<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
</TABLE>
<TABLE>
<S> <C> <C>
NETZERO, INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
/ / Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 16, 2000
---------------------
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
NetZero, Inc. will be held on Thursday, November 16, 2000, at 10:00 a.m. Pacific
time at the Century Plaza Hotel, 2025 Avenue of the Stars, Los Angeles,
California 90067, for the following purposes:
- to elect one director to serve on our Board of Directors for a three-year
term ending in the year 2003 or until his successor is duly elected and
qualified;
- to ratify the appointment of PricewaterhouseCoopers LLP as our independent
accountants for the fiscal year ending June 30, 2001; and
- to transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
Please refer to the attached proxy statement, which forms a part of this
notice and is incorporated herein by reference, for further information with
respect to the business to be transacted at the annual meeting.
Only stockholders of record at the close of business on September 21, 2000
are entitled to notice of and to vote at the annual meeting. Our stock transfer
books will remain open between the record date and the date of the meeting. A
list of stockholders entitled to vote at the annual meeting will be available
for inspection at the meeting and at our executive offices, located at 2555
Townsgate Road, Westlake Village, California 91361.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the enclosed envelope. Should you receive more than one
proxy because your shares are registered in different names and addresses, each
proxy should be signed and returned to assure that all your shares will be
voted. You may revoke your proxy at any time prior to the annual meeting. If you
attend the annual meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the annual meeting will be counted.
Sincerely,
/s/ MARK R. GOLDSTON
Mark R. Goldston
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Westlake Village, California
October 25, 2000
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE>
[LOGO]
NETZERO, INC.
2555 TOWNSGATE ROAD
WESTLAKE VILLAGE, CALIFORNIA 91361
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 16, 2000
---------------------
GENERAL
This proxy statement is furnished to our stockholders in connection with the
solicitation of proxies for use at our annual meeting of stockholders to be held
on Thursday, November 16, 2000, at 10:00 a.m. Pacific time at the Century Plaza
Hotel, 2025 Avenue of the Stars, Los Angeles, California 90067, for the purposes
of:
- electing one director to serve on our Board of Directors for a three-year
term ending in the year 2003 or until his successor is duly elected and
qualified;
- ratifying the appointment of PricewaterhouseCoopers LLP as our independent
accountants for the fiscal year ending June 30, 2001; and
- transacting such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
These proxy solicitation materials were mailed on or about November 1, 2000
to all stockholders entitled to vote at the annual meeting.
VOTING; QUORUM
Our outstanding common stock constitutes the only class of securities
entitled to vote at the meeting. Common stockholders of record at the close of
business on September 21, 2000 are entitled to notice of and to vote at the
meeting. On that date, 124,883,548 shares of our common stock were issued and
outstanding. Each share of common stock is entitled to one vote. The presence at
the meeting, in person or by proxy, of a majority of the shares of the common
stock issued and outstanding on September 21, 2000 will constitute a quorum.
All votes will be tabulated by the inspector of elections appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining whether or not there is a quorum for the
transaction of business. Abstentions will be counted towards the tabulations of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes, whereas broker non-votes will not be counted for
purposes of determining whether a proposal has been approved. In the election of
directors, the nominee receiving the highest number of affirmative votes shall
be elected. Ratification of the appointment of PricewaterhouseCoopers LLP
requires the affirmative vote of a majority of the outstanding shares of common
stock represented at the meeting and entitled to vote.
1
<PAGE>
VOTING PROCEDURE
Stockholders of record may vote by completing and returning the enclosed
proxy card prior to the meeting, voting in person at the meeting or submitting a
signed proxy card at the meeting.
UNLESS THERE ARE DIFFERENT INSTRUCTIONS ON THE PROXY, ALL SHARES REPRESENTED
BY VALID PROXIES (AND NOT REVOKED BEFORE THEY ARE VOTED) WILL BE VOTED AT THE
MEETING FOR THE ELECTION OF THE DIRECTOR NOMINEE LISTED IN PROPOSAL 1 (UNLESS
THE AUTHORITY TO VOTE FOR THE ELECTION OF SUCH DIRECTOR IS WITHHELD) AND FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT
ACCOUNTANTS AS DESCRIBED IN PROPOSAL 2. With respect to any other business that
may properly come before the meeting and be submitted to a vote of stockholders,
proxies will be voted in accordance with the best judgment of the designated
proxy holders.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THE ACCOMPANYING PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
You may revoke your proxy at any time before it is actually voted at the
meeting by:
- delivering written notice of revocation to our corporate Secretary at 2555
Townsgate Road, Westlake Village, California 91361;
- submitting a later dated proxy; or
- attending the meeting and voting in person.
Your attendance at the meeting will not, by itself, constitute a revocation
of your proxy. You may also be represented by another person present at the
meeting by executing a form of proxy designating that person to act on your
behalf. Shares may only be voted by or on behalf of the record holder of shares
as indicated in our stock transfer records. If you are a beneficial stockholder
but your shares are held of record by another person such as a stock brokerage
firm or bank, that person must vote the shares as the record holder.
Accordingly, a beneficial holder must provide voting instructions to the
appropriate record holder.
SOLICITATION
This solicitation is made on behalf of our Board of Directors and we will
pay the costs of solicitation. Our directors, officers and employees may also
solicit proxies by telephone, fax or personal interview; however, we do not
presently intend to solicit proxies other than by mail. We will reimburse banks,
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy material to our stockholders.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any stockholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the stockholders at the annual meeting in 2001. Your proposal must
comply with the requirements of Rule 14a-8 under the Exchange Act and be
submitted in writing by notice delivered or mailed by first-class United States
mail, postage prepaid, to our corporate Secretary at NetZero, Inc., 2555
Townsgate Road, Westlake Village, California 91361, and must be received no
later than July 6, 2001. Your notice must include:
- a brief description of the business you desire to bring before the meeting
and the reasons for conducting such business at the meeting;
- your name and address as they appear on our books and the name and address
of the beneficial owner, if any, on whose behalf the proposal is made;
- the class and number of shares of the corporation you, and the beneficial
owner, if any, on whose behalf the proposal is made, own beneficially and
of record; and
2
<PAGE>
- any material interest you, and the beneficial owner, if any, on whose
behalf the proposal is made, may have in such business.
The chairman of the meeting may refuse to acknowledge the introduction of
your proposal if it is not made in compliance with the foregoing procedures or
the applicable provisions of our Amended and Restated Bylaws. Our Amended and
Restated Bylaws also provide for separate notice procedures to recommend a
person for nomination as a director or to propose business to be considered by
stockholders at a meeting. In addition, the proxies solicited by the Board of
Directors for the 2001 annual meeting will confer discretionary authority to
vote on any stockholder proposal presented at that meeting unless our corporate
Secretary receives notice of such proposal prior to September 16, 2001.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS
GENERAL
Our Board of Directors is divided into three classes with staggered,
three-year terms. The director elected at this annual meeting will hold office
for a three-year term, expiring at the 2003 annual meeting or until his
successor is duly elected and qualified. Each returned proxy cannot be voted for
a greater number of persons than the nominee named below. Unless individual
stockholders specify otherwise, each returned proxy will be voted for the
election of the nominee listed below. If, however, the nominee named below is
unable to serve or declines to serve at the time of the annual meeting, the
persons named in the enclosed proxy will exercise discretionary authority to
vote for substitutes. The nominee for election has agreed to serve if elected,
and we have no reason to believe that he will be unavailable to serve.
The class whose term expires at this annual meeting contains two directors,
Messrs. Bohnett and Koontz, who are not standing for re-election. As we are
nominating only one director for the class whose term ends in 2003, we will have
one vacancy on the Board of Directors. At this time, we do not intend to fill
that vacancy.
NOMINEE FOR THE TERM ENDING ON THE 2003 ANNUAL MEETING OF STOCKHOLDERS
The following table sets forth information with respect to the person
nominated for election at the meeting.
<TABLE>
<CAPTION>
NAME AGE
---- --------
<S> <C>
Robert Berglass....................................... 62
</TABLE>
------------------------
ROBERT BERGLASS currently is the Chairman, Chief Executive Officer and
President of Schwarzkopf & DEP, Inc. (formerly DEP Corporation), a division of
Henkel KGAA, and has held those positions since DEP Corporation was acquired by
Henkel KGAA in 1998. From 1969 to 1998, Mr. Berglass was the Chairman, Chief
Executive Officer and President of DEP Corporation. Prior to the acquisition by
Henkel KGAA, the company successfully completed a reorganization in less than
seven months under Chapter 11 of the Federal Bankruptcy Code in 1996. Before
joining DEP Corporation, Mr. Berglass held various positions at Faberge, Inc.,
including Corporate Executive Vice President. Mr. Berglass has more than 40
years of consumer marketing experience.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominee LISTED ABOVE.
3
<PAGE>
CONTINUING DIRECTORS FOR TERMS ENDING ON THE OTHER ANNUAL MEETINGS OF
STOCKHOLDERS
In addition, our other five directors whose terms will expire upon the
annual meeting of the year indicated below are as follows:
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE SINCE EXPIRES POSITIONS
---- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Mark R. Goldston..................... 45 1999 2002 Chairman, Chief Executive Officer and
Director
Ronald T. Burr....................... 35 1997 2001 President and Director
James T. Armstrong(1)(2)............. 34 1998 2002 Director
Jennifer S. Fonstad(1)............... 44 1999 2001 Director
Bill Gross(3)........................ 42 1998 2002 Director
</TABLE>
------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Mr. Gross resigned his position on the compensation committee in
February 2000.
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 B.S.B.A. in Marketing and Finance
from Ohio State University and his M.B.A. (M.M.) from the J.L. Kellogg School at
Northwestern University.
RONALD T. BURR is a co-founder of NetZero and has been our President and a
director since July 1997, and was our Chief Technology Officer from March 1999
to October 2000. 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 start-up company.
JAMES T. ARMSTRONG has been a director since September 1998. Mr. Armstrong
has been a Managing Director 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 for several
private companies. 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.
JENNIFER S. FONSTAD has been a director since January 1999. Ms. Fonstad is
partner with Draper Fisher Jurvetson. Ms. Fonstad also serves on the board of
directors for several private companies. 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 company 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.
4
<PAGE>
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. and
GoTo.com, Inc. and 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.
BOARD COMMITTEES AND MEETINGS
Our Board of Directors held 10 meetings during the fiscal year ended
June 30, 2000. Our Board of Directors has an audit committee and a compensation
committee. Each director attended or participated in 75% or more of the
aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all committees of the Board of
Directors on which such director served during the 2000 fiscal year. Our Board
of Directors also consulted informally with management from time to time and
acted by written consent without a meeting during the 2000 fiscal year.
- AUDIT COMMITTEE. The audit committee currently consists of three
directors, Messrs. Armstrong and Bohnett and Ms. Fonstad. The audit
committee has responsibility for reviewing and making recommendations
regarding our employment of independent accountants, the annual audit of
our financial statements, and our internal controls, accounting practices
and policies. The audit committee was formed on July 8, 1999 and held one
meeting during the 2000 fiscal year. Our Board of Directors intends to
fill Mr. Bohnett's seat on the audit committee following the annual
meeting.
- COMPENSATION COMMITTEE. The compensation committee currently consists of
two directors, Messrs. Armstrong and Koontz. The compensation committee
has responsibility for determining the nature and amount of compensation
for our management and directors and for administering our employee
benefit plans. The compensation committee was formed on July 8, 1999. The
committee held one meeting and acted by written consent one time during
the 2000 fiscal year. Our Board of Directors intends to fill Mr. Koontz'
seat on the compensation committee following the annual meeting.
DIRECTOR COMPENSATION
Our directors receive no cash remuneration for serving on the Board of
Directors or any board committee. Under our 1999 Stock Incentive Plan,
non-employee directors may receive option grants and other equity incentives
pursuant to the director fee option grant programs. Employee directors are also
eligible to receive stock option grants and direct issuances of common stock
under our 1999 Stock Incentive Plan. None of our directors received any option
grants or equity incentives in connection with their participation on our Board
of Directors during the 2000 fiscal year. If elected, Mr. Berglass will be
granted an option to purchase 120,000 shares of our common stock at a price
equal to the fair market value of our common stock on the date of grant.
One-third of the option will vest on each anniversary of the date of grant for
three years provided Mr. Berglass remains on our Board of Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEE LISTED ABOVE.
5
<PAGE>
PROPOSAL TWO: RATIFICATION OF INDEPENDENT ACCOUNTANTS
Our Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
our independent accountants for the 2000 fiscal year, to serve in the same
capacity for the fiscal year ending June 30, 2001, and is asking the
stockholders to ratify this appointment. A representative of
PricewaterhouseCoopers LLP is expected to be present at the annual meeting, will
have the opportunity to make a statement if he or she desires to do so, and will
be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS OUR
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING JUNE 30, 2001.
OTHER MATTERS
We do not know of any matters to be presented at the annual meeting other
than those mentioned in this proxy statement. If any other matters are properly
brought before the annual meeting, it is intended that the proxies will be voted
in accordance with the best judgment of the person or persons voting the
proxies.
6
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of September 21, 2000, by
(i) each person who, to our knowledge, beneficially owns 5% or more of the
outstanding shares of our common stock, (ii) each of our directors and nominees
for director, (iii) each named executive officer (as listed in the summary
compensation table), and (iv) all current directors and executive officers as a
group. As of September 21, 2000, we had 124,883,548 shares of common stock
outstanding.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OWNERSHIP(1)
------------------------------------ ------------ ------------
<S> <C> <C>
Mark R. Goldston(2)......................................... 5,307,697 4.3
Ronald T. Burr(3)........................................... 3,101,332 2.5
Charles S. Hilliard(4)...................................... 1,130,000 *
Perri S. Procida(5)......................................... 100,946 *
Frederic A. Randall, Jr.(6)................................. 904,135 *
Bill Gross(7)............................................... 23,322,766 18.7
James T. Armstrong(8)....................................... 17,949,274 14.4
Jennifer S. Fonstad(9)...................................... 15,050,677 12.1
Paul G. Koontz(10).......................................... 5,321,674 4.3
David C. Bohnett............................................ 306,870 *
Robert Berglass............................................. 2,000 *
Entities affiliated with Bill Gross(11)..................... 22,917,100 18.4
130 West Union Street
Pasadena, CA 91103
Entities affiliated with Draper Fisher Jurvetson Management
Company V, LLC(12)........................................ 15,050,677 12.1
400 Seaport Court, Suite 350
Redwood City, CA 94063
Entities affiliated with Foundation Capital
Management II, LLC(13).................................... 5,010,172 4.0
70 Willow Road, Suite 200
Menlo Park, CA 94025
QUALCOMM Incorporated....................................... 11,499,627 9.2
5775 Morehouse Drive
San Diego, CA 92121
CPQ Holdings, Inc.(14)...................................... 7,465,000 6.0
20555 State Highway 249
Houston, TX 77070
All directors and executive officers as a group(15)
(13 persons).............................................. 57,954,144 46.4
</TABLE>
------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) 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. Shares of common stock subject
to options and warrants which are currently exercisable, or will become
exercisable within 60 days of September 21, 2000, are deemed outstanding
for computing the percentage of the person or entity holding such
securities but are not outstanding for computing
7
<PAGE>
the percentage of any other person or entity. Similarly, shares of common
stock granted as part of a restricted stock award which have been issued,
or will be issued within 60 days of September 21, 2000, are deemed
outstanding for computing the percentage of the person or entity holding
such securities but are not outstanding for computing the percentage of any
other person or entity. Except as indicated by footnote, and subject to the
community property laws where applicable, to our knowledge the persons
named in the table above have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them. Unless
otherwise indicated, the address for each person is our address at 2555
Townsgate Road, Westlake Village, California 91361.
(2) Includes (i) 65,831 shares owned by Mr. Goldston; (ii) 4,376,383 shares
owned by the Mark and Nancy Jane Goldston Family Trust dated November 8,
1997, over which Mr. Goldston exercises voting power, as trustee;
(iii) 800,000 shares owned by the Larkspur Independent Trust, of which
Mr. Goldston is the beneficiary; and (iv) 65,483 restricted shares which
will be issued to Mr. Goldston within 60 days of September 21, 2000
pursuant to the restricted stock award made to him in July 2000.
(3) Includes (i) 2,657,166 shares owned by Mr. Burr; (ii) 440,000 shares owned
by the Double G Trust, of which Mr. Burr is the beneficiary; and
(iii) 4,166 restricted shares which will be issued to Mr. Burr within
60 days of September 21, 2000 pursuant to the restricted stock award made
to him in July 2000.
(4) Includes (i) 880,000 shares owned by Mr. Hilliard; (ii) 240,000 shares
owned by the Pacific Independent Trust, of which Mr. Hilliard is the
beneficiary; and (iii) 10,000 restricted shares which will be issued to
Mr. Hilliard within 60 days of September 21, 2000 pursuant to the
restricted stock award made to him in July 2000.
(5) As Ms. Procida has not been employed by us since September 8, 2000, the
information provided is based upon the information we had regarding
Ms. Procida's beneficial ownership as of that date.
(6) Includes (i) 895,385 shares owned by Mr. Randall and (ii) 8,750 restricted
shares which will be issued to Mr. Randall within 60 days of September 21,
2000 pursuant to the restricted stock award made to him in July 2000.
(7) Includes (i) 76,878 shares owned by Mr. Gross; (ii) 328,789 shares owned by
Bill Gross idealab!; and (iii) 22,917,100 shares owned by affiliates of
idealab! Capital Management I, LLC and idealab! Holdings, L.L.C, as set
forth in note (11) below. 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.
(8) Includes (i) 7,656,280 shares owned by idealab! Capital Partners I-A, L.P.
and (ii) 10,292,994 shares owned by idealab! Capital Partners I-B, L.P.
Mr. Armstrong is a managing director of each of these entities and
disclaims beneficial ownership of such shares, except to the extent of his
proportionate interest therein.
(9) Includes 15,050,677 shares owned by entities affiliated with Draper Fisher
Jurvetson, as set forth in note (12) 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.
(10) Includes (i) 247,726 shares owned by the Koontz Revocable Trust;
(ii) 63,776 shares owned by Koontz Investments, LP; and (iii) 5,010,172
shares owned by entities affiliated with Foundation Capital Management II,
LLC, as set forth in note (13) below. Mr. Koontz is a member of Foundation
Capital Management II, L.L.C. and disclaims beneficial ownership of shares
owned by
8
<PAGE>
entities affiliated with Foundation Capital Management II, L.L.C., except
to the extent of his proportionate interest therein.
(11) Includes (i) 7,656,280 shares owned by idealab! Capital Partners I-A,
L.P.; (ii) 10,292,994 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.
(12) Includes (i) 13,921,876 shares owned by Draper Fisher Jurvetson Fund V,
L.P. and (ii) 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.
(13) Includes (i) 4,764,496 shares owned by Foundation Capital II, L.P.;
(ii) 163,784 shares owned by Foundation Capital II Entrepreneurs Fund,
LLC; and (iii) 81,892 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.
(14) Includes 7,465,000 shares owned by CPQ Holdings, Inc., an affiliate of
Compaq Computer Corporation.
(15) Includes 2,053 shares of common stock subject to options exercisable
within 60 days of September 21, 2000 and 100,898 shares of restricted
stock which will be issued within 60 days of September 21, 2000 pursuant
to the restricted stock awards made in July 2000.
9
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
The following table sets forth certain information regarding all our
executive officers as of September 21, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Mark R. Goldston............... 45 Chairman, Chief Executive Officer and
Director
Ronald T. Burr................. 35 President and Director
Stacy A. Haitsuka.............. 34 Senior Vice President, Technology
Charles S. Hilliard............ 37 Senior Vice President, Finance and
Chief Financial Officer
Frederic A. Randall, Jr........ 43 Senior Vice President, General Counsel and
Secretary
Robert J. Taragan.............. 44 Senior Vice President, General Manager of
CyberTarget
Brian Woods.................... 40 Senior Vice President, Chief Marketing
Officer
</TABLE>
The following is a brief description of the capacities in which each of the
executive officers has served during the past five years. The biographies for
Messrs. Goldston and Burr appear earlier in this proxy statement under the
heading "Proposal One: Election of Directors."
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 that he co-founded. Prior to
May 1991, Mr. Haitsuka held various positions relating to programming, image
processing and business transactions at Security Pacific Automation Corporation.
Mr. Haitsuka received his B.S. in Computer Science from California State
University at Dominguez Hills.
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 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.
ROBERT J. TARAGAN has been a Senior Vice President and General Manager of
our CyberTarget Division since March of 2000. Prior to joining NetZero,
Mr. Taragan held various management positions with Nielsen Media Research for
21 years. His positions included Executive Vice President of Marketing and
General Manager of Local Services. While at Nielsen he also established the
Nielsen Sports Marketing Service, extending Nielsen's services to all major U.S.
sports leagues. Mr. Taragan received his B.A. in Economics from Colgate
University.
10
<PAGE>
BRIAN WOODS has been a Senior Vice President and our Chief Marketing Officer
since December 1999. Mr. Woods served as Chairman and Chief Executive Officer of
Aim TV, Inc. from May 1999 until we acquired Aim TV in December of 1999. Prior
to his position with Aim TV, Mr. Woods was affiliated with Planet Hollywood from
1996 until 1998 as the President of the Entertainment Division for Planet
Hollywood International. From 1988 to 1996, Mr. Woods was Executive Vice
President and Chief Marketing Officer of Blockbuster Entertainment Group.
Mr. Woods was also Co-Chairman of the Viacom Marketing Council from 1993 to
1995.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered during the 1999 and 2000 fiscal years
by our Chief Executive Officer and each of the four other most highly
compensated executive officers whose aggregate salary and bonus for the 2000
fiscal year were in excess of $100,000. The listed individuals are sometimes
referred to herein as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION OPTIONS(1)
---------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark R. Goldston........................... 2000 200,000 637,500 -- 1,571,596
Chairman and Chief Executive Officer 1999 56,154 70,383 -- 6,286,383
Ronald T. Burr............................. 2000 150,000 93,750 -- 100,000
President 1999 102,542 25,000 -- --
Charles S. Hilliard........................ 2000 140,000 122,171 -- 240,000
Senior Vice President, Finance 1999 21,538 -- -- 1,200,000
and Chief Financial Officer
Frederic A. Randall, Jr.................... 2000 135,000 117,500 -- 210,000
Senior Vice President and 1999 31,154 -- -- 1,050,000
General Counsel
Perri S. Procida(2)........................ 2000 135,000 56,250 -- 180,000
Senior Vice President, Sales 1999 18,692 -- -- 900,000
</TABLE>
------------------------
(1) All of the options appearing in this table for the 2000 fiscal year were
cancelled in July 2000. In connection with the cancellation of these
options, each of the named executive officers received a restricted stock
award for that number of shares equal to half of the shares subject to the
cancelled option grant. The shares of our common stock subject to such award
will vest and be issued in 12 successive equal quarterly installments
beginning in August 2000. The stock award was made on July 7, 2000, when the
closing price of our common stock on the Nasdaq National Market was $5.50
per share.
(2) Ms. Procida has not been employed by us since September 8, 2000.
11
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock options
granted to the named executive officers during the 2000 fiscal year. All the
grants were made under our 1999 Stock Incentive Plan. No stock appreciation
rights were granted to the named executive officers during such fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
% OF TOTAL POTENTIAL REALIZATION VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION -------------------------------
NAME GRANTED(1) 2000 SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mark R. Goldston.................. 1,571,596 22.0 $19.25 03/07/10 $19,026,089 $48,215,846
Ronald T. Burr.................... 100,000 1.4 19.25 03/07/10 1,210,622 3,067,954
Charles S. Hilliard............... 240,000 3.4 19.25 03/07/10 2,905,493 7,363,090
Frederic A. Randall, Jr........... 210,000 3.0 19.25 03/07/10 2,542,307 6,442,704
Perri S. Procida.................. 180,000 2.5 19.25 03/07/10 2,179,120 5,522,318
</TABLE>
------------------------
(1) All of the options appearing in this table had the following vesting
schedule: one-third of the grant was to vest in 48 equal monthly
installments commencing on the date of grant, one-third of the grant was to
vest in 48 equal monthly installments commencing on the first anniversary of
the date of grant and one-third of the grant was to vest in 48 equal monthly
installments commencing on the second anniversary of the date of grant.
However, all of the options were cancelled in July 2000. In connection with
the cancellation of these options, each of the named executive officers
received a restricted stock award for that number of shares equal to half of
the shares subject to the cancelled option grant. The shares of our common
stock subject to such award will vest and be issued in 12 successive equal
quarterly installments beginning in August 2000. The stock award was made on
July 7, 2000, when the closing price of our common stock on the Nasdaq
National Market was $5.50 per share.
(2) The 5% and 10% assumed rates of appreciation are prescribed by the rules and
regulations of the Commission and do not represent our estimate or
projection of the future trading prices of our common stock. Unless the
market price of the common stock appreciates over the option term, no value
will be realized from those option grants made to the named executive
officers with an exercise price equal to the fair market value of the option
shares on the grant date. Actual gains, if any, on stock option exercises
are dependent on numerous factors, including, without limitation, our future
performance, overall business and market conditions and the option holder's
continued employment with us throughout the entire vesting period, which
factors are not reflected in this table.
12
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table provides information with respect to the named executive
officers, concerning the exercise of options during the 2000 fiscal year and
unexercised options held by them at the end of that fiscal year. None of the
named executive officers exercised any stock appreciation rights during the 2000
fiscal year and no stock appreciation rights were held by the named executive
officers at the end of that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
ACQUIRED OPTIONS(2) YEAR END
ON VALUE --------------------------- -----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Mark R. Goldston............ 0 -- 32,741 1,538,855 -- --
Ronald T. Burr.............. 0 -- 2,083 97,917 -- --
Charles S. Hilliard......... 0 -- 5,000 235,000 -- --
Frederic A. Randall, Jr..... 0 -- 4,375 205,625 -- --
Perri S. Procida............ 243,750 $1,739,885 22,500(3) 813,750(3) $117,423 $4,246,799
</TABLE>
------------------------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for those shares.
(2) Except for a portion of the options listed for Ms. Procida, all of the
options appearing in this table were cancelled in July 2000, as more fully
described in footnote 1 to the previous table covering option grants in the
last fiscal year.
(3) A portion of Ms. Procida's options set forth in this table were cancelled in
July 2000. The portion that was cancelled is set forth in the previous table
covering option grants in the last fiscal year.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
EMPLOYMENT CONTRACTS
Mark R. Goldston entered into a four-year employment agreement, effective as
of March 20, 1999, under which Mr. Goldston serves as our Chief Executive
Officer and Chairman. Under this agreement, Mr. Goldston receives a base salary
of $200,000 per year or such greater amount as determined by our Board of
Directors. 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 received a signing bonus of $300,000 on January 1, 2000. 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 at an exercise price per
share of $0.10. Mr. Goldston exercised his option in full; however, the option
shares are subject to repurchase by us at the price paid for his shares. Our
repurchase right lapses monthly in 48 equal installments. If Mr. Goldston's
employment is terminated by us without cause, or if following a change in
control of NetZero Mr. Goldston resigns for 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 without cause, all of his shares will
vest. Mr. Goldston will also be credited with an additional 24 months of vesting
on his option shares in the event his employment is terminated by reason of
death or permanent disability. Mr. Goldston's option shares automatically vest
upon a change in control of NetZero.
13
<PAGE>
Charles S. Hilliard entered into a four-year employment agreement, effective
as of April 17, 1999, under 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 (or such greater amount as determined by our
Board of Directors) 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 in full; however, such
option shares are subject to repurchase by us at the price paid for his 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 to Mr. Hilliard, and Mr. Hilliard purchased,
225,000 shares of our Series D preferred stock 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
12 months of vesting on his option shares. Mr. Hilliard will also be credited
with an additional 12 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.
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. Under this agreement, Mr. Randall
receives a base salary of $135,000 (or such greater amount as determined by our
Board of Directors) 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 in full; however, the
option shares are subject to repurchase by us at the price paid for his 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 12 months of vesting on his option shares. Mr. Randall will also
be credited with an additional 12 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.
Robert J. Taragan entered into an employment arrangement with us effective
as of February 18, 2000, pursuant to which Mr. Taragan serves as a Senior Vice
President and General Manager of our CyberTarget division. Mr. Taragan receives
a base salary of $150,000 (or such greater amount as determined by our Board of
Directors) plus a performance-based bonus of up to 50% of his base salary.
Mr. Taragan received a signing bonus of $60,000. In addition, we gave
Mr. Taragan benefits that we make available to our employees in comparable
positions, and we granted Mr. Taragan an option to purchase 150,000 shares of
our common stock at a price per share of $23.50. Twenty-five percent of the
option vests on the one-year anniversary of Mr. Taragan's employment and the
remaining 75% vests in 36 equal monthly installments thereafter. On July 12,
2000, we granted Mr. Taragan two additional options, each for 75,000 shares of
our common stock at an exercise price per share of $5.50. Twenty-five percent of
the first option vests on the one-year anniversary of the date of grant and the
remaining 75% of the first option vests in 36 equal monthly installments
thereafter. Twenty-five percent of the second option vests on the six-month
anniversary of the date of grant and the remaining 75% of the second option
vests in 36 equal monthly installments thereafter. Mr. Taragan's employment is
subject to
14
<PAGE>
termination at any time by him or by us. If Mr. Taragan's employment is
terminated without cause, he will be entitled to receive a lump sum payment of
$90,000.
Brian Woods entered into a four-year employment agreement, effective as of
December 1, 1999, pursuant to which Mr. Woods serves as a Senior Vice President,
Chief Marketing Officer. Under this agreement, Mr. Woods receives a base salary
of $150,000 (or such greater amount as determined by our Board of Directors)
plus a performance-based bonus of up to 50% of his base salary. In addition, we
gave Mr. Woods benefits that we make available to our employees in comparable
positions, and we granted Mr. Woods an option to purchase 327,273 shares of our
common stock at a price per share of $21.625. Twenty-five percent of the option
vests on the one-year anniversary of Mr. Woods' employment and the remaining 75%
vests in 36 equal monthly installments thereafter. On March 7, 2000, we granted
Mr. Woods an additional option to purchase 75,000 shares of our common stock at
an exercise price per share of $19.25 and on July 12, 2000, we granted
Mr. Woods an additional option to purchase 162,500 shares of our common stock at
an exercise price per share of $5.50. Both options vest as follows: 25% vests on
the one-year anniversary of the date of grant and the remaining 75% vests in 36
equal monthly installments thereafter. On July 12, 2000, Mr. Woods was also
granted a restricted stock award of 100,000 shares of our common stock, which
will vest and be issued in 12 successive equal quarterly installments beginning
in August 2000. Mr. Woods' employment is subject to termination at any time by
him or by us. If Mr. Woods' employment is terminated without cause, he will be
entitled to receive a lump sum payment of $150,000.
CHANGE IN CONTROL
Our 1999 Stock Incentive Plan includes 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 (as well
as each outstanding option granted under one of our predecessor stock
option/stock issuance plans) 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.
- With respect to options granted under our predecessor stock option/stock
issuance plans, any options which are assumed will 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. For certain
executive officers, all the shares subject to their options will vest on
such an involuntary termination of their employment. The number of option
shares which will vest on such an accelerated basis for other optionees
will be equal to two times the number of option shares in which the
optionee is already vested at the time of such involuntary termination or,
if
15
<PAGE>
greater, the number of option shares in which the optionee would have
vested had his or her employment continued for an additional year.
We granted restricted stock awards to certain employees in July 2000. The
shares of our common stock subject to such awards will vest and be issued in 12
successive equal quarterly installments beginning in August 2000. Upon a change
of control, the vesting of such shares will be accelerated under the same
circumstances and to the same extent as such employee's options, unless the
change of control occurs during a time when our insider trading policy prohibits
the employee from trading, in which instance the vesting will not accelerate
until the earlier of the date the employee is not prohibited from trading and
February 15 of the year following the change of control.
10b5-1 SELLING PLANS
As a result of the recent clarifications in the insider trading laws and in
particular, the promulgation of Rule 10b5-1, certain of our officers have
entered into selling plans for sales of our common stock during the 2000 fiscal
year and the 2001 fiscal year. These selling plans are on file with our
corporate Secretary.
MANAGEMENT INDEBTEDNESS
In March 1999, Mr. Goldston exercised an option to purchase 6,286,383 shares
of our common stock granted to him in connection with his employment for a
purchase price of $628,638. The purchase price for the common stock was paid
with a note payable to us for the entire amount. The note bears interest at a
rate of 4.83% per annum and becomes due and payable on March 20, 2004. The
amount outstanding on the note as of June 30, 2000 was $487,000 and the largest
aggregate amount of indebtedness outstanding at any time during the 2000 fiscal
year on the note was $653,000.
In April 1999, Mr. Hilliard exercised an option to purchase 1,200,000 shares
of our common stock granted to him in connection with his employment for a
purchase price of $400,000. The purchase price for the common stock was paid
with a note payable to us for the entire amount. The note bears interest at a
rate of 5.28% per annum and becomes due and payable on April 16, 2004. The
amount outstanding on the note as of June 30, 2000 was $306,000 and the largest
aggregate amount of indebtedness outstanding at any time during the 2000 fiscal
year on the note was $421,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee currently consists of Messrs. Armstrong and
Koontz. Neither of these individuals was an officer or employee of the company
at any time during the 2000 fiscal year or at any other time. No current
executive officer of the company has ever served as a member of the board of
directors or compensation committee of any other entity that has or has had one
or more executive officers serving as a member of our Board of Directors or
compensation committee.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the duty of the compensation committee to review and make
recommendations to the Board of Directors regarding the salaries and bonuses of
our executive officers, including the Chief Executive Officer, and to establish
the general compensation policies for such individuals. The compensation
committee has the duty and authority to administer our equity incentive plans.
The committee was formed in July 1999; however, decisions regarding the
compensation of our executive officers for the 2000 fiscal year were made by the
Board of Directors prior to the formation of the compensation committee.
The compensation committee believes that the compensation programs for the
company's executive officers should reflect the company's performance and the
value created for our stockholders. In
16
<PAGE>
addition, the compensation programs should support the short-term and long-term
strategic goals and values of the company and should reward individual
contributions to the company's success. The company is engaged in a very
competitive industry, and its success depends upon its ability to attract and
retain qualified executives through the competitive compensation packages it
offers to such individuals.
GENERAL COMPENSATION POLICY. The compensation committee's policy is to
provide the executive officers with compensation opportunities that are based
upon their personal performance, the financial performance of the company and
their contribution to that performance, and that are competitive enough to
attract and retain highly skilled individuals. Each executive officer's
compensation package is comprised of three elements: (i) base salary,
(ii) annual variable incentive awards, and (iii) long-term stock-based incentive
awards designed to strengthen the mutuality of interests between the executive
officers and our stockholders. As an officer's level of responsibility
increases, a greater proportion of his or her total compensation will be
dependent upon the company's financial performance and stock price appreciation
rather than base salary.
FACTORS. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 2000 fiscal year are
described below. The compensation committee may, however, in its discretion
apply entirely different factors, such as different measures of financial
performance, for future fiscal years.
BASE SALARY. The base salary for each executive officer is established on
the basis of each individual's personal performance and internal alignment
considerations. The compensation committee's policy is to target base salary
levels at or below the median of the estimated base salary levels paid for
similar positions at peer companies to reflect the fact that each executive
officer's overall compensation is primarily composed of an equity interest in
the company. The philosophy behind this strategy is to have a substantial
portion of each executive officer's total compensation tied to the company's
performance and stock price appreciation in order to create a greater incentive
to create value for our stockholders.
ANNUAL INCENITVES. The annual incentive bonus for each executive officer is
based on a percentage of each individual's base pay, but is adjusted to reflect
the actual financial performance of the company in comparison to the company's
business plan as well as the individual officer's performance. Based on these
factors, bonuses were awarded to the executive officers named in the Summary
Compensation Table in the indicated amounts.
LONG-TERM INCENTIVES. Each stock option grant is designed to align the
interests of the executive officer with those of the stockholders and provide
each individual with a significant incentive to manage the company from the
perspective of an owner with an equity stake in the business. Each grant allows
the officer to acquire shares of our common stock at a fixed price per share
(the market price on the grant date) over a specified period of time (up to ten
years). Each option generally becomes exercisable in a series of installments
over a four-year period, contingent upon the officer's continued employment with
the company. Accordingly, the option will provide a return to the executive
officer only if he or she remains employed by the company during the vesting
period, and then only if the market price of the shares appreciates over the
option term.
The size of the option grant to each executive officer is set by the
compensation committee at a level that is intended to create a meaningful
opportunity for stock ownership based upon the individual's current position
with the company, the individual's personal performance in recent periods and
his or her potential for future responsibility and promotion over the option
term. The compensation committee also takes into account the number of unvested
options held by the executive officer in order to maintain an appropriate level
of equity incentive for that individual. The relevant weight given to each of
these factors varies from individual to individual. The compensation committee
17
<PAGE>
has established certain guidelines with respect to the option grants made to the
executive officers, but has the flexibility to make adjustments to those
guidelines at its discretion.
CEO COMPENSATION. Mr. Goldston joined us in March of 1999. At that time, we
were private and at a very early stage. We entered into a two year employment
agreement with Mr. Goldston that provided a below market salary and a
significant equity component. The equity component was necessary to attract an
executive of Mr. Goldston's experience to a company that was in the early stages
and had minimal capital. While Mr. Goldston's equity component will continue to
be the most significant portion of his compensation package, the compensation
committee believes that his base salary, as well as the base salary of other
executive officers, will be increased going forward to more closely reflect the
increased maturity of the company. Because Mr. Goldston holds a significant
equity stake in the company, the compensation committee believes that he has a
significant incentive to continue contributing to our financial success.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation, whether payable in cash or stock, exceeds $1 million per covered
officer in any fiscal year. The limitation applies only to compensation that is
not considered to be performance-based. Non-performance-based compensation paid
to our executive officers for the 2000 fiscal year did not exceed the
$1 million limit per officer, and the compensation committee does not anticipate
that any non-performance-based compensation payable in cash to the executive
officers for the 2001 fiscal year will exceed that limit. The 1999 Stock
Incentive Plan has been structured so that any compensation deemed paid in
connection with the exercise of option grants made under that plan with an
exercise price equal to the fair market value of the option shares on the grant
date will qualify as performance-based compensation that will not be subject to
the $1 million limitation. However, the restricted shares issued under that plan
in July 2000 in cancellation of outstanding underwater options will not qualify
as performance-based compensation, and the deductibility of the compensation
(which will be deemed paid by us as the shares subject to those awards vest and
are issued in quarterly installments) will be subject to the $1 million
limitation. The compensation deemed paid by us on each such quarterly vesting
date will be equal to the market price of the shares vesting on that date.
Because it is unlikely that the actual cash compensation payable to any of our
executive officers in the foreseeable future will approach the $1 million limit,
the compensation committee has decided at this time not to take any action to
limit or restructure the elements of cash compensation payable to the executive
officers. The compensation committee will reconsider this decision should the
individual cash compensation of any executive officer ever approach the
$1 million level.
It is the opinion of the compensation committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the interests of each executive officer and the interests of
the company's stockholders through the use of competitive and equitable
executive compensation in a balanced and reasonable manner, for both the short
and long-term.
Submitted by the compensation committee of the Board of Directors:
JAMES T. ARMSTRONG
PAUL G. KOONTZ
18
<PAGE>
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total stockholder
returns for the company, the Nasdaq Stock Market (U.S.) Index and a
self-constructed index of a peer group consisting of the following
companies: GoTo.com, Inc., Ask Jeeves, Inc., MP3.com, Inc., iVillage Inc., and
24/7 Media, Inc.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMBINED INDEX NETZERO INDEX NASDAQ INDEX
<S> <C> <C> <C>
Sep-99 100.000 100.000 100.000
Dec-99 135.125 168.363 148.493
Mar-00 87.310 95.300 166.867
Jun-00 36.653 32.619 144.727
</TABLE>
The graph covers the period from September 23, 1999, the date of our initial
public offering, to June 30, 2000. The graph assumes that $100.00 was invested
in our common stock on September 23, 2000 at the initial public offering price
of $16.00 per share and in each index, and that all dividends were reinvested.
No cash dividends have been declared on our common stock. Stockholder returns
over the indicated period should not be considered indicative of future
stockholder returns.
This graph and the compensation committee report are not considered proxy
solicitation material and are not deemed filed with the Commission.
Notwithstanding anything to the contrary set forth in any of our previous
filings made under the Securities Act or the Exchange Act that might incorporate
our future filings, neither the preceding graph nor the compensation committee
report is to be incorporated by reference into any such prior filings, nor shall
such graph or report be incorporated by reference into any of our future filings
made under those statutes.
CERTAIN TRANSACTIONS
Since June 30, 1999, there has not been any transaction or series of similar
transactions to which we were or are a party in which the amount involved
exceeded or exceeds $60,000 and in which any director, executive officer, holder
of more than 5% of any class of our voting securities, 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 the transactions described below.
During the 2000 fiscal year, idealab! and its affiliates purchased
$4,300,000 in banner advertisements from us. idealab!, including its affiliates,
is one of our major stockholders and Bill Gross, one of our directors, is also a
director and major stockholder of idealab!.
19
<PAGE>
INDEMNIFICATION AGREEMENTS
In addition to the indemnification provisions contained in our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws, we have
entered into separate indemnification agreements with each of our directors and
officers. These agreements require that we, among other things, indemnify each
director and officer against expenses (including attorneys' fees), judgments,
fines and settlements paid by such individual in connection with any action,
suit or proceeding arising out of such individual's status or service as a
director or officer of the company (other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest)
and to advance expenses incurred by such individual in connection with any
proceeding against such individual with respect to which such individual may be
entitled to indemnification by us.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that our executive officers and
directors, and persons who own more than ten percent of a registered class of
our equity securities, file reports of ownership and changes in ownership (Forms
3, 4 and 5) with the Commission. Executive officers, directors and
greater-than-ten-percent holders are required to furnish us with copies of all
of the forms that they file.
Based solely on our review of these reports or written representations from
certain reporting persons, we believe that during the 2000 fiscal year, all
filing requirements applicable to our officers, directors,
greater-than-ten-percent beneficial owners and other persons subject to
Section 16(a) of the Exchange Act were complied with, except that Mr. William
Elkus, deemed to be a greater-than-ten-percent beneficial owner, filed a late
Form 3 upon his becoming a greater-than-ten-percent beneficial owner and
Mr. Burr filed one late Form 4 covering one transaction.
ANNUAL REPORT
Each stockholder receiving this proxy statement will also be provided with a
copy of our Annual Report to Stockholders. The Annual Report is not incorporated
into this proxy statement and is not considered proxy solicitation material.
FORM 10-K; AVAILABLE INFORMATION
We filed an Annual Report on Form 10-K with the Commission on September 28,
2000. Stockholders may obtain a copy of this report, free of charge, by writing
to our corporate Secretary at NetZero, Inc., 2555 Townsgate Road, Westlake
Village, California 91361. Our filings with the Commission may be inspected at
the offices of the Securities and Exchange Commission located in Washington,
D.C., New York, New York and Chicago, Illinois. Documents filed electronically
with the Commission may also be accessed through the website maintained by it
at: www.sec.gov.
BY ORDER OF THE BOARD OF DIRECTORS
OF NETZERO, INC.
/s/ FREDERIC A. RANDALL, JR.
Frederic A. Randall, Jr.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Westlake Village
October 25, 2000
20
<PAGE>
NETZERO, INC.
PROXY
COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 16, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NETZERO, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
notice of the annual meeting of stockholders and the proxy statement, and
appoints Frederic A. Randall, Jr. and Charles S. Hilliard, and each of them, the
proxy of the undersigned, with full power of substitution, to vote all shares of
common stock of NetZero, Inc. which the undersigned is entitled to vote, either
on his or her own behalf or on behalf of any entity or entities, at the annual
meeting of stockholders to be held at the Century Plaza Hotel, 2025 Avenue of
the Stars, Los Angeles, California 90067, on November 16, 2000 at 10:00 a.m.
Pacific time, and at any adjournment or postponement thereof, with the same
force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this proxy shall be voted in the manner set
forth on the reverse side.
<PAGE>
1. To elect one director to serve until the 2003 Annual Meeting of Stockholders
or until his successor is duly elected and qualified.
Robert Berglass / / FOR / / WITHHOLD AUTHORITY TO VOTE
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of NetZero, Inc. for the fiscal year ending June 30, 2001.
/ / FOR / / AGAINST / / ABSTAIN
3. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as may
properly come before the meeting.
The Board of Directors recommends a vote IN FAVOR OF the director listed above
and a vote IN FAVOR OF each of the listed proposals. This proxy, when properly
executed, will be voted as specified above. If no specification is made, this
proxy will be voted IN FAVOR OF the election of the director listed above and IN
FAVOR OF the other proposals.
Please print the name(s) appearing on each share
certificate(s) over which you have voting authority:
------------------------------------------------------------------------
(Print name(s) on certificate)
Please sign your name:
------------------------------------------------------------
(Authorized Signature(s))
Date:
------------------------------
/ / I PLAN TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS.
