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 September 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 October 29, 1999,
registrant had outstanding 10,333,401 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 September 30, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Operations (Unaudited)
for the three and nine months ended September 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the nine months ended September 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 Operations 11-19
Part II Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
<TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $5,351,505 $4,752,587
Investments (Note 2) 3,216,352 877,231
Accounts receivable (net of allowances of $360,013 in 3,003,776 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 1,018,076 386,761
------------ ------------
Total current assets 12,732,243 8,655,088
Investment (Note 2) 2,638,356 -
Deferred subscription expense 361,408 576,237
Property and equipment - net 1,725,354 586,007
Security deposits 374,527 469,627
Other assets 986,798 257,969
------------ ------------
Total assets $18,818,686 $10,544,928
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,472,978 $2,191,765
Accrued expenses 949,682 519,887
Deferred advertising revenue 2,050,736 138,097
------------ ------------
Total current liabilities 5,473,396 2,849,749
Deferred advertising revenue 972,672 -
Deferred subscription revenue 2,190,456 2,246,422
------------ ------------
Total liabilities 8,636,524 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, 10,332,401 issued and outstanding in 1999;
authorized 18,000,000 shares, 8,490,851 issued and
outstanding in 1998 103,324 84,909
Additional paid-in capital 34,009,734 27,352,836
Accumulated deficit (26,894,272) (21,922,595)
Accumulated other comprehensive income (loss) 2,963,276 (66,493)
------------ ------------
Total stockholders' equity 10,182,162 5,448,757
------------ ------------
Total liabilities and stockholders' equity $18,818,686 $10,544,928
============ ============
See Notes to Consolidated Condensed Financial Statements
</TABLE>
<PAGE>
<TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- -------------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Print Publications $3,798,338 $3,740,507 $10,932,275 $10,775,203
Online Services 656,714 307,204 1,228,230 888,011
------------ ------------ ------------ ------------
Total revenues 4,455,052 4,047,711 12,160,505 11,663,214
------------ ------------ ------------ ------------
Operating expenses:
Editorial, production and distribution 2,937,584 2,818,854 8,377,406 8,687,742
Promotion and selling 2,062,076 1,609,155 5,738,078 4,857,883
General and administrative 1,429,861 932,156 3,962,337 3,825,309
Corporate advertising 57,490 - 57,490 -
Depreciation and amortization 143,212 80,888 391,617 232,467
------------ ------------ ------------ ------------
Total operating expenses 6,630,223 5,441,053 18,526,928 17,603,401
------------ ------------ ------------ ------------
Operating loss from continuing operations (2,175,171) (1,393,342) (6,366,423) (5,940,187)
Investment and other income 798,352 62,362 1,394,746 106,025
------------ ------------ ------------ ------------
Net loss from continuing operations (1,376,819) (1,330,980) (4,971,677) (5,834,162)
Discontinued operations (Note 3)
Loss from discontinued operations - (145,291) - (781,370)
------------ ------------ ------------ ------------
Net loss ($1,376,819) ($1,476,271) ($4,971,677) ($6,615,532)
============ ============ ============ ============
Basic and dilutive loss per common share:
Continuing operations ($0.15) ($0.16) ($0.55) ($0.76)
Discontinued operations $0.00 ($0.02) $0.00 ($0.10)
------------ ------------ ------------ ------------
Net loss per share ($0.15) ($0.17) ($0.55) ($0.86)
============ ============ ============ ============
Average number of common shares used in computing
basic and dilutive loss per common share 9,188,724 8,490,851 8,998,833 7,669,479
See Notes to Consolidated Condensed Financial Statements
</TABLE>
<PAGE>
<TABLE>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
---------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,971,677) ($6,615,532)
Less:
Loss from discontinued operations - (781,370)
------------ ------------
Loss from continuing operations (4,971,677) (5,834,162)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 391,617 232,467
Non-cash revenue (312,545) -
Stock option and warrant transactions 301,304 -
Loss on sale of equipment - 2,634
Gain on sale of investments (1,277,512) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (647,650) 481,728
Prepaid expenses and other current assets (216,872) 969
Deferred subscription expense 214,829 (196,354)
Security deposits 95,100 -
Other assets (50,002) (810)
Increase (decrease) in:
Accounts payable and accrued expenses 711,008 137,430
Deferred advertising revenue 559,500 (176,216)
Deferred subscription revenue (55,966) (412,567)
------------ ------------
Net cash used in operating activities (5,258,866) (5,764,881)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,513,740) (102,011)
Proceeds from sale of equipment - 3,451
Proceeds from sale of investments 2,721,236 -
Purchase of investments (753,076) -
Net cash provided by discontinued operations 139,849 1,589,654
------------ ------------
Net cash provided by investing activities 594,269 1,491,094
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options (Note 4) 2,263,515 398,152
Proceeds from issuance of common stock (Note 5) 3,000,000 5,000,000
------------ ------------
Net cash provided by financing activities 5,263,515 5,398,152
------------ ------------
Net increase in cash and cash equivalents 598,918 1,124,365
Cash and cash equivalents, beginning of period 4,752,587 3,533,622
------------ ------------
Cash and cash equivalents, end of period $5,351,505 $4,657,987
============ ============
Supplemental schedule of noncash investing and financing activities:
In June 1999, the Company acquired 19.9% of the then-outstanding shares of
common stock of VentureHighway.com Inc. ("VentureHighway"). The purchase
price was paid in the form of a credit for VentureHighway to use to purchase
advertising in the Company's magazines and websites during the 30 months
ending December 31, 2001. Although the purchase price had a stated value of
$3.2 million, the investment and deferred revenue were recorded at the fair
market value at the date of the transaction 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 NINE MONTHS ENDED SEPTEMBER 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 nine
months ended September 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.
Certain reclassifications have been made to the December 31,
1998 balance sheet to conform to the current period presentation.
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
$3,216,352 and $877,231 at September 30, 1999 and December 31, 1998,
respectively. Gross unrealized holding gains were $2,963,276 and
$86,477 at September 30, 1999 and December 31, 1998, respectively.
Gross unrealized holding losses were $0 and $152,970 at September 30,
1999 and December 31, 1998, respectively. Unrealized gains and losses
are shown as accumulated other comprehensive income (loss), which is a
component of stockholders' equity (see Note 7).
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 September 30, 1999 balance sheet at
$3,193,750 based upon the September 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 November 12,
1999, the value of the Company's investment in Wit Capital has
increased to $3,893,750.
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"). The shares were subsequently sold during August
1999 for net cash proceeds of $1,688,594, producing a net realized gain
of $938,594.
Other Investment
On June 2, 1999, the Company, Kirlin and VentureHighway (at
the time a wholly-owned subsidiary of Kirlin), entered into an
agreement pursuant to which the Company acquired 1,654,344 newly issued
shares (the number of shares reflects a subsequent stock split) of
common stock of VentureHighway, representing 19.9% of the then-
outstanding shares of common stock ( the other 80.1% of which
immediately after the transaction were held by Kirlin). The purchase
price was paid in the form of a credit for VentureHighway to use to
purchase advertising in the Company's magazines and websites during
the 30 months ending December 31, 2001. Although the purchase price
had a stated value of $3.2 million, the investment and the deferred
advertising revenue were recorded at the fair market value at the date
of the transaction of $2.6 million (or $1.595 per share).
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 September 30, 1999, the domestic investment fund had
remaining net assets of approximately $1,425,575. The Company's net
investment in discontinued operations of $142,534 at September 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 nine months ended September 30, 1999, the
Company granted 692,750 and 790,350 options, respectively, to purchase
the Company's Common Stock; 28,333 and 657,147 options, respectively,
were exercised (providing proceeds of $35,416 and $2,263,515,
respectively); and 14,500 and 59,933 options were canceled,
respectively. Of the total options granted, 161,600 were granted under
the Company's stock option plans, 628,750 shares were granted outside
of the plans, and all expire at various dates through September 2009.
5. SALE OF COMMON STOCK
On September 29, 1999, the Company entered into a Stock
Purchase Agreement with Telescan, Inc. ("Telescan") providing for the
sale of 779,130 shares of Common Stock for an aggregate purchase price
of $3,000,000, which was based upon one hundred and twenty-five percent
(125%) of the average of the closing prices of the Common Stock, as
reported by Nasdaq, for the seven business days prior to the date of
the closing. Additionally, the Company and Telescan entered into an
agreement pursuant to which the Company obtained a three-year license
to use several of Telescan's propriety technology and investment tools
on the Company's web sites. The Company paid the $1,134,500 license fee
by issuing 368,301 shares of Common Stock to Telescan, which was based
upon the average of the closing prices of the Company's Common Stock,
as reported by Nasdaq, for the seven business days prior to the date of
the closing.
6. LOSS PER COMMON SHARE
Net loss per basic and dilutive common share for the three and
nine month periods ended September 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.
7. 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 nine months
ended September 30, 1999 and 1998, respectively, is presented in the
following table:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(1,376,819) $ (1,476,271) $ (4,971,677) $ (6,615,532)
Other comprehensive income (loss):
Net unrealized (loss) gain on investments
(see Note 2) (3,333,814) (331,436) 3,029,769 (331,436)
------------- ------------- ------------- -------------
Total comprehensive loss $(4,710,633) $ (1,807,707) $ (1,941,908) $ (6,946,968)
============= ============= ============= =============
</TABLE>
The unrealized loss for the three months ended September 30,
1999 primarily relates to a decrease in the value of the Company's
investment in Wit Capital (approximately $2.8 million) together with a
decrease in the unrealized gain reported as of June 30, 1999 related
to investments sold by the Company (for a net realized gain of
approximately $.8 million) during the September 1999 quarter. The
net realized gain is included in the net loss as shown above. The
unrealized gain for the nine months ended September 30, 1999 primarily
relates to an increase in the value of the Company's investment in Wit
Capital (approximately $2.9 million) during the period.
8. 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, 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
individualinvestor.com (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"), corporate advertising, and
depreciation and amortization expenses).
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Print Publications $3,798,338 $3,740,507 $10,932,275 $10,775,203
Online Services 656,714 307,204 1,228,230 888,011
------------ ------------ ------------ ------------
$4,455,052 $4,047,711 $12,160,505 $11,663,214
============ ============ ============ ============
Operating contribution (before G&A,
corporate advertising, and
depreciation and amortization
expenses:
Print Publications $(254,126) $57,031 $(470,031) $(440,087)
Online Services (290,482) (437,329) (1,484,948) (1,442,324)
------------ ------------ ------------ ------------
(544,608) (380,298) (1,954,979) (1,882,411)
G&A, corporate advertising, and
depreciation and amortization
expenses (1,630,563) (1,013,044) (4,411,444) (4,057,776)
Investment and other income 798,352 62,362 1,394,746 106,025
------------ ------------ ------------ ------------
Net loss from continuing operations $(1,376,819) $(1,330,980) $(4,971,677) $(5,834,162)
============ ============ ============ ============
</TABLE>
Net property and equipment as of September 30, 1999 increased
approximately $1.1 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 net increase allocable to Print
Publications, Online Services and corporate are approximately $0.5 million, $0.4
million, and $0.2 million, respectively. Investments as of September 30, 1999
increased approximately $5.0 million as compared to December 31, 1998. This was
primarily due to an increase in the unrealized gain on Wit Capital
(approximately $2.9 million), as well as an investment in VentureHighway.com
Inc. (see Note 2). Additionally, prepaid expenses and other current assets, and
other assets, as of September 30, 1999 increased approximately $0.6 million and
$0.7 million, respectively. These increases were primarily due to prepaid
license fees to be utilized over the next three years (see Note 5). 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 nine months
ended September 30, 1999 and September 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 September 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 September 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, however, actual results 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 Nine Months Ended September 30, 1999 as Compared to the
Three and Nine Months Ended September 30, 1998
Net Loss from Continuing Operations
The Company's net loss from continuing operations for the three and
nine months ended September 30, 1999 increased 3% and decreased 15%, to
$1,376,819 and $4,971,677, respectively, as compared to $1,330,980 and
$5,834,162, respectively, in 1998. The increase in the three months ended
September 30, 1999 is primarily due to increased promotion and selling, and
general and administrative ("G&A") expenses, partially offset by increased
advertising revenues and realized gains on the sale of investments. The decrease
in the nine months ended September 30, 1999 is primarily due to increased
advertising revenues and realized gains on the sale of investments, partially
offset by increased promotion and selling expenses.
Print Publications operations provided a negative operating
contribution (before deducting G&A, corporate advertising, and depreciation and
amortization expenses) of $254,126 and $470,031 for the three and nine months
ended September 30, 1999, respectively, as compared to a positive operating
contribution of $57,031 and negative operating contribution of $440,087,
respectively, in 1998. The change in operating contribution for the three and
nine months ended September 30, 1999 is primarily due to increased advertising
and marketing and promotion expenses, partially offset by decreased production
and distribution expenses for Individual Investor magazine as well as increased
advertising revenues.
Online Services operations provided a negative operating contribution
(before deducting G&A, corporate advertising, and depreciation and amortization
expenses) of $290,482 and $1,484,948 for the three and nine months ended
September 30, 1999, respectively, as compared to a negative operating
contribution of $437,329 and $1,442,324, respectively, in 1998. The change in
operating contribution for the three months ended September 30, 1999 is
primarily attributable to increased advertising revenues for the Company's
websites, together with reduced advertising sales commissions and advertising
expenses, partially offset by increased editorial salaries and consulting fees,
increased research costs, higher marketing and promotion expenses, and higher
salaries for advertising personnel. The change in operating contribution for the
nine months ended September 30, 1999 is primarily attributable to increased
editorial salaries and consulting fees, increased research costs, higher
marketing and promotion expenses, and higher salaries for advertising personnel,
partially offset by increased advertising revenues for the Company's websites,
together with reduced advertising sales commissions and advertising expenses.
Operating Revenues
Total revenues from continuing operations for the three and nine months
ended September 30, 1999 increased 10% and 4% to $4,455,052 and $12,160,505,
respectively, as compared to $4,047,711 and $11,663,214, respectively, in 1998.
Revenues for the Print Publications operations for the three and nine months
ended September 30, 1999 increased 2% and 1%, to $3,798,338 and $10,932,275,
respectively, as compared to $3,740,507 and $10,775,203, respectively, in 1998.
Revenues for the Online Services operations for the three and nine months ended
September 30, 1999 increased 114% and 38%, to $656,714 and $1,228,230,
respectively, as compared to $307,204, and $888,011, respectively, in 1998.
Print Publications advertising revenues for the three and nine months
ended September 30, 1999 increased 2% and 4%, to $2,664,226 and $7,497,941,
respectively, as compared to $2,608,869 and $7,219,859, respectively, in 1998.
Ticker advertising revenues for the three and nine months ended September 30,
1999 increased 8% and 35%, to $701,599 and $2,217,835, respectively, as compared
to $651,748 and $1,638,653, respectively, in 1998. This increase relates
primarily to an increase in advertising pages for the three and nine months
ended September 30, 1999 of 7% and 30%, respectively, combined with an increase
in the advertising net rate per page of 4% and 9%, respectively, when compared
to 1998. Individual Investor advertising revenues for the three and nine months
ended September 30, 1999 were essentially flat and decreased 5%, respectively,
at $1,962,627 and $5,280,106, respectively, as compared to $1,957,121 and
$5,581,206, respectively, in 1998. The increase in the three months ended
September 30, 1999 relates primarily to a higher advertising net rate per page
of 21%, partially offset by a reduction in advertising pages of 13%, when
compared to 1998. The decrease in the nine months ended September 30, 1999
relates primarily to a reduction in advertising pages of 16%, offset in part by
an increase in the advertising net rate per page of 16%, when compared to 1998.
Print Publications circulation revenues for the three and nine months
ended September 30, 1999 decreased 4%, to $806,178 and $2,500,746, respectively,
as compared to $835,715 and $2,605,576, respectively, in 1998. Subscription
revenues for the three and nine months ended September 30, 1999 decreased 7% and
9%, to $621,181 and $1,896,005, respectively, as compared to $669,325 and
$2,090,889, respectively, in 1998. The decrease is primarily attributable to a
reduction in the number of subscribers to Individual Investor's Special
Situations Report. The Company believes that subscription revenues for all print
publications have stabilized at current levels. Newsstand revenues for the three
and nine months ended September 30, 1999 increased 11% and 17%, to $184,997 and
$604,741, respectively, as compared to $166,390 and $514,687, respectively, in
1998. The increase relates primarily to increased newsstand sell-through for
Individual Investor magazine.
Print Publications list rental and other revenues for the three and
nine months ended September 30, 1999 increased 11% and decreased 2%, to $327,934
and $933,588, respectively, as compared to $295,923 and $949,768, respectively,
in 1998. List rental revenue for the three and nine months ended September 30,
1999 increased 23% and 19%, to $260,006 and $717,359, respectively, as compared
to $210,996 and $600,521, respectively, in 1998. The increase in list rental
revenue is primarily attributable to increased demand, partially offset by the
decrease in the number of subscribers to Individual Investor's Special
Situations Report. Other revenues for the three and nine months ended September
30, 1999 decreased 20% and 38%, to $67,928 and $216,229, respectively, as
compared to $84,927 and $349,247, respectively, in 1998. The decrease in other
revenues is primarily attributable to reduced orders for reprints of Individual
Investor magazine.
Online Services advertising revenues for the three and nine months
ended September 30, 1999 increased 96% and 20%, to $600,304 and $1,063,580,
respectively, as compared to $306,649 and $887,457, respectively, in 1998. The
increase in advertising revenues is attributable to several factors, including
the Company's arrangement with VentureHighway.com Inc. (see Note 2), to an April
1999 sales reorganization which resulted in the Company selling sponsorship
advertisements directly as opposed to through an outside sales agent, as well as
advertising revenue earned by InsiderTrader.com, (www.insidertrader.com) which
was purchased in November 1998. Traffic to the Company's web sites for the three
months ended September 30, 1999 decreased 24% to an average of approximately 4.0
million page views per month, as compared to an average of approximately 5.3
million page views per month during the three months ended June 30, 1999. The
Company believes that the decline in page views to its sites may have been
caused in part by seasonal factors, as other financial media and service
companies also reported declining usage over the summer months. Traffic to
individualinvestor.com during the month of October was 21% greater than during
the month of September.
Online Services subscription revenues for the three and nine months
ended September 30, 1999 were $34,316 and $106,788, respectively. The Company
had no subscription revenues in the first nine months of 1998. The increase in
subscription revenues is attributable to InsiderTrader.com, which the Company
purchased in November 1998. The Company anticipates launching other
subscription-based web sites by the first half of 2000.
Operating Expenses
Total operating expenses from continuing operations for the three and
nine months ended September 30, 1999 increased 22% and 5% to $6,630,223 and
$18,526,928, respectively, as compared to $5,441,053 and $17,603,401,
respectively, in 1998.
Editorial, production and distribution expenses for the three and nine
months ended September 30, 1999 increased 4% and decreased 4% to $2,937,584 and
$8,377,406, respectively, as compared to $2,818,854 and $8,687,742,
respectively, in 1998. Print Publications editorial, production and distribution
expenses for the three and nine months ended September 30, 1999 decreased 5% and
9% to $2,202,241 and $6,514,954, respectively, as compared to $2,322,716 and
$7,120,937, 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,
development and editorial expenses for the three and nine months ended September
30, 1999 increased 48% and 19% to $735,343 and $1,862,452, respectively, as
compared to $496,138 and $1,566,805, respectively, in 1998. The increase is
primarily related to higher editorial salaries and consulting fees, and
increased research costs, for the Company's primary website,
individualinvestor.com (www.individualinvestor.com), together with production
and research costs for InsiderTrader.com, which the Company purchased in
November 1998, offset in part by lower outside development costs for
individualinvestor.com.
Promotion and selling expenses for the three and nine months ended
September 30, 1999 increased 28% and 18% to $2,062,076 and $5,738,078,
respectively, as compared to $1,609,155 and $4,857,883 respectively, in 1998.
Print Publications promotion and selling expenses for the three and nine months
ended September 30, 1999 increased 36% and 19% to $1,850,223 and $4,887,352,
respectively, as compared to $1,360,760 and $4,094,353, respectively, in 1998.
The increase is primarily due increased marketing and promotion expenses,
severance related to a termination arrangement, and higher recruiting fees as a
result of hiring additional in-house sales personnel. Online Services promotion
and selling expenses for the three and nine months ended September 30, 1999
decreased 15% and increased 11% to $211,853 and $850,726, respectively, as
compared to $248,395 and $763,530, respectively, in 1998. The decrease for the
three months ended September 30, 1999 is primarily attributable to reduced
advertising sales commissions and reduced advertising expenses, partially offset
by increased marketing and promotion expenses and increased advertising
salaries, together with advertising costs for InsiderTrader.com, which the
Company purchased in November 1998. The increase for the nine months ended
September 30, 1999 is primarily attributable to increased marketing and
promotion expenses, increased newspaper advertising, increased salaries and
recruiting fees, together with advertising costs for InsiderTrader.com,
partially offset by reduced advertising sales commissions and reduced
advertising expenses.
General and administrative expenses for the three and nine months
ended September 30, 1999 increased 53% and 4% to $1,429,861 and $3,962,337,
respectively, as compared to $932,156 and $3,825,309, respectively, in 1998. The
increase for the three months ended September 30, 1999 is primarily attributable
to increased salaries relating to senior management positions that were open for
most of the third quarter of 1998, increased recruiting fees, increased legal
fees and increased rent expense related to the relocation of the Company's
corporate office in March 1999. The increase for the nine months ended September
30, 1999 is primarily attributable to increased legal fees and increased rent
expense in the 1999 periods related to the relocation of the Company's corporate
office, partially offset by lower recruiting fees.
Corporate advertising expenses for the three and nine months ended
September 30, 1999 were $57,490 and $57,490, respectively, as compared to no
such expenses in 1998. The expenses relate to a corporate trade and consumer
brand awareness advertising campaign. The Company anticipates significant
expenditures beginning in the fourth quarter of 1999 related to this campaign.
The campaign is designed to spur online traffic growth, attract further
advertisers to both the print and online operations and to increase awareness of
the Company in the financial community.
Depreciation and amortization expense for the three and nine months
ended September 30, 1999 increased 77% and 68% to $143,212 and $391,617,
respectively, as compared to $80,888 and $232,467, respectively, in 1998. The
increase is attributable to additional depreciation for furniture and fixtures
as well as the amortization of leasehold improvements, primarily related to the
move to the new corporate office.
Investment and Other Income
Investment and other income for the three and nine months ended
September 30, 1999 increased to $798,352 and $1,394,746, respectively, as
compared to $62,362 and $106,025, respectively, in 1998. The increase is
primarily attributable to realized gains of $774,297 and $1,277,512 for the
three and nine months ended September 30, 1999, respectively, from the sale of
investments.
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.
There was no net loss from discontinued operations for the three and
nine months ended September 30, 1999, as compared to a net loss of $145,291 and
$781,370, respectively in 1998. No additional loss amounts were recorded by the
Company for the three and nine months ended September 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
September 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 nine months ended September
30, 1999 decreased 7% and 25% to $1,376,819 and $4,971,677, respectively, as
compared to $1,476,271 and $6,615,532, 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 nine months ended
September 30, 1999 was $0.15 and $0.55, respectively, as compared to $0.17 and
$0.86, respectively, in 1998.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the Company received
$3,000,000 from the issuance of common stock to Telescan, Inc. (see Note 5),
$2,721,236 from sales of investments, $2,263,515 from exercises of stock
options, and $139,849 from the liquidation of the domestic fund. These inflows
more than funded the Company's net cash used in operating activities of
$5,258,866 during the period. The Company also incurred approximately $1.5
million of capital expenditures during the nine months ended September 30, 1999
(primarily leasehold improvements and furniture connected with the relocation of
its corporate office).
As of September 30, 1999, the Company had working capital of
$7,258,847, which included cash and cash equivalents totaling $5,351,505 and
investments of $3,216,352 which should be available during the fourth quarter of
1999, subject to market fluctuations and liquidity, to provide working capital
to fund the Company's operations.
On September 29, 1999, the Company entered into a Stock Purchase
Agreement with Telescan, providing for the sale of 779,130 shares of Common
Stock for an aggregate purchase price of $3,000,000, which was based upon one
hundred and twenty-five percent (125%) of the average of the closing prices of
the Common Stock, as reported by Nasdaq, for the seven business days prior to
the date of the closing. Additionally, the Company and Telescan entered into an
agreement pursuant to which the Company obtained a three-year license to use
several of Telescan's propriety technology and investment tools on the Company's
web sites. The Company paid the $1,134,500 license fee by issuing 368,301 shares
of Common Stock to Telescan, which was based upon the average of the closing
prices of the Company's Common Stock, as reported by Nasdaq, for the seven
business days prior to the date of the closing.
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 September 30, 1999 balance sheet at $3,193,750 based
upon the September 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 November 12, 1999, the value of the
Company's investment in Wit Capital has increased to $3,893,750.
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").
The shares were subsequently sold during August 1999 for net cash proceeds of
$1,688,594, producing a net realized gain of $938,594.
On June 2, 1999, the Company, Kirlin and VentureHighway (at the time a
wholly-owned subsidiary of Kirlin), entered into an agreement pursuant to which
the Company acquired 1,654,344 newly issued shares (the number of shares
reflects a subsequent stock split) of common stock of VentureHighway,
representing 19.9% of the then- outstanding shares of common stock ( the other
80.1% of which immediately after the transaction were held by Kirlin). The
purchase price was paid in the form of a credit for VentureHighway to use to
purchase advertising in the Company's magazines and websites during the 30
months ending December 31, 2001. Although the purchase price had a stated value
of $3.2 million, the investment and the deferred advertising revenue were
recorded at the fair market value at the date of the transaction of $2.6 million
(or $1.595 per share).
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. It is the Company's intention to control its operating expenses
while continuing to invest in its existing products. The Company anticipates
losses to continue in the fourth quarter of 1999. 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 the fourth
quarter of 1999 and in the year 2000 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 and the effect of
increased awareness in the marketplace due in part to a trade and consumer brand
awareness advertising campaign that will begin in the fourth quarter of 1999.
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 over time to realize higher revenues from operations of its
primary online service, individualinvestor.com, primarily due to the anticipated
traffic growth to the site, which is expected to generate higher levels of
sponsorship and banner revenues. 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 by the first half of 2000.
There can be no assurance, however, that such products in fact will be launched,
be launched on time, or that if launched, such products will be successful.
Based on the Company's current outlook, the Company believes that its
working capital and its investments will be sufficient to fund its operations
and capital requirements at least through the first half of 2000. 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 first half of 2000. Thereafter, the Company will 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
to fix where necessary, any Year 2000 Issue with respect to its computer
systems. The Company has identified the fixes that should be made to its
computer systems in light of the Year 2000 issue, has completed most of its
repair efforts, and currently expects to complete its repair efforts and test
its systems before December 1999.
The Company currently believes that total direct costs associated with
making its systems Year 2000 Ready should not exceed $30,000 (most of which
costs already have been incurred). 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 currently 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 such a contingency plan
should be developed.
The dates on which the Company believes it will complete its Year 2000
plan, 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 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
guarantee 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>
INDIVIDUAL INVESTOR GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
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. WTA moved to dismiss the complaint as to all causes of
action other than the breach of contract claim, which motion was denied.
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 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 of
the Common Stock 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. In September 1999, defendants moved to dismiss the 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.
<PAGE>
<TABLE>
ITEM 2. Changes in Securities
Sales of Unregistered Securities
<S> <C> <C> <C> <C> <C>
Consideration received and Exemption If option, warrant or
Date of Sale Title of security Number description of underwriting or from convertible security, terms
Sold other discounts to market registration of exercise or conversion
price afforded to purchasers claimed
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
7/99 - 9/99 Options to purchase 692,750 Exercise price would be Section 4(2) Vesting over a period of
common stock granted received upon exercise three to four years from
to employees and date of grant, subject to
consultants certain conditions of
continued service;
exercisable for a period
lasting ten years from date
of grant at exercise prices
ranging from $6.00 to
$2.53125 per share.
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
09/29/99 Sale of common stock 779,130 The Company received Section 4(2)
to Telescan, Inc. $3,000,000 in cash
consideration for these
shares
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
09/29/99 Sale of common stock 368,301 Three-year license to use Section 4(2)
to Telescan, Inc. proprietary technology and
investment tools on Company
web sites
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
08/16/99 Common stock granted 36,972 Recruiting services Section 4(2)
to consultant
- ----------------- --------------------- ------------ -------------------------------- ---------------- -----------------------------
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit Description Method of filing
No.
3.1 Amended and Restated Certificate Incorporated by reference to
of Incorporation of Registrant, Exhibit 3.2 to the Form 10-Q
as amended through June 22, 1999 for the quarter ended June 30,
1999
3.2 By-laws of Registrant amended Incorporated by reference to
through April 27, 1999 Exhibit 3.3 to the Form 10-Q
for the quarter ended June 30,
1999
4.1 Specimen Certificate for Common Incorporated by reference to
Stock of Registrant Exhibit 4.1 to the Registrant's
Registration Statement on Form
S-18 (File No.33-43551-NY)
10.1 Stock Purchase Agreement dated Incorporated by reference to
as of September 29, 1999 between Exhibit 10.8 to the Registrant's
Registrant and Telescan, Inc. Registration Statement on Form
S-3 dated October 29, 1999
(File No.333-89933)(the "Form
S-3")
10.2 Letter Agreement dated as of Incorporated by reference to
September 29, 1999 between Exhibit 10.9 to the Form S-3
Registrant and Telescan, Inc.
10.3 Employment Agreement between Filed herewith
Registrant and David H. Allen
dated August 9, 1999
10.4 Stock Option Agreement between Filed herewith
Registrant and David H. Allen
dated August 16, 1999
10.5 Indemnification Agreement between Filed herewith
Registrant and David H. Allen
dated August 16, 1999
27 Financial Data Schedule September Filed only with the electronic
30, 1999 submission of Form 10-Q in
accordance with the EDGAR
requirement
99 Certain Risk Factors Filed herewith
(a) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the Quarter Ended
September 30, 1999.
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: November 15, 1999
INDIVIDUAL INVESTOR GROUP, INC. (Registrant)
By: /s/ Jonathan L. Steinberg
Jonathan L. Steinberg, Chief Executive Officer and Director
By: /s/ David H. Allen
David H. Allen, Chief Financial Officer
CONFIDENTIAL
EXHIBIT 10.3
INDIVIDUAL INVESTOR GROUP, INC.
125 Broad Street, 14th Floor
New York, New York 10004
August 9, 1999
Mr. David H. Allen
17465 Serene Drive
Morgan Hill, California 95037
Dear Dave:
Congratulations! On behalf of Individual Investor Group, Inc. (the
"Company"), I'm pleased to extend you a formal offer of employment to become
Chief Financial Officer of the Company. Significant terms of your employment
shall be as follows:
Salary: Your starting base salary will be $200,000 per annum,
commencing the date you begin your employment at the Company (the "Start Date").
Your salary will be paid in accordance with the Company's normal payroll
policies in effect from time to time.
Bonus: If, during the first year of your employment, the Company and
its subsidiaries, with your participation, raise equity and/or debt financing of
$10 million in the aggregate (the Company and its subsidiaries shall have sole
and absolute discretion regarding whether to accept or reject any proposed
financing terms) you will be paid a bonus of $50,000; if the amount of such
aggregate financing equals $15 million or more, you shall be paid an additional
bonus of $50,000. If, for forty (40) trading days during any ninety calendar day
period during the first year of your employment, the market capitalization of
the Company on a fully-diluted basis (i.e., outstanding shares of the Company's
common stock plus shares of the Company's common stock into which any other
security is convertible on a given day, where the conversion price is less than
the closing price of the Company's common stock on the prior trading day (and
hence not including, for example, stock options that are not exercisable on such
day)) equals or exceeds $75 million, you will be paid a bonus of $50,000; if
such market capitalization equals or exceeds $125 million for such a period, you
shall be paid an additional bonus of $50,000. The maximum bonus payable pursuant
to this paragraph is $200,000. If earned, each of these bonuses would be paid
within thirty (30) days of the event that triggered your earning of the bonus.
After the first year of your employment, you will be eligible for an annual
bonus of up to 100% of your base salary, based upon mutually agreed upon
objectives.
Stock Option: You will be granted an option (the "Option") to purchase
175,000 shares of the Company's common stock as of the Start Date. The per share
exercise price of the Option shall be the fair market value of the Company's
common stock on the date of grant (i.e., the closing price of the Company's
common stock on the date before the date of grant) as determined by the Board.
The Option shall be exercisable as to 43,750 shares on the first anniversary of
the Start Date and as to the remaining shares at the rate of one thirty-sixth
(1/36) of such shares each month thereafter (thus a total of four years is
required before all shares subject to the Option may be exercised), subject to
your continued employment except as noted in this letter. The Option shall
expire ten (10) years after grant. In the event of a Change in Control (as
defined below) of the Company, all shares subject to the Option shall
immediately become exercisable.
Severance: If the Company terminates your employment Without Good
Cause (as defined below) or you resign for Good Reason (as defined below), (a)
any shares of the Option that would have vested due to the passage of time had
you remained employed for an additional twelve (12) months, shall immediately
become exercisable and (b) the Company shall pay you severance pay equal to nine
(9) months of your base salary. Additionally, the Company shall, for twelve (12)
months after such termination or resignation, make monthly contributions to your
COBRA medical insurance premiums (if you have elected coverage under COBRA
during such period), in an amount equal to the monthly contributions that the
Company would have made had you remained employed by the Company.
Definitions. As used herein, "Change in Control" shall mean (x) a
merger or consolidation in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction (but excluding any transfers
between any persons who are under common control), or (y) the sale, transfer or
other disposition of all or substantially all of the Company's assets in
complete liquidation or dissolution of the Company.
As used herein, "Good Cause" for termination shall mean a termination
of employment by the Company due to your (a) conviction of a felony, (b) fraud,
or (c) any other act of willful misconduct that is materially injurious to the
Company. A termination of your employment by the Company except (x) for Good
Cause or (y) due to your death or disability, shall be a termination "Without
Good Cause."
As used herein, "Good Reason" for your resignation will exist of you
resign within sixty days of any of the following: (a) a reduction in your base
salary or target bonus, (b) any material reduction in your benefits, (c) any
diminishing change in your job title and/or material diminishment of your job
duties or (d) any requirement that you relocate to an office more than
thirty-five (35) miles from your then-current office.
Sign-On Bonus, Etc.: The Company will pay you a sign-on bonus of
$50,000 on the Start Date in connection with the movement of your household
items from California to the New York area, the expenses associated with the
closing and sale of your California home and the expenses associated with the
purchase of a home in the New York area (the Company shall not have any other
responsibility with respect to any such expenses). Additionally, the Company
will reimburse the expenses you and your family incur in traveling to and
staying in the New York area in connection with searching for a home in the New
York area, in an amount not to exceed $4,000. If, on or before the first
anniversary of the Start Date, you resign your employment with the Company for
other than Good Reason, you shall upon such resignation repay the foregoing
amounts paid to you pursuant to this paragraph. Additionally, if you have not
moved into a home in the New York area by the Start Date, the Company will
reimburse the living expenses you incur in the New York area, for a maximum of
eight (8) weeks, in an amount not to exceed $1,250 per week, and will also
reimburse the cost of economy-class travel expenses between California and the
New York area, that your or your family incur through December 31, 1999.
Finally, on or before the three (3) month anniversary of the Start Date, the
Company shall loan you the sum of $50,000 at the Applicable Federal Rate (the
"Loan"); on each of the first two (2) anniversaries of the Start Date, the
Company shall forgive one-half (1/2) of the outstanding principal plus accrued
interest, based on your continued employment. In the event that you resign your
employment with the Company or the Company terminates your employment for Good
Cause prior to the second anniversary of the Start Date, you shall repay the
balance of the Loan upon such termination (if such payment is received within
thirty (30) days of termination, the Company shall forgive the accrued interest
thereon). If the Company terminates your employment Without Good Cause then the
entire Loan balance (including accrued interest) will be forgiven.
Miscellaneous: You will report to the President of the Company, and
shall be expected to work closely and directly with the Company's Chief
Executive Officer on corporate finance matters. You will be covered by the
Company's employee group insurance plan, summaries of which will be provided to
you. You will be entitled to participate in the Company's 401(k) plan,
commencing at the first enrollment date after you have been employed for 60 days
(the enrollment dates currently are January 1, April 1, July 1 and October 1;
the Company does not make contributions to the plan). The Company will execute
an indemnification agreement with you in the form the Company has used with
respect to its other current officers, and will take appropriate steps to have
your office covered by the Company's directors' and officers' insurance. You
will receive four (4) weeks of paid vacation each year. You will commence work
on a date to be agreed upon, which date shall be on or before September 6, 1999.
This letter sets forth all of the terms relating to your potential
employment by the Company, and supersedes all other discussions, whether written
or oral. The terms relating to your actual or potential employment by the
Company may not be modified or amended except in writing signed by both parties.
A signature received via facsimile shall be deemed an original for all purposes.
Please indicate by your signature below your agreement with the terms
set forth above. In closing, I want to reiterate how excited we are to have you
join us at such a significant time in the development of the Company and look
forward to your important contributions to our success.
Sincerely,
INDIVIDUAL INVESTOR GROUP, INC.
By: /s/ Jonathan Steinberg
Jonathan L. Steinberg
Chief Executive Officer
AGREED AND ACCEPTED:
/s/ David H. Allen Date: August 9, 1999
David H. Allen
Exhibit 10.4
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (the "Agreement") is entered into as of
August 16, 1999, by and between INDIVIDUAL INVESTOR GROUP, INC., a Delaware
corporation with its principal place of business at 125 Broad Street, 14th
Floor, New York, New York 10004 (the "Company"), and David H. Allen, an
individual residing at 490 Harding Drive, South Orange, New Jersey 07079 (the
"Employee").
WHEREAS, on August 16, 1999 (the "Grant Date"), the Stock Option
Committee (the "Committee") of the Board of Directors of the Company (the
"Board") authorized the grant to the Employee of an option (the "Option") to
purchase an aggregate of 175,000 shares of the authorized but unissued Common
Stock of the Company, $.01 par value (the "Common Stock"), conditioned upon the
Employee's acceptance of the grant of the Option upon the terms and conditions
set forth in this Agreement; and
WHEREAS, the Employee desires to acquire the Option upon the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants the Employee the
Option to purchase all or any part of an aggregate of 175,000 shares of Common
Stock (the "Option Shares") on the terms and conditions set forth herein.
2. Non-Qualified Stock Option. The Option represented hereby shall be
a "non-qualified stock option," and is not intended to be an Option which
qualifies as an "Incentive Stock Option" under Section 422 of the Internal
Revenue Code of 1986, as amended.
3. Exercise Price. The exercise price of the Option is $2.625 per
share, subject to adjustment as hereinafter provided.
4. Exercisability. This Option shall be exercisable, subject to the
terms and conditions of this Agreement, as follows: (i) the right to purchase
43,750 of the Option Shares shall be exercisable on or after August 16, 2000 and
(ii) the right to purchase one thirty-sixth of the 131,250 share balance of the
Option Shares shall be exercisable on or after on the 16th calendar day of each
month thereafter. After a portion of the Option becomes exercisable, such
portion shall remain exercisable, except as otherwise provided herein, until the
close of business on August 15, 2009 ("Exercise Period").
5. Effect of Termination of Employment.
5.1. Termination Due to Death. If Employee's employment by the
Company terminates by reason of death, the portion of the Option, if any, that
was exercisable as of the date of death may thereafter be exercised by the legal
representative of the estate or by the legatee of the Employee under the will of
the Employee, for a period of one (1) year from the date of such death or until
the expiration of the Exercise Period, whichever period is shorter. The portion
of the Option, if any, that was not exercisable as of the date of death shall
immediately expire upon death.
5.2. Termination Due to Disability. If Employee's employment by the
Company terminates by reason of disability, the portion of the Option, if any,
that was exercisable as of the date of termination of employment may thereafter
be exercised by the Employee for a period of one (1) year from the date of the
termination of employment or until the expiration of the Exercise Period,
whichever period is shorter. The portion of the Option, if any, that was not
exercisable as of the date of such termination of employment shall immediately
expire on the date of such termination of employment.
5.3. Other Termination.
(a) Except as otherwise provided in Section 5.6, if Employee's
employment is terminated for any reason other than (i) death or (ii) Disability
or (iii) for cause by the Company, then the portion of the Option, if any, that
was exercisable as of the date of termination of employment may thereafter be
exercised by the Employee for a period of ninety (90) days from termination of
employment or until the expiration of the Exercise Period, whichever is shorter.
The portion of the Option, if any, that was not exercisable as of the date of
such termination of employment shall immediately expire on the date of such
termination of employment. If the Company terminates your employment Without
Good Cause (as defined below) or you resign for Good Reason (as defined below),
any shares of the Option that would have vested due to the passage of time had
you remained employed for an additional twelve (12) months shall immediately be
deemed exercisable as of the date of termination. As used herein, "Good Cause"
for termination shall mean a termination of employment by the Company due to
your (a) conviction of a felony, (b) fraud, or (c) any other act of willful
misconduct that is materially injurious to the Company. A termination of your
employment by the Company except (x) for Good Cause or (y) due to your death or
disability, shall be a termination "Without Good Cause." As used herein, "Good
Reason" for your resignation will exist of you resign within sixty days of any
of the following: (a) a reduction in your base salary or target bonus, (b) any
material reduction in your benefits, (c) any diminishing change in your job
title and/or material diminishment of your job duties or (d) any requirement
that you relocate to an office more than thirty-five (35) miles from your
then-current office.
(b) In the event the Employee's employment is terminated for
cause, the Company may require the Employee to return to the Company the
economic value of any Option Shares purchased hereunder by the Employee within
the six (6) month period prior to the date of such termination of employment. In
such event, the Employee hereby agrees to remit to the Company, in cash, an
amount equal to the difference between the Fair Market Value of the Option
Shares on the date of such termination of employment (or the sales price of such
Shares if the Option Shares were sold during such six (6) month period) and the
Exercise Price of such Shares. For purposes of this Agreement, the "Fair Market
Value" of the Option Shares on a given date (the "Date of Determination") shall
mean (i) if the Common Stock is listed on a national securities exchange or
quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the last sale
price of the Common Stock in the principal trading market for the Common Stock
on the last trading day preceding the Date of Determination, as reported by the
exchange or Nasdaq, as the case may be; (ii) if the Common Stock is not listed
on a national securities exchange or quoted on the Nasdaq National Market or
Nasdaq SmallCap Market, but is traded in the over-the-counter market, the
closing bid price for the Common Stock on the last trading day preceding the
Date of Determination for which such quotations are reported by the OTC Bulletin
Board or the National Quotation Bureau, Incorporated or similar publisher of
such quotations; and (iii) if the fair market value of the Common Stock cannot
be determined pursuant to clause (i) or (ii) above, such price as the Committee
shall determine, in good faith.
5.4. "Employment". The Employee shall be considered to be employed
by the Company pursuant to this Section 5 if the Employee is an officer,
director or full-time employee of the Company (or of any parent, subsidiary or
affiliate of the Company) or if the Committee determines in its sole and
absolute discretion that the Employee is rendering substantial services to the
Company as a part-time employee, consultant or contractor of the Company (or of
any parent, subsidiary or affiliate of the Company). The Committee shall have
the sole and absolute discretion to determine whether the Employee has ceased to
be employed by the Company and the effective date on which such employment
terminated.
5.5. No Right to Employment. Nothing in this Agreement shall confer
on the Employee any right to continue in the employ of, or other relationship
with, the Company (or with any parent, subsidiary or affiliate of the Company)
or limit in any way the right of the Company (or of any parent, subsidiary or
affiliate of the Company) to terminate the Employee's employment or other
relationship with the Company (or with any parent, subsidiary or affiliate of
the Company) at any time, with or without cause.
5.6. If Employee terminates his employment with the Company other
than for Good Reason, this Option, whether or not exercisable, shall immediately
expire.
6. Withholding Tax. Not later than the date as of which an amount
first becomes includible in the gross income of the Employee for Federal income
tax purposes with respect to the Option, the Employee shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount. Notwithstanding anything in this Agreement to
the contrary, the obligations of the Company pursuant to this Agreement shall be
conditional upon such payment or arrangements with the Company and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Employee from the Company.
7. Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, consolidation, dividend (other than cash
dividend), stock split, reverse stock split, or other change in corporate
structure affecting the number of issued shares of Common Stock, the Company
shall proportionally adjust the number and kind of Option Shares and the
exercise price of the Option in order to prevent the dilution or enlargement of
the Employee's proportionate interest in the Company and Employee's rights
hereunder, provided that the number of Option Shares shall always be a whole
number.
7A. Acceleration of Vesting on Change of Control. Notwithstanding the
provisions of Sections 4, in the event of a "change of control" (as defined
below) while the Employee is employed by the Company, the vesting of this Option
shall accelerate and all the Option Shares shall be purchasable by Employee
simultaneous with such change of control. For the purposes of this Agreement, a
change of control shall mean (x) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction (but excluding any transfers between any persons who are under
common control), or (y) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or dissolution
of the Company.
8. Method of Exercise.
8.1. Notice to the Company. The Option shall be exercised in whole
or in part by written notice in substantially the form attached hereto as
Exhibit A directed to the Company at its principal place of business accompanied
by full payment as hereinafter provided of the exercise price for the number of
Option Shares specified in the notice.
8.2. Delivery of Option Shares. The Company shall deliver a
certificate for the Option Shares to the Employee as soon as practicable after
payment therefor.
8.3. Payment of Purchase Price. The Employee shall make pay for the
Option Shares by any one or more of the following methods set forth in this
Section 8.3.
8.3.1. Cash Payment. The Employee shall make cash payments by
wire transfer, certified check or bank check, in each case payable to the order
of the Company; the Company shall not be required to deliver certificates for
Option Shares until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof.
8.3.2. Payment through Bank or Broker. The Employee may make
arrangements satisfactory to the Company with a bank or a broker who is member
of the National Association of Securities Dealers, Inc. to either (a) sell on
the exercise date a sufficient number of the Option Shares being purchased so
that the net proceeds of the sale transaction will at least equal the Exercise
Price multiplied by the number of Option Shares being purchased pursuant to such
exercise, plus the amount of any applicable withholding taxes and pursuant to
which the bank or broker undertakes irrevocably to deliver the full Exercise
Price multiplied by the number of Option Shares being purchased pursuant to such
exercise, plus the amount of any applicable withholding taxes to the Company on
a date satisfactory to the Company, but no later than the date on which the sale
transaction would settle in the ordinary course of business or (b) obtain a
"margin commitment" from the bank or broker pursuant to which the bank or broker
undertakes irrevocably to deliver the full Exercise Price multiplied by the
number of Option Shares being purchased pursuant to such exercise, plus the
amount of any applicable withholding taxes to the Company, immediately upon
receipt of the Option Shares.
8.3.3. Cashless Payment. The Employee may, in his or her sole
discretion, use shares of Common Stock of the Company that were owned by the
Employee for more than six (6) months (and which have been paid for within the
meaning of SEC Rule 144 and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
shares), or that were obtained by the Employee in the open public market, to pay
the purchase price for the Option Shares by delivery of one or more stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Shares of
Common Stock used for this purpose shall be valued at the Fair Market Value.
8.3.4. Payment of Withholding Tax. Any required withholding
tax may be paid in cash or with Common Stock in accordance with Sections 8.3.1.,
8.3.2 and 8.3.3.
8.3.5. Exchange Act Compliance. Notwithstanding the foregoing,
the Company shall have the right to reject payment in the form of Common Stock
if in the opinion of counsel for the Company, (i) it could result in an event of
"recapture" under Section 16(b) of the Securities Exchange Act of 1934; (ii)
such shares of Common Stock may not be sold or transferred to the Company; or
(iii) such transfer could create legal difficulties for the Company.
9. Security Interest in Option Shares Collateralizing Obligations Owed
to the Company. Notwithstanding anything in this Agreement to the contrary, the
Employee hereby grants the Company a security interest in the Option Shares as
follows: in the event that the Employee owes the Company any sum (including
without limitation amounts owed pursuant to a loan made by the Company to the
Employee), and such sum is past due (the "Past Due Amount"), the Company shall
have a security interest in the Option Shares. The Employee hereby agrees to
execute, promptly upon request by the Company, such instruments and to take such
action as may be useful for the Company to perfect and/or exercise such security
interest, and hereby irrevocably grants the Company the right to retain, in full
or partial payment of the Past Due Amount, up to the following number of Option
Shares upon any whole or partial exercise of the Option: a fraction, the
numerator of which is the Past Due Amount, and the denominator of which is the
Fair Market Value of the Company's Common Stock (as set forth in Section 5.3(b))
as of the date of such exercise; provided that the fraction set forth in the
preceding clause shall be rounded up to the nearest whole number. The security
interest set forth herein shall be cumulative to all, and not in lieu of any,
other remedies to available to the Company with respect to any Past Due Amount.
10. Market Standoff Agreement. The Employee agrees that, in
connection with any registration of the Company's securities, upon the request
of the Company or the underwriters managing any public offering of the Company's
securities, the Employee will not sell or otherwise dispose of any Option Shares
(including without limitation sale of Option Shares in connection with the
exercise method set forth in Section 8.3.2.) or any other securities of the
Company without the prior written consent of the Company or such underwriters,
as the case may be, for such period of time from the effective date of such
registration as the Company or the underwriters may specify for the Company's
employee shareholders generally. The Employee understands and agrees that, in
order to ensure compliance with the market standoff agreement, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent.
11. Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to the Employee herein is an ISO, and if the Employee sells or otherwise
disposes of any of the Option Shares acquired pursuant to a whole or partial
exercise the Option prior to the later of (a) the second (2nd) anniversary of
the Grant Date, or (b) the first (1st) anniversary of the date of exercise of
such Option Shares, the Employee shall immediately notify the Company in writing
of such sale or disposition. The Employee acknowledges and agrees that the
Employee may be subject to income and other tax withholding by the Company on
the compensation income recognized by the Employee from any such sale or
disposition, by payment in cash (or in shares of Common Stock, to the extent
permissible under Section 8.3.4.) or out of the current wages or other earnings
payable to Employee. The Employee hereby authorizes his/her broker(s) to provide
the Company, promptly at the Company's request, with any information concerning
the Option Shares, now or previously in Employee's account(s) with such
broker(s), as the Company may request. The Employee agrees that this
authorization may not be revoked or modified in any manner except pursuant to a
writing signed by both the Employee and the Company.
12. Nonassignability. The Option shall not be assignable or
transferable except by will or by the laws of descent and distribution in the
event of the death of the Employee. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
or transferees of the terms and conditions of the Option.
13. Required Holding Period. This Option and any Common Stock acquired
upon its exercise may not be sold, assigned or otherwise transferred prior to
the six (6) month anniversary of the Grant Date.
14. Company Representations. The Company hereby represents and
warrants to the Employee that:
(a) the Company, by appropriate and all required action, is duly
authorized to enter into this Agreement and consummate all of the transactions
contemplated hereunder; and
(b) the Option Shares, when issued and delivered by the Company
to the Employee in accordance with the terms and conditions hereof, will be duly
and validly issued and fully paid and non-assessable.
15. Employee Representations. The Employee hereby represents and
warrants to the Company that:
(a) he or she is acquiring the Option and shall acquire the
Option Shares for his or her own account and not with a view towards the
distribution thereof;
(b) he or she has received a copy of all reports and documents
required to be filed by the Company with the Commission pursuant to the Exchange
Act within the last twenty-four (24) months and all reports issued by the
Company to its stockholders within the last twenty-four (24) months;
(c) he or she understands that he or she must bear the economic
risk of the investment in the Option Shares, which cannot be sold by him or her
unless they are registered under the Securities Act of 1933 (the "1933 Act") or
an exemption therefrom is available thereunder and that the Company is under no
obligation to register the Option Shares for sale under the 1933 Act except as
provided in Section 16A below;
(d) in his or her position with the Company, he or she has had
both the opportunity to ask questions and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to clause (b) above;
(e) he or she is aware that the Company shall place stop transfer
orders with its transfer agent against the transfer of the Option Shares in the
absence of registration under the 1933 Act or an exemption therefrom as provided
herein; and
(f) The certificates evidencing the Option Shares may bear the
following legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933. The shares may not
be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
"The shares represented by this certificate have been
acquired pursuant to a Stock Option Agreement, dated
as of August 16, 1999, a copy of which is on file
with the Company, and may not be transferred, pledged
or disposed of except in accordance with the terms
and conditions thereof."
16. Restriction on Transfer of Stock Option Agreement and Option
Shares. Notwithstanding anything in this Agreement to the contrary, and in
addition to the provisions of Section 12 of this Agreement, the Employee hereby
agrees that he or she shall not sell, transfer by any means or otherwise dispose
of the Option Shares acquired by him or her without registration under the 1933
Act, or in the event that they are not so registered, unless (a) an exemption
from the 1933 Act registration requirements is available thereunder, and (b) the
Employee has furnished the Company with notice of such proposed transfer and the
Company's legal counsel, in its reasonable opinion, shall deem such proposed
transfer to be so exempt.
16A. Registration Right. The Company agrees to file a registration
statement ("Registration Statement") on Form S-8 (or successor form) to register
the Option Shares for issuance to Employee on or prior to the date the Option or
any portion thereof first becomes exercisable. The Company will bear all
expenses and pay all fees incurred in connection with the filing and
modification or amendment of the Registration Statement, exclusive of
underwriting discounts, and commissions payable in respect of the sale of the
Common Stock and any counsel for the Employee. Moreover, if the Company fails to
comply with the provisions of this Section 16A, the Company shall, in addition
to any other equitable or other relief available to the Employee, be liable for
any and all incidental, special and consequential damages and damages due to
loss of profits sustained by the Employee.
17. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by the Employee or the Company to the Committee for
review. The resolution of such a dispute by the Board or Committee shall be
final and binding on the Company and on the Employee.
18. Miscellaneous.
18.1. Notices. All notices, requests, deliveries, payments, demands
and other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or by
private courier (e.g., Federal Express), or sent by registered or certified
mail, return receipt requested, postage prepaid, to the parties at their
respective addresses set forth herein, or to such other address as either shall
have specified by notice in writing to the other. Notice shall be deemed duly
given hereunder when delivered in person or by private courier, or on the third
(3rd) business day following deposit in the United States mail as set forth
above.
18.2. [Intentionally omitted.]
18.3. Successors and Assigns. The Company may assign any of its
rights under this Agreement. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Option Agreement shall be
binding upon the Employee and the Employee's heirs, executors, administrators,
legal representatives, successors and assigns.
18.4. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto and supersede all prior undertakings and
agreements, oral or written, with respect to the subject matter hereof. The
Agreement may not be contradicted by evidence of any prior or contemporaneous
agreement. To the extent that the policies and procedures of the Company apply
to the Employee and are inconsistent with the terms of the Agreement, the
provisions of the Agreement shall control.
18.5. Amendments; Waivers. The Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by each of the
parties (in the case of the Company, such instrument must be signed by the
President or Chief Executive Officer of the Company to be effective). No failure
to exercise and no delay in exercising any right, remedy, or power under the
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, or power under the Agreement preclude any other
or further exercise thereof, or the exercise of any other right, remedy, or
power provided herein or by law or in equity. All rights and remedies, whether
conferred by the Agreement, by any other instrument or by law, shall be
cumulative, and may be exercised singularly or concurrently.
18.6. Severability; Enforcement. If any provision of this Agreement
is held invalid, illegal or unenforceable in any respect (an "Impaired
Provision"), (a) such Impaired Provision shall be interpreted in such a manner
as to preserve, to the maximum extent possible, the intent of the parties, (b)
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby, and (c) such decision shall not
affect the validity, legality or enforceability of such Impaired Provision under
other circumstances. The parties agree to negotiate in good faith and agree upon
a provision to substitute for the Impaired Provision in the circumstances in
which the Impaired Provision is invalid, illegal or unenforceable.
18.7. Attorneys' Fees. In the event of any arbitration or
litigation between the parties arising under or related to this Agreement (a
"Covered Dispute"), the substantially prevailing party in the Covered Dispute
(the "Prevailing Party") shall be entitled to receive from the other party the
Prevailing Party's reasonable attorneys' fees and costs, including, without
limitation, the cost at the hourly charges routinely charged therefor by the
persons providing the services, reasonable fees and/or allocated costs of staff
(in-house) counsel, and fees and expenses of experts retained by counsel in
connection with such arbitration or litigation and with any and all appeals or
petitions therefrom, in addition to any other relief to which the Prevailing
Party may be entitled. A party to a Covered Dispute shall be the Prevailing
Party in such Covered Dispute if the claims against such party are dismissed at
any stage in the arbitration or litigation.
18.8. Governing Law; Jurisdiction. The Agreement shall be governed
by and construed in accordance with the law of the State of New York, without
reference to that body of law concerning choice of law or conflicts of law,
except that the General Corporation Law of the State of Delaware ("GCL") shall
apply to all matters governed by the GCL, including without limitation matters
concerning the validity of grants of stock options and actions of the Company's
board of directors or any committee thereof. The parties agree that, subject to
the agreement to arbitrate disputes set forth in Section 18.12, the sole and
exclusive judicial venues for any dispute, difference, cause of action or legal
action of any kind that any party, or any officer, director, employee, agent or
permitted successor or assign of any party may bring against any other party, or
against any officer, director, employee, agent or permitted successor or assign
of any party, related to this Agreement (a "Proceeding"), shall be (a) the
United States District Court for the Southern District of New York, if such
court has statutory jurisdiction over the Proceeding and (b) the Supreme Court
of the State of New York in the County of New York (collectively, the "New York
Courts"). Each of the parties hereby expressly (i) consents to the personal
jurisdiction of each of the New York Courts with respect to any Proceeding; (ii)
agrees that service of process in any Proceeding may be effected upon such party
in the manner set forth in Section 18.1 (as well as in any other manner
prescribed by law); and (iii) waives any objection, whether on the grounds of
venue, residence or domicile or on the ground that the Proceeding has been
brought in an inconvenient forum, to any Proceeding brought in either of the New
York Courts. Notwithstanding the foregoing, nothing in this paragraph alters the
parties' agreement to arbitrate disputes as set forth in Section 18.12.
18.9. No Duty to Disclose. The Employee acknowledges and agrees
that, except for the information provided to the Employee by the Company
pursuant to Section 15(b) and 15(d) prior to execution of this Agreement,
neither the Company nor any of the Company's officers, directors, shareholders,
employees, agents or representatives has any duty or obligation to disclose to
the Employee any information whatsoever, including but not limited to
information concerning the Company that might if made public affect the value of
the Option Shares. Such information includes without limitation any information
concerning the Company's actual or potential financial performance, actual or
potential material contracts to which the Company is or may become a party, or
actual or potential material transactions that involve or may involve the
Company, including but not limited to plans to effect a merger or to acquire or
dispose of a material amount of assets. The Employee acknowledges and
understands that he or she (a) might exercise his or her Option (or a portion
thereof) prior to the public dissemination of such information, and that the
value of the Option Shares may decrease after the public dissemination of such
information, or (b) might exercise his or her Option (or a portion thereof) and
sell, pledge or encumber the Option Shares (or a portion thereof) prior to the
public dissemination of such information, and that the value of the Option
Shares may increase after the public dissemination of such information; and the
Employee acknowledges and agrees that he or she will not bring or participate in
any claim whatsoever against the Company or against any of the Company's
officers, directors, shareholders, employees, agents or representatives related
to the failure to have disclosed such information prior to the Employee's
exercise of the Option and/or sale, pledge or encumbrance of the Option Shares.
18.10. Rights of Third Parties. Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective permitted successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
18.11 Headings. The Section headings used herein are for
convenience only and do not define, limit or construe the content of such
sections. All references in this Agreement to Section numbers refer to Sections
of this Agreement, unless otherwise indicated.
18.12. Agreement to Arbitrate. The Employee and the Company
recognize that differences may arise between them during or following the
Employee's employment with the Company, and that those differences may or may
not be related to the grant of the Option herein or to the Employee's
employment. The Employee understands and agrees that by entering into this
Agreement, the Employee anticipates the benefits of a speedy, impartial
dispute-resolution procedure of any such differences. As used in this Section
18.12 and its subparts, the "Company" shall also refer to all benefit plans, the
benefit plans' sponsors, fiduciaries, administrators, affiliates, and all
successors and assigns of any of them.
(a) Arbitrable Claims. (i) ALL DISPUTES BETWEEN THE EMPLOYEE (AND HIS
OR HER PERMITTED SUCCESSORS AND ASSIGNS) AND THE COMPANY (AND ITS AFFILIATES,
SHAREHOLDERS, DIRECTORS, OFFICERS, AGENTS AND PERMITTED SUCCESSORS AND ASSIGNS)
RELATING IN ANY MANNER WHATSOEVER TO EMPLOYEE'S EMPLOYMENT OR TO THE TERMINATION
THEREOF, INCLUDING WITHOUT LIMITATION ALL DISPUTES ARISING UNDER THIS AGREEMENT
(COLLECTIVELY, "ARBITRABLE CLAIMS") SHALL BE RESOLVED EXCLUSIVELY BY BINDING
ARBITRATION. Arbitrable Claims shall include, but are not limited to, contract
(express or implied) and tort claims of all kinds, as well as all claims based
on any federal, state, or local law, statute, or regulation (including but not
limited to claims alleging unlawful harassment or discrimination in violation of
Title VII and/or Title IX of the U.S. Code, of the Age Discrimination in
Employment Act, of the Americans with Disabilities Act, of state statute, or
otherwise), excepting only claims under applicable workers' compensation law and
unemployment insurance claims. Arbitration shall be final and binding upon the
parties and shall be the exclusive remedy for all Arbitrable Claims. Except as
provided in Section 18.12(a)(ii), the Arbitrator (as defined below) shall decide
whether a claim is an Arbitrable Claim. THE PARTIES HEREBY WAIVE ANY RIGHTS THAT
THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(ii) Notwithstanding anything herein to the contrary, however,
the Company may enforce in court, without prior resort to arbitration, any claim
concerning actual or threatened unfair competition and/or the actual or
threatened use and/or unauthorized disclosure of confidential or proprietary
information of the Company. The court shall determine whether a claim concerns
actual or threatened unfair competition and/or the actual or threatened use
and/or unauthorized disclosure of confidential or proprietary information of the
Company.
(b) Arbitration Procedure.
(i) American Arbitration Association Rules; Initiation of
Arbitration; Location of Arbitration. Arbitration of Arbitrable Claims shall be
in accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association ("AAA Rules"), except as provided otherwise in this
Agreement. Arbitration shall be initiated by providing written notice to the
other party with a statement of the claim(s) asserted, the facts upon which the
claim(s) are based, and the remedy sought. This notice shall be provided to the
other party within six (6) months of the acts or omissions complained of. Any
claim not initiated within this limitations period shall be null and void, and
the Company and the Employee waive all rights under statutes of limitation of
different duration. The arbitration shall take place in New York, New York.
(ii) Selection of Arbitrator. All disputes involving Arbitrable
Claims shall be decided by a single arbitrator (the "Arbitrator"), who shall be
selected as follows. The American Arbitration Association ("AAA") shall give
each party a list of eleven (11) arbitrators drawn from its panel of employment
arbitrators (the "Name List"). Each party may strike up to six (6) names on the
Name List it deems unacceptable, and shall notify the other party of the names
it has stricken, within fourteen (14) calendar days of the date the AAA gave
notice of the Name List. If only one common name on the Name List remains
unstricken by the parties, that individual shall be designated as the
Arbitrator. If more than one common name remains on the Name Lists unstricken by
parties, Employee shall strike one of the remaining names and notify the
Company, within seven (7) calendar days of notification of the list of
unstricken names. If, after Employee strikes a name as set forth in the
preceding sentence, there is still two or more unstricken names, the Company and
the Employee shall alternately strike names (with the Company having the next
strike) and notify the other party of the stricken name within seven (7)
calendar days, until only one remains. If no common name on the initial the Name
List remains unstricken by the parties, the AAA shall furnish an additional list
or lists, and the parties shall proceed as set forth above, until an Arbitrator
is selected.
(iii) Conduct of the Arbitration.
(A) Discovery. To help prepare for the arbitration, the
Employee and the Company shall be entitled, at their own expense, to learn about
the facts of a claim before the arbitration begins. Each party shall have the
right to take the deposition of one (1) individual and any expert witness
designated by another party. Each party also shall have the right to make
requests for production of documents to any party. Additional discovery may be
had only where the Arbitrator so orders, upon a showing of substantial need. At
least thirty (30) days before the arbitration, the parties must exchange lists
of witnesses, including any expert witnesses, and copies of all exhibits
intended to be used at the arbitration.
(B) Authority. The Arbitrator shall have jurisdiction to
hear and rule on pre-hearing disputes and is authorized to hold pre-hearing
conferences by telephone or in person as the Arbitrator deems necessary. The
Arbitrator shall have the authority to entertain a motion to dismiss and/or a
motion for summary judgment by any party and shall apply the standards governing
such motions under the Federal Rules of Civil Procedure. The Arbitrator shall
apply the substantive law (and the law of remedies, if applicable) of the state
in which the claim arose, or federal law, or both, as applicable to the claim(s)
asserted. The Arbitrator shall have the authority to award equitable relief,
damages, costs and fees as provided by the law for the particular claim(s)
asserted. The arbitrator shall not have the power to award remedies or relief
that a New York court could not have awarded. The Federal Rules of Evidence
shall apply. The burden of proof shall be allocated as provided by applicable
law. Except as provided in Section 18(a)(ii), the Arbitrator, and not any
federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the interpretation, applicability,
enforceability or formation of the Agreement, including but not limited to any
claim that all or any part of any of the Agreement is void or voidable and any
assertion that a dispute between the Employee and the Company is not an
Arbitrable Claim. The arbitration shall be final and binding upon the parties.
(C) Costs. Either party, at its expense, may arrange for
and pay the cost of a court reporter to provide a stenographic record of the
proceedings. If the Arbitrator orders a stenographic record, the parties shall
split the cost. Except as otherwise provided in this Section 18.12 and in
Section 18.7, the Employee and the Company shall equally share the fees and
costs of the arbitration and the Arbitrator.
(c) Confidentiality. All proceedings and documents prepared in
connection with any Arbitrable Claim shall be confidential and, unless otherwise
required by law, the subject matter thereof shall not be disclosed to any person
other than the parties to the proceeding, their counsel, witnesses and experts,
the Arbitrator, and, if involved, the court and court staff. All documents filed
with the Arbitrator or with a court shall be filed under seal. The parties shall
stipulate to all arbitration and court orders necessary to effectuate fully the
provisions of this subparagraph concerning confidentiality.
(d) Enforceability. Either party may bring an action in any court of
competent jurisdiction to compel arbitration under this Agreement and to enforce
an arbitration award. Except as provided above, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any
Arbitrable Claim. The Federal Arbitration Act shall govern the interpretation
and enforcement of this Section 18.12.
INDIVIDUAL INVESTOR GROUP, INC.
125 Broad Street, 14th Floor
New York, New York 10004
By:
Jonathan L. Steinberg
Chief Executive Officer
Acceptance
The Employee hereby acknowledges: I have received a copy of this
Agreement; I have had the opportunity to consult legal counsel in
regard to this Agreement, and have availed myself of that opportunity
to the extent I wish to do so (I understand the Company's attorneys
represent the Company and not myself, and I have not relied on any
advice from the Company's attorneys); I have read and understand this
Agreement; I am fully aware of legal effect of this agreement,
including without limitation the effect of Section 18.12 hereof
concerning arbitration; and I have entered into this Agreement freely
and voluntarily and based on my own judgment and not on any
representations or promises other than those contained in this
Agreement. The Employee accepts this Option subject to all the terms
and conditions of this Agreement.
The Employee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Option Shares and
that the Employee should consult a tax adviser prior to such exercise
or disposition.
Date The Employee
Print Name:
Address:
Exhibit 10.5
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into as of the 16th day of
August, 1999 ("Agreement"), by and between Individual Investor Group, Inc., a
Delaware corporation ("Corporation"), and David H Allen ("Indemnitee"):
WHEREAS, highly competent persons recently have become more
reluctant to serve publicly-held corporations as directors, officers, or in
other capacities, unless they are provided with better protection from the risk
of claims and actions against them arising out of their service to and
activities on behalf of such corporation; and
WHEREAS, the current impracticability of obtaining adequate
insurance and the uncertainties related to indemnification have increased the
difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation ("Board")
has determined that the inability to attract and retain such persons is
detrimental to the best interests of the Corporation's stockholders and that
such persons should be assured that they will have better protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the
Corporation to obligate itself contractually to indemnify such persons to the
fullest extent permitted by applicable law so that such persons will serve or
continue to serve the Corporation free from undue concern that they will not be
adequately indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance
of Article VIII of the By-laws of the Corporation, and Article VIII of the
Amended and Restated Certificate of Incorporation of the Corporation and any
resolutions adopted pursuant thereto and shall neither be deemed to be a
substitute therefor nor to diminish or abrogate any rights of Indemnitee
thereunder; and
WHEREAS, Indemnitee is willing to serve and to take on
additional service for or on behalf of the Corporation on the condition that he
be indemnified according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Corporation and Indemnitee do hereby covenant
and agree as follows:
1 Definitions.
For purposes of this Agreement:
1.1 "Change in Control" means a change in control of the Corporation
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended ("Act"), whether or not the
Corporation is then subject to such reporting requirement provided, however,
that, without limitation, such a Change in Control shall be deemed to have
occurred if after the date hereof (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Corporation representing 20% or more of the combined voting power of the
then outstanding securities of the Corporation without the prior approval of at
least two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) the Corporation is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
1.2 "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation.
1.3 "Disinterested Director" means a director of the Corporation who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
1.4 "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
1.5 "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any other matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
1.6 "Proceeding" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
2 Services by Indemnitee.
Indemnitee agrees to serve as Vice President and Chief Financial
Officer of the Corporation. Indemnitee may at any time and for any reason resign
from such position (subject to any other contractual obligation or any
obligation imposed by operation of law).
3 Indemnification - General.
The Corporation shall indemnify, and advance Expenses to, Indemnitee
as provided in this Agreement to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement.
4 Proceedings Other Than Proceedings by or in the Right of the
Corporation.
Indemnitee shall be entitled to the rights of indemnification provided
in this Section if, by reason of his Corporate Status, he is, or is threatened
to be made, a party to any threatened, pending or completed Proceeding, other
than a Proceeding by or in the right of the Corporation. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with any such Proceeding or any claim, issue or
matter therein, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful.
5 Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification provided
in this Section if, by reason of his Corporate Status, he is, or is threatened
to be made, a party to any threatened, pending or completed Proceeding brought
by or in the right of the Corporation to procure a judgment in its favor.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by him or on his behalf in connection with any
such Proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation.
Notwithstanding the foregoing, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in any such proceeding as to which
Indemnitee shall have been adjudged to be liable to the Corporation if
applicable law prohibits such indemnification unless the Court of Chancery of
the State of Delaware, or the court in which such Proceeding shall have been
brought or is pending, shall determine that indemnification against Expenses may
nevertheless be made by the Corporation.
6 Indemnification for Expenses of Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For the purposes of this Section and without limiting the
foregoing, the termination of any claim, issue or matter in any such Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
7 Indemnification for Expenses as a Witness.
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
8 Advancement of Expenses.
The Corporation shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding within twenty days after the
receipt by the Corporation of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses.
9 Procedure for Determination of Entitlement to Indemnification.
9.1 To obtain indemnification under this Agreement in connection with
any Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of any such request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
9.2 Upon written request by Indemnitee for indemnification pursuant to
Section 9.1 hereof, a determination, if required by applicable law, with respect
to Indemnitee's entitlement thereto shall be made in such case: (i) if a Change
in Control shall have occurred, by Independent Counsel (unless Indemnitee shall
request that such determination be made by the Board or the stockholders, in
which case in the manner provided for in clauses (ii) or (iii) of this Section
9.2) in a written opinion to the Board, a copy of which shall be delivered to
Indemnitee); (ii) if a Change of Control shall not have occurred, (A) by the
Board by a majority vote of a quorum consisting of Disinterested Directors, or
(B) if a quorum of the Board consisting of Disinterested Directors is not
obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (y) by the stockholders of the Corporation, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case may be; or (iii)
as provided in Section 10.2 of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten (10) days after such determination. Indemnitee shall cooperate with
the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
9.3 If required, Independent Counsel shall be selected as follows: (i)
if a Change of Control shall not have occurred, Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising him of the identity of Independent Counsel so selected or
(ii) if a Change of Control shall have occurred, Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event (i) shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may, within seven days after such written notice of selection shall have
been given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9.1
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition the Court of Chancery of the
State of Delaware, or other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by such court or by such other person
as such court shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as Independent Counsel under
Section 9.2 hereof. The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with its actions pursuant to this Agreement, and the Corporation
shall pay all reasonable fees and expenses incident to the procedures of this
Section 9.3, regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement date of any judicial proceeding
or arbitration pursuant to Section 11.1(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
10 Presumptions and Effects of Certain Proceedings.
10.1 If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 9.1 of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
10.2 If the person, persons or entity empowered or selected under
Section 9 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) prohibition of such indemnification under
applicable law provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto and provided, further, that
the foregoing provisions of this Section 10.2 shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 9.2 of this Agreement and if (A) within 15 days
after receipt by the Corporation of the request for such determination the Board
has resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9.2 of this Agreement.
10.3 The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
11 Remedies of Indemnitee.
11.1 In the event that (i) a determination is made pursuant to Section
9 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) the determination of indemnification is to be
made by Independent Counsel pursuant to Section 9.2 of this Agreement and such
determination shall not have been made and delivered in a written opinion within
90 days after receipt by the Corporation of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 7 of this
Agreement within ten days after receipt by the Corporation of a written request
therefor, or (v) payment of indemnification is not made within ten days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 9 or 10 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement of
Expenses. Alternatively, the Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 11.1. The Corporation shall not oppose Indemnitee's
right to seek any such adjudication or award in arbitration.
11.2 In the event that a determination shall have been made pursuant
to Section 9 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section shall be conducted in all respects as a de novo trial or
arbitration on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
11.3 If a determination shall have been made or deemed to have been
made pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled
to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
11.4 The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court or before any such arbitrator that the
Corporation is bound by all the provisions of this Agreement.
11.5 In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive some but less than all of the indemnification or advancement
of expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
12 Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
12.1 The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the certificate of incorporation or by-laws of the Corporation, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
12.2 To the extent that the Corporation maintains an insurance policy
or policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee, agent or fiduciary under such policy or policies.
12.3 In the event of any payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
12.4 The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
13 Duration of Agreement.
This Agreement shall continue until and terminate upon the later of:
(a) ten years after the date that Indemnitee shall have ceased to serve as an
officer of the Corporation, or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and or any proceeding commenced by
Indemnitee pursuant to Section 11 of this Agreement. This Agreement shall be
binding upon the Corporation and its successors and assigns and shall inure to
the benefit of Indemnitee and his heirs, executors and administrators.
14 Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
15 Exception to Right of Indemnification or Advancement of Expenses.
Except as provided in Section 11.5, Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein, brought or made by him against the
Corporation.
16 Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement.
17 Headings.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
18 Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
19 Notice by Indemnitee.
Indemnitee agrees promptly to notify the Corporation in writing upon
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered hereunder.
20 Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand and receipted for by the party to whom such notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
If to Indemnitee, to:
David H. Allen
-----------------
-----------------
If to the Corporation, to:
Individual Investor Group, Inc.
125 Broad Street, 14th Floor
New York, New York 10004
or to such other address or such other person as Indemnitee or the Corporation
shall designate in writing in accordance with this Section, except that notices
regarding changes in notices shall be effective only upon receipt.
21 Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
22 Miscellaneous.
Use of the masculine pronoun shall be deemed to include usage of the
feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
INDIVIDUAL INVESTOR GROUP, INC.
By:
Jonathan L. Steinberg
Chief Executive Officer
INDEMNITEE
David H. Allen
EXHIBIT 99
CERTAIN RISK FACTORS
Dated: November 15, 1999
You should carefully consider these 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 September 30, 1999, we had an accumulated deficit of $26.9
million. In the past ten years, the only calendar year during which we were
profitable was 1995. We expect to continue to incur net losses in the fourth
quarter of 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
outlook, we believe that our working capital and investments will be sufficient
to fund our operations and capital requirements at least through the second
quarter of fiscal 2000. Because we expect to incur continuing net losses, we
expect that we will need to raise additional capital from time to time in the
future. The availability of financing and the cost to us of financing will
depend on the many factors existing at the time we seek funding. These factors
may include our sources and amounts of revenues, our business development and
prospects and the state of the financial markets generally. It is possible that
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 Wall Street 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 content is focused on the financial markets, a prolonged
"bear market" may cause our businesses to suffer. Our editorial content 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 content is focused on research and analysis of specific
stocks, our businesses could suffer if our recommendations are poor. Our
editorial content 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 to 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. 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 us 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. Although we believe our company offers an attractive work
environment and employment opportunity in our print publications business,
including 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
for online employees 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 large portion 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 third 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 third quarter of 1999, approximately seventy two percent of the
online services advertising revenue came from a combination of
VentureHighway.com and 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 the use of 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 pickup
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 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
also 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 applications or interpretations 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, IndividualInvestor.com, 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),
beneficially own approximately 42.4% of the outstanding shares of common stock
of our company. 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, IndividualInvestor.com,
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, have completed most of our repair efforts, and currently
expect to complete our repair efforts and test our systems before December 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 Issue, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Sep-30-1999
<CASH> 5,351,505
<SECURITIES> 3,216,352
<RECEIVABLES> 3,363,789
<ALLOWANCES> 360,013
<INVENTORY> 0
<CURRENT-ASSETS> 12,732,243
<PP&E> 2,888,705
<DEPRECIATION> 1,163,351
<TOTAL-ASSETS> 18,818,686
<CURRENT-LIABILITIES> 5,473,396
<BONDS> 0
100
0
<COMMON> 103,324
<OTHER-SE> 10,078,738
<TOTAL-LIABILITY-AND-EQUITY> 18,818,686
<SALES> 12,160,505
<TOTAL-REVENUES> 12,160,505
<CGS> 8,377,406
<TOTAL-COSTS> 18,526,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,971,677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,971,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,971,677)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
