U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
___ 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 1-10932
INDIVIDUAL INVESTOR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3487784
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Broad Street, 14th Floor, New York, New York 10004
(Address of principal executive offices)
(212) 742-2277
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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____
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date: As of July 30, 1999,
registrant had outstanding 9,146,998 shares of Common Stock, $.01 par value per
share.
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
----
Item 1. Financial Statements
Consolidated Condensed Balance Sheets (Unaudited)
as of June 30, 1999 and December 31,1998 3
Consolidated Condensed Statements of Operations (Unaudited)
for the three and six months ended June 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 11-20
Part II Other Information
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,332,163 $4,752,587
Investments (Note 2) 7,506,376 877,231
Accounts receivable (net of allowances of $378,479 in 2,920,807 2,356,126
1999 and $391,328 in 1998)
Investment in discontinued operations (Note 3) 142,534 282,383
Prepaid expenses and other current assets 860,499 512,641
------------- -------------
Total current assets 13,762,379 8,780,968
Investment (Note 2) 2,638,356 -
Deferred subscription expense 359,746 576,237
Property and equipment - net 1,806,430 586,007
Security deposits 372,735 469,627
Other assets 249,513 374,404
------------- -------------
Total assets $19,189,159 $10,787,243
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,547,398 $2,191,765
Accrued expenses 674,458 519,887
Deferred advertising revenue 1,433,371 138,097
------------- -------------
Total current liabilities 4,655,227 2,849,749
Deferred advertising revenue 1,583,013 -
Deferred subscription revenue 2,246,072 2,246,422
------------- -------------
Total liabilities 8,484,312 5,096,171
------------- -------------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares,
10,000 issued and outstanding in 1999 and 1998 100 100
Common stock, $.01 par value, authorized 40,000,000
shares, 9,119,665 issued and outstanding in 1999;
authorized 18,000,000 shares, 8,490,851 issued and
outstanding in 1998 91,197 84,909
Additional paid-in capital 29,833,913 27,595,151
Accumulated deficit (25,517,453) (21,922,595)
Accumulated other comprehensive gain (loss) 6,297,090 (66,493)
------------- -------------
Total stockholders' equity 10,704,847 5,691,072
------------- -------------
Total liabilities and stockholders' equity $19,189,159 $10,787,243
============= =============
See Notes to Consolidated Condensed Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Print Publications $3,385,090 $3,310,144 $7,133,937 $7,034,696
Online Services 318,547 351,386 571,516 580,807
------------- ------------- ------------- -------------
Total revenues 3,703,637 3,661,530 7,705,453 7,615,503
------------- ------------- ------------- -------------
Operating expenses:
Editorial, production and distribution 2,684,104 2,968,414 5,439,822 5,868,888
Promotion and selling 1,824,526 1,606,059 3,676,002 3,248,728
General and administrative 1,359,985 1,743,493 2,532,476 2,893,153
Depreciation and amortization 151,575 78,268 248,405 151,579
------------- ------------- ------------- -------------
Total operating expenses 6,020,190 6,396,234 11,896,705 12,162,348
------------- ------------- ------------- -------------
Operating loss from continuing operations (2,316,553) (2,734,704) (4,191,252) (4,546,845)
Interest and other income 39,827 13,708 596,394 43,663
------------- ------------- ------------- -------------
Net loss from continuing operations (2,276,726) (2,720,996) (3,594,858) (4,503,182)
Discontinued operations (Note 3)
Loss from discontinued operations - (258,619) - (636,079)
------------- ------------- ------------- -------------
Net loss ($2,276,726) ($2,979,615) ($3,594,858) ($5,139,261)
============= ============= ============= =============
Basic and dilutive loss per common share:
Continuing operations ($0.25) ($0.37) ($0.40) ($0.62)
Discontinued operations $0.00 ($0.04) $0.00 ($0.09)
------------- ------------- ------------- -------------
Net loss per share ($0.25) ($0.41) ($0.40) ($0.71)
============= ============= ============= =============
Average number of common shares used in computing
basic and dilutive loss per common share 9,016,759 7,286,385 8,902,315 7,245,021
See Notes to Consolidated Condensed Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net loss ($3,594,858) ($5,139,261)
Less:
Loss from discontinued operations - (636,079)
------------- -------------
Loss from continuing operations (3,594,858) (4,503,182)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 248,405 151,579
Stock option and warrant transactions 160,862 -
Loss on sale of equipment - 1,258
Gain on sale of investments (503,215) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (564,681) 461,594
Prepaid expenses and other current assets (378,361) 10,667
Deferred subscription expense 216,491 (53,858)
Security deposits 96,892 -
Increase (decrease) in:
Accounts payable and accrued expenses 510,204 855,973
Deferred advertising revenue 239,931 9,370
Deferred subscription revenue (350) (203,523)
------------- -------------
Net cash used in operating activities (3,568,680) (3,270,122)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (1,457,346) (65,684)
Proceeds from sale of equipment - 1,051
Proceeds from sale of investments 990,729 -
Increase in investments (753,076) -
Net cash provided by discontinued operations 139,849 122,175
------------- -------------
Net cash (used in) provided by investing activities (1,079,844) 57,542
------------- -------------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,228,100 398,152
Proceeds from issuance of common stock - 5,000,000
------------- -------------
Net cash provided by financing activities 2,228,100 5,398,152
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,420,424) 2,185,572
Cash and cash equivalents, beginning of period 4,752,587 3,533,622
------------- -------------
Cash and cash equivalents, end of period $2,332,163 $5,719,194
============= =============
Supplemental schedule of noncash investing and financing activities:
The Company acquired 19.9% of the then-outstanding shares of common stock
of VentureHighway.com Inc. The purchase price is payable in the form of
advertising for VentureHighway in the Company's magazines and websites
during the next 30 months. The purchase price had a stated value of $3.2
million, and is recorded on the Company's June 30, 1999 balance sheet at a
fair value of $2.6 million (See Note 2).
See Notes to Consolidated Condensed Financial Statements
</TABLE>
<PAGE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the
accounts of Individual Investor Group, Inc. and its subsidiaries
(collectively, the "Company"). Such financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
as required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the six
months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report for the year
ended December 31, 1998 on Form 10-K.
2. INVESTMENTS
Investments included in Current Assets
Investments are in equity securities and are carried at fair
market value. The aggregate fair value of such investments was
$7,506,376 and $877,231 at June 30, 1999 and December 31, 1998,
respectively. Gross unrealized holding gains were $6,452,303 and
$86,477 at June 30, 1999 and December 31, 1998, respectively. Gross
unrealized holding losses were $155,213 and $152,970 at June 30, 1999
and December 31, 1998, respectively. Unrealized gains and losses are
shown as accumulated other comprehensive gain (loss), which is a
component of stockholders' equity (see Note 6).
The Company currently owns 175,000 shares of Wit Capital
Group, Inc. Class C Common Stock. Wit Capital is an online investment
banking and brokerage firm. The Company's stake in Wit Capital was
acquired in 1997 as 250,000 shares of Series A Preferred Stock valued
at $250,000, and was converted into 175,000 shares of Class C Common
Stock due to a 7-for-10 reverse split of Class C Common Stock and the
completion of Wit Capital's IPO on June 4, 1999. The investment is
recorded on the Company's June 30, 1999 balance sheet at $5,950,000
based upon the June 30, 1999 closing price of Wit Capital Common Stock
on the Nasdaq National Market. The Company may not transfer or dispose
of the Class C Common Stock (or any interest in such shares) until 180
days from the completion of the IPO (i.e., until December 1, 1999), at
which point it will automatically convert into Common Stock and will
not be subject to any lock-up. The Company could realize a significant
gain with respect to this investment, although there can be no
assurance that the Company ultimately will realize any value with
respect to its shares of Wit Capital. As of August 9, 1999, the value
of the Company's investment in Wit Capital has declined to $3,171,875.
On June 2, 1999, the Company and Kirlin Holding Corp.
("Kirlin") entered into a Securities Purchase Agreement ("Securities
Purchase Agreement") pursuant to which the Company acquired 300,000
shares ("Investor Shares") of common stock of Kirlin for $750,000,
representing 4.9% of the then-outstanding shares of Kirlin's common
stock (the share amount has been restated to reflect a 2-for-1 stock
split effected July 30, 1999). The purchase price was paid from the
Company's working capital. Kirlin contributed all the proceeds of this
sale to the capital of its subsidiary, VentureHighway.com Inc.
("VentureHighway"), in which the Company has a 19.9% stake. Kirlin
filed a registration statement registering the resale of the Investor
Shares under the Securities Act of 1933 and is obligated to use its
best efforts to cause the registration statement to become effective as
soon as practicable thereafter. The investment in Kirlin is recorded on
the Company's June 30, 1999 balance sheet at $1,471,950 based upon the
June 30, 1999 closing price of Kirlin's common stock on the Nasdaq
Small-Cap Market. The Company could realize a significant gain with
respect to this investment, although there can be no assurance that the
Company ultimately will realize any value with respect to its shares of
Kirlin. As of August 9, 1999, the value of the Company's investment in
Kirlin has increased to $2,062,500.
Kirlin (Nasdaq: KILN) is a holding company engaged in
securities brokerage, securities trading and merchant banking
activities through its primary operating subsidiary, Kirlin Securities,
Inc. Kirlin Securities is a full service, retail oriented brokerage
firm and is a member of the NASD.
Other Investment
On June 2, 1999, the Company, Kirlin and VentureHighway (at
the time a wholly-owned subsidiary of Kirlin), entered into an
agreement ("Agreement") pursuant to which the Company acquired 2,484
newly issued shares of common stock of VentureHighway, representing
19.9% of the then-outstanding shares of common stock (the other 80.1%
of which continue to be held by Kirlin). The purchase price is payable
in the form of advertising for VentureHighway in the Company's
magazines and websites during the next 30 months. The purchase price
had a stated value of $3.2 million, and is recorded on the Company's
June 30, 1999 balance sheet at a fair value of $2.6 million.
VentureHighway owns and operates VentureHighway.com, a branded
website designed to serve as an interactive portal for the matching of
companies seeking funding with qualified investors seeking to fund such
companies, and the facilitation of private placements and public
offerings of securities of companies. There currently is no public
market for VentureHighway securities, and there is no assurance that
the Company will realize any value with respect to its investment in
VentureHighway.
3. DISCONTINUED OPERATIONS
On April 30, 1998 the Company's Board of Directors decided to
discontinue the Company's investment management services business. As a
result, the operating results relating to investment management
services have been segregated from continuing operations and reported
as a separate line item on the consolidated condensed statements of
operations.
The investment management services business was principally
conducted by a wholly-owned subsidiary of the Company, WisdomTree
Capital Management, Inc. ("WTCM"). WTCM served as general partner of
(and is an investor in) a domestic private investment fund. The Company
is also a limited partner in the fund. As a result of the Board's
decision to discontinue the investment management services business,
WTCM is dissolving the domestic investment fund, liquidating its
investments and distributing the net assets to all investors as
promptly as possible.
In 1998, the Company recorded provisions to accrue for its
share of any net operating losses of the domestic fund and related
costs that are expected to occur until the fund liquidates its
investments. The Company believes that adequate provision has been made
for any remaining net operating losses and related material costs
associated with these discontinued operations.
The Company, through WTCM and another wholly-owned subsidiary,
also provided investment management services to an offshore private
investment fund. On May 21, 1998 the sole voting shareholder of the
offshore fund, in consultation with WTCM, resolved to wind up the fund
and appointed a liquidator to distribute the assets of the fund to its
investors in accordance with Cayman Islands law. Substantially all of
the fund assets were distributed in cash to its investors by December
31, 1998. The Company has no investment in the offshore fund.
In January 1999, the domestic investment fund distributed cash
to its partners totaling $1,189,510, of which $139,849 was received by
the Company and was used to reduce its net investment in discontinued
operations. At June 30, 1999, the domestic investment fund had
remaining net assets of approximately $1,446,848. The Company's net
investment in discontinued operations of $142,534 at June 30, 1999,
represents its share of the net assets of the domestic investment fund,
less any costs associated with discontinuing the investment management
services business.
4. STOCK OPTIONS
During the three and six months ended June 30, 1999, the
Company granted 40,100 and 97,600 options, respectively, to purchase
the Company's Common Stock; 228,701 and 628,814 options, respectively,
were exercised (providing proceeds of $668,774 and $2,228,099,
respectively); and 30,100 and 45,433 options were canceled,
respectively. Of the total options granted, 67,600 were granted under
the Company's stock option plans, 30,000 shares were granted outside of
the plans, and all expire at various dates through June 2009.
5. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three and
six month periods ended June 30, 1999 and 1998 were computed using the
weighted average number of common shares outstanding during each
period. The exercise of stock options and warrants were not assumed in
the computation of loss per common share, as the effect would have been
antidilutive.
6. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," requires the disclosure of
comprehensive income (loss), defined as the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from non-owner sources. Comprehensive income (loss)
is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not
been recognized in the calculation of net income (loss).
Comprehensive income (loss) for the three and six months ended
June 30, 1999 and 1998, respectively, is presented in the following
table:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (2,276,726) $ (2,979,615) $ (3,594,858) $ (5,139,261)
Other comprehensive gain:
Net unrealized gain on investments (see
Note 2) 6,334,239 - 6,363,583 -
------------- ------------- ------------- -------------
Total comprehensive income (loss) $ 4,057,513 $ (2,979,615) $ 2,768,725 $ (5,139,261)
============= ============= ============= =============
</TABLE>
7. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which changes the
way the Company reports information about its operating segments.
Accordingly, the prior year's information has been restated to be
consistent with the current year presentation. The Company's business
segments are focused on providing research and analysis of investment
information to individuals and investment professionals through two
operating segments: Print Publications and Online Services. The
Company's Print Publications operations publishes and markets
Individual Investor magazine, a personal finance and investment
magazine, Ticker, a magazine for investment professionals, and
Individual Investor's Special Situations Report, a financial investment
newsletter. The Company's Online Services operations include Individual
Investor Online (www.individualinvestor.com) and InsiderTrader.com
(www.insidertrader.com). Substantially all of the Company's operations
are within the United States.
The table below presents summarized operating data for the
Company's two business segments, consistent with the way such data is
utilized by Company management in evaluating operating results. The
accounting policies utilized in the table below are the same as those
described in Note 1 of the Notes to Condensed Consolidated Financial
Statements, as well as the consolidated financial statements and
footnotes thereto in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. Operating contribution represents the
difference between operating revenues less operating expenses (before
general and administrative ("G&A") and depreciation and amortization
expenses).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Print Publications $3,385,090 $3,310,144 $7,133,937 $7,034,696
Online Services 318,547 351,386 571,516 580,807
------------- ------------- ------------- -------------
$3,703,637 $3,661,530 $7,705,453 $7,615,503
============= ============= ============= =============
Operating contribution (before G&A
and depreciation and amortization
expenses):
Print Publications ($92,636) ($369,053) ($215,904) ($497,119)
Online Services (712,357) (543,890) (1,194,467) (1,004,994)
------------ ------------- ------------- -------------
(804,993) (912,943) (1,410,371) (1,502,113)
G&A and depreciation and amortization (1,511,560) (1,821,761) (2,780,881) (3,044,732)
expenses
Interest and other income 39,827 13,708 596,394 43,663
------------- ------------- ------------- -------------
Net loss from continuing operations ($2,276,726) ($2,720,996) ($3,594,858) ($4,503,182)
============= ============= ============= =============
</TABLE>
Net property and equipment as of June 30, 1999 increased
approximately $1.2 million as compared to December 31, 1998 (primarily
leasehold improvements and furniture connected with the relocation of
the Company's corporate office in March 1999). The capital expenditures
allocable to Print Publications, Online Services and corporate are
approximately $0.7 million, $0.3 million, and $0.2 million,
respectively. Additionally, investments as of June 30, 1999 increased
approximately $9.3 million as compared to December 31, 1998. This was
primarily due to an increase in the unrealized gain on Wit Capital
(approximately $5.6 million), as well as investments in Kirlin Holding
Corp. and VentureHighway.com Inc. (see Note 2). There were no other
material changes from year-end 1998 in total assets, in the basis of
segmentation, or in the basis of measurement of segment profit or loss.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Important Notice Concerning "Forward-looking Statements" in this Report
1. "Forward-looking Statements." Certain parts of this Report describe
historical information (such as operating results for the three and six months
ended June 30, 1999 and June 30, 1998, respectively), and the Company believes
the descriptions to be accurate. In contrast to describing the past, various
sentences of this Report indicate that the Company believes certain results are
likely to occur after June 30, 1999. These sentences typically use words or
phrases like "believes," "expects," "anticipates," "estimates," "will continue"
and similar expressions. Statements using those words or similar expressions are
intended to identify "forward-looking statements" as that term is used in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements include,
but are not limited to, projections of operating results for periods after June
30, 1999, concerning either a specific segment of the Company's business or the
Company as a whole. For example, projections concerning the following are
forward-looking statements: net revenues, operating expenses, net income or
loss, contribution to overhead, number of subscribers, subscription revenues,
revenues per advertising page, number of advertising pages, production expense
per copy, page views, revenues per page view, marketing expenses, sales
expenses, and general and administrative expenses. Any statement in this Report
that does not describe a historical fact is deemed to be a forward-looking
statement.
2. Actual Results May Be Different than Projections. Due to a variety
of risks and uncertainties, actual results, however, may be materially different
from the results projected in the forward-looking statements. These risks and
uncertainties include those set forth in Item 2 (entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations") of
Part I hereof, in Exhibit 99 hereof and elsewhere in this Report, and in Item 1
(entitled "Business") of Part I and in Item 7 (entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations") of Part II of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, filed with the Securities and Exchange Commission.
3. The Company Has No Duty to Update Projections. The forward-looking
statements in this Report are current only on the date this Report is filed.
After the filing of this Report, the Company's expectations of likely results
may change, and the Company might come to believe that certain forward-looking
statements in this Report are no longer accurate. The Company shall not have any
obligation, however, to release publicly any corrections or revisions to any
forward-looking statements contained in this Report, even if the Company
believes the forward-looking statements are no longer accurate.
Three and Six Months Ended June 30, 1999 as Compared to the Three and Six Months
Ended June 30, 1998
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the three and six
months ended June 30, 1999 decreased 16% and 20%, to $2,276,726 and $3,594,858,
respectively, as compared to $2,720,996 and $4,503,182, respectively, in 1998.
The decrease is primarily due to reduced general and administrative expenses as
well as realized gains on the sale of investments that occurred in the first
quarter of 1999.
Print Publications operations provided a negative operating
contribution (before deducting general and administrative ("G&A") and
depreciation and amortization expenses) of $92,636 and $215,904 for the three
and six months ended June 30, 1999, respectively, an improvement of 75% and 57%,
respectively, from the prior year's negative operating contribution of $369,053
and $497,119, respectively. Individual Investor magazine provided a negative
operating contribution (before deducting general and administrative ("G&A") and
depreciation and amortization expenses) of $79,458 and $269,416 for the three
and six months ended June 30, 1999, respectively, as compared to a negative
operating contribution of $252,700 and $301,684, respectively, in 1998, an
improvement of 69% and 11%, respectively. The change in operating contribution
is primarily due to a decrease in production and distribution expenses, offset
in part by a decrease in revenues. Ticker (sm) magazine provided a negative
operating contribution (before deducting G&A and depreciation and amortization
expenses) of $14,954 and a positive operating contribution (before deducting G&A
and depreciation and amortization expenses) of $27,249 for the three and six
months ended June 30, 1999, respectively, as compared to a negative operating
contribution of $121,982 and $219,379, respectively, in 1998. The change in
operating contribution is primarily attributable to increased advertising
revenues, offset in part by increased promotion and selling costs associated
with the increase in revenues. Ticker is expected to provide a positive
contribution to overhead going forward. Special Situations Report provided a
positive operating contribution (before deducting G&A and depreciation and
amortization expenses) of $1,776 and $26,263 for the three and six months ended
June 30, 1999, respectively, as compared to a positive operating contribution of
$5,629 and $23,944, respectively, in 1998. The Company currently anticipates
that the Print Publishing operations as a whole will be providing a positive
contribution to overhead before year-end.
Online Services operations provided a negative operating contribution
(before deducting G&A and depreciation and amortization expenses) of $712,357
and $1,194,467 for the three and six months ended June 30, 1999, respectively,
as compared to a negative operating contribution of $543,890 and $1,004,994,
respectively, in 1998. The change in operating contribution is primarily
attributable to lower advertising revenues for the Company's website, Individual
Investor Online (www.individualinvestor.com), together with increased editorial
and research costs, offset in part by lower production and development expenses.
Advertising revenues for Individual Investor Online are expected to increase
significantly in the third quarter of 1999, as compared to the second quarter of
1999.
Operating Revenues
Total revenues from continuing operations for the three and six months
ended June 30, 1999 increased 1% and 1% to $3,703,637 and $7,705,453,
respectively, as compared to $3,661,530 and $7,615,503, respectively, in 1998.
Revenues for the Print Publications operations for the three and six months
ended June 30, 1999 increased 2% and 1%, to $3,385,090 and $7,133,937,
respectively, as compared to $3,310,144 and $7,034,696, respectively, in 1998.
Revenues for the Online Services operations for the three and six months ended
June 30, 1999 decreased 9% and 2%, to $318,547 and $571,516, respectively, as
compared to $351,386, and $580,807, respectively, in 1998.
Print Publications advertising revenues for the three and six months
ended June 30, 1999 increased 11% and 5%, to $2,266,808 and $4,833,715,
respectively, as compared to $2,047,147 and $4,610,990, respectively, in 1998.
Ticker advertising revenues for the three and six months ended June 30, 1999
increased 33% and 54%, to $713,718 and $1,516,236, respectively, as compared to
$537,974 and $986,905, respectively, in 1998. This increase relates primarily to
an increase in advertising pages for the three and six months ended June 30,
1999 of approximately 26% and 42%, as well as an increase in the advertising net
rate per page of 6.5% and 4.9%, respectively, when compared to 1998. Individual
Investor advertising revenues for the three and six months ended June 30, 1999
increased 3% and decreased 8%, respectively, to $1,553,090 and $3,317,479,
respectively, as compared to $1,509,173 and $3,624,085, respectively, in 1998.
The three month increase for Individual Investor relates primarily to a higher
advertising net rate per page of approximately 13%, partially offset by a
reduction in advertising pages of approximately 10%, when compared to 1998. The
six month decrease relates primarily to a reduction in advertising pages of
approximately 17%, offset in part by an increase in the advertising net rate per
page of approximately 13%, when compared to 1998.
Print Publications circulation revenues for the three and six months
ended June 30, 1999 decreased 9% and 4%, to $837,013 and $1,694,567,
respectively, as compared to $918,905 and $1,769,861, respectively, in 1998. The
decrease is primarily attributable to a reduction in Individual Investor
subscription revenues, partially offset by an increase in newsstand
sell-through. Subscription revenues for the three and six months ended June 30,
1999 decreased 15% and 9%, to $544,582 and $1,115,066, respectively, as compared
to $640,145 and $1,224,166, respectively, in 1998. The decrease resulted from
the Company's use of subscription-generation sources that provide for continuing
numbers of subscribers with low marketing expenses but little or no subscription
revenue. The Company believes that subscription revenues has stabilized at this
level. Newsstand revenues for the three and six months ended June 30, 1999
increased 25% and 20%, to $218,853 and $419,484, respectively, as compared to
$174,780 and $348,298, respectively, in 1998.
Print Publications list rental and other revenues for the three and six
months ended June 30, 1999 decreased 18% and 7%, to $281,269 and $605,655,
respectively, as compared to $344,092 and $653,845, respectively, in 1998. List
rental revenue for the three and six months ended June 30, 1999 decreased 4% and
increased 17%, to $220,479 and $457,353, respectively, as compared to $228,758
and $389,526, respectively, in 1998. Other revenues for the three and six months
ended June 30, 1999 decreased 47% and 44%, to $60,790 and $148,302,
respectively, as compared to $115,334 and $264,319, respectively, in 1998. The
decrease in other revenues is primarily attributable to reduced demand for
reprints of Individual Investor magazine.
Online Services advertising revenues for the three and six months ended
June 30, 1999 decreased 24% and 20%, to $267,989 and $463,276, respectively, as
compared to $351,386 and $580,807, respectively, in 1998. The decrease in
advertising revenues is attributable to a decline in advertising sponsorship
sales by the Company's independent sales agent, along with lower rates earned on
advertising impressions for Individual Investor Online
(www.individualinvestor.com), offset in part by advertising revenue earned by
InsiderTrader.com. As a result of the decrease in advertising sponsorships for
Individual Investor Online, in April 1999 the Company reorganized and
strengthened its sales efforts and is now selling sponsorship advertisements
directly as opposed to through a sales agent. Traffic to the Company's web sites
for the three months ended June 30, 1999 increased 30% to an average of
approximately 5.3 million page views per month, as compared to an average of
approximately 4.0 million page views per month during the three months ended
March 31, 1999. The Company expects that Online Services advertising revenues
should trend higher in the future (with sequential fluctuations), and expects
that gross margins associated with such revenues will increase in light of
reduced dependence upon outside sales agents.
Online Services subscription revenues for the three and six months
ended June 30, 1999 were $32,320 and $72,472, respectively, as compared to $0
and $0, respectively, in 1998. The increase in subscription revenues is
attributable to InsiderTrader.com (www.insidertrader.com), which the Company
purchased in November 1998. The Company anticipates launching other
subscription-based web sites this year, which should increase Online Services
subscription revenues.
Operating Expenses
Total operating expenses from continuing operations for the three and
six months ended June 30, 1999 decreased 6% and 2% to $6,020,190 and
$11,896,705, respectively, as compared to $6,396,234 and $12,162,348,
respectively, in 1998.
Editorial, production and distribution expenses for the three and six
months ended June 30, 1999 decreased 10% and 7% to $2,684,104 and $5,439,822,
respectively, as compared to $2,968,414 and $5,868,888, respectively, in 1998.
Print Publications editorial, production and distribution expenses for the three
and six months ended June 30, 1999 decreased 13% and 10% to $2,098,588 and
$4,312,712, respectively, as compared to $2,410,420 and $4,798,222,
respectively, in 1998. The decrease relates primarily to Individual Investor
magazine, which had fewer pages and less copies printed, along with lower paper
costs and reduced manufacturing expenses resulting from a renegotiated agreement
with the Company's printer. Online Services production and editorial expenses
for the three and six months ended June 30, 1999 increased 5% and 5% to $585,516
and $1,127,110, respectively, as compared to $557,994 and $1,070,666,
respectively, in 1998. The increase is primarily related to higher editorial and
research costs, offset in part by lower production and development expenses for
the Company's primary website, Individual Investor Online
(www.individualinvestor.com), together with production and research costs for
InsiderTrader.com, which the Company purchased in November 1998.
Promotion and selling expenses for the three and six months ended June
30, 1999 increased 14% and 13% to $1,824,526 and $3,676,002, respectively, as
compared to $1,606,059 and $3,248,728 respectively, in 1998. Print Publications
promotion and selling expenses for the three and six months ended June 30, 1999
increased 9% and 11% to $1,379,138 and $3,037,129, respectively, as compared to
$1,268,777 and $2,733,593, respectively, in 1998. The increase is primarily due
to higher advertising salaries as a result of hiring additional in-house sales
personnel, as well as increased marketing and promotion expenses, partially
offset by reduced sales commissions. Online Services promotion and selling
expenses for the three and six months ended June 30, 1999 increased 32% and 24%
to $445,388 and $638,873, respectively, as compared to $337,282 and $515,135,
respectively, in 1998. The increase is primarily attributable to increased
marketing and promotion expenses, increased newspaper advertising and increased
recruiting fees, partially offset by reduced advertising sales commissions and
reduced barter advertising expenses.
General and administrative expenses for the three and six months ended
June 30, 1999 decreased 22% and 12% to $1,359,985 and $2,532,476, respectively,
as compared to $1,743,493 and $2,893,153, respectively, in 1998. The decrease
primarily results from unusually high 1998 expenses (severance, legal fees and
executive search fees) relating to changes in senior management and key
advertising sales personnel, offset in part by moving costs and increased rent
expense in the 1999 periods related to the relocation of the Company's corporate
office in March 1999.
Depreciation and amortization expense for the three and six months
ended June 30, 1999 increased 94% and 64% to $151,575 and $248,405,
respectively, as compared to $78,268 and $151,579, respectively, in 1998. The
increase is primarily attributable to additional depreciation for computer
equipment purchased for the Company's Online Services operations as well as the
amortization of leasehold improvements related to the new corporate office.
Interest and Other Income
Interest and other income for the three and six months ended June 30,
1999 increased to $39,827 and $596,394, respectively, as compared to $13,708 and
$43,663, respectively, in 1998. The increase is primarily attributable to
realized gains of $503,215 from the sale of investments in the first quarter of
1999.
Discontinued Operations
On April 30, 1998, the Company's Board of Directors decided to
discontinue the Company's investment management services business. As a result
of the Board's decision, WisdomTree Capital Management, Inc. ("WTCM") is
dissolving the domestic and offshore investment funds, liquidating fund
investments and distributing the net assets to all investors as promptly as
possible. Accordingly, the operating results related to investment management
services have been segregated from continuing operations and reported as a
separate line item on the statement of operations.
Net loss from discontinued operations for the three and six months
ended June 30, 1999 was $0 and $0, respectively, as compared to a net loss of
$258,619 and $636,079 for 1998. No additional loss amounts were recorded by the
Company for the three and six months ended June 30, 1999 for discontinued
operations because the Company believes that any remaining net operating losses
and related material costs associated with these discontinued operations have
been adequately provided for by provisions established in 1998.
The Company's net investment in discontinued operations of $142,534 at
June 30, 1999 represents its share of the net assets of the domestic investment
fund, less any costs associated with discontinuing the investment management
services business.
Net Loss
The Company's net loss for the three and six months ended June 30, 1999
decreased 24% and 30% to $2,276,726 and $3,594,858, respectively, as compared to
$2,979,615 and $5,139,261, respectively, in 1998. No income taxes were provided
in 1999 or 1998 due to the net loss. The basic and dilutive net loss per
weighted average common share for the three and six months ended June 30, 1999
was $0.25 and $0.40, respectively, as compared to $0.41 and $0.71, respectively,
in 1998.
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company received
$2,228,100 from exercises of stock options, $990,729 from sales of investments,
and $139,849 from the liquidation of the domestic fund. These inflows help to
fund the Company's net cash used in operating activities of $3,568,680 during
the period. The Company also incurred approximately $1.5 million of capital
expenditures during the six months ended June 30, 1999 (primarily leasehold
improvements and furniture connected with the relocation of its corporate
office). Additionally, the Company used its working capital to fund a $750,000
acquisition of common stock of Kirlin Holding Corp.
As of June 30, 1999, the Company had working capital of $9,107,152,
which included cash and cash equivalents totaling $2,332,163 and investments of
$7,506,376 which should be available during the second half of 1999, subject to
market fluctuations and liquidity, to provide working capital to fund the
Company's operations. As of August 9, 1999, the value of these investments
declined to $5,304,451.
The Company currently owns 175,000 shares of Wit Capital Group, Inc.
Class C Common Stock. Wit Capital is an online investment banking and brokerage
firm. The Company's stake in Wit Capital was acquired in 1997 as 250,000 shares
of Series A Preferred Stock valued at $250,000, and was converted into 175,000
shares of Class C Common Stock due to a 7-for-10 reverse split of Class C Common
Stock and the completion of Wit Capital's IPO on June 4, 1999. The investment is
recorded on the Company's June 30, 1999 balance sheet at $5,950,000 based upon
the June 30, 1999 closing price of Wit Capital Common Stock on the Nasdaq
National Market. The Company may not transfer or dispose of the Class C Common
Stock (or any interest in such shares) until 180 days from the completion of the
IPO (i.e., until December 1, 1999), at which point it will automatically convert
into Common Stock and will not be subject to any lock-up. The Company could
realize a significant gain with respect to this investment, although there can
be no assurance that the Company ultimately will realize any value with respect
to its shares of Wit Capital. As of August 9, 1999, the value of the Company's
investment in Wit Capital has declined to $3,171,875.
On June 2, 1999, the Company and Kirlin Holding Corp ("Kirlin") entered
into a Securities Purchase Agreement ("Securities Purchase Agreement") pursuant
to which the Company acquired 300,000 shares ("Investor Shares") of common stock
of Kirlin for $750,000, representing 4.9% of the then-outstanding shares of
Kirlin's common stock (the share amount has been restated to reflect a 2-for-1
stock split effected July 30, 1999). The purchase price was paid from the
Company's working capital. Kirlin contributed all the proceeds of this sale to
the capital of its subsidiary, VentureHighway.com ("VentureHighway"), in which
the Company has a 19.9% stake. Kirlin filed a registration statement registering
the resale of the Investor Shares under the Securities Act of 1933 and is
obligated to use its best efforts to cause the registration statement to become
effective as soon as practicable thereafter. The investment in Kirlin is
recorded on the Company's June 30, 1999 balance sheet at $1,471,950 based upon
the June 30, 1999 closing price of Kirlin's common stock on the Nasdaq Small-Cap
Market. The Company could realize a significant gain with respect to this
investment, although there can be no assurance that the Company ultimately will
realize any value with respect to its shares of Kirlin. As of August 9, 1999,
the value of the Company's investment in Kirlin has increased to $2,062,500.
Kirlin (Nasdaq: KILN) is a holding company engaged in securities
brokerage, securities trading and merchant banking activities through its
primary operating subsidiary, Kirlin Securities, Inc. Kirlin Securities is a
full service, retail oriented brokerage firm and is a member of the NASD.
On June 2, 1999, the Company, Kirlin and VentureHighway (at the time a
wholly-owned subsidiary of Kirlin), entered into an agreement ("Agreement")
pursuant to which the Company acquired 2,484 newly-issued shares of common stock
of VentureHighway, representing 19.9% of the then-outstanding shares of common
stock (the other 80.1% of which continue to be held by Kirlin). The purchase
price is payable in the form of advertising for VentureHighway in the Company's
magazines and websites during the next 30 months. The purchase price had a
stated value of $3.2 million, and is recorded on the Company's June 30, 1999
balance sheet at a fair value of $2.6 million.
VentureHighway owns and operates VentureHighway.com, a branded website
designed to serve as an interactive portal for the matching of companies seeking
funding with qualified investors seeking to fund such companies, and the
facilitation of private placements and public offerings of securities of
companies. There currently is no public market for VentureHighway securities,
and there is no assurance that the Company will realize any value with respect
to its investment in VentureHighway.
The Company's current levels of revenues are not sufficient to cover
its expenses. Under its current business plan, the Company intends to control
its operating expenses while continuing to invest in its existing products. The
Company anticipates losses to continue through 1999, although the Company
anticipates that losses from continuing operations in 1999 will be significantly
less than in 1998. Profitability may be achieved in future periods only if the
Company can substantially increase its revenues while controlling increases in
expenses. There can be no assurance that revenues will be substantially
increased, or that the increases in expenses can be controlled adequately to
enable the Company to attain profitability.
Management continues to expect that revenues will grow in 1999 as the
Company implements changes made by a new management team. Print Publications
advertising sales are expected to increase due to the addition of new key sales
personnel, anticipated publication of a 13th issue of Ticker, and the effect of
the increased awareness in the marketplace due in part to selected public
relations and advertising efforts. There can be no assurance, however, that
advertising sales will increase because higher advertising rates may not be
accepted by advertisers, advertising pages may continue to decline for
Individual Investor, circulation may drop at either or both Individual Investor
and Ticker, and the advertising mix may change. Although the Company has
recently added key advertising sales personnel, no assurance can be given that
these changes will result in advertising revenue increases. The Company also
believes that a stock market correction or "bear" market would adversely affect
its ability to sell advertising, particularly to the financial advertiser
categories.
The Company plans to continue investing in its Online Services because
it believes that this line of business offers the greatest opportunity for
generating substantial revenues and shareholder value over the longer term. The
Company expects to realize higher revenues from operations of its flagship
online service, Individual Investor Online, primarily due to the anticipated
traffic growth to the site, which is expected to generate higher levels of
sponsorship and banner revenues. Additionally, the Company expects to recognize
at least $1.1 million of online revenues over the next four quarters as a result
of its agreement with VentureHighway.com. There can be no assurance, however,
that such traffic growth will be realized, or that, even if realized, such
traffic growth will result in higher revenues or shareholder value. The Company
also expects to launch additional subscription-based online products during
1999. There can be no assurance, however, that such products in fact will be
launched, or that if launched, such products will be successful.
Based on the Company's business plan, the Company believes that its
working capital and its investments will be sufficient to fund its operations
and capital requirements at least through 1999. In the event that the Company
cannot obtain sufficient liquidity with respect to the Company's investments,
the Company may need to obtain debt or equity financing during the fourth
quarter of 1999 (during which quarter the Company's shares of Wit Capital should
become freely tradable). Thereafter, the Company may need to raise additional
capital in order to sustain operations unless the Company achieves profitability
through the generation of revenues beyond those currently anticipated. The
Company is currently exploring its ability to obtain additional financing. No
assurance can be given as to the availability of additional financing or, if
available, the terms upon which it may be obtained. Any such additional
financing may result in dilution of an investor's equity investment in the
Company. Failure to obtain additional financing on favorable terms, or at all,
could have a substantial adverse effect on the Company's future ability to
conduct operations.
Year 2000
The Company has evaluated the potential impact of the situation
commonly referred to as the "Year 2000 Issue". The Year 2000 Issue concerns the
inability of information systems, whether due to computer hardware or software,
to properly recognize and process date sensitive information relating to the
year 2000 and beyond. Many of the world's computer systems currently record
years in a two-digit format. Such computer systems may be unable to properly
interpret dates beyond the year 1999, which could lead to business disruptions
in the U.S and internationally. The potential costs and uncertainties associated
with the Year 2000 Issue will depend on a number of factors, including software,
hardware and the nature of the industry in which a company operates. The Year
2000 Issue could have a material adverse effect on the Company's results of
operations and ability to conduct business.
To attempt to ensure that the Company's computer systems (including
computer hardware and computer software) are "Year 2000 Ready" (that is, are not
disrupted by the Year 2000 Issue), the Company developed a plan to assess, and
remediate where necessary, any Year 2000 Issue with respect to the Company's
computer systems, and appointed certain employees to administer such plan. The
plan contains four phases: first, identifying all computer hardware and software
being used by the Company; second, determining whether such hardware and
software is Year 2000 Ready; third, remediating any Year 2000 Issue with respect
to any particular piece of hardware or software; and fourth, performing a final
audit and test. The Company has completed the first two phases, and has
completed the third phase with respect to hardware issues. The Company has made
significant progress toward completing the third phase with respect to software
issues, and currently expects to complete the third and fourth phases before
October 1999.
As of June 30, 1999, the Company has incurred direct costs of
approximately $20,000 relating to the development and implementation of its Year
2000 Plan. The Company currently believes that total direct costs associated
with making the Company's systems Year 2000 Ready should not exceed $30,000 and
that such costs, together with any lost revenue associated with making the
Company's systems Year 2000 Ready, should not have a material adverse effect on
the Company's operating results or financial condition. The Company does not
believe that the diversion of employee resources required to address the Year
2000 Issue will have a material effect on the Company's operating results or
financial condition. The Company does not have in place a contingency plan of
action in the event that it is not able to make its computer systems Year 2000
Ready, but will consider on an ongoing basis whether a contingency plan should
be developed.
The dates on which the Company believes it will complete its Year 2000
readiness phases, and the costs associated with such efforts, are based on the
Company's current best estimates. However, there can be no guarantee that these
estimates will be achieved, or that there will not be a delay in, or increased
costs associated with, making the Company's systems Year 2000 Ready. Specific
factors that might cause differences between the estimates and actual results
include, but are not limited to, the availability and cost of personnel trained
in these areas, the ability to locate and correct all relevant computer code and
hardware devices (such as microcontrollers), timely responses to and corrections
by third parties and suppliers, the ability to implement interfaces between the
new systems and the systems not being replaced, and similar uncertainties. Due
to the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third parties and the
interconnection of global businesses, the Company cannot ensure its ability to
timely and cost-effectively resolve problems associated with the Year 2000
Issue, and a failure to do so could materially adversely affect the Company's
operations and business, and expose it to third party liability.
The Company also faces risks and uncertainties to the extent that the
third party suppliers of products, services and systems on which the Company
relies or customers do not have business systems or products that are Year 2000
Ready. The Company has initiated communications with all of its significant
suppliers to determine the extent to which the Company's systems and products
are vulnerable to those third parties' failure to remediate their own systems'
Year 2000 Issues. The Company has received assurances from certain of its
suppliers stating that such suppliers' systems are or will timely be Year 2000
Ready, but there is no guarantee that the systems or products of these or other
companies on which the Company relies will be timely, if at all, made Year 2000
Ready, and such a failure by such companies could have a material adverse effect
on the Company's systems and products. No one customer has accounted for more
than 10% of the Company's revenues in the past year, and the Company has not
initiated contact with its customers concerning the status of their Year 2000
readiness. There is no guarantee that the systems of the Company's customers
will be made Year 2000 Ready, and a failure by a number of the Company's
customers to become Year 2000 Ready could have a material adverse effect on the
Company's revenues and cash flows. The Company is in the process of identifying
what actions may be needed to mitigate vulnerability to problems related to
enterprises with which the Company interacts, but does not currently have in
place a contingency plan of action in the event that the failure by one or more
third parties to make their computer systems Year 2000 Ready causes adverse
effects to be suffered by the Company. The Company will consider on an ongoing
basis the extent to which a contingency plan should be developed.
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities
Sales of Unregistered Securities
<S> <C> <C> <C> <C> <C>
- ----------------- ----------------------- ---------- -------------------------------- ---------------- -----------------------------
Date of sale Title of security Number Consideration received and Exemption from If option, warrant or
sold description of underwriting registration convertible security, terms
or other discounts to market claimed of exercise or conversion
price afforded to purchasers
- ----------------- ----------------------- ---------- -------------------------------- ---------------- ----------------------------
- ----------------- ----------------------- ---------- -------------------------------- ---------------- ----------------------------
4/99 - 6/99 Options to purchase 37,700 Exercise price would be Section 4(2) Vesting over a period of
common stock granted received upon exercise four years from date of
to employees grant, subject to certain
conditions of continued
service; exercisable for a
period lasting ten years
from date of grant at
exercise prices ranging
from $4.50 to $8.125 per
share.
- ----------------- ----------------------- ----------- ------------------------------- ----------------- ----------------------------
4/99 - 6/99 Common stock granted 2,400 Public relations advisory Section 4(2) Shares held by the Company
to consultant services in escrow and delivered in
equal monthly amounts from
June 1999 to May 2000,
provided agreement is not
terminated. Shares held in
escrow and not yet delivered
subject to repurchase at
nominal amount in event of
termination.
- ---------------- ----------------------- ---------- -------------------------------- ---------------- -----------------------------
</TABLE>
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 22, 1999, the Company held the annual meeting of stockholders
for the purpose of electing one director of the Company, S. Christopher Meigher
III, for a term of three years, and to consider and vote upon a proposal to
amend the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock to 40,000,000. The shares of Common Stock
voted on the matters were as follows: 8,106,531 shares were cast in favor and
173,837 shares were withheld for the election of the director, and 8,027,910
shares were cast in favor, 242,848 shares were against and 9,610 shares were
abstained for the increase to the number of authorized shares of Common Stock.
ITEM 5. Other Information
In July 1997 certain former limited partners of WisdomTree Associates,
L.P. ("WTA"), a domestic private investment fund of which WisdomTree Capital
Management, Inc., a wholly-owned subsidiary of the Company, is the general
partner, initiated an action in the Supreme Court of the State of New York,
County of New York, captioned Richard Tarlow and Sandra Tarlow v. WisdomTree
Associates, L.P., Bob Schmidt and Jonathan Steinberg, Index No. 113819/97.
Defendants moved to dismiss the action based on plaintiffs' failure to file a
complaint, and the action was dismissed without prejudice in October 1997. In
October 1998, plaintiffs moved to vacate the default judgment. Defendants
opposed the motion. On April 20, 1999, the court denied plaintiffs' motion with
respect to Messrs. Schmidt and Steinberg, but granted the motion with respect to
WTA and plaintiffs were permitted to and did file and serve a complaint solely
against this defendant. Plaintiffs allege that WTA did not timely process
plaintiffs' request for redemption of their interest in WTA, which delay
allegedly caused plaintiffs to suffer approximately $470,000 in damages. WTA has
moved to dismiss the complaint as to all causes of action other than the breach
of contract claim. The parties are awaiting the Court's ruling on the motion,
and WTA intends to continue conducting a vigorous defense. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
In April 1999 a stockholder of the Company initiated an action in the
Court of Chancery of the State of Delaware, New Castle County, captioned Michele
S. Criden v. Jonathan L. Steinberg, Bruce L. Sokoloff, Peter M. Ziemba and S.
Christopher Meigher III (C.A. No. 17082). The Company is named as a nominal
defendant in the action. Plaintiff alleged that the four individual defendants,
who comprise the entire Board of Directors of the Company, took improper action
(i) on November 19, 1998, in determining to amend the terms of options
previously granted to Jonathan Steinberg to reduce their exercise prices (which
ranged from $4.9375 to $7.50) to $1.25 (11% higher than the last sale price on
the trading date immediately preceding the date of such amendment), and (ii) on
December 23, 1998, in determining to grant replacement options to each of
Messrs. Sokoloff, Ziemba and Meigher, conditioned upon cancellation of their
existing options, which replacement options had an exercise price of $2.00 per
share (the last sale price of the Common Stock on the trading date immediately
preceding the date of the new grant), which was less than the exercise price of
options previously granted to them (which exercise prices ranged from $4.375 to
$10.50). Plaintiff claimed that such actions constituted corporate waste and a
diversion of corporate assets for improper and unnecessary purposes and that the
directors breached their fiduciary duties, including their duty of loyalty, to
the Company and its stockholders. Plaintiff demanded judgment (i) enjoining the
four directors from exercising any options at the reduced exercise price, (ii)
declaring a constructive trust of any proceeds resulting from the directors'
exercise of such options, (iii) damages, on behalf of the Company, for losses
and damages suffered and to be suffered in connection with the option
repricings, including interest thereon, and (iv) awarding plaintiffs the costs
of this action, including reasonable attorney's fees. In June 1999, defendants
moved to dismiss the complaint. Plaintiff indicated that she would not oppose
the motion, but rather would file an amended complaint. In August 1999,
plaintiff filed an amended complaint. The Board of Directors believed at the
time, and continues to believe, that the actions taken on November 19, 1998 and
December 23, 1998, were proper.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit Description Method of Filing
NO.
---- ------------ ----------------
3.1 Certificate of Amendment of Amended Filed herewith
and Restated Certificate of Incorporation
dated June 22, 1999
3.2 Amended and Restated Certificate of Filed herewith
Incorporation of Registrant, as amended,
through June 22, 1999
3.3 By-Laws of Registrant amended through Filed herewith
April 27,1999
4.1 Specimen Certificate for Common Stock of Incorporated by
Registrant reference to Exhibit
4.1 to the Form S-18
10.1 Form of Warrant dated December 16, 1998 Filed herewith
10.2 Letter dated as of April 28, 1999 between Filed herewith
Registrant, Great American Life Insurance
Company and Great American Insurance
Company
27 Financial Data Schedule June 30, 1999 Filed only with the
electronic submission
of Form 10-Q in
accordance with the
EDGAR requirement
99 Certain Risk Factors Filed herewith
(a) Reports on Form 8-K
During the Quarter Ended June 30, 1999, the Company filed a Current Report
on Form 8-K dated June 2, 1999, reporting under Item 2 the acquisition of
19.9% of the then-outstanding shares of common stock of VentureHighway.com
Inc., as well as 150,000 shares (pre-split) of common stock of Kirlin
Holding Corp.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATE: August 13, 1999
INDIVIDUAL INVESTOR GROUP, INC. (Registrant)
By: /s/ Jonathan L. Steinberg
Jonathan L. Steinberg, Chief Executive Officer and Director
By: /s/ Henry G. Clark
Henry G. Clark, Vice President Finance
(Principal Financial and Accounting Officer)
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INDIVIDUAL INVESTOR GROUP, INC.
Pursuant to the General Corporation Law of the State of
Delaware ("GCL"), it is hereby certified that:
1. The present name of the corporation (hereinafter called the
"corporation") is Individual Investor Group, Inc. The name under which the
corporation was incorporated was Financial Data Systems, Inc. The date of filing
the original certificate of incorporation of the corporation with the Secretary
of State of the State of Delaware was September 19, 1985.
2. The certificate of incorporation of the corporation is
hereby amended by deleting the first paragraph of Article Fourth and in its
stead substituting the following:
The total number of shares of all classes of stock
that the Corporation shall have authority to issue is
forty-two million (42,000,000) shares, of which forty million
(40,000,000) shares will be shares of Common Stock, with a par
value of one cent ($.01) per share, and two million
(2,000,000) shares shall be shares of Preferred Stock, with a
par value of one cent ($.01) per share.
3. Except as otherwise amended hereby, the provisions of the
certificate of incorporation of the corporation are in full force and effect.
4. The amendment to the certificate of incorporation has been
duly adopted in accordance with the provisions of Section 242 of the GCL, by
resolution of the Board of Directors of the corporation and by affirmative vote
of the holders of a majority of the outstanding stock entitled to vote thereon
at a meeting of stockholders.
IN WITNESS WHEREOF, the undersigned have signed this
Certificate of Amendment on this 22nd day of June 1999.
/s/ Jonathan L. Steinberg
Jonathan L. Steinberg, Chief Executive Officer
ATTEST:
/s/ Henry G. Clark
Henry G. Clark, Secretary
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INDIVIDUAL INVESTOR GROUP, INC.
(as amended through June 22, 1999)
ARTICLE I
The name of the Corporation is "INDIVIDUAL INVESTOR GROUP, INC."
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The total number of shares of all classes of stock that the Corporation
shall have authority to issue is forty-two million (42,000,000) shares, of which
forty million (40,000,000) shares shall be shares of Common Stock, with a par
value of one cent ($.01) per share, and two million (2,000,000) shares shall be
shares of Preferred Stock, with a par value of one cent ($.01) per share.
The Board of Directors of the Corporation hereby expressly is
granted authority to authorize, in accordance with Section 151(a) of the General
Corporation Law of the State of Delaware, from time to time the issuance of one
or more series of Preferred Stock and with respect to any such series to fix by
resolution or resolutions the numbers, powers, designations, preferences, and
relative, participating, optional, or other special rights of such series, and
the qualifications, limitations, or restrictions thereof, including but without
limiting the generality of the foregoing, the following:
(1) entitling the holders thereof to cumulative, non-cumulative, or
partially cumulative dividends, or to no dividends;
(2) entitling the holders thereof to receive dividends payable on a
parity with, junior to, or in preference to, the dividends payable on any other
class or series of capital stock of the Corporation;
(3) entitling the holders thereof to rights upon the liquidation
of, or upon any distribution of the assets of, the Corporation, on a parity
with, junior to, or in preference to, the rights of any other class or series
of capital stock of the Corporation;
(4) providing for the conversion, at the option of the holder or of
the Corporation or both, of the shares of Preferred Stock into shares of any
other class or classes of capital stock of the Corporation or any serie of the
same or any other class or classes or into property of the Corporation or into
the securities or properties of any other corporation or person, or providing
for no conversion;
(5) providing for the redemption, as a whole or in part, of the
shares of Preferred Stock at the option of the Corporation, in cash, bonds, or
other property, at such price or prices, within such period or periods, and
under such conditions as the Board of Directors shall so provide, including
provision for the creation of a sinking fund for the redemption thereof, or
providing for no redemption; and
(6) providing for the lack of voting rights or limited voting rights
or enjoying general, special, or multiple voting rights.
ARTICLE V
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation and for further
definition, limitation, and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors;
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to, or repeal the
Bylaws of the Corporation;
(3) The number of directors of the Corporation shall be as
from time to time fixed by the Bylaws of the Corporation;
(4) In addition to the powers and authority expressly
conferred upon them herein or by statute, the directors hereby are
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the General Corporation Law of Delaware, this
Amended and Restated Certificate of Incorporation, and any Bylaws
adopted by the stockholders; provided, however, that no Bylaws
hereafter adopted by the stockholders shall invalidate any prior act of
the directors which would have been valid if such Bylaws had not been
adopted.
ARTICLE VI
The number of directors to constitute the whole Board of Directors
shall be such number as shall be set forth in the Bylaws and as shall be fixed
from time to time by resolution of the Board of Directors or by the stockholders
of the Corporation. The Board of Directors shall be divided into three classes
as nearly equal in number as may be, with the term of office of one class
expiring each year. At each annual meeting of the stockholders, successors to
the directors whose terms shall then expire shall be elected to hold office for
terms expiring at the third succeeding annual meeting of stockholders. In case
of any vacancies, by reason of an increase in the number of directors or
otherwise, each additional director may be elected by the Board of Directors
until the end of the term he is elected to fill and until his successor shall be
elected and qualified in the class to which such director is assigned and for
the term or remainder of the term of such class. Directors shall continue in
office until others are chosen and qualified in their stead. When the number of
directors is changed, any newly created directorships or any decrease in
directorships shall be so assigned among the classes by a majority of the
directors then in office, though less than a quorum, as to make all classes as
nearly equal in number as may be feasible. No decrease in the number of
directors shall shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies, and
other features of such directorships shall be governed by the terms of this
Certificate of Incorporation applicable thereto, and such directors selected
shall not be divided into classes pursuant to this Article VI unless expressly
provided by such terms.
ARTICLE VII
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director, pursuant to Section 102 (b) (7) of the General
Corporation Law of Delaware. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (1) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) pursuant to Section 174 of the General Corporation
Law of Delaware, or (4) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article VII shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
ARTICLE VIII
The Corporation, to the fullest extent permitted by Section 145 of the
general Corporation Law of Delaware, as the same may be amended and supplemented
from time to time, or by any successor thereto, shall indemnify any and all
persons whom it shall have power to indemnify under such Section from and
against any and all of the expenses, liabilities, and other matters referred to
in or covered by such Section, and, to the fullest extent permitted by such
Section, shall advance expenses incurred by such persons in defending civil or
criminal actions, suits, and proceedings. The indemnification and advancement of
expenses provided for herein shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. Such indemnification and advancement of expenses shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the General Corporation Law of Delaware)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the General Corporation Law of Delaware or on
the application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of the General Corporation
Law of Delaware, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE XI
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XII
The amount of the authorized stock of the Corporation of any class or
classes may be increased or decreased by the affirmative vote of the holders of
a majority of the stock of the Corporation entitled to vote.
ARTICLE XIII
Elections of directors need not be by ballot unless the Bylaws of the
Corporation shall so provide.
EXHIBIT 3.3
[As amended through April 27, 1999]
BY-LAWS
OF
INDIVIDUAL INVESTOR GROUP, INC.
ARTICLE I
Offices
1. Registered Office. The registered office of the Corporation
in Delaware shall be at 1209 Orange Street, in the City of Wilmington, County of
New Castle, State of Delaware, and the name of the resident agent in charge
thereof is The Corporation Trust Company.
2. Other Offices. The Corporation may also have an office or
offices at such other place or places, within or without the State of Delaware,
as the Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
Stockholders' Meetings
1. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other business as may properly be brought before the meeting shall be held
at such time and on such date as shall be fixed from time to time by resolution
of the Board of Directors and as set forth in the notice of the meeting. Such
annual meeting of stockholders shall be held at such place, within or without
the State of Delaware, as may be fixed by the Board of Directors.
2. Special Meetings. Special meetings of the stockholders
shall be held at such place within or without the State of Delaware as may be
designated in the notice of said meeting, upon call of the Board of Directors,
the Chairman of the Board, the President or the Secretary.
3. Notice of Meetings. The Secretary or any Assistant
Secretary shall cause notice of the place, date and hour of each meeting of the
stockholders, and, in the case of a special meeting, the purpose or purposes for
which such meeting is called to be given personally or by mail, at least ten but
not more than sixty days prior to the meeting, to each stockholder of record
entitled to vote at his post office address as the same appears on the books of
the Corporation at the time of such mailing. Notice of any meeting of
stockholders need not be given to any stockholder who shall sign a waiver of
such notice in writing, whether before or after the time of such meeting, or to
any stockholder who shall attend such meeting in person or by proxy. Notice of
any adjourned meeting of the stockholders of the Corporation need not be given,
except as otherwise required by statute.
4. Quorum. A quorum at all meetings of stockholders shall
consist of the holders of record of a majority of the shares of stock of the
Corporation, issued and outstanding, entitled to vote at the meeting, present in
person or by proxy, except as otherwise provided by statute or the Certificate
of Incorporation. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any stockholder.
5. Absence of Quorum. In the absence of a quorum at any
meeting or any adjournment thereof, a majority of those present in person or by
proxy and entitled to vote may adjourn such meeting from time to time. At any
such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the meeting as originally called.
6. Voting in General. Except as otherwise provided in the
By-Laws, the Certificate of Incorporation or in the laws of the State of
Delaware, at every meeting of the stockholders, each stockholder of record of
the Corporation shall have one vote in person or by proxy for each share of
stock having voting rights held by him and registered in his name on the books
of the Corporation. Any vote on shares of stock of the Corporation may be given
by the stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder, or by his attorney
thereunto authorized, and delivered to the secretary of the meeting. Except as
otherwise required by statute, by the Certificate of Incorporation or these
By-Laws, all matters coming before any meeting of the stockholders shall be
decided by a plurality vote of the stockholders of the Corporation present in
person or by proxy at such meeting and entitled to vote thereat, a quorum being
present.
7. Consent of Stockholders in Lieu of Meeting. To the fullest
extent permitted by law, whenever any action is required or permitted to be
taken at a meeting of stockholders, by law, by the Certificate of Incorporation
or by these By-Laws, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
8. Stockholder Proposals To Be Transacted at Annual Meeting.
For business to be properly brought before an annual meeting of stockholders by
a stockholder, the stockholder must give written notice thereof to the Secretary
of the Corporation, which must be received at the Corporation's principal
executive offices not later than 120 calendar days before the first anniversary
of the date of the Corporation's notice of annual meeting used in connection
with the previous year's annual meeting of stockholders or, if no annual meeting
was held in the previous year, then by the end of the fiscal year immediately
preceding the fiscal year in which the annual meeting will be held. Any such
notice shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting and, in the event that such business includes a proposal to amend either
the Certificate of Incorporation or By-laws of the Corporation, the language of
the proposed amendment, (ii) the name and address of the stockholder proposing
such business, (iii) a representation disclosing (a) the number of shares
beneficially owned by such stockholder, (b) the length of time such shares have
been held by the stockholder, (c) that the stockholder will continue to own such
securities through the annual meeting, and (d) that the stockholder intends to
appear in person or by proxy at the meeting at which the proposal will be
considered, and (iv) any material interest of the stockholder in such business.
The chairman of any annual meeting of stockholders may refuse to permit any
business to be brought before an annual meeting without compliance with the
foregoing procedures.
ARTICLE III
Directors
1. General Power. The property, affairs and business of the
Corporation shall be managed by or under the direction of its Board of
Directors, which shall consist of not less than one (1) nor more than twenty
(20) persons. The exact number of directors within the maximum and minimum
limitations specified shall be fixed from time to time by resolution of the
Board of Directors or by the stockholders.
2. Term of Office. Each director (whether elected at an annual
meeting, or to fill a vacancy or newly created directorship or otherwise) shall
hold office until his successor shall be elected and shall qualify or until his
earlier resignation or removal.
3. Meetings. Meetings of the Board of Directors shall be held
at such place within or outside of the State of Delaware as may from time to
time be fixed by resolution of the Board of Directors, or as may be specified in
the notice of the meeting. Regular meetings of the Board of Directors shall be
held at such times as may from time to time be fixed by resolution of the Board
of Directors, and special meetings may be held at any time upon the call of the
Chairman of the Board or President or a majority of the directors by oral,
telegraphic or written notice duly served on or sent or mailed to each director
not less than one day before such meeting. A meeting of the Board of Directors
may be held without notice immediately after the annual meeting of stockholders.
Notice need not be given of regular meetings of the Board of Directors. Meetings
may be held at any time without notice if all the directors are present, or if
at any time before or after the meeting those present waive notice of the
meeting in writing.
4. Quorum. A majority of the members of the Board of Directors
then acting shall constitute a quorum for the transaction of business, but if at
any meeting of the Board of Directors there shall be less than a quorum present,
a majority of those present may adjourn the meeting, without further notice,
from time to time until a quorum shall have been obtained.
5. Vacancies. In case one or more vacancies shall occur in the
Board of Directors by reason of death, resignation, increase in the number of
directors or otherwise except in so far as otherwise provided in these By-Laws,
the remaining directors, although less than a quorum, may, by a majority vote,
elect a successor or successors for the unexpired term or terms.
6. Removal from Office. Any or all of the directors may by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote for the election of directors be removed from
office, either with or without cause.
7. Action without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
the committee, as the case may be, consent thereto in writing, and such writing
or writings are filed with the minutes of proceedings of the Board of Directors.
8. Regulations; Manner of Acting. To the extent consistent
with law, the Certificate of Incorporation and these By-Laws, the Board of
Directors and any committee thereof may adopt such rules and regulations for the
conduct of meetings of the Board or such committee and for the management of the
property, affairs and business of the Corporation as the Board may deem
appropriate. Members of the Board of Directors and any committee thereof may
participate in a meeting of the Board or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting for all purposes of these By-Laws.
9. Compensation. Directors may, by resolution of the Board of
Directors, be allowed a fixed sum and expenses of attendance for attendance at
regular or special meetings of the Board of Directors; provided that nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees, and others who attend pursuant to direction,
may, by vote of the Board of Directors, be allowed a like fixed sum and expenses
of attendance for attending committee meetings.
10. Executive Committee. The Board of Directors, in its
discretion, may appoint an Executive Committee consisting of one or more members
of the Board of Directors, who shall serve at the pleasure of the Board of
Directors. The Executive Committee shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. The Executive Committee shall also
have the power and authority to declare a dividend and to authorize the issuance
of stock. The Executive Committee powers shall be subject to the limitations set
forth in Section 141(c) of the Delaware General Corporation Law, as amended. The
Executive Committee shall also have authority to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law, as amended.
11. Other Committees. The Board of Directors, in its
discretion, may appoint one or more committees (in addition to the Executive
Committee), each consisting of one or more directors. Each such committee shall
have such powers and duties as may be provided by resolution or resolutions of
the Board of Directors.
12. Quorum, Manner of Acting, etc. Each Committee shall have
quorum requirements which are no more restrictive than those of the Board of
Directors and shall in all other respects act in the manner and following the
procedures established for the Board of Directors.
ARTICLE IV
Officers
1. General. The officers of the Corporation shall be appointed
by the Board of Directors and shall be a Chairman of the Board, a President, one
or more Vice Presidents (one or more of which may be designated Senior Vice
Presidents by the Board of Directors), a Secretary and a Treasurer. From time to
time the Board of Directors may appoint such Assistant Secretaries, Assistant
Treasurers and such other officers, agents and employees as it may deem proper.
Any number of offices may be held by the same person. The Chairman of the Board
and the President shall be chosen from among the Directors.
2. Term. All officers shall hold their offices until their
respective successors are elected and qualify, or until their earlier
resignation or removal. Any officer may be removed from office, either with or
without cause, at any time by the affirmative vote of a majority of the members
of the Board of Directors then in office. Any officer may resign at any time
upon written notice to the Corporation.
3. Power to Vote Securities Owned by the Corporation. Unless
otherwise ordered by the Board of Directors, the Chairman of the Board and the
President, acting singly or together, shall have full power and authority on
behalf of the Corporation to attend, to act and to vote at any meetings of
security holders of the corporations in which the Corporation may hold
securities, and at any such meetings shall possess and may exercise any and all
the rights and powers incident to the ownership of such securities, and which,
as the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any other person or persons.
ARTICLE V
Duties of Officers
1. Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall have general charge and
control of all the property, business and affairs of the Corporation and,
subject to the supervision of the Board of Directors, he shall have general
supervision over the corporation's officers, employees and agents. He shall sign
(unless the President or a Vice President shall have signed) certificates
representing the stock of the Corporation authorized for issuance by the Board
of Directors or the Executive Committee. He may enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation
in the ordinary course of the Corporation's business. He shall have all powers
and perform all duties incident to the office of a chief executive officer of a
corporation and such other duties as are given to him by these By-Laws or as
from time to time may be assigned to him by the Board of Directors.
2. President. The President shall, in the absence of the
Chairman of the Board, preside at meetings of the stockholders and of the Board
of Directors and shall, in case of a vacancy in the office of the Chairman of
the Board, have the power to perform the duties incident to such office. He
shall be the Chief Operating Officer of the Corporation.
3. Vice Presidents. Each Vice President shall have such powers
and perform such duties as may be assigned to him by the Board of Directors, the
Chairman of the Board or the President. At the request or in the absence or
disability of the Chairman of the Board, the President and the Executive Vice
President, the Vice President (or if none shall have been designated, the senior
of the Vice Presidents present and able to act or such other Vice President as
may be designated by the Board of Directors) may perform all the duties of such
officers and, when so acting, shall have all the powers of and be subject to all
the restrictions upon such officers. Any Vice President may sign (unless the
Chairman of the Board, the President or another Vice President shall have
signed) certificates representing stock of the Corporation authorized for
issuance by the Board of Directors or the Executive Committee.
4. Treasurer. The Treasurer shall have the custody of all the
funds and securities of the Corporation. When necessary or proper he shall
endorse on behalf of the Corporation, for collection, checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank, or banks, or depositories as may be designated by the Board of Directors,
or by any officer acting under authority conferred by the Board of Directors. He
shall enter regularly in books to be kept for the purpose, a full and accurate
account of all moneys received and paid by him on account of the Corporation.
Whenever required by the Board of Directors, he shall render an account of all
his transactions as Treasurer and of the financial condition of the Corporation.
He shall at all reasonable times exhibit his books and accounts to any director
of the Corporation upon application at the office of the Corporation during
business hours and he shall perform all things incident to the position of
Treasurer, subject to the control of the Board of Directors. He shall give bond
for the faithful discharge of his duties if the Board of Directors so requires.
He may sign (unless an Assistant Treasurer or the Secretary or an Assistant
Secretary shall have signed) certificates representing stock of the Corporation
authorized for issuance by the Board of Directors or the Executive Committee. He
shall perform, in general, all duties incident to the office of a treasurer of a
corporation and such other duties as are given to him by these By-Laws or as
from time may be assigned to him by the Board of Directors, the Chairman of the
Board or the President.
5. Assistant Treasurers. The Board of Directors may, from time
to time, designate and elect one or more Assistant Treasurers who shall have
such powers and perform such duties as may be assigned to them by the Board of
Directors or the Treasurer. At the request or in the absence or disability of
the Treasurer, the Assistant Treasurer (or, if there are two or more Assistant
Treasurers, then the senior of the Assistant Treasurers present and able to act
or such other Assistant Treasurer as may be designated by the Board of
Directors) may perform all the duties of the Treasurer and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Treasurer.
6. Secretary. The Secretary shall attend to the giving and
serving of all notices of the Corporation. He shall keep or cause to be kept a
record of the proceedings of the meetings of the stockholders and of the Board
of Directors in books kept for that purpose. He shall be the custodian of the
seal of the Corporation, and cause such seal (or a facsimile thereof) to be
affixed to all certificates representing the stock of the Corporation prior to
the issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in accordance
with these By-Laws, and when so affixed he may attest the same. He shall have
charge of the records of the Corporation, including the stock books and such
other books, reports, statements and other documents as the Board of Directors
may direct to be kept or as are required by law to be kept all of which shall at
all reasonable times be open to inspection by any director. He shall sign
(unless the Treasurer, an Assistant Treasurer or an Assistant Secretary shall
sign) certificates representing stock of the Corporation authorized for issuance
by the Board of Directors or the Executive Committee. He shall perform all
duties incident to the office of a secretary of a corporation and such other
duties as are given to him by these By-Laws or as from time to time may be
assigned to him by the Board of Directors, the Chairman of the Board or the
President.
7. Assistant Secretaries. The Board of Directors may, from
time to time, designate and elect one or more Assistant Secretaries who shall
have such powers and perform such duties as may be assigned to them by the Board
of Directors or the Secretary. At the request or in the absence of the
Secretary, the Assistant Secretary (or, if there are two or more Assistant
Secretaries, then the senior of the Assistant Secretaries present and able to
act or such other Assistant Secretary as may be designated by the Board of
Directors) may perform all the duties of the Secretary and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Secretary.
8. Delegation by Board of Directors. In the case of absence or
inability to act of any officer of the Corporation and of any person herein
authorized to act in his place, the Board of Directors may from time to time
delegate the powers of such officer to any other officer or any director or any
other person whom it may select.
ARTICLE VI
Capital Stock
1. Certificates of Stock.
(a) Every holder of stock in the Corporation shall be entitled to have a
certificate, signed by, or in the name of the Corporation by, the Chairman of
the Board, the President or any Vice President and the Treasurer or any
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the
number of shares owned by him in the Corporation.
(b) Certificates representing shares of stock of the Corporation shall be
in such form as shall be approved by the Board of Directors.
(c) There shall be entered upon the stock books of the Corporation at the
time of issuance of each share the number of the certificate issued, the name of
the person owning the shares represented thereby, the number and class of such
shares, and the date of issuance thereof. Every certificate exchanged or
returned to the Corporation shall be marked "Cancelled", with the date of
cancellation.
2. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate representing shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate, and record the transaction
upon its books. Subject to the provisions of the Certificate of Incorporation
and these By-Laws, the Board of Directors may prescribe such additional rules
and regulations as it may deem appropriate relating to the issue, transfer and
registration of shares of the Corporation.
ARTICLE VII
Corporate Seal
The Corporate Seal of the Corporation shall be circular in
form and shall bear the name of the Corporation, the year of incorporation and
the words, "Corporate Seal" and "Delaware". The form of the seal shall be
subject to alteration by the Board of Directors and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or director of the Corporation shall have authority to
affix the corporate seal of the Corporation to any document requiring the same,
and to attest the same.
ARTICLE VIII
Indemnification and Insurance
1. Indemnification. Each person who has been or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceedings, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation, or is serving or has served at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, and expenses incurred in connection therewith may be
advanced by the Corporation, all to the full extent and in the manner permitted
by Section 145 of the General Corporation Law of the State of Delaware (or any
other similar provision or provisions of applicable law at the time in effect).
The indemnification provided hereby shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
2. Insurance. By action of the Board of Directors,
notwithstanding any interest of the Directors in such action, the Corporation
may purchase and maintain insurance, in such amounts as the Board may deem
appropriate, on behalf of any person who is or was a Director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under applicable provisions of law.
ARTICLE IX
Amendments
The By-Laws of the Corporation shall be subject to alteration,
amendment or repeal, and new By-Laws not inconsistent with any provision of the
Certificate of Incorporation or statute, may be made, either by the affirmative
vote of the holders of a majority in interest of the stockholders of the
Corporation present in person or by proxy at any annual or special meeting of
the stockholders and entitled to vote thereat a quorum being present, provided
that notice of such proposed action shall have been given in the call for the
meeting, or by the affirmative vote of a majority of the whole Board, given at
any regular or special meeting of the Board of Directors.
EXHIBIT 10.1
THE REGISTERED HOLDER OF THIS WARRANT, BY ITS
ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT
SELL, TRANSFER OR ASSIGN THIS WARRANT
EXCEPT AS HEREIN PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 15, 2003
WARRANT
For the Purchase of
_____ Shares of Common Stock
of
INDIVIDUAL INVESTOR GROUP, INC.
1. Warrant.
THIS CERTIFIES THAT, in consideration of $10.00 and other good and
valuable consideration, duly paid by or on behalf of
_____________________("Holder"), as registered owner of this Warrant, to
Individual Investor Group, Inc. ("Company"), Holder is entitled, at or before
5:00 p.m., Eastern Time December 15, 2003 ("Expiration Date"), but not
thereafter, to subscribe for, purchase and receive, in whole or in part, up to
__________________ (_______) shares of Common Stock of the Company ("Common
Stock") in accordance with Section 2.4 hereof. If the Expiration Date is a day
on which banking institutions are authorized by law to close, then this Warrant
may be exercised at or before 5:00 p.m. Eastern Time on the next succeeding day
which is not such a day in accordance with the terms herein. During the period
ending on the Expiration Date, the Company agrees not to take any action that
would terminate the Warrant, except as provided in Section 2.4 hereof. This
Warrant is initially exercisable at $2.15625 per share of Common Stock
purchased; provided, however, that upon the occurrence of any of the events
specified in Section 6 hereof, the rights granted by this Warrant, including the
exercise price and the number of shares of Common Stock to be received upon such
exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean the initial exercise price or the adjusted exercise price, depending
on the context, of a share of Common Stock. The term "Securities" shall mean the
shares of Common Stock issuable upon exercise of this Warrant.
2. Exercise.
2.1 Exercise Form. In order to exercise this Warrant, the exercise form
attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price for the
Securities being purchased. If the subscription rights represented hereby shall
not be exercised at or before 5:00 p.m., Eastern Time, on the Expiration Date,
this Warrant shall become and be void without further force or effect, and all
rights represented hereby shall cease and expire.
2.2 Legend. Each certificate for Securities purchased under this
Warrant shall bear a legend as follows, unless such Securities have been
registered under the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act") or
applicable state law. The securities may not be offered for sale, sold
or otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act and applicable state law."
2.3 Conversion Right.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in cash, the Holder shall have the right (but not the obligation)
to convert this Warrant, in whole or in part, into Common Stock ("Conversion
Right"), as follows: upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (x) the "Value" (as defined below) of the portion of the Warrant being
converted at the time the Conversion Right is exercised by (y) the Market Price.
The "Value" of the portion of the Warrant being converted shall equal the
remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of Common Stock being converted from (b) the Market Price of
the Common Stock multiplied by the number of shares of Common Stock being
converted. As used herein, the term "Market Price" at any date shall be deemed
to be the last reported sale price of the Common Stock on such date, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the immediately preceding three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any such exchange
on which the Common Stock is listed is not its principal trading market, the
last reported sale price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the Nasdaq National Market or SmallCap Market,
or, if applicable, the OTC Bulletin Board, or if the Common Stock is not listed
or admitted to trading on any of the foregoing markets, or similar organization,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
2.3.2 Exercise of Conversion Right. The Conversion Right may
be exercised by the Holder on any business day on or after the Warrant is
exercisable and not later than the Expiration Date by delivering the Warrant
with a duly executed exercise form attached hereto with the conversion section
completed to the Company, exercising the Conversion Right and specifying the
total number of shares of Common Stock the Holder will purchase pursuant to such
conversion.
2.4 Exercise Schedule. This Warrant may be exercised to the extent of
_______ shares of Common Stock on or after December 16, 1999 ("First
Installment") and to the extent of an additional ______ shares of Common Stock
("Additional Installment") on or after January 16, 2000. Notwithstanding the
foregoing, in the event the Company terminates the Financial Advisory and
Investment Banking Agreement ("Agreement") dated December 16, 1998, between the
Company and SERP on or before January 15, 2000, pursuant to Section 2 of the
Agreement, the Company may, in its sole discretion, cancel the Additional
Installment on or before such date.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Warrant, by its
acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Warrant to anyone except upon compliance with, or pursuant to
exemptions from, applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with this Warrant and payment of
all transfer taxes, if any, payable in connection therewith. Upon receipt of the
foregoing and satisfaction of the requirements set forth in Section 3.2, the
Company shall immediately transfer this Warrant on the books of the Company and
shall execute and deliver a new Warrant or Warrants of like tenor to the
appropriate assignee(s) expressly evidencing the right to purchase the aggregate
number of shares of Common Stock purchasable hereunder or such portion of such
number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. This Warrant and the
Securities underlying this Warrant shall not be transferred unless and until (i)
the Company has received the opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the Act,
and applicable state law, the availability of which is established to the
reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Securities has been filed by the Company and declared effective
by the Securities and Exchange Commission and compliance with applicable state
law.
4. New Warrants to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Warrant may be exercised or assigned in whole or in part.
In the event of the exercise or assignment hereof in part only, upon surrender
of this Warrant for cancellation, together with the duly executed exercise or
assignment form and funds (or conversion equivalent) sufficient to pay any
Exercise Price and/or transfer tax, the Company shall, subject to the
restrictions in Section 3 hereof, cause to be delivered to the Holder without
charge a new Warrant of like tenor to this Warrant in the name of the Holder
evidencing the right of the Holder to purchase the aggregate number of shares of
Common Stock and Warrants purchasable hereunder as to which this Warrant has not
been exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and of reasonably satisfactory indemnification, the Company shall execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed and
delivered as a result of such loss, theft, mutilation or destruction shall
constitute a substitute contractual obligation on the part of the Company.
5. Registration Rights.
5.1 "Piggy-Back" Registration.
5.1.1 Grant of Right. The Holders of this Warrant shall have the right on or
before December 15, 2005 to include all or any part of the shares of Common
Stock underlying this Warrant (the "Registrable Securities") as part of any
registration of securities filed by the Company (other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to
Form S-8 or any equivalent form); provided, however, that if, in the written
opinion of the Company's managing underwriter or underwriters, if any, for such
offering (the "Underwriter"), the inclusion of the Registrable Securities, when
added to the securities being registered by the Company or the selling
stockholder(s), will exceed the maximum amount of the Company's securities which
can be marketed (i) at a price reasonably related to their then current market
value, or (ii) without materially and adversely affecting the entire offering,
the Company shall nevertheless register all or any portion of the Registrable
Securities required to be so registered but such Registrable Securities shall
not be sold by the Holders until 90 days after the registration statement for
such offering has become effective; and provided further that, if any securities
are registered for sale on behalf of other stockholders in such offering and
such stockholders have not agreed to defer such sale until the expiration of
such 90 day period, the number of securities to be sold by all stockholders in
such public offering during such 90 day period shall be apportioned pro rata
among all such selling stockholders, including all holders of the Registrable
Securities, according to the total amount of securities of the Company proposed
to be sold by said selling stockholders, including all holders of the
Registrable Securities. Notwithstanding the foregoing, if the shares of Common
Stock underlying this Warrant are freely saleable, without restriction, under an
exemption from the registration requirements of the Act at the time of filing of
the registration statement, the Company shall have no obligation under this
Section 5 to register such shares under such registration statement.
5.1.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Securities, including any filing fees
payable to the National Association of Securities Dealers, Inc., but the Holders
shall pay any and all underwriting commissions and the expenses of any legal
counsel selected by the Holders to represent them in connection with the sale of
the Registrable Securities. In the event of such a proposed registration, the
Company shall furnish the then Holders of outstanding Registrable Securities
with not less than thirty days written notice prior to the proposed date of
filing of such registration statement. Such notice to the Holders shall continue
to be given for each registration statement filed by the Company until such time
as all of the Registrable Securities have been sold by the Holder. The holders
of the Registrable Securities shall exercise the "piggy-back" rights provided
for herein by giving written notice, within twenty days of the receipt of the
Company's notice of its intention to file a registration statement. The Company
shall cause any registration statement filed pursuant to the above "piggyback"
rights to remain effective until all Registrable Securities thereunder have been
sold, or are freely saleable, without restriction, under an exemption from the
registration requirements.
5.2 General Terms
5.2.1 Indemnification.
(a) Subject to clauses (b)-(d) of this Section 5.2.1,
the Company shall indemnify the Holder(s) of the Registrable Securities
to be sold pursuant to any registration statement hereunder and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holders or underwriters or persons deemed to be underwriters
within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all reasonable attorneys' fees and other
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement, other
than arising from the willful misconduct, bad faith or gross negligence of the
party seeking indemnification. Subject to clauses (b)-(d) of this Section
5.2.1, the Holder(s) of the Registrable Securities to be sold pursuant to such
registration statement, and their successors and assigns, shal severally, and
not jointly, indemnify the Company, against all loss, claim, damage, expense
or liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which the Company may become subject under the Act, the Exchange
Act or otherwise, arising from information furnished by or on behalf of such
Holders, in writing, for specifi inclusion in such registration statement.
(b) If any action is brought against a party hereto,
("Indemnified Party") in respect of which indemnity may be sought against the
other party ("Indemnifying Party"), such Indemnified Party shall promptly
notify Indemnifying Party in writing of the institution of such action and
Indemnifying Party shall assume the defense of such action, including the
employment and fees of counsel reasonably satisfactory to the Indemnified
Party. Such Indemnified Party shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the employment of such counsel
shall have been authorized in writing by Indemnifying Party in connection
with the defense of such action, or (ii) Indemnifying Party shall not have
employed counsel to defend such action, or (iii) such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which may result in a conflict between the Indemnified Party
and Indemnifying Party (in which case Indemnifying Party shall not have the
right to direct the defense of such action on behalf of the Indemnified Party),
in any of which events, the reasonable fees and expenses of not more than one
additional firm of attorneys designated in writing by the Indemnified Party
shall be borne by Indemnifying Party. Notwithstanding anything to the contrary
contained herein, if Indemnified Party shall assume the defense of such action
as provided above, Indemnifying Party shall not be liable for any settlement of
any such action effected without its written consent.
(c) If the indemnification or reimbursement provided
for hereunder is finally judicially determined by a court of competent
jurisdiction to be unavailable to an Indemnified Party (other than as a
consequence of a final judicial determination of willful misconduct, bad
faith or gross negligence of such Indemnified Party), then Indemnifying Party
agrees, in lieu of indemnifying such Indemnified Party, to contribute to the
amount paid or payable by such Indemnified Party (i) in such proportion
as is appropriate to reflect the relative benefits received, or sought to be
received, by Indemnifying Party on the one hand and by such Indemnified Party
on the other or (ii) if (but only if) the allocation provided in clause (i) of
this sentence is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in such clause
(i) but also the relative fault of Indemnifying Party and of such Indemnified
Party; provided, however, that in no event shall the aggregate amount
contributed by a Holder exceed the cumulative profit, if any, earned by such
Holder as a result of each sale by him the Warrants or as a result each
exercise by him of the Warrants and the sale by him of the underlying shares of
Common Stock.
(d) The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may
have at common law, by separate agreement or otherwise.
5.2.2 Exercise of Warrants. Nothing contained in this Warrant
shall be construed as requiring the Holder(s) to exercise their Warrants prior
to or after the initial filing of any registration statement or the
effectiveness thereof.
5.2.3 Documents Delivered to Holders. If, and only if, the
offering, with respect to which the registration statement referred to in
Section 5.1.1 is being filed, is underwritten, the Company shall furnish to each
Holder participating in any of the foregoing offerings and to each underwriter
of any such offering, a signed counterpart, addressed to such Holder or
Underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement and an opinion dated the date of the closing
under the underwriting agreement related thereto, and (ii) a "cold comfort"
letter dated the effective date of such registration statement and a letter
dated the date of the closing under the underwriting agreement signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder shall reasonably request. Notwithstanding the
anything in the foregoing to the contrary, the Company shall not be required to
deliver, make available for inspection, or answer any questions concerning,
matters that are protected from disclosure by the attorney-client or other
judicially-recognized privilege.
5.2.4 Documents Delivered by Holder. The Company may furnish
each of the Holders participating in any of the foregoing offerings with a
questionnaire requesting information customarily sought of selling
securityholders, and each Holder shall promptly furnish such questionnaire,
accurately completed and executed, to the Company.
6. Adjustments
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock underlying this Warrant
shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Stock Dividends - Recapitalization, Reclassification,
Split-Ups. If, after the date hereof, and subject to the provisions of Section
6.2 below, the number of outstanding shares of Common Stock is increased by a
stock dividend on the Common Stock payable in shares of Common Stock or by a
split-up, recapitalization or reclassification of shares of Common Stock or
other similar event, then, on the effective date thereof, the number of shares
of Common Stock issuable on exercise of this Warrant shall be increased in
proportion to such increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and
subject to the provisions of Section 6.2, the number of outstanding shares of
Common Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date
thereof, the number of shares of Common Stock issuable on exercise of this
Warrant shall be decreased in proportion to such decrease in outstanding shares.
6.1.3 Adjustments in Exercise Price. Whenever the number of
shares of Common Stock purchasable upon the exercise of this Warrant is
adjusted, as provided in this Section 6.1, the Exercise Price shall be adjusted
(to the nearest cent) by multiplying such Exercise Price immediately prior to
such adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Common Stock so purchasable immediately thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc. In
case of any reclassification or reorganization of the outstanding shares of
Common Stock other than a change covered by Section 6.1.1 hereof or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or reorganization
of the outstanding shares of Common Stock), or in the case of any sale or
conveyance to another corporation or entity of the property of the Company as an
entirety or substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Warrant shall have the right thereafter (until the
expiration of the right of exercise of this Warrant) to receive upon the
exercise hereof, for the same aggregate Exercise Price payable hereunder
immediately prior to such event, the kind and amount of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution following any
such sale or other transfer, by a Holder of the number of shares of Common Stock
of the Company obtainable upon exercise of this Warrant immediately prior to
such event; and if any reclassification also results in a change in shares of
Common Stock covered by Sections 6.1.1 or 6.1.2, then such adjustment shall be
made pursuant to Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4. The
provisions of this Section 6.1.4 shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
6.1.5 Changes in Form of Warrant. This form of Warrant need
not be changed because of any change pursuant to this Section, and Warrants
issued after such change may state the same Exercise Price and the same number
of shares of Common Stock and Warrants as are stated in the Warrants initially
issued pursuant to this Agreement. The acceptance by any Holder of the issuance
of new Warrants reflecting a required or permissive change shall not be deemed
to waive any rights to a prior adjustment or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of any fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of this Warrant, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid and non-assessable and not subject to preemptive rights of any stockholder.
As long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon exercise of the
Warrants to be listed (subject to official notice of issuance) on all securities
exchanges (or, if applicable on Nasdaq) on which the Common Stock is then listed
and/or quoted.
8. Certain Notice Requirements.
8.1 Holder's Right to Receive Notice. Nothing herein shall be construed
as conferring upon the Holders the right to vote or consent or to receive notice
as a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the events
described in Section 8.2 shall occur, then, in one or more of said events, the
Company shall give written notice of such event at least fifteen days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
conversion or exchange of securities or subscription rights, or entitled to vote
on such proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of the closing of the transfer books, as
the case may be.
8.2 Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following events: (i)
if the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive a dividend or distribution, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a merger or reorganization in which the
Company is not the surviving party, or (iv) a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property, assets and
business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 6
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered personally or sent by
overnight courier, with acknowledgment of receipt by the party to which notice
is given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of this Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Warrant.
9.2 Entire Agreement. This Warrant (together with the other agreements
and documents being delivered pursuant to or in connection with this Warrant)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
9.3 Binding Effect. This Warrant shall inure solely to the benefit of
and shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.4 Governing Law; Submission to Jurisdiction. This Warrant shall be
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflict of laws. The Company and each
Holder hereby agree that any action, proceeding or claim against such party
arising out of, or relating in any way to this Warrant (a "Proceeding") shall be
brought and enforced in the courts of the State of New York, County of New York
or the United States District Court for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
Each party hereby waives any objection to the exclusive jurisdiction of such
courts over a Proceeding, whether based on grounds of venue, or inconvenient
forum or otherwise. Each party agrees that any process or summons to be served
upon a party in connection with a Proceeding may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to the party at the address set forth in Section 8 hereof, as
well as in any other manner permitted by law. Such mailing shall be deemed
personal service and shall be legal and binding upon the party in the
Proceeding. Each party agrees that the prevailing party(ies) in a Proceeding
shall be entitled to recover from the other party(ies) all of its reasonable
attorneys' fees and expenses relating to such Proceeding and/or incurred in
connection with the preparation therefor.
9.5 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Warrant shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Warrant or any provision hereof or the right of the Company or
any Holder to thereafter enforce each and every provision of this Warrant. No
waiver of any breach, non-compliance or non-fulfillment of any of the provisions
of this Warrant shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such
waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
9.6 Amendments in Writing. This Warrant may not be amended or modified
except by means of a written instrument signed by the Company and each Holder
affected thereby.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the 16th day of December, 1998.
INDIVIDUAL INVESTOR GROUP, INC.
By:__________________________________
Name:
Title:
<PAGE>
Form to be used to exercise Warrant:
- -----------------------------------
- -----------------------------------
- -----------------------------------
Date: _____________________, _____
The undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase ________ shares of Common Stock of
_________________________ and hereby makes payment of $____________ (at the rate
of $_________ per share of Common Stock) in payment of the Exercise Price
pursuant thereto. Please issue the Common Stock as to which this Warrant is
exercised in accordance with the instructions given below.
or
The undersigned hereby elects irrevocably to convert its right
to purchase ____________ shares of Common Stock purchasable under the within
Warrant into __________ shares of Common Stock of
__________________________________________ (based on a "Market Price" of
$________ per share of Common Stock).
Please issue the Common Stock in accordance with the instructions given below.
--------------------------------------
Signature
- ---------------------------
Signature Guaranteed
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ________________________________________________________
(Print in Block Letters)
Address ________________________________________________________
Form to be used to assign Warrant:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer
of the within Warrant):
FOR VALUE RECEIVED, ________________________________ does
hereby sell, assign and transfer unto _________________________________ the
right to purchase _____________________ shares of Common Stock of
_________________________________ ("Company") evidenced by the within Warrant
and does hereby authorize the Company to transfer such right on the books of the
Company.
Dated:____________________, _____
--------------------------------------
Signature
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
EXHIBIT 10.2
April 28, 1999
Gregory E. Barton, Esq.
Individual Investor Group, Inc. VIA UPS OVERNIGHT
125 Broad Street, 14th Floor
New York, NY 10004
Dear Mr. Barton:
We refer to the separate Stock Purchase Agreement dated as of November 30, 1998
between Individual Investor Group, Inc. and each of Great American Insurance
Company and Great American Life Insurance Company (the " Agreements").
As we have discussed, the final documents inadvertently omitted a provision
relating to a one-year holdback on conversion of the preferred stock purchased
thereunder, which the parties believed would be included. To correct that
drafting error, which was only recently discovered, we would like to amend the
Agreements as of November 30, 1998, to provide that the Preferred Stock (as
defined in the Agreements) held by Great American Insurance Company and Great
American Life Insurance Company may not be converted into Individual Investor
Group Inc. common stock until December 2, 1999 (one year following the date of
issuance), notwithstanding anything to the contrary in the Agreements.
Please signify your acceptance to the terms hereof by executing the enclosed
copy of this letter. Please feel free to call Karl J. Grafe with any questions
concerning this matter.
Very truly yours,
GREAT AMERICAN INSURANCE COMAPANY
By: /s/ Ronald C. Hayes
Ronald C. Hayes, Assistant Vice President
GREAT AMERICAN LIFE INSURANCE COMAPANY
By: /s/ Mark F. Muething
Mark F. Muething, Senior Vice President
Agreed to and Accepted:
INDIVIDUAL INVESTOR GROUP, INC.
By: /s/ Gregory E. Barton
Gregory E. Barton, Vice President
CERTAIN RISK FACTORS EXHIBIT 99
Dated: August 13, 1999
You should carefully consider the following risks, as well as those
described in our most recent Form 10-K, Form 10-Q and Form 8-K filings, before
making an investment decision. The risks described below are not the only risks
we face. Additional risks may also impair our business operations. If any of the
following risks occur, our business, results of operations or financial
condition could be materially adversely affected. If that happens, the trading
price of our common stock could decline, and you may lose all or part of your
investment. In the risk factors below, when we use the word "web," we are
referring to the portion of the Internet commonly referred to as the "world wide
web."
We have a history of losses and we anticipate that our losses will continue in
the future. As of June 30, 1999, we had an accumulated deficit of $25.5 million.
In the past ten years, the only calendar year we were profitable was 1995. We
expect to continue to incur net losses in 1999 and in subsequent fiscal periods.
We expect to continue to incur significant operating expenses and, as a result,
will need to generate significant revenues to achieve profitability, which may
not occur. Even if we do achieve profitability, we may be unable to sustain or
increase profitability on a quarterly or annual basis in the future.
We will need to raise additional capital in the future. Based on our current
business plan, we believe that our working capital and investments will be
sufficient to fund our operations and capital requirements at least through
1999. Due to unforeseen events and circumstances that may arise as discussed in
the other risks identified in this Exhibit 99 and in the accompanying report,
our working capital and investments in fact might not be sufficient to fund our
operations and capital requirements through 1999. Also, if we cannot generate
cash from our investments, we may need to raise money from debt or equity
financing (or a combination of the two types) during the fourth quarter of 1999.
In any event, we believe we will need to raise additional capital in order to
sustain our operations after 1999 unless we generate revenues beyond the amounts
we currently anticipate. Such additional financing may not be available to us,
or, if available, the terms upon which it may be obtained may be unfavorable to
us and may result in dilution of an investor's equity investment in us. Our
failure to obtain additional financing on favorable terms, or at all, would have
a substantial adverse effect on our future ability to conduct operations.
Our online services business has a limited operating history. We commenced our
online services operations in May 1997. Accordingly, we have only a limited
operating history upon which you can evaluate this business segment and its
prospects. An investor in our common stock must consider the risks, expenses and
difficulties frequently encountered by early stage businesses in new and rapidly
evolving markets, including web-based financial news and information companies.
Our quarterly financial results are subject to significant fluctuations. Our
quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. For
example, in our print publications business, our revenues tend to reflect
seasonal patterns, with certain calendar quarters tending to be stronger than
others. Similar seasonal patterns may develop in the online services business as
well.
We believe that quarter-to-quarter comparisons of our operating results
may not be a good indication of our future performance, nor would our operating
results for any particular quarter be indicative of future operating results. In
some future quarters our operating results may be below the expectations of
public market analysts and investors. If that happens, the price of our common
stock may fall, perhaps dramatically.
We face intense competition in both our print publications business and our
online services business. An increasing number of financial news and information
sources compete for consumers' and advertisers' attention and spending. We
expect this competition to continue and to increase. We compete for advertisers,
readers, staff and outside contributors with many types of companies. These
competitors include:
-- online services or web sites focused on business, finance and investing,
such as CBS MarketWatch.com; The WallStreet Journal Interactive Edition;
TheStreet.com; The Motley Fool; Yahoo! Finance; Silicon Investor; Microsoft
Investor; SmartMoney.com; Money.com and Multex.com;
-- publishers and distributors of traditional print media, such as The Wall
Street Journal; Barron's; Investors Business Daily; Business Week;
Fortune; Forbes; Money; Kiplinger's; Smart Money; Worth; Registered
Representative; Institutional Investor; Research and On Wall Street;
-- publishers and distributors of radio and television programs focused on
business, finance and investing, such as Bloomberg Business Radio and CNBC;
-- web "portal" companies, such as Yahoo!; Excite; Lycos; Snap!; Go Network;
and America Online; and
-- online brokerage firms, many of which provide financial and investment news
and information, such as Charles Schwab and E*TRADE.
Our ability to compete depends on many factors, including the
originality, timeliness, comprehensiveness and trustworthiness of our content
and that of our competitors, the ease of use of services developed either by us
or our competitors and the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services and products. These
competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing
policies to attract advertisers and make more attractive offers to existing and
potential employees, outside contributors, strategic partners and advertisers.
Our competitors may develop content that is equal or superior to ours or that
achieves greater market acceptance than ours. It is also possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully for advertisers, readers, staff or outside
contributors. Increased competition could result in price reductions, reduced
margins or loss of our market share. Any of these could materially adversely
affect our business, results of operations and financial condition.
Because our editorial is focused on the financial markets, a prolonged "bear
market" may cause our businesses to suffer. Our editorial is highly focused on
the financial markets. If the markets suffer a prolonged downturn or "bear
market," it is possible that our businesses might suffer materially for two
reasons. First, during a bear market, people may become less interested in
buying and selling securities, and thus less interested in our research and
analysis of securities. Less people might be interested in subscribing to our
print publications, and less people might be interested in using our online
services. Second, advertisers particularly the financial services advertisers
that are our most important source of advertising revenue - might decide to
reduce their advertising budgets. Either of these developments could cause our
operations to suffer materially.
Because our editorial is focused on research and analysis of specific stocks,
our businesses could suffer if our recommendations are poor. Our editorial is
focused on research and analysis of specific stocks. We frequently state that a
particular company's stock is undervalued or overvalued at the current prices.
We believe that our research and analysis is of a high quality, and we are proud
to take a stand and be held accountable for our opinions. We believe our readers
appreciate this editorial courage, and find it to be of greater value than
stories on such topics as "the best cities in which to live" and the like. But
because we give these specific opinions, the wisdom of our conclusions can be
measured: did the stocks we said were undervalued go up, and did the stocks we
said were overvalued go down. If our opinions turn out to be incorrect - and
some of our opinions certainly will be - people may become less interested in
learning these opinions. They may be less interested in subscribing to our print
publications and less interested in using our online services. If interest in
our opinions declines, our operations could suffer materially.
Our company may not be able to attract and retain qualified employees for our
print publications business. Many of our competitors in the print publications
business are larger than we are, and have a number of print titles (we only have
two magazines and one newsletter). There is a general perception in the
employment market that larger publishers are more prestigious or offer more
varied career opportunities (for instance, the ability to move from one title to
another). Although we believe our company offers an attractive work environment
and employment opportunity in our print publications business (offering our
employees greater responsibility and the ability to have a more meaningful
impact on the product than would be the case at a magazine with a larger staff),
we may be perceived by many people as a less attractive employer than a larger
publisher. If we are unable to attract and retain qualified employees for our
print publications business, that business could suffer materially.
Our company may not be able to attract and retain qualified employees for our
online service business. There is a general perception in the employment market
that pure Internet companies offer a more attractive work environment for a
youthful workforce. This is based on the belief that the Internet is a new and
growing industry that offers a great future. In addition, many employees in the
Internet industry seek and often receive significant portions of their
compensation through stock options. The stock prices of many pure Internet
companies have increased dramatically during the past year or so. Although we
believe our company offers an attractive work environment and employment
opportunity in our online services business, we may be perceived by many people
as a less attractive employer than a pure Internet company. If we are unable to
attract and retain qualified employees for our online services business, that
business could suffer materially.
We depend on our editorial staff and outside contributors. Our success depends
substantially upon the efforts of our editorial staff and outside contributors
to produce original, timely, comprehensive and trustworthy content. Our writers
are not bound by employment agreements. Competition for financial journalists is
intense, and we may not be able to retain existing or attract additional
qualified writers in the future. If we lose the services of a significant number
of our editorial staff and outside contributors or are unable to attract
additional writers with appropriate qualifications, our business, results of
operations and financial condition could be materially adversely affected.
We depend on key management personnel. Our future success depends upon the
continued service of key management personnel. The loss of one or more of our
key management personnel could materially adversely affect our business, results
of operations and financial condition. Moreover, the costs that may arise in
connection with executive departures and replacements can be significant, as
they were during 1998.
We depend on certain advertisers and on independent advertising agents, to
generate revenue. In 1998, and continuing through the second quarter of 1999,
the majority of our print publications advertising revenue came from financial
services companies, followed by consumer advertisers and others. We were not
dependent upon any particular advertiser for our print publications revenues.
During the second quarter of 1999, approximately sixty percent of the online
services advertising revenue came from four brokerage firms offering online
trading. We expect that the majority of advertising revenues derived from our
online services operations will come from online brokerage firms. In the event
that online brokerage firms choose to scale back on their advertising (on the
Internet in general or on our web sites in particular), our online services
business, results of operations and financial condition could be materially
adversely affected.
If we do not continue to increase our revenue from financial services
advertisers or attract advertisers from non-financial industries, our business,
results of operations and financial condition could be materially adversely
affected. With respect to our online services in particular, advertising rates
are frequently measured on a "cost per thousand" clicks, or "CPM," basis. CPM
rates have fluctuated in the past and we expect CPM rates to continue to
fluctuate. CPM rates may experience industry-wide declines in the future, as the
supply of desirable online advertising space may be increasing at a rate greater
than the demand for that space by advertisers. We believe that we charge
advertising rates that are among the highest of financial web sites. However, we
cannot guarantee that we will be able to command premium rates in the future.
Moreover, a number of advertisers that have been a source of a material portion
of our online services advertising revenues are purchasing advertising on a
"cost-per-action" basis, in which we are paid only when a user of our online
services takes the relevant action. The number of such completed actions is
usually a very small percent of the number of advertising impressions shown on
our web site. It is more difficult to accurately predict revenue that will be
received from cost-per-action ads than from CPM ads. An increased shift of our
important advertisers to cost-per-action ads could have a material adverse
effect on our online services advertising revenues.
In selling print advertising, we depend both on our internal
advertising sales department and on outside sales representatives to maintain
and increase our advertising sales. In selling online advertising, we depend
primarily upon our internal advertising sales department and an outside sales
agent. The success of our advertising sales efforts is subject to a number of
risks, including the competition we face from other companies in hiring and
retaining sales personnel and effective outside sales representatives, and the
length of time it takes new sales personnel to become productive. Our business,
results of operations and financial condition could be materially adversely
affected if we do not maintain an effective advertising sales department.
Additional risks associated with online advertising. No standards have been
widely accepted to measure the effectiveness of web advertising. If standards do
not develop, existing advertisers may not continue or increase their levels of
web advertising. If standards develop and we are unable to meet those standards,
advertisers may not continue advertising on our site. Furthermore, advertisers
that have traditionally relied upon other advertising media may be reluctant to
advertise on the web. If advertisers perceive the Internet or our web site to be
a limited or an ineffective advertising medium, they may be reluctant to devote
a portion of their advertising budget to Internet advertising or to advertising
on our web site. Our business, results of operations and financial condition
could be materially adversely affected if the market for web advertising
declines or develops more slowly than expected.
Different pricing models are used to sell advertising on the web. It is
difficult to predict which, if any, will emerge as the industry standard. This
uncertainty makes it difficult to project our future advertising rates and
revenues. We cannot assure you that we will be successful under alternative
pricing models that may emerge. Moreover, "filter" software programs that limit
or prevent advertising from being delivered to a web user's computer are
available. Widespread adoption of this software could materially adversely
affect the commercial viability of web advertising, which could materially
adversely affect our advertising revenues.
Risks associated with our list rental revenue. The ability to earn revenue from
list rental depends in large degree upon three factors: first, the number of
subscribers on the list; second, the demographic characteristics of the
subscribers on the list (such as age, income and wealth); and third, the degree
to which previous rentals of the list have produced favorable results for the
renter. This last factor is affected by the manner in which the subscribers have
been added. For example, new subscribers from direct-to-publisher sources (such
as direct mail and insert cards in the magazine) typically are more valuable
than subscribers obtained from subscription agencies by means of reduced
introductory rates or use airline frequent flyer miles.
We use an independent party, Rickard List Marketing, to promote the
rental of our subscriber lists. The revenue we earn from list rentals thus also
depends in part upon the efforts our agent makes.
We depend on independent parties to publish our print publications. We depend
upon an independent party, Quebecor, to print our print publications and to
deliver the printed copies to the United States Post Office for mailing to our
subscribers. If our printer's business is disrupted for any reason, such as fire
or other natural disaster, labor strife, supply shortages, or machinery
problems, we might not be able to distribute our publications in a timely
manner. Since magazines typically are printed only shortly before the time they
are to be mailed to subscribers, any disruption at our printer could prevent our
magazines from being distributed in a timely manner. If we don't distribute our
magazines on time, our subscribers may become dissatisfied and cancel their
subscriptions. If a disruption at our printer delays our ability to distribute
Individual Investor magazine to newsstands, we may lose newsstand sales. In the
event of a disruption, our insurance may not cover all of our losses. Any of
these developments may cause our operating results to suffer materially.
We depend on independent parties to distribute Individual Investor magazine to
newsstands. We depend upon independent parties (the largest of which is
International Circulation Distributors, a subsidiary of The Hearst Corporation)
to distribute Individual Investor magazine to newsstands. If the business of our
distributors is disrupted for any reason, such as labor strife or natural
disaster, we might not be able to distribute Individual Investor magazine to
newsstands in a timely manner. Since our distributors typically pick up
Individual Investor magazine for newsstand distribution only shortly before the
time the magazine is to be delivered, any disruption at our distributors could
prevent the magazine from being distributed to newsstands in a timely manner. If
a disruption at our distributors delays our ability to deliver Individual
Investor magazine to newsstands, we may lose newsstand sales. Any of these
developments may cause our operating results to suffer materially.
We depend on independent parties to obtain the majority of the subscribers to
Individual Investor magazine. We depend upon independent parties to obtain the
majority of the subscribers to Individual Investor magazine. These agencies
include American Family Publishers, Publishers Clearing House and NewSub
services. These agencies obtain subscribers primarily through use of direct mail
campaigns. If the positive response to the promotion of Individual Investor
magazine by these agencies is not great enough, or if the agencies believe that
we may fail to fulfill a subscription, they may stop promoting our magazine.
This could cause our subscriber base to shrink, which would lower our
subscription revenue and reduce our advertising rate base, which would lead to
lower advertising revenue. Also, many publications compete for services of
subscription agencies, and one or more of these subscription agencies may choose
not to continue to market Individual Investor in order to better serve a one of
our competitors. Any of those developments could cause our operating results to
suffer materially.
We may incorrectly forecast our success in obtaining and renewing subscriptions.
We attempt to accurately forecast the number of subscribers to our print
publications. We run the risk that our forecasts will be incorrect, either too
high or too low. Our forecast could be too high if the number of new subscribers
that we obtain is less than the amount we projected. Our forecast also could be
too high if we get less renewal orders from existing subscribers. If our
subscriber base is less than our projections, we will earn less subscription
revenue and our advertising rate base will be lower, which would lead to lower
advertising revenue. This could cause our operating results to suffer
materially.
Our forecast could be too low if we obtain more new subscribers than
projected, or if we receive more renewal orders than projected from existing
subscribers. If our subscriber base is higher than we projected, we would earn
more subscription revenue than projected, but have higher than expected
production and distribution costs. We might not be able to increase our
advertising rate base immediately. This could lead to our operating results
being worse than projected.
We depend on independent parties to manage our subscriber files. We depend upon
an independent party to manage our subscriber files. This party receives
subscription orders and payments for our print publications, sends renewal and
invoice notices to subscribers and generates subscribers' labels and circulation
reports for us. If the business of this party is disrupted, we may become unable
to process subscription requests, or send out renewal notices or invoices, or
deliver our print publications. If this were to happen, our insurance might not
cover all of our losses. Any of those developments could cause our operating
results to suffer materially.
We need to manage our growth. Although our print publications business has not
experienced rapid growth in the recent past, our online services, which
commenced in May 1997, have experienced rapid growth. This growth has placed a
strain on our managerial, operational and financial resources. We expect this
strain to increase with anticipated future growth in both print publications and
online services. To manage our growth, we must continue to implement and improve
our managerial controls and procedures and our operational and financial
systems. In addition, our future success will depend on our ability to expand,
train and manage our workforce, in particular our editorial, advertising sales
and business development staff. We cannot assure you that we have made adequate
allowances for the costs and risks associated with this expansion, that our
systems, procedures or controls will be adequate to support our operations, or
that our management will be able to successfully offer and expand our services.
If we are unable to manage our growth effectively, our business, results of
operations and financial condition could be materially adversely affected.
We need to establish and maintain relationships with other web sites to promote
the growth of our online services business. For us to maintain and increase the
traffic to our web sites, it is important for us to establish and maintain
content distribution relationships with highly-trafficked web sites operated by
other companies. There is intense competition for relationships with these
sites. Although we have not paid any material sum with respect to our
relationships to date, it is possible that, in the future, we might be required
to pay fees in order to establish or maintain relationships with these sites.
(It is possible, however, that we may be able to charge fees in connection with
these relationships in the future.) Additionally, many of these sites compete
with our web sites as providers of financial information, and these sites may
become less willing to establish or maintain strategic relationships with us in
the future. We may be unable to enter into relationships with these sites on
commercially reasonable terms or at all. Even if we enter into such
relationships, they may not attract significant numbers of viewers to our web
sites.
Increased traffic to our web sites may strain our systems and impair our online
services business. On occasion, we have experienced significant spikes in
traffic on our web site. In addition, the number of users of our online services
has increased over time and we are seeking to increase our user base further.
Accordingly, our web site must accommodate a high volume of traffic, often at
unexpected times. Our web site has in the past, and may in the future,
experience slower response times than usual or other problems for a variety of
reasons. These occurrences could cause our readers to perceive our web site as
not functioning properly and, therefore, cause them to use other methods to
obtain their financial news and information. In such a case, our business,
results of operations and financial condition could be materially adversely
affected.
We face a risk of system failure for our online services business. Our ability
to provide timely information and continuous news updates depends on the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. Similarly, our ability to track, measure and
report the delivery of advertisements on our site depends largely on the
efficient and uninterrupted operation of a third-party system maintained by
DoubleClick. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan for the event of such
damage or interruption. Any system failure that causes an interruption in our
service or a decrease in responsiveness of our web site could result in reduced
traffic, reduced revenue and harm to our reputation, brand and our relations
with our advertisers. Our insurance policies may not adequately compensate us
for any losses that we may incur because of any failures in our system or
interruptions in our delivery of content. Our business, results of operations
and financial condition could be materially adversely affected by any event,
damage or failure that interrupts or delays our operations.
We may not successfully develop new and enhanced services and features for our
online services to the satisfaction of our customers. We intend to introduce
additional and enhanced services in order to retain the current users of our
online services and to attract new users. If we introduce a service that is not
favorably received or fail to introduce certain new or enhanced services, our
current users may choose a competitive service over ours. We may also experience
difficulties that could delay or prevent us from introducing new services.
Furthermore, the new services we may introduce could contain errors that are
discovered after the services are introduced. If that happens, we may need to
significantly modify the design or implementation of the services on our web
sites to correct these errors. Our business, results of operations and financial
condition could be materially adversely affected if we experience difficulties
in introducing new services or if these new services are not accepted by our
users.
We depend on the continued growth in use and efficient operation of the web. The
web-based information market is new and rapidly evolving. Our business would be
materially adversely affected if web usage does not continue to grow or grows
slowly. Web usage may be inhibited for a number of reasons, such as:
-- inadequate network infrastructure;
-- security concerns;
-- inconsistent quality of service; and
-- unavailability of cost-effective, high-speed access to the Internet.
The users of our online services depend on Internet service providers,
online service providers and other web site operators for access to our web
site. Many of these services have experienced significant service outages in the
past and could experience service outages, delays and other difficulties due to
system failures unrelated to our systems. These occurrences could cause our
readers to perceive the web in general or our web site in particular as an
unreliable medium and, therefore, cause them to use other media to obtain their
financial news and information. We also depend on certain information providers
to deliver information and data feeds to us on a timely basis. Our web site
could experience disruptions or interruptions in service due to the failure or
delay in the transmission or receipt of this information, which could have a
material adverse effect on our business, results of operations and financial
condition.
Government regulation and legal uncertainties relating to the web. Certain
existing laws or regulations specifically regulate communications or commerce on
the web. Further, laws and regulations that address issues such as user privacy,
pricing, online content regulation, taxation and the characteristics and quality
of online products and services are under consideration by federal, state, local
and foreign governments and agencies. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet service
providers and online services providers in a manner similar to the regulation of
long distance telephone carriers and to impose access fees on such companies.
That regulation, if imposed, could increase the cost of transmitting data over
the web. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as intellectual property ownership and
infringement, libel, obscenity and personal privacy are applicable to the web.
The Federal Trade Commission and government agencies in certain states have been
investigating certain Internet companies regarding their use of personal
information. We could incur additional expenses if any new regulations regarding
the use of personal information are introduced or if these agencies chose to
investigate our privacy practices. Any new laws or regulations relating to the
web, or certain application or interpretation of existing laws, could decrease
the growth in the use of the web, decrease the demand for our web site or
otherwise materially adversely affect our business.
Web security concerns could hinder internet commerce. Concern about the
transmission of confidential information over the Internet has been a
significant barrier to electronic commerce and communications over the web. Any
well-publicized compromise of security could deter people from using the web or
from using it to conduct transactions that involve the transmission of
confidential information, such as signing up for a paid subscription, executing
stock trades or purchasing goods or services. Because many of our advertisers
seek to advertise on our web site to encourage people to use the web to purchase
goods or services, our business, results of operations and financial condition
could be materially adversely affected if Internet users significantly reduce
their use of the web because of security concerns. We may also incur significant
costs to protect ourselves against the threat of security breaches or to
alleviate problems caused by such breaches.
Our efforts to build positive brand recognition may not be successful. We
believe that maintaining and growing awareness about our brands (including
Individual Investor, Individual Investor Online, Ticker, Magic 25 and the INDI
SmallCap 500) is an important aspect of our efforts to continue to attract
subscribers and readers. The importance of positive brand recognition will
increase in the future because of the growing number of providers of financial
information. We cannot assure you that our efforts to build positive brand
recognition will be successful.
In order to build positive brand recognition, it is very important that
we maintain our reputation as a trustworthy source of investment ideas,
research, analysis and news. The occurrence of certain events, including our
misreporting a news story or the non-disclosure of a financial interest by one
or more of our employees in a security that we write about, could harm our
reputation for trustworthiness. These events could result in a significant
reduction in the number of our readers, which could materially adversely affect
our business, results of operations and financial condition.
Control of the Company by Principal Stockholders. At the present time, Jonathan
Steinberg, Wise Partners, L.P. (a partnership controlled by Jonathan Steinberg),
Saul Steinberg (who is Jonathan's father) and Reliance Financial Services
Corporation (a substantial portion of the common stock of Reliance Financial
Services Corporation's parent, Reliance Group Holdings, Inc., is beneficially
owned by Saul Steinberg, members of his family and affiliated trust), own
approximately 43.4% of the outstanding shares of common stock of our Company
(and have exercisable options to purchase common stock that, if exercised, could
bring their ownership percentage to approximately 47.2%). As a result of their
ownership of common stock, they will be able to significantly influence all
matters requiring approval by our stockholders, including the election of our
directors. Because it would be very difficult for another company to acquire our
company without the approval of the Steinbergs, other companies might not view
our company as an attractive takeover candidate. Our stockholders therefore may
have less of a chance to benefit from any possible takeover of our company, than
they would if the Steinbergs did not have as much influence.
We rely on our intellectual property. To protect our rights to our intellectual
property, we rely on a combination of trademark and copyright law, trade secret
protection, confidentiality agreements and other contractual arrangements with
our employees, affiliates, clients, strategic partners and others. The
protective steps we have taken may be inadequate to deter misappropriation of
our proprietary information. We may be unable to detect the unauthorized use of,
or take appropriate steps to enforce, our intellectual property rights. We have
registered certain of our trademarks in the United States and we have pending
U.S. applications for other trademarks. Effective trademark, copyright and trade
secret protection may not be available in every country in which we offer or
intend to offer our services.
We are somewhat dependent upon the use of certain trademarks in our
operation, including the marks Individual Investor, Individual Investor Online,
Ticker, Magic 25 and the INDI SmallCap 500. We have a perpetual license for use
of the trademark Individual Investor. To perfect our interests in the mark,
however, we filed suit in 1997 against the licensor and a third party whom we
believed was infringing the mark. The litigation was resolved favorably to us,
with an agreement by the third party not to further infringe the mark. We
commenced negotiations with the licensor to obtain assignment of the mark, but
did not reach an agreement. Although we will continuously monitor and may seek
enforcement against any perceived infringement of the mark, we cannot assure you
that our efforts will be successful.
Additionally, we are somewhat dependent upon the ability to protect our
proprietary content through the laws of copyright, unfair competition and other
law. We cannot assure you, however, that the laws will give us meaningful
protection.
We may be liable for information published in our print publications or on our
online services. We may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to the information we
publish in our print publications or through our online services. We could also
be subject to claims based upon the content that is accessible from our web site
through links to other web sites. Our insurance may not adequately protect us
against these claims.
Year 2000 risks. We have evaluated the potential impact of the situation
commonly referred to as the "Year 2000 Issue". The Year 2000 Issue concerns the
inability of information systems, whether due to computer hardware or software,
to properly recognize and process date sensitive information relating to the
year 2000 and beyond. To attempt to ensure that our computer systems will not be
disrupted by the Year 2000 Issue, we developed a plan to assess, and to fix
where necessary, any Year 2000 Issue with respect to our computer systems. We
have identified the fixes that should be made to our computer systems in light
of the Year 2000 Issue and currently expect to complete our repair efforts
before September 1999. We intend to test our systems before October 1999.
We currently believe that total direct costs associated with making our
systems "Year 2000 Ready" (that is, not disrupted by the Year 2000 Issue) should
not exceed $30,000. We do not believe that the diversion of employee resources
required to address the Year 2000 Issue will have a material effect on our
operating results or financial condition. We do not currently have in place a
contingency plan of action in the event that we are not able to make our
computer systems Year 2000 Ready, but will consider on an ongoing basis whether
such a contingency plan should be developed.
The dates on which we believe we will complete our Year 2000 plan, and
the costs associated with the efforts, are based on our current best estimates.
However, we cannot guarantee that these estimates will be achieved, or that
there will not be a delay in, or increased costs associated with, making our
systems Year 2000 Ready. Specific factors that might cause differences between
the estimates and actual results include the following: the availability and
cost of personnel trained in these areas; the ability to locate and correct all
relevant computer code and hardware devices (such as microcontrollers); timely
responses to and corrections by third-parties and suppliers; the ability to
implement interfaces between the new systems and the systems not being replaced;
and similar uncertainties. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of the Year 2000 readiness
of third parties and the interconnection of global businesses, we cannot
guarantee that will be able to resolve, in a timely or cost-effective fashion,
any problems associated with the Year 2000 Issue. If we fail to resolve, in a
timely and cost-effective fashion, any problems associated with the Year 2000
Issue, our operations and business could be materially adversely affected. If
that happens, we also could incur liabilities to third parties.
We also face risks and uncertainties to the extent that the independent
suppliers of products, services and systems on which we rely do not have
business systems or products that are Year 2000 Ready. We have communicated with
significant suppliers and customers to determine the extent to which our systems
and products are vulnerable to those third parties' failure to fix their own
systems' Year 2000 Issues. The systems or products of other companies on which
we rely might not be made Year 2000 Ready in time to prevent disruption. If the
systems of any of those third parties are disrupted, our operations and business
could be materially adversely affected. We are in the process of identifying
what actions may be needed to reduce our vulnerability to problems related to
the companies with which we interact, but we do not currently have in place a
contingency plan of action in the event that the failure by one or more third
parties to make their computer systems Year 2000 Ready causes us to suffer
material adverse effects. We will consider on an ongoing basis whether such a
contingency plan should be developed.
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