
  Exercised.............................................................     (13,601,000)      .03-.87         .10
  Canceled..............................................................      (1,052,000)      .03-.10         .04
                                                                          --------------
OPTIONS OUTSTANDING AT JUNE 30, 1999....................................       3,497,000  $   .03-3.33   $     .69
                                                                          --------------
                                                                          --------------
</TABLE>


                                      F-12
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



7.  STOCK OPTIONS AND STOCK ISSUANCE PLANS: (CONTINUED)


    Options granted during the year ended June 30, 1999 resulted in a total
deferred compensation amount of $7,488,000 which was included in deferred stock
compensation in stockholders' equity. The deferred compensation amount will be
recognized as compensation expense over the vesting period. During the year
ended June 30, 1999, such compensation expense included in stock-based
compensation in the statement of operations amounted to $916,000.


    Additional information with respect to the outstanding options as of March
31, 1999 is as follows:


<TABLE>
<CAPTION>
                  OPTIONS OUTSTANDING                                         OPTIONS EXERCISED
          ------------------------------------                                    SUBJECT TO
                         AVERAGE                   OPTIONS EXERCISABLE            REPURCHASE
                        REMAINING                 ---------------------    ------------------------
                       CONTRACTUAL    AVERAGE                  AVERAGE                    AVERAGE
          NUMBER OF     LIFE (IN      EXERCISE    NUMBER OF    EXERCISE    NUMBER OF    REPURCHASE
PRICES     SHARES        YEARS)        PRICE       SHARES       PRICE       SHARES         PRICE
- ------    ---------    -----------    --------    ---------    --------    ---------    -----------
<S>       <C>          <C>            <C>         <C>          <C>         <C>          <C>
$.03       758,000            9.08    $    .03     758,000     $    .03    2,270,000    $       .03
 .10       674,000            9.70         .10     674,000          .10    7,377,000            .10
 .33            --              --         .33          --          .33    1,200,000            .33
 .87      1,860,000           9.87         .87    1,860,000         .87       60,000            .87
3.33       205,000            9.95        3.33     205,000         3.33           --           3.33
          ---------                               ---------                ---------
          3,497,000                               3,497,000                10,907,000
          ---------                               ---------                ---------
          ---------                               ---------                ---------
</TABLE>


    The Company calculated the minimum fair value of each option grant on the
date of the grant using the minimum value option pricing model as prescribed by
SFAS No. 123 using the following assumptions:


<TABLE>
<CAPTION>
                                                                                         JULY 21, 1997
                                                                                          (INCEPTION)
                                                                                            THROUGH            YEAR ENDED
                                                                                         JUNE 30, 1998        JUNE 30, 1999
                                                                                       -----------------  ---------------------
<S>                                                                                    <C>                <C>
Risk-free interest rates.............................................................              6%                   5%
Expected lives (in years)............................................................              4                    4
Dividend yield.......................................................................              0%                   0%
Expected volatility..................................................................              0%                   0%
</TABLE>



<TABLE>
<CAPTION>
                                                                                   AS REPORTED       PRO FORMA
                                                                                 ---------------  ---------------
<S>                                                                              <C>              <C>
Year Ended June 30, 1999:
Net loss.......................................................................  $   (15,220,000) $   (15,251,000)
Basic and diluted net loss per share...........................................            (1.41)           (1.41)

Period from July 21, 1997 (Inception) through June 30, 1998:
Net loss.......................................................................  $       (25,000) $       (25,000)
Basic and diluted net loss per share...........................................               --               --
</TABLE>


                                      F-13
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



7.  STOCK OPTIONS AND STOCK ISSUANCE PLANS: (CONTINUED)


    In September 1998, the Company issued options to a non employee investor to
purchase 704,000 and 422,000 shares of Series A and Series B redeemable
convertible preferred stock, respectively, at exercise prices equal to the
respective Series A and Series B issuance prices. The Company incurred a charge
of $67,000 relating to these options which is included in stock-based charges in
the accompanying statement of operations. The options were exercised and the
preferred shares issued in March 1999.


    In December 1998, the Company issued, to a non-employee director, 225,000
options to purchase Series C convertible preferred stock at $.4297 per share.
These options, which have a 48-month vesting period from the date of grant, were
exercised in March 1999. The unvested portion remains subject to repurchase by
the Company at the original issue price.


8.  CAPITALIZATION:


PREFERRED STOCK


    Convertible and redeemable convertible preferred stock ("preferred stock")
at June 30, 1999 consist of the following:



<TABLE>
<CAPTION>
                                                                 SHARES
                                                      ----------------------------   LIQUIDATION     REDEMPTION
                                                       AUTHORIZED     OUTSTANDING       AMOUNT         AMOUNT
                                                      -------------  -------------  --------------  -------------
<S>                                                   <C>            <C>            <C>             <C>
Series A redeemable convertible.....................     11,956,000     11,956,000  $    1,063,000  $   1,063,000
Series B redeemable convertible.....................      7,275,000      7,274,000       1,077,000      1,077,000
Series C convertible................................     27,681,000     27,100,000      11,646,000             --
Series D convertible................................     19,500,000     18,082,000      33,271,000             --
Undesignated........................................      8,588,000             --              --             --
                                                      -------------  -------------  --------------  -------------
                                                         75,000,000     64,412,000  $   47,057,000  $   2,140,000
                                                      -------------  -------------  --------------  -------------
                                                      -------------  -------------  --------------  -------------
</TABLE>



    VOTING.  Each share of preferred stock has a number of votes equal to the
number of shares of common stock then issuable upon its conversion. The
preferred stock generally votes together with the common stock and not as a
separate class.


    DIVIDENDS.  The holders of each series of preferred stock are entitled to
receive noncumulative dividends when, as and if declared by the Board of
Directors at a rate of 8% of the respective issuance price per share per annum.
No dividends have been declared or paid from inception.

    LIQUIDATION.  In the event of any liquidation or winding up of the Company,
the holders of each series of preferred stock will be entitled to receive, in
preference to the holders of common stock, any distribution of assets of the
Company equal to the sum of the respective issuance price of such shares plus
any accrued and unpaid dividends.


    After the full liquidation preference on all outstanding shares of preferred
stock has been paid, any remaining funds and assets of the Company will be
distributed pro rata among the holders of the Series A, Series B and Series C
preferred stock and common stock, assuming conversion of each such series of the
preferred shares until the holders of the Series A, Series B and Series C shares
have received an aggregate of five times the then-existing conversion price
which would


                                      F-14
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



8.  CAPITALIZATION: (CONTINUED)


result in maximum per share distribution amounts of $0.44, $0.74 and $2.15,
respectively. The conversion price is considered the original issuance price
adjusted for certain dilutive issuances, stock splits and combinations, if any.


    REDEMPTION.  If a liquidation or initial public offering has not occurred by
September 9, 2003, the holders of Series A and B redeemable convertible
preferred stock are entitled to a redemption out of the assets of the Company
equal to the issue price per share and any declared but unpaid dividends at the
date of redemption.


    CONVERSION.  Each share of preferred stock is convertible at the holder's
option at any time into common stock, according to a ratio which is one-for-one,
subject to adjustment for dilution. Each share of preferred stock automatically
converts into common stock at the then applicable conversion rate upon (i) the
closing of an underwritten public offering pursuant to which the post-closing
enterprise value is at least $50,000,000 and the Company receives proceeds of
not less than $10,000,000, or (ii) the consent of the holders of a majority of
the then outstanding shares of preferred stock. As of June 30, 1999, the Company
was required to keep available, out of its authorized but unissued shares of
common stock, 64,412,000 shares for conversion of preferred stock.


COMMON STOCK


    As a condition to the issuance of Series A redeemable convertible preferred
stock in September 1998, the employee founding stockholders of all of the then
15 million outstanding common shares entered into stock restriction agreements
with the Company pursuant to which 7.5 million of the outstanding common shares
were restricted and were made subject to monthly vesting over a four-year period
based on the founders' continued employment with the Company. Under the terms of
the restricted stock agreements, the Company has the right to repurchase the
unvested shares at the original issue price in the event a founder ceases to be
an employee or service provider to the Company. The repurchase right shall
automatically lapse with respect to the unvested shares in the event the founder
is constructively or involuntarily terminated without cause following a
corporate transaction, defined as a (i) merger or consolidation with more than a
50% change of control or (ii) sale, transfer or disposition of substantially all
the Company's assets in a dissolution. The Company recorded deferred stock
compensation amounting to $333,000 for the shares covered under the restricted
stock agreements. The deferred amount will be recognized as compensation expense
over the vesting period. During the year ended June 30, 1999, such compensation
expense included in stock-based compensation in the statement of operations
amounted to $173,000.



    At June 30, 1999, 17,001,000 shares of common stock were subject to
repurchase, of which 6,094,000 shares related to unvested shares under the
restricted stock agreements and 10,907,000 shares related to unvested stock
options exercised.


WARRANTS

    Under the terms of a loan outstanding during the third quarter of 1999, the
Company issued fully vested and exercisable warrants to purchase 23,000 shares
of its Series C convertible

                                      F-15
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



8.  CAPITALIZATION: (CONTINUED)

preferred stock at an exercise price of $.4297 per share. The Company determined
the fair value of the warrants to be immaterial at the date of issuance.


9.  NET LOSS PER SHARE:


    The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the periods indicated:


<TABLE>
<CAPTION>
                                                                                   JULY 21, 1997
                                                                                    (INCEPTION)
                                                                                      THROUGH        YEAR ENDED
                                                                                   JUNE 30, 1998    JUNE 30, 1999
                                                                                   --------------  ---------------
<S>                                                                                <C>             <C>
HISTORICAL PRESENTATION
Numerator:
  Net loss.......................................................................   $    (25,000)  $   (15,220,000)
                                                                                   --------------  ---------------
Denominator:
  Weighted average shares........................................................     15,000,000        10,792,000
                                                                                   --------------  ---------------
                                                                                   --------------  ---------------
Basic and diluted net loss per share.............................................   $         --   $         (1.41)
                                                                                   --------------  ---------------
</TABLE>



<TABLE>
<S>                                                                              <C>
PRO FORMA PRESENTATION
Denominator:
  Shares used above............................................................  10,792,000

  Weighted average effect of convertible securities:
    Series A redeemable convertible preferred stock............................   7,825,000
    Series B redeemable convertible preferred stock............................   3,515,000
    Series C convertible preferred stock.......................................  10,818,000
    Series D convertible preferred stock.......................................   1,850,000
                                                                                 ----------
Denominator for pro forma calculation..........................................  34,800,000
                                                                                 ----------
                                                                                 ----------
Unaudited pro forma basic and diluted net loss per share.......................  $     (.44)
                                                                                 ----------
                                                                                 ----------
</TABLE>



    The diluted per share computations exclude convertible preferred stock,
unvested common stock and options which were antidilutive. The number of shares
excluded from the diluted net loss per share computation were 4,285,000 and
84,910,000 for the period from July 21, 1997 (Inception) through June 30, 1998
and for the year ended June 30, 1999, respectively. The number of such shares
excluded from the pro forma diluted net loss per share computation was
20,498,000 for the year ended June 30, 1999.



10.  EMPLOYEE BENEFIT PLAN:



    The Company has a 401(k) Profit Sharing Plan ("the Plan") available to all
employees who meet the Plan's eligibility requirements. Under the Plan,
participating employees may defer a percentage (not to exceed 15%) of their
eligible pretax earnings up to the Internal Revenue Service's annual
contribution limit. Company matching and profit sharing contributions are
discretionary. To date, the Company has not made any contributions to the Plan
as of June 30, 1999.


                                      F-16
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



11.  INCOME TAXES:


    As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at June 30, 1998 is as follows:


<TABLE>
<CAPTION>
                                                                JUNE 30, 1998   JUNE 30, 1999
                                                                --------------  --------------
<S>                                                             <C>             <C>
Deferred tax assets:
  Net operating loss carryforwards............................    $   10,000     $  5,868,000
  Other.......................................................            --          125,000
                                                                --------------  --------------
  Total deferred tax assets...................................        10,000        5,993,000

  Less: valuation allowance...................................       (10,000)      (5,993,000)
                                                                --------------  --------------
Net deferred taxes............................................    $       --     $         --
                                                                --------------  --------------
                                                                --------------  --------------
</TABLE>


    Due to the uncertainty surrounding the realization of the benefits in future
tax returns, the Company has placed a valuation allowance against its deferred
tax assets.


    At June 30, 1999, the Company had net operating losses for federal and state
income tax purposes of approximately $13,697,000 and $13,696,000, respectively,
which begin to expire in 2019 and 2006, respectively. The net operating losses
can be carried forward to offset future taxable income. Utilization of the above
carryforwards may be subject to utilization limitations, which may inhibit the
Company's ability to use carryforwards in the future.



12.  COMMITMENTS AND CONTINGENCIES:


CAPITAL LEASES


    During the year ended June 30, 1999, the Company entered into certain
noncancelable lease obligations for computer equipment. The future minimum lease
payments are discounted using interest rates of 13-29% over the two- to
five-year lease terms.



    Future minimum lease payments under noncancelable capital leases for the
following fiscal years at June 30, 1999 are:



<TABLE>
<S>                                                              <C>
2000...........................................................  $ 1,678,000
2001...........................................................    1,628,000
2002...........................................................      895,000
2003...........................................................      100,000
2004...........................................................       20,000
                                                                 -----------
Total minimum obligations......................................    4,321,000
Less amounts representing interest.............................     (823,000)
                                                                 -----------
Present value of minimum obligations...........................    3,498,000
Less current portion...........................................   (1,181,000)
                                                                 -----------
Total..........................................................  $ 2,317,000
                                                                 -----------
                                                                 -----------
</TABLE>


                                      F-17
<PAGE>
                                 NETZERO, INC.


                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)



12.  COMMITMENTS AND CONTINGENCIES: (CONTINUED)

OPERATING LEASE


    The Company leases its facilities under a noncancelable operating lease
expiring in 2009. The lease contains a provision that payments may be adjusted
for increases in the lessor's direct costs as well as a five-year renewal
option. The Company must maintain a letter of credit with a financial
institution as a security deposit in accordance with the facility lease
agreement. The letter of credit, which remains in effect until March 2000, is
collateralized by a certificate of deposit account which is classified as
restricted cash at June 30, 1999.



    Future minimum lease payments under the facility lease for the following
fiscal years at June 30, 1999 are:



<TABLE>
<CAPTION>
<S>                                                                             <C>
2000..........................................................................  $    1,444,000
2001..........................................................................       1,539,000
2002..........................................................................       1,402,000
2003..........................................................................       1,247,000
2004..........................................................................       1,349,000
Thereafter....................................................................       6,754,000
                                                                                --------------
Total.........................................................................  $   13,735,000
                                                                                --------------
                                                                                --------------
</TABLE>



    Total rental expense for operating leases was $0 and $153,000 for the period
from July 21, 1997 (Inception) through June 30, 1998 and for the year ended June
30, 1999, respectively.



13.  SUBSEQUENT EVENTS:


INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY:

    In July 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission ("SEC") that would permit
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering ("IPO"). If the IPO is consummated under the
terms presently anticipated, upon the closing of the proposed IPO, all of the
then outstanding shares of the Company's convertible preferred stock and
redeemable convertible preferred stock will automatically convert into shares of
common stock on a one-for-one basis, subject to antidilution provisions.

    In July 1999, the Board of Directors approved the reincorporation of the
Company in the State of Delaware, the change in the par value of the Company's
common stock and the increase in the number of authorized shares which will be
effected prior to the closing of the IPO.


    The conversion of the Series A and B redeemable convertible preferred stock
and the Series C and D convertible preferred stock, and the planned
reincorporation of the Company in Delaware have been reflected in the
accompanying unaudited pro forma balance sheet and statement of stockholders'
equity as if these events had occurred on June 30, 1999.


                                      F-18
<PAGE>
                                  UNDERWRITING

    NetZero, Inc. and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and Wit Capital
Corporation are the representatives of the underwriters.

<TABLE>
<CAPTION>
                      Underwriters                         Number of Shares
- --------------------------------------------------------  -------------------
<S>                                                       <C>
Goldman, Sachs & Co.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Hambrecht & Quist LLC...................................
Wit Capital Corporation.................................

                                                                --------
      Total.............................................
                                                                --------
                                                                --------
</TABLE>

    If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
      shares from NetZero to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.

    The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by NetZero. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase       additional shares.

<TABLE>
<CAPTION>
                                                       Paid by NetZero
                                                 ---------------------------
                                                 No Exercise   Full Exercise
                                                 ------------  -------------
<S>                                              <C>           <C>
Per Share......................................   $              $
Total..........................................   $              $
</TABLE>

    Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $      per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $      per share from
the initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.

    NetZero has agreed with the underwriters not to dispose of or hedge any of
its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this Prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.

    At the request of NetZero, the underwriters have reserved for sale, at the
initial public offering price, up to       % of the common stock offered hereby
for sale to certain directors, employees and associates of NetZero. There can be
no assurance that any of the reserved shares will be purchased. The number of
shares available for sale to the general public in this offering will be

                                      U-1
<PAGE>
reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.

    Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among NetZero and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be NetZero's historical performance, estimates of the business
potential and earnings prospects of NetZero, an assessment of NetZero's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.

    Application has been made for quotation of the Common Stock on The Nasdaq
National Market under the symbol "NZRO".

    In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offerings are in progress.

    The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

    These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on The Nasdaq
National Market, in the over-the-counter market or otherwise.

    The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

    NetZero estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $      . NetZero
will pay all such expenses.

    NetZero has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

                                      U-2
<PAGE>
                                   [ARTWORK]
                                   [To Come]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

    No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.

                               ------------------

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                          Page
                                          -----
<S>                                    <C>
Prospectus Summary...................           3
Risk Factors.........................           5
Information Regarding Forward-Looking
  Statements.........................          24
Use of Proceeds......................          25
Dividend Policy......................          25
Capitalization.......................          26
Dilution.............................          27
Selected Financial Data..............          28
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations......................          29
Business.............................          38
Management...........................          50
Principal Stockholders...............          62
Certain Transactions.................          64
Description of Capital Stock.........          67
Shares Eligible For Future Sale......          71
Legal Matters........................          72
Experts..............................          72
Additional Information...............          73
Index to Financial Statements........         F-1
Underwriting.........................         U-1
</TABLE>


                               ------------------

    Through and including             , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
                                        Shares
                                 NETZERO, INC.
                                  Common Stock

                                 -------------

                                     [LOGO]

                                 -------------

                              GOLDMAN, SACHS & CO.
                          DONALDSON, LUFKIN & JENRETTE
                               HAMBRECHT & QUIST
                            WIT CAPITAL CORPORATION

                      Representatives of the Underwriters
<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

    The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission, NASD and Nasdaq National Market
fees. All of the expenses below will be paid by NetZero.

<TABLE>
<CAPTION>
ITEM
- ---------------------------------------------------------------
<S>                                                              <C>
Registration fee...............................................
NASD filing fee................................................
Nasdaq National Market listing fee.............................
Blue sky fees and expenses.....................................
Printing and engraving expenses................................
Legal fees and expenses........................................
Accounting fees and expenses...................................
Transfer Agent and Registrar fees..............................
Miscellaneous..................................................
                                                                 ----------
      Total....................................................
                                                                 ----------
                                                                 ----------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    The Company's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Company's directors shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Company. Under the DGCL, the directors have a fiduciary
duty to the Company which is not eliminated by this provision of the Certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of nonmonetary relief will remain available. In addition, each
director will continue to be subject to liability under the DGCL for breach of
the director's duty of loyalty to the Company, for acts or omissions which are
found by a court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by DGCL. This
provision also does not affect the directors' responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws. The Company has obtained or will obtain liability insurance for its
officers and directors.

    Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Company shall fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed

                                      II-1
<PAGE>
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.

    The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering. In addition, the Company intends to enter into indemnification
agreements with each of its directors, a form of which is filed as Exhibit 10.27
hereto.

    There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Company believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

    The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the underwriters of NetZero and its
officers and directors, and by NetZero of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

    The following is a summary of transactions by the Company since the
Company's inception in July 1997 involving sales of the Company's securities
that were not registered under the Securities Act. All of the numbers reflect a
post-split basis.

    (a) In July 1997, we issued an aggregate of 15,000,000 shares of common
stock for an aggregate purchase price of $2,000 to the founders of the Company.

    (b) In September 1998, we issued an aggregate of 3,516,507 shares of Series
A preferred stock for an aggregate purchase price of $312,500 to two investors
in connection with our initial Series A closing.

    (c) In October 1998, we issued an aggregate of 3,516,507 shares of Series A
preferred stock for an aggregate purchase price of $312,500 to two investors in
connection with our second Series A closing.

    (d) In November 1998, we issued an aggregate of 3,516,507 shares of Series A
preferred stock for an aggregate purchase price of $312,500 to two investors in
connection with our third Series A closing.

    (e) In December 1998, we issued an aggregate of 4,219,173 shares of Series B
preferred stock for an aggregate purchase price of $625,000 to two investors in
connection with our initial Series B closing and our second Series B closing.

    (f) In January 1999, we issued an aggregate of 2,109,586 shares of Series B
preferred stock for an aggregate purchase price of $312,500 to two investors in
connection with our third Series B closing.

    (g) In January 1999, we issued 101,260 shares of Series B Preferred for a
purchase price of $15,000 to David C. Bohnett.

    (h) In January 1999, in connection with a $100,000 bridge loan, we issued
warrants to two investors to purchase up to 23,271 shares of Series C preferred
stock at $0.4297 per share. The investors exercised these warrants in full in
February 1999.

                                      II-2
<PAGE>
    (i) In February 1999, we issued an aggregate of 26,851,533 shares of Series
C preferred stock to several investors for an aggregate purchase price of
$11,539,001.

    (j) In March 1999, we issued 703,300 shares of Series A preferred stock for
a purchase price of $62,500 to one investor in connection with the exercise of
an option issued in connection with our initial Series A closing in September
1998.

    (k) In March 1999, we issued 421,917 shares of Series B preferred stock for
a purchase price of $62,500 to one investor in connection with the exercise of
an option granted in connection with our initial Series B closing.

    (l) In March 1999, we issued 225,000 shares of Series C preferred stock for
an aggregate purchase price of $96,690 to David C. Bohnett in connection with
the exercise of an option granted to him after joining our Board of Directors.

    (m) In May 1999, we issued an aggregate of 18,082,283 shares of Series D
preferred stock to several investors for an aggregate purchase price of
$33,271,405.

    (n) In June 1999, we issued an aggregate of 703,300 shares of Series A
preferred stock for an aggregate consideration of $62,500 in cash and services
to one investor in connection with our fourth Series A closing.

    (o) In June 1999, we issued an aggregate of 421,917 shares of Series B
preferred stock for an aggregate consideration of $62,500 in cash and services
to one investor in connection with our fourth Series B closing.


    From June 16, 1998 to June 30, 1999, we granted options to purchase an
aggregate of 17,098,182 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $0.219. As
of June 30, 1999, options to purchase 5,640,699 shares at an exercise price of
$0.033 per share, options to purchase 8,132,208 shares at an exercise price of
$0.10 per share, options to purchase 1,200,000 shares at an exercise price of
$0.333, options to purchase 1,919,925 shares at an exercise price of $0.867, and
options to purchase 205,350 shares at an exercise price of $3.333 had been
issued. We also issued 23,269 shares to a consultant at a price of $0.10 per
share.


    None of the foregoing transactions involved any public offering, and the
Company believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Company.

                                      II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    (a) Exhibits

    The following Exhibits are attached hereto and incorporated herein by
reference:


<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                       DESCRIPTION
- ---------  ---------------------------------------------------------------------------------
<C>        <S>

   1.1*    Form of Underwriting Agreement.

   3.1*    Certificate of Incorporation of the Company.

   3.2*    Bylaws of the Company.

   4.1     See Exhibit 3.1 and 3.2 for provisions of the Company's Certificate of
             Incorporation and Bylaws defining the rights of holders of the Company's common
             stock. See Exhibit 10.24 for the rights of certain holders of registration
             rights.

   4.2*    Specimen common stock certificates.

   5.1*    Opinion of Brobeck, Phleger and Harrison LLP.

  10.1**   Adserver License Agreement dated as of August 28, 1998, between the Registrant
             and NetGravity, as amended.

  10.2***  Technology Assignment Agreement dated as of September 11, 1998, by and between
             the Registrant and Impact Software, Inc.

  10.3***  Form of Stock Restriction Agreement between the Registrant and the founders.

  10.4***  Preferred Stock Purchase Agreement dated as of September 11, 1998, among the
             Registrant and certain investors thereto.

  10.5**   Master Lease Agreement dated as of September 12, 1998, as amended, between the
             Registrant and Leasing Technologies International, Inc.

  10.6***  Master Agreement dated as of October 13, 1998, by and between the Registrant and
             GTE Internetworking Incorporated.

  10.7***  Series C Stock Option granted on December 4, 1998, for David Bohnett; exercised
             March 8, 1999.

  10.8***  Series B Stock Purchase Agreement dated as of January 1, 1999, between the
             Registrant and David C. Bohnett.

  10.9***  Convertible Subordinated Note and Warrant Purchase Agreement dated as of January
             15, 1999.

 10.10***  Series C Preferred Stock Purchase Agreement dated as of January 27, 1999, between
             the Registrant and certain investors thereto.

 10.11***  Standard Office Lease dated as of March 6, 1999, as amended on March 7, 1999, by
             and between the Registrant and Westlake Gardens.

  10.12**  Service Agreement dated as of March 19, 1999, by and between the Registrant and
             Level 3 Communications, LLC.

 10.13***  Employment Agreement dated as of March 20, 1999, by and between the Registrant
             and Frederic A. Randall, Jr.
</TABLE>


                                      II-4
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                       DESCRIPTION
- ---------  ---------------------------------------------------------------------------------
<C>        <S>
 10.14***  Employment Agreement dated as of March 20, 1999, between the Registrant and Mark
             R. Goldston.

 10.15***  Stock Pledge Agreement dated as of March 20, 1999, between the Registrant and
             Mark R. Goldston, as amended.

 10.16***  Note Secured by Stock Pledge Agreement dated March 20, 1999, made by Mark R.
             Goldston in favor of the Registrant, as amended.

  10.17**  Software License and Service Agreement dated as of April 14, 1999, between
             Registrant and Oracle Corporation.

 10.18***  Employment Agreement dated as of April 17, 1999, by and between the Registrant
             and Charles S. Hilliard.

 10.19***  Stock Pledge Agreement dated April 17, 1999, between the Registrant and Charles
             S. Hilliard.

 10.20***  Note Secured by Stock Pledge Agreement dated April 17, 1999, made by Charles S.
             Hilliard in favor of the Registrant.

  10.21**  Start Page Agreement dated as of April 20, 1999, between the Registrant and
             LookSmart, Ltd.

 10.22***  Distributor, License and Affiliate Agreement dated as of April 30, 1999, between
             the Registrant and Compaq Computer Corporation.

 10.23***  Series D Preferred Stock Purchase Agreement dated as of May 10, 1999, by and
             among the Registrant and the investors listed on Schedule A thereto.

 10.24***  Amended and Restated Investors' Rights Agreement dated as of May 10, 1999, by and
             among the Registrant and the investors, officers and founders listed on
             schedules thereto.

 10.25***  1998 Stock Option/Stock Issuance Plan

 10.26***  1999 Stock Option/Stock Issuance Plan

 10.27***  Form of Indemnification Agreement between the Registrant and its directors.

  10.28*   1999 Stock Incentive Plan

  10.29*   Employee Stock Purchase Plan

  23.1*    Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1 hereto).

  23.2*    Consent of PricewaterhouseCoopers LLP, independent accountants

  24.1     Power of Attorney (Included on signature pages hereto).

  27.1     Financial Data Schedule.
</TABLE>


- ------------------------

 *  To be filed by amendment.

**  To be filed by amendment and confidential treatment will be requested for
    certain confidential portions of this exhibit pursuant to Rule 406 under the
    Securities Act. In accordance with Rule 406, these confidential portions
    will be omitted from this exhibit and filed separately with the Commission.

                                      II-5
<PAGE>

*** Previously filed by the Registrant with the Commission.


    (b) Financial Statement Schedules

    All such Schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.

ITEM 17. UNDERTAKINGS.

    The undersigned Company hereby undertakes to provide to the underwriters at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

    Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

    The undersigned Company hereby undertakes that:

    (1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus as filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.

    (2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

                                      II-6
<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Westlake Village,
State of California, on the 4th day of August, 1999.


                                NETZERO, INC.

                                By:             /s/ MARK R. GOLDSTON
                                     -----------------------------------------
                                                  Mark R. Goldston
                                        CHAIRMAN AND CHIEF EXECUTIVE OFFICER


    Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:



          SIGNATURE                        TITLE                    DATE
- ------------------------------  ---------------------------  -------------------
                                Chairman, Chief Executive
     /s/ MARK R. GOLDSTON         Officer and Director
- ------------------------------    (Principal Executive         August 4, 1999
       Mark R. Goldston           Officer)

                                Senior Vice President,
   /s/ CHARLES S. HILLIARD        Finance and Chief
- ------------------------------    Financial Officer            August 4, 1999
     Charles S. Hilliard          (principal financial and
                                  accounting officer)

       RONALD T. BURR*          President and Director
- ------------------------------                                 August 4, 1999
        Ronald T. Burr

      WILLIAM T. GROSS*         Director
- ------------------------------                                 August 4, 1999
       William T. Gross

     JAMES T. ARMSTRONG*        Director
- ------------------------------                                 August 4, 1999
      James T. Armstrong

      DAVID C. BOHNETT*         Director
- ------------------------------                                 August 4, 1999
       David C. Bohnett

     JENNIFER S. FONSTAD*       Director
- ------------------------------                                 August 4, 1999
     Jennifer S. Fonstad

       PAUL G. KOONTZ*          Director
- ------------------------------                                 August 4, 1999
        Paul G. Koontz




*   Power of Attorney



<TABLE>
<S>   <C>                        <C>                         <C>
By:        /s/ CHARLES S.
              HILLIARD
      -------------------------
         Charles S. Hilliard
          ATTORNEY IN FACT
</TABLE>

<PAGE>
                                 EXHIBIT INDEX


<TABLE>
<C>        <S>
   1.1*    Form of Underwriting Agreement.

   3.1*    Certificate of Incorporation of the Company.

   3.2*    Bylaws of the Company.

   4.1     See Exhibit 3.1 and 3.2 for provisions of the Company's Certificate of
             Incorporation and Bylaws defining the rights of holders of the Company's common
             stock. See Exhibit 10.24 for the rights of certain holders of registration
             rights.

   4.2*    Specimen common stock certificates.

   5.1*    Opinion of Brobeck, Phleger and Harrison LLP.

  10.1**   Adserver License Agreement dated as of August 28, 1998, between the Registrant
             and NetGravity, as amended.

  10.2***  Technology Assignment Agreement dated as of September 11, 1998, by and between
             the Registrant and Impact Software, Inc.

  10.3***  Form of Stock Restriction Agreement between the Registrant and the founders.

  10.4***  Preferred Stock Purchase Agreement dated as of September 11, 1998, among the
             Registrant and certain investors thereto.

  10.5**   Master Lease Agreement dated as of September 12, 1998, as amended, between the
             Registrant and Leasing Technologies International, Inc.

  10.6***  Master Agreement dated as of October 13, 1998, by and between the Registrant and
             GTE Internetworking Incorporated.

  10.7***  Series C Stock Option granted on December 4, 1998, for David Bohnett; exercised
             March 8, 1999.

  10.8***  Series B Stock Purchase Agreement dated as of January 1, 1999, between the
             Registrant and David C. Bohnett.

  10.9***  Convertible Subordinated Note and Warrant Purchase Agreement dated as of January
             15, 1999.

 10.10***  Series C Preferred Stock Purchase Agreement dated as of January 27, 1999, between
             the Registrant and certain investors thereto.

 10.11***  Standard Office Lease dated as of March 6, 1999, as amended on March 7, 1999, by
             and between the Registrant and Westlake Gardens.

  10.12**  Service Agreement dated as of March 19, 1999, by and between the Registrant and
             Level 3 Communications, LLC.

 10.13***  Employment Agreement dated as of March 20, 1999, by and between the Registrant
             and Frederic A. Randall, Jr.

 10.14***  Employment Agreement dated as of March 20, 1999, between the Registrant and Mark
             R. Goldston.

 10.15***  Stock Pledge Agreement dated as of March 20, 1999, between the Registrant and
             Mark R. Goldston, as amended.

 10.16***  Note Secured by Stock Pledge Agreement dated March 20, 1999, made by Mark R.
             Goldston in favor of the Registrant, as amended.
</TABLE>

<PAGE>

<TABLE>
<C>        <S>
  10.17**  Software License and Service Agreement dated as of April 14, 1999, between
             Registrant and Oracle Corporation.

 10.18***  Employment Agreement dated as of April 17, 1999, by and between the Registrant
             and Charles S. Hilliard.

 10.19***  Stock Pledge Agreement dated April 17, 1999, between the Registrant and Charles
             S. Hilliard.

 10.20***  Note Secured by Stock Pledge Agreement dated April 17, 1999, made by Charles S.
             Hilliard in favor of the Registrant.

  10.21**  Start Page Agreement dated as of April 20, 1999, between the Registrant and
             LookSmart, Ltd.

 10.22***  Distributor, License and Affiliate Agreement dated as of April 30, 1999, between
             the Registrant and Compaq Computer Corporation.

 10.23***  Series D Preferred Stock Purchase Agreement dated as of May 10, 1999, by and
             among the Registrant and the investors listed on Schedule A thereto.

 10.24***  Amended and Restated Investors' Rights Agreement dated as of May 10, 1999, by and
             among the Registrant and the investors, officers and founders listed on
             schedules thereto.

 10.25***  1998 Stock Option/Stock Issuance Plan

 10.26***  1999 Stock Option/Stock Issuance Plan

 10.27***  Form of Indemnification Agreement between the Registrant and its directors.

  10.28*   1999 Stock Incentive Plan

  10.29*   Employee Stock Purchase Plan

  23.1*    Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1 hereto).

  23.2*    Consent of PricewaterhouseCoopers LLP, independent accountants

  24.1     Power of Attorney (Included on signature pages hereto).

  27.1     Financial Data Schedule.
</TABLE>


- ------------------------

  * To be filed by amendment.

 ** To be filed by amendment and confidential treatment will be requested for
    certain confidential portions of this exhibit pursuant to Rule 406 under the
    Securities Act. In accordance with Rule 406, these confidential portions
    will be omitted from this exhibit and filed separately with the Commission.


*** Previously filed by the Registrant with the Commission.


<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S>                             <C>                     <C>
<PERIOD-TYPE>                   OTHER                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1998             JUN-30-1999
<PERIOD-START>                             JUL-21-1997             JUL-01-1998
<PERIOD-END>                               JUN-30-1998             JUN-30-1999
<CASH>                                               1                  24,035
<SECURITIES>                                         0                       0
<RECEIVABLES>                                        0                   2,253
<ALLOWANCES>                                         0                     160
<INVENTORY>                                          0                       0
<CURRENT-ASSETS>                                     1                  26,977
<PP&E>                                               0                  18,116
<DEPRECIATION>                                       0                     620
<TOTAL-ASSETS>                                       1                  47,501
<CURRENT-LIABILITIES>                               24                  10,880
<BONDS>                                              0                       0
                                0                   2,140
                                          0                  44,720
<COMMON>                                             2                   1,352
<OTHER-SE>                                           0                (15,118)
<TOTAL-LIABILITY-AND-EQUITY>                         1                  47,501
<SALES>                                              0                       0
<TOTAL-REVENUES>                                     0                   4,634
<CGS>                                                0                  12,426
<TOTAL-COSTS>                                        0                  12,426
<OTHER-EXPENSES>                                     6                       0
<LOSS-PROVISION>                                     0                     160
<INTEREST-EXPENSE>                                   0                     110
<INCOME-PRETAX>                                   (25)                (15,220)
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                               (25)                (15,220)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                      (25)                (15,220)
<EPS-BASIC>                                          0                  (1.41)
<EPS-DILUTED>                                        0                  (0.44)


</TABLE>


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