<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the Fiscal Year Ended: December 31, 1996
or
[_] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the transition period from to
COMMISSION FILE NUMBER: 0-27734
----------------
INDIVIDUAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3036959
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8 NEW ENGLAND EXECUTIVE PARK WEST, 01803
BURLINGTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 273-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price as quoted on the Nasdaq National Market
on March 21, 1997 was $69,334,147.
As of March 21, 1997, 14,591,024 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December
31, 1996. Portions of such proxy statement are incorporated by reference into
Part III of this Form 10-K.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
The following description contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to, those discussed
in "Factors Affecting Future Performance".
Individual, Inc. (the "Company" or "Individual") develops and markets a
suite of customized news and information services that provide knowledge
workers with daily personalized current awareness reports, while offering
information providers and advertisers new ways to reach targeted audiences.
Leveraging its knowledge processing systems, editorial knowledge bases, and an
exclusive license to Cornell University's SMART technology, the Company's
intelligent software agents search each day through approximately 10,000 to
20,000 stories drawn from approximately 600 broad (e.g., Reuters) and
specialized (e.g., PC Week) information sources, and prepare for each user a
highly relevant daily news briefing with full-text retrieval options. In
addition, the Company's Hoover Business Intelligence Service ("Hoover"),
acquired in October 1996, integrates and organizes news and information from
internal and external sources and provides real-time and archival electronic
services to organizations. The Company delivers its information services to
more than 460,000 users across a range of delivery platforms, including
facsimile, electronic mail, groupware, intranets, and the Internet.
INDUSTRY BACKGROUND
The Company's principal focus is the expanding market for business news and
the corporate knowledge worker, whose effectiveness often depends on the
ability to keep current with and make sense of large volumes of random
information in a short period of time. The size of the overall market for
business and professional information is large and growing. Forrester Research
estimates that electronic delivery of information to corporate desktops will
account for $800 million of that market by the year 2001. In addition,
according to Jupiter Communications, as much as $5 billion will be spent on
Internet-based advertising in the year 2000.
In recent years, the proliferation of personal computers, desktop publishing
software, and LANs has resulted in the rapid growth of sources of news and
other information distributed electronically. As a result, electronically
available information accounts for a significant and growing share of the
total information market. Methods of accessing information have also evolved
dramatically over the past decade, as technological advances have created a
flexible and far-reaching set of delivery platforms, such as facsimile
transmission, electronic mail, groupware, and online technologies. More
recently, the increasing popularity of the Internet and World Wide Web has
introduced a structural change in the way information is produced,
distributed, and consumed, dramatically lowering the cost of publishing
information and significantly increasing its reach. Web servers have also been
implemented on corporate intranets which disseminate internal information
throughout an organization. By facilitating the publishing and consumption of
information, the Internet and intranets are dramatically increasing the amount
of information, both relevant and irrelevant, readily available to corporate
knowledge workers.
Three recent trends are further accelerating the significance of current
awareness information services to corporate knowledge workers: consolidation
of buying influence in corporations, universal connectivity, and coalescence
around Internet standards. Only recently, departments and other smaller
corporate units were buying information in isolated pockets within the
corporation. Now, more companies are creating comprehensive knowledge
management strategies and consolidating their buying in one place--often at an
executive-level position such as "Chief Knowledge Officer". Such concentration
makes it more efficient to sell to an entire company, rather than having to
approach and educate multiple isolated buyers. A second major trend is the
movement towards universal desktop connectivity. Knowledge workers across
corporations and industries are being hooked up to the Internet, corporate
intranets, e-mail systems, and large-scale groupware systems like Lotus Notes
in greater numbers than ever. Finally, the proliferation of Internet standards
increases the number of corporate desktops with HTML browsers (the standard
for Internet distribution).
2
<PAGE>
Traditional methods of maintaining current awareness are proving
increasingly inadequate in light of the dynamic changes affecting information
technologies and the corporation. Subscribing to and reviewing a full set of
potentially relevant information sources, such as newspapers and trade
publications, may provide comprehensive coverage, but is no longer practical
from both a cost and time perspective. Proprietary online electronic
databases, such as Dialog, Dow Jones News Retrieval, Lexis/Nexis, and Reuters,
contain extensive information, but generally require specialized search
languages to query the database. Although direct access to the Internet or
consumer online services offer inexpensive access to information, they
generally do not employ sophisticated filtering systems, sources may be
limited and lack depth, and few professionals have the inclination or time to
maintain current awareness by exploring the myriad of available sites each day
in order to locate relevant news and information.
The rapid growth of information sources and delivery platforms also creates
both challenges and opportunities for information providers and advertisers.
New electronic information delivery platforms offer information providers the
potential to establish additional distribution channels to reach a broader
audience, thereby realizing incremental revenues without incurring significant
additional costs. Moreover, the emergence of highly customized news sources
also provides advertisers with a means of cost-effectively reaching a micro-
targeted audience. In addition, the deployment of online technologies provides
advertisers with the ability to establish interactive relationships with
potential customers.
THE INDIVIDUAL SOLUTION
The Individual solution offers a suite of customized information services
that provide knowledge workers with relevant current awareness reports while
offering information providers and advertisers new ways to reach targeted
audiences. The Company's intelligent software agents filter information from
approximately 600 sources, prepare a customized report of highly-relevant
information, and proactively deliver a user's personal report by 8:00 a.m.
Eastern Time each business day. These reports are delivered via platforms
convenient to the user, including facsimile, electronic mail, groupware,
intranets, and the Internet.
The Company's extensive suite of services is tailored to address the news
and information needs of multiple market segments ranging from individuals to
enterprises. The Company's principal services include First! and Hoover,
targeted to corporate workgroups and enterprises, and a series of single-user
services, including HeadsUp, targeted for the individual business executive or
knowledge worker, and NewsPage, a Web-based news site that offers information
and targeted advertising to knowledge workers with Internet access. The
Company believes that these services offer prospective customers a range of
information solutions according to their desired breadth and depth of content,
delivery platform, and level of customization.
The Company believes its business model creates a mutually reinforcing
relationship among knowledge workers, information providers and advertisers:
Key Benefits to Knowledge Workers
High Relevance. The Company's services are customized to the unique
interests of each customer. Once a customer's profile is established, the
Company, through its proprietary filtering software, editorial expertise, and
industry-segment knowledge bases, provides those news items of highest
relevance to the specific interests of the customer, while eliminating
redundant and irrelevant items.
Intraday News Alerting. The Company's First! and Hoover services provide a
news alerting service that gives customers late-breaking news of specific
companies tracked by the customer.
Ease of Use. The Company's services provide customers with exceptional ease
of use. To initiate use of one of the Company's services, a customer is only
required to spend a short amount of time configuring the initial profile of
interests. Once the profile of interests has been established, the Company
proactively delivers to
3
<PAGE>
the user a customized report each business day which can be read at the user's
convenience. In addition, there is no need for specialized hardware, software,
or search languages.
Single Point of Access to Broad Set of Sources. The Company's solutions
offer customers a convenient, single point of access to a global array of
information. The Company offers users approximately 600 information sources,
depending on level of service, including both broad horizontal sources (e.g.,
Knight-Ridder, Kyodo News International, and Reuters) and specialized vertical
industry sources (e.g., Communications Week, ComputerWorld, and PC Week in the
computer industry).
Access to Archival Information. The Hoover service provides access to up to
two years of information from more than 6000 sources.
Multiple Delivery Platforms. The Company delivers its services across an
extensive set of platforms, including, in the case of the Company's enterprise
services, facsimile, electronic mail, groupware, and intranets, and, in the
case of the Company's single-user services, facsimile (HeadsUp), electronic
mail (HeadsUp and NewsPage), and the Internet (NewsPage). These capabilities
allow the Company to address a broad audience and to meet the requirements of
large enterprises with heterogeneous delivery needs.
Key Benefits to Information Providers
Incremental Revenues. Information providers receive fees for content
delivered to the Company's customers. These fees provide information providers
with additional revenues, leveraging the fixed editorial investment in their
published information.
Alternative Distribution Channels. The Company's services offer information
providers access to alternative distribution channels, such as electronic
mail, groupware, intranets and the Internet, that might otherwise be difficult
for them to establish.
Brand Name Awareness. When users of the Company's services read an abstract
or full text of a story, they see a clear citation specifying the source of
the item, thereby promoting awareness of the information provider's brand
name.
Source of New Subscribers. Information providers who license the use of
their content to the Company reach an interested audience of non-subscribers,
who are potential new subscribers for the information provider, and earn
revenues from vertical markets otherwise not reached by other media.
Key Benefits to Advertisers
Targeted Audience. The Company's NewsPage Web site is organized in a topic-
based menu system, which can be customized to the user's specific areas of
interest, featuring current awareness information on more than 30 different
industries. This structure allows advertisers to promote their services in a
defined and relevant segment of NewsPage, reaching highly qualified customers
with a micro-targeted message.
New Interactive Media. The Company's Web-based NewsPage service provides
interactive advertising platforms that offer advertisers greater flexibility
and functionality than traditional broadcast and print media. An interested
reader can link directly to the appropriate page on the advertiser's Web site,
allowing the advertiser to provide an unlimited amount of information in a
rich multimedia format; also, advertisers can modify their advertising in real
time and collect data on audience responses.
Potential for Online Commerce. Web-based advertising with links to the
advertiser's Web site can provide readers with the opportunity to learn more
about products, request further information, and complete transactions online.
The Company's Web-based information exchange capability not only introduces
efficiencies into the product awareness process, but also has the potential to
significantly compress the advertiser's sales cycle.
4
<PAGE>
STRATEGY
The Company's objective is to be the industry's leading provider of current
awareness business news through a strategy that links a growing user base of
knowledge workers to relevant information providers and advertisers. By
executing this strategy, the Company believes that it is establishing a brand
name identified with high relevance, breadth and depth of information content,
and ease of use. The Company's strategy includes the following key elements:
Maintain Knowledge Processing and Relevance Leadership. The Company has
invested considerable resources to develop and refine the SMART filtering
technology and its proprietary knowledge bases of more than 2,500 distinct
editorial topics in a range of vertical markets and more than 20,000 company
tracking profiles. The Company believes that its knowledge processing
capabilities coupled with the editorial process enable it to achieve much
higher relevancy than generic filtering or search-and-retrieval technologies.
The Company intends to continue to refine and enhance its technology and
knowledge processing capabilities, including expanding the scope of its
proprietary knowledge bases, editorial topics, and thesauri.
Expand the Breadth and Depth of Information Content. As of December 31,
1996, the Company had established contractual license agreements that enable
it to offer its users access to information from more than 6000 sources, up
from 630 sources at December 31, 1995. Approximately 600 of these sources have
been integrated into the daily production process. Additional sources will be
added throughout 1997 as additional capacity is added to the production
process. The Company intends to continue to add information sources in current
categories, as well as to expand coverage to new vertical markets.
Expand Sales Channels. The Company has developed sales expertise in
multiple, complementary channels, including direct and indirect sales as well
as marketing and strategic relationships. The Company seeks to reach a wider
audience of users for its NewsPage product by developing and leveraging
marketing and strategic relationships, including with over 800 affiliated Web
sites that comprise the "NewsPage Network". At December 31, 1996, the Company
had sales and marketing relationships established with Microsoft, MSNBC,
Netscape, Netcom, Infoseek, Intuit, Toshiba and Yahoo!, among others. The
Company intends to continue to build its direct and indirect sales channels
and marketing and strategic relationships to reach broader domestic and
international markets.
Continue to Capitalize on the Internet Opportunity. The Company's NewsPage
Web-based service currently has over 380,000 registered users. The Company
believes that it is well positioned to continue to capitalize on the
opportunities presented by the widespread use of the Internet. These
opportunities include additional methods for acquiring new users, reduced
costs of delivering information, access to additional information sources,
increased interactivity with the Company's user base, the potential to
generate advertising revenue by targeting a well-defined user base, and more
direct linkages among knowledge workers, information providers, and
advertisers. The Company intends to continue to invest significant resources
to capitalize on these Internet opportunities.
Grow Advertising Revenue. The Company believes that the growing user base
for its Internet-based services presents the Company with significant
opportunities to attract advertisers. The Company offers "relevance-based"
advertising positions, enabling advertisers to reach a micro-targeted audience
of potential customers. By expanding the Company's revenue sources,
advertising enables the Company to lower the cost of information access to
users, thus making the Company's services affordable to a broader market. The
Company intends to continue to invest resources to grow advertising revenue.
Support Open Industry Standards. The Company is committed to distributing
its services through all generally available electronic distribution
technologies and platforms, including facsimile, electronic mail, groupware,
intranets and the Internet, including Web broadcasting. In addition, the
Company is committed to building to Internet standards that will allow any
corporate desktop with an industry standard internet browser to access the
Company's services. The Company intends to continue to take advantage of
emerging standards to offer richer content in its services and to meet the
evolving infrastructure needs of its customers.
5
<PAGE>
PRODUCTS AND SERVICES
The Company offers a suite of customized information services targeted to
distinct market segments. The Company's enterprise services include First! and
Hoover, and its single-user services include HeadsUp and NewsPage. To deliver
these services, the Company utilizes the proprietary SMART text retrieval and
filtering technology, scaleable internal processing systems, editorial
knowledge bases and specialists, and quality assurance tools and analysts.
<TABLE>
<CAPTION>
DELIVERY PLATFORMS
SERVICES DESCRIPTION TARGET USERS (INTRODUCTION DATE) PRICING
-------- ----------- ------------ ------------------- -------
<S> <C> <C> <C> <C>
ENTERPRISE
First! Daily, Management Fax (Q1 1990) Subscription-
comprehensive teams, corporate E-mail (Q1 1990) based pricing
full-text news workgroups, Lotus Notes (Q3 ranging from
service sales teams, 1992) SGML/HTML $5,000 to more
and/or (Q4 1994) than $200,000
enterprise-wide Intranet (Q3 annually,
distribution 1995) depending on
within large customer
organizations requirements
Hoover Real-time and Management Lotus Notes (Q3 Software license
archival news teams, corporate 1991) fees plus
service workgroups, subscriptions to
sales teams, content. Total
and/or fees vary
enterprise-wide depending on
distribution customer
within large requirements and
organizations information
sources
SINGLE-
USER
HeadsUp Daily news Individual Fax (Q2 1993) Subscription-
reports executives and E-mail (Q4 1993) based pricing of
including story managers within $360 and up
briefs and full- large and small annually, based
text fulfillment organizations upon fulfillment
options options*
NewsPage Internet news Knowledge Internet (Q2 Advertiser
site updated workers with 1995) E-mail (Q1 supported with
daily, including access to the 1996) variable
story briefs, Internet subscription
full-text fees and
fulfillment, and fulfillment
targeted costs*
advertising with
links to
advertisers' Web
sites
</TABLE>
- --------
* These services provide headlines and abstracts of news items; depending on
subscription plan, user requests for the full text of an article may be
subject to additional fulfillment charges.
Enterprise Services
First! provides comprehensive, full-text news and information delivered each
day to enterprises and workgroups that seek daily business intelligence
regarding their industry environment for use in areas such as sales,
marketing, product management, finance, purchasing, advertising, public
relations, and competitive analysis. First! offers customization at the
enterprise, workgroup, and single-user levels. The service is generally
delivered to enterprises through a two-tiered filtering process, with a
broader set of stories relevant to the enterprise delivered to a shared
groupware platform. Personalized profiles can then be defined to select the
subset of stories of highest relevance to each individual user.
First! articles are delivered each business day in full-text via facsimile,
electronic mail, or as an enterprise-wide feed to groupware platforms such as
Lotus Notes or to internal intranet servers. To encourage readership and
knowledge-sharing across the workgroup, First! is structured to facilitate
workgroup-wide redistribution and integration with comments from users. These
features enable First! to serve as a backbone for organization-wide knowledge
development.
The Company has also recently introduced First! Alert, an intra-day news
service which draws stories from major newswires, matches them to client
profiles and delivers them by e-mail to First! Alert customers as news becomes
available throughout the business day.
6
<PAGE>
First! is generally sold to large enterprises on an annual subscription
basis. New enterprise customers typically make full subscription commitments
after a several-month paid service trial and one or more visits from the
Company's direct sales force.
Hoover is an intelligent software agent for organizations which integrates
and organizes news and information from internal and external news and
information sources. The Hoover agent provides a consolidated briefing report
that is organized based on a specified "context," such as a company or
industry. Reports are presented in Lotus Notes database format, and include
real-time intra-day alerting from newswire feeds, as well as extensive access
to archival databases. Hoover's comprehensive information relationships
include archival access for year-to-date information plus a two-year backfile.
Single-User Services
NewsPage is the Company's interactive news and information site on the Web
that provides timely and relevant information, updated each business day and
organized in a topic-based menu system. Users can navigate through menus,
explore news relating to more than 25 industry areas, and link directly to
pre-specified topics of interest. NewsPage leverages the Web's document-
linking structure by allowing users to view articles in brief or full-text
format and to connect directly to the Web sites of advertisers to obtain
additional product information or potentially to complete transactions online.
NewsPage was selected by Internet World as the "Best Online News Service" for
1995 and by PC Magazine as one of the "Top 100 Web Sites" in 1997. NewsPage
currently has over 380,000 registered users.
NewsPage includes advertising from leading companies seeking to participate
in "relevance-based advertising," the Company's model for linking sponsors to
micro-targeted readers. In contrast to traditional advertising, which is
challenged to attract the attention of appropriate readers in a mass-media
environment, the relevance-based model ensures a qualified audience through
reader-driven content selection. Users, while reading a news item on a subject
of interest to them, are presented with an advertising banner from a related
sponsoring company. The user can then immediately link to the Web site of the
advertiser to get detailed product information or potentially to conduct
business transactions directly over the Internet. Current and recent
advertisers from a range of industries include Microsoft, Bay Networks,
International Business Machines, American Telephone & Telegraph, The Wall
Street Journal and Digital Equipment Corporation.
NewsPage is primarily advertising supported, offering a basic level of
service to users at no charge, and a higher level of service, including full
text of stories from a broader set of sources, to users paying a monthly
subscription fee and fulfillment fees to view full-text articles from certain
sources. Advertising revenue is recognized ratably over the advertisement
period. NewsPage can be found on the Web at "http://www.newspage.com".
HeadsUp is a personalized, interactive daily business intelligence report
designed to meet the information needs of individual business professionals,
such as executives in small businesses, mobile business professionals, or
individual knowledge workers within larger organizations. HeadsUp is delivered
each business day by facsimile or electronic mail. News items are presented as
briefs, with full text available through the Company's interactive system
either by electronic mail or through the Company's telephone interactive voice
response system. Subscribers create their profiles by selecting topics from
the Company's Topic Selector, a library of more than 2,400 topic categories
and company names. Subscribers specify their targeted mix of topics and
prioritize their choices, and can update this profile over time to better meet
their changing information requirements. The Company has recently introduced
HeadsUp Alert, an intra-day financial news service which draws stories from
major newswires, matches them to client profiles and delivers them by e-mail
to HeadsUp Alert customers as news becomes available throughout the business
day. HeadsUp is offered through both monthly and annual subscriptions.
On June 28, 1996, the Company acquired all of the capital stock of
FreeLoader, Inc., a developer of agent-based software for the off-line
delivery of World Wide Web multi-media content, a market generally referred to
7
<PAGE>
as "Web broadcasting" or "push" technology. On February 6, 1997, the Company
announced that it is planning to sell FreeLoader or seek a majority investor.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
Knowledge Processing Architecture
Each of the Company's daily news and information services utilizes
proprietary technology and production systems which have been designed and
enhanced to enable the automated retrieval, compiling and distribution of news
items most relevant to each user. The Company continuously receives news and
information from its information providers via electronic news feeds. The
Company maintains a database of profiles characterizing the interests of each
of its customers. The Company's filtering and editorial systems match each
customer's profile with the most relevant set of incoming stories. The
Company's internal systems are designed to deliver its services by 8:00 a.m.
Eastern Time each business day to each of its customers over a conveniently
accessible delivery platform.
8
<PAGE>
INFORMATION SOURCES
The Company has directed substantial resources to develop relationships with
an extensive range of domestic and international information providers,
allowing it to access content from general news and vertical industry sources.
A partial listing of information providers that had contractual agreements with
the Company as of December 31, 1996, includes:
BROAD HORIZONTAL INFORMATION SOURCES
NEWSWIRES NEWSPAPERS AND MAGAZINES INTERNATIONAL
AFX Business Week Agence France Press
Associated Press Online Chicago Tribune Asian Review of Business
Knight-Ridder/Tribune Christian Science and Technology
Business News Monitor Business Times
Kyodo News International The Economist (Singapore)
ITAR/TASS Financial Times Economist Intelligence
Nikkei English News Forbes Unit
PR Newswire Knight-Ridder/Tribune Financial Times
Reuters (full span of Los Angeles Times FT McCarthy files
services) San Francisco Chronicle Jakarta Post
XINHUA San Jose Mercury News Korea Economic Daily
The Information Access South China Morning Post
Company
The Wall Street Journal
VERTICAL INDUSTRY INFORMATION SOURCES
HIGH TECHNOLOGY TELECOMMUNICATIONS ENERGY
Computerworld Broadcasting & Cable Energy Daily
Cowles/SIMBA Media Daily Cablevision Energy Economist
Datamation Communications Daily International Petroleum
EDN Mobile Communications Finance
Electronics Business Report Petroleum Finance Week
Today Multichannel News Petroleum Intelligence
Electronic Engineering Satellite News Weekly
Times Telephony Power Asia
Information Week Warren's Cable Power Europe
Interactive Video News Regulation 21st Century Fuels
Interactive Week UK Gas Report
Optical Memory News DEFENSE World Gas Intelligence
PC Week
Semiconductor C4I News FINANCE
International Defense Daily
DOD News Release American Banker/Bond
HEALTHCARE International Defense Buyer
Review
A.M. Best News
Bio World Today Jane's Despatches Bank Automation News
Embase Navy News & Undersea Bank Automation
Health News Daily Technology Corporate EFT
Infectious Disease Tactical Technology CFO Alert
Weekly Disclosure
Journal of the AMA OTHER BUSINESS First Call
Medline Investext
New England Journal of Advertising Age INVEST/NET Insider
Medicine Chemical Week Trading
PHARMA Japan Interactive PR Lloyd's List
Pharma Marketletter Micropatent OTC Derivatives Analyst
R&D Insight Technology Transfer Week Pensions & Investments
Scrip VARBusiness Private Placement Report
Variety The Banker
9
<PAGE>
The Company initially focused on information providers in the high
technology sector and has subsequently added information sources in several
other vertical markets, including telecommunications, healthcare, finance,
energy, and defense. More recently, the Company has created an extensive set
of more than 20,000 company profiles, allowing news relating to a specific
company to be filtered and delivered to users.
The Company's agreements with its information providers generally grant the
Company the non-exclusive worldwide right to distribute through the Company's
services the content published by the information provider. These agreements
typically have an initial term of either two or three years, are automatically
renewable unless terminated by one of the parties upon prior notice, and
provide for termination upon a breach by a party which is not remedied within
the applicable cure period after notice from the other party. Each information
provider warrants that it has ownership of, or other sufficient rights in, the
content licensed to the Company but disclaims responsibility for any errors in
that content as well as other warranties. The Company typically pays its
information providers a fee which is either based upon the Company's revenue
attributable to the licensed content or a fixed monthly amount or both.
MARKETS AND CUSTOMERS
At December 31, 1996, the Company had approximately 460,000 users of its
enterprise and single-user services. At that date, the Company had
approximately 700 enterprise customers deploying the First! and Hoover
services to users within their organizations. Representative enterprise
customers include:
HIGH TECHNOLOGY HEALTHCARE TELECOMMUNICATIONS
3Com Allergan Ameritech
Advanced Micro Devices Astra USA AT&T
Apple Computer Baxter Healthcare Bell Atlantic
Cisco Systems Becton Dickinson BellSouth
Dell Computer Blue Cross & Blue Shield Cellular One
Digital Equipment Corp. Glaxo Hughes Communications
Hewlett-Packard Hoffman-La Roche Nokia Mobile Phones
IBM Kaiser Permanente SBC Communications
Microsoft Merck Sprint
Motorola Smithkline Beecham
NEC OTHER CORPORATIONS
Oracle ENERGY
Tandem Computer Allen-Bradley
Unisys Amoco Corporation Corning
Mobil Oil Eastman Kodak
FINANCE Saudi Aramco Hitachi
Mercedes-Benz of North
Coopers & Lybrand America
Chase Manhattan Bank Polaroid
Ernst & Young Rockwell International
ITT Hartford Sony
Toshiba
Xerox
SALES AND MARKETING
The Company targets its sales and marketing programs to reach knowledge
workers within large enterprises, within small organizations, or who work
independently, and organizes these efforts into the Enterprise and Single User
Markets. In the Enterprise markets the Company markets and sells its services
in the United States and internationally through multiple sales channels,
including the Company's direct sales force and telesales. Sales and marketing
programs in the single user markets consist of a direct sales force for the
sale of advertising on NewsPage and development of users on NewsPage through
Web advertising and promotion, direct mail, strategic
10
<PAGE>
relationships with leading Web sites, and marketing relationships with other
Web sites through the NewsPage Network. The Company's sales and marketing
staff consisted of 63 full-time employees at December 31, 1996, located in the
Company's headquarters in Burlington, Massachusetts, and in San Francisco,
California, New York City, and Tokyo. Principal elements of the Company's
sales and marketing strategy include:
Direct Sales. To date, the Company has utilized its direct sales force
primarily to pursue sales of its enterprise services, First! and Hoover, in
the United States. The Company generally targets its direct sales efforts to
large enterprises with potential readers in excess of 200. For enterprises
with less than 200 users the Company generally uses telesales. The Company
also has a separate direct sales force to sell advertising for NewsPage.
Telesales and Direct Mail. The Company's telesales force focuses principally
on sales of HeadsUp and First! for smaller businesses. The Company's telesales
efforts are complemented by a direct mail program designed to generate
prospects. The telesales force is also trained to recognize enterprise
prospects where the Company's First! for Notes and Intranet service would be
an appropriate solution and to forward these leads to the Company's direct
sales force.
Strategic Relationships. The Company has established strategic alliances
with leading firms to promote and sell its NewsPage service. The Company has
relationships with companies including NETCOM, Netscape, Microsoft, MSNBC,
Infoseek, Yahoo!, Intuit and others involving cooperative marketing and
distribution of the Company's services. These arrangements vary with each
partner and generally are intended to bring users to the NewsPage site or to
provide some level of direct NewsPage service to the partner's customer.
Depending on the agreement and the level of service the Company will pay the
partner or share in the advertising revenue derived from that user. The
Company has also entered into a distribution partnership with Digital
Equipment Corporation for the delivery of NewsPage as a feature of its client
support services product. The Company believes that this may serve as a model
for future relationships in which the Company's targeted, topical news
products can be an important building block for broader services offered by
its partners.
NewsPage Network. NewsPage Network allows Web sites to incorporate special
versions of NewsPage--along with the Company's advertising and subscription
offers--inside Web sites that register with the Company as affiliates. There
are more than 800 sites currently registered as NewsPage Network affiliates.
International Sales. The Company has begun to establish the direct and
indirect channels and the strategic relationships which it believes are
required to expand its international business. The Company has established a
dedicated exclusive agency relationship with a reseller in the United Kingdom.
In the fourth quarter of 1995, the Company incorporated a wholly-owned
subsidiary in Japan in order to expand its international business in the Far
East. In April 1996, the Company entered into a joint venture with Toshiba
Corporation to provide customized news and information from Japanese language
sources to corporate managers and executives across a variety of industries in
Japan. The Company also utilizes sales agents in several other countries. In
each of the three years ended December 31, 1996, 1995 and 1994, less than 10%
of the Company's sales revenue was generated from international customers.
Marketing. The Company's marketing activities are designed to build market
awareness and identify prospective users of its services. These marketing
efforts include participation in tradeshows, seminars, conference speaking
engagements, direct mail campaigns, print and online advertising, and efforts
to generate exposure in trade magazines and general interest magazines and
newspapers. The Company has received numerous industry awards, including the
1995 Information Industry Association's "Breakout Company of the Year" award,
Internet World's "Best Online News Service" award in 1995 and PC Magazine's
"Top 100 Web Sites" in 1997.
CUSTOMER SERVICE AND SUPPORT
The Company believes that customer service and support are critical to the
value of its services and in retaining and expanding its customer base. The
Company's customer support staff, which consisted of 14 people
11
<PAGE>
at December 31, 1996, provides toll free telephone support, response to
customer requests to modify or update their profiles, pro-active calls to
customer accounts as appropriate, and support for questions with respect to
billing charges for a given period. The customer service and support
organization also provides feedback to other functions of the Company
regarding customer requirements and priorities for new features or new
information sources. The Company's editorial specialists also contribute to
the Company's customer support capability by assisting customers in the
definition and modification of their profiles. The Company does not charge its
customers for service and support.
EDITORIAL, OPERATIONS, AND PRODUCT DEVELOPMENT
The Company's knowledge processing systems have been designed and enhanced
to enable the automated retrieval of the news items most relevant to each
user's personal interest profile, while eliminating duplicative and irrelevant
items. The Company's proprietary systems and technology are built around the
SMART (System for Manipulation and Retrieval of Text) filtering technology.
The Company, since its inception, has directed substantial resources to
developing and enhancing its internal production systems, editorial
capabilities, quality assurance function, and product development expertise.
The Company believes that these integrated capabilities allow it to deliver
highly relevant, concise news reports to its users.
The SMART technology is an information filtering system developed through 20
years of research at Cornell University, for which the Company has an
exclusive license. See "Business--Licenses and Intellectual Property." The
SMART software analyzes incoming electronic information sources to identify
items matching each subscriber's customized profile, and delivers a news
report to the user each business day. In contrast to earlier-generation
keyword search algorithms, the SMART software relies on a complex, multi-
dimensional representation of each user's profile and employs advanced
techniques to retrieve items with the highest degree of relevance. Since a
major news item might be carried by a number of sources, the Company's
filtering engine eliminates redundant stories and identifies the particular
article that best covers the topic. The Company believes that its SMART
technology enables it to deliver services to its users with significantly
higher relevance than those generated by alternative approaches.
The Company's internal systems are deployed across a client-server network
of PCs and Unix workstations which can be expanded to meet increases in
production requirements. The Company believes that the components of its
production systems can be purchased from external vendors with minimal lead
times.
To support its production systems and to enhance the performance of the
SMART filtering engine, the Company employs a staff of editorial specialists
and domain experts. The role of these specialists is to refine, on an ongoing
basis, the knowledge base that defines the topics and filtering parameters in
each information domain. Through their in-depth vertical industry knowledge
and experience with the SMART codification techniques, the editorial
specialists build and refine a set of domain knowledge bases and thesauri of
industry terminology that enable SMART to identify the relevant news stories
for individual profiles and industry topics. The Company has also developed a
set of software tools that facilitate the creation and maintenance of these
domain knowledge bases. The Company believes that this editorial function is a
critical component of its ability to provide its users with extensive, yet
highly targeted, coverage of news items of interest. As of December 31, 1996,
the Company employed 19 full-time people in its editorial department.
The Company's quality assurance function monitors the quality and
consistency of its delivered services every day. The quality assurance
function also investigates transmission problems, which can occur as a result
of internal system difficulties or problems on the receiving end. To provide
its large enterprise customers with a high level of customer service, the
Company has developed internal systems and procedures to identify potential
delivery problems as early as possible in the overall daily production cycle.
The Company has also developed a set of automated tools used by the Company in
its internal production process, which operate together with the SMART
filtering systems to improve the efficiency and effectiveness of the Company's
quality assurance function.
12
<PAGE>
The Company's product development efforts are focused on expanding and
enhancing the Company's suite of services, further developing the Company's
core retrieval and filtering technology, further developing the Company's
knowledge processing and delivery systems, and developing service capabilities
that leverage the interactive capabilities of the Internet. The Company's
product development efforts to expand and enhance the delivery of its services
include efforts to enhance the interactive capabilities of the Company's
Internet and intranet-based services, enhancing First! for Notes, and general
ongoing enhancements to its delivery capabilities. For the years ended
December 31, 1996, 1995, and 1994, the Company had $4.6 million, $2.6 million,
and $1.2 million of product development expenses, constituting 19%, 15%, and
13% of revenue, respectively. The Company expects that it will continue to
commit substantial resources to research and development for the foreseeable
future.
MICROSOFT RELATIONSHIP
In October 1995, the Company and Microsoft entered into a business
relationship for the development and marketing of customized information
services to be offered in conjunction with Microsoft products or services.
Microsoft, through its Microsoft Network ("MSN") online service and MSNBC
offers its users the ability to obtain customized information based on
Individual's NewsPage Web site technology. These Microsoft services
specifically highlight the Company's corporate name and service brand and link
users to the Company's Web site.
As part of its business relationship with the Company, in September 1995
Microsoft purchased shares of the Company's Series G Preferred Stock (all of
which were converted into shares of Common Stock upon the closing of the
Company's initial public offering). Daniel Rosen, a General Manager at
Microsoft, is a member of the Company's Board of Directors.
KNIGHT-RIDDER AND OTHER STRATEGIC RELATIONSHIPS
The Company has established strategic relationships with several other
leading corporations, including Knight-Ridder. These relationships are
designed to enable the Company to acquire new users more cost-effectively, to
offer additional capabilities to its existing users, expand its information
sources, or to leverage its systems expertise in conjunction with another
party to offer new services.
The Company is licensing content from Knight-Ridder. Also, Knight-Ridder
markets a service under the name Dialog Direct that utilizes proprietary
technology of the Company, for which the Company receives license fees. In
1993, Knight-Ridder purchased shares of the Company's Series F Preferred
Stock. Jeffery S. Galt, President of Knight-Ridder Information, Inc., is a
member of the Company's Board of Directors.
In March 1996, Individual entered into an agreement with the Internet
service provider NETCOM to provide NETCOM subscribers with a daily customized
news service called Personal NewsPage Direct. In April 1996, the Company and
Toshiba Corporation entered into a joint venture to form a Japanese
corporation to provide customized news and information services targeted to
the Japanese business information market.
The Company also has in place marketing alliances with Netscape
Communications, Infoseek, Yahoo!, Intuit and Verity, among others. Many of
these companies offer the potential for broader distribution and reduced
subscriber acquisition costs for the Company. See "Business--Sales and
Marketing."
COMPETITION
The market for information services is intensely competitive and rapidly
changing. The Company competes, or may in the future compete, directly or
indirectly for users, information providers and/or advertisers with the
following categories of companies: (i) large, well-established news and
information providers such as Dow Jones, Knight-Ridder, Lexis/Nexis, Pearson,
Reuters and Thomson; (ii) traditional print media companies that
13
<PAGE>
are increasingly searching for opportunities for online provision of news,
including through the establishment of Web sites on the Internet; (iii)
providers of network-based software systems such as Lotus and Microsoft, which
could, in the future, ally with competing news and information providers; (iv)
third party providers of software that allows customers to aggregate and
filter a variety of news feeds, such as Desktop Data; (v) consumer online
services such as CompuServe, America Online and The Microsoft Network; (vi)
Internet-based news distributors such as ClariNet and search engine providers
such as Digital Equipment, Infoseek, Lycos, Verity, and Yahoo!; and (vii)
Companies that offer space for advertising on the Web, including content sites
such as c|net, ESPNet, GNN, HotWired, Pathfinder, and USA Today. The Company
presently has strategic relationships with certain of its competitors or
potential competitors (including Knight-Ridder and Microsoft) and licenses
content from others.
The Company believes that the principal competitive factors in selling its
products and services to knowledge workers include information relevance,
depth and breadth of information sources, ease of use, timeliness, delivery
platform capabilities, service quality, and cost. The Company believes that
the principal competitive factors in attracting information providers include
the ability to generate incremental fees, the ability to promote brand name
recognition, the potential to acquire new subscribers, and the degree of
delivery differentiation. The Company believes that the principal competitive
factors in attracting advertisers include the number of users or audience
size, demographics of user base or audience, the ability to micro-target
advertising, the capability to interact with customers, and overall cost-
effectiveness of advertising. The Company believes that it competes favorably
with respect to these factors, but there can be no assurance that it will
continue to do so.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition, and a larger installed customer base than
the Company. In addition, any of these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
and to devote greater resources to the development, promotion and sale of
their services than the Company. There can be no assurance that the Company's
current or potential competitors will not develop products and services
comparable or superior to those developed by the Company or adapt more quickly
than the Company to new technologies, evolving industry trends or changing
customer requirements. Increased competition could result in price reductions,
reduced margins, or loss of market share, any of which would materially and
adversely affect the Company's business, results of operations, or financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, or that competitive
pressures faced by the Company will not have a material adverse effect on its
business, results of operations, and financial condition. If the Company is
unable to compete successfully against current and future competitors, the
Company's business, results of operations, and financial condition will be
materially adversely affected. See "Factors Affecting Future Performance".
LICENSES AND INTELLECTUAL PROPERTY
The Company's success is dependent to a significant degree on its
proprietary technology. The Company relies on a combination of trade secret,
copyright, and trademark laws and on non-disclosure agreements and contractual
provisions to establish and protect its proprietary rights. The Company has
received two patents and has not to date registered any of its copyrights or
trademarks. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's services or
to obtain and use information that the Company regards as proprietary. There
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technologies or services.
The Company has licensed the proprietary SMART filtering software, which is
used as the filtering engine for all of its products and services, from
Cornell University. Under the terms of the license agreement with Cornell
University, the Company has exclusive worldwide rights until February 1999 to
design, develop, market,
14
<PAGE>
and sell systems and services based on the SMART software for the retrieval
and dissemination of data from recent and continually changing data sources.
Provided that the Company is not then in default of the license agreement, at
the end of the initial term of the agreement the Company will retain a
continuing worldwide, non-exclusive, perpetual royalty-free right to use the
SMART software, as well as the exclusive rights to all enhancements it has
made to the software. There can be no assurance, however, that Cornell
University will not license the SMART software to a third party, including a
competitor of the Company, once the Company's exclusive rights have lapsed. In
addition, Cornell University may terminate the license agreement if the
Company has materially breached the agreement and such breach remains uncured
60 days after written notice of such breach has been given. If the license
agreement were to terminate, the Company would be required to develop or
acquire a replacement filtering technology, and there can be no assurance that
such technology could be developed or acquired, on a timely basis or at all,
and on favorable terms to the Company. Consequently, any termination of the
Company's license agreement with Cornell University would have a material
adverse effect on the Company's business, results of operations, and financial
condition.
There has been substantial litigation in the information services industry
involving intellectual property rights. Although the Company does not believe
that it is infringing the intellectual property rights of others, there can be
no assurance that such claims, if asserted, would not have a material adverse
effect on the Company's business, results of operations, and financial
condition. In addition, inasmuch as the Company licenses the informational
content that is included in its services from third parties, its exposure to
copyright infringement actions may increase because the Company must rely upon
such third parties for information as to the origin and ownership of such or
licensed content. Although the Company obtains representations as to the
origins and ownership of such licensed informational content and obtains
indemnification to cover any breach of any such representations, there can be
no assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such
representations. In the future, litigation may be necessary to enforce and
protect trade secrets, copyrights and other intellectual property rights of
the Company. The Company may also be subject to litigation to defend against
claimed infringement of the rights of others or to determine the scope and
validity of the intellectual property rights of others. Any such litigation
would be costly and divert management's attention, either of which would have
a material adverse effect on the Company's business, results of operations,
and financial condition. Adverse determinations in such litigation could
result in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third
parties, and prevent the Company from selling its services, any one of which
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
EMPLOYEES
The Company had 176 full-time employees at December 31, 1996, excluding 38
working for FreeLoader. Of the 176 total employees, 59 were in editorial and
operations, 63 were in sales and marketing, 39 were in product development,
and 15 were in finance and administration. The Company's future success
depends in significant part upon the continued service of its key technical,
editorial, sales, product development and senior management personnel and on
its ability to attract and retain highly qualified employees. There is no
assurance that the Company will continue to attract and retain high-caliber
employees, as competition for such personnel is intense. The Company's
employees are not represented by any collective bargaining organization, and
the Company has never experienced a work stoppage and considers its relations
with its employees to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Burlington,
Massachusetts. The Company leases approximately 37,400 square feet under a
lease expiring December 31, 1999, with options to expand into adjacent space
on or before the termination of the lease. The Company leases 15,300 square
feet under a lease expiring October 31, 2001 in San Francisco, California and
leases additional facilities and offices for development, sales and support
personnel in San Jose, California, Washington D.C., and Tokyo. The Company
believes that its existing facilities are adequate for its current
requirements and that additional space can be obtained to meet its future
requirements. The Company owns substantially all equipment used in its
facilities.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in a putative federal securities
class action lawsuit filed on November 13, 1996 in the United States District
Court for the District of Massachusetts. The lawsuit was filed on behalf of an
alleged class of purchasers of the Company's common stock during the period
from March 15, 1996 through July 24, 1996. The complaint filed in the lawsuit
also names as defendants, among others, certain of the Company's current and
former directors and officers, including Joseph A. Amram, the Company's former
Chief Executive Officer, as well as the three co-managing underwriters of the
Company's initial public offering (the "IPO").
The complaint alleges, among other things, that the defendants made
misstatements, or failed to make statements, to the investing public in the
IPO Prospectus and Registration Statement, as well as in subsequent public
disclosures, relating to the alleged existence of disputes between Joseph A.
Amram and the Company. The plaintiffs seek damages, including costs and
expenses, in an unspecified amount, among other relief. The Company believes
that the allegations contained in the complaint are without merit and intends
to defend vigorously against all such claims. However, the lawsuit is in its
earliest stages, and no estimate of possible loss, if any, can currently be
made. There can be no assurance that this litigation will not have a material
adverse effect on the Company.
The Company is not currently a party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's results of operations or financial
position. From time to time, the Company may be involved in litigation
relating to claims arising out of its operations in the normal course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "INDV". Public trading of the Common Stock commenced on March 15, 1996.
Prior to that time, there was no public market for the Company's Common Stock.
The following table sets forth the high and low sale prices for the Common
Stock as reported by Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
First quarter (from March 15)............................... $16 5/8 $14
Second quarter.............................................. 24 1/2 14
Third quarter............................................... 17 3/4 3 7/8
Fourth quarter.............................................. 6 3/4 4 3/8
</TABLE>
On March 21, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $5 7/8 per share. As of March 21, 1997, there were
approximately 166 holders of record of the Common Stock.
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below is derived from the
consolidated financial statements of the Company for the years ended December
31, 1996, 1995, 1994, 1993 and 1992. The information
16
<PAGE>
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included as
Item 7 and the consolidated financial statements and related footnotes
included as Item 8 in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue......................... $ 24,145 $16,733 $ 9,127 $ 4,105 $ 1,901
Cost of revenue................. 11,867 7,783 4,077 2,169 1,083
-------- ------- ------- ------- -------
Gross margin.................... 12,278 8,950 5,050 1,936 818
Operating expenses:
Sales and marketing........... 5,666 2,785 1,183 867 367
New subscriber acquisition.... 9,030 7,387 5,953 2,666 1,063
Product development........... 4,599 2,587 1,153 772 359
General and administrative.... 4,460 2,423 923 815 758
Mergers, disposition and other
charges...................... 39,422 -- -- -- --
-------- ------- ------- ------- -------
Total operating expenses.... 63,177 15,182 9,212 5,120 2,547
-------- ------- ------- ------- -------
Loss from operations............ (50,899) (6,232) (4,162) (3,184) (1,729)
Interest and other income
(expense), net................. (118) (211) (94) 164 (11)
-------- ------- ------- ------- -------
Net loss........................ $(51,017) $(6,443) $(4,256) $(3,020) $(1,740)
======== ======= ======= ======= =======
Supplemental net loss per common
share.......................... $ (4.03) $ (0.67) $ (0.44) $ (0.31) $ (0.18)
======== ======= ======= ======= =======
Supplemental weighted average
common shares outstanding...... 12,673 9,619 9,607 9,604 9,602
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993 1992
------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
investments in marketable
securities..................... $30,335 $ 17,518 $ 1,640 $ 4,461 $ 3,695
Working capital (deficit)....... 16,948 9,869 (2,751) 2,347 2,733
Total assets.................... 46,929 26,803 7,289 7,115 4,813
Other long-term obligations..... 1,411 986 565 377 176
Senior subordinated notes....... -- 10,000 -- -- --
Redeemable preferred stock...... -- 23,999 12,246 10,759 9,272
Stockholder's equity (deficit).. 20,587 (21,688) (13,618) (7,876) (6,369)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Individual offers a suite of customized information services that provide
knowledge workers with relevant current awareness reports each day while
offering information providers and advertisers new ways to reach targeted
audiences. The Company commenced delivery of its initial service in early
1990, and has subsequently introduced additional services targeted at multiple
market segments.
The Company's revenue consists principally of subscription and advertising
revenue derived from two classes of services: enterprise services and single-
user services. Revenue for the Company's principal enterprise service, First!
(introduced in the second quarter of 1990), consists of subscription fees from
organizations. In addition, in October 1996, the Company acquired the Hoover
business intelligence unit ("Hoover"), from the
17
<PAGE>
Information Access Company (IAC), a unit of the Thomson Corporation. Hoover is
an intelligent software agent that integrates and organizes information from
internal and external news and information sources. Hoover provides real-time
and archival electronic news and information services to organizations.
Revenue from the Hoover service consists of subscription fees for content, and
software license and maintenance fees. The Company purchased the Hoover
assets, which consisted primarily of accounts receivable and fixed assets, for
approximately $1.7 million in cash and future payments. Hoover did not
materially contribute to 1996 revenues.
The Company's principal single-user service is the World Wide Web-based
service NewsPage, introduced in the second quarter of 1995. NewsPage base
service is generally available for no charge to users. Revenue consists of
advertising fees from companies placing advertisements through this service
and from subscription fees for premium levels of service and fees for the
fulfillment of certain user requests for additional information. Advertising
revenue is impacted by the number of users and their frequency of use of the
service. At December 31, 1996, NewsPage had approximately 380,000 registered
users, up from 38,000 at December 31, 1995 and 270,000 at September 30, 1996.
For 1996, advertising was not material to total revenue but advertising
revenues are expected to increase as the number of users continues to grow and
the Company increases its ability to sell advertising. Generally, the users of
NewsPage are obtained from advertising on other Web sites and from
distribution partnerships with other Web services that provide NewsPage as a
service to their subscribers.
Another single-user service of the Company is HeadsUp, which was introduced
in the second quarter of 1993. HeadsUp revenue consists of subscription fees
and fees for the fulfillment of certain user requests for additional
information. HeadsUp is a fax and email-based service and was not promoted
actively in 1996, primarily due to the Company's belief that users are moving
to Web-based information services, such as NewsPage. As a result of this user
migration, revenue from HeadsUp declined throughout the year and is expected
to continue to decline in future periods. BookWire, an internet site featuring
book reviews, discussion forums, and the ability to purchase books online, was
acquired by the Company in the third quarter of 1995 and sold to Cahners
Publishing in November of 1996 for approximately $1.0 million in cash.
BookWire did not have a material impact on operating results.
The Company recognizes subscription revenues ratably over the subscription
period. The Company's subscription contracts are typically billed in advance,
and amounts attributed to services not yet delivered are recorded in deferred
revenue. Customers of the Company's services may, under certain circumstances,
terminate their subscriptions. Historically, the level of subscription
cancellations prior to the termination of the subscription period has not been
material and has had no impact on revenue previously recognized. Fulfillment
fees are recognized as revenue at the time stories are provided. Advertising
revenue is recognized ratably over the advertisement period. Costs incurred in
acquiring the subscription contract are expensed as incurred.
On June 28, 1996, the Company acquired all of the capital stock of
FreeLoader, Inc., a developer of agent-based software for the off-line
delivery of World Wide Web multi-media content, a market generally referred to
as "Web broadcasting" or "push" technology. The Company issued approximately
1,874,489 shares of its Common Stock in the FreeLoader acquisition including
up to 360,180 shares of Common Stock which are reserved for issuance upon
exercise of outstanding FreeLoader stock options assumed by Individual in the
acquisition, for an aggregate purchase price of approximately $36 million. The
FreeLoader acquisition has been accounted for as a purchase. Approximately
$35,600,000 of the purchase price has been allocated to purchased incomplete
technology determined to be in-process and, accordingly, expensed at
consummation. On February 6, 1997, the Company announced that it is planning
to sell FreeLoader or seek a majority investor. This decision was based on the
rapid changes in the market for Web broadcasting which have occurred since the
closing of the FreeLoader acquisition, including the significant increase in
the number of vendors offering products based on "push" technologies and the
desire for the Company to offer its services on a wide range of Web
broadcasting platforms, as well as the future need to invest heavily in
FreeLoader in order to maintain the competitiveness of its product offerings.
In order to maintain the viability and value of FreeLoader, the Company is
maintaining its current level of investment in the FreeLoader operations as it
pursues a sale or outside investment. However, there can be no assurance that
the Company will be successful in completing such a transaction, which may
require the Company to cease operations of FreeLoader.
18
<PAGE>
The Company had 214 full-time employees on December 31, 1996, up from 157
and 96 on December 31, 1995 and 1994, respectively. The number of employees at
year end 1996 includes 38 employees working at FreeLoader. The majority of the
Company's operating expenses, before mergers, disposition and other charges,
consists of salary, related costs, and fees to information providers.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data as a
percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Revenue............................... 100.0% 100.0% 100.0%
Cost of revenue....................... 49.1 46.5 44.7
---------- --------- ---------
Gross Margin.......................... 50.9 53.5 55.3
Operating expenses:
Sales and marketing................. 23.5 16.6 13.0
New subscriber acquisition.......... 37.4 44.1 65.2
Product development................. 19.0 15.5 12.6
General and administrative.......... 18.5 14.5 10.1
Mergers, disposition and other
charges............................ 163.3 -- --
---------- --------- ---------
Total operating expenses.......... 261.7 90.7 100.9
---------- --------- ---------
Loss from operations.................. (210.8) (37.2) (45.6)
Interest and other income (expense),
net.................................. (0.5) (1.3) (1.0)
---------- --------- ---------
Net loss.............................. (211.3)% (38.5)% (46.6)%
========== ========= =========
</TABLE>
Revenue
Revenue was $24.1 million in 1996, $16.7 million in 1995, and $9.1 million
in 1994, representing an increase of 44% in 1996 and 83% in 1995. Growth in
the Company's enterprise services and single-user services each contributed to
these increases. The number of registered and authorized users of the
Company's enterprise and single-user services increased by over 400% during
1996 to 462,000. Sales revenue from international sources was less than 10% in
1996, 1995 and 1994. Domestic revenue is expected to grow faster than
international revenue in 1997.
Revenue from enterprise services was $16.4 million in 1996, $11.1 million in
1995, and $7.0 million in 1994, representing an increase of 47% in 1996 and
59% in 1995. These increases result primarily from subscription fees of new
First! customers, primarily distributed through Lotus Notes (First! Notes) and
intranets (First! Intranet), which was first introduced in 1995, and upgrades
of existing contracts, offset by a decrease in revenue from First! fax and e-
mail. The First! Notes and First! Intranet products generally have a higher
contract value and serve a larger number of users than the First! fax and e-
mail products.
Revenue from single-user services was $7.7 million in 1996, $5.6 million in
1995, and $2.1 million in 1994, representing an increase of 37% in 1996 and
167% in 1995. The increase in 1996 consists of both subscription and
advertising revenues from NewsPage, the Company's Web service introduced in
the second quarter of 1995, and is partially offset by the decline in revenue
from its non-Web subscription services, HeadsUp and Physician's NewsScan. The
increase in 1995 was primarily due to the growth of HeadsUp and Physician's
NewsScan, which were not actively promoted in 1996, as users are moving to the
Web to receive information.
19
<PAGE>
Cost of revenue
The principal elements of the Company's cost of revenue are fees paid to
information providers, payroll and related expenses for its editorial and
operations staff, as well as telecommunication and computer related costs for
the support and delivery of the Company's services. Cost of revenue was $11.9
million, $7.8 million, and $4.1 million, and gross margins were 50.9%, 53.5%,
and 55.3%, in 1996, 1995, and 1994, respectively. The increase in cost of
revenue for each period primarily reflects costs incurred to provide service
to an increased number of users, including costs relating to expanding the
number of information sources available to users. Total cost of revenue in
1996 was also impacted by costs related to increasing production capacity for
NewsPage, the cost of information content, and from a change in estimated
depreciable lives on equipment from 5 years to 3 years, which resulted in an
increase of depreciation expense of approximately $481,000. The decrease in
gross margin as a percentage of revenue was primarily due to the following
factors: 1) Minimum royalty commitments paid on information sources have
increased the percentage of revenue paid to information providers. This
expense as a percentage of revenue is expected to decline in future periods as
the minimum commitments can support a higher level of revenue; and 2) NewsPage
capacity has expanded in anticipation of revenue growth and the margins
realized from NewsPage are not at the level of the margins realized on the
non-Web services, which NewsPage is primarily replacing. The Company believes
that gross margins will be favorably impacted by increases in revenues which
will help spread current fixed costs attributable to anticipated capacity,
minimum royalty commitments, and certain editorial costs which generally
increase if the company expands the number of topics and industries it
targets. Gross margin will continue to be negatively impacted by the growth of
Hoover revenues in future periods, as low margin information fees represent a
large portion of Hoover revenues. These lower gross margins are expected to be
offset by certain efficiencies as Hoover becomes integrated with the First!
offering. There can be no assurance, however, that advertising and
subscription fees will increase in future periods, or that the integration of
the different product lines will result in increased operating margins.
Sales and marketing
Sales and marketing expenses consist principally of salaries, commissions,
and associated costs for Company personnel engaged in the general marketing of
all of the Company's services, activities related to renewing existing
customer contracts, and, beginning in 1995, costs of selling advertising.
Sales and marketing expenses were $5.7 million in 1996, $2.8 million in 1995,
and $1.2 million in 1994, representing an increase of 103% in 1996 and 135% in
1995. The principal reasons for the increases were growth in the Company's
sales and marketing staff, the increased level of activity necessary to renew
subscriptions from a larger customer base, and expansion of general
promotional activities. In addition, sales expenses increased as a percentage
of revenue in the later part of 1995 and in 1996 due to the creation of a
direct sales force and other related expenditures to sell advertising and an
increase in general marketing expenses to attract new advertisers on the
NewsPage service. Sales and marketing expenses can be expected to continue to
increase primarily due to the addition of personnel to sell advertising and
renew and upgrade existing enterprise customers.
New subscriber acquisition costs
New subscriber acquisition costs consist primarily of the direct sales,
promotion and telesales expenses directly related to obtaining new subscribers
and, beginning primarily in 1996, advertising costs paid to other Web sites
and fees paid to distribution partners for attracting new subscribers for
NewsPage. New subscriber acquisition costs were $9.0 million in 1996, $7.4
million in 1995, and $6.0 million in 1994, representing an increase of 22% in
1996 and 24% in 1995. The dollar increases are due to the addition of
personnel selling First! to new customers and promotional expenses to attract
new users to NewsPage. As a percentage of revenue, new subscriber acquisition
expenses declined due to the larger First! customer base and overall increased
revenue. In addition, in 1996, the Company decreased its promotional efforts
of non-Web single user services. The Company expects to continue to increase
its expenditures on new subscriber acquisition but expects these expenses to
decline as a percentage of revenue.
20
<PAGE>
Product development
Product development expenses consist primarily of salary and related
expenses for engineering and technical personnel associated with developing
new services and enhancing existing services. To date all the Company's costs
for product development have been expensed as incurred. Product development
expenses were $4.6 million in 1996, $2.6 million in 1995, and $1.2 million in
1994, representing an increase of 78% in 1996 and 124% in 1995. The increases
are primarily due to the addition of personnel and increased contracting
expenses for enhancements of First!, including expanding the number of
delivery platforms supported by the Company, as well as the development of
NewsPage, introduced in the second quarter of 1995. Additional expenses were
incurred in recent years to enhance the scalability and reliability of the
Company's production system. The level of product development expenses will
continue to increase as the Company continues to enhance its products and
integrate its various service offerings, but should decline as a percentage of
sales, as revenues are expected to grow faster than development expenditures.
General and administrative
General and administrative expenses consist of salary and related costs for
certain executive officers, finance and administrative personnel, professional
fees, and other general corporate expenses. General and administrative
expenses were $4.5 million in 1996, $2.4 million in 1995, and $923,000 in
1994, representing an increase of 84% in 1996 and 163% in 1995. Reasons for
the 1996 increase include severance expense related to executive terminations;
legal fees related to acquisitions, a dispute with the Company's founder and
former CEO, and a shareholder suit; fees incurred in hiring of new personnel;
and professional fees related to new requirements as a public company.
Mergers, disposition and other charges
Mergers, disposition, and other charges were $39.4 million in 1996, of which
$35.6 million was a non-cash charge incurred in June 1996, based on an
assessment of purchased FreeLoader technology which did not meet definitions
of "completed technology", and thus was expensed upon consummation of the
acquisition in accordance with generally accepted accounting principles. Other
items included in these charges were all operating costs of FreeLoader
incurred since the acquisition, principally research and development related,
goodwill amortization and other costs related to the acquisition of Hoover in
October 1996, and the gain on the sale of BookWire in November 1996.
Interest income and other, net; interest expense
Interest income and other, net, was $743,000 in 1996, $231,000 in 1995, and
($18,000) in 1994. The increase is due to interest income on the proceeds of
the Company's IPO offset by the Company's share of operating losses of its
joint venture in Japan with Toshiba Corp. and Mitsui & Co., Ltd. The proceeds
of the Company's IPO were invested in United States government securities,
money market accounts, and other investment-grade securities. The Company's
investment in the joint venture has been reduced to zero and its future
operating results will have no impact in the foreseeable future. Interest
expense was $862,000 in 1996, $442,000 in 1995, and $76,000 in 1994. The
increase was primarily due to interest on senior subordinated notes incurred
in December 1995 and in the first quarter of 1996. The notes were paid in full
in March 1996 from the proceeds of the IPO. Other interest charges include
financing charges related to equipment leases and bank installment loans used
to finance certain purchases of equipment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments balance was $30.3
million at December 31, 1996 and $17.5 million at December 31, 1995. The 1996
increase resulted primarily from the completion of the Company's IPO in March
1996 and the exercise of the over-allotment in the second quarter of 1996,
which
21
<PAGE>
together generated net proceeds of approximately $34.0 million. This increase
was offset by the repayment of senior subordinated notes, the net cash used by
operations and investing activities during 1996. The Company has also used
equipment leases and debt instruments to finance the majority of its purchases
of capital equipment, and at December 31, 1996 had approximately $1,327,000
outstanding in connection with these obligations and had an additional
$2,095,000 available under established credit arrangements. In addition, the
Company has $3,500,000 available under a working capital line.
The Company's operations used $8.8 million, $2.8 million, and $1.8 million
of cash in 1996, 1995, and 1994, respectively. The use of cash in operations
was primarily for the Company's operating losses. The Company's investing
activities used $11.5 million, $916,000, and $1.4 million in 1996, 1995, and
1994, respectively. In 1996, this net use of cash was primarily made for
investments in marketable securities of $8.3 million, investments in
equipment, investments in the Japanese joint venture and partially offset by
the proceeds from the sale of BookWire.
At December 31, 1996, the Company had $30.3 million in cash and marketable
securities. The Company believes that cash and marketable securities will be
sufficient to fund its operations and meet its capital requirements at least
for the next twelve months. The rate of use by the Company of its cash
resources will depend, however, on numerous factors, including the rate of
expansion for current products and services, the development of new services,
and potential acquisitions, dispositions, or strategic investments. In
addition, in connection with its acquisition of FreeLoader, the Company has
guaranteed the value of certain shares issued in the transaction, which will
be measured during the period January 1, 1997 through May 31, 1997. If the
fair value of the stock is less than the guaranteed value, then the Company
will pay out the difference in cash. At December 31, 1996, the fair value of
stock below the guaranteed price would have been approximately $3.3 million.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 128 ("SFAS
128"), "Earnings per Share", which modifies the way in which earnings per
share (EPS) is calculated and disclosed. Upon adoption of this standard for
the fiscal period ending December 31, 1997, the Company will disclose basic
and diluted EPS and will restate all prior period EPS data presented. Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS, similar to fully diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Management believes the adoption of SFAS 128 will not have a material impact
on reported earnings per share.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In view of the Company's revenue growth in recent years and its limited
operating history, period-to-period comparisons of its financial results are
not necessarily meaningful and should not be relied upon as any indication of
future performance. The Company's quarterly results of operations have
fluctuated significantly in the past and will likely fluctuate in the future
due to, among other factors, demand for its services and changes in service
mix, the size and timing of new and renewal subscriptions from corporate
customers, advertising revenue levels, the effects of new service
announcements by the Company and its competitors, the ability of the Company
to develop, market and introduce new and enhanced versions of its services on
a timely basis and the level of product and price competition. A substantial
portion of the Company's cost of revenue, which consists principally of fees
payable to information providers, telecommunications costs and personnel
expenses, is relatively fixed in nature. The Company's operating expense
levels are based, in significant part, on the Company's expectations of future
revenue. If quarterly revenues are below management's expectations, both gross
margins and results of operations would be adversely affected because a
relatively small amount of the
22
<PAGE>
Company's costs and expenses varies with its revenue in the short-term. The
Company has incurred operating losses since inception and expects to continue
to incur operating losses on both a quarterly and annual basis for the
foreseeable future. There can be no assurance that the Company will sustain
revenue growth or achieve profitability.
The market for the Company's services has only recently begun to develop, is
rapidly evolving and is characterized by increasing competition from a variety
of companies, ranging from traditional news and media companies to Internet-
based information services and including companies that may have significantly
more resources. Although this market is growing at a substantial rate, the
Company's ability to increase its revenue will depend upon its ability to
expand its sales force, to sell larger subscription contracts with a broader
solution set for its customers, and to integrate a full spectrum of product
offerings under a single brand. In addition, continued growth of the Company's
enterprise services will depend to a significant extent upon its ability to
achieve high contract renewal rates, while continuing to migrate customers
from fax and e-mail platforms to Lotus Notes and intranet-based services with
larger reader bases. Although the Company has recently taken steps to enhance
its service offerings to enterprise customers, including establishing a
content provider relationship with Dow Jones and Company and acquiring real-
time alerting and archival capabilities with Hoover, there can be no assurance
that it will be able to increase its enterprise customer base or achieve
renewal rates that meet its objectives.
The Company's financial results will also depend to a significant extent
upon advertising revenues generated by NewsPage, its Web-based single-user
service. Such revenues will depend, among other matters, on the acceptance of
the Internet as a viable advertising medium, as well as on the Company's
ability to generate a high level of pageviews through increased NewsPage
readership and user activity, to build a direct sales force to sell
advertising, to attract and retain information providers, and to develop a
user base of a sufficient size and with appropriate demographics to attract
advertisers. The Company relies in part on distribution alliances to increase
readership of NewsPage and, in the fourth quarter of 1996, introduced the
NewsPage Network, which is intended to enable the Company to supply daily news
content to Web services sponsored by third parties, thereby extending the
reach of its advertisers and expanding NewsPage readership, at a low cost of
subscriber acquisition. Because the NewsPage Network has only recently been
introduced, however, there can be no assurance that it will be successful in
acquiring additional new users of NewsPage. If the Company is unable to
attract and increase paid advertising sponsorship of NewsPage, the Company's
business and results of operations will be materially and adversely affected.
The Company hired Michael E. Kolowich as its President and Chief Executive
Officer in September 1996. In addition to Mr. Kolowich, the Company's entire
senior management team has joined the Company since January 1, 1996. The
Company also depends, in significant part, upon the continued services of its
key technical, editorial, sales and product development personnel, most of
whom are not bound by employment agreements, and only certain of whom are
bound by noncompetition agreements. There can be no assurance that
Mr. Kolowich and the other new management personnel will be able to
effectively manage the Company or that the Company will be able to retain its
key personnel.
The Company's services currently offer approximately 600 news and
information sources from more than 60 information providers. Termination of
one or more significant information provider agreements would decrease the
news and information which the Company offers its customers and could have a
material adverse effect on the Company's business and results of operations.
Also, an increase in the fees required to be paid by the Company to its
information providers would have an adverse effect on the Company's gross
margins and results of operations. Because the Company licenses the
informational content included in its services from third parties, its
exposure to copyright infringement actions may increase. Although the Company
generally obtains representations as to the origins and ownership of such
licensed content and generally obtains indemnification for any breach thereof,
there can be no assurance that such representations will be accurate or that
indemnification will adequately compensate the Company for any breach.
23
<PAGE>
Management may from time to time consider acquisitions of assets or
businesses that it believes may enable the Company to obtain complementary
skills and capabilities, offer new products, expand its customer base or
obtain other competitive advantages. Such acquisitions, including the
Company's acquisition of Hoover in November 1996, involve potential risks,
including difficulties in assimilating the acquired company's operations,
technology, products and personnel, completing and integrating acquired in-
process technology, diverting management's resources, uncertainties associated
with operating in new markets and working with new employees and customers,
and the potential loss of the acquired company's key employees.
The Company's future success will depend on its ability to enhance its
existing services, to develop new products and services that address the needs
of its customers and to respond to technological advances and emerging
industry standards and practices, each on a timely basis. Services as complex
as those offered by the Company entail significant technical risks, often
encounter development delays and may result in service failures when first
introduced or as new versions are released. Any such delays in development or
failures that occur after commercial introduction of new or enhanced services
may result in loss of or delay in market acceptance, which could have a
material adverse effect upon the Company's business and results of operations.
The Company's operations are dependent on its ability to maintain its
computer and telecommunications systems in effective working order and to
protect its systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. The Company's principal computer
and telecommunications equipment, including its processing operations, is
located at its headquarters facility in Burlington, Massachusetts. Although
the Company has limited back-up capability, this measure does not eliminate
the significant risk to the Company's operations from a natural disaster or
system failure at its principal site. In addition, any failure or delay in the
timely transmission or receipt of feeds and computer downloads from its
information providers, whether on account of system failure of the information
providers, the public network or otherwise, could disrupt the Company's
operations.
The Company's success is dependent to a significant degree on its
proprietary technology. The Company relies on a combination of trade secret,
copyright and trademark laws, non-disclosure agreements with employees and
third parties, and contractual provisions to establish and protect its
proprietary rights. Despite these efforts, unauthorized parties may attempt to
copy aspects of the Company's services or to obtain and use information that
the Company regards as proprietary. There can be no assurance that the
protective measures taken by the Company will be adequate or that the
competitors will not independently develop technologies that are substantially
equivalent or superior to those of the Company. The Company may also be
subject to litigation to defend against claimed infringement of the
intellectual property rights of others. Adverse determinations in such
litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties, and prevent the Company from selling its
services, any one of which could have a material adverse effect on the
Company's business and results of operations.
The Company has entered into certain cooperative marketing agreements and
informal arrangements with software vendors, Web site sponsors and operators
of on-line networks, including Microsoft, Netscape, Infoseek and NETCOM. These
companies do not presently market services that compete directly with those of
the Company. If the Company's marketing activities with such companies were
terminated, reduced, curtailed, or otherwise modified, the Company may not be
able to replace or supplement such efforts alone or with others. If these
companies were to develop and market their own business information services
or those of the Company's competitors, the Company's business and results of
operations may be materially and adversely affected.
A key component of the Company's strategy is its planned expansion into
international markets. To date, the Company has only limited experience in
marketing, selling, and delivering its products and services internationally.
There can be no assurance that the Company will be able to successfully
market, sell, and deliver its products and services in international markets.
24
<PAGE>
A class action shareholder suit has been filed against the Company, certain
of its directors and officers and the underwriters of its initial public
offering claiming that the defendants made misstatements, or failed to make
statements, to the investing public in the IPO Prospectus and Registration
Statement, as well as in subsequent public disclosures, relating to the
alleged existence of disputes between Joseph A. Amram and the Company. The
Company believes that the allegations contained in the complaint are without
merit and intends to defend vigorously against the claims. However, the
lawsuit is in its earliest stages, and no estimate of possible loss, if any,
can currently be made. There can be no assurance that this litigation will
ultimately be resolved on terms that are favorable to the Company and that the
resolution of this litigation will not have a material adverse effect on the
Company.
Due to all of the foregoing factors, it is possible that in some future
quarter the Company's results of operations will be below the expectations of
public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements are filed as part of this
report:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
25
<PAGE>
INDIVIDUAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 21,886,219 $ 17,517,743
Investments in marketable securities.............. 8,448,306 --
Accounts receivable, net.......................... 11,088,046 5,741,694
Prepaid expenses.................................. 456,823 115,094
------------ ------------
Total current assets............................ 41,879,394 23,374,531
Property and equipment, net......................... 4,102,709 2,926,234
Other assets, net................................... 947,213 501,740
------------ ------------
Total assets.................................... $ 46,929,316 $ 26,802,505
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 4,718,695 $ 2,088,783
Accrued royalties................................. 1,610,829 582,929
Accrued expenses.................................. 3,821,505 1,133,179
Deferred revenue.................................. 13,706,132 8,924,309
Equipment financing loans and notes payable....... 1,074,055 776,084
------------ ------------
Total current liabilities....................... 24,931,216 13,505,284
Senior subordinated notes........................... -- 10,000,000
Other long term liabilities......................... 1,410,625 985,738
Commitments and contingencies (note 13)
Redeemable preferred stock.......................... -- 23,999,013
Stockholders' equity (deficit):
Preferred stock, $0.01 par value.................. -- 6,113
Common stock, $0.01 par value; 25,000,000 shares
authorized, 14,413,988 and 1,870,596 shares
issued in 1996 and 1995, respectively 144,140 18,706
Additional paid in capital........................ 89,840,455 3,066,699
Cumulative dividends on redeemable preferred
stock............................................ -- (6,234,366)
Cumulative translation adjustment................. 70,149 5,111
Unrealized gains on marketable securities......... 125,475 --
Accumulated deficit............................... (69,562,067) (18,544,708)
Less 32,865 and 157,500 shares held in treasury
(at cost) in 1996 and 1995, respectively......... (30,677) (5,085)
------------ ------------
Total stockholders' equity (deficit)............ 20,587,475 (21,687,530)
------------ ------------
Total liabilities and stockholders' equity
(deficit).................................... $ 46,929,316 $ 26,802,505
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
INDIVIDUAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Revenue............................ $ 24,144,780 $ 16,732,749 $ 9,126,641
Cost of revenue.................... 11,866,768 7,782,945 4,076,230
------------- ------------ ------------
Gross margin....................... 12,278,012 8,949,804 5,050,411
Operating expenses:
Sales and marketing.............. 5,665,557 2,784,393 1,183,373
New subscriber acquisition....... 9,030,375 7,387,187 5,953,139
Product development.............. 4,598,560 2,586,741 1,153,218
General and administrative....... 4,460,543 2,423,132 922,527
Mergers, disposition and other
charges......................... 39,422,186 -- --
------------- ------------ ------------
Total operating expenses....... 63,177,221 15,181,453 9,212,257
------------- ------------ ------------
Loss from operations............... (50,899,209) (6,231,649) (4,161,846)
Interest income and other, net..... 743,460 230,742 (17,618)
Interest expense................... (861,610) (441,901) (76,438)
------------- ------------ ------------
Net loss........................... $ (51,017,359) $ (6,442,808) $ (4,255,902)
============= ============ ============
Supplemental net loss per common
share............................. $ (4.03) $ (0.67) $ (0.44)
============= ============ ============
Supplemental weighted average
common shares outstanding......... 12,672,982 9,619,374 9,606,511
============= ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
INDIVIDUAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(51,017,359) $(6,442,808) $(4,255,902)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 1,967,273 746,936 388,131
Gain on sale of BookWire business... (766,207) -- --
Loss on disposal of property and
equipment.......................... 27,198 29,857 32,090
Provision for doubtful accounts..... 197,621 24,382 33,678
Compensation recognized under
employee stock plans............... 377,981 -- --
Loss on joint venture............... 1,883,417 -- --
Purchased incomplete technology..... 35,563,750 -- --
Changes in operating assets and
liabilities:
Increase in accounts receivable... (4,610,859) (2,067,556) (2,014,281)
Increase in prepaid expenses...... (217,760) (107,932) (2,253)
Decrease (Increase) in other
assets........................... 26,056 (14,505) (9,658)
Increase in accounts payable and
accrued expenses................. 3,037,860 2,599,605 662,621
Increase in other long term
liabilities...................... 500,003 -- --
Increase in deferred revenue...... 4,240,014 2,406,766 3,404,565
------------ ----------- -----------
Net cash used in operating activities: (8,791,012) (2,825,255) (1,761,009)
------------ ----------- -----------
Cash flows from investing activities:
Additions to property and
equipment.......................... (2,262,650) (1,737,394) (1,398,864)
Investment in joint venture......... (1,883,417) -- --
Cash acquired from/(paid for)
acquisition........................ 928,354 (178,817) --
Investments in marketable
securities......................... (11,287,450) -- --
Maturity of marketable securities... 3,000,000 1,000,000 --
------------ ----------- -----------
Net cash used in investing activities: (11,505,163) (916,211) (1,398,864)
------------ ----------- -----------
Cash flows from financing activities:
Principal repayments under lease
obligations........................ (345,133) 822,873 338,042
Proceeds from issuance of common
stock, net of related expenses..... 34,944,746 10,121,890 490
Deferred financing costs............ -- (330,535) --
(Payment) issuance of senior
subordinated notes................. (10,000,000) 10,000,000 --
------------ ----------- -----------
Net cash provided by financing
activities........................... 24,599,613 20,614,228 338,532
------------ ----------- -----------
Effect of exchange rate on cash....... 65,038 5,111 --
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... 4,368,476 16,877,873 (2,821,341)
Cash and cash equivalents at the
beginning of period.................. 17,517,743 639,870 3,461,211
------------ ----------- -----------
Cash and cash equivalents at the end
of period............................ $ 21,886,219 $17,517,743 $ 639,870
============ =========== ===========
Supplemental cash flow information:
Interest paid....................... $ 795,078 $ 153,361 $ 74,823
============ =========== ===========
Non cash transactions:
Equipment acquired under capital
lease obligation................... $ 22,859 -- --
============ =========== ===========
Conversion of redeemable preferred
stock to common stock.............. $ 23,999,013 -- --
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
29
<PAGE>
INDIVIDUAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER EQUITY (DEFICIT) FOR THE YEAR ENDED
DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------- ADDITIONAL
NUMBER OF PAR NUMBER OF PAR PAID-IN
SHARES VALUE SHARES VALUE CAPITAL
--------- ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993..................... 611,335 $ 6,113 1,820,225 $ 18,202 $ 3,056,094
Exercise of options....... -- -- 3,277 33 457
Accretion of redeemable
preferred stock
dividends................ -- -- -- -- --
Net loss.................. -- -- -- -- --
-------- ------- ---------- -------- -----------
Balance at December 31,
1994..................... 611,335 6,113 1,823,502 18,235 3,056,551
Exercise of options....... -- -- 47,094 471 10,148
Accretion of redeemable
preferred stock
dividends................ -- -- -- -- --
Cumulative translation
adjustment............... -- -- -- -- --
Net loss.................. -- -- -- -- --
-------- ------- ---------- -------- -----------
Balance at December 31,
1995..................... 611,335 6,113 1,870,596 18,706 3,066,699
Conversion of all
redeemable preferred
stock to common stock.... (611,335) (6,113) 7,625,210 76,252 17,694,508
Net proceeds from IPO and
exercise of
over-allotment option.... -- -- 2,675,000 26,750 33,782,487
Stock issued in
acquisition of
FreeLoader............... -- -- 1,514,314 15,143 33,965,942
Exercise of options,
warrants, ESPP and common
stock.................... -- -- 728,868 7,289 952,838
Employee stock
compensation............. -- -- -- -- 377,981
Cumulative translation
adjustment............... -- -- -- -- --
Unrealized gains on
marketable securities.... -- -- -- -- --
Net loss.................. -- -- -- -- --
-------- ------- ---------- -------- -----------
Balance at December 31,
1996..................... -- -- 14,413,988 $144,140 $89,840,455
======== ======= ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
<TABLE>
<CAPTION>
TREASURY STOCK
CUMULATIVE DIVIDENDS ON ------------------- TOTAL
TRANSLATION REDEEMABLE UNREALIZED GAINS ON ACCUMULATED NUMBER OF STOCKHOLDER'S
ADJUSTMENT PREFERRED STOCK MARKETABLE SECURITIES DEFICIT SHARES COST EQUITY (DEFICIT)
- ----------- --------------- --------------------- ------------ --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
-- $(3,105,264) -- $ (7,845,998) 157,500 $ (5,085) $ (7,875,938)
-- -- -- -- -- -- 490
-- (1,486,880) -- -- -- -- (1,486,880)
-- -- -- (4,255,902) -- -- (4,255,902)
------- ----------- -------- ------------ -------- -------- ------------
-- (4,592,144) (12,101,900) 157,500 (5,085) (13,618,230)
-- -- -- -- -- -- 10,619
-- (1,642,222) -- -- -- -- (1,642,222)
$ 5,111 -- -- -- -- 5,111
-- -- -- (6,442,808) -- -- (6,442,808)
------- ----------- -------- ------------ -------- -------- ------------
5,111 (6,234,366) (18,544,708) 157,500 (5,085) (21,687,530)
-- 6,234,366 -- -- -- -- 23,999,013
-- -- -- -- -- -- 33,809,237
-- -- -- -- -- -- 33,981,085
-- -- -- -- (124,635) (25,592) 934,535
-- -- -- -- -- -- 377,981
65,038 -- -- -- -- -- 65,038
$125,475 125,475
-- -- -- (51,017,359) -- -- (51,017,359)
------- ----------- -------- ------------ -------- -------- ------------
$70,149 -- $125,475 $(69,562,067) 32,865 $(30,677) $ 20,587,475
======= =========== ======== ============ ======== ======== ============
</TABLE>
31
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Individual, Inc. (the "Company") develops and markets a suite of customized
information services that provide knowledge workers with daily personalized
current awareness reports, while offering information providers and
advertisers new ways to reach targeted audiences. The Company's proprietary
systems filter incoming information, prepare for each user a highly relevant
daily news briefing, and deliver its services across a range of delivery
platforms, including facsimile, electronic mail, groupware, intranets, and the
Internet.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company's services are sold on a subscription basis which may vary in
term from one month to a year. A subscription contract entitles the customer
to a specified level of service for the subscription period. Proceeds from
subscriptions are deferred at the time of sale and revenue is recognized
ratably over the term of the subscription period. Revenue for story
fulfillments in excess of the specified level of service is recognized as the
stories are provided. Advertising revenue is recognized ratably over the
advertising period.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts
have been eliminated.
Subscriber Acquisition Costs
New subscriber acquisition costs, which are expensed as incurred, relate
directly to new customer solicitations and include the Company's direct costs
of acquiring new customers, including the cost of providing trial
subscriptions free of charge. Costs associated with renewal of current
customers are included in sales and marketing and are expensed as incurred.
Product Development
Costs incurred in the plan, design or improvement of new or existing systems
which support content and delivery of the Company's services are expensed as
incurred and are included in product development. Such costs include the
conceptual formulation, testing of alternatives, and development of working
models. Development costs incurred subsequent to the establishment of
technological feasibility, which would be eligible for capitalization, have
been insignificant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Estimates and assumptions in these financial statements relate to, among other
items, valuation of deferred tax assets, the allowance for doubtful accounts
and accrued liabilities.
Reclassification of Amounts
Certain amounts in the financial statements for the year ended December 31,
1995 have been reclassified to conform to the presentation for the year ended
December 31, 1996.
32
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
At December 31, 1996, cash and cash equivalents included $7,795,662 in
commercial paper, $2,053,446 in money market investments, $10,334,539 in U. S.
Government Agency securities, and $1,702,572 cash on deposit. At December 31,
1995, cash and cash equivalents included cash on deposit and investments in
money market type mutual funds. The Company considers investments with
maturities of 90 days or less at the time of acquisition or money market type
investments to be cash equivalents. Presently, the Company carries all cash
equivalents at cost, which approximates fair value. The Company is party to a
letter of credit totaling $207,000 at December 31, 1996, for which various
short term investments are held as collateral. In the Company's past
experience, no claims have been made against this financial instrument.
Management does not expect any material losses to result from this letter of
credit because performance is not expected to be required.
Marketable Securities
The Company held $8,448,306 in U. S. Government Agency securities classified
as marketable securities. $2,333,965 mature in one year, and $6,114,341 mature
within five years. The Company accounts for investments in marketable
securities using the provisions of Financial Accounting Standard Statement No.
115 "Accounting for Certain Investments in Debt and Equity Securities." All
marketable securities are classified as available-for-sale and are carried at
fair value. The Company may use the proceeds from the sale of marketable
securities for general working capital requirements. Unrealized holding gains
of $125,475 are carried as a separate component of stockholders' equity. No
marketable securities have been sold in 1996, and therefore no gains or losses
on the sale of marketable securities have been recognized.
Risks and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of money market funds and
accounts receivable. The Company maintains substantially all of its money
market funds with one registered investment company. The Company believes the
credit risk associated with accounts receivable is minimal due to the number
of customers and their dispersion over different industries and geographical
locations. The Company's foreign operations were not material to the Company's
consolidated financial position or results of operations.
Supplemental Net Loss Per Common Share
The supplemental net loss per common share is computed based upon the
weighted average number of common shares outstanding. Common equivalent shares
are not included in the per share calculations since the effect of their
inclusion would be antidilutive. Common equivalent shares result from the
assumed exercise of outstanding stock options and warrants. The computation of
supplemental earnings per share gives effect to the conversion of all shares
of Series B, C, D, E and G Redeemable Preferred Stock and Series A and F
Preferred Stock and does not include the dividends on Redeemable Preferred
Stock as an increase in net loss. Pursuant to the requirements of the
Securities and Exchange Commission, common shares and common equivalent shares
issued at prices below the IPO price of $14.00 per share during the twelve
months immediately preceding the date of the initial filing of the
Registration Statement have been included in the calculation of common shares
and common share equivalents, using the treasury stock method, as if they were
outstanding for all periods prior to the IPO. Presentation herein is
consistent with the pro forma calculations included in the Company's
Registration Statement on Form S-1 (No. 333-00792) filed on January 31, 1996,
as amended, and the Registration Statement on Form S-1 (No. 333-8511) filed on
September 9, 1996, as amended.
Historical Net Loss Per Common Share
Net loss per common share on a historical basis is computed in the same
manner as supplemental net loss per common share, except that Series B, C, D,
E and G Redeemable Preferred Stock and Series A and F Preferred
33
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock are not assumed to be converted prior to the IPO. In the computation of
net loss per common share, accretion of redeemable preferred stock dividend
amounts is included as an increase to net loss attributable to common
stockholders. Net loss per common share on a historical basis is calculated as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Net loss.............................. $(51,017,359) $(6,442,808) $(4,255,902)
Accretion of dividends on redeemable
preferred stock...................... (462,706) (1,642,222) (1,486,880)
------------ ----------- -----------
Net loss to common stockholders....... $(51,480,065) $(8,085,030) $(5,742,782)
============ =========== ===========
Net loss per common share............. $ (4.68) $ (4.05) $ (2.90)
============ =========== ===========
Weighted average number of common and
common equivalent shares
outstanding.......................... 10,997,112 1,994,164 1,981,301
============ =========== ===========
</TABLE>
Fully diluted net loss per common share is the same as primary net loss per
common share.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives. Expenditures for
maintenance and repairs are charged to operations and are expensed as
incurred. Furniture and fixtures are depreciated over seven years. In 1996,
the Company changed the period over which equipment, which is primarily
comprised of computer hardware and software, is depreciated from five years to
three years. Management believes that three years more closely approximates
the actual useful life of the equipment. The change in estimate resulted in an
increase in depreciation expense of $480,569, which has been reflected in the
accompanying financial statements as of and for the year ended December 31,
1996.
The Company leases certain equipment, furniture and fixtures. The present
value of lease payments for property and equipment leases meeting the
requirements for capitalization are included as capitalized leased assets and
are amortized on a straight-line basis over the shorter of the equipment's
useful life or the term of the leases.
Upon retirement or sale, the cost of the assets disposed and the related
accumulated depreciation and amortization are removed from the accounts and
any resulting gain or loss is included in the determination of net income.
Goodwill
Goodwill is being amortized using the straight-line method over two years.
The Company evaluates whether changes have occurred that would require
revision of the remaining estimated useful life of the assigned goodwill or
rendered the goodwill not recoverable.
Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
34
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts receivable
Accounts receivable are presented net of allowance for doubtful accounts
which were $265,681 and $68,060 as of December 31, 1996 and 1995 respectively.
3. INITIAL PUBLIC OFFERING
On March 20, 1996, the Company completed an initial public offering (the
"IPO") of 2,500,000 shares of Common Stock at $14.00 per share, of which
2,300,000 shares were sold by the Company and 200,000 shares were sold by
selling stockholders. The proceeds to the Company, net of underwriting
discounts, commissions and offering expenses were approximately $29 million.
In April 1996, the Underwriters exercised their over-allotment option to
purchase an additional 375,000 shares of Common Stock from the Company, for
net proceeds of approximately $4.9 million.
Upon the closing of the IPO, all series of Preferred Stock were converted
into an aggregate of 7,625,210 shares of Common Stock. Upon conversion of the
Preferred Stock to Common Stock, all cumulative dividends associated with the
Redeemable Preferred Stock expired and were no longer payable.
4. MERGERS, DISPOSITION, AND OTHER CHARGES
On June 28, 1996, Individual completed the acquisition of FreeLoader, Inc.
("FreeLoader") by a subsidiary merger pursuant to the terms of the Agreement
and Plan of Reorganization dated as of May 30, 1996 among Individual, FL
Merger Corp., a wholly-owned subsidiary of Individual, FreeLoader, and certain
stockholders of FreeLoader (the "Merger Agreement"). As a result of the
merger, FreeLoader became a wholly-owned subsidiary of Individual.
Pursuant to the Merger Agreement, Individual issued approximately 1,874,489
shares of its Common Stock to the stockholders of FreeLoader as consideration
for the merger (including up to 360,180 shares of Common Stock reserved for
issuance upon exercise of outstanding FreeLoader stock options assumed by
Individual in the merger). The aggregate estimated purchase price of
approximately $36 million was based on the fair market value of Individual
Common Stock and options at the date of purchase and includes estimated
accrued transaction costs of approximately $950,000 and the net identifiable
liabilities assumed of approximately $633,000. The transaction was accounted
for as a purchase. Approximately $35,600,000 of the purchase price has been
allocated to purchased technology. This charge for purchased technology,
determined to be in-process, in addition to all operating expenses of
FreeLoader of approximately $2.6 million, which are predominantly product
development expenses, are reflected in mergers, disposition and other charges.
The value of the purchase technology was derived at the time of purchase using
the net present value of estimated future free cash flows to be generated by
the resulting technology when completed. Under the merger agreement, the
Company is required to pay a balloon payment of $2,000,000 to the two founders
of Freeloader, payable upon the successful completion of three years of
employment with the Company. The Company has been accruing this charge ratably
over the three year period. The Company has also guaranteed the value of
certain shares issued to the two founders in the transaction, which will be
measured during the period January 1, 1997 through May 31, 1997. If the fair
value of the stock is less than the guaranteed value, then the Company will
pay out the difference in cash. At December 31, 1996, the fair value of stock
is approximately $3,300,000 below the guaranteed price. Any payments, if made,
will be reflected as a reduction to shareholder's equity.
The following condensed pro forma results of operations for the twelve
months ended December 31, 1996 have been presented to disclose the acquisition
of FreeLoader as if it had occurred as of the beginning of fiscal year 1996.
The computation of pro forma net loss per common share assumes the 1,514,309
shares issued in the acquisition of FreeLoader to be outstanding from January
1, 1996. The computation also gives effect to the
35
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
conversion of all shares of Series B, C, D, E, and G redeemable preferred
stock and Series A and F preferred stock as of January 1, 1996, and excludes
the dividends on redeemable preferred stock as an increase to net loss. In
addition, the one time charge of $35,600,000 for the purchase of incomplete
technology has been included in the net loss computation. The condensed pro
forma results of operations for the corresponding period of the prior year are
insignificant.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
PRO FORMA
<S> <C>
Revenue.................................................... $ 24,144,780
============
Net loss................................................... (54,654,196)
============
Pro forma net loss per common share........................ ($4.07)
============
Pro forma weighted average common shares outstanding....... 13,418,391
============
</TABLE>
On February 6, 1997, the Company announced that it is planning to sell
FreeLoader or seek a majority investor.
The Company sold its Bookwire business on November 1, 1996 for approximately
$1,000,000 in cash. The sale resulted in a pretax gain of $766,000, which was
included in mergers, disposition and other charges. The results of BookWire
were not significant to the consolidated results of the Company in 1996.
On October 17, 1996, the Company acquired certain assets and liabilities of
the Hoover Business Intelligence Services unit from the Information Access
Company (IAC), a unit of The Thomson Corporation (Toronto, Canada). Hoover is
an intelligent software agent that provides real-time and archival electronic
news and information services. The acquisition, financed through cash and
installment payments, was accounted for as a purchase. The purchase price was
$1,650,000, including $500,000 in acquisition related costs, of which
$1,085,000 was paid in cash, and $565,000 in notes payable over 36 months.
Approximately $672,000 of the purchase price has been allocated to the net
identifiable assets acquired, and approximately $978,000 of the purchase price
has been allocated to goodwill. Goodwill is being amortized over a period of
two years. At December 31, 1996 goodwill was $814,880, net of accumulated
amortization of $163,000 which was included in mergers, disposition and other
charges.
5. JOINT VENTURE
On May 31, 1996 the Company acquired for approximately $1,883,000 in cash
44% of the shares of NewsWatch, Inc. ("NewsWatch"), a joint venture
established by the Company, Toshiba Corporation and Mitsui & Co. Ltd. The
joint venture was established to provide customized electronic information
services in Japan. The investment is being accounted for using the equity
method of accounting. The Company's share of undistributed losses of NewsWatch
is included in interest income and other, net. The Company's investment in the
joint venture has been reduced to zero as of December 31, 1996.
The Company has entered into certain software and know-how license
agreements with the joint venture in exchange for an initial lump sum royalty
payment to the Company of approximately $1,032,000 net of intercompany
profits, received in May 1996, and continuing royalties based on revenue of
the joint venture over a twenty-year period.
36
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Equipment.......................................... $ 5,166,188 $ 2,777,280
Furniture and fixtures............................. 671,414 579,884
Leased equipment................................... 708,700 639,577
----------- -----------
6,546,302 3,996,741
Accumulated depreciation........................... (2,443,593) (1,070,507)
----------- -----------
$ 4,102,709 $ 2,926,234
=========== ===========
</TABLE>
Depreciation and amortization expense amounted to $1,967,273, $746,936, and
$388,131 for the years ended December 31, 1996, 1995, and 1994, respectively.
Accumulated amortization on capital leases, net of disposals, amounted to
$397,256, and $444,493 as of December 31, 1996 and 1995 respectively.
7. FEDERAL AND STATE INCOME TAXES
Due principally to operating losses from inception, the Company has not
incurred any income tax expense. The Company's deferred income taxes as of
December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Research tax credits............. $ 200,000 $ 200,000 $ 115,000
Net loss carryforwards........... 13,881,440 7,051,322 4,664,400
Other............................ 86,778 153,574 131,197
------------ ----------- -----------
Total deferred income tax
assets........................ 14,168,218 7,404,896 4,910,597
Deferred income tax liabilities.... 368,711 330,502 131,498
Valuation allowance................ (13,799,507) (7,074,394) (4,779,099)
------------ ----------- -----------
Net deferred income tax assets..... -- -- --
============ =========== ===========
</TABLE>
Losses generated from the acquisition of incomplete technology of
$35,600,000 are not deductible for tax purposes and accordingly are not
included in the deferred tax asset.
A valuation reserve against net deferred assets has been established based
upon weighted available evidence that it is more likely than not that some or
all of the deferred tax assets will not be realized. A full valuation
allowance has been recognized due to the uncertainty of realizing the future
benefit from net deferred tax assets.
Deferred tax assets result from net operating loss carryforwards and
estimated future tax effects attributable to differences between tax and
financial reporting bases of certain assets and liabilities, including certain
accruals, reserves, and fixed assets.
For federal income tax purposes, as of December 31, 1996, the Company has
regular tax net operating loss carryforwards of $32,000,000 which may be used
to offset future taxable income. The utilization of the net operating loss
carryforwards and credit carryforwards for income tax purposes may be
restricted due to limitations which arise because of a change of ownership.
These net operating losses expire beginning in 2004.
37
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK
During 1996, the stockholders authorized an increase in the number of
authorized shares of Common Stock from 12,500,000 to 25,000,000. Common
stockholders are entitled to one vote for each share held.
At December 31, 1996, the Company has reserved shares of Common Stock as
follows:
<TABLE>
<S> <C>
Exercise of Common Stock warrants.................................. 2,174,528
Options under stock option plans (see note 12)..................... 6,230,381
---------
8,404,909
=========
</TABLE>
9. REDEEMABLE PREFERRED STOCK:
At December 31, 1995, Redeemable Preferred stock consisted of the following:
<TABLE>
<CAPTION>
AGGREGATE
SHARES ISSUED CUMULATIVE LIQUIDATION
SERIES PAR VALUE SHARES AUTHORIZED AND OUTSTANDING DIVIDENDS PREFERENCE
------ --------- ----------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
B....................... $.01 866,003 866,003 $ 986,273 $ 2,025,477
C....................... .01 1,436,804 1,422,221 2,534,750 5,094,748
D....................... .01 226,666 222,222 381,368 881,368
E....................... .01 1,240,000 1,159,677 2,176,633 5,771,632
G....................... .01 1,050,000 700,000 155,342 10,655,342
---------- -----------
6,234,366 24,428,567
Less Unamortized
Issuance Costs......... -- (429,554)
---------- -----------
$6,234,366 $23,999,013
========== ===========
</TABLE>
Each share of Series B, C, D, E, and G Redeemable Preferred Stock was
convertible into 1.5 shares of Common Stock, all at the option of the
stockholder. All series of Preferred Stock were converted into an aggregate of
7,625,210 shares of Common Stock upon the closing of the IPO (see note 3).
Series G Redeemable Preferred was issued in 1995, and all other Series were
issued prior to 1994.
10. PREFERRED STOCK:
At December 31, 1995, Preferred Stock consisted of the following:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
SERIES AUTHORIZED AND OUTSTANDING PREFERENCE
------ ---------- --------------- -----------
<S> <C> <C> <C>
A..................................... 16,335 11,335 $ 68,010
F..................................... 700,000 600,000 $3,000,000
</TABLE>
Each share of Series A and F Preferred Stock was convertible into 15 and 1.5
shares, respectively, of Common Stock. All series of Preferred Stock were
converted into an aggregate of 7,625,210 shares of Common Stock upon the
closing of the IPO (see note 3).
38
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMON STOCK PURCHASE WARRANTS
Common Stock Purchase Warrants outstanding at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
NUMBER OF WARRANT
NUMBER OF SHARES PRICE PER
WARRANTS EXERCISABLE SHARE
--------- ----------- ------------
<S> <C> <C> <C>
Common Stock.............................. 2,174,528 2,174,528 $3.33-$12.00
</TABLE>
The warrants to purchase shares of Common Stock issued principally to
employees in 1989 and 1991, generally expire in ten years, or sooner under
certain conditions, and were granted at an exercise price in excess of the
fair value of the Common Stock as determined by the Board of Directors. The
aggregate exercise price of the outstanding Common Stock warrants is
$18,903,694.
12. EMPLOYEE BENEFIT PLANS
Stock Compensation Plans
At December 31, 1996, the Company had four stock-based compensation plans,
which are described below. In October 1995, the FASB issued SFAS 123,
"Accounting for Stock-Based Compensation." SFAS 123 is effective for periods
beginning after December 15, 1995 and requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of net income
and earnings per share in the notes to the financial statements. The Company
adopted the disclosure provisions of SFAS 123 in 1996 and has applied APB
Opinion 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock options
plans under SFAS 123. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
as calculated in accordance with SFAS 123, the Company's net loss and loss per
share for the years ended December 31, 1996 and 1995 would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Net Loss
As reported..................................... $(51,017,359) $(6,442,808)
Pro forma....................................... $(53,498,957) $(6,777,002)
Net loss per share
As reported..................................... $(4.03) $(.67)
Pro forma....................................... $(4.22) $(.70)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 4 years, expected volatility of 80% for post
IPO grants, and no volatility (minimum value method) for pre IPO grants, and a
risk free interest rate of 6.33% and 6.12% for 1996 and 1995 respectively.
During 1996, the Company recognized expense of approximately $378,000 for
stock-based compensation.
Stock Option Plans
The Company has four fixed option plans which are administered by the Board
of Directors. During 1996, the Board of Directors approved an increase in the
number of authorized shares under the Amended and Restated
39
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1989 Stock Option Plan to 5,000,000, of which 1,500,000 is subject to
ratification by the stockholders at the next Annual Stockholders Meeting. The
1996 Employee Stock Purchase Plan provides for the issuance of a maximum of
500,000 shares of Common Stock. The 1996 Non-Employee Director Stock Option
Plan provides for the grant of options to purchase a maximum of 500,000 shares
of Common Stock. The Company had 230,381 shares issued and outstanding under
the Amended and Restated 1996 Stock Plan, which was assumed by the Company
pursuant to the Freeloader acquisition, and no additional options will be
issued under this Freeloader, Inc. Plan.
As of December 31, 1996, all stock options have been granted with an
exercise price equivalent to, or in excess of, the fair value of the common
stock as quoted on NASDAQ. In no event shall the aggregate fair market value
of common stock underlying ISOs granted to any employee, which are exercisable
for the first time by such employee during any calendar year, exceed $100,000.
Stock options become exercisable in varying installments as determined by the
Board of Directors at the time of grant. Options expire at various dates not
to exceed 10 years from date of grant.
A summary of the status of the Company's stock option plans as of December
31, 1996, 1995, and 1994 and changes during the years ending on those dates is
presented below (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
WTD. AVG. WTD. AVG. WTD. AVG.
------------------- ------------------- -------------------
SHARES EXER. PRICE SHARES EXER. PRICE SHARES EXER. PRICE
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 2,118 $4.20 1,417 $2.23 663 $ .19
Granted................. 2,701 7.42 796 7.48 772 1.91
Exercised............... (629) .34 (47) .23 (3) .15
Canceled................ (929) 8.37 (48) .41 (15) .37
----- ----- ----- ----- ----- -----
Outstanding at end of
year................... 3,261 4.93 2,118 4.19 1,417 $2.23
===== ===== ===== =====
Options exercisable at
year end............... 722 824 498
===== ===== =====
Weighted average fair
value of options
granted during the
year................... $4.69 $6.86
===== =====
</TABLE>
The following table summarizes information about stock options outstanding
at December, 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WTD. AVG. WTD. AVG. NUMBER WTD. AVG.
RANGE OF NUMBER REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES OUTSTANDING CONTR. LIFE PRICE AT 12/31/96 PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .13 to .17 68,183 7.1 $ .14 68,183 $ .14
.20 to .27 94,923 10.3 .26 91,961 .26
.42 to .43 488,477 10.0 .43 198,212 .43
.83 110,956 8.6 .83 29,061 .83
5.33 to 8.00 2,343,630 9.6 5.96 267,799 6.18
10.80 to 12.00 154,342 9.0 11.50 66,896 11.59
- --------------- --------- -------
$ .13 to 12.00 3,260,511 722,112
=============== ========= =======
</TABLE>
During 1996, certain options were repriced to $6.25, which was equal to or
greater than the market value of the Company's Common Stock on the date of the
repricing.
40
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee Stock Purchase Plan
The Company has an employee stock purchase plan for all employees meeting
certain eligibility criteria. Under the 1996 Employee Stock Purchase Plan,
employees may purchase shares of the Company's common stock, subject to
certain limitations, at not less than 85 percent of the lower of the beginning
or ending withholding period fair market value as defined in the plan. A total
of 500,000 shares of common stock have been reserved for issuance under the
plan. There are two six month withholding periods during each year, and the
first withholding period occurred in 1996. In fiscal year 1996, shares
totaling 47,540 were issued at $4.46 per share. At December 31, 1996, 452,460
shares were available for future issuance under the plan. The fair value of
the employees' purchase rights was estimated using the Black-Scholes model
with the following assumptions for 1996: an expected life of six months;
expected volatility of 80 percent; and risk-free interest rate of 6.33%. The
weighted average fair value of those purchase rights granted in 1996 was
$4.42.
401(k) Plan
The Company maintains a 401(k) retirement savings plan (the "401(k) Plan").
All employees of the Company are eligible to participate in the 401(k) Plan.
The 401(k) Plan provides that each participant may contribute up to 15% of his
or her pre-tax gross compensation (but not greater than a statutorily
prescribed annual limit). The percentage elected by certain highly compensated
participants may be required to be lower. The 401(k) Plan permits, but does
not require, additional contributions to the 401(k) Plan by the Company. All
amounts contributed by employee participants in conformance with plan
requirements and earnings on such contributions are fully vested at all times.
The Company's matching contributions to the 401(k) Plan were approximately
$178,000, $99,000, and $63,000 in 1996, 1995, and 1994, respectively.
13. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under two leases which expire on December
31, 1999 and October 31, 2001. The Company also leases certain computer
equipment under capital leases. Rental expense for the years ended December
31, 1996, 1995, and 1994 was approximately $759,145, $539,468, and $200,000
respectively, as a result of the Company entering into various leases.
Aggregate future minimum lease commitments for all leases at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
1997..................................... $79,775 $1,104,922 $1,184,697
1998..................................... 10,550 1,120,107 1,130,657
1999..................................... 2,988 1,072,377 1,075,365
2000..................................... -- 299,037 299,037
2001..................................... -- 257,462 257,462
------- ---------- ----------
Total minimum lease commitments.......... 93,313 $3,853,905 $3,947,218
------- ========== ==========
Less interest............................ 3,661
-------
Capitalized lease obligations at December
31, 1996................................ $89,652
=======
</TABLE>
Legal Actions
The Company has been named as a defendant in a putative federal securities
class action lawsuit filed on November 13, 1996 in the United States District
Court for the District of Massachusetts. The lawsuit was filed on behalf of an
alleged class of purchasers of the Company's common stock during the period
from March 15,
41
<PAGE>
INDIVIDUAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1996 through July 24, 1996. The complaint filed in the lawsuit also names as
defendants, among others, certain of the Company's current and former
directors and officers, including Joseph A. Amram, the Company's former Chief
Executive Officer, as well as the three co-managing underwriters of the
Company's IPO.
The complaint alleges, among other things, that the defendants made
misstatements, or failed to make statements, to the investing public in the
IPO Prospectus and Registration Statement, as well as in subsequent public
disclosures, relating to the alleged existence of disputes between Joseph A.
Amram and the Company. The plaintiffs seek damages, including costs and
expenses, in an unspecified amount, among other relief. The Company believes
that the allegations contained in the complaint are without merit and intends
to defend vigorously against all such claims. The ultimate claims payable
under these actions, if any, are neither probable nor estimable.
Total amounts included in general and administrative costs related to this
action were $500,000 for the year ended December 31, 1996.
14. BANK FINANCING
At December 31, 1996 bank financing consisted of the following:
<TABLE>
<CAPTION>
OUTSTANDING
STATED EFFECTIVE BALANCE AS OF AVAILABLE
DESCRIPTION INTEREST RATE INTEREST RATE EXPIRATION DECEMBER 31, 1996 PORTION
----------- ------------- ------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
$500,000 equipment
line................... Prime + 2.0% 10.25% 11/1/97 $133,329 --
$1,000,000 equipment
line................... Prime + 1.5% 9.75% 9/1/99 497,408 $ 13,878
$1,000,000 equipment
line................... Prime + 1.5% 9.75% 12/1/00 696,000 81,000
$2,000,000 equipment
line................... Prime + 1.0% 9.25% 12/1/00 -- 2,000,000
$3,500,000 revolving
line................... Prime + 1.0% 9.25% 9/1/97 -- 3,500,000
---------
1,326,737
Less current portion.... 804,734
---------
Long term portion....... $ 522,003
=========
</TABLE>
Borrowings under these lines are secured by substantially all the assets of
the Company.
The Company's long-term debt and credit arrangements contain financial
covenants, including capital base, quick ratio and a leverage ratio. At
December 31, 1996, the Company was in compliance with these arrangements.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors andStockholders of Individual, Inc.:
We have audited the accompanying consolidated balance sheets of Individual,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the each of
the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Individual, Inc. as of December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
Febuary 15, 1997
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Certain information required by this item concerning the directors of the
Company is incorporated herein by reference to the information contained under
the heading "Election of Directors" in the Company's definitive proxy
statement for the Company's 1997 Annual Meeting of Stockholders to be held on
May 22, 1997, which will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the Company's fiscal year ended
December 31, 1996 (the "Definitive Proxy Statement.")
Certain information required by this item concerning the directors and
executive officers of the Company is incorporated herein by reference to the
information contained under the heading "Occupations of Directors and
Executive Officers" in the Definitive Proxy Statement.
The information required by this item concerning the compliance with Section
16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference to the information contained under the heading "Section 16
Reporting" in the Definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item concerning executive compensation is
incorporated herein by reference to the information contained under the
heading "Compensation and Other Information Concerning Directors and Officers"
in the Definitive Proxy Statement.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item concerning executive compensation is
incorporated herein by reference to the information contained under the
heading "Securities Ownership of Certain Beneficial Owners and Management" in
the Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item concerning executive compensation is
incorporated herein by reference to the information contained under the
heading "Certain Relationships and Related Transactions" in the Definitive
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(A) Consolidated Financial Statements
The following consolidated financial statements and supplemental financial
data are included in Part II Item 8 filed as part of this Form 10-K:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
44
<PAGE>
(a) (2) Financial Statement Schedules.
Schedules to the Financial Statements have been omitted because the
information required to be set forth therein is not applicable or is shown in
the accompanying Financial Statements or notes thereto.
(a) (3) List of Exhibits.
The following exhibits are filed as part of, and are incorporated by
reference into, this Annual Report on Form 10-K:
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Reorganization dated as of May 30, 1996 among
the Company, FL Merger Corp., FreeLoader, Inc., Mark Pincus and Sunil
Paul (filed as Exhibit 2.1 to the Company's Current Report on Form 8-
K (the "Form 8-K") filed on July 12, 1996 and incorporated herein by
reference thereto).
3.3 --Third Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.3 to the Company's Registration Statement on Form S-1, as
amended (File No. 333-00792) (the "Registration Statement on Form S-
1") and incorporated herein by reference thereto).
3.5 --Amended and Restated By-laws of the Company (filed as Exhibit 3.5 to
the Registration Statement on Form S-1 and incorporated herein by
reference thereto).
4.1 --Specimen certificate representing the Common Stock (filed as Exhibit
4.1 to the Registration Statement on Form S-1 and incorporated herein
by reference thereto).
10.1 --Amended and Restated 1989 Stock Option Plan (filed as Exhibit 10.1
to the Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.2 --1996 Non-Employee Director Stock Option Plan (filed as Exhibit 10.2
to the Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.3 --1996 Employee Stock Purchase Plan (filed as Exhibit 10.3 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.4 --Form of Common Stock Purchase Warrant (filed as Exhibit 10.4 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.5 --Series F Preferred Stock Purchase Agreement dated as of September
13, 1993 (filed as Exhibit 10.5 to the Registration Statement on Form
S-1 and incorporated herein by reference thereto).
10.6 --Letter Agreement dated as of October 12, 1993 between the Company
and Dialog Information Services, Inc. (filed as Exhibit 10.6 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.7 --Agreement dated 1993 between the Company and Knight-Ridder
Information, Inc., as amended (filed as Exhibit 10.7 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.8 --License Agreement dated as of January 21, 1992 between the Company
and Knight-Ridder/Tribune Business News (filed as Exhibit 10.8 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.9 --Series G Preferred Stock Purchase Agreement dated as of October 3,
1995 (filed as Exhibit 10.9 to the Registration Statement on Form S-1
and incorporated herein by reference thereto).
10.10 --Independent Content Provider Agreement dated as of September 25,
1995 between the Company and The Microsoft Network, L.L.C. (filed as
Exhibit 10.10 to the Registration Statement on Form S-1 and
incorporated herein by reference thereto).
10.11 --Stockholders' Agreement dated as of September 13, 1993 (filed as
Exhibit 10.11 to the Registration Statement on Form S-1 and
incorporated herein by reference thereto).
</TABLE>
45
<PAGE>
<TABLE>
<C> <S>
10.12 --Series G Stockholders' Agreement dated as of October 3, 1995 (filed
as Exhibit 10.12 to the Registration Statement on Form S-1 and
incorporated herein by reference thereto).
10.13 --Second Amended and Restated Investors' Rights Agreement dated as of
October 3, 1995 (filed as Exhibit 10.13 to the Registration
Statement on Form S-1 and incorporated herein by reference thereto).
10.14 --Licensing Agreement with Cornell Research Foundation, Inc. dated as
of March 22, 1989 (filed as Exhibit 10.14 to the Registration
Statement on Form S-1 and incorporated herein by reference thereto).
10.15 --Letter agreement dated as of July 2, 1992 between the Company and
Fleet Bank of Massachusetts, N.A. (filed as Exhibit 10.15 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.16 --Letter agreement dated as of September 22, 1994 between the Company
and Fleet Bank of Massachusetts, N.A. (filed as Exhibit 10.16 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.17 --Consent and Loan Modification Agreement dated as of November 29,
1995 between the Company and Fleet Bank of Massachusetts, N.A.
(filed as Exhibit 10.17 to the Registration Statement on Form S-1
and incorporated herein by reference thereto).
10.18 --Second Loan Modification Agreement dated as of December 29, 1995
between the Company and Fleet Bank of Massachusetts, N.A. filed as
Exhibit 10.18 to the Registration Statement on Form S-1 and
incorporated herein by reference thereto).
10.19 --Lease dated as of August 25, 1994 between the Company and Trustees
of New England Executive Park Trust, 40 Spaulding Investment
Company, Inc. (filed as Exhibit 10.19 to the Registration Statement
on Form S-1 and incorporated hereinby reference thereto).
10.20 --Reseller Agreement dated as of February 8, 1996 between the Company
and Knight-Ridder Information, Inc. (filed as Exhibit 10.20 to the
Registration Statement on Form S-1 and incorporated herein by
reference thereto).
10.21 --Escrow Agreement dated as of June 28, 1996 among the Company,
FreeLoader, Inc., the securityholders of FreeLoader, Inc., Fleet
National Bank, and Frederick Wilson, as representative of the
securityholders of FreeLoader, Inc. (filed as Exhibit 99.2 to the
Form 8-K and incorporated herein by reference thereto).
10.22 --Registration Rights Agreement dated as of June 28, 1996 among the
Company and certain stockholders of FreeLoader, Inc. (filed as
Exhibit 99.1 to the Form 8-K and incorporated herein by reference
thereto).
10.23 --Intentionally omitted.
*10.24 --Third Loan Modification Agreement dated as of December 31, 1996
between the Company and Fleet National Bank.
*10.25 --Employment Agreement dated as of September 3, 1996 between Michael
E. Kolowich and the Company.
*10.26 --Agreement and Release dated as of December 17, 1996 between Joseph
A. Amram and the Company.
*10.27 --Lease dated as of September 3, 1996 between the Company and Hamm's
Building Associates.
*11.1 --Computation of Earnings Per Share.
*21.1 --Subsidiaries of the Company.
*23.1 --Consent of Coopers & Lybrand L.L.P.
*24.1 --Power of Attorney (included on page 48).
*27.1 --Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
46
<PAGE>
(b) Reports of Form 8-K:
On October 31, 1996, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, disclosing under Item 5 the Asset Purchase
Agreement with Information Access Company ("IAC"), a division of The Thomson
Company, pursuant to which Individual acquired from IAC substantially all of
the assets of IAC's Hoover Business Intelligence Services unit.
On November 25, 1996, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission, disclosing under Item 5 an Asset
Purchase Agreement with Cahner's Publishing Co. ("Cahner's"), a division of
Reed Elsevier, Inc., pursuant to which Individual sold to Cahner's
substantially all of the assets of Individual's BookWire division.
On December 5, 1996, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, disclosing under Item 5 that the Company
has been named as a defendant in a putative federal securities class action
lawsuit filed on November 13, 1996 in the United States District Court for the
District of Massachusetts. The lawsuit was filed on behalf of an alleged class
of purchasers of the Company's common stock during the period March 15, 1996
through July 24, 1996.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) above.
47
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Individual, Inc.
/s/ Michael E. Kolowich
Date: March 31, 1997 By: _________________________________
MICHAEL E. KOLOWICH CHAIRMAN OF
THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Individual, Inc., hereby
severally constitute and appoint Michael E. Kolowich and Robert L. Lentz, and
each of them singly, our true and lawful attorneys, with full power to both of
them and each of them singly, to sign for us and in our names in the
capacities indicated below, any amendments to this Report on Form 10-K, and
generally to do all things in our names and on our behalf in such capacities
to enable Individual, Inc. to comply with the provisions of the Securities
Exchange Act of 1934, as amended, and all the requirements of the Securities
and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT, IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE(S) DATE
/s/ Michael E. Kolowich Chairman of the March 31, 1997
- ------------------------------------- Board, President,
MICHAEL E. KOLOWICH Chief Executive
Officer and
Director (Principal
Executive Officer)
/s/ Robert L. Lentz Senior Vice March 31, 1997
- ------------------------------------- President, Finance
ROBERT L. LENTZ and Administration,
Chief Financial
Officer, Treasurer
and Secretary
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Joseph A. Amram Director March 31, 1997
- -------------------------------------
JOSEPH A. AMRAM
/S/ James D. Daniell Director March 31, 1997
- -------------------------------------
JAMES D. DANIELL
48
<PAGE>
SIGNATURE TITLE(S) DATE
/s/ William A. Devereaux Director March 31, 1997
- -------------------------------------
WILLIAM A. DEVEREAUX
/s/ Jeffery S. Galt Director March 31, 1997
- -------------------------------------
JEFFERY S. GALT
/s/ Elon Kohlberg Director March 31, 1997
- -------------------------------------
ELON KOHLBERG
/s/ Marino R. Polestra Director March 31, 1997
- -------------------------------------
MARINO R. POLESTRA
/s/ Daniel Rosen Director March 31, 1997
- -------------------------------------
DANIEL ROSEN
49
<PAGE>
Exhibit 10.24
THIRD LOAN MODIFICATION AGREEMENT
---------------------------------
This Third Loan Modification Agreement ("this Agreement") is made as of
December 31, 1996 between Individual, Inc., a Delaware corporation (the
"Borrower") and Fleet National Bank (successor by merger to Fleet Bank of
Massachusetts, N.A.) (the "Bank"). For good and valuable consideration, receipt
and sufficiency of which are hereby acknowledged, the Borrower and the Bank act
and agree as follows:
1. Reference is made to: (i) that certain letter agreement dated September
22, 1994 between the Borrower and Fleet Bank of Massachusetts, N.A. (the Bank
having succeeded by merger to the rights of Fleet Bank of Massachusetts, N.A.
thereunder), as amended by Consent and Loan Modification Agreement dated as of
November 29, 1995 and by Second Loan Modification Agreement dated as of December
29, 1995 (as so amended, the "Letter Agreement"); (ii) that certain $3,500,000
face principal amount promissory note dated September 22, 1994 (the "Revolving
Note") made by the Borrower and payable to the order of Fleet Bank of
Massachusetts, N.A. (the Bank having succeeded by merger to the rights of Fleet
Bank of Massachusetts, N.A. thereunder); (iii) that certain $1,000,000 face
principal amount promissory note dated September 22, 1994 (the "Facility One
Term Note") made by Borrower and payable to the order of Fleet Bank of
Massachusetts, N.A. (the Bank having succeeded by merger to the rights of Fleet
Bank of Massachusetts, N.A. thereunder); (iv) that certain $1,000,000 face
principal amount promissory note dated December 29, 1995 (the "Facility Two Term
Note") made by the Borrower and payable to the order of Fleet Bank of
Massachusetts, N.A. (the Bank having succeeded by merger to the rights of Fleet
Bank of Massachusetts, N.A. thereunder); (v) that certain Inventory and Accounts
Receivable Security Agreement dated September 22, 1994 (the "IAR Security
Agreement") given by the Borrower to Fleet Bank of Massachusetts, N.A. (the Bank
having succeeded by merger to the rights of Fleet Bank of Massachusetts, N.A.
thereunder); (vi) that certain Supplementary Security Agreement - Security
Interest in Goods and Chattels dated September 22, 1994 (the "Supplementary
Security Agreement") given by the Borrower to Fleet Bank of Massachusetts, N.A.
(the Bank having succeeded by merger to the rights of Fleet Bank of
Massachusetts, N.A. thereunder); and (vii) that certain $2,000,000 face
principal amount promissory note of even date herewith (the "Facility Three Term
Note") made by the Borrower and payable to the order of the Bank. The Letter
Agreement, the Revolving Note, the Facility One Term Note, the Facility Two Term
Note, the Facility Three Term Note, the IAR Security Agreement and the
Supplementary Security Agreement are hereinafter collectively referred to as the
"Financing Documents." The aforesaid December 29, 1995 Second Loan Modification
Agreement is hereinafter referred to as the "Second Modification."
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By providing that all references therein to the "Bank" will be
deemed to refer to Fleet National Bank.
<PAGE>
-2-
b. By deleting the word "and" appearing immediately before clause
(iv) of Section 1.1 of the Letter Agreement (as inserted by the Second
Modification).
c. By deleting the period at the end of Section 1.1 of the Letter
Agreement (as amended by the Second Modification) and by substituting in its
stead the following:
", and (v) that certain $2,000,000 principal amount promissory
note (the 'Facility Three Term Note') dated December 31, 1996
made by the Borrower and payable to the order of the Bank."
d. By inserting into the penultimate sentence of Section 1.2 of the
Letter Agreement, immediately after the word "presumptive," the following:
"(but not conclusive)"
e. By inserting into the penultimate sentence of Section 1.4 of the
Letter Agreement, immediately after the word "presumptive," the following:
"(but not conclusive)"
f. By inserting into the penultimate sentence of Section 1.5.1 of the
Letter Agreement (said Section 1.5.1 having been inserted by the Second
Modification), immediately after the word "presumptive," the following:
"(but not conclusively)"
g. By inserting into each of the first, third, fifth, seventh, ninth,
eleventh, thirteenth, fifteenth and seventeenth sentences of Section 1.5.2 of
the Letter Agreement (said Section 1.5.2 having been inserted by the Second
Modification), immediately after the words "hereinafter referred to," in each
such sentence the following:
"in this Section 1.5.2"
h. By inserting into Article I of the Letter Agreement, immediately
after Sections 1.5.1 and 1.5.2 thereof (said Sections 1.5.1 and 1.5.2 having
been inserted by the Second Modification), the following:
"1.5.3. Facility Three Term Loans; Facility Three Term Note.
---------------------------------------------------
Without limitation of the above-described provisions for Facility
One Term Loans and Facility Two Term Loans, the Bank may also
make one or more additional loans (the 'Facility Three Term
Loans') to the Borrower in an aggregate principal amount up to
$2,000,000. Subject to the terms of this letter agreement,
Facility Three Term Loans shall be made, at the request of the
Borrower, in order to finance costs of Qualifying Equipment
acquired by the Borrower after October 1, 1996; provided that (i)
no Facility Three Term Loan will be made after December 31, 1997;
(ii) the
<PAGE>
-3-
aggregate original principal amounts of all Facility
Three Term Loans will not exceed $2,000,000; and (iii) no
Facility Three Term Loan will be in an amount more than 80% of
the invoiced actual costs of the tangible property constituting
the items of Qualifying Equipment with respect to which such
Facility Three Term Loan is made (excluding taxes, shipping,
software, installation charges and other 'soft costs'). Prior to
the making of each Facility Three Term Loan, and as a
precondition thereto, the Borrower will provide the Bank with:
(i) invoices supporting the costs of the relevant Qualifying
Equipment; (ii) such evidence as the Bank may reasonably require
showing that the Qualifying Equipment has been installed at the
Borrower's Burlington, MA or San Francisco, CA premises, has
become fully operational, has been paid for by the Borrower and
is owned by the Borrower free of all liens and interests of any
other Person (other than the security interest of the Bank
pursuant to the Security Agreement); (iii) evidence satisfactory
to the Bank that the Qualifying Equipment is fully insured
against casualty loss, with insurance naming the Bank as secured
party and first loss payee; and (iv) if not previously provided,
Uniform Commercial Code Financing Statements satisfactory to the
Bank covering each location in which Qualifying Equipment is to
be located. The Facility Three Term Loans will be evidenced by
the Facility Three Term Note and interest on the Facility Three
Term Loans will be payable at the times and at the rate provided
for in the Facility Three Term Note. Overdue principal of any
Facility Three Term Loan and, to the extent permitted by law,
overdue interest shall bear interest at a fluctuating rate per
annum which at all times shall be equal to the sum of (i) two
(2%) percent per annum plus (ii) the per annum rate otherwise
payable under the Facility Three Term Note (but in no event in
excess of the maximum rate from time to their permitted by then
applicable law), compounded monthly and payable on demand. The
Borrower hereby irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to the Facility Three Term
Note or on the books of the Bank, at or following the time of
making each Facility Three Term Loan and of receiving any payment
of principal thereof, an appropriate notation reflecting such
transaction and the then aggregate unpaid principal balance of
the Facility Three Term Loans. The amount so noted shall
constitute presumptive (but not conclusive) evidence as to the
amount owed by the Borrower with respect to principal of the
Facility Three Term Loans. Failure of the Bank to make any such
notation shall not, however, affect any obligation of the
Borrower
<PAGE>
-4-
or any right of the Bank hereunder or under the Facility
Three Term Note.
1.5.4. Principal Repayment of Facility Three Term Loans. The
------------------------------------------------
Facility Three Term Loans made at any time through and including
March 31, 1997 are hereinafter referred to in this Section 1.5.4
as the 'Tranche A Term Loans'. Principal of the Tranche A Term
Loans shall be repaid by the Borrower to the Bank in 36 equal
consecutive monthly installments (each in an amount equal to
1/36th of the aggregate principal amount of the Tranche A Term
Loans outstanding at the close of business on March 31, 1997),
such installments to commence April 1, 1997 and to continue
thereafter on the first day of each month through and including
March 1, 2000. The Facility Three Term Loans made at any time
during the period beginning on April 1, 1997 and continuing
through and including June 30, 1997 are hereinafter referred to
in this Section 1.5.4 as the 'Tranche B Term Loans'. Principal
of the Tranche B Term Loans shall be repaid by the Borrower to
the Bank in 36 equal consecutive monthly installments (each in an
amount equal to 1/36th of the aggregate principal amount of the
Tranche B Term Loans outstanding at the close of business on June
30, 1997), such installments to commence July 1, 1997 and to
continue thereafter through and including June 1, 2000. The
Facility Three Term Loans made at any time during the period
beginning on July 1, 1997 and continuing through and including
September 30, 1997 are hereinafter referred to in this Section
1.5.4 as the 'Tranche C Term Loans'. Principal of the Tranche C
Term Loans shall be repaid by the Borrower to the Bank in 36
equal consecutive monthly installments (each in an amount equal
to 1/36th of the aggregate principal amount of the Tranche C Term
Loans outstanding at the close of business on September 30,
1996), such installments to commence October 1, 1997 arid to
continue on the first day of each month thereafter through and
including September 1, 2000. The Facility Three Term Loans made
at any time on or after October 1, 1997 are hereinafter referred
to in this Section 1.5.4 as the 'Tranche D Term Loans'.
Principal of the Tranche D Term Loans shall be repaid by the
Borrower to the Bank in 36 equal consecutive monthly installments
(each in an amount equal to 1/36th of the aggregate principal
amount of the Tranche D Term Loans outstanding at the close of
business on December 31, 1997), such installments to commence
January 1, 1998 and to continue thereafter on the first day of
each month through and including December 1, 2000. The Borrower
may prepay, at any time or from time to time, without premium or
penalty, the whole or any portion of the Facility Three Term
Loans; provided that each such
<PAGE>
-5-
principal prepayment shall be accompanied by payment of all
interest under the Facility Three Term Note accrued but unpaid to
the date of payment. Any partial prepayment of principal of the
Facility Three Term Loans will be applied to installments of
principal of the Facility Three Term Loans thereafter coming due,
in inverse order of normal maturity. Amounts paid or prepaid on
the Facility Three Term Loans will not be available for
reborrowing."
i. By deleting from the third sentence of the third paragraph of
Section 1.6 of the Letter Agreement the words "at its Principal Office, in
immediately available funds" and by substituting in their stead the following:
", in immediately available funds, at the offices of the Bank at
75 State Street, Boston, MA 02109, or at such other address as
the Bank may from time to time designate"
j. By deleting in its entirety clause (ii) of Section 3.6 of the
Letter Agreement and by substituting in its stead the following:
"(ii) within 45 days after the end of each fiscal quarter, a copy
of the Borrower's Quarterly Report on Form 10-Q for such fiscal
quarter. If, for any reason, the Borrower does not prepare a
Quarterly Report on Form 10-Q for any fiscal quarter, then for
such fiscal quarter the Borrower will provide to the Bank (within
45 days following the end of such fiscal quarter) consolidated
(and, if required by the Bank, consolidating) balance sheets of
the Borrower and its Subsidiaries and related consolidated (and,
if required by the Bank, consolidating) statements of income and
cash flow, unaudited but complete and accurate and prepared in
accordance with generally accepted accounting principles fairly
presenting the financial condition of the Borrower as at the
dates thereof and for the periods covered thereby (except that
such quarterly statements need not contain footnotes) and
certified as accurate (subject to normal year-end audit
adjustments, which shall not be material) by the chief financial
officer of the Borrower, such balance sheets to be as at the end
of each such fiscal quarter and such statements of income and
cash flow to be for such fiscal quarter and for the year to date,
in each case together with a comparison to budget."
k. By deleting from clause (iii) of Section 3.6 of the Letter
Agreement the word "monthly" and by substituting in its stead the following:
"quarterly"
<PAGE>
-6-
1. By adding to clause (iii) of Section 3.6 of the Letter Agreement,
at the end thereof, the following:
"The Borrower will also provide to the Bank (A) within 45 days
after the end of each fiscal quarter, an aging report as to
Receivables on a form reasonably satisfactory to the Bank and (B)
within 30 days after the end of each month, a monthly Earned
Revenue analysis report on a form reasonably satisfactory to the
Bank."
m. By deleting from Section 3.7 of the Letter Agreement the words
"not less than 1.25 to 1" and by substituting in their stead the following:
"not less than 2.0 to 1"
n. By deleting in their entireties Sections 3.8 and 3.9 of the Letter
Agreement and by substituting in their stead the following:
"3.8. Leverage Ratio. The Borrower will maintain, as at the end
--------------
of each fiscal quarter (commencing December 31, 1996), a Leverage
Ratio of not more than 1.0 to 1. As determined at any date, the
'Leverage Ratio' means the ratio of (x) all Indebtedness of the
Borrower and/or any of its Subsidiaries then outstanding (other
than any such Indebtedness which constitutes Deferred Revenue or
which has been expressly subordinated to the Bank's Loans by
instruments satisfactory in form and substance to the Bank) to
(y) the Adjusted Tangible Net Worth of the Borrower and
Subsidiaries at such date.
3.9 Net Worth. The Borrower will maintain, as at the end of
---------
each fiscal quarter, an Adjusted Tangible Net Worth which shall
not be less than the following: as at December 31, 1996 - not
less than $15,000,000; and as at March 31, 1997 and as at each
fiscal quarter-end thereafter - not less than $5,000,000."
o. By deleting from clause (b) of Section 5.2 of the Letter Agreement
the words "Term Loan Facilities" (such words having been inserted by the Second
Modification) and by substituting in their stead the following:
"the facilities for Term Loans"
p. By deleting from clause (c) of Section 5.2 of the Letter Agreement
the words "under either or both of the Term Notes" (such words having been
inserted by the Second Modification) and by substituting in their stead the
following:
"under any or all of the Term Loans"
<PAGE>
-7-
q. By deleting from the Borrower's notice address in Section 6.6 of
the Letter Agreement the words "Bruce D. Glabe, Vice President and Chief
Financial Officer" and by substituting in their stead the following:
"Chief Financial Officer"
r. By deleting from Section 6.6 of the Letter Agreement the words
"Fleet Bank of Massachusetts, N.A." and by substituting in their stead the
following:
"Fleet National Bank"
s. By inserting into the definition of "Principal Office" appearing,
in Section 7.1 of the Letter Agreement, immediately after the words "of the
Bank," the following:
"in Boston, MA"
t. By inserting into the definition of "Qualifying Equipment"
appearing in Section 7.1 of the Letter Agreement, immediately after the words
"October 1, 1995" (such words having been inserted by the Second Modification),
the following:
"and except that items of Qualifying Equipment supporting
Facility Three Term Loans must have been purchased on or after
October 1, 1996"
u. By deleting from Section 7.1 of the Letter Agreement the
definitions of "Term Loans" and "Term Notes" (inserted into Section 7.1 of the
Letter Agreement by the Second Modification) and by substituting in their stead
the following:
"'Term Loans' - Collectively, the Facility One Term Loans, the
Facility Two Term Loans and the Facility Three Term Loans.
'Term Notes' - Collectively, the Facility One Term Note, the
Facility Two Term Note and the Facility Three Term Note."
3. Each of IAR Security Agreement, the Supplementary Security Agreement,
the Revolving Note, the Facility One Term Note and the Facility Two Term Note is
hereby modified by providing that all references therein to the "Bank" or to
"Fleet Bank of Massachusetts, N.A." will be deemed to refer to Fleet National
Bank.
4. The Revolving Note is hereby amended by inserting into the last
sentence of the fifth paragraph thereof, immediately after the word
"presumptive," the following:
"(but not conclusive)"
5. The Facility One Term Note is hereby amended by inserting into the last
sentence of the fourteenth paragraph thereof, immediately after the word
"presumptive," the following:
<PAGE>
-8-
"(but not conclusive)"
6. The Facility Two Term Note is hereby amended by inserting into the last
sentence of the fourteenth paragraph thereof, immediately after the word
"presumptive," the following:
"(but not conclusive)"
7. Whenever in any Financing Document, or in any certificate or opinion to
be delivered therewith, reference is made to a "letter agreement" or to the
"Letter Agreement," from and after the date hereof same will be deemed to refer
to the Letter Agreement, as hereby amended. Whenever in any Financing Document,
or in any certificate or opinion to be delivered therewith, reference is made to
a "Term Note," from and after the date hereof same will be deemed to refer to
each of the Facility One Term Note, the Facility Two Term Note and the Facility
Three Term Note.
8. Simultaneously with the execution and delivery of this Agreement, the
Borrower is paying to the Bank a non-refundable closing fee of $15,000. The fee
described in this Section 5 is in addition to all interest, fees and other
charges and payments heretofore paid by the Borrower and is not to be credited
against, nor reduced by, any other fees (nor any interest, charges or other
payments) now or hereafter payable by the Borrower.
9. In order to induce the Bank to enter into this Agreement, the Borrower
further represents and warrants as follows:
a. The execution, delivery and performance of this Agreement and the
Facility Three Term Note have been duly authorized by the Borrower by all
necessary corporate and other action, will not require the consent of any third
party and will not conflict with, violate the provisions of, or cause a default
or constitute an event which, with the passage of time or the giving of notice
or both, could cause a default on the part of the Borrower under its charter
documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance on any property or assets of the Borrower (except
liens in favor of the Bank).
b. The Borrower has duly executed and delivered each of this
Agreement and the Facility Three Term Note.
c. Each of this Agreement and the Facility Three Term Note is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.
d. The statements, representations and warranties made in the Letter
Agreement, in the IAR Security Agreement and/or in the Supplementary Security
Agreement continue to be correct as of the date hereof; except as amended,
updated and/or supplemented by the attached Supplemental Disclosure Schedule.
<PAGE>
-9-
e. Giving effect to the amendments set forth above, the covenants and
agreements of the Borrower contained in the Letter Agreement, in the IAR
Security Agreement and/or in the Supplementary Security Agreement have been
complied with on and as of the date hereof.
f. Giving effect to the amendments set forth above, no event which
constitutes or which, with notice of lapse of time, or both, could constitute,
an Event of Default (as defined in the Letter Agreement) has occurred and is
continuing.
g. No material adverse change has occurred in the financial condition
of the Borrower from that disclosed in the annual financial statements of the
Borrower dated December 31, 1995, except as heretofore disclosed in writing to
the Bank.
10. Except as expressly affected hereby, the Letter Agreement and each of
the other Financing Documents remain in full force and effect as heretofore.
11. Nothing contained herein will be deemed to constitute a waiver or
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or agree to any amendment or modification of any provision of any of
the Financing Documents on any other or future occasion.
Executed, as an instrument under seal, as of the day and date first above
written.
INDIVIDUAL, INC.
By: /s/ Robert L. Lentz
-----------------------------------
Name: Robert L. Lentz
Title: Vice President
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Kimberly Martone
-----------------------------
Name: Kimberly Martone
Title: Vice President
<PAGE>
Exhibit 10.25
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 3rd day of September, 1996, by and between Michael
E. Kolowich (the "Employee") and Individual, Inc., a Delaware corporation with a
principal place of business at Burlington, Massachusetts (the "Company").
WHEREAS, the Company believes it to be to its advantage to employ the
Employee to render services to the Company as hereinafter provided; and
WHEREAS, the Employee desires to accept employment with the Company in a
senior executive capacity as hereinafter provided; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities.
-----------------------------
(A) President and Chief Executive Officer. During the term of this
-------------------------------------
Agreement, the Company agrees to employ the Employee, and the Employee agrees
to serve, as President and Chief Executive Officer of the Company. The
Employee shall at all times report to, and his activities shall at all times
be subject to the direction and control of, the Board of Directors of the
Company (the "Board", which term shall include, for purposes of this
Agreement, any committee to which the Board may have delegated its authority
with respect to matters covered by this Agreement); and the Employee shall
exercise such powers and comply with and perform, faithfully and to the best
of his ability and according to his honest business judgment, such
directions and duties in relation to the business and affairs of the Company
as may from time to time be vested in or requested of him by the Board. The
Employee agrees to devote substantially all of his business time, attention
and services to the diligent, faithful and competent discharge of such duties
for the successful operation of the Company's business. Any business
activity that the Employee wishes to engage in on his own time can be
undertaken only with the approval of the Board, but in no event may such an
activity conflict or compete with any interest of the Company or interfere
with the Employee's performance of his duties hereunder. During the term
hereof, Employee will not have any managerial or operational responsibility,
other than service on a board of directors, in any enterprise, firm,
corporation, trust or other business entity other than the Company; provided,
however, that nothing herein shall prevent the ownership by the Employee of
an equity interest in any business entity, provided that such ownership does
not involve any managerial or operational responsibility other than serving
on the board of directors. Any directorships of corporations other than the
Company must be approved in writing by the Board in advance, with the
exception of directorships or similar positions with charitable and
professional organizations or family-owned trusts or businesses (provided
that such activities do not interfere with Employee's performance of his
duties hereunder). A list of directorships and similar positions presently
held by the Employee is set forth on Annex A hereto.
-------
(B) Director Nomination. The Board shall nominate and appoint the
-------------------
Employee as a director of the Company; and not later than December 31, 1996
the Board will consider Employee's election as Chairman of the Board.
Thereafter, during the term of this Agreement, the
<PAGE>
2
Board shall designate and nominate the Employee as a director of the Company
and, if elected by the stockholders of the Company, the Employee shall accept
such position and diligently perform the duties arising from such position.
2. Compensation: Salary, Bonuses, Equity Participation and Other Benefits.
----------------------------------------------------------------------
During the term of this Agreement, the Company shall pay the Employee the
following compensation, including the following salary, bonus and other fringe
benefits:
(A) Salary. In consideration of the services to be rendered by the
------
Employee to the Company, the Company initially will pay to the Employee an
annual salary of $170,000 (the Employee's "base rate"). Such salary shall be
payable in conformity with the Company's customary practices for executive
compensation as such practices shall be established or modified from time to
time. Salary payments shall be subject to all applicable federal and state
withholding, payroll and other taxes. Commencing September 1, 1997 and on or
about each anniversary of such date thereafter while this Agreement is in
effect, the Board and the Employee shall in good faith review the performance
by, and the compensation to, the Employee for the prior 12-month period and
the proposed performance by, and compensation to, the Employee for the
forthcoming 12-month period. Based on such review, the Board may, in its
discretion, adjust the base rate, provided, however, that Employee's base
rate shall not be lower than $170,000. The Employee will be entitled to four
weeks of paid vacation each year, to be taken in accordance with the
Company's customary vacation policies applicable to executive employees.
(B) Fringe Benefits. The Employee will be entitled to be reimbursed for
---------------
all of his business-related travel and other business-related expenses in
accordance with the Company's policies from time to time in effect and will
also be furnished by the Company with a cellular telephone and service, at
the Company's expense. The Employee will also be entitled to participate on
the same basis with all other management employees of the Company in the
Company's standard benefits package generally available for all other
officers and employees of the Company, with respect to group health,
disability and life insurance programs. The Company will reimburse the
Employee for professional services (in an amount not to exceed $15,000 for
the first year of this Agreement and $7,500 per year thereafter) in
connection with: tax planning and tax return preparation; financial and
estate planning; and legal services relating to Employee's employment with
the Company, including services in connection with entering into this
Agreement (including those incurred prior to the execution of this Agreement)
and any amendments thereto (but in no event for legal services related to any
employment-related or other dispute with the Company).
(C) Incentive Bonus. During the term of this Agreement, in addition
---------------
to the amounts payable under Section 2(A) above, the Employee shall be
eligible to receive a target bonus of $80,000 for the period from January 1,
1997 to December 31, 1997 (the "1997 Target Bonus") and a target bonus in an
amount to be agreed upon by the Employee and the Board for each successive
twelve-month period thereafter ("Year End"), provided the Employee continues
to be employed by the Company on each such Year End. Of the 1997 Target
Bonus, up to $30,000 shall be payable at the discretion of the Board. In
addition, $50,000 of the 1997 Target Bonus shall be based on the Company's
achievement of the financial goals and objectives for the Company that shall
be set by the mutual agreement of Board and the Employee for such fiscal
year, based upon measurement of revenue growth. The financial goals and
objectives for 1998 and thereafter shall be based, among other matters, upon
agreed upon measurements of profitability or return on investment. The
amount of the incentive bonus plan for any fiscal year shall provide that the
Employee may earn a bonus greater than the target bonus if he exceeds the
annual goals and objectives. For the partial fiscal year ending December 31,
1996, the Employee will be eligible to receive a bonus of up to $26,700
<PAGE>
3
payable at the discretion of the Board. The amount of bonus payments payable
to the Employee under this Section 2(C) and the satisfaction of the goals and
objectives established by the Board shall be determined promptly and
reasonably by the Board, and, if achieved, such bonus payments shall be paid
within 100 days after each Year End. All such bonus payments shall be made
in the form of Common Stock of the Company, which shall be valued for such
purpose at the fair market value thereof on the first day of the applicable
fiscal year (or partial fiscal year) for which the bonus has been achieved.
Such bonus payments shall be subject to all applicable federal, state and
local withholding, payroll and other taxes, as required by law.
(D) Long-Term Disability Insurance. In addition to any disability
------------------------------
insurance provided by the Company pursuant to Section 2(B), the Company shall
use reasonable commercial efforts to obtain and to provide the Employee with
long-term disability insurance to the extent necessary (together with the
disability insurance provided pursuant to Section 2(B), if any) to replace
three-quarters of the Employee's base rate of salary and targeted incentive
bonuses set forth in Sections 2(A) and Section 2(C). Such long-term
disability insurance shall be provided under a policy selected by the
Employee offered on a generally available basis by a top-rated national
insurance carrier, which policy shall be reasonably acceptable to the Board.
The Company shall pay the cost of all premiums associated with such
disability insurance. If any such insurance imposes a waiting period prior
to the commencement of benefit payments, the Company will continue to pay the
Employee's base rate of salary and targeted incentive bonuses (to the extent
achieved) for up to three (3) months during such waiting period. To the
extent that any such disability insurance obtained by the Company fails to
provide the amount of coverage described in the first sentence of this
Section 2(D), or imposes a waiting period in excess of three (3) months, in
the event the Employee suffers a disability during the term of his
employment, the Company will pay directly to the Employee as additional
disability benefits for a period of three years beginning with the event of
disability the difference between the benefits actually paid under such
policy and the amount of the coverage required by this Section 2 (D).
3. Equity Participation. The Employee shall be entitled to purchase shares
--------------------
of the Company's Common Stock (the "Equity Interest") as set forth herein. The
Equity Interest shall be divided into two parts consisting of (i) the sale and
purchase of 100,000 shares of the Company's Common Stock (the "Purchased
Shares"), and (ii) the grant of options to purchase 1,000,000 shares of the
Company's Common Stock (the "Option Shares"). The Board and the Employee will
review the Employee's stock option holdings annually to determine whether it is
appropriate to grant additional options to the Employee, taking into account
such factors, among others, as the Employee's percentage ownership of the
Company's outstanding Common Stock. It is the present intention of the parties
that Employee's ownership of the Company's Common Stock through Company-granted
options and other equity awards, including those described in clauses (i) and
(ii) of Section 3(B) below (but without taking into account the Purchased Shares
or options described in clause (iii) of Section 3(B) or any shares purchased by
the Employee in the open market or in other transactions not involving the
Company) remain at a level in excess of 5% of the outstanding Common Stock;
however, the award of any additional options or other equity participation shall
at all times remain in the sole discretion of the Board.
(A) The Purchased Shares. The Company will sell, and the Employee will
--------------------
purchase, the Purchased Shares for $6.00 per share (such purchase price
constituting the reported last sale price of the Common Stock on the Nasdaq
National Market on August 30, 1996). The Employee shall purchase and pay for
the Purchased Shares, in cash, within 15 days of the date of execution of
this Agreement.
<PAGE>
4
(B) The Option Shares. The Employee shall be granted, effective the date
-----------------
of this Agreement, incentive and non-qualified stock options to purchase the
Option Shares pursuant to stock option agreements under the Company's 1989
Stock Option Incentive Plan in the following amounts: (i) 66,664 Option
Shares as incentive stock options; (ii) 833,336 Option Shares as non-
qualified stock options; and (iii) an additional 100,000 Option Shares as
non-qualified options subject to the additional terms set forth in clause (v)
of Section 3(C) below. The exercise price for all such options shall be $6.00
per share (such exercise price constituting the reported last sale price of
the Common Stock on the Nasdaq National Market on August 30, 1996).
(C) Option Terms. The incentive and non-qualified options covering the
------------
Option Shares shall be issued under the Company's Amended and Restated 1989
Stock Plan, pursuant to the Company's standard incentive and non-qualified
stock option agreements thereunder, copies of which are incorporated herein
by reference, subject to the following additional terms: (i) all options
shall be for a term of ten (10) years; (ii) all options will vest in 48 equal
consecutive monthly installments; (iii) all options will become automatically
exercisable in full upon a change of control of the Company, subject only to
restrictions applicable under pooling-of-interests accounting rules if
applicable; (iv) the options described in clauses (i) and (ii) of Section
3(B) above will become automatically exercisable for 25% of the total number
of Option Shares subject thereto (in addition to the Option Shares for which
such options may already be exercisable) in the event that the Employee's
employment with the Company terminates pursuant to clause (i) of Section 4 or
Section 5 (C); and (v) the options described in clause (iii) of Section 3(B)
above will become automatically exercisable in full in the event that the
Employee's employment with the Company terminates pursuant to clause (i) of
Section 4 or Section 5 (C), or if such employment terminates pursuant to
Section 5(A) at any time after September 3, 1997.
4. Term. The term of this Agreement shall commence on the date first above
----
written and shall terminate on the earlier to occur of (i) the death or
disability of the Employee, or (ii) the occurrence of any of the circumstances
described in Section 5 hereof (the "Expiration Date"). For the purposes of this
Agreement, "disability" shall have the meaning contained in the long-term
disability policy described in Section 2(D) above.
5. Termination. The Employee's term of employment under this Agreement may
-----------
be terminated pursuant to clause (ii) of the first sentence of Section 4 as
follows:
(A) At the Employee's Option: The Employee may terminate his
------------------------
employment, with or without cause, at any time upon at least thirty (30)
days' advance written notice to the Company.
(B) At the Election of the Company for Cause. The Company may,
----------------------------------------
immediately and unilaterally, terminate the Employee's employment hereunder
"for cause" at any time during the term of this Agreement without any prior
written notice to the Employee. Termination of the Employee's employment by
the Company shall constitute a termination "for cause" under this Section 5
(B) if such termination is for one or more of the following reasons, as
determined by the Board by a resolution duly adopted by a majority of its
members, excluding the Employee:
(i) the substantial and continuing gross and willful breach by the
Employee of his obligations under this Agreement or the
Employee Noncompetition, Nondisclosure and Developments
Agreement described in Section 6 hereof, such breach not having
been cured within 30 days after the Employee's receipt of notice
thereof from the Board, which notice shall set forth in
reasonable detail the nature of such breach; provided, however,
that this subparagraph
<PAGE>
5
shall not apply to acts or omissions by the Employee in the
exercise of his honest business judgment;
(ii) the commission by the Employee of an act of fraud, embezzlement,
or substantial and material breach of fiduciary duty; or
(iii) the conviction of the Employee of any felony or of any
misdemeanor involving moral turpitude or misappropriation of
Company property.
In the event of a termination "for cause" pursuant to the provisions of
clauses (i) through (iii) above, inclusive, the Employee shall be entitled to
no severance or other termination benefits except as required by law. In the
event of any such termination of employment, no further vesting of the Option
Shares shall occur from the date of termination.
(C) At the Election of the Company for Reasons Other than for Cause. The
---------------------------------------------------------------
Company may, immediately and unilaterally, terminate the Employee's
employment hereunder at any time during the term of this Agreement without
cause by giving thirty (30) days' advance written notice to the Employee of
the Company's election to terminate. During such thirty-day period, the
Employee will be available on a full-time basis for the benefit of the
Company to assist the Company in making the transition to a new, successor
officer of the Company. In the event the Company exercises its right to
terminate the Employee under this Section 5(C), the Employee's stock options
will be accelerated in accordance with Section 3(C). Except as expressly set
forth in this Section 5(C) or in Section 3(C), the Company shall not have any
further obligations to the Employee in the event of Employee's termination
under this Section 5(C), except such further obligations as may be imposed by
law.
6. Noncompetition, Nondisclosure and Developments Agreement. In connection
--------------------------------------------------------
with his employment by the Company pursuant to the terms of this Agreement, the
Employee shall execute simultaneously herewith the Employee Noncompetition,
Nondisclosure and Developments Agreement attached hereto as Annex B, the terms
-------
and conditions of which are incorporated herein by reference.
7. Consent and Waiver by Third Parties. The Employee hereby represents and
-----------------------------------
warrants that he has obtained all waivers and/or consents from third parties
which are necessary to enable him to enjoy employment with the Company on the
terms and conditions set forth herein and to execute and perform this Agreement
without being in conflict with any other agreement, obligation or understanding
with any such third party. The Employee represents that he is not bound by any
agreement or any other existing or previous business relationship which
conflicts with, or may conflict with, the performance of his obligations
hereunder or prevent the full performance of his duties and obligations
hereunder.
8. Governing Law. This Agreement, the employment relationship contemplated
-------------
herein and any claim arising from such relationship, whether or not arising
under this Agreement, shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Massachusetts, and this Agreement shall be
deemed to be performable in Massachusetts.
9. Severability. In case any one or more of the provisions contained in
------------
this Agreement or the other agreements executed in connection with the
transactions contemplated hereby for any reason shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or such
other agreements, but this Agreement or such other agreements, as the case may
be, shall be construed and reformed to the maximum extent permitted by law.
<PAGE>
6
10. Waivers and Modifications. This Agreement may be modified, and the
-------------------------
rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 10. No waiver by either party of
any breach by the other or any provision hereof shall be deemed to be a waiver
of any later or other breach thereof or as a waiver of any other provision of
this Agreement. This Agreement sets forth all of the terms of the
understandings between the parties with reference to the subject matter set
forth herein and may not be waived, changed, discharged or terminated orally or
by any course of dealing between the parties, but only by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought. No modification or waiver by the Company shall be
effective without the consent of at least a majority of the members of the Board
excluding the Employee then in office at the time of such modification or
waiver.
11. Assignment. The Employee acknowledges that the services to be rendered
----------
by him hereunder are unique and personal in nature. Accordingly, the Employee
may not assign any of his rights or delegate any of his duties or obligations
under this Agreement. The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of the Company.
12. Acknowledgments. The Employee hereby acknowledges and recognizes that
---------------
the enforcement of any of the provisions in this Agreement and the Employee
Noncompetition, Nondisclosure and Developments Agreement executed herewith may
potentially interfere with the Employee's ability to pursue a proper livelihood.
The Employee represents that he or she is knowledgeable about the business of
the Company and further represents that he or she is capable of pursuing a
career in other industries to earn a proper livelihood. The Employee recognizes
and agrees that the enforcement of the Employee Noncompetition, Nondisclosure
and Developments Agreement is necessary to ensure the preservation, protection
and continuity of the business, trade secrets and goodwill of the Company. The
Employee agrees that, due to the proprietary nature of the Company's business,
the restrictions set forth in the Employee Noncompetition, Nondisclosure and
Developments Agreement are reasonable as to time and scope. The foregoing shall
not prohibit the Employee from employment with any company by which the Employee
has been employed in the past so long as his activities with any such company
do not otherwise constitute a breach of the Employee Noncompetition,
Nondisclosure and Developments Agreement.
13. Entire Agreement. This Agreement constitutes the entire understanding of
----------------
the parties relating to the subject matter hereof and supersedes and cancels all
agreements, written or oral, made prior to the date hereof between the Employee
and the Company relating to employment, salary, bonus, or other compensation of
any description, equity participation, pension, post-retirement benefits,
severance or other remuneration.
<PAGE>
7
14. Notices. All notices hereunder shall be in writing and shall be
-------
delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to the Company, to: Individual, Inc.
8 New England Executive Park West
Burlington, MA 01803
Attention: Board of Directors
With a copy to: William B. Asher, Jr., Esq.
Testa, Hurwitz & Thibeault
High Street Tower
125 High Street
Boston, MA 02110; and
If to the Employee, at the Employee's address set forth on the signature page
hereto.
With a copy to: Richard L. Medverd, Esq.
Medverd & Simmons, P.C.
175 Federal Street
Boston, MA 02110
15. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
16. Section Headings. The descriptive section headings herein have been
----------------
inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the datefirst above written as an instrument under seal.
INDIVIDUAL, INC. EMPLOYEE:
By: /s/ William A. Devereaux /s/ Michael E. Kolowich
------------------------------------ ------------------------------
William A. Devereaux Michael E. Kolowich
Chairman of the Board of Directors
116 Monument Street
------------------------------
Street Address
Concord, MA 01742
------------------------------
City State Zip Code
<PAGE>
9
ANNEX A
-------
Current Directorship and Similar Positions
------------------------------------------
1. Director and 4% stockholder of Avantos Performance Systems, producers of
management performance software products.
2. Trustee, The Fenn School, Concord Massachusetts.
3. Board of Overseers, Museum of Science, Boston, Massachusetts.
4. Trustee, Massachusetts Software Council.
5. Director, Kolo Corporation, a family owned real estate and investment
company.
<PAGE>
ANNEX B
-------
EMPLOYEE NONCOMPETITION,
------------------------
NONDISCLOSURE AND DEVELOPMENTS AGREEMENT
----------------------------------------
In consideration and as a condition of my employment by Individual,
Inc. (the "Company"), I hereby agree with the Company as follows:
1. During the period of my employment by the Company, I will devote
my full time and best efforts to the business of the Company. Further, during
the period of my employment by the Company and for one year thereafter, I agree
that I will not, directly or indirectly, alone or as a partner, officer,
director, employee or stockholder, or consultant to, of any entity, (a) engage
in any business activity which is in competition in the United States with the
products or services being developed, manufactured or sold by the Company or (b)
solicit, interfere with or endeavor to entice away any employee of the Company;
provided however, that this Agreement does not prohibit me from holding up to
five percent (5%) of the publicly traded shares of a public company.
2. I will not at any time, whether during or after the termination of
my employment, reveal to any person or entity any of the trade secrets or
confidential information concerning the organization, business or finances of
the Company or of any third party which the Company is under an obligation to
keep confidential (including but not limited to trade secrets or confidential
information respecting inventions, products, designs, methods, know-how,
techniques, systems, processes, software programs, works of authorship, customer
lists, projects, plans and proposals), except as may be required in the ordinary
course of performing my duties as an employee of the Company; and I shall keep
secret all matters entrusted to me and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company (it being
understood that any use of such information in the exercise of honest business
judgment in connection with my performance of services for the Company shall not
constitute a violation of this clause).
Further, I agree that during my employment I shall not make, use or
permit to be used any notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials of any nature relating to any matter within the scope of the business
of the Company or concerning any of its dealings or affairs otherwise than for
the benefit of the Company. I further agree that I shall not, after the
termination of my employment, use or permit to be used any such notes,
memoranda, reports, lists, records, drawings, sketches, specifications, software
programs, data, documentation or other materials, it being agreed that all of
the foregoing shall be and remain the sole and exclusive property of the Company
and that immediately upon the termination of my employment I shall deliver all
of the foregoing, and all copies thereof, to the Company, at its main office.
3. If at any time or times during my employment, I shall (either
alone or with others) make, conceive, discover or reduce to practice any
invention, modification, discovery, design, development, improvement, process,
software program, work of authorship, documentation, formula, data, technique,
know-how, secret or intellectual property right whatsoever or any interest
therein (whether or not patentable or registrable under copyright or similar
statutes or subject to analogous protection) (herein called "Developments") that
(a) relates to the business of the Company or any of the products or services
<PAGE>
2
being developed, manufactured or sold by the Company or which may be used in
relation therewith or (b) results from tasks assigned me by the Company, such
Developments and the benefits thereof shall immediately become the sole and
absolute property of the Company and its assigns, and I shall promptly disclose
to the Company (or any persons designated by it) each such Development and
hereby assign any rights I may have or acquire in the Developments and benefits
and/or rights resulting therefrom to the Company and its assigns without further
compensation and shall communicate, without cost or delay, and without
publishing the same, all available information relating thereto (with all
necessary plans and models) to the Company.
Upon disclosure of each Development to the Company, I will, during my
employment and at any time thereafter, at the request and cost of the Company,
sign, execute, make and do all such deeds, documents, acts and things as the
Company and its duly authorized agents may reasonably require:
(a) to apply for, obtain and vest in the name of the Company
alone (unless the Company otherwise directs) letters patent, copyrights or
other analogous protection in any country throughout the world and when so
obtained or vested to renew and restore the same; and
(b) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or applications
for revocation of such letters patent, copyright or other analogous
protection.
In the event the Company is unable, after reasonable effort, to secure
my signature on any letters patent, copyright or other analogous protection
relating to a development, whether because my physical or mental incapacity or
for any other reason whatsoever, I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and attorney-in-
fact, to act for and in my behalf and stead to execute and file any such
application or applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent, copyright or other
analogous protection thereon with the same legal force and effect as if executed
by me.
4. I agree that any breach of this Agreement by me will cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of my obligations hereunder.
5. I understand that this Agreement does not create an obligation on
the Company or any other person or entity to continue my employment.
6. I represent that Exhibit A attached hereto constitutes a complete
---------
list of all agreements that I have entered into over the past five years
regarding noncompetition and confidentiality of proprietary information.
I further represent that my performance of all of the terms of this
Agreement, the Employment Agreement dated this date between myself and the
Company and my service as an employee and a director of the Company does not
and will not breach any agreement listed in Exhibit A hereto or any agreement to
---------
keep in confidence proprietary information acquired by me in confidence or in
trust prior to my employment with the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.
<PAGE>
3
7. Any waiver by the Company of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
8. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable at law, such provision or provisions shall be construed
by the appropriate judicial body by limiting or reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it shall
then appear.
9. My obligations under this Agreement shall survive the termination
of my employment regardless of the manner of such termination and shall be
binding upon my heirs, executors, administrators and legal representatives.
10. The term "Company" shall include Individual, Inc. and any of its
subsidiaries, subdivisions or affiliates. The Company shall have the right to
assign this Agreement to its successors and assigns, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by said
successors or assigns.
11. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as a
sealed instrument as of the 3rd day of September, 1996.
/s/ Michael E. Kolowich
-------------------------------------------------
Michael E. Kolowich
<PAGE>
EXHIBIT A
---------
The following is a complete list of all agreements I have entered
within the past five years regarding noncompetition and nondisclosure of
proprietary information.
1. Separation Agreement and General Release dated June 30, 1996 between Michael
E. Kolowich and AT&T (the terms of which agreement are required to kept
confidential by the parties and, accordingly, have not been furnished to the
Company or its counsel)
/s/ Michael E. Kolowich
---------------------------------------
Michael E. Kolowich
<PAGE>
Exhibit 10.26
AGREEMENT AND RELEASE
AGREEMENT and RELEASE dated this 13th day of December, 1996, by and between
Joseph A. Amram ("Mr. Amram") and Individual, Inc. ("the Company"). (Mr. Amram
and the Company may be referred to jointly as "the parties.")
WHEREAS, Mr. Amram previously served as the Company's President and Chief
Executive Officer, and Chairman of the Company's Board of Directors; and
WHEREAS, various disputes have arisen between the parties concerning
severance pay and other matters pertaining to Mr. Amram's cessation of
employment with the Company on August 7, 1996; and
WHEREAS, Mr. Amram and the Company wish to resolve amicably, for their
mutual benefit, all matters regarding Mr. Amram's cessation of employment and
other disputes with the Company.
NOW, THEREFORE, for good and valuable consideration as more fully described
below, the sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Payments.
--------
a. The Company agrees to pay Mr. Amram a total gross sum of $480,000 (the
equivalent of two years' compensation) according to the schedule set forth
below:
i. The Company will pay Mr. Amram a gross lump sum payment of
$100,000 upon execution of this Agreement and Release.
ii. Starting on January 1, 1997 and continuing until July 31, 1998,
the Company shall pay Mr. Amram compensation continuation payments at the
rate of $20,000 per month. Said compensation continuation payments shall
be made according to the Company's regular payroll cycle pertaining to its
executive employees.
b. Payments made to Mr. Amram as specified in Paragraph 1 shall be
subject to applicable tax withholdings, if any, as required by law. Mr. Amram
has directed the Company to make the minimum withholdings as allowed by law with
respect to all payments and stock issuance to be made pursuant to this
Agreement.
c. The Company shall grant to Mr. Amram, subject to the terms and
conditions of the Company's Stock Option Plan, its standard non-employee
director stock options, effective as if he had first been elected to the Board
of Directors as an outside director as of the date of this Agreement. Said grant
shall occur at the first meeting of the Board of Directors held after the
execution of this Agreement and Release and the
<PAGE>
-2-
price of the options shall be the closing price of the Company's stock that day
on the NASDAQ.
d. The Company shall transfer to Mr. Amram the two personal computers
that Mr. Amram used prior to his cessation of employment. The parties agree
that the value of the computers is $3,000. Mr. Amram hereby authorizes the
Company to deduct any tax withholdings applicable to such transfer from the
payment by the Company specified in Paragraph 1(a)(i) above. All risk of damage
or loss with respect to such personal computers shall rest with Mr. Amram. The
computers are transferred to Mr. Amram "as is," with no representations or
warranties, express or implied, being made to Mr. Amram (including warranties of
merchantability or fitness for a particular purpose) and, without limiting the
generality of the foregoing in any way, in no event shall the Company be liable
for any consequential, special, punitive, or other damages in connection with
this computer transfer.
2. Noncompetition, Nondisclosure and Developments. Mr. Amram confirms the
----------------------------------------------
existence and continued validity of his Employee Noncompetition, Nondisclosure
and Developments Agreement with the Company dated January 24, 1989, a true and
correct copy of which is attached hereto as Exhibit A. The post-employment
---------
noncompetition period commenced on August 7, 1996.
3. Releases.
--------
(a) In exchange for the benefits and undertakings described herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Mr. Amram on behalf of himself as well as those members of
his family who are stockholders of the Company and who Mr. Amram controls, and
his and their fiduciaries, representatives, agents, estates, trusts, attorneys,
executors, administrators, beneficiaries, successors and assigns, absolutely and
unconditionally to release and forever discharge the Company and/or its
successors and assigns, parent, subsidiary and/or affiliate companies, as well
as all of their past and present directors, investors (including without
limitation Microsoft and Knight-Ridder), officers, attorneys (including without
limitation Testa, Hurwitz & Thibeault, LLP and each of its partners and
employees), employees, insurers, representatives and agents, both individually
and in any of their official capacities with the Company (the "Releasees"), from
any and all actions or causes of action, suits, claims, complaints, contracts,
liabilities, agreements, promises, debts, judgments and damages, in law or
equity, whether existing or contingent, known or unknown, matured or immatured,
including without limitation: claims arising out of Mr. Amram's employment with
and/or cessation of employment with the Company; claims arising from or as a
consequence of any actions or omissions to act of the Company's Board of
Directors or individual directors of the Company; and claims arising from or as
a consequence of any actions or omissions to act of the Releasees. This release
is intended by Mr. Amram to be all encompassing and to act as a full and total
release of any claims that Mr. Amram has, may have in the future, or has had
against any or all of the Releasees resulting or arising from, relative to, or
based on facts, events or
<PAGE>
-3-
occurrences, since the Beginning of the World through the date of this Agreement
and Release, including without limitation all claims of breach of fiduciary
duty; all claims arising from or concerning Mr. Amram's status as a director,
corporate officer, employee or stockholder of the Company; all claims for
compensation (such as severance payments; bonus payments; benefits; accrued
vacation pay; sick pay; reimbursable expenses; expense vouchers; obligations or
commitments to grant stock options or to issue stock and all other rights to
acquire stock, if any such obligations, commitments and/or rights are claimed to
exist; performance bonuses; business-related expenses; and all other payments,
commissions, compensations or reimbursements of every kind and description); all
claims involving any federal or state securities laws; all claims involving any
federal or state law or regulation relating to employment or employment
discrimination (such as those laws or regulations concerning discrimination on
the basis of age, alienage, race, color, creed, sex, sexual orientation,
religion, national origin, handicap status or veteran status or any military
service or application for military service); all claims involving any contract,
whether oral or written, express or implied; or common law claims.
(b) Mr. Amram, on his own behalf and on behalf of members of his family who
are stockholders of the Company and who Mr. Amram controls, further agrees to
release and discharge the Company, its subsidiaries and affiliates and/or their
respective successors, assigns, stockholders, officers, directors, investors,
employees, attorneys, representatives and agents, from any and all claims that
might be made by any other person or organization on behalf of Mr. Amram or such
members of his family, and Mr. Amram and such members of his family specifically
waive any right to become, and promise not to become, a member of any class in a
case in which any claim against the Company is made involving any matters
subject to release pursuant to paragraph 3(a) (or, except as required by law or
rule of court, to assist or cooperate in the bringing of any such claim against
the Company, or its subsidiaries and/or their respective successors, assigns,
stockholders, officers, directors, investors, employees, attorneys,
representatives and/or agents).
(c) In exchange for the above release by Mr. Amram, the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, on behalf of itself
and its successors, assigns, parent, subsidiaries and/or affiliated companies,
directors, officers, employees, attorneys, representatives and agents, both
individually and in their official capacities, hereby absolutely and
unconditionally release and forever discharge Mr. Amram and his fiduciaries,
representatives, agents, attorneys, estates, trusts, successors and assigns,
from any and all actions or causes of action, suits, claims, complaints,
contracts, liabilities, agreements, promises, debts, judgments, damages and
demands of every kind and nature, whether existing or contingent, known or
unknown, both in law and equity, including without limitation, all claims
arising out of Mr. Amram's employment or cessation of employment with the
Company, and his actions as an officer and director of the Company. This
release is intended by the Company to be all-encompassing and to act as a full
and total release of any claims that
<PAGE>
-4-
the Company may have or has had against Mr. Amram and his fiduciaries,
representatives, agents, estates, successors and assigns, since the Beginning of
the World through the date of this Agreement and Release; provided that nothing
herein shall be construed to release any claims arising out of any
misappropriation or infringing use of any confidential and/or proprietary
information of the Company. The Company acknowledges that it has no knowledge of
any misappropriation or infringing use of confidential and/or proprietary
information by Mr. Amram.
(d) These releases may be pleaded as a full and complete defense and may be
used as the basis for an injunction against any action, suit or proceeding that
may be prosecuted, instituted, or attempted in breach hereof. Nothing herein
shall be deemed to waive the right of either party to bring an action to enforce
the terms of, or recover damages for breach of any of terms of this Agreement
and Release or of the Noncompetition, Nondisclosure and Developments Agreement.
(e) In the event either party brings an action barred by these releases or
the Company prevails in an action for violation of the Noncompetition,
Nondisclosure and Developments Agreement, the losing party shall be obligated to
reimburse the prevailing party for reasonable attorneys' fees and costs in such
action.
(f) Nothing herein is intended to affect any right to insurance or to
indemnification either party may have under applicable law, under the Company's
Certificate of Incorporation, or the Company's By-laws.
(g) Mr. Amram acknowledges that the payments and benefits set forth herein,
together with payments and benefits previously provided to Mr. Amram, shall be
complete and unconditional payment, settlement, satisfaction and accord for all
compensation arising out of his employment or the cessation thereof or that
otherwise might be owed to him by the Company, including without limitation to
all wages, salary, accrued but unused vacation pay, commissions, equity, stock
options, stock warrants, bonus pay and severance pay.
4. Commitments.
-----------
(a) In connection with any pooling transaction entered into by the Company
while Mr. Amram serves as a director of the Company, Mr. Amram will execute any
affiliate agreement that all other members of the Board of Directors also sign.
In the event that Mr. Amram demonstrates to the reasonable satisfaction of the
Board of Directors that he has a requirement to sell shares of Company common
stock during any "lock-up" period relating to a pooling transaction to which the
Company is a party, the Company will make good faith efforts to permit Mr. Amram
to make such a sale in a manner and amount that, in the opinion of the Company's
independent public accountants, is permitted under pooling-of-interests
accounting rules.
<PAGE>
-5-
(b) Mr. Amram will provide the Board of Directors with not less than seven
days prior written notice of his intention to purchase the securities of any
privately-held company that at the time of such purchase is engaged in any
business of the Company.
(c) The parties shall maintain strict confidentiality concerning the dollar
amount and all other terms of this Agreement and Release and, except as required
pursuant to legal process, law or governmental regulation (including without
limitation S.E.C. disclosure obligations), will not discuss the same with
anyone, except on a confidential basis, with Mr. Amram's spouse, with
accountants or attorneys when such disclosure is necessary for them to render
professional services, and with representatives of the Company to the extent
necessary for them to discharge their corporate duties and obligations. Nothing
herein shall preclude Mr. Amram from advising any prospective employer of his
post employment obligations to the Company under this Agreement and Release
and/or the Noncompetition, Nondisclosure and Developments Agreement.
(d) Nothing herein shall be deemed to bar either party from making any
truthful disclosures as required by legal process or otherwise mandated by law
subject to maximum appropriate protection of confidential information. Mr.
Amram further agrees to provide the Company with prompt and timely notice of any
request by subpoena or other legal process seeking testimony or information
regarding the Company, its business, its employees and/or any and all matters
relating to Mr. Amram's employment with or cessation of employment from the
Company.
(e) Mr. Amram agrees that he will not engage in any defamatory,
disparaging, critical or otherwise detrimental communication with any other
person or entity concerning the Company, including its officers, directors,
employees, attorneys, business affairs or financial conditions or the
circumstances surrounding his employment and separation from employment with the
Company. The Company agrees that it will not engage in any defamatory,
disparaging, critical or otherwise detrimental communication with any person or
entity concerning Mr. Amram. Nothing herein shall be deemed to bar either party
from making any truthful disclosures as required by legal process, or otherwise
mandated by law, or upon request of any governmental agency.
5. Compromise. The parties agree and acknowledge that this Agreement and
----------
Release is the result of a compromise. While this Agreement and Release
resolves the issues between the parties, it does not constitute an admission by
either party of any liability whatsoever. Neither this Agreement and Release
nor any of its terms shall be construed to be, or shall be admissible in any
proceeding as, evidence of liability by either party. However, this Agreement
and Release may be introduced in any proceeding to enforce its terms.
6. Severability. The parties agree that each provision herein shall be
------------
treated as a separate and independent clause, and the unenforceability of any
one clause shall in no way impair the enforceability of any of the other
clauses. Moreover, if one or more of the provisions or subparts contained in
this Agreement and Release shall for any reason be
<PAGE>
-6-
held to be excessively broad as to scope or subject matter as to be
unenforceable at law or equity, such provision, provisions or subparts shall be
construed by limiting and reducing it or them so as to be enforceable to the
extent compatible with applicable law.
7. Notices and Payments. All payments to Mr. Amram shall be made at the
--------------------
address set forth below, or such other address as he shall inform the Company of
in writing or, at the Company's option, shall be made by electronic deposit to a
bank account designated by Mr. Amram. All notices and communications shall be
given to the parties at the following addresses, or such other addresses as the
parties shall provide to each other in writing:
If to Mr. Amram:
Joseph Amram
330 Beacon Street
Boston, MA 02116
with a copy to:
Gerard D. Goldstein, Esq.
Goldstein & Manello, P.C.
265 Franklin Street
Boston, MA 02110
If to the Company:
Chairman of the Board of Directors
Individual, Inc.
8 New England Executive Park West
Burlington, MA 01803
with a copy to:
William B. Asher, Jr., Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
8. Representations and Governing Law.
---------------------------------
(a) This Agreement and Release, together with its Exhibit A, (and those
Agreements expressly referenced herein, such as the stock option plan)
represents the complete understanding between the parties, supersedes any and
all agreements and
<PAGE>
-7-
understandings, whether oral or written, and may not be modified, altered,
changed or waived, in whole or in part, except upon written consent of both
parties. The parties agree that the Company will not have an adequate remedy if
Mr. Amram fails to comply with Paragraphs 2 and 4 hereof, and that damages will
not be readily ascertainable for such breach, and that in the event of such
failure or breach, Mr. Amram shall not oppose any application by the Company
seeking a decree of specific performance or an injunction enjoining a breach of
this Agreement and Release.
(b) Mr. Amram represents that he has carefully read this Agreement and
Release, fully understands its terms, and is voluntarily executing same. In
entering into this Agreement and Release, Mr. Amram does not rely on any
representation, promise or inducement made by the Company, or any of its
representatives, agents or attorneys, with the exception of the consideration
described in this document.
(c) This Agreement and Release shall in all respects be interpreted,
enforced and governed under the internal and domestic laws of the Commonwealth
of Massachusetts without giving effect to the principles of conflicts of law
thereof. Any dispute hereunder will be adjudicated only in the courts located
in Massachusetts. Mr. Amram hereby submits to the jurisdiction of such courts.
(d) The parties agree to cooperate fully in the execution of any and all
documents, and the taking of any additional action, which may be necessary or
appropriate to give full force and effect to the terms and intent of this
Agreement and Release.
(e) The language of all parts of this Agreement and Release shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against either of the parties.
(f) This Agreement and Release shall not be assigned by either party but
shall be binding on the parties hereto and their respective heirs, legal
representatives, successors and assigns, and shall inure to the benefit of the
Company's successors and assigns by merger or consolidation with another company
or by the sale of all or substantially all of the assets or capital stock of the
Company. The parties acknowledge and warrant that they have not assigned to any
third party any rights, or claims of any nature against either party or any of
the releasees specified in paragraph 3.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Release to be executed as of the date set forth above.
INDIVIDUAL, INC., JOSEPH A. AMRAM,
By: /s/ Robert Lentz By: /s/ Joseph A. Amram
--------------------------- ------------------------------
Robert Lentz Joseph A. Amram
<PAGE>
EXHIBIT 10.27
THE HAMM'S BUILDING
-------------------
OFFICE LEASE
1550 BRYANT STREET
SAN FRANCISCO, CALIFORNIA
*****************
HAMM'S BUILDING ASSOCIATES
--LANDLORD--
INDIVIDUAL, INC.
--TENANT--
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
EXHIBIT A. BASIC LEASE INFORMATION.............................................1
RECITALS.......................................................................3
SECTION 1. DEFINITIONS.........................................................3
SECTION 2. PREMISES............................................................7
SECTION 3. TERM; CONDITION OF PREMISES.........................................7
SECTION 4. RENTAL..............................................................9
SECTION 5. ESCALATION RENT....................................................10
SECTION 6. USE................................................................11
SECTION 7. SERVICES...........................................................11
SECTION 8. ALTERATIONS........................................................12
SECTION 9. REPAIRS; LANDLORD'S RESERVATION OF RIGHTS..........................12
SECTION 10. DAMAGE OR DESTRUCTION.............................................13
SECTION 11. SUBROGATION.......................................................13
SECTION 12. INSURANCE.........................................................13
SECTION 13. INDEMNIFICATION...................................................13
SECTION 14. COMPLIANCE WITH LEGAL REQUIREMENTS................................14
SECTION 15. ASSIGNMENT AND SUBLETTING.........................................14
SECTION 16. RULES.............................................................15
SECTION 17. ENTRY BY LANDLORD.................................................15
SECTION 18. EVENTS OF DEFAULT.................................................16
SECTION 19. TERMINATION UPON DEFAULT..........................................16
SECTION 20. ATTORNEY FEES.....................................................17
SECTION 21. EMINENT DOMAIN....................................................17
SECTION 22. ESTOPPEL CERTIFICATE..............................................17
SECTION 23. HOLDING OVER......................................................18
SECTION 24. SECURITY DEPOSIT..................................................18
SECTION 25. LANDLORD'S LIABILITY..............................................18
SECTION 26. BROKERS...........................................................18
SECTION 27. SMOKING...........................................................19
SECTION 28. ENTIRE AGREEMENT..................................................19
SECTION 29. ILLEGALITY OR UNENFORCEABILITY OF PORTION OF LEASE................19
SECTION 30. GOVERNING LAW.....................................................19
SECTION 31. PARKING...........................................................19
SECTION 32. QUIET ENJOYMENT...................................................19
SECTION 33. AUTOMATIC SUBORDINATION...........................................19
SECTION 34. TEMPORARY OCCUPANCY...............................................20
SECTION 35. EXHIBITS..........................................................20
SECTION 36. NOTICES...........................................................20
SECTION 37. ARBITRATION.......................................................20
Exhibit B. Description of the Premises.......................................22
Exhibit C. Rules.............................................................23
Exhibit D....................................................................27
Exhibit E....................................................................31
</TABLE>
<PAGE>
Exhibit A. Basic Lease Information
<TABLE>
<S> <C>
Date: September 3, 1996
Landlord: HAMM'S BUILDING ASSOCIATES
Tenant: Individual, Inc.
Premises: That portion of the 6th floor of the Building
designated on the attached floor plan labeled
Exhibit B, Suite 600.
Rentable Area of Premises: Approximately 15,257 rentable square feet
Commencement Date: Upon Landlord's Substantial Completion of the
Tenant Improvements.
Scheduled Commencement Date: Landlord shall deliver Premises to Tenant no
later than Sixty (60) days after execution of
Lease by both Parties.
Termination Date: The last day of the 60th full calendar month
after Commencement Date.
Base Rent (annually): Months RSF Rental Rate
---------------------------------------
1-24 15,257 18.00 PRSFPY
25 - 36 15,257 18.72 PRSFPY
37-48 15,257 19.47 PRSFPY
49-60 15,257 20.25 PRSFPY
(PRSFPY = per rentable square foot per year)
Base Year: Calendar 1997
Security Deposit: Tenant shall pay a Security Deposit of
$25,746.19 and First Month's Rent of
$22,855.50 upon execution of this lease.
Tenants Percentage Share Of Operating
Expenses And Property Tax Escalations 10.49 %
Tenant Improvement Allowance: Up to $5.77 per Rentable Square Foot of
Premises.
Tenant's Broker CB Commercial
275 Battery Street - Suite 1300
San Francisco, CA 94111
Tenant's Address for Notice: Individual, Inc.
1550 Bryant Street, Suite 600
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
San Francisco, CA 94103
With a Copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Attn.: Real Estate Department
Landlord's Address for Notice: Hamm's Building Associates
c/o Rubin Glickman
1550 Bryant Street, Suite 600
San Francisco, CA 94103
Exhibits: Exhibit A. Basic Lease Information
Exhibit B. Description of Premises
Exhibit C. Rules
Exhibit D. Construction Rider
Exhibit E. Construction Documents
Landlord: Tenant:
HAMM'S BUILDING ASSOCIATES, Individual, Inc.
a California Limited Partnership
By: RHGA, Inc., General Partner
By: /s/ Rubin Glickman By: /s/ Robert L. Lentz
----------------------------- --------------------------------
Rubin Glickman, President Robert L. Lentz, Vice-President
</TABLE>
2
<PAGE>
This Lease ("Lease") dated as of September 3, 1996, is entered into between
HAMM'S BUILDING ASSOCIATES, a California Limited Partnership ("Landlord"), and
Individual, Inc., ("Tenant").
Recitals
A. Landlord is the owner of real property ("Real Property") located at 1550
Bryant Street, San Francisco and the building ("Building") located on it. The
Real Property and the Building are collectively the "Property."
B. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord the Premises (as defined below) for the term and subject to the terms,
covenants, agreements, and conditions in this Lease.
For good and valuable consideration the receipt and adequacy of which are
acknowledged, the parties agree as follows:
Section 1. Definitions.
As used in this Lease, the following terms shall have the meanings
specified in this Section 1.
Alterations is defined in Section 8.
Base Operating Expenses means the Operating Expenses paid or incurred by
Landlord in the Base Year.
Base Property Taxes means the amount of Property Taxes for the tax year
ending June 30 of the Base Year.
Base Rent means the Base Rent as set forth in the Basic Lease Information.
Base Year means the calendar year specified in the Basic Lease Information
as the Base Year.
Basic Lease Information is attached to and incorporated in this Lease as
Exhibit A.
Building means the building constructed on the Real Property known as 1550
Bryant Street, San Francisco California, commonly known as the Hamm's Building,
any property interest in the area of The Hamm's Building and all other
improvements on or appurtenances to the Real Property or the streets abutting
the Real Property. The Building includes, but is not limited to, an office
building with twelve (12) floors of office space and an open air parking lot
located as shown on the attached site plan.
Commencement Date means the Commencement Date as set forth in the Basic
Lease Information.
3
<PAGE>
Common Area means the total area on a floor consisting of rest rooms,
janitor, telephone and electrical closets, mechanical areas, public corridors
providing access to tenant space, public stairs, elevator shafts and pipe
shafts, together with their enclosing walls.
Deposit is defined in Section 24.
Escalation Rent is defined in Section 4(a).
Encumbrance is defined in Section 36.
Event of Default is defined in Section 18.
Landlord is defined in the preamble.
Legal Requirements is defined in Section 14.
Lease is defined in the preamble.
Tenant is defined in the preamble.
Tenant's Percentage Share means the percentage figure specified as Tenant's
Percentage Share in the Basic Lease Information. Tenant's Percentage Share has
been obtained by dividing the net rentable area of the Premises, as specified in
the Basic Lease Information, by the total net rentable area of the Building,
which is 160,029 square feet, and multiplying that quotient by one hundred
(100). In the event the rentable area of the Premises is increased or decreased
by the addition to or deletion from the Premises of any office space, Tenant's
percentage share shall be appropriately adjusted.
Operating Expenses means all reasonable costs of management, operation and
maintenance of the Building determined by generally accepted accounting
principles, including without limitation: wages, salaries and payroll burden of
employees excluding employees above the rank of Building Manager, property
management fees at current market rates, janitorial, maintenance, security and
other services; Building office rent or rental value for a building office as
small as reasonably practical to operate the building; power, water, waste
disposal and other utilities; materials and supplies; maintenance and repairs
(including the repair and replacement of glass and the roof covering or
membrane); permit and license costs; insurance premiums and the deductible
portion of any insured loss under Landlord's insurance to the extent reasonable;
accounting, legal or other professional fees of independent service providers
who are not employees of Landlord incurred in connection with operating the
Building and the calculation of Operating Expenses and Property Taxes, provided,
however, if Landlord incurs any costs for; any capital improvements made to the
Building by Landlord after the Base Year that (i) are made in the reasonable
expectation of reducing other Operating Expenses, or (ii) are required under any
governmental law or regulation that was not applicable to the Building at the
time it was constructed, such cost shall be-amortized over the useful life of
such capital improvements, together with interest on the unamortized balance at
the rate equal to that paid by Landlord on funds borrowed for the purpose of
constructing or installing those capital improvements, and only
4
<PAGE>
the annual amortized portion of such costs, with such interest, shall be
included in Operating Expenses for any calendar year.
Notwithstanding any contrary provision of this Lease, Operating Expenses
shall not include costs relating to the following:
i. principal, interest or other changes relating to indebtedness secured
by an Encumbrance;
ii. rent, additional rent or other charges payable under any Underlying
Lease;
iii. leasehold improvements made in connection with the preparation of any
portion of the Building for occupancy by a new or existing tenant
which is not generally beneficial to all tenants of the Building;
iv. any expansion of the rentable area of the Building;
v. costs, expenses or charges properly chargeable or attributable to a
particular tenant or tenants;
vi. any utility or other service used or consumed in premises leased to
any tenant or occupant of the Building, but only if Tenant's use or
consumption of such utility or other services is separately metered
or sub-metered at the Premises;
vii. efforts to lease portions of the Building or to procure new tenants
for the Building, including advertising expenses, leasing commissions
and attorney's fees;
viii. negotiations or disputes with any tenant of the Building;
ix. Landlord's general overhead not directly related to the management or
operations of the Building;
x. depreciation of the Building;
xi. repairs and replacements arising out of a fire or other casualty,
except a reasonable deductible under insurance carried by Landlord or
out of an exercise of the eminent domain affecting the Building or
any of the parking areas serving the Building;
xii. Landlord's or Landlord's managing agents' breach or violation of a
law, lease or other obligation, including fines, penalties and
attorneys' fees;
xiii. compensation paid to employees or other person in connection with
commercial concession operated by Landlord or Landlord's managing
agent;
xiv. fees for licenses, permits or inspections that are not part of
routine maintenance of the Building or result from the act or
negligence of Landlord, Landlord's managing agent or any other tenant
of the building;
xv. remediation of environmental contamination existing as of the date of
this Lease and any environmental testing required by Landlord's
lender;
5
<PAGE>
xvi. compliance with laws existing as of the date of this Lease,
including without limitation the Americans With Disabilities Act,
and any environmental laws other than reinterpretations of existing
laws, subsequent to execution of this Lease;
xvii. sculptures, paintings and other works of art;
xviii. any items with respect to which Landlord receives reimbursement
from insurance proceeds of from a third party;
xix. Property Taxes.
Actual Operating Expenses for both the Base Year and each subsequent
calendar year will be adjusted to equal Landlord's reasonable estimate of
Operating Expenses had ninety-five (95) percent of the Building been occupied.
Premises means the portion of the Building located on the floor or floors
specified in the Basic Lease Information which is cross-hatched on the plan or
plans attached to this Lease as Exhibit B.
Property is defined in Recital A of this I-case.
Property Taxes means all real property taxes and general, special or
district assessments or other governmental impositions, of whatever kind,
imposed on or by reason of the ownership or use of the Property; governmental
charges, fees or assessments for police, fire or other governmental services;
service payments in lieu of taxes and taxes and assessments of every kind levied
in addition to, in lieu of or in substitution for existing or additional real or
personal property taxes on the Property; and all real estate tax consultant
expenses and attorney fees of consultants and attorneys who are not employees of
Landlord incurred for the purpose of maintaining an equitable assessed valuation
of the Building or contesting the validity of any taxes, assessments or charges
described above. Property Taxes shall exclude any income, franchise, gift,
estate, inheritance, transfer and excise taxes.
Real Property is defined in Recital A of this Lease.
Rentable Area means the rentable area of the Premises specified on the
Basic Lease Information. If any office space is added to or deleted from the
Premises, the rentable area of the space added or deleted shall mean: (a) as to
an entire floor added to or deleted from the Premises, all areas within outside
permanent Building walls, measured to the inside glass surface of outside
permanent Building walls, including rest rooms; janitor, telephone, and
electrical closets; allocated mechanical areas and columns and projections
necessary to the Building, but excluding public stairs, elevator shafts, and
pipe shafts, together with their enclosing walls; (b) as to a portion of a floor
added to or deleted from the Premises, the aggregate of the Usable Area of the
portion of the floor added to or deleted from the Premises, plus the result
obtained by multiplying the area of the Common Area on this floor by a fraction,
the numerator of which is the aggregate of the usable area of the portion of the
floor added to or deleted from the Premises and the denominator of which is the
usable area of all tenant space on the floor.
6
<PAGE>
Substantially Complete and Substantial Completion are defined in Paragraph
3 of Exhibit D.
Term is defined in Section 3 of this Lease.
Termination Date means the Termination Date in the Basic Lease Information.
Underlying Lease is defined in Section 36.
Usable Area means all floor area in a tenant space, measured to the inside
glass surface of outer Building walls, to the office side of corridors and other
permanent partitions, and to the center of partitions that separate the tenant
space from adjoining tenant spaces, without deduction for columns and
projections necessary to the Building.
Section 2. Premises.
Landlord leases to Tenant, and Tenant leases from Landlord the Premises (as
set forth in the Basic Lease Information) for the term and subject to the terms,
covenants, agreements, and conditions set forth in this Lease. Tenant shall have
the right, in common with others entitled thereto, to use: the driveways and
sidewalks necessary for access to the Building and the parking areas on the Real
Property; the entrances, lobbies, corridors, elevators and stairways necessary
for access to the Premises; the pipes, wires and conduits and the plumbing,
electrical, heating, ventilating, air conditioning, emergency and other
mechanical systems and equipment serving the Premises exclusively; and any other
common areas and facilities provided to tenants of the Building by the Landlord
from time to time.
Section 3. Term; Condition of Premises.
(a) The term ("Term") of this Lease shall commence on the Commencement Date
(as set forth in the Basic Lease Information) and, unless sooner terminated as
later provided, shall end on the Termination Date (as set forth on the Basic
Lease Information). Landlord shall deliver the Premises to Tenant on the
Commencement Date in broom clean condition, after having Substantially Completed
the Tenant Improvements, free of tenants and occupants. If the Tenant
Improvements are completed before the Commencement Date, and if Tenant desires
to take occupancy in advance of that date, Landlord shall deliver the Premises
to Tenant at that time in advance of a date that will be mutually approved by
Landlord and Tenant and, notwithstanding anything to the contrary contained in
this Lease, the Term of the Lease shall commence on delivery. Landlord shall use
its best efforts to deliver the premises to Tenant in the condition required
under this Lease on the Scheduled Commencement Date, but Landlord shall not be
liable for delays in delivery arising from acts of force majeure.
(b) Tenant shall have the option, exercisable by written notice to Landlord
no later than nine months before the end of the Term, to extend the Term for a
period of five years, the terms and conditions of this Lease, except that the
annual rate of Base rent during such five-year extended term shall equal 95 % of
the fair market rent to be determined by the comparable rent charged in the
Hamm's Building for premises comparable to the subject premises with five-year
terms, but not less than last month's rent. If Landlord and Tenant are unable to
agree on the Fair
7
<PAGE>
Market Rent within such 30 days after delivery of such notice to Landlord, the
Fair Market Rent shall be determined according to the following procedures:
i. At any time after such 30-day period, Landlord and Tenant shall have
the right, by written notice (a "Notice of Arbitration") to the other, to
demand arbitration of the calculation of the Fair Market Rent. The party
demanding arbitration (the "first party") shall appoint an arbitrator in
the Notice of Arbitration. Within seven days after the Notice of
Arbitration is given, the other party (the "second party") shall by notice
to the first party appoint a second arbitrator. If the second party fails
to appoint a second arbitrator within such seven-day period, the position
taken by the first party shall be deemed to be the correct calculation of
the Fair Market Rent.
ii. Within seven days after the designation of the second arbitrator,
Landlord and Tenant shall submit their respective positions with respect to
the calculation of the Fair Market Rent to the two arbitrators. Within
fourteen days after the designation of the second arbitrator, the two
arbitrators shall conduct such hearings and investigations as they deem
appropriate and determine the correct calculation of the Fair Market Rent.
The arbitrators, or either of them, shall give notice of such resolution
(or notice of their inability to reach agreement, as the case may be) to
the Landlord and the Tenant within such fourteen-day period. Any agreement
of the two arbitrators shall be binding upon the Landlord and the Tenant.
iii. If the two arbitrators are unable to reach and agreement within such
fourteen-day period, the two arbitrators shall, within such fourteen-day
period, designate a third arbitrator. If the two arbitrators fail to agree
upon the designation of a third arbitrator within such fourteen-day period,
then they or either of them shall give notice of such failure to agree to
Landlord and Tenant within such fourteen-day period. If Landlord and Tenant
fail to agree upon the selection of a third arbitrator within seven days
after the arbitrators give such notice, then either party on behalf of both
may apply to a court of competent jurisdiction, for the designation of such
third arbitrator.
iv. Within seven business days after the designation of the third
arbitrator, the parties shall submit their respective positions with
respect to the calculation of the Fair Market Rent to the third arbitrator.
Within fourteen days after the designation of the third arbitrator, the
third arbitrator shall conduct such hearings and investigation as he or she
may deem appropriate and determine the correct calculation of the Fair
Market Rent. Within such fourteen-day period, the three arbitrators shall
give notice of such resolution to Landlord and Tenant. The third
arbitrator's determination shall be binding upon Landlord and Tenant.
v. All arbitrators shall be qualified real estate professionals who shall
have had at least ten years of experience appraising buildings comparable
to the Building in the Greater San Francisco area. Landlord and Tenant
shall each be entitled to present evidence to the arbitrators in support of
their respective positions. The arbitrators shall not make any
determination inconsistent with the terms of this Lease. The arbitrators
shall not have the power to add to, modify or change any of the provisions
of this Lease. The determination of the arbitrator(s) shall be conclusive
and shall have the same force as a judgment in a court of competent
jurisdiction. Judgment on the determination made by the arbitrator(s) under
the foregoing provisions may be entered in any court of competent
jurisdiction.
8
<PAGE>
vi. Each party shall pay the fees, costs and expenses of the arbitrator
appointed by such party and of the attorneys and expert witnesses of such
party and one-half of the other fees, costs and expenses of arbitration
properly incurred under this Lease.
Section 4. Rental.
(a) Tenant shall pay to Landlord throughout the Term as rental for the
Premises the Base Rent, subject to the following adjustments:
(i) The rental payable during each calendar year subsequent to the
Base Year shall be(i) the Base Rent, plus (ii) Tenant's Percentage Share of the
total dollar increase, if any, in Operating Expenses paid or incurred by
Landlord in that year over the Base Operating Expenses, and also increased by
Tenant's Percentage Share of the total dollar increase, if any, in Property
Taxes paid by Landlord in that year over the Base Property Taxes ("the
Escalation Rent"). The increased rental due pursuant to this Section 4(a)(ii) is
the "Escalation Rent."
(b) Base Rent shall be paid to Landlord in equal monthly installments, in
advance, on or before the first day of calendar month during the Term of this
Lease. Tenant shall pay the monthly installment of Base Rent for the first full
calendar month of the Term at the time of the execution of this Lease. In the
event the Term of this Lease commences on a day other than the first day of a
calendar month or ends on a day other than the last day of a calendar month, the
monthly rental for the first and last fractional months of the Term of this
Lease shall be prorated according to the fraction of the total number of days in
such month falling within the Term, and such prorated payment shall be due on
the first day of such month within the Term. If the term of this lease commences
on a day other thin the first day of a calendar year or ends on a day other than
the last day of a calendar year, the Base Rent and Escalation Rent for the first
and last calendar years of the Term shall be prorated according to the fraction
of the total number of days in such year falling within the Term.
(c) All sums of money due to Landlord under this Lease, not specifically
characterized as rental, shall constitute additional rent and shall be due
within ten (10) days after receipt by Tenant of a billing. If any sum is not
paid when due, it shall be collectible as additional rent with the next
installment of rental falling due.
(d) Tenant acknowledges that late payment of rent and other sums due under
this Lease after the expiration of any applicable cure period under Section
18(a) will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be difficult to ascertain. These costs include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by the terms of any trust deed covering the Premises.
Accordingly, if any installment of rent or any other sums due from Tenant are
not received when due, or if a cure period is applicable under Section 18(a),
prior to the expiration of the cure period, Tenant shall pay to Landlord a late
charge equal to five percent (5%) of the overdue amount. The parties agree that
the late charge represents a fair and reasonable estimate of the costs Landlord
will incur because of late payment. Acceptance of the late charge by Landlord
shall not constitute a waiver of Tenant's default for the overdue amount, nor
prevent Landlord from exercising the other rights and remedies granted under
this Lease.
[INITIALS APPEAR HERE] [Initials of landlord]
- ----------------------
[INITIALS APPEAR HERE] [Initials of Tenant]
- ----------------------
9
<PAGE>
(e) Any amount due to Landlord other than monthly rental, if not paid
within five (5) days following the due date will bear interest from the due date
until paid at the rate of ten percent (10%) per year. However, interest shall
not be payable on late charges incurred by Tenant nor on any amounts on which
late charges are paid by Tenant to the extent this interest would cause the
total interest to be in excess of that legally permitted. Payment of interest
shall not excuse or cure any default by Tenant.
(f) All payments due shall be paid to Landlord, without deduction or offset
except as set forth in this Lease, in lawful money of the United States of
America at Landlord's address for notices under this Lease or to another person
or at another place as Landlord may designate by notice to Tenant. If Tenant
pays by check and the check is returned for non-sufficient funds more than once,
upon request of the Landlord, the Tenant shall make future payments by cashiers
check.
Section 5. Escalation Rent.
Escalation Rent shall be paid monthly on an estimated basis, with
subsequent annual reconciliation, in accordance with the following procedures:
(a) No later than fifteen (15) days prior to the end of the Base Year and
no later than fifteen (15) days prior to the end of each subsequent calendar
year, or as soon after that time as practicable, Landlord shall give Tenant
notice of Landlord's estimate of any Escalation Rent due under Section 4(a) for
the ensuing calendar year. On or before the first day of each month during the
ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of the
estimated Escalation Rent. If Landlord fails to give notice as required in this
Section, Tenant shall continue to pay on the basis of the prior year's estimate
until the month after that notice is given. If at any time it appears to
Landlord that the Escalation Rent for the current calendar year will vary from
the estimate, Landlord may, by notice to Tenant, revise the estimate for that
year, and subsequent payments by Tenant for that year shall be based on the
revised estimate.
(b) Within ninety (90) days after the close of each calendar year, or as
soon after the ninety (90) day period as practicable, Landlord shall deliver to
Tenant a statement of the actual Escalation Rent for that calendar year showing
Operating Expenses and Property Taxes on the basis of which the actual
Escalation Rent was determined. At Tenant's request, Landlord shall provide
Tenant reasonable supporting detail underlying the calculations of Operating
Expenses and Property Taxes. If Landlord's statement discloses that Tenant owes
an amount that is less than the estimated payments for the calendar year
previously made by Tenant, Landlord shall credit the excess first against any
sums then owed by Tenant, and then against the next payments of rental due, or,
after the end of the Term, Landlord shall pay such excess to Tenant at the time
of the delivery of Landlord's statement for the last calendar year of the Term.
If Landlord's statement discloses that Tenant owes an amount that is more than
the estimated payments for the calendar year previously made by Tenant, Tenant
shall pay the deficiency to Landlord within thirty (30) days after delivery of
the statement.
(c) Landlord shall maintain at all times during the term of this Lease, at
the office of Landlord in the Building or such other office as Landlord may
designate full, complete and accurate books of account and records prepared in
accordance with generally accepted accounting principles with respect to
Escalation Rent, and shall retain such books and records, as well as contracts,
bills, vouchers, and checks, and such other documents as are reasonably
necessary to properly audit the Escalation Rent. Upon reasonable notice from
Tenant, Landlord shall make available for Tenant's inspection (or inspection
performed by Tenant's accountant and/or
10
<PAGE>
consultants) at Landlord's office in the Building, during normal business hours,
Landlord's books and records relating to the Escalation Rent for the previous
calendar year. If Tenant's inspection reveals that Tenant was overcharged for
escalation rent, the amount of the overcharge shall be promptly refunded to
Tenant.
(d) The termination of this Lease shall not affect the obligations of the
parties pursuant to Section 5(b) to be performed after the termination.
Section 6. Use.
The Premises shall be used for general office purposes. Tenant shall not do
or permit to be done on the Premises, nor bring or keep or permit to be brought
or kept in the Premises, anything (a) which is prohibited by or in conflict with
any law, ordinance, or governmental rule or, (b) which is prohibited by the
standard form of fire insurance policy or, (c) which will increase the existing
rate of or affect fire or other insurance on the Building or its contents or
cause a cancellation of any insurance policy covering the Building or any part
of it or its contents. Tenant shall not use or store in the Premises any
hazardous or toxic substances, with the sole exception of reasonably necessary
substances that are kept in reasonably necessary quantities for normal office
operations, provided that their use and storage are in accordance with
applicable laws. Tenant shall not do or permit anything to be done on the
Premises that will obstruct or interfere with the rights of other tenants of the
Building, or injure them, or use or allow the Premises to be used for any
unlawful purposes, nor shall Tenant cause, maintain, or permit any nuisance or
waste on or about the Premises.
Section 7. Services.
(a) Landlord shall maintain in good condition and working order and in
compliance with all applicable laws lobbies, stairs, elevators, corridors, rest
rooms, and other Common Areas, all exterior landscaping, the driveways,
sidewalks and parking areas on the Real Property, the exterior windows, the
mechanical, plumbing, emergency, heating, ventilating, air conditioning and
electrical equipment serving the Building, the roof, foundation and other
structural components of the Building, except for damage, excluding normal wear
and tear, caused by the Tenant. Damage caused by Tenant, other than normal wear
and tear by Tenant, shall be repaired by Landlord at Tenant's expense. The
standard of maintenance shall be equal to that of other office buildings of a
similar class in San Francisco, California.
(b) Landlord shall furnish (i) electricity for lighting and the operation
of office machines, (ii) heat and air conditioning, to the extent reasonably
required for the comfortable occupancy by Tenant in Tenant's use of the Premises
during the period from 7:00 a.m. to 7:00 p.m. on weekdays, except holidays, or a
shorter period as may be prescribed by applicable policies or regulations
adopted by any utility or governmental agency, (iii) elevator service, (iv)
lighting replacement, for building standard lights, (v) rest room supplies, (vi)
window washing with reasonable frequency, (vii) water for the rest rooms and
kitchen areas, and (viii) security guard services and daily janitor services
during the times and in the manner that these services are customarily furnished
in comparable office buildings in the area. Landlord may establish reasonable
measures to conserve energy and water, including but not limited to, automatic
light shut off after hours and efficient lighting forms, so long as these
measures do not unreasonably interfere with Tenant's use of the Premises.
(c) Landlord shall not be in default under this Lease, nor be liable for
any damages resulting from, nor shall the required rental be abated because of
(i) any reasonably necessary
11
<PAGE>
installation, use, or interruption of use of any equipment in connection with
furnishing the previously listed services, (ii) failure to furnish or delay in
furnishing these services, when failure or delay is caused by accident or
conditions beyond the reasonable control of Landlord or by necessary repairs or
improvements to the Premises or to the Building, or (iii) the limitation,
curtailment, rationing, or restrictions on use of water, electricity, gas, or
any other form of energy serving the Premises or the Building caused by
circumstances beyond the reasonable control of Landlord; provided, however,
Landlord shall use reasonable efforts to avoid interference with Tenant's use
and occupancy of the Premises, and Landlord shall use reasonable efforts to
diligently remedy interruptions in the furnishing of these services.
Section 8. Alterations.
Tenant shall not make or allow any alterations, additions, or improvements
to the Premises or any part of the Premises ("Alterations"), except for pre-
occupancy tenant improvements ("Tenant Improvements") as evidenced by Exhibit E
("Construction Documents"), without Landlord's prior consent, which shall not be
unreasonably withheld, provided, however, Tenant shall have the right, with
Landlord's prior consent, to make alterations, additions or improvements to the
Premises which do not cost more than $10,000 in any one instance and which do
not affect the base mechanical systems of the Building. The installation of
furnishings, fixtures, equipment, or decorative improvements, none of which
shall affect Building systems or the structure of the Building, and the
repainting or recarpeting of the Premises, shall not constitute Alterations. All
Alterations (except Tenant's trade fixtures and personal property) shall
immediately become Landlord's property and, at the end of the Term, shall remain
on the Premises without compensation to Tenant, unless Landlord elects by notice
to Tenant at the time of installation to have Tenant remove any Alterations that
are peculiar to Tenant's use of the Premises and are not normally required or
used by other tenants. In this event, Tenant shall bear the cost of restoring
the Premises to their condition prior to the installment of the Alterations.
Section 9. Repairs; Landlord's Reservation of Rights.
(a) At all times during the term of this Lease and at Tenant's sole cost,
except as set forth in Section 7 of this Lease. Tenant shall keep the Premises
in good condition and repair; ordinary wear and tear, eminent domain, and damage
to the Premises by fire, earthquake, or act of God or the elements are excepted.
At the end of the term of this Lease, Tenant shall surrender to Landlord the
Premises and all Alterations that are to remain in the Premises in the same
condition as when received; ordinary wear and tear and damage by fire,
earthquake, or act of God or the elements are excepted. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair, decorate,
or paint the Premises or any part of them, except as specifically set forth in
Exhibit E. Landlord has made no representations respecting the condition of the
Premises or the Building, except as specifically set forth in this Lease.
(b) Landlord reserves the right, at any time and from time to time, without
the same constituting an actual or constructive eviction, but provided that
Landlord does not unreasonably interfere with Tenant's use and occupancy of the
building, to (i) make alterations, additions, repairs, improvements to or in, or
to decrease the size of area of all or any part of the Building (except the
Premises), the fixtures and equipment therein, the heating, ventilation, air-
conditioning, plumbing, electrical, fire protection, life safety, security and
all mechanical systems of the building ("Building Systems"), the common areas
and all other parts of the Building; (ii) to change the arrangement and/or
location of entrances or passageways, doors and doorways, corridors, elevators,
stairs, toilets and other public parts of the Building and to create additional
rentable areas through use or enclosure of common areas; (iii) to change the
Building's name or street
12
<PAGE>
address or to change the room number or numbers of the Premises; (iv) to
install, affix and maintain any and all signs on the exterior and interior of
the Building.
Section 10. Damage or Destruction.
(a) In the event the Premises or any portion of the Building necessary for
Tenant's occupancy are damaged by fire, earthquake, act of God, the elements, or
other casualty, within thirty (30) days after that event, Landlord shall notify
Tenant of the estimated time, in Landlord's reasonable judgment, required for
repair or restoration. If the estimated time is thirty (30) days or less after
the commencement of the physical work and ninety (90) days or less after the
casualty event, Landlord shall proceed promptly and diligently to adjust the
loss with applicable insurers, to secure all required governmental permits and
approvals, and to repair or restore the Premises or the portion of the Building
necessary for Tenant's occupancy. This Lease shall remain in full force, except
that until such repairs and restoration are complete, Base Rent and Escalation
Rent shall abate equitably on proration to the extent of such damage and its
effect on Tenant's use of the Premises.
(b) If the estimated time for repair or restoration is in excess of thirty
(30) days after the commencement of the physical work or ninety (90) days after
the casualty event, Tenant or Landlord may elect to terminate this Lease as of
the date of the casualty event by giving notice to the other party within
fifteen (15) days following receipt of Landlord's notice of the estimated time
for repair.
Section 11. Subrogation.
Landlord and Tenant shall each obtain from their respective insurers under
all policies of fire, theft, public liability, worker's compensation, and other
insurance maintained during the term of this Lease covering the Building, or any
portion of it, or operations in it, a waiver of all rights of subrogation that
the insurer of one party might have against the other party. Landlord and Tenant
shall each indemnify the other against any loss or expense, including reasonable
attorney fees, resulting from the failure to obtain this waiver.
Section 12. Insurance.
Tenant, at its expense, shall maintain in full force during the Term of
this Lease, a policy or policies of public liability and property damage
insurance insuring against all liability, subject to standard ISO CGL policy
exclusions, of Tenant and its representatives, agents and visitors for personal
or bodily injury or property damage arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Real Property. Such policy
or policies subject to standard ISO CGL policy exclusions shall further insure
the indemnification obligations of Tenant under this Lease. Each policy of
insurance required under this Lease shall be in a form, in an amount, and with
an insurer reasonably acceptable to Landlord, but no event less than $1,000,000
combined single limit and shall require at least ten (10) days' written notice
to Landlord prior to any termination of the policy. Each policy of liability
insurance shall name the Landlord, and its property managers as additional
insured and provide that it is primary, and not contributing with, any policy
carried by Landlord covering the same loss. Tenant shall provide to Landlord,
upon request, evidence that the insurance required to be carried by Tenant is in
full force and effect and the premiums have been paid.
Section 13. Indemnification.
Tenant and Landlord each waives all claims against the other party for
damage to any property or injury or death of any person on the Premises arising
at any time and from any cause
13
<PAGE>
other than the sole negligence or willful misconduct of the other party's
employees, agents, or contractors. Tenant and Landlord each shall hold the other
party harmless from and defend the other party against all claims, liability,
damage, or loss arising out of any injury or death of any person or damage to or
destruction of property attributable to the action or inaction (where there is a
duty to act) of the indemnifying party, except that caused by the sole
negligence or willful misconduct the other party or its agents, contractors, or
employees. Tenant and Landlord each shall also hold the other party harmless
from any liability, cost, or expense arising from the indemnifying party's use
or storage on the property of any hazardous or toxic substance. These indemnity
obligations shall include reasonable attorney fees, investigation costs, and all
other reasonable costs incurred by the indemnified party from the first notice
that any claim or demand is to be made or may be made. The provisions of this
Section shall survive the termination of this Lease for any event occurring
prior to the termination.
Section 14. Compliance with Legal Requirements.
At Tenant's sole cost, Tenant shall promptly comply with all laws and
governmental rules now or later in force; with the requirements of any board of
fire underwriters or other similar body now or in the future constituted; with
any direction or occupancy certificate issued by public officers ("Legal
Requirements"), insofar as they relate to the use, or occupancy of the Premises.
Excluded are (a) structural changes or changes to the electrical, mechanical, or
plumbing systems of the Building, except to the extent necessitated by Tenant's
acts or by improvements made for Tenant (other than the tenant improvements to
be made pursuant to this Lease by Landlord); (b) alterations or improvements to
the Building as a whole or the Premises of tenants generally that are not by law
the tenants' responsibility with which to comply; and (c) work necessitated by
defects in the construction of the Building. Landlord shall comply in a timely
manner with all Legal Requirements that are not Tenant's responsibility under
this Section.
Section 15. Assignment and Subletting.
(a) Except as otherwise expressly permitted by this Lease, Tenant shall
not, without the prior written consent of Landlord, which shall not be
unreasonably withheld or delayed, assign or hypothecate this Lease or any
interest in this Lease, sublet the Premises or any part of them, or license the
use of the Premises by any party other than Tenant or Freeloader, Inc. Neither
this Lease nor any interest in this Lease shall be assignable without the
consent of Landlord, which shall not be unreasonably withheld or delayed. Any of
the previous acts without consent shall be void and shall, at the option of
Landlord, constitute a default under this Lease. Landlord shall respond to
Tenant's request for consent to an assignment or sublease within fifteen (15)
days of receiving a written request from Tenant and receipt of documentation
regarding description and financial condition of proposed Tenant and other
necessary information as required by Landlord. Notwithstanding any other
provision of this Lease, Tenant shall have the right to assign this Lease or
sublet any portion of the Premises to an entity controlling, controlled by or
under common control with Tenant or in connection with a merger or consolidation
of or into Tenant of the sale of all or substantially all of Tenant's assets
(any of the foregoing be "Affiliate Transfers)".
(b) No sublessee shall have a right to further sublet without Landlord's
prior consent, which may not be unreasonably withheld, and any assignment by a
sublessee of the sublease shall be subject to Landlord's prior consent in the
same manner as if Tenant were entering into a new sublease.
(c) In the case of an assignment or subletting (other than a sublease in an
affiliate transfer), any sums or economic consideration received by Tenant as a
result of the assignment or subletting
14
<PAGE>
shall be paid to Landlord after first deducting (i) in the case of a sublet, the
rental due under this Lease, prorated to reflect only rental allocable to the
sublet portion of the Premises, (ii) any tenant improvements paid for by Tenant,
and (iii) the cost of any real estate commissions, reasonable attorney fees, or
other out-of-pocket expenses paid by Tenant in connection with the assignment or
subletting.
(d) Regardless of Landlord's consent, no subletting or assignment shall
release or alter Tenant's obligation or primary liability to pay the rental and
perform all other obligations under this Lease. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by any assignee or successor of Tenant in
the performance of any of the terms of this Lease, after notice of default to
Tenant pursuant to Section 18 and the expiration of any applicable cure period,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against the assignee or successor.
(e) If Tenant assigns this Lease, sublets the Premises, or requests the
consent of Landlord to any assignment, subletting, hypothecation, or other
action requiring Landlord's consent under this Lease, Tenant shall pay
Landlord's reasonable attorney fees incurred in connection with the action, not
to exceed nine hundred ($900.00) dollars.
Section 16. Rules.
Tenant shall comply with the rules attached to and incorporated in this
Lease as Exhibit C, and after notice, with all reasonable modifications and
additions to these rules, from time to time promulgated in writing by Landlord
provided such modifications and additions apply generally to all tenants of the
Building. Landlord shall not be responsible to Tenant for the nonperformance of
any of these rules by any other tenant or occupant of the Building, but Landlord
shall take reasonable steps to enforce any rules, the nonperformance of which by
other tenants materially and adversely affects Tenant in the use of the
Premises. However, if any rule conflicts with any term, covenant, or condition
of this Lease, this Lease shall prevail. In addition, no rule, or any subsequent
amendments to it adopted by Landlord shall alter, reduce, or adversely affect
any of Tenant's rights or enlarge Tenant's obligations under this Lease.
Section 17. Entry by Landlord.
Landlord may enter the Premises at reasonable hours with notice to Tenant
to (a) inspect the Premises; (b) exhibit the Premises to prospective purchasers,
lenders tenants; (c) determine whether Tenant is complying with all obligations
under this Lease; (d) supply janitorial service and any other services to be
provided by Landlord under this Lease; (e) post notices of nonresponsibility;
and (f) make repairs or perform maintenance required of Landlord by this Lease,
make repairs to any adjoining space or utility services, or make repairs,
alterations, or improvements to any other portion of the Building. However, all
this work shall be done as promptly as reasonably possible and cause as little
interference to Tenant as reasonably possible. Subject to Landlord's
undertakings in the previous sentence, Tenant waives any damage claims for
inconvenience to or interference with Tenant's business or loss of occupancy or
quiet enjoyment of the Premises caused by Landlord's entry. At all times
Landlord shall have a key with which to unlock the doors on the Premises,
excluding Tenant's vaults, safes, and similar areas designated as secure areas
in writing by Tenant in advance. In an emergency, Landlord shall have the right
to use any means that Landlord deems proper to open Tenant's doors and enter the
Premises. Entry to the Premises by Landlord in an emergency shall not be
construed as a forcible or unlawful entry, a detainer, or an actual or
constructive eviction of Tenant.
15
<PAGE>
Section 18. Events of Default.
The following events shall constitute events of default under this Lease (each
an Event of Default):
(a) failure by Tenant to pay when due any rent or other sum payable under
this Lease and the continuation of this failure for ten (10) or more days after
notice of the default from Landlord;
(b) failure to make payments of rent when due under this Lease three (3) or
more times during any twelve (12) month period during the term of this Lease;
(c) a default by Tenant in the performance of any of the terms, covenants,
agreements, or conditions in this Lease, other than a default by Tenant in the
payment when due of any rent or other sum payable under this Lease, and the
continuation of the default beyond fifteen (15) days after notice by Landlord
or, if the default is curable and would require more than fifteen (15) days to
remedy, beyond the time reasonably necessary for cure; provided, however, that
if Tenant has defaulted in the performance of the same obligation two (2) or
more times in twelve (12) months and notice of the default has been given by
Landlord in each instance, no notice shall be required after this until the
expiration of twelve (12) months without any default by Tenant;
(d) the bankruptcy or insolvency of Tenant, a transfer by Tenant in fraud
of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of proceedings of any kind by or against Tenant under the Federal
Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act,
unless Tenant is discharged from voluntary proceedings within ninety (90) days;
(e) the appointment of a receiver for a substantial part of Tenant's
assets;
(f) the abandonment of the Premises; and
(g) the levy upon this Lease or any estate of Tenant under this Lease by
attachment or execution and the failure to have the attachment or execution
vacated within sixty (60) days.
Section 19. Termination upon Default.
On occurrence of any Event of Default by Tenant, Landlord may, in addition
to any other rights and remedies given here or by law, terminate this Lease and
exercise remedies relating to it without further notice or demand in accordance
with the following provisions:
(a) So long as the Event of Default remains uncured, Landlord shall have
the right to give notice of termination to Tenant, and on the date specified in
this notice, this Lease shall terminate.
(b) If this Lease is terminated, Landlord may, by judicial process, reenter
the Premises, remove all persons and property, and repossess and enjoy the
Premises, all without prejudice to other remedies that Landlord may have because
of Tenant's default or the termination.
(c) If this Lease is terminated by Landlord, Landlord shall have all of the
rights and remedies of a landlord provided by Civil Code (S) 1951.2, in addition
to any other rights and remedies Landlord may have. The damages which Landlord
may recover shall include, without limitation, (i) the worth at the time of
award of the unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid rent which
16
<PAGE>
would have been earned after termination until the time of the award exceeds the
amount of the rental loss that Tenant proves could have been reasonably avoided;
(iii) the worth at the time of award, computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%), of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of the fair market value of
the Premises for the balance of the Term; (iv) all reasonable legal expenses and
other related costs incurred by Landlord following Tenant's default; (v) all
reasonable costs incurred by Landlord in restoring the Premises to good order
and condition to relet the Premises; and (vi) all reasonable costs, including
without limitation, any brokerage commissions incurred by Landlord in reletting
the Premises. The remedies provided in this Lease are in addition to any other
remedies available to Landlord at law, in equity, by statute, or otherwise.
(d) Even though Tenant has breached this Lease and abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all rights and remedies
under this Lease, including the right to recover the rental as it becomes due
under this Lease. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession.
Section 20. Attorney Fees.
If, as a result of a breach or default under this Lease, either party uses an
attorney to secure compliance with Lease provisions, to recover damages, to
terminate this Lease, or to evict Tenant, the non-prevailing party shall
reimburse the prevailing party, on demand, for all reasonable attorney fees and
expenses incurred by the prevailing party in enforcing its rights under this
Lease.
Section 21. Eminent Domain.
If all or any part of the Premises are taken through eminent domain, this Lease
shall terminate for the part taken as of the date of taking. For a partial
taking, either Tenant shall have the right to terminate this Lease for the
balance of the Premises by notice to Landlord within thirty (30) days after the
taking. In the event of any taking, Landlord shall be entitled to all
compensation, damages, income, rent, awards, or any interest that may be paid in
connection with the taking, except for any portion specifically awarded to
Tenant for moving expenses, trade fixtures, equipment, and any leasehold
improvements in the Premises to the extent of the then unamortized value of
these improvements for the remaining term of the Lease as determined in the
award. However, Tenant shall have no claim against Landlord for the value of any
unexpired term of this Lease or otherwise, other than for prepaid rent. In the
event of a partial taking of the Premises that does not result in a termination
of this Lease, the subsequent monthly rental shall be equitably reduced.
Section 22. Estoppel Certificate.
At any time with at least fifteen (15) days' prior notice by Landlord,
Tenant shall execute, acknowledge, and deliver to Landlord a certificate in a
form satisfactory to Landlord certifying, to the best of Tenant's knowledge, to
the extent true: (a) that this Lease is unmodified and in full force or, if
there have been modifications, that this Lease is in full force, as modified,
together with the date and nature of each modification, (b) the amount of the
Base Rent, most recent Escalation Rent, if any, and the date to which the rent
has been paid, (c) that no notice has been received by Tenant of any default
that has not been cured, except defaults specified in the certificate, (d) that
no default of Landlord is claimed by Tenant, except defaults specified in the
certificate, and (e) other matters as may be reasonably requested by Landlord.
Any certificate may be relied on by
17
<PAGE>
prospective purchasers, mortgagees, or beneficiaries under any deed of trust on
the Building or any part of it.
Section 23. Holding Over.
(a) If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month-to-month on the terms specified in this Lease, except those
pertaining to the term and any option to extend, but at a monthly rental
negotiable between the Parties, payable in advance on or before the first day of
each month. Each party shall give the other notice of intention to terminate the
tenancy at least one (1) month prior to the date of termination of a monthly
tenancy.
(b) If, over Landlord's objection, Tenant holds possession of the Premises
after expiration of the term of this Lease or expiration of the holdover
tenancy, Tenant shall be deemed to be a tenant-at-sufferance and, without
limiting the liability of Tenant for unauthorized occupancy of the Premises,
Tenant shall indemnify Landlord and any replacement tenant for the Premises for
any damages or loss suffered by either Landlord or the replacement tenant
resulting from Tenant's failure to vacate the Premises in a timely manner. The
monthly rental shall be at one hundred and fifty percent (150%) of the then
prevailing monthly rental paid by tenant.
Section 24. Security Deposit.
Tenant has deposited with Landlord the sum specified in the Basic Lease
Information as the Security Deposit (Deposit). The Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all provisions of
this Lease. If Tenant fails to pay rent or other sums due under this Lease or
defaults with respect to any provision of this Lease, and such failure or
default continues after required notice and the expiration after of any
applicable grace period, Landlord may use or apply, such portion of the Deposit
as is necessary for the payment of rent or other sums in default, for the
payment of any other sums to which Landlord may become obligated because of
Tenant's default, or to compensate Landlord for any loss or damage that Landlord
may suffer because of the Tenant's actions. If Landlord uses or applies the
Deposit, Tenant shall, within ten (10) days after demand, deposit cash with
Landlord in an amount sufficient to restore the Deposit to the full amount, and
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep the Deposit separate from Landlord's general
accounts. If Tenant performs all of Tenant's obligations under this Lease, the
Deposit, or the amount not applied by Landlord shall be returned, without
interest, to Tenant or at Landlord's option, to the last assignee, if any, of
Tenant's interest under this Lease at the expiration of the Term and after
Tenant has vacated the Premises. No trust relationship is created between
Landlord and Tenant with respect to the Deposit.
Section 25. Landlord's Liability.
Notwithstanding any other term or provision of this Lease, the liability of
the Landlord for its obligations under this lease is limited solely to
Landlord's interest in the Property as the same may from time to time be
encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's
stockholders, directors, officers or partners on account of any of the
Landlord's actions or obligations under this Lease. In addition, in the event of
the conveyance of title to the Building or the Project, then from and after the
date of such conveyance, Landlord shall be relieved of all liability with
respect to Landlord's obligations to be performed under this Lease.
Section 26. Brokers.
18
<PAGE>
Tenant and Landlord each warrants and represents to the other that in the
negotiating or making of this Lease neither Tenant nor anyone acting on its
behalf has dealt with any real estate broker or finder who might be entitled to
a fee or commission for this Lease other than the Tenant's Broker identified in
Exhibit A: Basic Lease Information, whose commission is to be paid by Landlord.
Tenant and Landlord each agrees to indemnify and hold harmless the other from
any claim or claims, including costs expenses and attorney's fees, asserted by
any other broker or finder for a commission based upon any dealings with or
statements made by the indemnifying party.
Section 27. Smoking.
Smoking in the offices is prohibited.
Section 28. Entire Agreement.
There are no oral agreements between Landlord and Tenant affecting this Lease,
and this Lease supersedes and cancels all previous negotiations, arrangements,
brochures, agreements, and understandings between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease. There are no representations between Landlord and Tenant other than those
contained in this Lease. All implied warranties, including implied warranties of
merchantability and fitness, are excluded.
Section 29. Illegality or Unenforceability of Portion of Lease.
If any provision of this Lease is determined to be illegal or
unenforceable, this determination shall not affect any other provision of this
Lease, and all other provisions shall remain in full force and effect.
Section 30. Governing Law.
This Lease shall be governed by and construed pursuant to law of the State
of California.
Section 31. Parking.
Tenant shall have the option to rent three (3) reserved parking spaces in
Lot A and five (5) in Lot B from Landlord for the duration of this Lease at the
prevailing building rate. Tenant shall be allowed its pro-rata share of parking
permits for Lot B so long as spaces are available.
Section 32. Quiet Enjoyment.
Landlord agrees to and shall in the commencement of this Lease place Tenant in
quiet possession of the premises and shall secure it in the quiet possession
thereof against all persons lawfully claiming the same during the lease term.
Section 33. Automatic Subordination.
If Landlord delivers to Tenant an agreement (a "Non-Disturbance Agreement") from
the holder of any Encumbrance and the Lessor under any Underlying Lease that, if
any such holder or Lessor forecloses or otherwise exercises its rights under its
Encumbrance or if any such Lessor terminates or otherwise exercises its rights
under the Underlying Lease, or if such holder or Lessor otherwise acquires
Landlord's interest in the Lease, such holder or Lessor shall recognize Tenant's
rights under this Lease, shall not disturb Tenant's occupancy of the Premises
under this Lease, and shall assume Landlord's obligation under this Lease, then
this Lease shall be subject and subordinate to:
(a) The lien of any mortgages, deeds of trust, or other encumbrances of the
Building and Real Property ("Encumbrances");
19
<PAGE>
(b) All present and future ground or underlying leases of the Building and
Real Property now or hereafter in force against the Building and Real Property
("Underlying Leases");
(c) All renewals, extensions, modifications, consolidations, and
replacements of the items described in subparagraphs (a) - (b); and
(d) All advances made or hereafter to be made on the security of the
Encumbrances.
Despite any other provision of this Section 33, any Encumbrance holder or lessor
may elect that this lease shall be senior to and have priority over that
Encumbrance or Underlying Lease whether this lease is dated before or after the
date of the Encumbrance or Underlying Lease.
Tenant shall agree in each Non-Disturbance Agreement to attorn to the transferee
of Landlord's interest in the Real Property by foreclosure, deed in lieu of
foreclosure, exercise of any remedy provided in any Encumbrance or Underlying
Lease, or operation of law, if requested to do so by the transferee, and to
recognize the transferee as the lessor under this Lease, provided Transferee
agrees to Tenant's quiet possession. The transferee shall not be liable for:
(a) Any acts, omissions, or defaults of Landlord that occurred before the
sale or conveyance; or
(b) the return of any security deposit except for deposits actually paid to
the transferee.
Section 34. Temporary Occupancy.
From the date of the execution of this Lease until ten business days after
the Commencement Date, Tenant shall have the right to occupy approximately 2,000
square feet of rentable area on the second floor of the Building shown as
"Temporary Space" on Exhibit B attached to this Lease, except that Tenant's
monthly installment of Base Rent and Escalation Rent with respect to the
Temporary Space shall total $1.00 per square foot per month. Such monthly
payments shall not commence until Tenant occupies such Temporary Space for the
conduct of its business and shall cease as of the day Tenant vacates such
Temporary Space. If Tenant occupies such Temporary Space for any portion of a
calendar month, the monthly installment of Base Rent and Escalation Rent due
under this Section 34 shall be prorated according to the fraction of the total
number of days in such month that Tenant occupies the Temporary Space for the
conduct of its business.
Section 35. Exhibits.
The exhibits specified in the Basic Lease Information are attached to this
Lease and by this reference made a part of it.
Section 36. Notices.
Any notice under this Lease shall be in writing and shall be delivered by
hand or sent by certified mail, return receipt requested, to Tenant at Tenant's
Address for Notice or if to Landlord at Landlord's Address for Notice, as set
forth on Exhibit A attached to this Lease. Any such notice shall be effective at
the earlier of (i) receipt by such notice or (ii) or three business days after
being so mailed.
Section 37. Arbitration.
Any dispute that arises out of or relating to this Lease or the alleged
breach of this Lease shall, after notice by one party to the other, be submitted
to arbitration in accordance with the process set forth in Section 3 (b), but
all language referred to in that Section as to Fair Market Rent shall instead
refer to the resolution of any such dispute, and all arbitrators shall be
qualified real estate attorneys or other professionals with at least ten (10)
years experience in matters substantially similar to the matter in dispute.
20
<PAGE>
The parties have executed this Lease as of the date first set forth above.
Landlord: Tenant:
HAMM'S BUILDING ASSOCIATES, a Individual, Inc.
California Limited Partnership
by: RHGA, Inc., General Partner
By: /s/ Rubin Glickman By: /s/ Robert L. Lentz
--------------------------- ------------------------------
Rubin Glickman, President Robert L. Lentz, Vice President
21
<PAGE>
EXHIBIT "B"
[DIAGRAM DEPICTING FLOORPLAN APPEARS HERE]
22
<PAGE>
Exhibit C. Rules
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators, and stairways of the Building shall not be obstructed by
any of the tenants or used for any purpose other than for ingress to and egress
from their respective Premises. The halls, passages, exits, entrances, shopping
malls, elevators, escalators, and stairways are not for the general public, and
Landlord shall in all cases retain the right to control and prevent access to
them by all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation, and interests of the Building
and its tenants. However, nothing here shall be construed to prevent access to
persons with whom any tenant normally deals in the ordinary course of business,
unless these persons are engaged in illegal activities. No tenant and no
employee or invitee of any tenant shall go on the roof of the Building.
2. A sign, placard, picture, name, advertisement, or notice visible from
the exterior of any tenant's Premises shall not be inscribed, painted, affixed,
or otherwise displayed by any tenant on any part of the Building without the
prior written consent of Landlord. Landlord will adopt and furnish to tenants
general guidelines relating to signs inside the Building on the office floors.
Each tenant shall conform to these guidelines, but may request approval of
Landlord for modifications, which will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed, or
inscribed at the expense of the tenant by a person approved by Landlord, which
will not be unreasonably withheld. Material visible from outside the Building
will not be permitted.
3. The Premises of each tenant shall not he used for the storage of
merchandise held for sale to the general public or for lodging. No cooking shall
he done or permitted by any tenant on the Premises, except that (a) each tenant
may establish and operate a lunchroom facility for use by tenant's employees,
and (b) each tenant may use and install food and beverage vending machines and
Underwriters' Laboratory approved microwave ovens and equipment for brewing
coffee, tea, hot chocolate, and similar beverages, provided that adequate
provisions are made for venting and control of odors and all facilities and
equipment are in accordance with all applicable federal, state, and city laws,
codes, ordinances, rules, and regulations.
4. No tenant shall employ any person other than Landlord's janitorial
service for cleaning the Premises, unless otherwise approved by Landlord. No
person other than those approved by Landlord shall be permitted to enter the
Building to clean it. No tenant shall cause any unnecessary labor because of
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
9:30 p.m. unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms.
5. Landlord will furnish each tenant, free of charge, two keys to each door
lock in the Premises. Landlord may make a reasonable charge for any additional
keys. No tenant shall have any keys made. No tenant shall alter any lock or
install a new or additional lock or any bolt on any door of the premises without
the prior consent of Landlord which will not be unreasonably withheld. The
tenant shall in each case furnish Landlord with a key for any lock. Each tenant,
upon the termination of the tenancy, shall deliver to Landlord all keys to doors
in the Building that have been furnished to the tenant.
23
<PAGE>
6. The freight elevator shall be available for use by all tenants in the
Building, subject to reasonable scheduling as Landlord deems appropriate. The
persons employed to move equipment in or out of the Building must be acceptable
to Landlord. Landlord shall have the right to prescribe the weight, size, and
position of all equipment, materials, furniture, or other property brought into
the Building. Heavy objects shall, if considered necessary by Landlord, stand on
wood strips of a thickness necessary to properly distribute the weight. Landlord
will not be responsible for loss of or damage to any property from any cause,
and all damage done to the Building by moving or maintaining property shall be
repaired at the expense of the tenant.
7. No tenant shall use or keep in the Premises or the Building any
kerosene, gasoline, or inflammable or combustible fluid or material other than
limited quantities reasonably necessary for the operation or maintenance of
office equipment, and may not, without Landlord's prior approval, use any method
of heating or air conditioning other than that supplied by Landlord. No tenant
shall use or keep any foul, noxious, or hazardous gas or substance in the
Premises, or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building
because of noise, odors, or vibrations, or interfere in any way with other
tenants or those having business in the Building. No pets shall be kept in the
Premises.
8. Landlord shall have the right, exercisable without notice and without
liability to any Tenant, to change the name and street address of the Building.
9. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays, and
legal holidays any person who does not present a proper access card and or other
identification as a tenant or an employee of a tenant, or who does not otherwise
present proper authorization by a tenant for access to the premises. Each tenant
shall be responsible for all persons for whom it authorizes access and shall be
liable to Landlord for all acts of these persons. Landlord shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In the case of invasion, mob, riot, public
excitement, or other circumstances rendering an action advisable in Landlord's
opinion, Landlord reserves the right to prevent access to the Building during
the continuance of the circumstance by any action Landlord deems appropriate.
10. A directory of the Building will be provided to display the name and
location of tenants, their subtenants, and a reasonable number of the principal
officers and employees of tenants, and Landlord reserves the right to exclude
any other names. Any additional name that a tenant desires to have added to the
directory shall be subject to Landlord's approval and may be subject to a
charge.
11. No curtains, draperies, blinds, shutters, shades, screens, or other
coverings, hangings, or decorations shall be attached to, hung, or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented to by Landlord, these items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages, and
other products or services shall be subject to reasonable regulations as may be
adopted by Landlord.
13. Each tenant shall see that the doors of the premises are closed and
locked and that all water faucets or apparatus, cooking facilities, and office
equipment, excluding office equipment
24
<PAGE>
required to be operative at all times, are shut off before the tenant or
employees leave the Premises at night, so as to prevent waste or damage. For any
default or carelessness in this regard the tenant shall be responsible for any
damage sustained by other tenants or occupants of the Building or Landlord. On
multiple-tenancy floors, tenants shall keep the doors to the Building corridors
closed at all times except for ingress and egress.
14. The toilets, urinals, wash bowls, and other rest room facilities shall
not be used for any purpose other than that for which they were constructed. No
foreign substance of any kind shall be thrown in them, and the expense of any
breakage, stoppage, or damage resulting from the violation of this rule shall be
borne by the tenant who, or whose employees or invitees, have caused it.
15. Except with the prior consent of Landlord, no tenant shall sell, or
permit the sale at retail, of newspapers, magazines, periodicals, theater
tickets, or any other goods or merchandise to the general public in the
Premises, nor shall any tenant carry on, permit, or allow any employee or other
person to carry on the business of stenography, typewriting, or any similar
business in or from the Premises for the service or accommodation of occupants
of any other portion of the Building, nor shall the Premises of any tenant be
used for manufacturing of any kind, or any business or activity other than that
specifically provided for in the tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on
the roof or exterior walls of the Building.
17. No motorcycles or motor scooters shall be parked or stored anywhere in
the Building other than the garage of the Building, and no bicycles may be
parked or stored anywhere in the Building other than in facilities provided in
the garage or the Common Area of the Building.
18. Hand trucks or other material handling equipment, except those equipped
with rubber tires and side guards, may not be used in any portion of the
Building unless approved by Landlord.
19. Each tenant shall store refuse within that tenant's premises. No
material of a nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of refuse in the city of San
Francisco without being in violation of any law or ordinance governing this
disposal shall be placed in the refuse boxes or receptacles. All refuse disposal
shall be made only through entryways and elevators provided for these purposes
and at the times Landlord shall designate.
20. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the Building is prohibited, and each tenant shall
cooperate to prevent this type of occurrence.
21. Smoking of cigarettes, cigars, pipes, or any other form of tobacco is
prohibited in the Building. Tenant shall not permit its employees, guest or
invitees to smoke in any portion of the Building or Premises.
22. The requirements of the tenants will be attended to only on application
by telephone or in person at the office of the Building. Employees of Landlord
shall not perform any work or do anything outside of their regular duties unless
under special instructions from Landlord.
25
<PAGE>
23. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant, so long as Tenant's use of the Premises is
not adversely affected by the waiver, and no waiver by Landlord shall be
construed as a waiver of the Rules in favor of any other tenant, nor prevent
Landlord from later enforcing any of the Rules against any of the tenants of the
Building.
24. These Rules are in addition to, and shall not be construed to modify or
amend, in whole or in part, the terms, covenants, agreements, and conditions of
any lease of Premises in the Building.
25. Landlord reserves the right to make other reasonable rules as Landlord
judges may be needed for the safety, care, and cleanliness of the Building, and
for the preservation of good order, provided that Tenant's use and occupancy of
the Premises shall not be adversely affected by other rules.
26
<PAGE>
Exhibit D.
CONSTRUCTION RIDER
------------------
1. Tenant Improvements
-------------------
Landlord shall, with reasonable diligence through a contractor selected by
Landlord construct and install in the Premises the improvements and fixtures
(the "Tenant Improvements") provided for on the attached Exhibit E
("Construction Documents"). Improvements consisting of the type and amount of
work and materials described on Exhibit E attached to this Construction Rider
are referred to herein as "Building Standard Tenant Improvements." All Tenant
Improvements in addition to or in substitution for or modification of the
Building Standard Tenant Improvements are referred to herein as "Above-Standard
Tenant Improvements."
2. Plans
-----
Landlord will retain Keith Hooks as the space planner/architect for the
Premises ("Space Planner") who will prepare Construction Documents for the
Premises.
Additional interior decorating services and advice on the furnishings and
decoration of the Premises, such as the selection of fixtures, furnishings,
design of millwork or other Above Standard Tenant Improvements required by
Tenant, shall be provided by Tenant at its expense, but shall be subject to the
reasonable approval of Landlord.
3. Construction
------------
Upon Landlord's receipt of the Construction Documents by the Space Planner,
Landlord shall use best efforts to cause the Tenant Improvements to be
Substantially Completed on or prior to the Scheduled Commencement Date. The term
"Substantially Complete" or "Substantial Completion" as used in the Lease or
this Agreement shall mean: (1) the shell and core of the Building are complete
and in compliance with all applicable laws, statutes, codes, rules and
regulations (collectively, "Laws") and all of the Building's heating,
ventilating, air-conditioning ("HVAC"), and plumbing, life safety, telephone
cable, mechanical and/or electrical systems (collectively, "Building Systems")
are operational to the extent necessary to service the Premises; (2) Landlord
has sufficiently completed the Tenant Improvements (except for finishing
details, minor omissions, decorations and mechanical adjustments of the type
normally found on an architectural "punch list," and minor punch list items the
completion of which will not interfere with Tenant's ability to conduct Tenant's
normal business operations in the Premises) such that Tenant can conduct normal
business operations from the Premises; and (3) Landlord has obtained a
certificate of occupancy for the Building, or a temporary certificate of
occupancy for that portion of the building that includes all of the Premises, or
its equivalent.
Following Substantial Completion of the Tenant Improvements and within
thirty (30) days after Tenant takes possession of the Premises, Landlord and
Tenant shall inspect the Premises and jointly prepare a "punch list" of agreed
items of construction remaining to be completed. Landlord shall complete the
items set forth in the punch list as soon as reasonably possible. Tenant shall
cooperate with and accommodate Landlord and its workers in completing the items
on the punch list..
The Tenant Improvements shall be limited to the Building Standard Tenant
Improvements, and any additional alterations or improvements to the Premises
desired by Tenant shall be made
27
<PAGE>
after the commencement of the term of the Lease and shall be subject to the
provisions of Section 8- "Alterations" of the Lease.
4. Cost of Tenant Improvements
---------------------------
Landlord shall contribute up to Five Dollars and Seventy-seven Cents ($5.77) per
rentable square foot towards the cost of the Tenant Improvements (The "Tenant
Improvement Allowance") from existing "As Is" condition. The Tenant Improvement
cost to be paid from the Tenant Improvement Allowance, shall include but not be
limited to:
a) All costs of permit, architecture, engineering plans and
specifications for the Tenant Improvements.
b) All costs of obtaining building permits and other necessary
authorizations for the City of San Francisco.
c) All direct and indirect costs of procuring, constructing and installing
the Tenant Improvements in the Premises.
Tenant shall reimburse Landlord for all costs of completing the Tenant
Improvements in excess of the Tenant Improvement Allowance.
5. Changes
-------
If Tenant requests any change, addition or alteration in or to any
Construction Documents ("Changes"), Landlord shall cause the architect and
contractor to prepare additional Plans and estimates implementing such Change.
As soon as practicable after the completion of such additional plans and
estimates, the Landlord shall provide Tenant with the estimated cost of the
Changes. Within three (3) working days after receipt of such cost estimate,
Tenant shall notify Landlord in writing whether Tenant approves the Change.
If Tenant approves the Change, Landlord shall proceed with the Change and Tenant
shall be liable for any additional cost resulting from the Change including
architectural costs, permit and related fees, and all costs of construction
related to said change. If Tenant fails to approve the Change within such three
(3) day period, construction of the Tenant Improvements shall proceed as
provided in accordance with the original Construction Documents.
6. Delays
------
Tenant shall be responsible for, and shall pay to Landlord, any and all
costs and expenses incurred by Landlord in connection with any delay in the
commencement or completion of any Tenant Improvements and any additional cost
caused by (i) Tenant's failure to approve any space plan or Construction
Documents within the time periods herein, (ii) any delays in obtaining any items
or materials constituting part of the Above Standard Tenant Improvements
requested by Tenant, or (iii) any other delay requested or caused by Tenant
("Tenant Delay"). The term "Landlord Delay" as used in this Agreement, shall
mean any delay in the completion of the Tenant Improvements which is due to any
act or omission of Landlord (wrongful, negligent or otherwise), its agents or
contractors (including acts or omissions while acting as agent or contractor for
Tenant). The term Landlord Delay shall include, but shall not be limited to any:
(1) delay in the giving of authorizations or approvals by Landlord; (2) delay
attributable to the acts or failures to act, whether willful, negligent or
otherwise, of Landlord, its agents or contractors, where such acts or failures
to act delay the completion of the Tenant Improvements; and (3) delay
attributable to Landlord's failure to allow Tenant sufficient access to the
Building and/or Premises during the move-in period to move into the Premises
over one (1) weekend. In no event shall Tenants
28
<PAGE>
remedies or entitlements for the occurrence of a Landlord Delay be abated,
deferred, diminished or rendered inoperative because of a prior, concurrent, or
subsequent delay resulting from any action or inaction of Tenant. No Landlord
Delay shall be deemed to have occurred unless and until Tenant has given written
notice to Landlord specifying the action or inaction which Tenant contends
constitutes a Landlord Delay. If such action or inaction is not cured within
five (5) business days after Landlord's receipt of such notice, then a Landlord
Delay, as set forth in such notice, shall be deemed to have occurred commencing
as of the date Landlord received such notice and continuing for the number of
days the Substantial Completion of the Premises was in fact delayed as a direct
result of such action or inaction.
Notwithstanding the Commencement Date provided in the Lease, Tenant's
obligation for the payment of rent thereunder shall not commence until Landlord
has substantially completed all work to be performed by Landlord as set forth
herein; provided, however, that
(a) if Landlord is delayed in Substantially Completing the Tenant
Improvements solely as a result of Tenant Delay, then the abatement of rent
provided for herein shall continue only until the date on which Landlord would
have Substantially Completed the Tenant Improvements but for such delays.
(b) in the event Landlord is unable to tender possession of the
Premises, Substantially Complete, to Tenant on the Scheduled Commencement Date
due to acts of force majeure delay or Landlord Delay, the Commencement Date, and
the commencement of the abatement of rent afforded Tenant, shall be postponed
until the date upon which Landlord shall tender possession of the Premises with
the Tenant Improvements Substantially Complete to Tenant. Additionally, to the
extent that Landlord is unable to so tender possession due to Landlord Delay,
Tenant shall receive one (1) additional day of rental abatement for each such
day of Landlord Delay.
7. Commencement of Term
--------------------
Upon Substantial Completion of the Tenant Improvements, Landlord shall
deliver possession of the Premises to Tenant. If Landlord has not Substantially
Completed the Tenant Improvements and tendered possession of the Premises to
Tenant on or before the Scheduled Commencement Date, or if Landlord, using its
best efforts, is unable for any other reason to deliver possession of the
Premises to Tenant on or before such date, neither Landlord nor its
representatives shall be liable to Tenant for any damage resulting from the
delay in completing such construction obligations and/or delivering possession
to Tenant and the Lease shall remain in full force and effect unless and until
it is terminated under the express provisions of this Paragraph. In such event,
the Commencement Date shall be the actual date of delivery of possession of the
Substantially Completed Premises to Tenant; provided, however, that if and to
the extent that any delays in the Commencement Date are attributable to (i)
delays by Tenant in submitting information to the Space Planner or in approving
Construction Documents, (ii) any delays in obtaining any items or materials
constituting part of the Above Standard Tenant Improvements requested by Tenant,
or (iii) any other delay requested by or caused by Tenant Delay, then the term
of the Lease shall commence and the Commencement Date shall be deemed to have
occurred on the date which Landlord would have Substantially Completed the
Premises and tendered the premises to Tenant but for such Tenant Delay.
8. Access to Premises
------------------
Landlord, at its discretion, may allow Tenant or Tenant's Representatives
to enter the Premises prior to the Commencement Date to permit Tenant to make
the Premises ready for its use
29
<PAGE>
and occupancy; provided, however, that prior to such entry of the Premises,
Tenant shall provide evidence reasonably satisfactory to Landlord that Tenant's
insurance, as described in Section 12- "Insurance," shall be in effect as of the
time of such entry. Such permission may be revoked at any time upon twenty-four
(24) hours notice, and Tenant or its representatives shall not interfere with
Landlord or Landlord's contractor in completing the Tenant Improvements.
Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to
persons or property arising as a result of such entry of the Premises by Tenant
or its representatives.
9. Ownership of Tenant Improvements
--------------------------------
All Tenant Improvements except Tenant's trade fixtures, equipment and
personal property, whether Building Standard or Above Standard, and whether
installed by Landlord or Tenant, shall become a part of the Premises, shall be
the Property of Landlord and shall be surrendered by Tenant with the Premises,
without any compensation to Tenant, at the expiration or termination of the
Lease in accordance with Section 8- "Alterations" of the Lease.
[Initials of Landlord] [INITIALS APPEAR HERE]
----------------------
[Initials of Tenant] [INITIALS APPEAR HERE]
----------------------
30
<PAGE>
Exhibit E.
Exhibit E - Construction Documents
---------
The following construction work shall be performed:
1. entire space recarpetted with 32 oz. glue-down carpet
2. entire space will be repainted
3. pursuant to attached drawing, the two work areas and several office walls
will be demolished
31
<PAGE>
Individual, Inc. Exhibit 11.1
Computation of Weighted Average Shares
Used in Computing Loss Per Share Amounts
<TABLE>
<CAPTION>
Primary Fully Diluted Supplemental
Type of Security Shares Shares Shares (1)
- ----------------------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
For the twelve months ended December 31, 1995:
Common stock less shares held in treasury, beginning of period 1,666,002 1,666,002 1,666,002
Cheap stock outstanding during the period (2) 315,821 315,821 315,821
Weighted average common stock issued during the period 12,341 12,341 12,341
Conversion of preferred stock and redeemable preferred stock
into common stock (1) - - 7,625,210
----------- ------------ ------------
Weighted average shares of common stock outstanding 1,994,164 1,994,164 9,619,374
=========== ============ ============
Net loss per common share ($4.05) ($4.05) ($0.67)
=========== ============ ============
For the twelve months ended December 31, 1996:
Common stock less shares held in treasury, beginning of period 1,713,096 1,713,096 1,713,096
Common stock outstanding during the period 3,335,909 3,335,909 3,335,909
Weighted average treasury stock repurchased during the period (1,233) (1,233) (1,233)
Weighted average conversion of preferred stock and redeemable
preferred stock into common stock (1) 5,949,340 5,949,340 7,625,210
=========== ============ ============
Weighted average shares of common stock outstanding 10,997,112 10,997,112 12,672,982
=========== ============ ============
Net loss per common share ($4.68) ($4.68) ($4.03)
=========== ============ ============
</TABLE>
(1) Upon completion of the public offering on March 20, 1996, the redeemable
preferred stock and preferred stock converted to 7,625,210 shares of common
stock. Accordingly, the supplemental earnings per share calculation has assumed
the conversion of all shares of redeemable preferred stock and preferred stock,
effected for the 3-for-2 split, at the beginning of each period presented.
(2) In accordance with the Securities and Exchange Commission, issuances of
common stock and common stock equivalents, within one year to the initial filing
of the registration statement, at share prices below the assumed initial public
offering price of $14.00 per share (cheap stock), are considered to have been
made in anticipation of the contemplated public offering. Accordingly, these
stock issuances are treated as if issued and outstanding, using the treasury
stock method, since the inception of the Company.
<PAGE>
Exhibit 21.1
------------
Subsidiaries
------------
Japan: Individual, K.K.
U.S.: FreeLoader, Inc.
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements of
Individual, Inc. on Form S-8 (File Nos. 333-02806 and 333-07815), of our reports
dated February 15, 1997, on our audits of the consolidated financial statements
of Individual, Inc. as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995, and 1994, which report is included or incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 JAN-01-1995
<CASH> 21,886,219 17,517,743
<SECURITIES> 8,448,306 0
<RECEIVABLES> 11,088,046 5,741,694
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 41,879,394 23,374,531
<PP&E> 4,102,709 2,926,234
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 46,929,316 26,802,505
<CURRENT-LIABILITIES> 24,931,216 13,505,284
<BONDS> 0 0
0 23,999,013
0 6,113
<COMMON> 144,140 18,706
<OTHER-SE> 20,443,335 (21,712,349)
<TOTAL-LIABILITY-AND-EQUITY> 46,929,316 26,802,505
<SALES> 24,144,780 16,732,749
<TOTAL-REVENUES> 0 0
<CGS> 11,866,768 7,782,945
<TOTAL-COSTS> 63,177,221 15,181,453
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 861,610 441,901
<INCOME-PRETAX> (51,017,359) (6,442,808)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (51,017,359) (6,442,808)
<EPS-PRIMARY> (4.03) (.67)
<EPS-DILUTED> 0 0
</TABLE>
